| Business and Summary of Significant Accounting Policies | 1. Business and Summary of Significant Accounting Policies Business Guardion Health Sciences,
Inc. (the “Company”) is a specialty health sciences company (1) that has developed medical foods and medical devices in the
ocular health space and (2) that is developing nutraceuticals that the Company believes will provide supportive health benefits to consumers.
The Company has been primarily engaged in research and development, product commercialization and capital raising activities. The Company was formed in
December 2009 as a California limited liability company under the name P4L Health Sciences, LLC. On June 30, 2015, the Company converted
from a California limited liability company to a Delaware corporation, changing its name from Guardion Health Sciences, LLC to Guardion
Health Sciences, Inc. Liquidity The accompanying consolidated
financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities
and commitments in the normal course of business. For the year ended December 31, 2020, the Company incurred a net loss of $8,571,657
and used cash in operating activities of $8,013,929. At December 31, 2020, the Company had cash on hand of $8,518,732 and working capital
of $8,021,152. Subsequent to December 31, 2020, the Company sold an aggregate of 7,566,734 shares of its common stock for net proceeds
of approximately $33,600,000 in two offerings, one completed in January 2021, and one completed in February 2021. In addition, in January
and February 2021, the Company issued an aggregate of 1,647,691 shares of common stock upon the exercise of warrants and received cash
proceeds of $3,608,509. Notwithstanding the net loss for 2020, management believes that its current cash balance, plus net proceeds from
issuance of common stock and exercise of warrants in January and February 2021, is sufficient to fund operations for at least one year
from the date the Company’s 2020 financial statements are issued. The Company expects to continue
to incur net losses and negative operating cash flows in the near-term, and will continue to incur significant expenses for development
and commercialization of its medical foods and medical devices, and the successful development and commercialization of any new products
or product lines. The Company may also utilize cash to fund acquisitions. The Company may seek to raise
additional debt and/or equity capital to fund future operations, but there can be no assurances that the Company will be able to secure
such additional financing in the amounts necessary to fully fund its operating requirements on acceptable terms or at all. Over time,
if the Company is unable to access sufficient capital resources on a timely basis, the Company may be forced to reduce or discontinue
its technology and product development programs and curtail or cease operations. COVID-19 The Company is subject to
risks and uncertainties of the COVID-19 pandemic that could adversely impact our business, including the commercialization of our medicines,
our supply chain, our clinical trials, our liquidity and access to capital markets and our business development activities. The Company
has implemented additional health and safety precautions and protocols in response to the pandemic and government guidelines, including
curtailing employee travel and working from its executive offices, with many employees continuing their work remotely. During 2020, sales
of certain products remained flat, as many eye doctor offices were closed, or operating with limited capacity, due to COVID-19 related
“shelter at home” orders. During 2020, we did not experience a jeopardization of our supply chain due to the COVID-19 outbreak. The extent of the impact
of the COVID-19 pandemic has had and will continue to have on the Company’s business is highly uncertain and difficult to predict
and quantify. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results
of operations and financial condition, will depend on future developments that are highly uncertain, including as a result of new information
that may emerge concerning COVID-19 and the actions taken to contain or treat it, including vaccination efforts, as well as the economic
impact on local, regional, national and international markets. NASDAQ Notice and Compliance On September 20, 2019, the
Company received notice from the Listing Qualifications staff (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”)
indicating that, based upon the closing bid price of the Company’s common stock for the previous 30 consecutive business days, the
Company no longer satisfied the requirement to maintain a minimum bid price of $1.00 per share, as required by Nasdaq Listing Rule 5550(a)(2)
(the “Bid Price Rule”). In accordance with the Nasdaq Listing Rules, the Company was afforded 180 days, or until March 18,
2020, to regain compliance with the Bid Price Rule by evidence of a closing bid price of at least $1.00 per share for a minimum of 10
consecutive business days. Thereafter, the Company had been afforded a second 180-calendar day compliance period (which 180-day period
was extended due to circumstances related to COVID-19), or until November 30, 2020, to regain compliance with the Bid Price Rule. The Company was unable to
regain compliance with the Bid Price Rule by November 30, 2020. Accordingly, on December 1, 2020, the Company received a letter from the
Staff notifying it that its Common Stock would be subject to delisting from Nasdaq unless the Company timely appealed Nasdaq’s determination
to a Nasdaq Listing Qualifications Panel (the “Panel”). The Company timely appealed Nasdaq’s determination to the Panel. On January 26, 2021, the
Company received written notification that the Panel granted the Company an extension for continued listing through March 15, 2021. On March 1, 2021, the Company
implemented the Reverse Stock Split (as defined below). On March 15, 2021, the Company
received a letter from the Staff notifying it that it had regained compliance with the Bid Price Rule. The letter stated the staff had
determined that for the prior 10 consecutive business days, from March 1, 2021 to March 12, 2021, the closing bid price of the Company’s
common stock had been at $1.00 per share or greater and that accordingly, the Company had regained compliance under the Bid Price Rule,
and that the matter was closed. Reverse Stock Splits On January 30, 2019, following stockholder and board
approval, the Company effected a 1-for-2 reverse split of its outstanding shares of common stock, without any change to its par value.
The authorized number of shares of common stock were not affected by the reverse stock split. No fractional shares were issued in connection
with the reverse stock split, as all fractional shares were rounded up to the next whole share. On March 1, 2021, following stockholder and board
approval, the Company effectuated a 1-for-6 reverse split of its outstanding shares of common stock, without any change to its par value.
The authorized number of shares of common stock were not affected by the reverse stock split. No fractional shares were issued in connection
with the reverse stock split, as all fractional shares were rounded up to the next whole share. Accordingly, all share and per share amounts presented
herein with respect to common stock have been retroactively adjusted to reflect the above described reverse stock splits for all periods
presented . Basis of presentation The Company has prepared
its consolidated financial statements in accordance with accounting practices generally accepted in the United States (“U.S. GAAP”)
and has adopted accounting policies and practices which are generally accepted in the industry in which it operates. The Company’s
significant accounting policies are summarized below. Principles of consolidation
The consolidated financial
statements include the accounts of the Company and its wholly owned subsidiaries, VectorVision Ocular Health, Inc., NutriGuard Formulations,
Inc., and Transcranial Doppler Solutions, Inc. All intercompany balances and transactions have been eliminated in consolidation. Use of Estimates The preparation of our financial
statements in conformity with accounting 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 from those
estimates. Revenue Recognition The Company generates its
revenue from two business segments:
● Medical Foods and Nutraceuticals Segment
● Medical Devices Segment The Company recognizes revenue
in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers 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. Payments for sales of medical foods and dietary supplements are 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 customers. A right of return does not represent a separate performance obligation, but because customers
are allowed to return products, the consideration to which the Company expects to be entitled is variable. Upon evaluation of historical
product returns, the Company determined that less than one percent of products is returned, and therefore believes it is probable that
such returns will not cause a significant reversal of revenue in the future. Due to the insignificant amount of historical returns as
well as the standalone nature of the Company’s products and assessment of performance obligations and transaction pricing for the
Company’s sales contracts, the Company does not currently maintain a contract asset or liability balance at this time. The Company
assesses its contracts and the reasonableness of its conclusions on a quarterly basis. Revenues by segment:
Years Ended December 31,
2020 2019
Medical Foods and Nutraceuticals $ 1,609,482 $ 444,657
Medical Devices 275,862 434,010
Other 4,500 24,270
$ 1,889,844 $ 902,937 During the year ended December
31, 2020, the Company recorded a sale to the Malaysian company of approximately $890,000. The remainder of the Company’s Medical
Foods and Nutraceuticals revenues earned during the year ended December 31, 2020 are derived from individual retail customers in North
America. During the year ended December 31, 2019, all the Company’s Medical Foods and Nutraceuticals revenues are derived from individual
retail customers in North America. Medical Devices revenues are derived from a worldwide customer base consisting of both retail customers
and distributors. Sales to distributors were approximately 51% and 62% of total revenues for the years ended December 31, 2020 and 2019,
respectively. Revenues by geographical
area:
Years Ended December 31,
2020 2019
North America $ 891,768 $ 725,520
Malaysia 889,508
Other Asia 58,688 129,453
Europe and Other 49,880 47,964
$ 1,889,844 $ 902,937 Medical Devices revenues
are derived from a worldwide customer base consisting of both retail customers and distributors. Sales to distributors were approximately
51% and 62% of total revenues for the years ended December 31, 2020 and 2019, respectively. Cash Cash consists of cash and
demand deposits with banks. The Company holds no cash equivalents as of December 31, 2020 and 2019, respectively. Accounts Receivable Accounts receivable are recorded
at the invoiced amounts. Management evaluates the collectability of its trade accounts receivable and determines an allowance for doubtful
accounts based on historical write-offs, known or expected trends, and the identification of specific balances deemed uncollectible based
on a customer’s financial condition, credit history and the current economic conditions. At December 31, 2020 and
2019, based on management’s assessment, no allowance for doubtful accounts was considered necessary. Inventories Inventories are stated at
the lower of cost or net realizable value, with cost determined on a first-in, first-out (“FIFO”) basis. The Company records
adjustments to its inventory for estimated obsolescence or diminution in net realizable value equal to the difference between the cost
of the inventory and the estimated net realizable value. When evidence exists that the net realizable value of inventory is lower than
its cost, the difference is recognized as a loss in the period in which it occurs. Once inventory has been written down, it creates a
new cost basis for inventory that may not subsequently written up. For the year ended December 31, 2020, the Company wrote-down inventory
of $971,719, which was recorded in cost of sales (see Note 3). For the year ended December 31, 2019, there were no write-downs of inventory. Property and Equipment Property and equipment are
recorded at cost less accumulated depreciation. Additions, improvements, and major renewals or replacements that substantially extend
the useful life of an asset are capitalized. Repairs and maintenance expenditures are expensed as incurred. Depreciation is computed using
the straight-line method over the estimated useful lives of the related assets, which range from three to seven years. Leasehold improvements
are amortized on a straight-line basis over the shorter of their estimated useful lives or the remaining lease term. Management assesses the carrying
value of property and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If
there is indication of impairment, management prepares an estimate of future cash flows expected to result from the use of the asset and
its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to write
down the asset to its estimated fair value at that time. At December 31, 2020 and 2019, management determined there were no impairments
of the Company’s property and equipment. Leases The Company determines whether
a contract is, or contains, a lease at inception. Right-of-use assets represent the Company’s right to use an underlying asset during
the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use
assets and lease liabilities are recognized at lease commencement based upon the estimated present value of unpaid lease payments over
the lease term. The Company uses its incremental borrowing rate based on the information available at lease commencement in determining
the present value of unpaid lease payments. Intangible Assets Finite-lived intangible
assets Amortizable identifiable
intangible assets are stated at cost less accumulated amortization, and represent customer relationships, technology, trade names, and
noncompetition agreements acquired in business combinations. The Company follows ASC 360 in accounting for 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. As of December 31, 2019, the recorded value of the Company’s finite-lived
intangible assets had been fully amortized. Indefinite-lived intangible
assets Intangible assets are comprised
of an indefinite-lived trademark acquired, so classified because the Company can renew the underlying rights to the trademark indefinitely
at nominal cost. Indefinite-lived intangible assets are not amortized but are assessed for impairment annually and evaluated annually
to determine whether the indefinite useful life is appropriate. As part of our impairment test, we first assess qualitative factors to
determine whether it is more likely than not the asset is impaired. If further testing is necessary, we compare the estimated fair value
of our asset with its book value. If the carrying amount of the asset exceeds its fair value, as determined by its discounted cash flows,
an impairment loss is recognized in an amount equal to that excess. For the years ended December 31, 2020 and 2019, the Company determined
there were no impairments of its indefinite-lived brand names (see Note 5). Goodwill Goodwill is the excess of
cost of an acquired entity over the fair value of amounts assigned to assets acquired and liabilities assumed in a business combination.
Under the guidance of ASC 350, goodwill is not amortized, rather it is tested for impairment annually, and will be tested for impairment
between annual tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired. An impairment
loss generally would be recognized when the carrying amount of the reporting unit’s net assets exceeds the estimated fair value
of the reporting unit and would be measured as the excess carrying value of goodwill over the derived fair value of goodwill. The Company’s
policy is to perform an annual impairment testing for its reporting units on December 31 of each fiscal year. During the year ended December
31, 2019, the Company recorded an impairment of its remaining goodwill of $1,563,520 (see Note 5). Accordingly, at December 31, 2020,
the Company did not have any goodwill. 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 employees,
directors, and for acquiring goods and services from nonemployees, which include grants of employee stock options, are recognized in the
financial statements based on their grant date fair values in accordance with ASC 718, Compensation-Stock Compensation Income Taxes The Company uses an asset
and liability approach for accounting and reporting for income taxes that allows recognition and measurement of deferred tax assets based
upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided
for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not
these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain. The Company’s
policy is to recognize interest and/or penalties related to income tax matters in income tax expense. Research and Development
Costs Research and development
costs are expensed as incurred and 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 products. Research and development
expenditures, which include stock compensation expense, totaled $160,978 and $194,311 for the years ended December 31, 2020 and 2019,
respectively. Patent Costs The Company is the owner
of three issued domestic patents, 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 years ended December 31, 2020 and 2019, patent costs were $124,806 and $137,183, respectively, and are included in general
and administrative costs in the statements of operations. Advertising Costs Advertising costs are expensed
as incurred and are included in sales and marketing expense. Advertising costs aggregated $44,429 and $19,645 for the years ended December
31, 2020 and 2019, respectively. Loss per Common Share Basic loss per share is computed
by dividing net loss by the weighted-average common shares outstanding during a period. Diluted earnings per share is computed based on
the weighted-average common shares outstanding plus the effect of dilutive potential common shares outstanding during the period calculated
using the treasury stock method. Dilutive potential common shares include shares from unexercised warrants and options. Potential common
share equivalents have been excluded where their inclusion would be anti-dilutive. The Company’s basic and diluted net loss per
share is the same for all periods presented because all shares issuable upon exercise of warrants and options are anti-dilutive. The following potentially
dilutive shares were excluded from the shares used to calculate diluted earnings per share:
December 31,
2020 2019
Warrants 2,132,758 4,800,456
Options 778,195 493,750
2,910,953 5,294,206 Fair Value of Financial
Instruments Accounting standards require
certain assets and liabilities be reported at fair value in the financial statements and provide a framework for establishing that fair
value. Fair value is defined as the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. When determining fair value, the Company considers the principal or most advantageous
market in which it transacts, and considers assumptions that market participants would use when pricing the asset or liability. The framework
for determining fair value is based on a hierarchy that prioritizes the inputs and valuation techniques used to measure fair value: Level 1 - Level 2 - Level 3 - The Company determines the
level in the fair value hierarchy within which each fair value measurement falls in its entirety, based on the lowest level input that
is significant to the fair value measurement in its entirety. In determining the appropriate levels, the Company performs an analysis
of the assets and liabilities at each reporting period end. The Company believes the
carrying amount of its financial instruments (consisting of cash, accounts receivable, and accounts payable and accrued liabilities) approximates
fair value due to the short-term nature of such instruments. As of December 31, 2020,
and 2019, the Company’s balance sheet included Level 2 liabilities comprised of the fair value of warrant liabilities aggregating
$25,978 and $13,323, respectively (see Note 9). Derivative Financial
Instruments The Company evaluates its
financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative
financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is
then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. The classification
of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end
of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether
or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. Concentrations 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 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. During the year ended December
31, 2020, one customer accounted for approximately 47% of the Company’s sales. During the year ended December 31, 2019, one customer
who accounted for approximately 22% of the Company’s sales. No other customer accounted for more than 10% of sales in either year. Recent Accounting Pronouncements In August 2020, the FASB
issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an
Entity’s Own Equity.” ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting
models for convertible debt instruments and convertible preferred stock. Limiting the accounting models will result in fewer embedded
conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue
to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host
contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible
debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU 2020-06 also amends the
guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting
conclusions. ASU 2020-06 will be effective January 1, 2024, for the Company. Early adoption is permitted, but no earlier than January
1, 2021, including interim periods within that year. Management is currently evaluating the effect of the adoption of ASU 2020-06 on the
consolidated financial statements, but currently does not believe ASU 2020-06 will have a significant impact on the Company’s financial
statements. The effect will largely depend on the composition and terms of the outstanding financial instruments at the time of adoption. In December 2019, the FASB
issued ASU 2019-12, Income Taxes (topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 simplifies
the accounting for income taxes by removing certain exceptions and enhances and simplifies various aspects of the income tax accounting
guidance in ASC 740. ASU 2019-12 is not expected to have any impact on the Company’s consolidated financial statement presentation
or disclosures subsequent to its adoption. In June 2016, the FASB issued
ASU No. 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments (“ASC 326”). The standard significantly
changes how entities will measure credit losses for most financial assets, including accounts and notes receivables. The standard will
replace today’s “incurred loss” approach with an “expected loss” model, under which companies will recognize
allowances based on expected rather than incurred losses. Entities will apply the standard’s provisions as a cumulative-effect adjustment
to retained earnings as of the beginning of the first reporting period in which the guidance is effective. As a smaller reporting company,
ASU 2016-13 will be effective for us beginning January 1, 2023, with early adoption permitted. The Company is currently assessing the
impact of adopting this standard on the Company’s financial statements and related disclosures. The Company’s management
does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material
impact on the Company’s financial statement presentation or disclosures. |
