See accompanying notes to condensed consolidated financial statements.

Guardion Health Sciences, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

Guardion Health Sciences, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Months Ended September 30,March 31, 2023 and 2022 and 2021

(Unaudited)

1. Organization and Business Operations

Business

Guardion Health Sciences, Inc., a Delaware corporation (the “Company”), was incorporated in June 2015, and is currently headquartered in Houston, Texas. The Companya clinical nutrition company that develops and distributes clinically supported nutritionalnutrition, medical foods and dietary supplements. TheseThe Company offers a portfolio of science-based, clinically supported products areand devices designed to support retail consumers, healthcare professionals and providers, and their patients by strengthening bone health and immune health to guard the body from the forces of aging though a scientifically developed combination of Calcium, Vitamin D, and Vitamin K.

Onconsumers. In June 1, 2021, the Company acquired Activ Nutritional, LLC (“Activ”), the owner and distributor of the Viactiv® line of supplements for bone health and other applications (see Note 3). Asapplications. The Company was formed in 2009 as a result ofCalifornia limited liability company under the Activ acquisition, the Company’s commercial efforts fundamentally changedname P4L Health Sciences, LLC, and in 2015 converted from a California limited liability company to a Delaware corporation, changing its current focus on science-based clinical nutrition and supplements.name from Guardion Health Sciences, LLC to Guardion Health Sciences, Inc.

Liquidity

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. For the ninethree months ended September 30, 2022,March 31, 2023, the Company incurredrecorded a net loss from operations of $6,016,562 1,464,007and used cash in operating activities of $6,082,9061,879,210. At September 30, 2022,The Company has a history of operating losses and negative cash flows. Even though the Company had cash on hand totaling $12,946,003Company’s management identified certain indicators including, among others, the current period loss from operations, the potential impact of inflation and working capital of $16,077,890.

Notwithstandinggeneral economic uncertainty, management concluded these indicators do not raise substantial doubt regarding the net loss for the nine months ended September 30, 2022, management believes that its current cash as of September 30, 2022 is sufficientCompany’s ability to ensure continuation of the Companycontinue as a going concern for at leastwithin one year after the date these financial statements are issued. As of March 31, 2023, the Company had $8,774,626 of cash, and management determined that it is probable that the Company will be able to fund its current operating plan and meet all of its obligations due within one year from the date of this Quarterly Report on Form 10-Q.these financial statements are issued.

The amount and timing of future cash requirements will depend, in part, on the Company’s ability to ultimately achieve operating profitability. The Company expects to continue to incur net losses and negative operating cash flows in the near-term and will continue to incur significant expenses for the development, commercialization and distribution of its clinical nutrition products (including the Viactiv® product line) and the successful development and commercialization of any new products orand product lines. The Company may also utilize cash to fund acquisitions of complementary businesses, product lines or other strategic initiatives.brands.

The Company may seek 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. IfOver time, if the Company is unable to access sufficient capital resources on a timely basis, the Company may be forced to reduce or discontinue its product development programs, and/or curtail or cease its operations.

COVID-19 and Inflation

COVID-19 and Supply Disruptions. The Company’s financial results for the nine monthsyear ended September 30,December 31, 2022 have beenwere affected by supply chain constraints due, in large part, to the COVID-19 pandemic and resultingassociated labor shortages and increased wages experienced by the Company’s suppliers. These constraints began in the fourth quarter of 2021 and have continued intountil the third quarter of 2022 and have impacted the Company’s ability to obtain inventory to fulfill customer orders for its Viactiv branded products on a timely basis during and may continuesubsequent to impact the Company’s ability to fulfill customer orders going forward which may have a material adverse effect on the Company’s business and results of operations.that timeframe. Additionally, the Company is subject to out-of-stock fees to certain retailers in the event that the Company is unable to adequately maintain certain inventory levels of its Viactiv products with such retailers. AlthoughStarting during the Company expects these supply chain challenges to continue throughfourth quarter of 2022 and intoin the three months ended March 31, 2023, the Company has begun to seeseen some improvement in the inventory production cycle.

Inflation. The continuing impact of the COVID-19 pandemic, higher inflation, the actions by the Federal Reserve to address inflation, most notably dramaticsustained increases in interest rates, and rising energy prices create uncertainty about the future economic environment which will continue to evolve and, we believe, has impacted the Company’s business in the quarter ended September 30, 2022 and may continue to impact business in future periods.2023. The implications of higher government deficits and debt, tighter monetary policy, and potentially higher long-term interest rates may drive a higher cost of capital for the business.business and an increase in the Company’s operating expenses.

Nasdaq Notice

On January 25, 2022, the Company received a written notice from the Nasdaq Stock Market LLC (“Nasdaq”) that the Company had not been in compliance with the minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) for a period of 30 consecutive business days. Nasdaq Listing Rule 5550(a)(2) requires listed securities to maintain a minimum closing bid price of $1.00 per share, and Nasdaq Listing Rule 5810(c)(3)(A) provides that a failure to meet the minimum bid price requirement exists if the deficiency continues for a period of 30 consecutive business days.

In accordance with Nasdaq Listing Rule 5810(3)(A), the Company was provided a compliance period of 180 calendar days from the date of the notice, or until July 25, 2022, to regain compliance with the $1.00 minimum bid price requirement. The Company did not regain compliance during the compliance period ended July 25, 2022. Accordingly, the Company requested that Nasdaq grant the Company a second 180 calendar day period to regain compliance.

On July 26, 2022, the Company received a written notice from Nasdaq that the Company was granted a second 180 calendar day period, or until January 23, 2023, to regain compliance with the $1.00 minimum bid price requirement. Nasdaq’s determination to grant the second compliance period was based on the Company meeting the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on The Nasdaq Capital Market, with the exception of the minimum bid price requirement, and the Company’s written notice of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary. Previously, at the Company’s Annual Meeting of Stockholders (“Annual Meeting”) held on June 16, 2022, the proposal to grant discretionary authority to the Company’s Board of Directors to amend the Company’s Certificate of Incorporation, as amended, to combine outstanding shares of the Company’s common stock into a lesser number of outstanding shares at a specific ratio within a range of no split to a maximum of a 1-for-30 split, with the exact ratio to be determined by the Board of Directors in its sole discretion (the “Reverse Stock Split”) was not approved by the requisite vote of a majority of the Company’s issued and outstanding shares. Although 63% of the stockholders represented at the Annual Meeting voted in favor of the Reverse Stock Split, more than 50% of the Company’s issued and outstanding shares were required to vote in favor of the Reverse Stock Split. To regain compliance, the closing bid price of the Company’s common stock must be at least $1.00per share for a minimum of 10 consecutive business days prior to January 23, 2023.

The Company is carefully assessing potential actions to regain compliance, including, without limitation, holding a special stockholders’ meeting to solicit approval of a Reverse Stock Split; however, the Company may be unable to regain compliance with the $1.00 minimum bid price requirement during the compliance period. If the Company fails to regain compliance during the second 180-day period that will expire on January 23, 2023, then Nasdaq will notify the Company of its determination to delist the Company’s common stock, at which point the Company will have an opportunity to appeal the delisting determination to the Hearing Review Council at Nasdaq, before the Company’s common stock is formally delisted.

2. Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) pursuant to the applicable rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. The unaudited condensed consolidated financial statements have been prepared on the same basis as the Company’s annual financial statements for the year ended December 31, 20212022 and, in the opinion of management, reflect all adjustments, which consist of normal recurring adjustments, considered necessary for a fair presentation of the periods presented. 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, 2022.2023. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes, included in the Company’s 20212022 Annual Report on Form 10-K, filed with the SEC on March 31, 2022.April 17, 2023. The condensed consolidated balance sheet as of December 31, 2021,2022, was derived from the audited consolidated financial statements as of that date, but does not include all disclosures, including notes, required by GAAP.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company transactions and balances have been eliminated in consolidation.

ForIn accordance with the year ended December 31, 2021, management concluded“Segment Reporting” Topic of the Accounting Standards Codification, the Company’s chief operating decision maker (the Company’s Chief Executive Officer) determined that the Company had one operating and reporting segment made up of its clinical nutrition business, and management changed the Company’s reportable segments to align with these revisions to the Company’s internal reporting structure. The Company previously had two reportable segments, which included a clinical nutrition segment and a medical devices segment. At September 30, 2022 and December 31, 2021, as there washas only one reporting unit, all of the Company’s prior period segment information has been eliminated.unit.

Reverse Stock Split

On March 1, 2021,January 6, 2023, the Company effectuatedfiled 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-sixone-for-fifty (1:6) reverse stock split50) 2023 Reverse Stock Split of its common stock without any change to its par value. value (see Note 1). The authorized number of shares of common stock was not affected by the reverse stock split. The Company issued 35,281 additional common shares in connection with this reverse stock split per the rounding provisions provided therein.

Accordingly, all common shares, stock options, stock warrants and per share amounts in these condensed consolidated financial statements and footnotes have been adjusted retroactively to reflect the reverse stock splits as if the split for all periods presented.occurred at the beginning of the earliest period presented in this quarterly report.

Use of Estimates

The preparation of the Company’s financial statements in conformity with GAAPaccounting principles generally accepted in the United States of America (“GAAP”) requires management to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. On an ongoing basis, management reviews its estimates and if deemed appropriate, those estimates are adjusted. Significant estimates include those related to assumptions used in valuing inventories at net realizable value, assumptions used in valuing assets acquired in business acquisitions, impairment testing of goodwill and other long-term assets, assumptions used in valuing stock-based compensation, the valuation allowance for deferred tax assets, accruals for potential liabilities, and assumptions used in the determination of the Company’s liquidity. Actual results could differ materially from those estimates.

Revenue Recognition

The Company recognizes revenueRevenue and costs of sales are recognized when control of the products transfers to theour customer, which generally occurs upon delivery to the customer. The Company’s performance obligations are satisfied upon delivery to the customer. All products sold by the Company are distinct individual products and are offered for sale as finished goods only, and there are no performance obligations required post-shipment for customers to derive the expected value from products.

at that time. The Company does not have any significant contracts with customers requiring performance beyond delivery, and contracts with customers contain no incentives or discounts that could cause revenue to be allocated or adjusted over time. Shipping and handling activities are performed before the customer obtains control of the goods and therefore represent a fulfillment activity rather than a promised service to the customer.

All products sold by the Company are distinct individual products and are offered for sale as finished goods only, and there are no performance obligations required post-shipment for customers to derive the expected value from them. Contracts with customers contain no incentives or discounts that could cause revenue to be allocated or adjusted over time.

Shipping and handling activities are performed before the customer obtains control of the goods and therefore represent a fulfillment activity rather than a promised service to the customer. Historically the Company has not experienced any significant payment delays from customers.

Due to the insignificant amount of historical returns, as well as the standalone nature of the Company’s products and the 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.

At March 31, 2023 and December 31, 2022, the allowance for doubtful accounts was $0 and $1,996, respectively.

Revenue by product:

Schedule of Revenues by Product

The Company’s revenues earned during the three months ended March 31, 2023 and 2022, are derived primarily from retail customers in North America.

Revenues by geographical area are as follows:

Schedule of Revenue by Geographical Area

Third-Party Outsourcing

The Company derives substantially all of its revenue from the sale of products using a third-party fulfillment center to provide order processing and sales fulfillment, customer invoicing and collections, and product warehousing. Substantially all of the Company’s products are shipped through the third-party fulfillment center to the customer. Shipping charges to customers are included in revenues. In addition, the Company uses the third-party fulfillment center to provide sales and inventory management, and marketing and promotional services.

The Company outsources the production of substantially all of its products with a third-party that manufactures and packages the finished products under a product supply agreement.

Costs incurred related to third-party outsourcing, which includes manufacturing, order processing and fulfillment, customer invoicing, collections and warehousing, were approximately $1,876,2591,937,000 and $4,951,2591,847,000 for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively, and $1,932,967 and $2,560,487 for the nine months ended September 30, 2022 and 2021, respectively.

Cost of Goods Sold

Cost of goods sold is comprised of the costs for third-party contract manufacturing, packaging, manufacturing fees, and in-bound freight charges.

Shipping Costs

Shipping costs associated with product distribution after manufacture are included as part of cost of goods sold. Shipping and handling expense totaled $209,804146,820 and $182,580135,423 for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively, and $622,178 and $277,997 for the nine months ended September 30, 2022 and 2021, respectively.

Advertising Costs

Advertising costs are expensed as incurred and are included in sales and marketing expense. Advertising costs were $385,010479,866 and $513,701 587,361for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively, and $1,264,740 and $1,203,421 for the nine months ended September 30, 2022 and 2021, respectively.

Concentrations

Revenue. During the three months ended September 30,March 31, 2023, the Company had three customers that accounted for 80% of total revenue. The largest customer accounted for 59% of the Company’s total revenue, the second largest customer accounted for 11% of the Company’s total revenue and the third largest customer accounted for 10% of the Company’s revenue. During the three months ended March 31, 2022, the Company had one customer that accounted for 57% of total revenue. During the three months ended September 30, 2021, the Company had two customers that accounted for 49% and 1059% of the Company’s total revenue. No other customer accounted for more than 10% of revenue, during the three months ended September 30, 2022March 31, 2023 and 2021.the three months ended March 31, 2022. The Company sells the majority of its products to one of the largest retailers in the United States. Activ has been selling to this retailer for several years.

During the nine months ended September 30, 2022, the Company had one customer that accounted for 56% of total revenue. During the nine months ended September 30, 2021, the Company had two customers that accounted for 42% and 10% of the Company’s total revenue. No other customer accounted for more than 10% of revenue, during the nine months ended September 30, 2022 and 2021.

Accounts receivable. As of September 30,March 31, 2023, the Company had accounts receivable from one customer which comprised approximately 67% of its accounts receivable. As of December 31, 2022, the Company had accounts receivable from one customer which comprised approximately 63% of its accounts receivable. As of December 31, 2021, the Company had accounts receivable from two customers which comprised approximately 50% and 4888% of its accounts receivable. No other customer accounted for more than 10% of accounts receivable as of September 30, 2022March 31, 2023 and December 31, 2021. Historically the Company has not experienced any collectability issues with this customer.2022.

Purchases from vendors. During the three months and nine months ended September 30, 2022March 31, 2023, the Company utilized one manufacturer for most of its production and packaging of its clinical nutrition products. Total purchases from this manufacturer accounted for approximately 49% of all purchases during the three months ended September 30, 2022. There was one otherMarch 31, 2023. The Company utilized a firm to manage and handle media and advertising of its clinical nutrition products. Total purchases from this vendor accounted for approximately 13% of all purchases during the three months ended September 30, 2022 that accounted for 12% of total purchases.March 31, 2023. During the three months ended September 30, 2021March 31, 2022, the Company’s largest vendor accounted for approximately 38% of all purchases. During the nine months ended September 30, 2021, the Company’s largest vendors accounted for approximately 16% and 1541% of all purchases. No other vendorvendors accounted for more than 10% of purchases during the three months and nine months ended September 30, 2022March 31, 2023 and 2021.2022.

Accounts payable. As of September 30, 2022March 31, 2023, one vendortwo vendors accounted for 8880% of total accounts payable. One vendor accounted for 70% and a second vendor accounted for 10% of the accounts payable at March 31, 2023. As of December 31, 2021,2022, the Company’s largest two vendorsone vendor accounted for 18% and 1388% of the total accounts payable. No other vendor accounted for more than 10% of accounts payable as of September 30, 2022March 31, 2023 and December 31, 2021.2022.

Cash and cash equivalentsequivalents.

Cash and cash equivalents consist of funds deposited with BMO Harris Bank(“BMO”), a major, established, high quality financial institution and short-term (original maturity of generally 60 days or less) liquid investments in money market deposit accounts. Cash equivalents are classified as Level 1 in the GAAP valuation hierarchy and are valued using the net asset value (“NAV”) per share of the money market fund. The Company has an overnight investment feature established with BMO whereby the Company’s cash is swept into a Money Market Mutual Fund managed by Goldman Sachs Asset Management. This fund invests solely in high quality U.S. government issued securities. As of September 30, 2022,March 31, 2023, $8,774,626 included in cash and cash equivalents was $12,917,044 held in the Goldman Sachs Financial Square Government Institutional Fund.

The Company’s policyFund, a fund that is to maintain its cash balances with financial institutions with high credit ratings and in accountsnot insured by the Federal Deposit Insurance Corporation (the “FDIC”) and/or by the Securities Investor Protection Corporation (the “SIPC”).

The Company may periodically haveroutinely has cash balances in financial institutions in excess of the FDIC and SIPC insurance limits of $250,000$250,000 and $500,000,$500,000, respectively. The Company believes that no significant concentration of credit risk exists with respect to its cash balances because of its assessment of the creditworthiness and financial viability of the financial institutions that hold such cash balances. The Company has not experienced any losses to date resulting from this policy, and management believes that the risk of loss associated with any uninsured balances is remote.policy.

Investments

Short-term investments held by the Company as of December 31, 2021 consist of a U.S. Treasury Bill, which is classified as held-to-maturity. The Company’s U.S. Treasury Bill was scheduled to mature approximately 30 days from the date of purchase. Unrealized gains and losses were not material. As of December 31, 2021, the carrying value of the Company’s U.S. Treasury Bill approximates its fair value due to its short-term maturity. As of September 30, 2022, the Company held no short-term investments.

Intangible Assets

Amortizable finite-lived identifiable intangible assets consist of a trade name and customer relationships acquired in the acquisition of Activ, effective June 1, 2021 (See Note 3), and are stated at cost less accumulated amortization. The trade name and customer relationships are being amortized over a period of 10 years. The Company follows ASC 360 in accounting for finite-lived intangible assets, which requires impairment losses to be recorded when indicators of impairment are present and the undiscounted cash flows estimated to be generated by the assets are less than the assets’ carrying amounts.

At September 30, 2022, management concluded that there were no impairment triggering events. If economic uncertainty increases and/or the global economy worsens, the Company’s business, financial condition and results of operations may be sufficiently impacted to result in future impairment charges in the short-term. Management will continue to monitor the effects that macroeconomic conditions have on its business and operations, and will review impairment indicators to the extent necessary in the upcoming months.

Stock-Based Compensation

Stock-based awards for stock options and restricted stock awards to employees and non-employees are accounted using the fair value method in accordance with ASC 718, Share-Compensation – Stock Compensation. The estimated fair value of stock options granted to employees in exchange for services is measured at the grant date, using a fair value-based method, such as a Black-Scholes option valuation model, and is recognized as an expense on a straight-line basis over the requisite service periods. The assumptions used in the Black-Scholes option pricing model could materially affect compensation expense recorded in future periods. The fair value of restricted stock units is measured at the grant date based on the closing market price of the Company’s common stock on the date of grant, and is recognized as an expense on a straight-line basis over the requisite service periods. Recognition of compensation expense for non-employees is accounted for in the same period and manner as if the Company had paid cash for the services.

LossIncome (Loss) per Common Share

Basic lossincome (loss) per share is computed by dividing net loss by the weighted-average common shares outstanding during the period, excluding shares of unvested restricted common stock outstanding. Diluted earnings per share is computed based on the weighted-average common shares outstanding plus the effect of dilutive potential common shares outstanding during the period calculated using the treasury stock method. Shares of vested restricted stock are included in the diluted weighted average number of common shares outstanding from the date they are vested. Dilutive potential common shares include shares from unexercised warrants and options. Potential common share equivalents have been excluded where their inclusion would be anti-dilutive. The Company’s basic and diluted net loss per share isFor the same for all periods presented asin this Quarterly Report on Form 10-Q, the Company had net income for the three months ended March 31, 2023 and a net loss for all periods presented and all shares issuable upon exercisethe three months ended March 31, 2022. Although the Company reported net income for the three months ended March 31, 2023, using the treasury stock method, for the period from January 1, 2023 to the redemption of warrants and options would therefore be anti-dilutive.the preferred stock on February 8, 2023, under the most advantageous pricing approach, there was no material change to the diluted net income per share as reported.

The following potentially dilutive shares were excluded from the shares used to calculate diluted earnings per share:

Schedule of Anti-dilutive Securities Excluded from Computation of Earnings Per Share

Fair Value of Financial Instruments

Accounting standards require certain assets and liabilities to be reported at fair value in the financial statements and provide a framework for establishing that fair value. Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. When determining fair value, the Company considers the principal or most advantageous market in which it transacts and considers assumptions that market participants would use when pricing the asset or liability. The framework for determining fair value is based on a hierarchy that prioritizes the inputs and valuation techniques used to measure fair value:

Level 1 – Quoted prices in active markets for an identical asset or liability that the Company has the ability to access as of the measurement date.

Level 2 – Inputs, other than quoted prices included within Level 1, which are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.

Level 3 – Unobservable inputs in which there is little or no market data for the asset or liability which requires the reporting entity to develop its own assumptions.

The Company determines the level in the fair value hierarchy within which each fair value measurement falls in its entirety, based on the lowest level input that is significant to the fair value measurement in its entirety. In determining the appropriate levels, the Company performs an analysis of the assets and liabilities at each reporting period end.

The following table sets forth by level, within the fair value hierarchy, the Company’s financial assets at fair value as of September 30, 2022March 31, 2023 and December 31, 2021:2022:

Schedule of Financial Assets and Liabilities at Fair Value

The following table provides a roll-forward of the warrant derivative liability measured at fair value on a recurring basis using unobservable level 3 inputs for the three months ended March 31, 2023 as follows:

Schedule of Warrant Derivative Liability

As of March 31, 2023 and December 31, 2022, the Company’s outstanding warrants were treated as derivative liabilities and changes in the fair value were recognized in earnings (see Note 6).

The Company believes the carrying amountamounts of itscertain financial instruments, (consisting ofincluding cash, short-term investments, accounts receivable, and accounts payable and accrued liabilities) approximatesliabilities, approximate fair value due to the short-term nature of such instruments.instruments and are excluded from the fair value tables above.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In August 2020,September 2016, the Financial Accounting Standards Board (“FASB”(the “FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”). ASU 2020-06 reduces the number of accounting models for convertible debt instruments by eliminating the cash conversion and beneficial conversion models. As a result, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost as long as no other features require bifurcation and recognition as derivatives. For contracts in an entity’s own equity, the type of contracts primarily affected by this update are freestanding and embedded features that are accounted for as derivatives under the current guidance due to a failure to meet the settlement conditions of the derivative scope exception. This update simplifies the related settlement assessment by removing the requirements to (i) consider whether the contract would be settled in registered shares, (ii) consider whether collateral is required to be posted, and (iii) assess shareholder rights. ASU 2020-06 is effective January 1, 2024 for the Company and the provisions of this update can be adopted using either the modified retrospective method or a fully retrospective method. Early adoption is permitted and effective January 1, 2021, the Company early adopted ASU 2020-06 using the modified retrospective approach.

At December 31, 2020, the Company recorded a derivative liability of $26,265 related to 10,417 warrants issued in 2019 because the settlement provisions of the warrants contained language that the shares underlying the warrants are required to be registered. ASU 2020-06 removed the requirement to consider if the warrants would be settled in registered shares, and accordingly, the adoption of ASU 2020-06 resulted in a decrease to accumulated deficit of $26,265 and a decrease in derivative warrant liability of $26,265 on January 1, 2021.

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). ASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option (i.e., a warrant) that remains equity classified after modification or exchange as an exchange of the original instrument for a new instrument. An issuer should measure the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange and then apply a recognition model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. The Company adopted ASU 2021-04 effective January 1, 2022. The adoption of ASU 2021-04 did not have any impact on the Company’s consolidated financial statement presentation or disclosures.

Recently Issued Accounting Pronouncements Not Yet Adopted

In September 2016, the FASB issued ASU No. 2016-13, Credit Losses – Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The standard significantly changes how entities will measure credit losses for most financial assets, including accounts and notes receivables. The standard will replace today’s “incurred loss” approach with an “expected loss” model, under which companies will recognize allowances based on expected rather than incurred losses. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. As a smaller reporting company, ASU 2016-13 requires entities to use a forward-looking approach based on current expected credit losses to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. ASU 2016-13 iswas effective for the Company beginning January 1, 2023, andwith early adoption is permitted. The Company does not believe the potentialadopted this standard effective January 1, 2023 and there was no material impact of adopting this standard on the new guidanceCompany’s financial statements and related codification improvements will be material to its financial position, results of operations and cash flows.disclosures.

Other recent accounting pronouncements and guidance issued by FASB, its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

3. Acquisition of Activ Nutritional, LLC

On June 1, 2021, the Company acquired Activ, the owner and distributor of the Viactiv® line of supplements for bone health and other applications, for total purchase consideration of $25,949,654.

The following table summarizes the allocation of the fair value of the purchase consideration to the fair value of tangible assets, identifiable intangible assets, and assumed liabilities of Activ on the date of acquisition:

Schedule of Fair Value of Assets Acquired and Liabilities Assumed

The Company consolidated Activ’s operations with the Company’s operations commencing on June 1, 2021. Subsequently, goodwill of $11,893,134 was written off as impaired at December 31, 2021.

Activ’s revenue and operating income (loss) included in the accompanying condensed consolidated statements of operations are as follows:

 Schedule of Activ’s Revenue and Operating Income (Loss)

Pro Forma Information

The following unaudited pro forma condensed consolidated statement of operations for the three months and nine months ended September 30, 2021 is presented as if the acquisition of Activ had occurred on January 1, 2021, and after giving effect to certain pro forma adjustments. The pro forma condensed consolidated statement of operations is presented for informational purposes only and is not indicative of the results of operations that would have necessarily been achieved if the acquisition had actually been consummated on January 1, 2021.

Schedule of Pro Forma Financial Information

Acquisition-related transaction costs of $2,103,680 (consisting of legal, due diligence, valuation, investment banking fees and costs and other professional fees) are not included as a component of consideration transferred but were expensed as incurred. During the three months and nine months ended September 30, 2022, the Company incurred no acquisition-related costs.

4. Inventories

Inventories consisted of the following on the dates noted below:

Schedule of Inventories

The Company’s inventories are stated at the lower of cost or net realizable value calculated on a first-in, first-out basis.

5. Property and Equipment, Net

Property and equipment, net consisted of the following on the dates noted below:

Schedule of Property and Equipment

Depreciation expense for the three months ended September 30, 2022 and 2021 was $14,717 and $20,008, respectively. Depreciation expense for the nine months ended September 30, 2022 and 2021 was $53,897 and $61,115, respectively. During the nine months ended September 30, 2022, assets with a cost of $50,923, and accumulated depreciation of $41,636, were removed from property and equipment and resulted in a loss on disposal of $9,287.

6.4. Intangible Assets, Net

Intangible assets, net consistedDuring the year ended December 31, 2022, the gross amount of the following on the dates noted below:

Schedule of Intangible Assets

AmortizableCompany’s amortizable finite-lived identifiable intangible assets consistconsisting of a trade name and customer relationships, acquired in the acquisition of Activ, effective as of June 1, 2021 (see Note 3), and are being amortized over a period of totaled $10 11,900,000years. There were no impairment charges incurred in the periods presented. At September 30, 2022 and. Effective December 31, 2021,2022, the trademarkCompany performed an impairment analysis of its intangible assets and determined that the asset group’s fair value was zero and recorded an impairment loss of $10,065,833 classified as an indefinite-livedfor the net book balance of the intangible asset.assets.

For the three months and nine months ended September 30,March 31, 2022, amortization expense was $297,500 and $892,500, respectively. For the three months and nine months ended September 30, 2021, amortization expense was $297,500 and $396,667, respectively. The expected future amortization expense for amortizable finite-lived intangible assets as of September 30, 2022 is as follows:

Schedule of Finite-lived Intangible Assets Amortization Expense

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7.

5. Operating Leases

At September 30, 2022,In July, 2021, the Company leasedentered into a month-to-month lease for its primary corporate office space located in Houston, Texas, under a month-to-monthwith lease with a lease paymentpayments of approximately $2,2002,700 per month. Additionally, at September 30,Leases with the duration of less than 12 months are not recognized on the balance sheet and are expensed on a straight-line basis over the lease term.

As of December 31, 2022, the CompanyCompany’s VectorVision subsidiary leased a warehouse space in Greenville, Ohio under an operating lease with a monthlythat expired in February 2023. During the year ended December 31, 2022, the Company recorded an impairment of the operating lease paymentright of approximatelyuse asset of $1,90024,257. The Company ceased its operations in, and made payments of $22,221 on the Greenville, Ohio warehouse inoperating lease liability. At December 2021 and this associated31, 2022, the balance of the operating lease obligation will terminateliability was $3,807, which was paid off in February 2023.

During6. Warrant Derivative Liability

On February 18, 2022, the three months ended SeptemberCompany sold shares of the Company’s common stock (see Note 8) and 740,000 Series A warrants (the “Series A Warrants”) and 740,000 warrants Series B warrants (the “Series B Warrants”). The Series A and Series B Warrants had an initial exercise price of $18.50 per share. The Series A Warrants expire in February 2027 and the Series B Warrants expire in August 2023.

The Series A and Series B Warrants contain certain anti-dilution provisions, including a down round provision and certain cash redemption rights. On November 30, 2022, the exercise price of the Series A and 2021, rent expense totaledSeries B Warrants was adjusted downward to $6,884 7.88 per share to equal the Series C Convertible Redeemable Preferred Stock conversion price (see Note 8).