UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31,~~June 30, 2019

[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission file number: 000-55723

GUARDION HEALTH SCIENCES, INC.

(Exact name of Registrant as specified in its charter)

Delaware

15150 Avenue of Science, Suite 200

San Diego, California 92128

Telephone: 858-605-9055

47-4428421

(State or other jurisdiction of

incorporation or organization)

(Address and telephone number

of principal executive offices)

(I.R.S. Employer

Identification No.)

15150 Avenue of Science, Suite 200

San Diego, California 92128

Telephone: 858-605-9055

(Address and telephone number of principal executive offices)

Not applicable

(Former name, former address, and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.001 per share		GHSI		The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). [X] Yes [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	[ ]	Accelerated filer	[ ]
Non-accelerated filer	[X]	Smaller reporting company	[X]
		Emerging growth company	[X]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). [ ] Yes [X] No

~~Securities registered pursuant to Section 12(b) of the Act:~~

~~Title of each class~~		~~Trading Symbol(s)~~		~~Name of each exchange on which registered~~
~~Common Stock, par value $0.001 per share~~		~~GHSI~~		~~The NASDAQ Stock Market, LLC~~

As of ~~May 3,~~August 9, 2019, there were ~~22,491,264~~22,733,762 shares of the Company’s common stock, par value $0.001 per share, issued and outstanding. The Company’s common stock began trading on the NASDAQ Capital Market on April 5, 2019, under the symbol “GHSI.”

On January 30, 2019, the Company filed a Certificate of Amendment to its Certificate of Incorporation, as amended, with the Secretary of State of the State of Delaware to effectuate a one-for-two (1:2) reverse stock split (the “Reverse Stock Split”) of its common stock without any change to its par value. Proportional adjustments for the Reverse Stock Split were made to the Company’s outstanding common stock, stock options, and warrants as if the split occurred at the beginning of the earliest period presented in this Quarterly Report on Form 10-Q.

TABLE OF CONTENTS

		Page No.
PART I – FINANCIAL INFORMATION

ITEM 1.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	4

	Balance Sheets – As of ~~March 31,~~June 30, 2019 (Unaudited) and December 31, 2018	4

	Statements of Operations (Unaudited) – Three and Six Months Ended ~~March 31,~~June 30, 2019 and 2018	5

	Statement of Stockholders’ Equity (Unaudited) – Three and Six Months Ended ~~March 31,~~June 30, 2019 and 2018	6

	Statements of Cash Flows (Unaudited) – ~~Three~~Six Months Ended ~~March 31,~~June 30, 2019 and 2018	7

	Notes to Condensed Consolidated Financial Statements (Unaudited)	8

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2021

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	2834

ITEM 4.	CONTROLS AND PROCEDURES	2934

PART II – OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	2935

ITEM 1A.	RISK FACTORS	2935

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	2935

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	2935

ITEM 4.	MINE SAFETY DISCLOSURES	2935

ITEM 5.	OTHER INFORMATION	2935

ITEM 6.	EXHIBITS	2935

SIGNATURES		3036

FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements ~~relate to future events~~contain information about our expectations, beliefs or ~~future predictions, including events~~intentions regarding our product development and commercialization efforts, business, financial condition, results of operations, strategies or ~~predictions relating to the Company’s future financial performance,~~prospects, and other similar matters. These forward-looking statements are based on management’s current expectations ~~estimates, forecasts~~ and ~~projections~~assumptions about ~~the Company, its~~ future ~~performance, its beliefs~~events, which are inherently subject to uncertainties, risks and ~~management’s assumptions. They~~changes in circumstances that are ~~generally identifiable~~difficult to predict. These statements may be identified by ~~use of the~~ words ~~“may,~~such as “expects,” “plans,” “projects,” “will,” “may,” “anticipates,” “believes,” “should,” ~~“expect,~~“intends,” ~~“plan,~~“estimates,” ~~“anticipate,” “believe,” “feel,” “confident,” “estimate,” “intend,” “predict,” “forecast,” “potential”~~and other words of similar meaning. Actual results could differ materially from those contained in forward-looking statements. Many factors could cause actual results to differ materially from those in forward-looking statements.

Other unknown or ~~“continue” or the negative~~unpredictable factors that could also adversely affect our business, financial condition and results of ~~such terms or other variations on~~operations may arise from time to time. Given these ~~words or comparable terminology. These statements involve unknown~~ risks and uncertainties, ~~that~~the forward-looking statements discussed in this Report may ~~individually or materially impact the matters discussed herein for a variety of reasons that are outside the control of the Company, including, but~~ not ~~limited~~prove to the Company’s ability to raise sufficient financing to implement its business plan and its ability to successfully develop and commercialize its proprietary products and technologies. Readers are cautionedbe accurate. Accordingly, you should not to place undue reliance on these forward-looking statements, which only reflect the views of the Company’s management as ~~actual results could differ materially from those described in~~of the date of this Report. We undertake no obligation to update or revise forward-looking statements ~~contained herein.~~ to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results or expectations, except as required by law.

Readers are urged to read the risk factors set forth in the Company’s recent filings with the U. S. Securities and Exchange Commission (the “SEC”), including the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and in other documents the Company files with the SEC from time to time. These filings are available at the SEC’s website (www.sec.gov). The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, in each case, except to the extent required by applicable law.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance or achievements. The Company will not update or revise the forward-looking statements except to the extent required by applicable law.

PART I – FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Guardion Health Sciences, Inc.

Condensed Consolidated Balance Sheets

	March 31,			December 31,			June 30,			December 31,
	2019			2018			2019			2018
	(Unaudited)						(Unaudited)
Assets

Current assets
Cash	$	174,298		$	670,948		$	2,368,645		$	670,948
Accounts receivable		15,086			28,203			35,920			28,203
Inventories		303,819			357,997			318,686			357,997
Prepaid expenses		51,161			47,773			132,306			47,773

Total current assets		544,364			1,104,921			2,855,557			1,104,921

Deposits		11,751			11,751			11,751			11,751
Property and equipment, net		265,176			274,804			303,929			274,804
Right of use asset, net		626,667			-			595,598			-
Deferred offering costs		557,000			270,000			19,000			270,000
Intangible assets, net		402,445			456,104			348,786			456,104
Goodwill		1,563,520			1,563,520			1,563,520			1,563,520

Total assets	$	3,970,923		$	3,681,100		$	5,698,141		$	3,681,100

Liabilities and Stockholders’ Equity

Current liabilities
Accounts payable and accrued liabilities	$	829,040		$	413,925		$	300,239		$	413,925
Accrued expenses and deferred rent		65,000			81,412			25,000			81,412
Derivative warrant liability		436,034			-			78,440			-
Lease liability – current		121,546			-			125,237			-
Convertible notes payable		17,024			-
Notes payable		100,548			-
Total current liabilities		1,569,192			495,337			528,916			495,337

Lease liability – long term		513,585			-			481,137			-

Total liabilities		2,082,777			495,337			1,010,053			495,337

Commitments and contingencies

Stockholders’ Equity

Preferred stock, $0.001 par value; 10,000,000 shares authorized		-			-			-			-
Common stock, $0.001 par value; 90,000,000 shares authorized; 20,856,611 and 20,564,328 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively		20,857			20,564
Common stock, $0.001 par value; 90,000,000 shares authorized; 22,733,762 and 20,564,328 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively								22,734			20,564
Additional paid-in capital		37,885,751			37,798,562			43,735,894			37,798,562
Accumulated deficit		(36,018,462	)		(34,633,363	)		(39,070,540	)		(34,633,363	)

Total stockholders’ equity		1,888,146			3,185,763			4,688,088			3,185,763

Total liabilities and stockholders’ equity	$	3,970,923		$	3,681,100		$	5,698,141		$	3,681,100

See accompanying notes to condensed consolidated financial statements.

Guardion Health Sciences, Inc.

Condensed Consolidated Statements of Operations

	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2019			2018
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenue
Medical foods	$	99,934		$	72,138		$	104,448		$	79,993		$	204,382		$	154,294
Vision testing diagnostics		142,604			120,902			150,222			140,785			292,826			259,524
Total Revenue		242,538			193,040
Other								6,300			-			6,300			-
Total revenue								260,970			220,778			503,508			413,818

Cost of goods sold
Medical foods		38,272			32,188			40,681			40,959			78,953			72,238
Vision testing diagnostics		55,220			47,090			53,816			46,817			109,036			94,817
Total Cost of goods sold		93,492			79,278
Other								2,559			-			2,559			-
Total cost of goods sold								97,056			87,776			190,548			167,055

Gross profit		149,046			113,762			163,914			133,002			312,960			246,763

Operating expenses
Research and development		29,028			159,588			77,688			34,320			106,716			194,708
Sales and marketing		353,537			605,990			409,409			378,750			764,028			984,464
General and administrative		947,974			1,680,810			2,489,011			1,034,914			3,439,633			2,714,680

Total operating expenses		1,330,539			2,446,388			2,976,108			1,447,984			4,310,377			3,893,852

Loss from operations		(1,181,493	)		(2,332,626	)		(2,812,194	)		(1,314,982	)		(3,997,417	)		(3,647,089	)

Other expenses:
Other (income) expense:
Interest expense		17,572			835			234,065			710			251,637			1,545
Fair value of warrants		186,034			-
Finance cost upon issuance of warrants								229,921			-			415,955			-
Change in fair value of derivative warrants								(227,832	)		-			(227,832	)		-
Costs associated with extension of warrant expiration dates								-			494,391			-			494,391

Total other expenses		203,606			835
Total other (income) expense								236,154			495,101			439,760			495,936

Net loss	$	(1,385,099	)	$	(2,333,461	)	$	(3,048,348	)	$	(1,810,083	)	$	(4,437,177	)	$	(4,143,025	)

Net loss per common share – basic and diluted	$	(0.07	)	$	(0.12	)	$	(0.14	)	$	(0.09	)	$	(0.21	)	$	(0.21	)
Weighted average common shares outstanding – basic and diluted		20,709,469			20,157,461			22,537,943			20,164,761			21,628,758			20,161,131

See accompanying notes to condensed consolidated financial statements.

Guardion Health Sciences, Inc.

Condensed Consolidated Statement of Stockholders’ Equity

(Unaudited)

	Common Stock				Additional Paid-In		Accumulated			Total Stockholders’			Common Stock				Additional Paid-In		Accumulated			Total Stockholders’
	Shares		Amount		Capital		Deficit			Equity			Shares		Amount		Capital		Deficit			Equity
	Three Months Ended March 31, 2019												Three and Six Months Ended June 30, 2019
Balance at December 31, 2018		20,564,328	$	20,564	$	37,798,562	$	(34,633,363	)	$	3,185,763			20,564,328	$	20,564	$	37,798,562	$	(34,633,363	)	$	3,185,763
Fair value of vested stock options		-		-		56,232		-			56,232			-		-		56,232		-			56,232
Issuance of common stock – warrant exercises		292,283		293		30,957		-			31,250			292,283		293		30,957		-			31,250
Net loss		-		-		-		(1,385,099	)		(1,385,099	)		-		-		-		(1,385,099	)		(1,385,099	)
Balance at March 31, 2019		20,856,611	$	20,857	$	37,885,751	$	(36,018,462	)	$	1,888,146			20,856,611		20,857		37,885,751		(36,018,462	)		1,888,146
Fair value of vested stock options – officer and director														-		-		1,066,159		-			1,066,159
Fair value of vested stock options														-		-		62,763		-			62,763
Reclass of warrant liability to equity														-		-		359,683		-			359,683
Sale of common stock														1,250,000		1,250		3,886,750		-			3,888,000
Issuance of common stock for services														54,387		55		123,947		-			124,002
Issuance of common stock – warrant exercises														463,726		463		100,162		-			100,625
Fair value of common stock – conversion of notes payable and related interest														109,038		109		250,679		-			250,788
Net loss																				(3,052,078	)		(3,052,078	)
Balance at June 30, 2019														22,733,762	$	22,734	$	43,735,894	$	(39,070,540	)	$	4,688,088

	Three Months Ended March 31, 2018												Three and Six Months Ended June 30, 2018
Balance at December 31, 2017		20,091,761	$	20,092	$	33,716,140	$	(26,865,956	)	$	6,870,276			20,091,761	$	20,092	$	33,716,140	$	(26,865,956	)	$	6,870,276
Fair value of vested stock options		-		-		777,513		-			777,513			-		-		777,513		-			777,513
Issuance of common stock – warrant exercises		73,000		73		1,387		-			1,460			73,000		73		1,387		-			1,460
Net loss		-		-		-		(2,333,461	)		(2,333,461	)		-		-		-		(2,333,461	)		(2,333,461	)
Balance at March 31, 2018		20,164,761	$	20,165	$	34,495,040	$	(29,199,417	)	$	5,315,788			20,164,761		20,165		34,495,040		(29,199,417	)		5,315,788
Fair value of vested stock options														-		-		277,372		-			277,372
Costs associated with extension of warrant expiration dates														-		-		494,391		-			494,391
Net loss														-		-		-		(1,809,564	)		(1,809,564	)
Balance at June 30, 2018														20,164,761	$	20,165	$	35,266,803	$	(31,008,981	)	$	4,277,987

See accompanying notes to condensed consolidated financial statements.

Guardion Health Sciences, Inc.

Condensed Consolidated Statements of Cash Flows

	Three Months Ended September 30,						Six Months Ended June 30,
	2018			2017			2019			2018
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Operating Activities
Net loss	$	(1,385,099	)	$	(2,333,461	)	$	(4,437,177	)	$	(4,143,025	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		68,102			73,022			137,128			148,560
Amortization of debt discount		16,545			-			250,000			-
Amortization of lease right		30,502			-
Accrued interest expense included in notes payable		1,027			-			788			-
Amortization of right of use asset								61,571			-
Stock-based compensation		56,231			777,513			242,996			1,054,885
Fair value of warrants – derivative liability		186,034			-
Stock-based compensation – officer and director								1,066,159			-
Non-cash financing costs – derivative liability								415,955			-
Change in fair value of warrants – derivative liability								(227,832	)		-
Costs associated with extension of warrant expiration dates								-			494,391
Changes in operating assets and liabilities:
(Increase) decrease in -
Accounts receivable		13,116			15,345			(7,718	)		42,928
Inventories		54,178			(28,188	)		39,311			(257,627	)
Deposits and prepaid expenses		(3,388	)		2,486			(84,533	)		90,053
Lease liability		(28,088	)		-			(56,844	)		-
Increase (decrease) in -
Accounts payable and accrued expenses		415,118			135,324			156,314			146,202
Accrued and deferred rent costs		(10,363	)		4,429
Accrued expenses and deferred rent								(49,814	)		(425	)

Net cash used in operating activities		(586,085	)		(1,353,530	)		(2,493,696	)		(2,424,058	)

Investing Activities
Purchase of property and equipment		(4,815	)		(95,111	)		(58,934	)		(137,073	)
Purchase of intellectual property		-			(50,000	)		-			(50,000	)

Net cash used in investing activities		(4,815	)		(145,111	)		(58,934	)		(187,073	)

Financing Activities
Proceeds from initial public offering								3,888,000			-
Proceeds from issuance of convertible notes		250,000			-			250,000			-
Proceeds from issuance of promissory notes		100,000			-
Proceeds from issuance of promissory note								100,000			-
Payments on promissory note								(100,548	)		-
Payments on line of credit		-			(30,535	)		-			(30,535	)
Proceeds from exercise of warrants		31,250			1,460			131,875			1,460
Deferred financing costs of IPO		(287,000	)		-			(19,000	)		-
Decrease in due to related parties		-			(9,165	)		-			(28,659	)

Net cash provided by (used in) financing activities		94,250			(38,240	)		4,250,327			(57,734	)

Cash:
Net decrease		(496,650	)		(1,536,881	)		1,697,697			(2,668,865	)
Balance at beginning of period		670,948			4,735,230			670,948			4,735,230
Balance at end of period	$	174,298		$	3,198,349		$	2,368,645		$	2,066,365

Supplemental disclosure of cash flow information:
Cash paid for-
Interest	$	-		$	-		$	-		$	-
Income taxes	$	-		$	-		$	-		$	-

Non-cash financing activities:
Fair value of warrants issued in connection with convertible notes	$	436,034		$	-
Fair value of warrant liability issued in connection with issuance of convertible notes							$	436,034		$	-
Recording of lease asset and liability upon adoption of ASU 2016-02	$	663,218			-		$	663,218		$	-
Reclass of warrant liability to equity							$	359,683		$	-
Fair value of common stock issued upon conversion of common stock and accrued interest							$	250,788		$	-
Reclass of deferred offering cost to equity							$	270,000		$	-

See accompanying notes to condensed consolidated financial statements.

Guardion Health Sciences, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~Three~~Six Months Ended ~~March 31,~~June 30, 2019 and 2018

1.	Organization and Business Operations

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 that develops, formulates and distributes 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. Lumega-Z has been used in IRB-approved patient studies to examine its effectiveness. On May 9, 2019, the Company announced in a press release a recent study that showed statistically significant improvement in visual function (“CSF”) of patients taking Lumega-Z who participated in the study. The study was conducted by research scientists at the Western University College of Optometry to evaluate the visual benefits of Lumega-Z in one group of patients as compared to a group of patients taking AREDS 2 soft gel supplements. Each patient has retinal drusen and is at risk of developing AMD. The results of the study were presented at the Association for Research in Vision and Ophthalmology (“ARVO”) 2019 annual meeting and showed improvements in visual function (“CSF”) in the group of patients taking Lumega-Z that were statistically significant and definitive. The patients taking AREDS 2 showed no statistical change.

The Company also developed a proprietary medical device called the MapcatSF^®that accurately measures the macular pigment optical density. On July 16, 2019, the Company was notified by the Patents Registry in Hong Kong that it has received a patent from the Government of the Hong Kong Special Administrative Region (Hong Kong Patent No. HK1204758 titled “Apparatus for Use in the Measurement of Macular Pigment Optical Density and/or Lens Optical Density of an Eye”) for the MapcatSF^®. On May 30, 2019, the Company was notified by the European Patent Office that it has received a patent from the European Union (European Patent No. 2,811,892 titled “Apparatus for Use in the Measurement of Macular Pigment Optical Density and/or Lens Optical Density of an Eye”) for the MapcatSF^®.

On September 29, 2017, the Company, through its wholly owned subsidiary VectorVision Ocular Health, Inc. (“VectorVision”), completed its acquisition of substantially all of the assets and certain liabilities of VectorVision, Inc. (an Ohio corporation), a company that specialized in the standardization of contrast sensitivity, glare sensitivity, low contrast acuity, and early treatment diabetic retinopathy study (“ETDRS”) visual acuity testing. VectorVision develops, manufactures and sells equipment and supplies for standardized vision testing. The acquisition expands the Company’s technical portfolio. CSV-1000 and ~~CSV-3000~~CSV-2000 instruments offer auto-calibrated tests to ensure correct testing luminance and contrast levels for consistent, highly accurate and repeatable results. Recently issued patents the Company received for continuously calibrating the light source will be incorporated into the new CSV-2000, in which the proprietary standardized contrast sensitivity test patterns can be presented to the patient using a computer monitor as opposed to the current calibrated backlit system.

In August 2018, the Company created a wholly owned subsidiary, Transcranial Doppler Solutions, Inc. (“TDSI”). TDSI is dedicated to the pursuit of early predictors resulting in, the Company believes, valuable therapeutic intervention for practitioners and their patients, and additional revenue streams generated from the testing and sale of Company products to appropriate customers. The Company has established operations with selected clinics and is focusing on expanding its client base.

In November 2018, the Company launched a new medical food product, GlaucoCetin^TM, which the Company believes is the first vision-specific medical food designed to support and protect the mitochondrial function of optic nerve cells and improve blood flow in the ophthalmic artery in patients with glaucoma. The Company believes GlaucoCetin^TM is the first vision-specific medical food designed to support and protect the mitochondrial function of optic nerve cells and improve blood flow in the ophthalmic artery in patients with glaucoma. The parent compound of GlaucoCetin^TM, called “GlaucoHealth,” was designed by Robert Ritch, M.D., one of the Company’s Medical Advisory Board members. Dr. Robert Ritch holds the Shelley and Steven Einhorn Distinguished Chair in Ophthalmology and is surgeon Director Emeritus and Chief of Glaucoma Services at the New York Eye and Ear Infirmary. Dr. Ritch has devoted his career to broadening the understanding of the underlying etiologies and mechanisms of glaucoma. The Company now owns the GlaucoHealth formula. On June 4, 2019, the Company announced in a press release that the formula was used in an IRB-approved patient study conducted at the New York Eye and Ear Infirmary and successfully reversed mitochondrial dysfunction in the optic nerve cells in patients with glaucoma. GlaucoCetin^TM is an enhanced formulation of GlaucoHealth. The Company owns both formulas and has a patent application pending on the GlaucoCetin^TM formula. The application describes an invention that provides a micro-nutrient composition for a human subject suffering from a glaucomatous disease, wherein the micro-nutrient composition comprises a formulation for reversing mitochondrial dysfunction in glaucomatous disease.

On April 9, 2019, the Company closedits initial public offering (the “IPO”) of and issued 1,250,000 shares of its common stock ~~par value $0.001 per share,~~ at ~~an IPO~~a public offering price ~~to the public~~ of $4.00 per ~~share.~~share for total gross proceeds of $5.0 million, resulting in net proceeds to the Company of $3,888,000 after deducting underwriting discounts and commissions and other offering costs and expenses payable by Guardion. The shares began trading on the ~~NASDAQ~~Nasdaq Capital Market on April 5, 2019, under the symbol “GHSI.” In connection with the IPO, the convertible promissory notes previously issued on March 15, 2019 and March 20, 2019 were automatically converted into 109,038 shares of common stock based on a conversion price of $2.30 per share.

The Company has had limited operations to date and has been primarily engaged in research and development, product commercialization and capital raising activities.

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 ~~$1,385,099~~$4,437,177 and utilized cash in operating activities of ~~$586,085~~$2,493,696 during the ~~three~~six months ended ~~March 31,~~June 30, 2019. 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 consolidated financial statements are issued.

The Company’s independent registered public accounting firm has also included explanatory language in their opinion accompanying the Company’s audited financial statements for the year ended December 31, 2018. The 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 medical foods, the MapcatSF medical device, VectorVision diagnostic equipment, the TDSI business and with respect to efforts to continue 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. ~~Subsequent to March 31, 2019, the Company completed the IPO, resulting in net cash proceeds of $3,945,000 to the Company.~~

The Company is seeking 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.

Reverse Stock Split

On January 30, 2019, following stockholder and Board approval, the Company filed a Certificate of Amendment to its Amended Certificate of Incorporation, as amended (the “Amendment”), with the Secretary of State of the State of Delaware to effectuate a one-for-two (1:2) reverse stock split (the “Reverse Stock Split”) of its common stock, par value $0.001 per share, without any change to its par value. The Amendment became effective on the filing date. The number of shares authorized for common and preferred 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. Proportional adjustments for the Reverse Stock Split were made to all share and per share amounts as if the split occurred at the beginning of the earliest period presented.

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 such rules and regulations. 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 year ended December 31, 2018 filed with the SEC. The condensed consolidated balance sheet as of December 31, 2018 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, 2019.

Certain prior period amounts have been reclassified to conform to current period presentation. Such amounts consist of operating segment disclosures, whereby revenue and cost of goods sold have been broken out on the Consolidated Statements of Operations to conform with the Company’s ~~two~~ reportable business segments as of ~~March 31,~~June 30, 2019.

Use of Estimates

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.

These estimates and assumptions include estimates for reserves of uncollectible accounts, inventory obsolescence, depreciable lives of property and equipment, analysis of impairments of recorded long-term tangible and intangible assets, realization of deferred tax assets, accruals for potential liabilities and assumptions made in valuing stock instruments issued for services.

Intangible Assets

In connection with the VectorVision transaction, the Company identified and allocated estimated fair values to intangible assets including goodwill and customer relationships.

In accordance with Accounting Standard Codification (“ASC”) 350 – Intangibles – Goodwill and Other, the Company determined whether these assets are expected to have indefinite (such as goodwill) or limited useful lives, and for those with limited lives, the Company established an amortization period and method of amortization. Its goodwill and other intangible assets are subject to periodic impairment testing.

The Company utilized the services of an independent third-party valuation firm to assist in identifying intangible assets and in estimating their fair values. The useful lives for the Company’s intangible assets other than goodwill were estimated based on Management’s consideration of various factors, including assumptions that market participants might use about sales expectations as well as potential effects of obsolescence, competition, technological progress and the regulatory environment. Because the future pattern in which the economic benefits of these intangible assets may not be reliably determined, amortization expense is generally calculated on a straight-line basis.

Amortization expense for the identifiable intangible assets associated with the VectorVision acquisition is approximately $54,000 per quarter and is included with general and administrative expenses in the Company’s Statements of Operations.

Impairment of Long-Lived Assets

The Company reviews long-lived assets, including property and equipment, identifiable intangible assets, and goodwill for impairment at each fiscal year end or when events or changes in circumstances indicate the carrying value of these assets may exceed their current fair values. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the assets. Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell and are no longer depreciated. The Company has not historically recorded any impairment to its long-lived assets. In the future, if events or market conditions affect the estimated fair value to the extent that a long-lived asset is impaired, the Company will adjust the carrying value of these long-lived assets in the period in which the impairment occurs. As of ~~March 31,~~June 30, 2019 and December 31, 2018, the Company had not deemed any long-lived assets as impaired and was not aware of the existence of any indicators of impairment at such dates.

Deferred Offering Costs

Deferred offering costs consist principally of legal, accounting, and underwriters’ fees incurred related to the ~~IPO.~~equity financings. These deferred offering costs will be charged against the gross proceeds received during the appropriate period. During the period ended June 30, 2019, $270,000 of offering costs deferred at December 31, 2018 were offset to paid in capital upon completion of our April 2019 offering. As of June 30, 2019, $19,000 of costs have been deferred relating to offerings in process.

Revenue Recognition

The Company’s revenue is comprised of sales of medical foods and dietary supplements to consumers through a direct sales/credit card process. In addition, the Company sells medical device equipment and supplies to customers both in the U.S. and internationally.

~~On January 1, 2018. the~~Tthe Company ~~adopted~~recognizes revenue in accordance with ASU 2014-09,Revenue from Contracts with Customers (Topic 606)(“ASU 2014-09” or “Topic 606”) and all related ~~amendments and applied the concepts to all contracts using the full retrospective method.~~amendments. The ~~new~~ standard provides authoritative guidance clarifying the principles for recognizing revenue and developing a common revenue standard for U.S. generally accepted accounting principles. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in the exchange for those goods or services.

Under the ~~new~~ guidance, revenue is recognized when control of promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods 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. Revenue and costs of sales are recognized once products are delivered to the customer’s control and performance obligations are satisfied.

All products sold by the Company are distinct individual products and consist of medical foods, supplemental formulas, medical devices and related supplies. The products 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.

Control of products sold transfers to customers upon shipment from the Company’s facilities, and the Company’s performance obligations are satisfied at that 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. Payment for sales of Lumega-Z is generally made by approved credit cards. Payments for medical device sales are generally made by check, credit card, or wire transfer. Historically the Company has not experienced any significant payment delays from customers.

The Company provides a 30-day right of return to its retail Lumega-Z 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 Lumega-Z and VectorVision 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.

The following table presents the Company’s revenues disaggregated by segment:

	Three Months Ended March 31,				Six Months Ended June 30,
	2019		2018		2019		2018
Medical foods	$	99,934	$	72,138	$	204,382	$	154,294
Vision testing diagnostics		142,604		120,902		292,826		259,524
Other						6,300		-
	$	242,538	$	193,040	$	503,508	$	413,818

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 stock compensation expense,~~ are expensed as incurred and totaled ~~$29,028~~$106,716 and ~~$159,588~~$194,708 for the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018, respectively.

Patent Costs

The Company is the owner of three issued domestic patents, ~~two~~three pending domestic patent applications, one issued foreign patent in Europe, one issued foreign patent in Hong Kong, and three foreign patent applications in Canada, Europe and 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~~six months ended ~~March 31,~~June 30, 2019 and 2018, patent costs were ~~$26,025~~$61,482 and ~~$12,474,~~$34,298, respectively, and are included in general and administrative costs in the statements of operations.

Leases

Prior to January 1, 2019, the Company accounted for leases under Accounting Standards Codification (ASC) 840, Accounting for Leases. Effective from January 1, 2019, the Company adopted the guidance of ASU 2016-02 (ASC 842), Leases, which requires an entity to recognize a right-of-use asset and a lease liability for virtually all leases. The Company adopted ASC 842 using a modified retrospective approach. As a result, the comparative financial information has not been updated and the required disclosures prior to the date of adoption have not been updated and continue to be reported under the accounting standards in effect for those periods. The adoption of ASC 842 on January 1, 2019 resulted in the recognition of operating lease right-of-use assets of $626,667, lease liabilities for operating leases of $635,131, and a zero cumulative-effect adjustment to accumulated deficit. See Note 8 for further information regarding the impact of the adoption of ASC 842 on the Company’s financial statements.

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, directors, and employees, which include grants of employee stock options, are recognized in the financial statements based on their fair values in accordance with Topic 718. 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.

In prior periods, the Company accounted for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the FASB whereby 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. On January 1, 2019, the Company adopted Accounting Standards Update (ASU) 2018-07 which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. 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 adoption of the new standard had no cumulative effect on previously reported amounts.

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, options, and shares associated with convertible debt 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 issuable upon exercise of warrants and conversion of convertible debt 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:

	March 31,				June 30,
	2019		2018		2019		2018
Warrants		896,712		1,418,836		261,538		2,656,423
Options		1,362,500		1,312,500		2,612,500		2,625,000
		2,259,212		2,731,336		2,874,038		5,281,423

Recent Accounting Pronouncements

The Company’s management does not believe that there are any 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.

3.	Segment Reporting

The Company determined its reporting units in accordance with ASC 280, “Segment Reporting” (“ASC 280”). The Company historically has reported its operating results as a single reportable segment described as the business of developing and commercializing a variety of products that support the detection, intervention and monitoring of a range of eye diseases. The Company’s chief executive officer, who is the Chief Operating Decision Maker (“CODM”), has historically reviewed financial information on an aggregated basis for purposes of allocating resources and evaluating financial performance.

In September 2017, the Company, through its wholly-owned subsidiary VectorVision Ocular Health, Inc., acquired substantially all of the assets and certain liabilities of VectorVision, Inc., a company that specialized in the standardization of contrast sensitivity, glare sensitivity, low contrast acuity, and early treatment diabetic retinopathy study (“ETDRS”) visual acuity testing. In August 2018, the Company created a wholly owned subsidiary, Transcranial Doppler Solutions, Inc. (“TDSI”). The Company has established TDSI operations with selected clinics and is focusing on expanding its client base.

Although all of the Company’s products and services target the early detection, intervention and monitoring of a range of eye diseases, the addition of potential new products or services as the Company grows requires management to periodically reevaluate its reporting structure. As sales of our medical food as well as sales of VectorVision products grow, there is an increased need for the CODM to evaluate revenue and gross profit on a product line or group basis for purposes of resource allocation. As of ~~March 31,~~June 30, 2019, the TDSI subsidiary does not meet the required quantitative criteria to be considered a reportable operating segment. Additionally, TDSI does not share similar economic characteristics or a majority of the aggregation criteria set forth in ASC 280, and therefore is included in ~~“Corporate”~~the category “Other” below. The TDSI business earned $6,300 of service revenue during the quarter ended June 30, 2019 and incurred approximately $121,000 of operating costs during the six months ended June 30, 2019. As of ~~December 31, 2018,~~June 30, 2019, based on anticipated growth and the expanding diversity of product and service offerings by the Company, ~~Management~~management has concluded that results should be reported in two operating segments: Medical Foods and Vision Testing Diagnostics. The following tables set forth our results of operations by segment ~~(expenses~~(results allocated to ~~Corporate~~Other consist of non-cash stock compensation expense, depreciation and amortization, ~~and~~ corporate legal ~~fees)~~fees, and the TDSI operations):

For the Three Months Ended March 31, 2019
Corporate Medical Foods Vision Testing
Diagnostics Total

Revenue $ - $ 99,934 $ 142,604 $ 242,538

Cost of goods sold - 38,272 55,220 93,492

Gross profit - 61,662 87,384 149,046

Operating expenses 334,775 884,701 111,063 1,330,539

Loss from operations $ (334,775 ) $ (823,039 ) $ (23,679 ) $ (1,181,493 )
For the Three Months Ended March 31, 2018
Corporate Medical Foods Vision Testing
Diagnostics Total

Revenue $ - $ 72,138 $ 120,902 $ 193,040

Cost of goods sold - 32,188 47,090 79,278

Gross profit - 39,950 73,812 113,762

Operating expenses 1,073,400 1,320,627 52,361 2,446,388

Loss from operations $ (1,073,400 ) $ (1,280,677 ) $ 21,451 $ (2,332,626 )

	For the Three Months Ended June 30, 2019
	Other			Medical Foods			Vision Testing Diagnostics			Total

Revenue	$	6,300		$	104,448		$	150,222		$	260,970

Cost of goods sold		2,559			40,681			53,816			97,056

Gross profit		3,741			63,767			96,406			163,914

Operating expenses		1,594,719			1,175,027			206,362			2,976,108

Loss from operations	$	(1,590,978	)	$	(1,111,260	)	$	(109,956	)	$	(2,812,194	)

	For the Three Months Ended June 30, 2018
	Other			Medical Foods			Vision Testing Diagnostics		Total

Revenue	$	-		$	79,993		$	140,785	$	220,778

Cost of goods sold		-			40,959			46,817		87,776

Gross profit		-			39,034			93,968		133,002

Operating expenses		468,630			893,925			85,429		1,447,984

Loss from operations	$	(468,630	)	$	(854,891	)	$	8,539	$	(1,314,982	)

	For the Six Months Ended June 30, 2019
	Other			Medical Foods			Vision Testing Diagnostics			Total

Revenue	$	6,300		$	204,382		$	292,826		$	503,508

Cost of goods sold		2,559			78,953			109,036			190,548

Gross profit		3,741			125,429			183,790			312,960

Operating expenses		1,959,838			2,003,320			347,219			4,310,377

Loss from operations	$	(1,956,097	)	$	(1,877,891	)	$	(163,429	)	$	(3,997,417	)

	For the Six Months Ended June 30, 2018
	Other			Medical Foods			Vision Testing Diagnostics		Total

Revenue	$	-		$	154,294		$	259,524	$	413,818

Cost of goods sold		-			72,238			94,817		167,055

Gross profit		-			82,056			164,707		246,763

Operating expenses		1,523,133			2,206,967			163,752		3,893,852

Loss from operations	$	(1,523,133	)	$	(2,124,911	)	$	955	$	(3,647,089	)

The following tables set forth our total assets by segment. Intersegment balances and transactions have been removed:

	As of March 31, 2019								As of June 30, 2019
	Corporate		Medical Foods		Vision Testing Diagnostics		Total		Other		Medical Foods		Vision Testing Diagnostics		Total
Current assets
Cash	$	-	$	164,914	$	9,384	$	174,298	$	13,355	$	2,300,973	$	54,317	$	2,368,645
Inventories		-		170,554		133,265		303,819		-		206,876		111,810		318,686
Other		-		46,950		19,297		66,247		6,300		129,983		31,943		168,226
Total current assets		-		382,418		161,946		544,364		19,655		2,637,832		198,070		2,855,557

Right to use asset		626,667		-		-		626,667		595,598		-		-		595,598
Property and equipment, net		-		255,313		9,863		265,176		-		294,829		9,100		303,929
Deferred offering		557,000		-		-		557,000		19,000		-		-		19,000
Intangible assets, net		402,445		-		-		402,445		348,786		-		-		348,786
Goodwill		1,563,520		-		-		1,563,520		1,563,520		-		-		1,563,520
Other		-		11,751		-		11,751		-		11,751		-		11,751

Total assets	$	3,149,632	$	649,482	$	171,809	$	3,970,923	$	2,546,559	$	2,944,412	$	207,170	$	5,698,141

	As of December 31, 2018								As of December 31, 2018
	Corporate		Medical Foods		Vision Testing Diagnostics		Total		Other		Medical Foods		Vision Testing Diagnostics		Total
Current assets
Cash	$	-	$	552,613	$	118,335	$	670,948	$	-	$	552,613	$	118,335	$	670,948
Inventories		-		235,957		122,040		357,997		-		235,957		122,040		357,997
Other		-		44,110		31,866		75,976		-		44,110		31,866		75,976
Total current assets		-		832,680		272,241		1,104,921		-		832,680		272,241		1,104,921

Property and equipment, net		-		264,178		10,626		274,804		-		264,178		10,626		274,804
Deferred offering		270,000		-		-		270,000		270,000		-		-		270,000
Intangible assets, net		456,104		-		-		456,104		456,104		-		-		456,104
Goodwill		1,563,520		-		-		1,563,520		1,563,520		-		-		1,563,520
Other		-		11,751		-		11,751		-		11,751		-		11,751

Total assets	$	2,289,624	$	1,108,609	$	282,867	$	3,681,100	$	2,289,624	$	1,108,609	$	282,867	$	3,681,100

4.	Inventories

Inventories consisted of the following:

	March 31,		December 31,		June 30,		December 31,
	2019		2018		2019		2018
Raw materials	$	236,005	$	282,574	$	248,021	$	282,574
Finished goods		67,814		75,423		70,665		75,423
	$	303,819	$	357,997	$	318,686	$	357,997

5.	Property and Equipment, net

Property and equipment consisted of the following:

	March 31,			December 31,			June 30,			December 31,
	2019			2018			2019			2018
Leasehold improvements	$	98,357		$	98,357		$	98,357		$	98,357
Testing equipment		249,447			249,447			300,448			249,447
Furniture and fixtures		168,002			163,186			171,121			163,186
Computer equipment		64,976			64,976			64,976			64,976
Office equipment		8,193			8,193			8,193			8,193
		588,975			584,159			643,095			584,159
Less accumulated depreciation and amortization		(323,799	)		(309,355	)		(339,166	)		(309,355	)
	$	265,176		$	274,804		$	303,929		$	274,804

For the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018, depreciation and amortization expense was ~~$14,444~~$29,810 and ~~$19,363,~~$41,243, respectively, of which $0 and ~~$7,325~~$15,376 was included in research and development expense, ~~$9,108~~$19,065 and ~~$1,500~~$4,138 was included in sales and marketing expense, and ~~$5,335~~$10,745 and ~~$10,333~~$21,729 was included in general and administrative expense, respectively.

6.	Intangible Assets

The Company’s intangible assets, including finite-lived intangible assets and $50,000 of non-amortizable purchased intellectual property, consisted of the following:

	March 31,			December 31,			June 30,			December 31,
	2019			2018			2019			2018
Customer relationships	$	430,700		$	430,700		$	430,700		$	430,700
Technology		161,100			161,100			161,100			161,100
Trade Names		115,600			115,600			115,600			115,600
Noncompetition		17,000			17,000			17,000			17,000
		724,400			724,400			724,400			724,400
Less accumulated amortization		(321,955	)		(268,296	)		(375,614	)		(268,296	)
	$	402,445		$	456,104		$	348,786		$	456,104

The Company’s amortization expense on its finite-lived intangible assets was ~~$53,659~~$107,318 and ~~$53,659~~$107,318 for the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018, respectively.

The Company estimates future amortization expense on its finite-lived intangible assets as of ~~March 31,~~June 30, 2019 to be as follows:

For Years Ended December 31,
2019	$	160,978	$	107,318
2020		165,320		165,320
2021		16,307		16,307
2022		9,840		9,840
	$	352,445	$	298,785

7.	Promissory Notes

Promissory Note

On March 12, 2019, the Company issued a promissory note with principal in the amount of $100,000, simple interest of 10% annually, and with a maturity date of June 10, 2019. On April 11, 2019, the Company repaid the promissory note for a total of $100,548 including accrued interest.

Convertible Notes and Related Warrants

~~The Company’s convertible notes payable consisted of the following:~~

March 31, December 31,
2019 2018
Convertible notes $ 250,000 $ -
Accrued interest 479 -
Debt discount (233,455 ) -
Net $ 17,024 $ -

On March 15, 2019, the Company issued a convertible note with principal in the amount of $100,000, simple interest of 5% annually, and with a maturity date of September 30, 2019. In addition, on March 20, 2019, the Company issued a convertible note with principal in the amount of $150,000, simple interest of 5% annually, and with a maturity date of September 30, 2019. ~~As of March 31, 2019, convertible notes with a principal balance of $250,000 and accrued interest of $479 were outstanding.~~

The convertible notes (principal and accrued interest) were mandatorily convertible upon the consummation of the IPO. Concurrent with the issuance of the notes, the Company issued warrants to both note holders equal to the number of shares of common stock that the holders receive in connection with the converted notes. The per share exercise price of the warrants was set at 125% of the conversion price of the notes, defined in the note agreements, as the lower of (a) 75% of the price per share of common stock of the IPO or (b) $2.30. The Company determined that it would have to issue 109,038 warrants based upon the completion of the IPO in April 2019

Due to the variable terms of both the exercise price and the number of warrants to be issued, the warrants were accounted for as derivative liabilities at March 31, 2019. The aggregate fair value of the warrants was calculated as $436,034 based on a probability effected Black-Scholes option pricing model with a stock price of $4.00, volatility of 138%, and risk-free rates ranging from 2.34% - 2.39%. At March 31, 2019, the Company estimated that the issuance of 109,038 warrants with an exercise price of $2.88 per share would correspond to the number of shares of common stock that the holders would receive in connection with the completion of the IPO (the IPO was completed on April 9, 2019). The Company recognized a debt discount of $250,000 equal to the face amount of the convertible notes and recorded a financing cost of $186,034 equal to the difference between the fair value of the warrants and the debt discount. ~~The financing cost of $186,034 is shown as fair value of warrants on the accompanying statement of operations for the three months ended March 31, 2019.~~

The ~~company recorded amortization expense related to~~convertible notes and accrued interest with an aggregate balance of $250,788 were mandatorily converted into 109,038 shares of common stock based on a conversion price of $2.30 per share upon the ~~debt~~consummation of the IPO in April 2019.and the valuation discount of ~~$16,545 during the three months ended March 31, 2019. As of March 31, 2019, the unamortized debt discount~~$250,000 was ~~$233,455.~~recognized as interest cost.

8.	Lease Liabilities

In October 2012, the Company entered into a lease agreement for 9,605 square feet of office and warehouse space commencing March 1, 2013. Upon entering into the agreement, the Company paid a deposit of $47,449, of which $36,979 represented prepaid rent. As of ~~March 31,~~June 30, 2019, ~~$10,470~~$11,751 remained on deposit under the lease agreement. The lease (“Lease 1”) was renewed for an additional five years in 2018. As of ~~March 31,~~June 30, 2019, remaining average monthly lease payments under the amended lease agreement were ~~$12,863~~$12,915 through July 2023.

In connection with the VectorVision acquisition on September 29, 2017, the Company assumed a lease agreement for 5,000 square feet of office and warehouse space which commenced on October 1, 2017. The lease (“Lease 2”) was renewed for an additional 65 months. As of ~~March 31,~~June 30, 2019, remaining average monthly lease payments are ~~$1,832~~$1,838 through February 2023.

In accounting for the leases, the Company adopted ASU 2016-02 - Leases, which requires a lessee to record a right-of-use asset and a corresponding lease liability at the inception of the lease initially measured at the present value of the lease payments. The Company classified the leases as operating leases and determined that the fair value of Lease 1 at the inception of the lease was $625,778 using a discount rate of 8.0%. the fair value of Lease 2 at the inception of the lease was $100,742 using a discount rate of 8%. During the ~~three~~six months ended ~~March 31,~~June 30, 2019, the Company made combined payments on both leases of ~~$41,166~~$82,434 towards the lease liabilities. As of ~~March 31,~~June 30, 2019 and December 31, 2018, the lease liability for Lease 1 was ~~$561,623~~$536,672 and $586,082, respectively, and the lease liability for Lease 2 was ~~$73,508~~$69,703 and $77,137, respectively. 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. Combined rent expense for both leases for the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018 was ~~$43,581~~$87,161 and ~~$5,336,~~$10,671, respectively. During the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018, the Company reflected amortization of right of use asset of ~~$30,502~~$61,571 and ~~$3,543~~$7,152 related to the leases, respectively, resulting in a net asset balance of ~~$626,667~~$595,598 as of ~~March 31,~~June 30, 2019.

9.	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,~~June 30, 2019 with respect to such matters.

10.	Stockholders’ Equity (Deficit)

Warrants

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

	Shares			Weighted Average Exercise Price			Weighted Average Remaining Contractual Term (Years)		Shares			Weighted Average Exercise Price			Weighted Average Remaining Contractual Term (Years)
December 31, 2018		1,230,674			0.71			0.29		1,265,674			0.71			0.29
Granted		109,038			0.35			0.60		171,538			2.39			3.11
Forfeitures		-			-			-		-			-			-
Expirations		(70,500	)		(0.11	)		-		(279,424	)		(1.96	)		-
Exercised		(372,500	)		(0.24	)		-		(896,250	)		(1.88	)		-
March 31, 2019, all exercisable		896,712		$	1.19			0.79
June 30, 2019, all exercisable										261,538		$	2.81			3.35

The exercise prices of warrants outstanding and exercisable as of ~~March 31,~~June 30, 2019 are as follows:

Warrants Outstanding and Exercisable (Shares) Exercise Prices
536,250 $ 0.50
5,000 1.00
30,000 1.50
216,424 2.00
109,038 2.88
896,712

InBetween February 11, 2019 and ~~March~~May 21, 2019, investors net exercised a total of ~~310,000~~632,500 warrants for ~~231,740~~492,256 shares of common stock on a cashless basis.

InBetween February 11, 2019 ~~an investor~~and May 21, 2019, investors exercised warrants for ~~62,500~~263,750 shares of common stock. The warrants were exercisable for $0.50 per share, and the Company received ~~$31,250~~$131,875 in cash.

In March 2019, the Company issued 109,038 warrants with an exercise price of $2.88 per share to two convertible note holders pursuant to the anticipated completion of the Company’s IPO (the IPO was completed on April 9, 2019).

As of ~~March 31,~~June 30, 2019, the Company had an aggregate of ~~896,712~~261,538 outstanding warrants to purchase shares of its common stock with a weighted average exercise price of ~~$1.19,~~$2.81, a weighted average remaining life of ~~0.8~~3.35 years and an aggregate intrinsic value of ~~$2,522,391,~~$19,000, based upon a stock valuation of ~~$4.00~~$1.26 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.

Warrant liability

In March 2019, the Company issued warrants to two convertible note holders pursuant to the anticipated completion of the Company’s IPO (the IPO was completed on April 9, 2019). Due to the variable terms of both the exercise price and the number of warrants to be issued, the warrants were accounted for as derivative liabilities at March 31, 2019. At March 31, 2019, the Company estimated that the issuance of 109,038 warrants with an exercise price of $2.88 per share would correspond to the number of shares of common stock that the holders would receive in connection with the completion of the IPO.. The fair value of the warrants at the closing of the IPO was determined to be $359,683 using a Black-Scholes model with a weighted average remaining life of 4.94 years and a stock valuation of $3.30 per share. Upon completion of the IPO, the exercise price and the number of warrants were fixed and the warrants no longer accounted for as liabilities. As such the fair value of the warrant liability of $359,683 was reclassified to equity.

On April 4, 2019, the Company issued 62,500 warrants with an exercise price of $5.00 per share to the underwriter (the “Underwriter”) in connection with the Company’s IPO. The Company accounted for these warrants as a derivative liability in the financial statements at June 30, 2019 because they were associated with the IPO, a registered offering, and 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. The fair value of the warrants at the date of issuance was determined to be $229,291 and was recorded as a finance cost. As of June 30, 2019, the fair value of the warrants was determined to $78,440.

The fair value of the warrant liability was determined at the following issuance and reporting dates using the Black-Scholes-Merton option pricing model and the following assumptions:

	Convertible Noteholders			Underwriter			Warrant Liability As of
	Upon Issuance			Upon Issuance			June 30,2019
Stock price	$	4.00		$	3.68		$	1.26
Risk free interest rate		2.34 – 2.39	%		2.29	%		1.71	%
Expected volatility		138	%		137	%		145	%
Expected life in years		5.00			5.00			4.76
Expected dividend yield		0	%		0	%		0	%
Number of warrants		109,038			62,500			62,500
Fair value of warrants	$	436,034		$	229,921		$	78,440

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)		Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)
December 31, 2018		1,362,500		2.26		3.78		1,362,500		2.26		3.78
Granted		-		-		-		1,250,000		2.11		2.29
Forfeitures		-		-		-		-		-		-
Expirations		-		-		-		-		-		-
Exercised		-		-		-		-		-		-
March 31, 2019, outstanding		1,362,500	$	2.26		3.53
March 31, 2019, exercisable		1,287,500	$	2.24		3.67
June 30, 2019, outstanding								2,612,500	$	3.28		4.00
June 30, 2019, exercisable								1,391,667	$	2.41		3.46

The exercise prices of options outstanding and exercisable as of ~~March 31,~~June 30, 2019 are as follows:

Options Outstanding
(Shares)

Options Exercisable
(Shares)
Exercise Prices
625,000 625,000 $ 2.00
62,500 62,500 2.30
675,000 600,000 2.50
1,362,500 1,287,500

Options Outstanding (Shares)		Options Exercisable (Shares)		Exercise Prices
	625,000		625,000	$	2.00
	62,500		62,500		2.30
	675,000		600,000		2.50
	1,250,000		104,167		4.40
	2,612,500		1,391,667

AsDuring the six months ended June 30, 2019, the Company granted options to purchase 1,250,000 shares of ~~March 31,~~common stock to the Company’s Chairman and CEO with a grant date fair of $4,122,750. The options will vest on a quarterly basis over three years. The Company accounts share-based payments to employees in accordance with ASC 718 wherein grants are measured at the grant date fair value and charged to operations over the vesting period. During the period ended June 30, 2019, ~~options~~compensation cost of $1, 066,159 was recognized during the period relating the amortization of this award.

During the period ended June 30, 2019, option awards were valued based upon the Black-Scholes option-pricing model, with a stock price ofranging from $3.30 to $4.00 per share, volatility ofranging from 115% to 138%, and an average risk-free rate ~~of 2.21%~~ranging from 2.31% to 2.46%.

During the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018, we recognized aggregate stock-compensation expense of ~~$56,232~~$1,309,155 and ~~$777,513,~~$1,054,885, respectively, based upon stock prices ranging from ~~$2.30~~$3.30 to $4.00 per share, all of which was recorded in general and administrative expense.

As of ~~March 31,~~June 30, 2019, the Company had an aggregate of ~~75,000~~1,220,833 remaining unvested options outstanding, with a total estimated fair value of ~~$138,516,~~$3,132,532, weighted average exercise price of ~~$2.50,~~$4.28, and weighted average remaining life of ~~2.8~~4.61 years. ~~The Company remeasures unvested options for non-employees to fair value at the end of each reporting period.~~ The aggregate intrinsic value of options outstanding as of ~~March 31,~~June 30, 2019 was ~~$2,368,750.~~$0.

11.	Related Party Transactions

During the ~~three~~six months ended ~~March 31,~~June 30, 2019 and ~~March 31,~~ 2018, the Company incurred and paid ~~$75,000~~$150,000 and ~~68,750,~~137,500, respectively, of salary expense to our Board Chairman and CEO, Mr. Michael Favish.

~~12.~~

~~Subsequent Events~~

~~On April 9, 2019,~~ In addition, compensation cost of $1,066,159 was recognized on amortization of stock option awards during the Company closed the IPO and issued 1,250,000 shares of its common stock at a public offering price of $4.00 per share for total gross proceeds of $5.0 million, resulting in net proceeds to the Company of $3,945,000 after deducting underwriting discounts and commissions and other offering costs and expenses payable by Guardion. The shares began trading on the Nasdaq Capital Market on April 5, 2019, under the symbol “GHSI.” In connection with the IPO, the convertible promissory notes previously issued on March 15, 2019 and March 20, 2019 were automatically converted into 109,038 shares of common stock based on a conversion price of $2.30 per share.period ended June 30, 2019.

~~The following table sets forth the Company’s cash, debt and derivative liabilities, and stockholders’ equity as of March 31, 2019 on:~~

~~● an actual basis; and~~

● a pro forma basis giving effect to (i) the issuance of 109,038 shares of common stock to be issued upon the mandatory conversion of the principal amount and accrued interest of the convertible promissory notes issued in March 2019, (ii) the extinguishment of the corresponding derivative liability, and (iii) the sale and issuance by the Company of 1,250,000 shares of common stock in this offering at the public offering price of $4.00 per share, resulting in net proceeds to the Company of $3,945,000 after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company.

As of March 31, 2019
Actual Pro Forma
Cash and cash equivalents $ 174,298 $ 4,119,298
Other current assets 370,066 370,066
Non-current assets 3,426,559 3,426,559
Total assets $ 3,970,923 $ 7,915,923

Derivative warrant liability $ 436,034 $ -
Convertible notes payable 17,024 -
Other current liabilities 1,116,134 1,116,134
Lease liability – long term 513,585 513,585
Total liabilities 2,082,777 1,629,719

Stockholders’ equity:
Common stock 20,857 22,216
Additional paid-in capital 37,885,751 42,282,450
Accumulated deficit (36,018,462 ) (36,018,462 )
Total stockholders’ equity 1,888,146 6,286,204
Total liabilities and stockholders’ equity $ 3,970,923 $ 7,915,923

~~On April 11, 2019, the Company repaid its promissory note previously issued on March 12, 2019, for a total of $100,849 including accrued interest.~~

~~On April 12, 2019, an investor exercised warrants for 26,250 shares of common stock. The warrants were exercisable for $0.50 per share, and the Company received $13,125 in cash.~~

On April 5 and 17, 2019, investors exercised a total of 275,000 warrants on a cashless basis resulting in the issuance of 229,365 shares of common stock. The warrants were exercisable for $0.50 and $2.00 per share.

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 and our audited financing statements for the year ended December 31, 2018, and the notes thereto, which are set forth in the 2018 Form 10-K. All dollar amounts refer to U.S. dollars unless otherwise indicated.

Overview

Guardion Health Sciences, Inc. (the “Company” or “we”) was formed in December 2009 in California as a limited liability company under the name P4L Health Sciences, LLC, and it subsequently changed its name to Guardion Health Sciences, LLC. On June 30, 2015, the Company converted from a California limited liability company to a Delaware corporation, changing its name 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. 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. The Company believes this risk may be modified by taking Lumega-Z to maintain a healthy macular protective pigment. Additional research has also shown a depleted macular protective pigment to be a biomarker for neurodegenerative diseases such as Alzheimer’s disease and dementia.

The Company invented a proprietary technology, embodied in the Company’s medical device, the MapcatSF^®that accurately measures the macular pigment optical density (“MPOD”). On November 8, 2016, the United States Patent and Trademark Office (“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 accurately measures 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 the first medical device using a patented “single fixation” process and “automatic lens density correction” that produces accurate serialized data.

In September 2017, the Company, through its wholly-owned subsidiary VectorVision Ocular Health, Inc. (“VectorVision”), acquired substantially all of the assets and certain liabilities of VectorVision, Inc., a company that specialized in the standardization of contrast sensitivity, glare sensitivity, low contrast acuity, and early treatment diabetic retinopathy study (“ETDRS”) visual acuity testing. VectorVision’s standardization system is 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 develops, manufactures and sells equipment and supplies for standardized vision testing for use by eye doctors in clinical trials, for real-world vision evaluation, and industrial vision testing. The acquisition expanded the Company’s technical portfolio. CSV-1000 and CSV-3000 instruments offer auto-calibrated tests to ensure correct testing luminance and contrast levels for consistent, highly accurate and repeatable results. Recently issued patents the Company received for continuously calibrating the light source will be incorporated into the new CSV-2000, in which the proprietary standardized contrast sensitivity test patterns can be presented to the patient using a computer monitor as opposed to the current calibrated backlit system. The Company believes the acquisition of VectorVision further establishes its position at the forefront of early detection, intervention and monitoring of a range of eye diseases.

The Company has had limited operations to date and has been primarily engaged in research and development, product commercialization and capital raising activities.

By combining the MapcatSF medical device, the newly acquired VectorVision standardized vision testing technology and Lumega-Z medical food, the Company has developed, based on Management’s knowledge of the industry, what it believes to be the only reliable three-pronged, evidence-based protocol for replenishing and restoring the macular protective pigment, increasing overall retinal health and measuring the related improvements in visual function.

Recent Developments

Initial Public Offering

On April 9, 2019, the Company closed its initial public offering (the “IPO”) of 1,250,000 shares of common stock, par value $0.001 per share, at an IPO price to the public of $4.00 per share resulting in net proceeds to the Company of ~~$3,945,000~~$3,888,000 after all costs and expenses. The shares began trading on the NASDAQ Capital Market on April 5, 2019 under the symbol “GHSI.”

Products

Lumega-Z has been used in IRB-approved patient studies to examine its effectiveness. On May 9, 2019, the Company announced in a press release a recent study that showed statistically significant improvement in visual function (“CSF”) of patients taking Lumega-Z who participated in the study. The study was conducted by research scientists at the Western University College of Optometry to evaluate the visual benefits of Lumega-Z in one group of patients as compared to a group of patients taking AREDS 2 soft gel supplements. Each patient has retinal drusen and is at risk of developing AMD. The results of the study were presented at the Association for Research in Vision and Ophthalmology (“ARVO”) 2019 annual meeting and showed improvements in visual function (“CSF”) in the group of patients taking Lumega-Z that were statistically significant and definitive. The patients taking AREDS 2 showed no statistical change.

On June 4, 2019, the Company announced in a press release that the parent compound of the GlaucoCetin^TM formula was used in an IRB-approved patient study conducted at the New York Eye and Ear Infirmary and successfully reversed mitochondrial dysfunction in the optic nerve cells in patients with glaucoma. GlaucoCetin^TM is an enhanced formulation of GlaucoHealth. The Company owns both formulas and has a patent application pending on the GlaucoCetin^TM formula. The application describes an invention that provides a micro-nutrient composition for a human subject suffering from a glaucomatous disease, wherein the micro-nutrient composition comprises a formulation for reversing mitochondrial dysfunction in glaucomatous disease.

Patents

On July 16, 2019, the Company was notified by the Patents Registry in Hong Kong that it has received a patent from the Government of the Hong Kong Special Administrative Region (Hong Kong Patent No. HK1204758 titled “Apparatus for Use in the Measurement of Macular Pigment Optical Density and/or Lens Optical Density of an Eye”) for the MapcatSF^®.

On May 30, 2019, the Company was notified by the European Patent Office that it has received a patent from the European Union (European Patent No. 2,811,892 titled “Apparatus for Use in the Measurement of Macular Pigment Optical Density and/or Lens Optical Density of an Eye”) for the MapcatSF^®.

Trademarks

On April 25, 2019, the Company was notified by the State Intellectual Property Office of the People’s Republic of China (“China”) that the Company has been granted trademark registrations in China for its proprietary medical food, Lumega-Z (Registration No. 27151643), and for its proprietary and patented medical device, the MapcatSF (Registration No. 27151644). The trademark registration for the mark LUMEGA-Z is effective from November 7, 2018 to November 6, 2028. The trademark registration for the mark MAPCAT SF is effective from October 28, 2018 to October 27, 2028.

Going Concern

The Company’s independent registered public accounting firm has also included explanatory language in their opinion accompanying the Company’s audited financial statements for the year ended December 31, 2018. 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 continued commercialization activities related to Lumega-Z, the MapcatSF^®medical device, VectorVision products, the TDSI business and ~~VectorVision products.~~with respect to efforts to continue 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 new complementary products or product lines. On April 9, 2019, the Company completed the IPO, resulting in net cash proceeds of ~~$3,945,000~~$3,888,000 to the Company. The Company is seeking 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.

Reverse Stock Split

On January 30, 2019, following stockholder and Board approval, the Company filed a Certificate of Amendment to its Amended Certificate of Incorporation, as amended (the “Amendment”), with the Secretary of State of the State of Delaware to effectuate a one-for-two (1:2) reverse stock split (the “Reverse Stock Split”) of its common stock, par value $0.001 per share, without any change to its par value. The Amendment became effective on the filing date. The number of shares authorized for common and preferred 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. Proportional adjustments for the Reverse Stock Split were made to the Company’s outstanding common stock, stock options, and warrants as if the split occurred at the beginning of the earliest period presented.

Recent Accounting Pronouncements

See Note 2 to the condensed consolidated financial statements for the period ended June 30, 2019 for management’s discussion of recent accounting pronouncements.

Concentration of Risk

Cash balances are maintained at large, well-established financial institutions. At times, cash balances may exceed federally insured limits. Insurance coverage limits are $250,000 per depositor at each financial institution. The Company has never experienced any losses related to these balances.

Critical Accounting Policies and Estimates

The Company’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of its 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. The Company’s financial statements included herein include all adjustments, consisting of only normal recurring adjustments, necessary to present fairly the Company’s 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 the Company’s financial statements.

Intangible Assets

In connection with the VectorVision transaction, the Company identified and allocated estimated fair values to intangible assets including goodwill and customer relationships.

In accordance with Accounting Standard Codification (“ASC”) 350 – Intangibles – Goodwill and Other, the Company determined whether these assets are expected to have indefinite (such as goodwill) or limited useful lives, and for those with limited lives, the Company established an amortization period and method of amortization. The Company’s goodwill and other intangible assets are subject to periodic impairment testing.

The Company utilized the services of an independent third-party valuation firm to assist it in identifying intangible assets and in estimating their fair values. The useful lives for its intangible assets other than goodwill were estimated based on Management’s consideration of various factors, including assumptions that market participants might use about sales expectations as well as potential effects of obsolescence, competition, technological progress and the regulatory environment. Because the future pattern in which the economic benefits of these intangible assets may not be reliably determined, amortization expense is generally calculated on a straight-line basis.

The Company reviews all intangible assets for impairment when circumstances indicate that their carrying values may not be recoverable. If the carrying value of an asset group is not recoverable, the Company recognizes an impairment loss for the excess carrying value over the fair value in its consolidated statements of operations. As of ~~March 31,~~June 30, 2019 and December 31, 2018, the Company was not aware of the existence of any indicators of impairment of its intangibles at such dates.

Goodwill

Goodwill represents the excess of the purchase consideration over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. The Company evaluates goodwill for impairment on an annual basis or whenever events and changes in circumstances suggest that the carrying amount may not be recoverable. The Company conducts its annual impairment analysis in the beginning of the fourth quarter of each fiscal year. Impairment of goodwill is tested at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit. Estimations and assumptions regarding the number of reporting units, future performances, results of the Company’s operations and comparability of its market capitalization and net book value will be used. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and an impairment loss is measured by the resulting amount. As of ~~March 31,~~June 30, 2019 and December 31, 2018, the Company was not aware of the existence of any indicators of impairment of its goodwill at such dates.

Stock-Based Compensation

Stock-based payments to officers, directors, and 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.

In prior periods, thethe Company accounted 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. On January 1, 2019, the Company adopted Accounting Standards Update (ASU) 2018-07 which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. Non-employee stock-based compensation charges generally are amortized over the vesting period using a graded vesting 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 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. Due to the availability of historical data from the Company’s recent preferred stock sales, Management used a valuation of ~~$2.30~~$1.15 for accounting purposes during the first ~~quarter~~six months of 2018. Management used a valuation $4.00 for the first quarter of 2019. Management considered business and market factors affecting the Company during these periods, including capital raising efforts, its proprietary technology, and other factors. Based on this evaluation, management believes that its valuations are appropriate for accounting purposes ~~at March 31, 2019 and 2018, respectively.~~during these periods. Closing prices of our common stock ranging from $1.26 to $3.30 were used in our fair value calculations during the second quarter of 2019.

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.

Plan of Operations

General Overview

Based on the availability of sufficient funding, the Company intends to increase its commercialization activities and:

	●	further the commercial production of the MapcatSF;
	●	expand the Company’s domestic sales and marketing efforts;
	●	explore sales and marketing opportunities in foreign markets such as Asia and Europe;
	●	increase production of Lumega-Z and GlaucoCetin^TM to support the additional sales resulting from the deployment of additional MapcatSF units and increased marketing and promotional activity;
	●	commence certain FDA electrical safety testing of the MapcatSF;
	●	increase focus on intellectual property protection and strategy;
	●	expand the sales and marketing of the VectorVision product line;
	●	develop the TDSI business and operations; and
	●	explore opportunities and channels to enter the expansive market opportunity in China for non-pharmacologic treatments of macular degeneration, glaucoma and diabetic retinopathy.

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. The Company is in discussions with its 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 company 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, the Company expects to complete applicable IEC 60601-1 testing prior to commercialization because the Company believes in marketing a product that has evidence that it is safe and effective.

Results of Operations

Through ~~March 31,~~June 30, 2019, the Company had limited operations and has primarily been engaged in product development, commercialization, and raising capital. The Company has incurred and will continue to incur significant expenditures for the development of its products and intellectual property, which includes both medical foods and medical diagnostic equipment for the treatment of various eye diseases. The Company had limited revenue during the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018.

Comparison of Three Months Ended ~~March 31,~~June 30, 2019 and 2018

	Three Months Ended March 31,											Three Months Ended June 30,
	2019			2018			Change					2019			2018			Change
Revenue	$	242,538		$	193,040		$	49,498		26	%	$	260,970		$	220,778		$	40,192		18	%
Cost of goods sold		93,492			79,278			14,214		18	%		97,056			87,776			9,280		11	%
Gross Profit		149,046			113,762			35,284		31	%		163,914			133,002			30,912		23	%
Operating Expenses:
Research and development		29,028			159,588			(130,560	)	(82	)%		77,688			34,320			43,368		126	%
Sales and marketing		353,537			605,990			(252,453	)	(42	)%		409,409			378,750			30,659		8	%
General and administrative		947,974			1,680,810			(732,836	)	(44	)%		2,489,011			1,034,914			1,454,097		141	%
Total Operating Expenses		1,330,539			2,446,388			(1,115,849	)	(46	)%		2,976,108			1,447,984			1,528,124		106	%
Loss from Operations		(1,181,493	)		(2,332,626	)		1,151,133		(49	)%		(2,812,194	)		(1,314,982	)		(1,497,212	)	114	%
Other Expense:
Interest expense		17,572			835			16,737		2004	%		234,065			710			233,355		32,867	%
Fair value of warrants		186,034			-			186,034		100	%
Finance cost upon issuance of warrants													229,921			-			229,921		100	%
Change in fair value of derivative warrants													(227,832	)		-			(227,832	)	100	%
Costs associated with extension of warrant expiration dates													-			494,391			(494,391	)	(100	)%
Net Loss	$	(1,385,099	)	$	(2,333,461	)	$	948,362		(41	)%	$	(3,048,348	)	$	(1,810,083	)	$	(1,238,265	)	68	%

Revenue

For the three months ended ~~March 31,~~June 30, 2019, revenue from product sales was ~~$242,538~~$260,970 compared to ~~$193,040~~$220,788 for the three months ended ~~March 31,~~June 30, 2018, resulting in an increase of ~~$49,498~~$40,192 or ~~26%~~18%. The increase reflects both an increased customer base for Lumega-Z as the Company expands into new clinics and increased sales of VectorVision products. The Company also earned $6,300 in revenue from its TDSI business during the three months ended June 30, 2019.

Cost of Goods Sold

For the three months ended ~~March 31,~~June 30, 2019, cost of goods sold was ~~$93,492~~$97,056 compared to ~~$79,278~~$87,776 for the three months ended ~~March 31,~~June 30, 2018, resulting in an increase of ~~$14,214~~$9,280 or ~~18%~~11%. The increase reflects the additional sales recorded in 2018.

Gross Profit

For the three months ended ~~March 31,~~June 30, 2019, gross profit was ~~$149,046~~$163,914 compared to ~~$113,762~~$133,002 for the three months ended ~~March 31,~~June 30, 2018, resulting in an increase of ~~$35,284~~$30,912 or ~~31%~~23%. Gross profit represented ~~61%~~63% of revenues the three months ended ~~March 31,~~June 30, 2019, versus ~~59%~~60% of revenue for the three months ended ~~March 31,~~June 30, 2018. The increase in gross profit in 2019 was due primarily to pricing and product mix changes in 2019.

Research and Development

For the three months ended ~~March 31,~~June 30, 2019, research and development costs were ~~$29,028~~$77,688 compared to ~~$159,588~~$34,320 for the three months ended ~~March 31,~~June 30, 2018, resulting in ~~a decrease~~an increase of ~~$130,560~~$43,368 or ~~82%~~126%. The ~~decrease~~increase was due to ~~reduced~~ engineering development costs associated with the Company’s ~~MapcatSF medical device during~~CSV-2000 product in 2019.

Sales and Marketing

For the three months ended ~~March 31,~~June 30, 2019, sales and marketing expenses were ~~$353,537~~$409,409 compared to ~~$605,990~~$378,750 for the three months ended ~~March 31,~~June 30, 2018. The ~~decrease~~increase in sales and marketing expenses of ~~$252,453~~$30,659 or ~~42%~~8% compared to the prior period was primarily due to increased trade show costs ~~associated with engagement of a third-party contract sales organization~~and consulting fees in ~~2018. The contract sales agreement was cancelled during~~ the ~~second quarter of 2018.~~current quarter.

General and Administrative

For the three months ended ~~March 31,~~June 30, 2019, general and administrative expenses were ~~$947,974~~$2,489,011 compared to ~~$1,680,810~~$1,034,914 for the three months ended ~~March 31,~~June 30, 2018. The ~~decrease~~increase of ~~$732,836~~$1,454,097 or ~~44%~~141% compared to the prior period was primarily due to ~~a decrease~~an increase in non-cash stock compensation costs during the current period of approximately $976,000. Additionally, expenses for corporate insurance, investor relations, labor, legal and professional fees, and travel have increased versus the prior period.

Interest Expense

For the three months ended ~~March 31,~~June 30, 2019, interest expense was ~~$17,572~~$234,065 compared to ~~$835~~$710 for the three months ended ~~March 31,~~June 30, 2018. The increase of ~~$16,737 or 2004%,~~233,355 compared to the prior period was due primarily to ~~non-cash~~the amortization of the valuation discount of the March 2019 convertible notes of $233,455 that was reflected as an expense ~~related to~~when the ~~debt discount associated warrants issued~~notes were converted. There were no such costs for the comparable period in ~~March 2019.~~2018.

Finance Cost Upon Issuance of Warrants

Finance costs for the three months ended June 30, 2019 were $229,921.There were no such costs for the comparable period in 2018. On April 4, 2019, the Company issued 62,500 warrants with an exercise price of $5.00 per share to the underwriter (the “Underwriter”) in connection with the Company’s IPO. The Company accounted for these warrants as a derivative liability in the financial statements at June 30, 2019 because they were associated with the IPO, a registered offering, and the settlement provisions contained language that the shares underlying the warrants are required to be registered. The fair value of the warrants at the date of issuance was determined to be $229,291 and was recorded as a finance cost.

Change in Fair Value of Derivative Warrants

The change in fair value of the derivative warrant liability was a decrease of $227,832 for the three months ended June 30, 2019.There were no such costs for the comparable period in 2018.In March 2019, the Company issued warrants to two convertible note holders pursuant to the anticipated completion of the Company’s IPO (the IPO was completed on April 9, 2019). Due to the variable terms of both the exercise price and the number of warrants to be issued, the warrants were accounted for as derivative liabilities at March 31, 2019 with a fair value of $436,034. Upon completion of the IPO on April 9, 2019, the exercise price and the number of warrants were fixed and the warrants no longer accounted for as liabilities. As such the fair value of the warrant liability of $359,683 was reclassified to equity and the remaining liability of $76,351 was recorded as a change in fair value of derivative liabilities in the Statements of Operations.

On April 4, 2019, the Company issued 62,500 warrants with an exercise price of $5.00 per share to the Underwriter in connection with the Company’s IPO. The Company accounted for these warrants as a derivative liability in the financial statements at June 30, 2019 because they were associated with the IPO, a registered offering, and the settlement provisions contained language that the shares underlying the warrants are required to be registered. The fair value of the warrants will be remeasured at each reporting period, with the change in the fair value recognized in earnings in the accompanying Statements of Operations. The fair value of the warrants at the date of issuance was determined to be $229,291 and was recorded as a finance cost. As of June 30, 2019, the fair value of the warrant liability was determined to be $78,440 and the Company recorded a change in fair value of derivative warrants of $151,481 in the Statements of Operations.

Costs associated with extension of warrant expiration dates

During ~~March 2019,~~April and May of 2018, the Company ~~issued $250,000 of convertible promissory notes~~offered exercise period extensions to ~~two investors. the notes were convertible upon the completion of the IPO, into 109,038~~stockholders who held warrants to purchase shares of common ~~stock. in connection with the notes,~~stock of the Company ~~also issued 109,038 warrants~~that were scheduled to expire on May 1, 2018. The Company recognized expense of $494,391 relating to the ~~investors. See Note 9~~extension of the ~~condensed consolidated financial statements for details~~exercise period of the ~~notes and associated warrants.~~warrants using a Black-Scholes option-pricing model to estimate fair value.

Net Loss

For the three months ended ~~March 31,~~June 30, 2019, the Company incurred a net loss of ~~$1,385,099,~~$3,048,348, compared to a net loss of ~~$2,333,461~~$1,810,083 for the three months ended ~~March 31,~~June 30, 2018. The ~~decrease~~increase in net loss of ~~$948,362~~$1,238,265 or ~~41%~~68% compared to the prior year period was primarily due to ~~a decrease~~an increase in non-cash stock compensation costs of approximately $976,000. In addition, engineering costs as well as corporate operating expenses increased during the current period.

Segment Information

As of ~~March 31,~~June 30, 2019, Management ~~reports~~reported its operating results in two operating segments: Medical Foods, and Vision Testing Diagnostics. As of ~~March 31,~~June 30, 2019, the TDSI subsidiary does not ~~yet earn revenues or~~ meet the required quantitative criteria to be considered a reportable operating segment.

	i.	Medical Foods – Our Medical Foods segment develops, formulates and distributes 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. We have also invented a proprietary technology, embodied in a medical device, the MapcatSF,^®that accurately measures the macular pigment optical density (“MPOD”). 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 Company has also developed a new medical food product, GlaucoCetin^TM, which the Company believes is the first vision-specific medical food designed to support and protect the mitochondrial function of optic nerve cells and improve blood flow in the ophthalmic artery in patients with glaucoma. GlaucoCetin^TM combines a unique set of ingredients, specifically designed to stop or potentially reverse the underlying cause of optic nerve loss, and ultimately vision loss, in patients with glaucoma.

	ii.	Vision Testing Diagnostics – Our Vision Testing Diagnostics segment, under the brand name VectorVision, specializes in the standardization of contrast sensitivity, glare sensitivity, low contrast acuity, and early treatment diabetic retinopathy study (“ETDRS”) visual acuity testing. VectorVision’s standardization system is 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 develops, manufactures and sells equipment and supplies for standardized vision testing for use by eye doctors in clinical trials, for real-world vision evaluation, and industrial vision testing.

The following tables set forth our results of operations by segment ~~(expenses~~(results allocated to ~~Corporate~~Other consist of non-cash stock compensation expense, depreciation and amortization, ~~and~~ corporate legal ~~fees)~~fees, and the TDSI operations):

	For the Three Months Ended March 31, 2019												For the Three Months Ended June 30, 2019
	Corporate			Medical Foods			Vision Testing Diagnostics			Total			Other			Medical Foods			Vision Testing Diagnostics			Total

Revenue	$	-		$	99,934		$	142,604		$	242,538		$	6,300		$	104,448		$	150,222		$	260,970

Cost of goods sold		-			38,272			55,220			93,492			2,559			40,681			53,816			97,056

Gross profit		-			61,662			87,384			149,046			3,741			63,767			96,406			163,914

Operating expenses		334,774			884,701			111,063			1,330,539			1,594,719			1,175,027			206,362			2,976,108

Loss from operations	$	(334,775	)	$	(823,039	)	$	(23,679	)	$	(1,181,493	)	$	(1,590,978	)	$	(1,111,260	)	$	(109,956	)	$	(2,812,194	)

For the Three Months Ended March 31, 2018
Corporate Medical Foods Vision Testing Diagnostics Total

Revenue $ - $ 72,138 $ 120,902 $ 193,040

Cost of goods sold - 32,188 47,090 79,278

Gross profit - 39,950 73,812 113,762

Operating expenses 1,073,400 1,320,627 52,361 2,446,388

Loss from operations $ (1,073,400 ) $ (1,280,677 ) $ 21,451 $ (2,332,626 )

	For the Three Months Ended June 30, 2018
	Other			Medical Foods			Vision Testing Diagnostics		Total

Revenue	$	-		$	79,993		$	140,785	$	220,778

Cost of goods sold		-			40,959			46,817		87,776

Gross profit		-			39,034			93,968		133,002

Operating expenses		468,630			893,925			85,429		1,447,984

Loss from operations	$	(468,630	)	$	(854,891	)	$	8,539	$	(1,314,982	)

For the three months ended ~~March 31,~~June 30, 2019, revenue from our Medical Foods segment was ~~$99,934~~$104,448 compared to ~~$72,138~~$79,993 for the three months ended ~~March 31,~~June 30, 2018, resulting in an increase of ~~$27,796~~$24,455 or ~~39%~~31%. The increase reflects an increased customer base for Lumega-Z as the Company expands into new clinics. For the three months ended ~~March 31,~~June 30, 2019, revenue from our Vision Testing Diagnostics segment was ~~$142,604~~$150,222 compared to ~~$120,902~~$140,785 for the three months ended ~~March 31,~~June 30, 2018, resulting in an increase of ~~$21,702~~$9,437 or ~~18%~~7%. The increase was due to increased distributor sales in 2019. The Company also earned $6,300 in diagnostic imaging services revenue from its TDSI business during the three months ended June 30, 2019, as shown in the Other category above.

Cost of Goods Sold

For the three months ended ~~March 31,~~June 30, 2019, cost of goods sold from our Medical Foods segment was ~~$38,272~~$40,681 compared to ~~$32,188~~$40,959 for the three months ended ~~March 31,~~June 30, 2018, resulting in ~~an increase~~a decrease of ~~$6,084~~$278 or ~~19%~~1%. For the three months ended ~~March 31,~~June 30, 2019, cost of goods sold from our Vision Testing Diagnostics segment was ~~$55,220~~$53,816 compared to ~~$47,090~~$46,817 for the three months ended ~~March 31,~~June 30, 2018, resulting in an increase of ~~$8,130~~$6,999 or ~~17%~~15%. The increase for both segments reflects the additional sales recorded in 2018.

Gross Profit

For the three months ended ~~March 31,~~June 30, 2019, gross profit from the Medical Foods segment was ~~$61,662~~$63,767 compared to ~~$39,950~~$39,034 for the three months ended ~~March 31,~~June 30, 2018, resulting in an increase of ~~$21,712~~$24,733 or ~~54%~~63%. For the three months ended ~~March 31,~~June 30, 2019, gross profit from the Vision Testing Diagnostics segment was ~~$87,384~~$96,406 compared to ~~$73,812~~$93,968 for the three months ended ~~March 31,~~June 30, 2018, resulting in an increase of ~~$13,572~~$2,438 or ~~18%~~3%. The increase is due to the additional sales recorded for both segments in the current year. Gross profit overall represented ~~61%~~63% of revenues for the three months ended ~~March 31,~~June 30, 2019, versus ~~59%~~60% of revenue for the three months ended ~~March 31,~~June 30, 2018. The increase in ~~gross profit in 2018~~2019 was due increased sales and to pricing and product mix changes in 2019.

Comparison of Six Months Ended June 30, 2019 and 2018

	Six Months Ended June 30,
	2019			2018			Change
Revenue	$	503,508		$	413,818		$	89,690		22	%
Cost of goods sold		190,548			167,055			23,493		14	%
Gross Profit		312,960			246,763			66,197		27	%
Operating Expenses:
Research and development		106,716			194,708			(87,992	)	(45	)%
Sales and marketing		764,028			984,464			(220,436	)	(22	)%
General and administrative		3,439,633			2,714,680			724,953		27	%
Total Operating Expenses		4,310,377			3,893,852			416,525		11	%
Loss from Operations		(3,997,417	)		(3,647,089	)		(350,328	)	10	%
Other Expense:
Interest expense		251,637			1,545			250,092		16,187	%
Finance cost upon issuance of warrants		415,955			-			415,955		100	%
Change in fair value of derivative warrants		(227,832	)		-			(227,832	)	100	%
Costs associated with extension of warrant expiration dates		-			494,391			(494,391	)	(100	)%
Net Loss	$	(4,437,177	)	$	(4,143,025	)	$	(294,152	)	7	%

Revenue

For the six months ended June 30, 2019, revenue from product sales was $503,508 compared to $413,818 for the six months ended June 30, 2018, resulting in an increase of $86,690 or 22%. The increase reflects both an increased customer base for Lumega-Z as the Company expands into new clinics and increased sales of VectorVision products. The Company also earned $6,300 in revenue from its TDSI business during the three months ended June 30, 2019.

Cost of Goods Sold

For the six months ended June 30, 2019, cost of goods sold was $190,548 compared to $167,055 for the six months ended June 30, 2018, resulting in an increase of $23,493 or 14%. The increase results primarily from costs associated with the additional sales recorded in 2019 as compared to 2018.

Gross Profit

For the six months ended June 30, 2019, gross profit was $312,960 compared to $246,763 for the six months ended June 30, 2018, resulting in an increase of $66,197 or 27%. Gross profit represented 62% of revenues for the six months ended June 30, 2019, versus 60% of revenue for the six months ended June 30, 2018. The increase in gross profit in 2019 was due primarily to pricing and product mix changes in 2019.

Research and Development

For the six months ended June 30, 2019, research and development costs were $106,716 compared to $194,708 for the six months ended June 30, 2018, resulting in a decrease of $87,992 or 45%. The decrease was due to reduced engineering development costs associated with the Company’s MapcatSF medical device during 2019 partially offset by engineering costs associated with the Company’s CSV-2000 product.

Sales and Marketing

For the six months ended June 30, 2019, sales and marketing expenses were $764,028 compared to $984,464 for the six months ended June 30, 2018. The decrease in sales and marketing expenses of $220,436 or 22% compared to the prior period was primarily due to costs associated with engagement of a third-party contract sales organization in 2018. The contract sales agreement was cancelled during the second quarter of 2018.

General and Administrative

For the six months ended June 30, 2019, general and administrative expenses were $3,439,633 compared to $2,714,680 for the six months ended June 30, 2018. The increase of $724,953 or 27% compared to the prior period was primarily due to an increase in non-cash stock compensation costs during the current period of approximately $254,000. Additionally, expenses for corporate insurance, investor relations, labor, legal and professional fees, and travel have increased versus the prior period.

Interest Expense

For the six months ended June 30, 2019, interest expense was $251,637 compared to $1,545 for the six months ended June 30, 2018. The increase of $250,092 compared to the prior period was due primarily to the amortization of the valuation of the March 2019 convertible notes of $250,000 that was reflected as an expense when the notes were converted. There were no such costs for the comparable period in 2018.

Finance Cost Upon Issuance of Warrants

Finance costs for the six months ended June 30, 2019 of $415,955 include the following; (I) In March 2019, the Company issued warrants to two convertible note holders pursuant to the anticipated completion of the Company’s IPO (the IPO was completed on April 9, 2019). Due to the variable terms of both the exercise price and the number of warrants to be issued, the warrants were accounted for as derivative liabilities at March 31, 2019. The fair value of the warrants at the closing of the IPO was determined to be $436,034, of which $250,000 was recorded as a valuation discount, and $186,034 was recorded as a finance cost. (II) On April 4, 2019, the Company issued 62,500 warrants with an exercise price of $5.00 per share to the Underwriter in connection with the Company’s IPO. The Company accounted for these warrants as a derivative liability in the financial statements at June 30, 2019 because they were associated with the IPO, a registered offering, and the settlement provisions contained language that the shares underlying the warrants are required to be registered. The fair value of the warrants at the date of issuance was determined to be $229,291 and was recorded as a finance cost.There were no such costs for the comparable period in 2018.

Change in Fair Value of Derivative Warrants

The change in fair value of the derivative warrant liability was a decrease of $227,832 for the six months ended June 30, 2019.There were no such costs for the comparable period in 2018.In March 2019, the Company issued warrants to two convertible note holders pursuant to the anticipated completion of the Company’s IPO (the IPO was completed on April 9, 2019). Due to the variable terms of both the exercise price and the number of warrants to be issued, the warrants were accounted for as derivative liabilities at March 31, 2019 with a fair value of $436,034. Upon completion of the IPO on April 9, 2019, the exercise price and the number of warrants were fixed and the warrants no longer accounted for as liabilities. As such the fair value of the warrant liability of $359,683 was reclassified to equity and the remaining liability of $76,351 was recorded as a change in fair value of derivative liabilities in the Statements of Operations.

Costs associated with extension of warrant expiration dates

During April and May of 2018, the Company offered exercise period extensions to stockholders who held warrants to purchase shares of common stock of the Company that were scheduled to expire on May 1, 2018. The Company recognized expense of $494,391 relating to the extension of the exercise period of the warrants using a Black-Scholes option-pricing model to estimate fair value.

Net Loss

For the six months ended June 30, 2019, the Company incurred a net loss of $4,437,177, compared to a net loss of $4,143,025 for the six months ended June 30, 2018. The increase in net loss of $294,152 or 7% compared to the prior year period was primarily due to an increase in non-cash stock compensation costs of approximately $254,000. In addition, expenses for corporate insurance, investor relations, labor, legal and professional fees, and travel have increased versus the prior period but were offset by the elimination of costs associated with engagement of a third-party contract sales organization in 2018.

Segment Information

The following tables set forth our results of operations by segment (results allocated to Other consist of non-cash stock compensation expense, depreciation and amortization, corporate legal fees, and the TDSI operations):

	For the Six Months Ended June 30, 2019
	Other			Medical Foods			Vision Testing Diagnostics			Total

Revenue	$	6,300		$	204,382		$	292,826		$	503,508

Cost of goods sold		2,559			78,953			109,036			190,548

Gross profit		3,741			125,429			183,790			312,960

Operating expenses		1,959,838			2,003,320			347,219			4,310,377

Loss from operations	$	(1,956,097	)	$	(1,877,891	)	$	(163,429	)	$	(3,997,417	)

	For the Six Months Ended June 30, 2018
	Other			Medical Foods			Vision Testing Diagnostics		Total

Revenue	$	-		$	154,294		$	259,524	$	413,818

Cost of goods sold		-			72,238			94,817		167,055

Gross profit		-			82,056			164,707		246,763

Operating expenses		1,523,133			2,206,967			163,752		3,893,852

Loss from operations	$	(1,523,133	)	$	(2,124,911	)	$	955	$	(3,647,089	)

For the six months ended June 30, 2019, revenue from our Medical Foods segment was $204,382 compared to $154,294 for the six months ended June 30, 2018, resulting in an increase of $50,088 or 32%. The increase reflects an increased customer base for Lumega-Z as the Company expands into new clinics. For the six months ended June 30, 2019, revenue from our Vision Testing Diagnostics segment was $292,826 compared to $259,524 for the six months ended June 30, 2018, resulting in an increase of $33,302 or 13%. The increase was due to increased distributor sales in 2019. The Company also earned $6,300 in diagnostic imaging services revenue from its TDSI business during the three months ended June 30, 2019, as shown in the Other category above.

Cost of Goods Sold

For the six months ended June 30, 2019, cost of goods sold from our Medical Foods segment was $78,953 compared to $72,238 for the six months ended June 30, 2018, resulting in an increase of $6,715 or 9%. For the six months ended June 30, 2019, cost of goods sold from our Vision Testing Diagnostics segment was $109,036 compared to $94,817 for the six months ended June 30, 2018, resulting in an increase of $14,219 or 15%. The increase for both segments results primarily from costs associated with the additional sales recorded in 2019 as compared to 2018.

Gross Profit

For the six months ended June 30, 2019, gross profit from the Medical Foods segment was $125,429 compared to $82,056 for the six months ended June 30, 2018, resulting in an increase of $43,373 or 53%. For the six months ended June 30, 2019, gross profit from the Vision Testing Diagnostics segment was $183,790 compared to $164,707 for the six months ended June 30, 2018, resulting in an increase of $19,083 or 12%. The increase is due to the additional sales recorded for both segments in the current year. Gross profit overall represented 62% of revenues for the six months ended June 30, 2019, versus 60% of revenue for the six months ended June 30, 2018. The increase in 2019 was due increased sales and to pricing and product mix changes in 2019.

Liquidity and Capital Resources

Since its formation in 2009, the Company has devoted substantial effort and capital resources to the development and commercialization activities related to its lead product Lumega-Z and its MapcatSF medical device. As a result of these and other activities, the Company utilized cash in operating activities of ~~$586,085~~$2,493,696 during the ~~three~~six months ended ~~March 31,~~June 30, 2019. The Company had ~~negative~~ working capital of ~~$1,024,828~~$2,326,641 at ~~March 31, 2019 due to liabilities associated with the issuance of promissory and convertible promissory notes during March 2019 as well as accrued legal costs related to the Company’s IPO process.~~June 30, 2019. As of ~~March 31,~~June 30, 2019, the Company had cash in the amount of ~~$174,298~~$2,368,645 and no available borrowings. The Company’s financing has historically come primarily from the issuance of convertible notes, promissory notes and from the sale of common and preferred stocks.

The financial statements have been prepared assuming the Company will continue as a going concern. 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 independent registered public accounting firm has also included explanatory language in their opinion accompanying the Company’s audited financial statements for the year ended December 31, 2018. 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 continued commercialization activities related to Lumega-Z, the MapcatSF medical device, VectorVision products, the TDSI business and ~~VectorVision products.~~with respect to efforts to continue 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 new complementary products or product lines. On April 9, 2019, the Company completed the IPO, resulting in net cash proceeds of ~~$3,945,000~~$3,888,000 to the Company. The Company is seeking 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.

Sources and Uses of Cash

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

	Three Months Ended March 31,						Six Months Ended June 30,
	2019			2018			2019			2018
Net cash used in operating activities	$	(586,085	)	$	(1,353,530	)	$	(2,493,696	)	$	(2,424,058	)
Net cash used in investing activities		(4,815	)		(145,111	)		(58,934	)		(187,073	)
Net cash provided by (used in) financing activities		94,250			(38,240	)		4,250,327			(57,734	)
Net decrease in cash	$	(496,650	)	$	(1,536,881	)
Net increase (decrease) in cash							$	1,697,697		$	(2,668,865	)

Operating Activities

Net cash used in operating activities was ~~$586,085~~$2,493,696 during the ~~three~~six months ended ~~March 31,~~June 30, 2019, versus ~~$1,353,530~~$2,424,058 used during the comparable prior year period. ~~The decrease~~Cash in ~~2019~~both periods was ~~due primarily to higher sales, marketing, product development,~~used for used for engineering, corporate insurance, investor relations, labor, legal and ~~legal costs paid in the prior year period.~~professional fees, travel and other operating costs.

Investing Activities

Net cash used in investing activities was ~~$4,815~~$58,934 for the ~~three~~six months ended ~~March 31,~~June 30, 2019 and ~~$145,111~~$187,073 for the ~~three~~six months ended ~~March 31,~~June 30, 2018. In June 2019, we purchased medical imaging equipment for use in our TDSI business. In January 2018, we acquired the rights to a trademark portfolio for $50,000. In addition, we purchased a trade show booth in February 2018 and have invested in MapCatSF equipment and internal-use software development.

Financing Activities

Net cash provided by financing activities was ~~$94,250~~$4,250,327 for the ~~three~~six months ended ~~March 31,~~June 30, 2019 was due primarily to the ~~issuance~~completion of our IPO, which resulted in net proceeds of $3,888,000. In addition, in March 2019, ofthe Company issued $350,000 in promissory and convertible promissory notes ~~as well as~~and received cash of $131,875 from the exercise of ~~warrants for proceeds of $31,250.~~warrants. These proceeds were partially offset by payment of ~~costs directly related~~$100,000 to ~~the Company’s IPO.~~settle a promissory note. Net cash used in financing activities was ~~$38,240~~$57,734 for the ~~three~~six months ended ~~March 31,~~June 30, 2018 was due primarily to our payoff of a line of credit balance that had been assumed during our 2017 VectorVision acquisition.

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

	Years Ended December 31,
	2018			2017
Net cash used in operating activities	$	(4,173,831	)	$	(3,403,696	)
Net cash used in investing activities		(310,243	)		(32,385	)
Net cash provided by financing activities		419,792			8,108,791
Net (decrease) increase in cash	$	(4,064,282	)	$	4,672,710

Operating Activities

Net cash used in operating activities was $4,173,831 during the year ended December 31, 2018, versus $3,403,696 used during the comparable prior year period. The increase in 2018 was due primarily to higher sales, marketing, professional services, and labor costs.

Investing Activities

Net cash used in investing activities was $310,243 for the year ended December 31, 2018 and $32,385 for the year ended December 31, 2017. In January 2018, we acquired the rights to a trademark portfolio for $50,000. In addition, we purchased a trade show booth in February 2018 and have invested in MapCat equipment and internal-use software development.

Financing Activities

Net cash provided by financing activities was $419,792 for the year ended December 31, 2018 was due to the sale in November and December of $850,000 in common stock and the exercise of warrants for proceeds of $16,460. These proceeds were partially offset by the payoff of a $30,535 line of credit balance that had been assumed from the VectorVision transaction as well as payment of $146,133 due to related parties. Net cash provided by financing activities was $8,108,791 for the year ended December 31, 2017, consisting of $5,000,001 in proceeds from the issuance of common stock, $3,105,000 in proceeds from the issuance of preferred stock, and proceeds of $100,000 from the issuance of a note payable. Partially offsetting proceeds received were $150,860 of payments on notes payable and $54,650 of payments due to related parties.

Off-Balance Sheet Arrangements

At ~~March 31,~~June 30, 2019 and December 31, 2018, the Company 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.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting identified in connection with the evaluation that occurred during the ~~first~~second quarter ended in 2019 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 not currently a party to any material legal proceedings and is not aware of any pending or threatened legal proceeding against the Company that the Company believes could have a material adverse effect on its business, operating results, cash flows or financial condition. 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. Regardless of the outcome, such proceedings or claims can have an adverse impact on the Company because of defense and settlement costs, diversion of resources and other factors, and there can be no assurances that favorable outcomes will be obtained. In the opinion of management of the Company, adequate provision has been made in the Company’s condensed consolidated financial statements at ~~March 31,~~June 30, 2019 with respect to such matters.

ITEM 1A. RISK FACTORS

~~Not~~The Company is not required ~~for smaller~~to provide the information required by this Item as it is a “smaller reporting ~~companies.~~company,” as defined in Rule 229.10(f)(1).

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

~~On March 15, 2019 and March 20, 2019, the Company entered into separate~~The following securities purchase agreements (the “Purchase Agreements”) pursuant to which the Company issued convertible promissory notes (the “Debentures”) and common stock purchase warrants (the “Warrants”) to two investors in exchange for $250,000 (collectively, the “Private Placement”). The securities issuedwere sold pursuant to the ~~Purchase Agreements were issued in reliance upon the~~ exemption ~~from registration pursuant to Section~~afforded under Sections 4(a)(2) and ~~Rule 903~~3(a)(9) of ~~Regulation S promulgated under~~ the Securities Act of ~~1933, as amended.~~1933. There were no placement agents or underwriters for any of the following private placements.

On April 9, 2019, the Company granted our CEO, Michael Favish, 1,250,000 common stock shares issuable upon the exercise of a common stock purchase option with a per share exercise price of $4.40 per share and a five-year term. The option vests ratably on the last day of each calendar quarter following the date of grant over a period of three (3) years and is subject to Mr. Favish remaining employed with the Company on the applicable vesting dates.

On April 9, 2019, the Company issued 109,038 shares of common stock upon the conversion of promissory notes of $250,000 that were mandatorily convertible upon the completion of the IPO.

On April 12, 2019, an investor exercised warrants for 26,250 shares of common stock. The warrants were exercisable for $0.50 per share, and the Company received $13,125 in cash.

As compensation for services rendered, the Company issued a total of 54,390 shares of common stock in April, May, and June 2019.

On May 6, 2019, an investor exercised warrants for 125,000 shares of common stock. The warrants were exercisable for $0.50 per share, and the Company received $62,500 in cash.

On May 20, 2019, an investor exercised a total of 50,000 warrants on a cashless basis resulting in the issuance of 33,108 shares of common stock. The warrants were exercisable for $0.50 per share.

On May 21, 2019, an investor exercised warrants for 50,000 shares of common stock. The warrants were exercisable for $0.50 per share, and the Company received $25,000 in cash.

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 ~~10th~~12th day of ~~May,~~August, 2019.

Signature	Title	Date

/s/ Michael Favish	CEO, President and	~~May 10,~~August 12, 2019
Michael Favish	Chairman of the Board (Principal Executive Officer)

/s/ John Townsend	Controller and Chief Accounting Officer	~~May 10,~~August 12, 2019
John Townsend	(Principal Accounting Officer)

INDEX TO EXHIBITS

Exhibit No.		Description

~~3.1~~		Certificate of Amendment to Certificate of Incorporation filed and effective with the Delaware Secretary of State on January 30, 2019 (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the SEC on February 1, 2019)
~~10.1~~		~~Form of Purchase Agreement (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on March 21, 2019)~~
~~10.2~~		~~Form of Debenture (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the SEC on March 21, 2019)~~
~~10.3~~		~~Form of Warrant (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed with the SEC on March 21, 2019)~~
31.1		Certification of Chief Executive Officer pursuant to Rule 13a – 14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Accounting Officer pursuant to Rule 13a – 14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*		Certification of Chief Executive Officer and Chief Accounting Officer pursuant to 18.U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002
101		The following materials from the Company’s Quarterly Report on Form 10-Q for the period ended ~~September~~June 30, ~~2018,~~2019, formatted in XBRL (eXtensible Business Reporting Language), (i) Balance Sheets, (ii) Statements of Income, (iii) Statements of Comprehensive Income, (iv) Statements of Cash Flows, (v) Statement of Stockholders’ Equity and (vi) Notes to Financial Statements

A certification furnished pursuant to Item 601(b)(2) of the Regulation S-K will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

Warrants Outstanding and Exercisable (Shares)		Exercise Prices
	536,250	$	0.50
	5,000		1.00
	30,000		1.50
	216,424		2.00
	109,038		2.88
	896,712

	As of March 31, 2019
	Actual			Pro Forma
Cash and cash equivalents	$	174,298		$	4,119,298
Other current assets		370,066			370,066
Non-current assets		3,426,559			3,426,559
Total assets	$	3,970,923		$	7,915,923

Derivative warrant liability	$	436,034		$	-
Convertible notes payable		17,024			-
Other current liabilities		1,116,134			1,116,134
Lease liability – long term		513,585			513,585
Total liabilities		2,082,777			1,629,719

Stockholders’ equity:
Common stock		20,857			22,216
Additional paid-in capital		37,885,751			42,282,450
Accumulated deficit		(36,018,462	)		(36,018,462	)
Total stockholders’ equity		1,888,146			6,286,204
Total liabilities and stockholders’ equity	$	3,970,923		$	7,915,923

Warrants Outstanding and Exercisable (Shares)

Exercise Prices