See accompanying notes to condensed financial statements.

Guardion Health Sciences, Inc.

See accompanying notes to condensed financial statements.

Guardion Health Sciences, Inc.

Condensed Statement of Stockholders’ Deficiency

(Unaudited)

See accompanying notes to condensed financial statements.

Guardion Health Sciences, Inc.

Condensed Statements of Cash Flows

See accompanying notes to condensed financial statements.

Guardion Health Sciences, Inc.

Notes to Financial Statements

(Unaudited)

ThreeSix Months Ended March 31,June 30, 2017 and 2016

Organization and Business

Guardion Health Sciences, Inc. (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.

The Company is a specialty health sciences company formed to develop, formulate and distribute condition-specific medical foods with an initial medical food product on the market under the brand name Lumega-Z^® that replenishes and restores the macular protective pigment.

Through March 31,June 30, 2017, the Company has had limited operations, but has been primarily engaged in research, and development, commercialization and capital raising. The Company has incurred significant expenditures for the development of the Company's products and intellectual property, which includes research and development of both medical foods and medical diagnostic equipment for the treatment of various eye diseases. The Company had limited revenue during the threesix months ended March 31,June 30, 2017 and 2016, all of which was generated by the sale of the Company’s proprietary product, Lumega-Z. In late 2014, the Company changed its focus from the dietary supplement category to the medical food category based on consultation with the Company’s intellectual property counsel and regulatory affairs consultants, as a result of which Lumega-Z is now categorized and sold as a medical food.

Going Concern and Liquidity

The financial statements have been prepared assuming the Company will continue as a going concern. The Company had a net loss of $669,011$1,524,679 and utilized cash in operating activities of $445,576$1,023,321 during the threesix months ended March 31,June 30, 2017, and had a stockholders’ deficit of $153,804$256,284 as of March 31,June 30, 2017. The Company expects to continue to incur net losses and negative operating cash flows in the near-term. As a result, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern within one year of the date that the financial statements are issued.

The Company’s auditors haveindependent registered public accounting firm has also included explanatory language in their opinionreport accompanying the Company’s audited financial statements for the year ended December 31, 2016 included in the 2016 Form 10-K that there is substantial doubt about the Company’s ability to continue as a going concern. The Company’s financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.

The Company will continue to incur significant expenses for commercialization activities related to its lead product Lumega-Z, the MapcatSF medical device, and with respect to efforts to build the Company’s infrastructure. Development and commercialization of medical foods and medical devices involves a lengthy and complex process. Additionally, the Company’s long-term viability and growth may depend upon the successful development and commercialization of products other than Lumega-Z and the MapcatSF. The Company is continuing attempts to raise additional debt and/or equity capital to fund future operations, 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. 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.

Basis of Presentation and Use of Estimates

The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of the financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

The Company’s revenue is comprised of sales of medical foods to consumers through a direct sales/credit card process. Revenue is recognized when the risk of loss transfers to our customers, and collection of the receivable is reasonably assured, which generally occurs when the product is shipped. A product is not shipped without an order from the customer and credit acceptance procedures performed.

The Company allows for returns within 30 days of purchase. Product returns for the three months ended March 31, 2017 and 2016 were insignificant.

Research and Development Costs

Research and development costs consist primarily of fees paid to consultants and outside service providers, patent fees and costs, and other expenses relating to the acquisition, design, development and testing of the Company’s medical foods and related products. Research and development expenditures, which include patent related costs and stock compensation expense, are expensed as incurred and totaled $10,239$25,770 and $10,172$22,273 for the threesix months ended March 31,June 30, 2017 and 2016, respectively.

Stock-Based Compensation

The Company periodically issues stock-based compensation to officers, directors, contractors and consultants for services rendered. Such issuances vest and expire according to terms established at the issuance date.

Stock-based payments to officers and directors, and to employees, which include grants of employee stock options, are recognized in the financial statements based on their fair values. Stock option grants, which are generally time vested, will be measured at the grant date fair value and charged to operations on a straight-line basis over the vesting period. The fair value of stock options is determined utilizing the Black-Scholes option-pricing model, which is affected by several variables, including the risk-free interest rate, the expected dividend yield, the expected life of the equity award, the exercise price of the stock option as compared to the fair market value of the common stock on the grant date and the estimated volatility of the common stock over the term of the equity award.

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. Until the Company has established a trading market for its common stock, estimated volatility is based on the average historical volatilities of comparable public companies in a similar industry. The expected dividend yield is based on the current yield at the grant date. The Company has never declared or paid dividends on its common stock and has no plans to do so for the foreseeable future.

The fair value of common stock was determined based on management’s judgment. In order to assist management in calculating such fair value, the Company retained a third-party valuation firm whose input was utilized in determining the related per unit or share valuations of the Company’s equity instruments. Management used valuations of $1.00 per unit or share in its fair value calculations for the periods between January 1, 2016 and September 30, 2016, and $0.88 per share for periods after September 30, 2016. The current valuation of $0.88 per share is lower than previous valuations due to the dilutive effect of the issuance of common shares as compensation during the periods. There are numerous acceptable ways to estimate company value, including using net tangible assets, a market-based approach, or discounted cash flows. The Company considered alternative methods and concluded that due to the lack of suitably comparable market data, the discounted cash flows method was the most appropriate. A discounted cash flows (i.e. free cash flows to equity) methodology was applied by the third-party valuation firm using multiple years of balance sheet and income statement projections along with the following primary assumptions:

Management considered business and market factors affecting the Company during the three-monthsix-month periods ended March 31,June 30, 2017 and 2016, including capital raising efforts, its proprietary technology, and other factors. Based on this evaluation, management believes that $0.88 and $1.00 per share valuations are appropriate for accounting purposes for the periods ending March 31,June 30, 2017 and 2016, respectively.

The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the FASB where the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.

The Company recognizes stock compensation expense on stock or unit purchases at a price less than fair value, and for fully-vested stock issued to consultants and other service providers, for the excess of fair value of the stock or units over the price paid for the stock or units.stock.

The Company recognizes the fair value of stock-based compensation within its statements of operations with classification depending on the nature of the services rendered. The Company will issue new shares to satisfy stock option exercises.

Income Taxes

The Company currently accounts for income taxes under an asset and liability approach for financial accounting and reporting for income taxes. Accordingly, the Company recognizes deferred tax assets and liabilities for the expected impact of differences between the financial statements and the tax basis of assets and liabilities.

The Company accounts for uncertainties in income tax law under a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns as prescribed by GAAP. The tax effects of a position are recognized only if it is “more-likely-than-not” to be sustained by the taxing authority as of the reporting date. If the tax position is not considered “more-likely-than-not” to be sustained, then no benefits of the position are recognized. As of March 31, 2017, the Company had not recorded any liability for uncertain tax positions. In subsequent periods, any interest and penalties related to uncertain tax positions will be recognized as a component of income tax expense.

The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. In the event the Company determines that it would be able to realize its deferred tax assets in the future in excess of its recorded amount, an adjustment to the deferred tax assets would be credited to operations in the period such determination was made. Likewise, should the Company determine that it would not be able to realize all or part of its deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to operations in the period such determination was made.

Net Loss per Share

The Company’s computation of basic and diluted net loss per common share is measured as net loss divided by the weighted average common shares outstanding during the respective periods, excluding unvested restricted common stock. Shares of restricted stock are included in the basic weighted average number of common shares outstanding from the time they vest. Potential common shares such as from unexercised warrants and shares associated withof common stock issuable upon conversion of convertible debt and convertible preferred stock outstanding that have an anti-dilutive effect are excluded from the calculation of diluted net loss per share. The Company’s basic and diluted net loss per share is the same for all periods presented because all shares of common stock issuable upon exercise of warrants and conversion of convertible debt and convertible preferred stock outstanding are anti-dilutive as they decrease loss per share.

The following table sets forth the number of shares excluded from the computation of diluted loss per share, as their inclusion would have been anti-dilutive:

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers. ASU 2014-09 will eliminate transaction- and industry-specific revenue recognition guidance under current GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. ASU 2014-09 also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. Based on the FASB’s Exposure Draft Update issued on April 29, 2015, and approved in July 2015, Revenue from Contracts With Customers (Topic 606): Deferral of the Effective Date, ASU 2014-09 is now effective for reporting periods beginning after December 15, 2017, with early adoption permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Entities will be able to transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The adoption of ASU 2014-09 is not expected to have any impact on the Company’s financial statement presentation or disclosures.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02), Leases (Topic 842). ASU 2016-02 requires a lessee to record a right-of-use asset and a corresponding lease liability, initially measured at the present value of the lease payments, on the balance sheet for all leases with terms longer than 12 months, as well as the disclosure of key information about leasing arrangements. ASU 2016-02 requires recognition in the statement of operations of a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. ASU 2016-02 requires classification of all cash payments within operating activities in the statement of cash flows. Disclosures are required to provide the amount, timing and uncertainty of cash flows arising from leases. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. The Company has not yet evaluated the impact of the adoption of ASU 2016-02 on the Company’s financial statement presentation or disclosures.

In March 2016,July 2017, the FASB issued Accounting Standards Update No. 2016-09 (ASU 2016-09), Compensation - Stock Compensation2017-11, Earnings Per Share (Topic 718)260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): Improvements(Part I) Accounting for Certain Financial Instruments with Down Round Features; (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”). ASU 2017-11 allows companies to Employee Share-Based Payment Accounting.exclude a down round feature when determining whether a financial instrument (or embedded conversion feature) is considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with down round features may no longer be required to be accounted for as derivative liabilities. A company will recognize the value of a down round feature only when it is triggered and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, an entity will treat the value of the effect of the down round as a dividend and a reduction of income available to common shareholders in computing basic earnings per share. For convertible instruments with embedded conversion features containing down round provisions, entities will recognize the value of the down round as a beneficial conversion discount to be amortized to earnings. ASU 2016-09 requires, among other things, that all income tax effects of awards be recognized in the statement of operations when the awards vest or are settled. ASU 2016-09 also allows for an employer to repurchase more of an employee's shares than it can today for tax withholding purposes without triggering liability accounting and allows for a policy election to account for forfeitures as they occur. ASU 2016-092017-11 is effective for fiscal years beginning after December 15, 2016, including2018, and interim periods within those fiscal years. Early adoption is permitted for any entitypermitted. The guidance in any interimASU 2017-11 is to be applied using a full or annual period.modified retrospective approach. The adoption of ASU 2016-09 has2017-11 is not hadcurrently expected to have any impact on the Company’s financial statement presentation or disclosures.

ManagementThe Company’s management does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material impact on the Company’s financial statement presentation or disclosures.

Inventories consisted of the following:

Property and equipment consisted of the following: 

For the threesix months ended March 31,June 30, 2017 and 2016, depreciation and amortization expense was $15,545$31,331 and $8,492,$18,815, respectively, of which $7,325$14,650 and $5,515$12,840 was included in research and development expense, respectively, and $8,220$16,681 and $2,977$5,975 was included in general and administrative expense, respectively.

In July 2010, the Company issued an unsecured convertible note payable in the amount of $25,000. The note carries simple interest at a rate of 12% per annum and became due and payable on August 1, 2013. The outstanding amounts are convertible into shares of common stock of the Company at conversion prices of $0.08 per share. This note is currently outstanding and past due, and $20,063$20,811 of accrued interest is recorded as of March 31,June 30, 2017.

(a) In 2016, the Company issued $170,000 of promissory notes to various outside investors, with simple interest rates ranging from 4% - 9% and a weighted average term at issuance of approximately three months. As of March 31,June 30, 2017 and December 31, 2016, a $10,000 note remained outstanding and was past due, and $350$449 and $251 of accrued interest is recorded as of March 31,June 30, 2017 and December 31, 2016.

(b) In January 2017, the Company issued a $100,000 unsecured promissory note to an outside investor, with a term of 120 days and a fixed interest charge consisting of 6% of the principal in cash plus 6% of the principal in shares of common stock at a price of $0.75 per share, or 8,000 shares. Because the interest charge is fixed and due in full at any repayment date regardless of the stated maturity date, the Company recorded accrued interest of $13,040, representing the total fair value of the charge, at the inception of the note. As of June 30, 2017, this note is past due, and $822 of additional accrued interest has been recorded.

In 2016, the Company issued $140,000 of unsecured promissory notes to various related party investors, with interest rates ranging from 6% to 12% and a weighted average term at issuance of approximately four months. As of December 31, 2016 the remaining balance of the unpaid notes was $14,000, which was repaid during the first quarter of 2017.

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 condensed financial statements at March 31,June 30, 2017 with respect to such matters, including the matter noted below.

The Company recently received a payment demand from a former consultant to the Company alleging that he is owed $102,000approximately $192,000 for unpaid services rendered. The Company is evaluatinghas disputed this demand and the claim and intends to respond to the former consultant’s demand in due course. Ifresolution of this matter results in the filing of a lawsuit against the Company, theis uncertain. The Company intends to vigorously defend itselfprotect its rights.

On March 1, 2017, we entered into a non-binding letter of intent (“LOI”) with VectorVision, Inc., a Delaware corporation (“VectorVision”), whereby the parties set forth an outline of the terms and conditions pursuant to which we would acquire all of the outstanding shares of stock of VectorVision in exchange for a to be determined number of shares of our common stock. VectorVision specializes in the standardization of contrast sensitivity, glare sensitivity, low contrast acuity, and ETDRS acuity vision testing. VectorVision’s patented standardization system is designed to provide the practitioner or researcher with the ability to delineate very small changes in visual capability, either as well, will consider filingcompared to the population or from visit to visit. We believe the acquisition of VectorVision would expand our technical portfolio and further establish our position at the forefront of early detection, intervention and monitoring of a counterclaim for damages againstrange of eye diseases. The transaction is subject to significant conditions precedent to closing, including, but not limited to, the former consultant.satisfactory completion of due diligence, the determination of the amount of purchase consideration, the negotiation of definitive transaction documents, the completion of an audit of VectorVision’s financial statements, and other matters, no later than the August 31, 2017 expiration date of the LOI, as amended. No assurances can be provided regarding whether or when we may complete the acquisition of VectorVision. It is possible that we may never consummate this contemplated acquisition of VectorVision or we may complete such acquisition on terms materially different than those described herein.

Preferred Stock

Series A

During 2016, the Company sold 1,170,000 shares of the Company’s Series A Senior Convertible Preferred Stock (the “Series A Preferred Stock”) to various investors. The purchase price of the stockSeries A Preferred Stock was $1.00 per share, for an aggregate purchase price of $1,170,000. In addition, during 2016, the Company issued 535,154 shares of its preferred stockSeries A Preferred Stock with a fair value of $784,888 upon conversion of $535,149 of notes payable and accrued interest. The stockSeries A Preferred Stock has a stated value of $1.00 per share and accrues an annual dividend at the rate of 8% of the stated value, calculated quarterly, to be paid in shares of common stock at the rate of $0.60 per share. Dividends are payable to holders of record quarterly, on the last business day of each calendar quarter, from the date of issuance, as may be declared by the Board of Directors, and are cumulative.

At the option of theeach holder, the Series A preferred stockPreferred Stock (including accrued but unpaid dividends) may be converted into shares of the Company’s common stock commencing January 1, 2017 at $0.60 per share. The preferred stockSeries A Preferred Stock (including accrued but unpaid dividends) shall automatically convert into shares of common stock in the event that the Company receives gross proceeds of at least $4,000,000 in one or more equity financing transactions subsequent to September 30, 2016, or if the ten (10) day Volume Weighted Average Price per share of common stock is $2.00 or more. If not converted by September 30, 2019, the preferred stock (including accrued but unpaid dividends) shall automatically and mandatorily convert into shares of common stock at $0.60 per share. Such mandatory conversion shall be subject to either a registration statement having been filed with the Securities and Exchange Commission, including the common stock underlying the preferred stock,Series A Preferred Stock, and being in effect, or all shares of underlying common stock being saleable under Rule 144 pursuant to the Securities Act without regard to volume limitations.

The issuance of the 1,170,000 shares of convertible preferred stockSeries A Preferred Stock gave rise to a beneficial conversion feature due to the stated conversion price of $0.60 per share being less than the market price of the shares of Series A Preferred Stock at the issuance date as determined by aan independent third-party valuation.valuation firm. The Company accounted for the beneficial conversion features in accordance with ASC 470-20, Accounting for Debt with Conversion and Other Options. The Company calculated a total deemed dividend on the Series A Senior Convertible Preferred Stock of $779,586 at December 31, 2016, which equals the amount by which the estimated fair value of the common stock issuable upon conversion of the issued preferred stockSeries A Preferred Stock exceeded the proceeds from such issuances. The deemed dividend on the preferred stock isSeries A Preferred Stock was accreted using the effective interest method from the respective issuance dates through the earliest conversion date of January 1, 2017. The accretion of the deemed dividend for the year ended December 31, 2016 was $760,011. The remaining balance of $19,575, representing the amount allocable to the January 1, 2017 earliest conversion date, was accreted in January 2017.

Sale of the Company’s Series A Senior Convertible Preferred Stock was closed on December 31, 2016.

During the threesix months ended March 31,June 30, 2017 the Company declared dividends of $ 33,631 to$67,646 on its Series A preferred shareholdersPreferred Stock which were paidsatisfied in full through the issuance of 56,065an aggregate of 112,759 shares of common stock.

Series B

As of May 10,June 30, 2017, the Company had sold 700,0001,100,000 shares of the Company’s Series B Convertible Preferred Stock (the “Series B Preferred Stock”) to various investors. The purchase price of the stockSeries B Preferred Stock was $1.00 per share, for an aggregate purchase price of $700,000.$1,100,000. The stockSeries B Preferred Stock has a stated value of $1.00 per share and accrues an annual dividend at the rate of 6% of the stated value, calculated quarterly, to be paid in shares of common stock at the rate of $0.75 per share. Series B preferred stockPreferred Stock is convertible commencing December 31, 2017, or earlier upon the approval of the Board of Directors, by the holderholders thereof into common stock at a conversion rate of $0.75 per share. The stock is automatically convertible by the Company upon an equity financing of at least $5,000,000 subsequent to June 30, 2017, or in the event the Company’s common stock is publicly traded for at least $2.00 per share for 10 consecutive trading days, or upon completion of a Major Transaction (as defined in the Certificate of Designation). Dividends are payable to holders of record quarterly, on the last business day of each calendar quarter, from the date of issuance, as may be declared by the Board of Directors, and are cumulative. Series B preferred stockPreferred Stock is senior to all Common Stockcommon stock and junior to the Series A preferred stock.Preferred Stock in terms of liquidation preferences.

The issuance of the Series B preferred stockPreferred Stock gave rise to a beneficial conversion feature due to the stated conversion price of $0.75 per share being less than the market price of the shares at the issuance date. In addition, warrants were issued to investorspurchasers of the Series B Preferred Stock who had previously participated in the 2016 Series A preferred stockPreferred Stock offering. The Company accounted for the beneficial conversion feature, including an allocation of proceeds for the warrants on a relative fair value basis, in accordance with ASC 470-20, Accounting for Debt with Conversion and Other Options. The Company calculated a total deemed dividend on the Series B preferred stockPreferred Stock of $165,506$234,840 at March 31,June 30, 2017, which equals the amount by which the estimated fair value of the common stock issuable upon conversion of the issued preferred stockSeries B Preferred Stock exceeded the proceeds from such issuances. The deemed dividend on the preferred stockSeries B Preferred Stock is accreted using the effective interest method from the respective issuance dates through the earliest conversion date of December 31, 2017. The accretion of the deemed dividend for the threesix months ended March 31,June 30, 2017 was $12,266.$65,942.

During the threesix months ended March 31,June 30, 2017, the Company declared dividends of $2,441 to$13,537 on its Series B preferred shareholdersPreferred Stock which were paidsatisfied in full through the issuance of 3,256an aggregate of 18,054 shares of common stock.

Both classes of preferred stock will vote with the common stock on an “as converted” basis and have standard anti-dilution rights, exclusive of price protection. Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, no distribution shall be made to the holders of any shares of common stock of the Company unless, prior thereto, the holders of all classes of preferred stock shall have received out of the available assets of the Company, whether capital or surplus, an amount equal to 100% of the stated value, plus any accrued and unpaid dividends thereon. If the assets of the Company are insufficient to pay in full such amounts due the holders of the preferred stock, then the entire assets shall be distributed ratably among the holders of the preferred stock, first to holders of Series A Preferred Stock, then to holders of Series B Preferred Stock, in accordance with the respective preferences and amounts that would be payable on such shares of preferred stock if all amounts payable thereon were paid in full.

Preferred shareholders of both series have unlimited piggyback registration rights. Holders of a majority of the shares of preferred stock (based on the $1.00 stated value) outstanding shall have the right to one demand registration during the three (3) years following the effective date of the Company’s registration statement under the Securities Exchange Act of 1934, so long as at least $500,000 of preferred stock was sold of that series, and at least $250,000 of the related class of preferred stock is still outstanding. This demand registration right and the piggyback registration rights will terminate when all shares of preferred stock have been converted into common stock.

In the event of a merger or acquisition or change in control of the Company, theboth classes of preferred stock (including all accrued but unpaid dividends) will be deemed converted into shares of common stock immediately prior to the closing of such a transaction.

Common Stock

During 2016 and prior,2015, the Company issued 2,005,0003,459,091 shares of restricted common stock for services rendered. TheseThe aggregate grant date fair value of the stock was $3,803,980. 1,405,000 of these shares arewere restricted shares subject to vesting requirements over 9 to 12 months and remain subject to forfeiture if vesting conditions arewere not met. As of December 31, 2016, 1,052,500 of the restricted shares with a fair value of $1,580,372 had vested, and 352,500 restricted shares with a fair value of $111,369 remained to be vested. As of June 30, 2017, all 1,405,000 shares have fully vested.

During the first six months of 2017, the Company issued 457,500 shares of common stock to service providers. The aggregate fair value of the stock was $2,146,280. As of December 31, 2016, 1,652,500 of those shares with a fair value of $2,037,014 had vested, and 352,500 shares with a fair value of $109,266 remained to be vested.

During the three months ended March 31, 2017, the Company issued 162,500 shares of restricted common stock to a service provider. These shares are subject to vesting requirements over 4 months and remain subject to forfeiture if vesting conditions are not met. The aggregate fair value of the stock was $143,000$402,600 based on a valuation per share of $0.88 on the date of grant.

During the three 162,500 of these shares were restricted shares subject to vesting requirements over 4 months ended March 31,and subject to forfeiture if vesting conditions were not met. As of June 30, 2017, the Company recorded $1,160,781 of expense related to the vested portion of this restricted stock, and the remaining $91,485 is expected to be recorded in the second quarter of 2017.

all such shares have fully vested.

Additional details of the Company’s restricted common stock are as follows:

Warrants

During the three months ended March 31, 2017, in connection with the Series B Convertible Preferred Stock offering discussed above, the Company issued a total of 60,000 warrants as additional incentive to investors who had previously invested in the Company’s Series A Senior Convertible Preferred Stock offering in 2016. These warrants are fully vested, are immediately exercisable at $0.75 per share, and expire between March 6, 2020 and March 8, 2020. The warrants were valued at $51,796, based upon the Black-Scholes option-pricing model, with a stock price of $0.88, volatility of 135%, and an average risk-free interest rate of 1.61%.

A summary of the Company’s warrant activity is as follows: 

As of March 31,June 30, 2017, the Company had an aggregate of 2,983,666 outstanding warrants to purchase shares of its common stock with a weighted average exercise price of $0.37, weighted average remaining life of 1.4 years and aggregate intrinsic value of $1,293,512, based upon a stock valuation of $0.88 per share. The intrinsic value is calculated as the difference between the market value of the underlying common stock and the exercise price of the warrants.

Due to and from related parties represents unreimbursed expenses and compensation incurred on behalf of, and amounts loaned to the Company by, Michael Favish, the Company’s Chief Executive Officer, as well as other shareholders. The advances are unsecured, non-interest bearing and are due on demand. As of March 31,June 30, 2017 and December 31, 2016, the Company had $133,388$169,320 and $91,483, respectively, due to related parties.

During the threesix months ended March 31,June 30, 2017, the Company incurred $62,500$125,000 of salary expense and paid $22,500 for$50,000 in salary to our CEO, Michael Favish. During the twelve-month period ended December 31, 2016, the Company incurred salary expense of $250,000 and paid $48,500.$48,500 in salary to Mr. Favish. Accrued amounts are included in general and administrative expenses.

During AprilJuly 2017, the Company issued 175,0006,800 shares of fully vested restricted common stock to consultants for services rendered.

During July 2017, the Company issued 1,975,000 additional shares of Series B Preferred Stock to investors for an aggregate purchase price of $1,975,000. The Series B Preferred Stock issued in July 2017 has the same terms as the Series B Preferred Stock issued prior to July 2017. Sales of the Series B Preferred Stock was closed on July 31, 2017.

During July 2017, the Company repaid a $100,000 unsecured promissory note from a related party investor.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Presentation of Information

As used in this Quarterly Report on Form 10-Q, the terms “we,” “us” “our” and the “Company” mean Guardion Health Sciences, Inc. unless the context requires otherwise. The following discussion and analysis should be read in conjunction with our audited financial statements and the related notes that appear elsewhere in this report.report and our audited financing statements for the year ended December 31, 2016, and the notes thereto, which are set forth in the 2016 Form 10-K.. All dollar amounts refer to U.S. dollars unless otherwise indicated.

Overview

Guardion Health Sciences, Inc. was formed in December 2009 in California as a limited liability company under the name P4L Health Sciences, LLC and we subsequently changed our name to Guardion Health Sciences, LLC. On June 30, 2015, we converted from a California limited liability company to a Delaware corporation, changing our name to Guardion Health Sciences, Inc.

We are a specialty health sciences company formed to develop, formulate and distribute condition-specific medical foods with an initial medical food product on the market under the brand name Lumega-Z^® that replenishes and restores the macular protective pigment. A depleted macular protective pigment is a modifiable risk factor for retina based diseases such as age-related macular degeneration (“AMD”), computer vision syndrome (“CVS”) and diabetic retinopathy. Additional research has also shown a depleted macular protective pigment to be a biomarker for neurodegenerative diseases such as Alzheimer’s and dementia. We have had limited commercial operations to date, and have primarily been engaged in research, development, commercialization and development.capital raising.

We have also developed a proprietary medical device called the MapcatSF^®that accurately measures the macular pigment optical density (“MPOD”). We invented our own proprietary patented technology embodied in the MapcatSF. On November 8, 2016, the USPTO issued patent number 9,486,136 for the MapcatSF invention. Using the MapcatSF to measure the MPOD allows one to monitor the increase in the density of the macular protective pigment after taking Lumega-Z. The MapcatSF is a non-mydriatic, non-invasive device that is designed to accurately measuresmeasure the MPOD, the lens optical density and lens equivalent age, thereby creating an evidence-based protocol that is shared with the patient. A non-mydriatic device is one that does not require dilation of the pupil for it to function. The MapcatSF is intended to be the first device using a patented “single fixation” process and “automatic lens density correction” that produces accurate serialized data.

Lumega-Z has a patent-pending formula that replenishes and restores the macular protective pigment simultaneously delivering critical and essential nutrients to the eye. Formulated by Dr. Sheldon Hendler in 2010, modifications were made over a two-year period to improve the taste and method of delivery. We believe that there is an increasing level of acceptance of medical foods as a primary therapy by patients and healthcare providers to treat pain syndromes, sleep and cognitive disorders, obesity, hypertension, and viral infection. In clinical practice, medical foods are being prescribed as both a standalone therapy and as an adjunct therapy to low doses of commonly prescribed drugs. We believe that medical foods will continue to grow in importance over the coming years.

By combining our MapcatSF medical device and Lumega-Z medical food, we have developed, based on Management’sour management’s knowledge of the industry, what we believe to be the only reliable two-pronged, evidence-based protocol for replenishing and restoring the macular protective pigment and increasing overall retinal health.

Recent Developments

On March 1, 2017, we entered into a non-binding letter of intent (“LOI”) with VectorVision, Inc., a Delaware corporation (“VectorVision”), whereby the parties set forth an outline of the terms and conditions pursuant to which we would acquire all of the outstanding shares of stock of VectorVision in exchange for a to be determined number of shares of our common stock. VectorVision specializes in the standardization of contrast sensitivity, glare sensitivity, low contrast acuity, and ETDRS acuity vision testing. ItsVectorVision’s patented standardization system providesis designed to provide the practitioner or researcher with the ability to delineate very small changes in visual capability, either as compared to the population or from visit to visit. VectorVision’s CSV-1000 device is considered the standard of care for clinical trials. Upon closing of the transaction, VectorVision would become a wholly-owned subsidiary of ours. We believe the acquisition of VectorVision would expand our technical portfolio and further establish our position at the forefront of early detection, intervention and monitoring of a range of eye diseases. The transaction is subject to significant conditions precedent to closing, including, but not limited to, the satisfactory completion of due diligence, the determination of the amount of purchase consideration, the negotiation of definitive transaction documents, the completion of an audit of VectorVision’s financial statements, and other matters, no later than the June 30,August 31, 2017 expiration date of the LOI.LOI, as amended. No assurances can be provided regarding whether or when we may complete the acquisition of VectorVision. It is possible that we may never consummate this contemplated acquisition of VectorVision or we may complete such acquisition on terms materially different than those described herein.

Going Concern

TheOur financial statements have been prepared assuming we will continue as a going concern. We have utilized cash in operating activities of $445,576$1,023,321 and $363,862$706,435 during the threesix months ended March 31,June 30, 2017 and 2016, respectively, and had a total stockholders’ deficiency of $153,804$256,284 and $345,574 as of March 31,June 30, 2017 and December 31, 2016, respectively. We expect to continue to incur net losses and negative operating cash flows in the near-term. As a result, management has concluded that there is substantial doubt about our ability to continue as a going concern within one year of the date that the financial statements are issued.

Our auditorsindependent registered public accounting firm have also included explanatory language in their opinionreport accompanying our audited financial statements for the year ended December 31, 2016 included in the 2016 Form 10-K that there is substantial doubt about our ability to continue as a going concern. TheOur financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of us to continue as a going concern.

We will continue to incur significant expenses for commercialization activities related to our lead product Lumega-Z, the MapcatSF medical device, and with respect to efforts to build our infrastructure. Development and commercialization of medical foods and medical devices involves a lengthy and complex process. Additionally, our long-term viability and growth may depend upon the successful development and commercialization of products other than Lumega-Z and the MapcatSF. We are continuing attempts to raise additional debt and/or equity capital to fund future operations, but there can be no assurances that we will be able to secure such additional financing in the amounts necessary to fully fund our operating requirements on acceptable terms or at all. If we are unable to access sufficient capital resources on a timely basis, we may be forced to reduce or discontinue our technology and product development programs and curtail or cease operations. 

Recent Accounting Pronouncements

See Note 12 to the condensed financial statements for Managements’our management’s discussion of recent accounting pronouncements.

Critical Accounting Policies and Estimates

Our financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of theour financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Our financial statements included herein include all adjustments, consisting of only normal recurring adjustments, necessary to present fairly our financial position, results of operations and cash flows.

The following critical accounting policies affect the more significant judgments and estimates used in the preparation of our financial statements.

Stock-Based Compensation

We periodically issue stock-based compensation to officers, directors, and other consultants for services rendered. Such issuances vest and expire according to terms established at the issuance date.

Stock-based payments to officers and directors, and to employees in the future which will include grants of employee stock options, are recognized in the financial statements based on their fair values. Stock option grants, which are generally time vested, will be measured at the grant date fair value and charged to operations on a straight-line basis over the vesting period. The fair value of stock options is determined utilizing the Black-Scholes option-pricing model, which is affected by several variables, including the risk-free interest rate, the expected dividend yield, the expected life of the equity award, the exercise price of the stock option as compared to the fair market value of the common stock on the grant date and the estimated volatility of the common stock over the term of the equity award.

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. Until we have established a trading market for our common stock, estimated volatility is based on the average historical volatilities of comparable public companies in a similar industry. The expected dividend yield is based on the current yield at the grant date; we have never declared or paid dividends on our common stock and have no plans to do so for the foreseeable future.

The fair value of our common stock was determined based on our management’s judgment. In order to assist management in calculating such fair value, we retained aan independent third-party valuation firm in determining the value of our Company. The third-party valuation firm’s input was utilized in determining the related per unit or share valuations of our equity used at March 31,June 30, 2017 and December 31, 2016. Management used valuations of $1.00 per unit or share in its fair value calculations for the periods between January 1, 2016 and September 30, 2016, and $0.88 per share for periods after September 30, 2016, based on various inputs, including valuation reports prepared by the third-party valuation firm as of December 31, 2016 and 2015. The fully diluted per share equivalent price is lower in 2017 than in early 2016 due to the dilutive effect of the issuance of common shares as compensation during the period. There are numerous acceptable ways to estimate company value, including using net tangible assets, a market-based approach, or discounted cash flows. We considered alternative methods and concluded that due to the lack of suitably comparable market data, the discounted cash flows method was the most appropriate. A discounted cash flows (i.e. free cash flows to equity) methodology was applied by the third-party valuation firm using multiple years of balance sheet and income statement projections along with the following primary assumptions:

ManagementOur management considered business and market factors affecting us during the three-monthsix-month periods ended March 31,June 30, 2017 and 2016, including capital raising efforts, its proprietary technology, and other factors. Based on this evaluation, our management believes that $0.88 and $1.00 per share valuations are appropriate for accounting purposes at March 31, 2017 and December 31, 2016.during the periods presented.

We account for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the FASB whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.

We recognize stock compensation expense on stock or unit purchases at a price less than fair value, and for fully-vested stock issued to consultants and other service providers for the excess of fair value of the stock or units over the price paid for the stock or units.stock.

We recognize the fair value of stock-based compensation within our statements of operations with classification depending on the nature of the services rendered. We issue new shares to satisfy stock optionwarrant exercises.

During the threesix months ended March 31,June 30, 2017 and 2016, we recognized aggregate stock-compensation expense of $160,781$513,969 and $249,019,$912,154, respectively, based upon deemed stock pricesvalues ranging from $0.88 to $1.14 per share, of which $150,288$492,983 and $199,146$812,409 was recorded in general and administrative expense, $10,179$20,357 and $48,178$96,356 was recorded in sales and marketing expense, and $314$629 and $1,695$3,389 was recorded in research and development expense, respectively.

Plan of Operations

General Overview

Based on the availability of sufficient funding, we intend to increase our commercialization activities and:

The FDA and other regulatory bodies require electronic medical devices to comply with IEC 60601 standards. The International Electrical Commission (“IEC”) established technical standards for the safety and effectiveness of medical electrical equipment. Adherence to these standards is required for commercialization of electrical medical equipment. As a medical device powered by electricity, the MapcatSF will need to undergo testing to demonstrate compliance with the IEC 60601 standards. This testing is typically conducted by a Nationally Recognized Testing Laboratory (“NRTL”), which is an independent laboratory recognized by the Occupational Safety and Health Administration (“OSHA”) to test products to the specifications of applicable product safety standards. We are in discussions with our contract manufacturer of the MapcatSF to engage an NRTL at the appropriate juncture prior to commercialization of the MapcatSF. The relevant predicate device for the MapcatSF is the MPS II, the applicable Class I product code for the MapcatSF is HJW and the applicable Code of Federal Regulation is 886.1050. The FDA does not require test documents to be submitted to the FDA for a Class I medical device, but that the evidence of such testing be placed in a Design History file and be kept internally at the Companycompany or manufacturer and readily available should the FDA or other regulatory bodies request to review the testing documents. While the FDA does not require that a Class I medical device have formal validation, we expect to complete applicable IEC 60601-1 testing prior to commercialization as we believe in marketing a product that has evidence that it is safe and effective.

Results of Operations

Through March 31,June 30, 2017, we had limited operations and have primarily been engaged in research, development, commercialization and development and raising capital.capital raising. We have incurred significant expenditures for the development of our products and intellectual property, which includes research and development of both medical foods and medical diagnostic equipment for the treatment of various eye diseases. We had limited revenue during the three-monthsix-month periods ended March 31,June 30, 2017 and 2016, all of which was generated by the sale of our proprietary product, Lumega-Z. In late 2014, we changed our focus from the dietary supplement category to the medical food category based on consultation with our intellectual property counsel and regulatory affairs consultants, as a result of which Lumega-Z is now categorized and sold as a medical food

Comparison of Three Months Ended March 31,June 30, 2017 and 2016

Revenue

For the three months ended March 31,June 30, 2017, revenue from the sale of Lumega-Z was $55,941$59,977 compared to $29,134$29,384 for the three months ended March 31,June 30, 2016, resulting in an increase of $26,807$30,593 or 92%104%. The increase is reflective of an increased customer base as we expand into new clinics.

Cost of Goods Sold

For the three months ended March 31,June 30, 2017, cost of goods sold from the sale of Lumega-Z was $22,633$29,692 compared to $14,247$12,883 for the three months ended March 31,June 30, 2016, resulting in an increase of $8,386$16,809 or 59%130%. The increase corresponds to the additional sales recorded in 2017.

Research and Development

For the three months ended March 31,June 30, 2017, research and development costs were $10,239, consistent$15,530 compared to $12,101 for the three months ended June 30, 2016, resulting an increase of $3,429 or 28%. The increase resulted from a modest increase in legal costs associated with the $10,172 cost from the comparable period in 2016.our intellectual property.

Sales and Marketing

For the three months ended March 31,June 30, 2017, sales and marketing expenses were $76,736$101,598 compared to $103,578$104,535 for the comparable period inthree months ended June 30, 2016. The decrease in sales and marketing expenses of $26,842$2,937 or 26%3% compared to the prior period was due primarily to a decrease in non-cash stock compensation expense.expense of approximately $38,000, partially offset by increases in consulting costs.

General and Administrative

For the three months ended March 31,June 30, 2017, general and administrative expenses were $598,913$766,894 compared to $623,956$893,045 for the three months ended March 31,June 30, 2016. The decrease of $25,043$126,151 or 4%14% compared to the prior period was primarily due to a $48,859$319,000 reduction in non-cash stock compensation expense from the prior period, partially offset by an increaseincreases in accrued legal, professional and management fees.

Interest Expense

For the three months ended June 30, 2017, interest expense was $1,924 compared to $357,446 for the three months ended June 30, 2016. The decrease in interest expense of $355,522 or 99% compared to the prior period was due to the repayment or conversion, since June 30, 2016, of the majority of the promissory notes and convertible debt that had been outstanding during the three months ended June 30, 2016. Included in the $1,924 amount is $1,570 that relates to notes that are past due as of June 30, 2017.

Net Loss

For the three months ended June 30, 2017, we incurred a net loss of $855,661, compared to a net loss of $1,350,626 for the three months ended June 30, 2016. The decrease in net loss of $494,965 or 37% compared to the prior year period was primarily due to the reduction of $355,522 in interest expense related to promissory notes and convertible debt that was repaid or converted since June 30, 2016, as well as to reduced stock compensation expense in 2017 ($353,875 was recognized in the second quarter of 2017 versus $661,441 in the prior year period).

Comparison of Six Months Ended June 30, 2017 and 2016

Revenue

For the six months ended June 30, 2017, revenue from the sale of Lumega-Z was $115,912 compared to $58,518 for the six months ended June 30, 2016, resulting in an increase of $57,394 or 98%. The increase is reflective of an increased customer base as we expand into new clinics.

Cost of Goods Sold

For the six months ended June 30, 2017, cost of goods sold from the sale of Lumega-Z was $52,326 compared to $27,130 for the six months ended June 30, 2016, resulting in an increase of $25,196 or 93%. The increase corresponds to the additional sales recorded in 2017.

Research and Development

For the six months ended June 30, 2017, research and development costs were $25,770 compared to $22,273 for the six months ended June 30, 2016, resulting in an increase of $3,497 or 16%. The increase resulted from a modest increase in legal costs associated with our intellectual property.

Sales and Marketing

For the six months ended June 30, 2017, sales and marketing expenses were $178,333 compared to $208,114 for the six months ended June 30, 2016. The decrease in sales and marketing expenses of $29,781 or 14% compared to the prior period was due primarily to a decrease in non-cash stock compensation expense of approximately $76,000, partially offset by increases in consulting, marketing and promotional costs.

General and Administrative

For the six months ended June 30, 2017, general and administrative expenses were $1,365,807 compared to $1,517,002 for the six months ended June 30, 2016. The decrease of $151,195 or 10% compared to the prior period was primarily due to a $319,000 reduction in non-cash stock compensation expense from the prior period, partially offset by increases in accrued legal, professional and management fees.

Interest Expense

For the threesix months ended March 31,June 30, 2017, interest expense was $16,431$18,355 compared to $226,384$583,830 for the comparable period of 2016. The decrease in interest expense of $209,953$565,475 or 93%97% compared to the prior year was due to the settlement, duringrepayment or conversion, since June 30 2016, of the majority of promissory notes and convertible debt that had been outstanding atduring the endsix months ended June 30, 2016. Included in the $18,355 amount is $2,310 that relates to notes that are past due as of 2015.June 30, 2017.

Net Loss

For the threesix months ended March 31,June 30, 2017, we incurred a net loss of $669,011,$1,524,679, compared to a net loss of $949,203$2,299,831 for the threesix months ended March 31,June 30, 2016. The decrease in net loss of $280,192$775,152 or 30%34% compared to the prior year period was primarily due to the reduction of $209,953$565,475 in interest expense related to promissory notes and convertible debt that was settled inwere repaid or converted since June 30, 2016, as well as to reduced stock compensation expense in the current quarter2017 ($160,781513,969 was recognized in the current quarterfirst six months of 2017 versus $249,019$912,154 in the prior year period).

Liquidity and Capital Resources

Since our formation in 2009, we have devoted substantial effort and capital resources to the development and commercialization activities related to our lead product Lumega-Z and our MapcatSF medical device. As a result of ourthese activities we utilized cash in operating activities of $445,576$1,023,321 during the threesix months ended March 31,June 30, 2017. We had negative working capital of $262,748$354,942 at March 31,June 30, 2017. As of March 31,June 30, 2017, we had cash in the amount of $444,850$297,536 and no available borrowings. Our financing has historically come from the issuance of convertible notes, and promissory notes and to a lesser extent from the sale of common and preferred stock and exercise of warrants. Some of our notes have remained outstanding beyond their stated maturity dates, resulting in additional interest charges due upon settlement.

TheOur financial statements have been prepared assuming we will continue as a going concern. We expect to continue to incur net losses and negative operating cash flows in the near-term. As a result, our management has concluded that there is substantial doubt about our ability to continue as a going concern within one year of the date that the financial statements are issued.

The Company’s auditors haveOur independent registered public accounting firm has also included explanatory language in their opinionreport accompanying our audited financial statements for the year ended December 31, 2016 included in the 2016 Form 10-K that there is substantial doubt about the Company’s ability to continue as a going concern. TheOur financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.

We will continue to incur significant expenses for commercialization activities related to itsour lead product Lumega-Z, the MapcatSF medical device, and with respect to efforts to build our infrastructure. Development and commercialization of medical foods and medical devices involves a lengthy and complex process. Additionally, our long-term viability and growth will depend upon the successful development and commercialization of products other than Lumega-Z and the MapcatSF. We are continuing attempts to raise additional debt and/or equity capital to fund future operations, but there can be no assurances that we will be able to secure such additional financing in the amounts necessary to fully fund itsour operating requirements on acceptable terms or at all. If we are unable to access sufficient capital resources on a timely basis, we may be forced to reduce or discontinue its technology and product development programs and ultimately curtail or cease operations.

Sources and Uses of Cash

The following table sets forth our major sources and uses of cash for each of the following periods:

Operating Activities

Net cash used in operating activities was $445,576$1,023,321 during the threesix months ended March 31,June 30, 2017, versus $363,862$706,435 used during the comparable prior year period. The increase in 2017 was due primarily to additional generalhigher sales, marketing, and administrativetravel costs, paid for consultingin addition to paydown of our accrued rent liability and other professional services.the buildup of inventory stock.

Investing Activities

Net cash used in investing activities was $0$5,500 for the threesix months ended March 31,June 30, 2017 and $1,171 for the threesix months ended March 31,June 30, 2016, and consisted of investment in propertyoffice and computer equipment.

Financing Activities

Net cash provided by financing activities was $827,906$1,263,837 for the threesix months ended March 31,June 30, 2017. Financing activities for the 2017 period provided proceeds of $100,000 from the issuance of short-term loans partially offset by payments on those loans of $14,000, $700,000$1,100,000 in proceeds from the issuance of preferred stock,Series B Preferred Stock, and $41,906$77,837 in amounts due to related parties on a net basis.

Net cash provided by financing activities was $336,300$971,300 the yearsix months ended March 31,June 30, 2016. Financing activities for 2016the period provided proceeds of $251,000$446,000 from the issuance of convertible notes and promissory notes partially offset by payments on those loans of $130,000, $545,000 in proceeds from the issuance of Series A Preferred Stock, and $85,300$110,300 in amounts due to related parties on a net basis.

Off-Balance Sheet Arrangements

At March 31,June 30, 2017 and December 31, 2016, we did not have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Accounting Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon this evaluation, the Chief Executive Officer and Chief Accounting Officer each concluded that the Company’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that such information has been accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Accounting Officer, in a manner that allows timely decisions regarding required disclosure. There have been no changes in the Company’s internal control over financial reporting identified in connection with the evaluation that occurred during the firstsecond quarter ended in 2017 that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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 condensed financial statements at March 31,June 30, 2017 with respect to such matters, including the matter noted below.

The Company recently received a payment demand from a former consultant to the Company alleging that he is owed $102,000approximately $192,000 for unpaid services rendered. The Company is evaluatinghas disputed this demand and the claim and intends to respond to the former consultant’s demand in due course. Ifresolution of this matter results in the filing of a lawsuit against the Company, theis uncertain. The Company intends to vigorously defend itself and, as well, will consider filing a counterclaim for damages against the former consultant.protect its rights.

ITEM 1A. RISK FACTORS

As of the date of this filing, there have been no material changes to the Risk Factors included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as filed with the SEC on March 30, 2017 (the “2016 Form 10-K”). The Risk Factors set forth in the 2016 Form 10-K and in the other documents the Company files with the SEC from time to time should be read carefully in connection with evaluating the Company’s business and in connection with the forward-looking statements contained in this Quarterly Report on Form 10-Q. Any of the risks described in the 2016 Form 10-K or in the other documents the Company files with the SEC from time to time could materially adversely affect the Company’s business, financial condition or future results and the actual outcome of matters as to which forward-looking statements are made. These are not the only risks that the Company faces. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the threesix months ended March 31,June 30, 2017, the Company sold 700,0001,100,000 shares of the Company’s Series B Convertible Preferred Stock to various investors. The purchase price of the stock was $1.00 per share, for an aggregate purchase price of $700,000.$1,100,000. The stock has a stated value of $1.00 per share and accrues an annual dividend at the rate of 6% of the stated value, calculated quarterly, to be paid in shares of common stock at the rate of $0.75 per share. Series B preferred stock is convertible commencing December 31, 2017, or earlier upon the approval of the Board of Directors, by the holder into common stock at $0.75 per share. The stock is automatically convertible by the Company upon an equity financing of at least $5,000,000 subsequent to June 30, 2017, or is publicly traded for at least $2.00 per share for 10 consecutive trading days, or upon completion of a Major Transaction (as defined in the Certificate of Designation). Dividends are payable to holders of record quarterly, on the last business day of each calendar quarter, from the date of issuance, as may be declared by the Board of Directors, and are cumulative. Series B preferred stock is senior to all Common Stock and junior to the Series A preferred stock.

During the three months ended March 31, 2017, in connection with the Series B Convertible Preferred Stock offering, the Company issued a total of 60,000 warrants as additional incentive to investors who had previously invested in the Company’s Series A Senior Convertible Preferred Stock offering in 2016. These warrants are fully vested, are immediately exercisable at $0.75 per share, and expire between March 6, 2020 and March 8, 2020. The warrants were valued at $51,796, based upon the Black-Scholes option-pricing model, with a stock price of $0.88, volatility of 135%, and an average risk-free interest rate of 1.61%.

The offerings of Series A Preferred Stock and Series B Preferred Stock were exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, and Regulation D and/or Regulation S promulgated thereunder. No sales commissions were paid in connection with these transactions and no placement agent or underwriter was involved.

During the threefirst six months ended March 31,of 2017, the Company issued 162,500457,500 shares of restricted common stock to a service provider. These shares are subject to vesting requirements over 4 months and remain subject to forfeiture if vesting conditions are not met.providers. The aggregate fair value of the stock was $143,000$402,600 based on a valuation per share of $0.88 on the date of grant. During the three162,500 of these shares were restricted shares subject to vesting requirements over 4 months ended March 31,and subject to forfeiture if vesting conditions were not met. As of June 30, 2017, the Company recorded $100,833 of expense related to the vested portion of this restricted stock.all such shares have fully vested. The securities issued in the above transactionthese transactions were exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, as such transaction did not involve any public offering. No sales commissions were paid in connection with this transactionthe transactions and no placement agent or underwriter was involved.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

A list of exhibits required to be filed as part of this report is set forth in the Index to Exhibits, which is presented elsewhere in this document, and is incorporated herein by reference.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on the 11th10th day of May,August, 2017.

POWER OF ATTORNEY

We, the undersigned officers and directors of GUARDION HEALTH SCIENCES, INC., hereby severally constitute and appoint Michael Favish and Vincent J. Roth, and each of them (with full power to each of them to act alone), our true and lawful attorneys-in-fact and agents, with full power of substitution, for us in any and all capacities, to sign any amendments to this Form 10-Q, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons in the capacities and on the dates indicated.

INDEX TO EXHIBITS