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Summary of Significant Accounting Policies
6 Months Ended
Jun. 30, 2024
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

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 SEC for interim financial information. The unaudited condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements for the year ended December 31, 2023 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, 2024. 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as filed with the SEC. The condensed consolidated balance sheet as of December 31, 2023 was derived from the audited consolidated financial statements as of that date, but does not include all disclosures, including notes, required by GAAP.

 

On May 31, 2024, the Company completed the sale of all of the outstanding equity interests of Activ (see Note 3). The operations of Activ are reported as discontinued operations for all periods presented in the accompanying condensed consolidated financial statements.

 

Principles of Consolidation

 

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Viactiv Nutritionals, Inc. and NutriGuard Formulations, Inc. Viactiv Nutritionals, Inc. was dissolved effective July 22, 2024. All intercompany balances and transactions have been eliminated in consolidation.

 

Segment Information

 

As a result of the disposition of the Viactiv® brand and business effective May 31, 2024 (see Note 3), at June 30, 3024, the Company operates and reports in one segment, which consists of the development and distribution of clinically supported dietary supplements for ocular health. The Company’s operating segment is reported in a manner consistent with the internal reporting provided to the Company’s Chief Operating Decision Maker, which is the Company’s President and Chief Executive Officer.

 

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. On an ongoing basis, management reviews its estimates and if deemed appropriate, those estimates are adjusted. Significant estimates include those related to assumptions used in valuing 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

 

Revenue and costs of sales are recognized when control of the products transfers to our customer, which generally occurs upon delivery to the customer. The Company’s performance obligations are satisfied 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.

 

Historically the Company has not experienced any significant payment delays from customers.

 

In certain circumstances, returns of products are allowed. Due to the insignificant amount of historical returns, the stand-alone nature of our products, and our assessment of performance obligations and transaction pricing for our sales contracts the Company does not currently maintain a contract asset or liability balance for obligations. The Company assesses its contracts and the reasonableness of our conclusions on a quarterly basis.

 

At June 30, 2024 and December 31, 2023, the allowance for doubtful accounts was $0 and $0, respectively.

 

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 certain 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, and warehousing, were $26,499 and $61,809 for the three months ended June 30, 2024, respectively, and $64,475 and $87,309 for the six months ended June 30, 2024 and 2023, 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 $7,572 and $8,972 for the three months ended June 30, 2024 and 2023, respectively, and $17,616 and $22,175 for the six months ended June 30, 2024 and 2023, respectively.

 

 

Advertising Costs

 

Advertising costs are expensed as incurred and are included in sales and marketing expense. Advertising costs were $0 and $400 for the three months ended June 30, 2024 and 2023, respectively, and $0 and $1,657 for the six months ended June 30, 2024 and 2023, respectively.

 

Concentration of Risk

 

Vendor costs. During the three months ended June 30, 2024, the Company utilized one vendor for its corporate legal advice. Costs associated with this vendor accounted for approximately 48% of total costs during the three months ended June 30, 2024, and approximately 31% of total costs during the three months ended June 30, 2023. One other vendor the Company used for insurance purposes accounted for approximately 42% of total costs during the three months ended June 30, 2023. No other vendors accounted for more than 10% of total costs during the three months ended June 30, 2024 and 2023.

 

Accounts payable. As of June 30, 2024, three vendors accounted for 75% of total accounts payable. One vendor accounted for 35%, a second vendor accounted for 27% and a third vendor accounted for 13% of the accounts payable at June 30, 2024. As of December 31, 2023, three vendors accounted for 81% of the total accounts payable. One vendor accounted for 55%, a second vendor accounted for 14% and a third vendor accounted for 12% of the accounts payable at December 31, 2023. No other vendor accounted for more than 10% of accounts payable as of June 30, 2024 and December 31, 2023.

 

Cash and cash equivalents. Cash and cash equivalents consist of funds deposited with BMO Harris Bank (“BMO”), a major, established, high quality financial institution in 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 June 30, 2024, $14,822,826 included in cash and cash equivalents was held in the Goldman Sachs Financial Square Government Institutional Fund, a fund that is not insured by the Federal Deposit Insurance Corporation (the “FDIC”).

 

The Company routinely has cash balances in financial institutions in excess of the FDIC and SIPC insurance limits of $250,000 and $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.

 

Stock-Based Compensation

 

Stock-based awards for stock options and restricted stock awards to employees and non-employees are accounted for using the fair value method in accordance with ASC 718, 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 such as risk-free interest rates, expected volatility, expected life, and future dividends 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.

 

Income (Loss) per Common Share

 

Basic income (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 antidilutive.

 

 

The following tables reconcile the number of shares of common stock utilized in the earnings per share calculations for the three months and six months ended June 30, 2024 and 2023:

 

Schedule of Reconcile the Number of Shares of Common Stock Utilized in the Earnings Per Share 

       
   Three Months Ended June 30, 
   2024   2023 
         
Number of common shares - basic   1,284,156    1,267,340 
Effect of dilutive securities:          
Warrants   10,093    - 
Options   3,390    430 
Restricted stock awards   -    333 
Number of common shares - diluted   1,297,638    1,268,103 
           
Number of potentially dilutive securities excluded from calculation due to antidilutive impact   88,240    1,549,074 

 

       
   Six Months Ended June 30, 
   2024   2023 
         
Number of common shares - basic   1,282,241    1,267,340 
Effect of dilutive securities:          
Warrants   4,669    693 
Options   2,656      
Restricted stock awards   -    333 
Number of common shares - diluted   1,289,566    1,268,366 
           
Number of potentially dilutive securities excluded from calculation due to antidilutive impact   91,182    1,548,808 

 

Antidilutive securities include outstanding stock options with exercise prices and average unrecognized compensation cost more than the average fair market value of common stock for the related period. Antidilutive securities also include restricted stock awards with average unrecognized compensation cost in excess of the average fair market value of the common stock for the related period. Antidilutive options and restricted stock awards were excluded from the calculation of diluted net income per share and could become dilutive in future periods.

 

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

 

       
   June 30, 
   2024   2023 
         
Warrants   73,261    1,526,301 
Options   17,921    22,507 
Anti-dilutive securities   91,182    1,548,808 

 

Fair Value of Financial Instruments

 

Accounting standards require certain assets and liabilities to be reported at fair value in 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 June 30, 2024 and December 31, 2023:

 

Schedule of Assets and Liabilities at Fair Value 

   Level 1   Level 2   Level 3   Total 
   June 30, 2024 
   Level 1   Level 2   Level 3   Total 
                 
Assets  $-   $-   $-   $- 
Total assets  $-   $-   $-   $- 
                     
Liabilities                    
Warrant derivative liability  $-   $-   $631,254   $631,254 
Total liabilities  $-   $-   $631,254   $631,254 

 

   Level 1   Level 2   Level 3   Total 
   December 31, 2023 
   Level 1   Level 2   Level 3   Total 
                 
Assets  $-   $-   $-   $- 
Total assets  $-   $-   $-   $- 
                     
Liabilities                    
Warrant derivative liability  $-   $-   $2,453,100   $2,453,100 
Total liabilities  $-   $-   $2,453,100   $2,453,100 

 

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 six months ended June 30, 2024:

 

Schedule of Warrant Derivative Liability Measured at Fair Value 

  

Six Months Ended

June 30, 2024

 
     
Balance as of beginning of period – December 31, 2023  $2,453,100 
Change in fair value of warrant derivative liability   3,817,908 
Fair value of warrants redeemed for cash settlement   (5,632,429)
Fair value of warrant redemption payable   (7,325)
Balance as of end of period – June 30, 2024  $631,254 

 

As of June 30, 2024 and December 31, 2023, the Company’s outstanding warrants (except for placement agent warrants) were treated as derivative liabilities and changes in the fair value were recognized in the statement of operations (see Note 5).

 

The Company believes the carrying amounts of certain financial instruments, including cash, accounts receivable, and accounts payable and accrued liabilities, approximate fair value due to the short-term nature of such instruments and are excluded from the fair value tables above.

 

 

Recent Accounting Pronouncements

 

In July 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-03, Presentation of Financial Statements (Topic 205), Income Statement — Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation — Stock Compensation (Topic 718) Presentation of Financial Statements (“ASU 2023-03”). ASU 2023-03 amends the FASB Accounting Standards Codification to include Amendments to SEC Paragraphs pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and SEC Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 — General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. As ASU 2023-03 did not provide any new guidance, there was no transition or effective date associated with its adoption. Accordingly, the Company adopted ASU 2023-03 immediately upon its issuance. The adoption of ASU 2023-03 did not have any impact on the Company’s consolidated financial statements, including their presentation and related disclosures.

 

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure (“ASU 2023-07”), which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expense categories that are regularly provided to the chief operating decision maker and included in each reported measure of a segment’s profit or loss. ASU-2023-07 also requires all annual disclosures about a reportable segment’s profit or loss and assets to be provided in interim periods and for entities with a single reportable segment to provide all the disclosures required by ASC 280, Segment Reporting, including the significant segment expense disclosures. The Company adopted ASU 2023-07 effective January 1, 2024.The adoption of ASU 2023-07 did not have any impact on the Company’s consolidated financial statements, including their presentation and related 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 consolidated financial statements.