Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Three
Months Ended March 31, 2021 and 2020
1.
|
Organization
and Business Operations
|
Business
Guardion
Health Sciences, Inc. (the “Company”) is a specialty health sciences company (1) that has developed medical foods and medical
devices in the ocular health space and (2) that is developing nutraceuticals that the Company believes will provide supportive health
benefits to consumers. The Company has been primarily engaged in research and development, product commercialization and capital raising
activities.
The
Company was formed in December 2009 as a California limited liability company under the name P4L Health Sciences, LLC. On June 30, 2015,
the Company converted from a California limited liability company to a Delaware corporation, changing its name from Guardion Health Sciences,
LLC to Guardion Health Sciences, Inc.
Liquidity
The
accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets
and the settlement of liabilities and commitments in the normal course of business. For the three months ended March 31, 2021, the Company
incurred a net loss of $2,669,525 and used cash in operating activities of $2,420,070. At March 31, 2021, the Company had cash on hand
of $43,329,674 and working capital of $43,012,927. Notwithstanding the net loss for 2021, management believes that its current
cash balance is sufficient to fund operations for at least the next twelve months.
The
Company expects to continue to incur net losses and negative operating cash flows in the near-term and will continue to incur significant
expenses for development and commercialization of its medical foods and medical devices, and the successful development and commercialization
of any new products or product lines. The Company may also utilize cash to fund acquisitions.
The
Company may seek to raise additional debt and/or equity capital to fund future operations and strategic initiatives, but there can be
no assurances that the Company will be able to secure such additional financing in the amounts necessary to fully fund its operating
requirements on acceptable terms or at all. Over time, if the Company is unable to access sufficient capital resources on a timely basis,
the Company may be forced to reduce or discontinue its technology and product development programs and curtail or cease operations.
COVID-19
The
Company is subject to risks and uncertainties of the COVID-19 pandemic that could adversely impact our business. The Company has implemented
additional health and safety precautions and protocols in response to the pandemic and government guidelines, including curtailing employee
travel and working from its executive offices, with many employees continuing their work remotely. During 2020 and the first quarter
of 2021, sales of certain products remained flat, as many eye doctor offices were closed, or operating with limited capacity, due to
COVID-19 related orders. During 2020 and through the first quarter of 2021, we did not experience a jeopardization of our supply chain
due to the COVID-19 outbreak.
The
extent of the impact of the COVID-19 pandemic has had and will continue to have on the Company’s business is highly uncertain and
difficult to predict and quantify. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s
business, results of operations and financial condition, will depend on future developments that are highly uncertain, including as a
result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat it, including vaccination efforts,
as well as the economic impact on local, regional, national and international markets.
2.
|
Summary
of Significant Accounting Policies
|
Basis
of Presentation
The
accompanying condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and applicable
rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information
and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant
to the rules and regulations of the SEC. Accordingly, these interim condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2020, as filed with the SEC. The condensed consolidated balance sheet as of December 31, 2020 included herein
was derived from the audited consolidated financial statements as of that date, but does not include all disclosures, including notes,
required by GAAP.
In
the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to
fairly present the Company’s financial position and results of operations for the interim periods reflected. Except as noted, all
adjustments contained herein are of a normal recurring nature. The results of operations for the interim periods presented are not necessarily
indicative of the results of operations to be expected for the full fiscal year ending December 31, 2021.
Reverse
Stock Split
On
March 1, 2021, following stockholder and board approval, the Company effectuated a 1-for-6 reverse split of its outstanding shares of
common stock, without any change to its par value. The authorized number of shares of common stock were not affected by the reverse stock
split. No fractional shares were issued in connection with the reverse stock split, as all fractional shares were rounded up to the next
whole share.
Accordingly,
all share and per share amounts presented herein with respect to common stock have been retroactively adjusted to reflect the above-described
reverse stock split for all periods presented.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, VectorVision Ocular Health,
Inc., NutriGuard Formulations, Inc., and Transcranial Doppler Solutions, Inc. All intercompany balances and transactions have been eliminated
in consolidation.
Use
of Estimates
The
preparation of our financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results
could differ from those estimates. On an ongoing basis, management reviews its estimates and if deemed appropriate, those estimates are
adjusted. Significant estimates include those related to assumptions used in valuing inventories at net realizable value, assumptions
used in valuing assets acquired in business acquisitions, impairment testing of goodwill and other long-term assets, assumptions used
in valuing stock-based compensation, the valuation allowance for deferred tax assets, accruals for potential liabilities, and assumptions
used in the determination of the Company’s liquidity. Actual results could differ from those estimates.
Revenue
Recognition
The
Company generates its revenue from two business segments:
|
|
|
|
●
|
Medical
Foods and Nutraceuticals Segment
|
|
●
|
Medical
Devices Segment
|
The
Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with
Customers. Revenue is recognized when control of promised goods or services is transferred to the customer in an amount that reflects
the consideration to which the Company expects to be entitled in exchange for those products or services. The Company reviews its sales
transactions to identify contractual rights, performance obligations, and transaction prices, including the allocation of prices to separate
performance obligations, if applicable.
All
products sold by the Company are distinct individual products and are offered for sale as finished goods only, and there are no performance
obligations required post-shipment for customers to derive the expected value from them. Contracts with customers contain no incentives
or discounts that could cause revenue to be allocated or adjusted over time.
Shipping
and handling activities are performed before the customer obtains control of the goods and therefore represent a fulfillment activity
rather than a promised service to the customer. Historically the Company has not experienced any significant payment delays from customers.
The
Company provides a 30-day right of return to its retail customers. A right of return does not represent a separate performance obligation,
but because customers are allowed to return products, the consideration to which the Company expects to be entitled is variable. Upon
evaluation of historical product returns, the Company determined that less than one percent of products is returned, and therefore believes
it is probable that such returns will not cause a significant reversal of revenue in the future. Due to the insignificant amount of historical
returns as well as the standalone nature of the Company’s products and assessment of performance obligations and transaction pricing
for the Company’s sales contracts, the Company does not currently maintain a contract asset or liability balance at this time.
The Company assesses its contracts and the reasonableness of its conclusions on a quarterly basis.
Revenues
by segment:
|
|
Three
Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Medical
foods and nutraceuticals
|
|
$
|
162,143
|
|
|
$
|
139,789
|
|
Medical
devices
|
|
|
71,154
|
|
|
|
91,190
|
|
Other
|
|
|
-
|
|
|
|
14,744
|
|
Total
|
|
$
|
233,297
|
|
|
$
|
245,723
|
|
The
Company’s Medical Foods and Nutraceuticals revenues earned during the three months ended March 31, 2021 and 2020 are derived from
individual retail customers in North America. Medical Device revenues are derived from a worldwide customer base consisting of both retail
customers and distributors. Sales to distributors were approximately 25% and 2% of total revenues for the three months ended March 31,
2021 and 2020, respectively.
Revenues
by geographical area:
|
|
Three
Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
North
America
|
|
$
|
172,140
|
|
|
$
|
234,354
|
|
Asia
|
|
|
58,262
|
|
|
|
2,800
|
|
Europe
& Other
|
|
|
2,895
|
|
|
|
8,569
|
|
Total
|
|
$
|
233,297
|
|
|
$
|
245,723
|
|
Concentrations
During
the three months ended March 31, 2021, one customer accounted for approximately 25% of the Company’s sales. No other customer accounted
for more than 10% of such sales in either the 2021 or 2020 three-month periods.
Cash
balances are maintained at large, well-established financial institutions. At times, cash balances exceed federally insured limits. Insurance
coverage limits are $250,000 per depositor at each financial institution. The Company believes that no significant concentration of credit
risk exists with respect to its cash balances because of its assessment of the creditworthiness and financial viability of the financial
institutions that hold such cash balances.
Research
and Development Costs
Research
and development costs consist primarily of fees paid to consultants and outside service providers, and other expenses relating to the
acquisition, design, development and testing of the Company’s Medical Foods and Nutraceuticals and related products. Research and
development expenditures are expensed as incurred and totaled $20,608 and $31,188 for the three months ended March 31, 2021 and 2020,
respectively.
Patent
Costs
The
Company is the owner of four issued domestic patents, two pending domestic patent applications, one issued foreign patent in Europe and
the United Kingdom, two issued foreign patents in Ireland, and one issued foreign patent in Hong Kong. Due to the significant uncertainty
associated with the successful development of one or more commercially viable products based on the Company’s research efforts
and any related patent applications, patent costs, including patent-related legal fees, filing fees and internally generated costs, are
expensed as incurred. During the three months ended March 31, 2021 and 2020, patent costs were $24,297 and $27,181, respectively, and
are included in general and administrative costs in the statements of operations.
Stock-Based
Compensation
The
Company periodically issues stock-based compensation to employees and non-employees in non-capital raising transactions for services
and for financing costs. Such grants vest and expire according to terms established at the issuance date. The Company accounts for such
grants issued and vesting based on ASC 718, Compensation-Stock Compensation whereby the value of the award is measured on the
date of grant and recognized for employees as compensation expense on a straight-line or graded basis over the vesting period. Recognition
of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for the services.
The
fair value of stock options granted is estimated using the Black-Scholes option-pricing model, which uses certain assumptions related
to risk-free interest rates, expected volatility, expected life, and future dividends. The assumptions used in the Black-Scholes option
pricing model could materially affect compensation expense recorded in future periods.
Loss
per Common Share
Basic
loss per share is computed by dividing net loss by the weighted-average common shares outstanding during a period. Diluted earnings per
share is computed based on the weighted-average common shares outstanding plus the effect of dilutive potential common shares outstanding
during the period calculated using the treasury stock method. Dilutive potential common shares include shares from unexercised warrants
and options. Potential common share equivalents have been excluded where their inclusion would be anti-dilutive. The Company’s
basic and diluted net loss per share is the same for all periods presented because all shares issuable upon exercise of warrants and
options are anti-dilutive.
The
following potentially dilutive shares were excluded from the shares used to calculate diluted earnings per share:
|
|
March
31,
|
|
|
|
2021
|
|
|
2020
|
|
Warrants
|
|
|
485,067
|
|
|
|
3,065,056
|
|
Options
|
|
|
930,867
|
|
|
|
542,084
|
|
|
|
|
1,415,934
|
|
|
|
3,607,140
|
|
Fair
Value of Financial Instruments
Accounting
standards require certain assets and liabilities be reported at fair value in the financial statements and provide a framework for establishing
that fair value. Fair value is defined as the price that would be received upon sale of an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. When determining fair value, the Company considers the principal
or most advantageous market in which it transacts and considers assumptions that market participants would use when pricing the asset
or liability. The framework for determining fair value is based on a hierarchy that prioritizes the inputs and valuation techniques used
to measure fair value:
Level
1 - Quoted prices in active markets for an identical asset or liability that the Company has the ability to access as of the measurement
date.
Level
2 - Inputs, other than quoted prices included within Level 1, which are directly observable for the asset or liability or indirectly
observable through corroboration with observable market data.
Level
3 - Unobservable inputs in which there is little or no market data for the asset or liability which requires the reporting entity
to develop its own assumptions.
The
Company determines the level in the fair value hierarchy within which each fair value measurement falls in its entirety, based on the
lowest level input that is significant to the fair value measurement in its entirety. In determining the appropriate levels, the Company
performs an analysis of the assets and liabilities at each reporting period end.
The
Company believes the carrying amount of its financial instruments (consisting of cash, accounts receivable, and accounts payable and
accrued liabilities) approximates fair value due to the short-term nature of such instruments.
As
of March 31, 2021, and December 31, 2020, the Company’s balance sheets included Level 2 liabilities comprised of the fair value
of warrant liabilities aggregating $0 and $25,978, respectively (See Note 7).
Recent
Accounting Pronouncements
In
August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options
(Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40).” ASU 2020-06
reduces the number of accounting models for convertible debt instruments by eliminating the cash conversion and beneficial conversion
models. As a result, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost as long
as no other features require bifurcation and recognition as derivatives. For contracts in an entity’s own equity, the type of contracts
primarily affected by this update are freestanding and embedded features that are accounted for as derivatives under the current guidance
due to a failure to meet the settlement conditions of the derivative scope exception. This update simplifies the related settlement assessment
by removing the requirements to (i) consider whether the contract would be settled in registered shares, (ii) consider whether collateral
is required to be posted, and (iii) assess shareholder rights. ASU 2020-06 is effective January 1, 2024, for the Company and the provisions
of this update can be adopted using either the modified retrospective method or a fully retrospective method. Early adoption is permitted,
but no earlier than January 1, 2021.
At
December 31, 2020, the Company had recorded a derivative liability of $25,978 related to 10,417 warrants issued in 2019 because the
settlement provisions of the warrants contained language that the shares underlying the warrants are required to be registered.
Effective January 1, 2021, the Company early adopted ASU 2020-06 using the modified retrospective approach. ASU 2020-06 removed the
requirement to consider if the warrants would be settled in registered shares, and accordingly, the adoption of ASU 2020-06 resulted
in a decrease to accumulated deficit of $25,978 and a decrease in derivative warrant liability of $25,978 on January 1,
2021.
In
June 2016, the FASB issued ASU No. 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments (“ASC 326”).
The standard significantly changes how entities will measure credit losses for most financial assets, including accounts and notes receivables.
The standard will replace today’s “incurred loss” approach with an “expected loss” model, under which companies
will recognize allowances based on expected rather than incurred losses. Entities will apply the standard’s provisions as a cumulative-effect
adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. As a smaller reporting
company, ASU 2016-13 will be effective for us beginning January 1, 2023, with early adoption permitted. The Company is currently assessing
the impact of adopting this standard on the Company’s financial statements and related disclosures.
Other
recent accounting pronouncements issued by the FASB, its Emerging Issues Task Force, the American Institute of Certified Public Accountants,
and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s
present or future financial statements.
Inventories
consisted of the following:
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2021
|
|
|
2020
|
|
Raw
materials
|
|
$
|
57,264
|
|
|
$
|
218,307
|
|
Finished
goods
|
|
|
231,263
|
|
|
|
166,665
|
|
|
|
$
|
288,527
|
|
|
$
|
384,972
|
|
The
Company’s inventories are stated at the lower of cost or net realizable value on a FIFO basis. During the quarter ended March 31,
2021 the Company recorded an inventory write down of approximately $6,000 related to raw materials inventory.
4.
|
Property
and Equipment, net
|
Property
and equipment consisted of the following:
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2021
|
|
|
2020
|
|
Leasehold
improvements
|
|
$
|
103,255
|
|
|
$
|
103,255
|
|
Testing
equipment
|
|
|
348,124
|
|
|
|
348,124
|
|
Furniture
and fixtures
|
|
|
197,349
|
|
|
|
197,349
|
|
Computer
equipment
|
|
|
68,460
|
|
|
|
68,460
|
|
Office
equipment
|
|
|
9,835
|
|
|
|
9,835
|
|
|
|
|
727,023
|
|
|
|
727,023
|
|
Less
accumulated depreciation and amortization
|
|
|
(461,045
|
)
|
|
|
(441,347
|
)
|
|
|
$
|
265,978
|
|
|
$
|
285,676
|
|
For
the three months ended March 31, 2021 and 2020, depreciation and amortization expense was $19,698 and $23,114, respectively.
The
Company leases its office and certain warehouse space under two operating leases. The Company accounts for its leases under ASC 842,
Leases. During the three months ended March 31, 2021 and 2020, lease costs totaled $45,901 and $43,581, respectively.
As
of December 31, 2020, the Company’s net right of use asset totaled $418,590. During the three months ended March 31, 2021, the
Company recorded amortization of right-of-use asset of $39,470. At March 31, 2021, the net right-of-use assets was $379,120.
As
of December 31, 2020, the Company’s operating lease liabilities totaled $434,748. During the three months ended March 31, 2021,
the Company made payments of $39,561 towards the operating lease liability. As of March 31, 2021, the operating lease liabilities totaled
$395,187.
As
of March 31, 2021, the weighted average remaining lease terms for operating leases are 2.25 years, and the weighted average discount
rate for operating lease is 4.6%.
Future
minimum lease payments under the leases are as follows:
Year
ending
|
|
Operating
Leases
|
|
|
|
|
|
Remainder
of 2021
|
|
$
|
131,033
|
|
2022
|
|
|
182,249
|
|
2023
|
|
|
98,417
|
|
Total
lease payments
|
|
|
411,699
|
|
Less:
Imputed interest/present value discount
|
|
|
(16,512
|
)
|
Present
value of lease liabilities
|
|
|
395,187
|
|
Less:
Current portion
|
|
|
(165,757
|
)
|
|
|
$
|
229,430
|
|
6.
|
Payable
to Former Officer
|
Effective
June 15, 2020, Michael Favish resigned as Chief Executive Officer of the Company and resigned from the Company’s Board of Directors.
Terms of the settlement agreement between the parties included the continuation of his previous salary of $325,000 during the twelve
months subsequent to his resignation. The $325,000 of aggregate settlement payments was recorded in costs related to resignation of former
officer expense in the consolidated statements of operations in the quarter ended June 30, 2020. As of March 31, 2021, $67,708 of the
amount due remains accrued on our consolidated balance sheet and is payable through June 15, 2021.
On
April 9, 2019, the Company issued 10,417 warrants with an exercise price of $30.00 per share. The Company accounted
for the conversion feature of these warrants as a derivative liability because the settlement provisions contained language that the
shares underlying the warrants are required to be registered. The fair value of the warrants is remeasured at each reporting period,
and the change in the fair value is recognized in earnings in the accompanying Statements of Operations.
At
December 31, 2020, the Company had recorded a derivative liability of $25,978 related to the 10,417 warrants issued in 2019. Effective
January 1, 2021, the Company early adopted ASU 2020-06 using the modified retrospective approach. ASU 2020-06 removed the requirement
to consider if the warrants would be settled in registered shares, and accordingly, the adoption of ASU 2020-06 resulted in a decrease
to accumulated deficit of $25,978 and a decrease in derivative warrant liability of $25,978 on January 1, 2021.
The
fair value of the warrant liability was determined at the following reporting dates using the Black-Scholes-Merton option pricing model
and the following assumptions:
|
|
Warrant
Liability
As of
|
|
|
|
December
31, 2020
|
|
Stock
price
|
|
$
|
2.49
|
|
Risk
free interest rate
|
|
|
0.17
|
%
|
Expected
volatility
|
|
|
148
|
%
|
Expected
life in years
|
|
|
3.8
|
|
Expected
dividend yield
|
|
|
0
|
%
|
Number
of warrants
|
|
|
10,417
|
|
Fair
value of warrants
|
|
$
|
25,978
|
|
Common
Stock
January
2021 and February 2021 At the Market Offerings
On
January 8, 2021, the Company entered into a sales agreement with Maxim Group LLC and filed a prospectus supplement pursuant to which
the Company could sell up to $10,000,000 worth of shares of our common stock in an “at the market” offering through the distribution
agent (the “January 2021 1st ATM Offering”). The offer and sale of the shares was made pursuant to a shelf registration statement
on Form S-3 and the related prospectus filed by the Company with the Securities and Exchange Commission and declared effective by the
SEC on September 24, 2020. The Company agreed to pay Maxim a commission equal to 3.0% of the aggregate gross proceeds from each sale
of shares. On January 15, 2021, the Company completed the January 2021 1st ATM Offering, pursuant to which the Company sold an aggregate
of 2,559,834 shares of its common stock and raised net proceeds (after deduction for sales commissions) of approximately $9,700,000.
On
January 28, 2021, the Company entered into a sales agreement with Maxim Group LLC and filed a prospectus supplement pursuant to which
the Company could sell up to $25,000,000 worth of shares of our common stock in an “at the market” offering through the distribution
agent (the “January 2021 2nd ATM Offering”). On February 10, 2021, the Company completed the January 2021 2nd ATM Offering,
pursuant to which the Company sold an aggregate of 5,006,900 shares of its common stock and raised net proceeds (after deduction for
sales commissions) of approximately $24,250,000.
The
Company incurred costs related to these financings of approximately $327,000 which is reflected as a reduction to the proceeds from the
shares issued. The net cash received from both offerings after all expenses were approximately $33,623,000.
Nasdaq
Compliance
As
previously noted in the Company’s Form 10-K for the fiscal year ended December 31, 2020, on September 20, 2019, the Company received
notice from the Listing Qualifications staff (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) indicating
that, based upon the closing bid price of the Company’s common stock for the previous 30 consecutive business days, the Company
no longer satisfied the requirement to maintain a minimum bid price of $1.00 per share, as required by Nasdaq Listing Rule 5550(a)(2)
(the “Bid Price Rule”). The Company originally had until March 18, 2020, to regain compliance with the Bid Price Rule; however,
Nasdaq granted an extension until November 30, 2020. The Company was unable to regain compliance with the Bid Price Rule by November
30, 2020. Accordingly, on December 1, 2020, the Company received a letter from the Staff notifying it that its Common Stock would be
subject to delisting from Nasdaq unless the Company timely appealed Nasdaq’s determination to a Nasdaq Listing Qualifications Panel
(the “Panel”). The Company timely appealed Nasdaq’s determination to the Panel. On January 26, 2021, the Company received
written notification that the Panel granted the Company an extension for continued listing through March 15, 2021.
On
March 1, 2021, the Company implemented the Reverse Stock Split (see Note 1) in an effort to regain compliance with the Bid Price Rule.
Following
the Reverse Stock Split mentioned above, on March 15, 2021, the Company received a letter from the Staff notifying it that it had regained
compliance with the Bid Price Rule. The letter stated the staff had determined that for the prior 10 consecutive business days, from
March 1, 2021 to March 12, 2021, the closing bid price of the Company’s common stock had been at $1.00 per share or greater and
that accordingly, the Company had regained compliance with the Bid Price Rule, and that the matter was closed.
Warrants
A
summary of the Company’s warrant activity is as follows:
|
|
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Term (Years)
|
|
December
31, 2020
|
|
|
2,132,758
|
|
|
$
|
2.48
|
|
|
|
3.81
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeitures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expirations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(1,647,691
|
)
|
|
|
2.26
|
|
|
|
-
|
|
March
31, 2021, all exercisable
|
|
|
485,067
|
|
|
$
|
2.71
|
|
|
|
3.56
|
|
The
exercise prices of warrants outstanding and exercisable as of March 31, 2021 are as follows:
Warrants
Outstanding and
Exercisable
(Shares)
|
|
|
Exercise
Prices
|
|
|
160,108
|
|
|
$
|
2.05
|
|
|
146,667
|
|
|
|
2.67
|
|
|
112,001
|
|
|
|
3.30
|
|
|
37,700
|
|
|
|
3.51
|
|
|
28,591
|
|
|
|
17.25
|
|
|
485,067
|
|
|
|
|
|
During
the three months ended March 31, 2021, investors exercised a total of 1,647,691 warrants for 1,647,691 shares of common stock. The warrants
were exercisable for an average price of $2.17 per share, which resulted in cash proceeds to the Company of $3,568,415.
As
of March 31, 2021, the Company had an aggregate of 485,067 outstanding warrants to purchase shares of its common stock with a weighted
average exercise price of $2.71 and a weighted average remaining life of 3.56 years.
Stock
Options
A
summary of the Company’s stock option activity is as follows:
|
|
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Term (Years)
|
|
December
31, 2020
|
|
|
778,196
|
|
|
|
9.48
|
|
|
|
6.38
|
|
Granted
|
|
|
152,671
|
|
|
|
3.95
|
|
|
|
9.80
|
|
Forfeitures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expirations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
March
31, 2021, outstanding
|
|
|
930,867
|
|
|
$
|
8.48
|
|
|
|
6.60
|
|
March
31, 2021, exercisable
|
|
|
479,932
|
|
|
$
|
10.92
|
|
|
|
4.70
|
|
The
exercise prices of options outstanding and exercisable as of March 31, 2021 are as follows:
Options Outstanding
(Shares)
|
|
|
Exercise Prices
|
|
|
41,667
|
|
|
$
|
1.48
|
|
|
5,001
|
|
|
|
1.91
|
|
|
41,667
|
|
|
|
2.33
|
|
|
1,667
|
|
|
|
2.46
|
|
|
16,667
|
|
|
|
3.25
|
|
|
152,671
|
|
|
|
3.95
|
|
|
375,000
|
|
|
|
6.00
|
|
|
104,167
|
|
|
|
12.00
|
|
|
69,445
|
|
|
|
13.20
|
|
|
10,415
|
|
|
|
13.80
|
|
|
112,500
|
|
|
|
15.00
|
|
|
930,867
|
|
|
|
|
|
During
the three months ended March 31, 2021, the Company granted options to purchase 152,671 shares of common stock to the Company’s
CEO with a grant date fair value of $514,171 using a Black-Scholes option pricing model based on the following assumptions: (i) volatility
rate of 119%, (ii) discount rate of 0.38%, (iii) zero expected dividend yield, and (iv) expected life of 6 years. The options have an
exercise price of $3.95 per share. 50,891 of the options will vest on the one-year anniversary of the grant date and the remaining options
will vest on monthly basis over two years.
The
Company’s volatility is based on an average volatility of similar companies in the same industry. The risk-free interest rate was
based on rates established by the Federal Reserve Bank. The expected dividend yield was based on the fact that the Company has not paid
dividends to its common stockholders in the past and does not expect to pay dividends to its common stockholders in the future. The expected
life of the stock options granted is estimated using the “simplified” method, whereby the expected term equals the average
of the vesting term and the original contract.
During
the three months ended March 31, 2021 and 2020, we recognized stock-compensation expense related to the fair value of vested stock options
of $205,772 and $491,568, respectively, which was recorded in general and administrative expense.
As
of March 31, 2021, the Company had an aggregate of 450,935 remaining unvested options outstanding, with a remaining fair value of $911,444,
to be amortized over a weighted average remaining life of 9.34 years. The aggregate intrinsic value of options outstanding as of March
31, 2021 was $43,293.
Restricted
Common Stock
In
January 2021, the Company granted 152,671 shares of the Company’s common stock with vesting terms to the Company’s CEO. The
shares vest on the first anniversary of the award. If the CEO’s employment with the Company is terminated for any reason, any shares
not then vested will be forfeited. Also effective in January 2021, the Company granted 41,667 shares of the Company’s common stock
with vesting terms to a consultant for services. 4,167 of the shares vested immediately and the balance of 37,500 shares vesting through
August 15, 2021. In the event the consultant’s service with the Company terminates, any shares not then vested will be forfeited.
The
total fair value of the 194,338 shares was determined to be $662,412 based on the price per shares of the Company’s common stock
on the dates granted. The Company accounts for the share awards using the straight-line attribution or graded vesting method over the
requisite service period provided that the amount of compensation cost recognized at any date is no less than the portion of the grant-date
fair value of the award that is vested at that date. During the three months ended March 31, 2021, total share-based expense recognized
related to vested restricted shares totaled $181,843. At March 31, 2021, there was $480,569 of unvested compensation related to these
awards that will be amortized over a remaining vesting period of 3.7 years.
The
following table summarizes restricted common stock activity for the three months ended March 31, 2021:
|
|
Number
of shares
|
|
|
Fair value of shares
|
|
Non-vested
shares, December 31, 2020
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
194,338
|
|
|
|
662,412
|
|
Vested
|
|
|
(22,917
|
)
|
|
|
(181,843
|
)
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Non-vested
shares, March 31, 2021
|
|
|
171,421
|
|
|
$
|
480,569
|
|
9.
|
Related
Party Transactions
|
Dr.
David Evans, interim chief executive officer of the Company from June 12, 2020 to January 6, 2021, together with his spouse, wholly owns
Ceatus Media Group LLC (“Ceatus”) and DWT Evans LLC (“DWT”). For the three months ended March 31, 2021 and 2020,
the Company paid Ceatus $22,500 and $38,000, respectively, for services related to digital marketing for the Company. The Company’s
wholly owned subsidiary, VectorVision Ocular Health, leases office and warehouse space from DWT. For the three months ended March 31,
2021 and 2020, the Company paid DWT rent in the amounts of $5,571 and $5,307, respectively.
In
2017, the Company acquired VectorVision, Inc. from David Evans, and also acquired AcQviz from Dr. Evans, which is a patented methodology
for auto-calibrating and standardizing the testing light level for computer generated vision testing systems. Dr. Evans is entitled to
receive a royalty on net revenue from AcQviz. As part of the development of the CSV-2000, AcQviz was embedded in the product by Radiant
Technologies, Inc. in exchange for a 3% royalty on the sales of AcQviz. Radiant Technologies is owned by Joseph T. Evans, the brother
of Dr. David Evans. During the three months ended March 31, 2021 and 2020, the Company did not incur any royalties due to net revenue
from AcQviz.
The
Company determined its reporting units in accordance with ASC 280, “Segment Reporting”. The Company currently operates in
two reportable segments: Medical Foods and Nutraceuticals and Medical Devices.
The
Medical Foods and Nutraceuticals segment provides a portfolio of science-based, clinically supported nutrition, medical foods, and supplements.
The Medical Devices segment includes a portfolio of medical diagnostic devices currently focused on the ocular space and contrast testing.
The Company’s medical devices and accessories are used to measure visual function and certain anatomical features of the eye that
detect early disease and monitor changes over time.
The
segments are based on the discrete financial information reviewed by the Chief Executive Officer, who is the Company’s Chief Operating
Decision Maker (“CODM”), to make resource allocation decisions and to evaluate performance. The reportable segments are each
managed separately because they manufacture and distribute distinct products or provide services with different processes. All reported
segment revenues are derived from external customers.
The
accounting policies of the Company’s reportable segments are the same as those described in the summary of significant accounting
policies (see Note 2). Certain corporate general and administrative expenses, including general overhead functions such as information
systems, accounting, human resources, Board of Director fees, corporate legal fees, other compliance costs and certain administrative
expenses, as well as interest and tax expense, are not allocated to the segments. The following tables set forth our results of operations
by segment:
|
|
For
the Three Months Ended March 31, 2021
|
|
|
|
Corporate
|
|
|
Medical
Foods and Nutraceuticals
|
|
|
Medical
Devices
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
162,143
|
|
|
$
|
71,154
|
|
|
$
|
233,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
-
|
|
|
|
84,917
|
|
|
|
48,098
|
|
|
|
133,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
-
|
|
|
|
77,226
|
|
|
|
23,056
|
|
|
|
100,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
compensation expense
|
|
|
387,615
|
|
|
|
-
|
|
|
|
-
|
|
|
|
387,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
1,150,600
|
|
|
|
1,176,127
|
|
|
|
55,465
|
|
|
|
2,382,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
$
|
(1,538,215
|
)
|
|
$
|
(1,098,901
|
)
|
|
$
|
(32,409
|
)
|
|
$
|
(2,669,525
|
)
|
|
|
For
the Three Months Ended March 31, 2020
|
|
|
|
Corporate
|
|
|
Medical
Foods and Nutraceuticals
|
|
|
Medical
Devices
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
14,744
|
|
|
$
|
139,789
|
|
|
$
|
91,190
|
|
|
$
|
245,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
-
|
|
|
|
78,439
|
|
|
|
30,669
|
|
|
|
109,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
14,744
|
|
|
|
61,350
|
|
|
|
60,521
|
|
|
|
136,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
compensation expense
|
|
|
503,893
|
|
|
|
-
|
|
|
|
-
|
|
|
|
503,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
915,552
|
|
|
|
937,123
|
|
|
|
116,269
|
|
|
|
1,968,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
$
|
(1,404,701
|
)
|
|
$
|
(875,773
|
)
|
|
$
|
(55,748
|
)
|
|
$
|
(2,336,222
|
)
|
The
following tables set forth our total assets by segment. Intersegment balances and transactions have been removed:
|
|
As
of March 31, 2021
|
|
|
|
Corporate
|
|
|
Medical
Foods and Nutraceuticals
|
|
|
Medical
Devices
|
|
|
Total
|
|
Current
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
43,329,674
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
43,329,674
|
|
Inventories
|
|
|
-
|
|
|
|
194,081
|
|
|
|
94,446
|
|
|
|
288,527
|
|
Other
|
|
|
-
|
|
|
|
224,660
|
|
|
|
152,759
|
|
|
|
377,419
|
|
Total
current assets
|
|
|
43,329,674
|
|
|
|
418,741
|
|
|
|
247,205
|
|
|
|
43,995,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Right
of use asset, net
|
|
|
-
|
|
|
|
339,873
|
|
|
|
39,247
|
|
|
|
379,120
|
|
Property
and equipment, net
|
|
|
-
|
|
|
|
125,158
|
|
|
|
140,821
|
|
|
|
265,979
|
|
Intangible
assets, net
|
|
|
-
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
50,000
|
|
Other
|
|
|
-
|
|
|
|
11,751
|
|
|
|
-
|
|
|
|
11,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
43,329,674
|
|
|
$
|
945,523
|
|
|
$
|
427,273
|
|
|
$
|
44,702,470
|
|
|
|
As
of December 31, 2020
|
|
|
|
Corporate
|
|
|
Medical
Foods and Nutraceuticals
|
|
|
Medical
Devices
|
|
|
Total
|
|
Current
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
8,518,732
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,518,732
|
|
Inventories
|
|
|
-
|
|
|
|
254,879
|
|
|
|
130,093
|
|
|
|
384,972
|
|
Other
|
|
|
-
|
|
|
|
89,333
|
|
|
|
101,846
|
|
|
|
191,179
|
|
Total
current assets
|
|
|
8,518,732
|
|
|
|
344,212
|
|
|
|
231,939
|
|
|
|
9,094,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Right
of use asset
|
|
|
-
|
|
|
|
374,447
|
|
|
|
44,143
|
|
|
|
418,590
|
|
Property
and equipment, net
|
|
|
-
|
|
|
|
135,641
|
|
|
|
150,035
|
|
|
|
285,676
|
|
Intangible
assets, net
|
|
|
-
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
50,000
|
|
Other
|
|
|
-
|
|
|
|
11,751
|
|
|
|
-
|
|
|
|
11,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
8,518,732
|
|
|
$
|
916,051
|
|
|
$
|
426,117
|
|
|
$
|
9,860,900
|
|
11.
|
Commitments
and Contingencies
|
The
Company is periodically the subject of various pending or threatened legal actions and claims arising out of its operations in the normal
course of business. In the opinion of management of the Company, adequate provision has been made in the Company’s financial statements
at March 31, 2021 with respect to such matters.
Effective
January 6, 2021, the Board of Directors appointed Bret Scholtes as President, Chief Executive Officer, and as a director of the Company.
The Company and Mr. Scholtes entered into an employment agreement pursuant to which Mr. Scholtes’ annual base salary is $400,000.
The employment agreement provides that Mr. Scholtes shall have an annual target cash bonus of no less than $400,000 based on performance
objectives determined by the Board of Directors. Additionally, Mr. Scholtes shall be granted (i) stock options equal to 2% of the Company’s
issued and outstanding shares of common stock on the date of grant if the Company achieves specified performance objectives established
by the Board for the Company’s fiscal years ending December 31, 2021, and December 31, 2022, and (ii) additional stock options
equal to either 2% or 3% of the Company’s issued and outstanding shares of common stock on the date of grant if the Company meets
certain financial objectives during the first five years following January 6, 2021. If Mr. Scholtes’ employment is terminated by
the Company without cause, as defined, if the term expires after a notice of non-renewal is delivered by the Company, or if Mr. Scholtes’
employment is terminated following a change of control, as defined, Mr. Scholtes will be entitled to (a) twelve months’ base salary,
(b) the prorated portion of the any bonus, based on actual performance, and (c) base salary and benefits accrued through the date of
termination.
The
Company performed an evaluation of subsequent events through the date of filing of these consolidated financial statements with the SEC.
There were no material subsequent events which affected, or could affect, the amounts or disclosures in the consolidated financial statements.