You should read the following discussion and analysis of our financial condition and results of operations together with and our consolidated financial statements and the related notes appearing elsewhere in this Annual Report on Form 10-K. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled "Risk Factors" included elsewhere in this Annual Report on Form 10-K.





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Overview

We are a clinical nutrition company that develops and distributes clinically supported nutrition, medical foods and dietary supplements. The Company offers a portfolio of science-based, clinically supported products designed to support retail consumers, healthcare professionals and providers, and their patients by supporting bone health, eye health, cardiovascular health, and brain health through nutrients such as Calcium, Vitamin D, Vitamin K, Carotenoids, and Omega-3s.

Our profile and focus fundamentally changed with the acquisition of Activ Nutritional, LLC ("Activ" or "Viactiv" as the context requires) in June 2021, the owner and distributor of the Viactiv® line of supplements for bone health and other applications. As a result of the Activ acquisition, our commercial efforts changed to its current focus on the development and marketing of science-based clinical nutrition and supplements.

The acquisition and integration of the Viactiv line of products has changed our financial position, market profile and brand and operating focus. In order to leverage the Viactiv platform, the Company has searched for additional complementary business opportunities. Additionally, the Company is focusing on new product development that it can launch under the Viactiv brand and in the year ended December 31, 2022, the Company launched its new Omega Boost Gel Bites product. Neither the operations nor the financial results for the twelve months ended December 31, 2022 are comparable to the twelve months ended December 31, 2021 since we acquired Activ on June 1, 2021.

We believe the Activ acquisition has added valuable attributes, that are helping us achieve our goals including (1) Viactiv's brand awareness and acceptance from the consumer; (2) experienced management; (3) established distribution networks and relationships; (4) product development potential; and (5) a long track record of financial performance.





  ? Brand awareness - Viactiv was initially launched by industry leaders Mead
    Johnson/Johnson & Johnson approximately twenty years ago, and we believe this
    history, along with the product's marketing campaigns, taste profile and
    receipt of consistently positive consumer reviews, have led to strong consumer
    awareness and acceptance. We are leveraging this strong consumer awareness to
    expand the Viactiv brand beyond calcium chews. We launched an Omega-3 product
    earlier this year called Omega Boost Gel Bites, and we are marketing it to a
    similar target audience as the calcium chews. This along with cross selling
    across products are important actions we are taking to take advantage of the
    Viactiv brand awareness to help us grow our business.

  ? Experienced management - As part of the Activ acquisition, we hired the senior
    executive responsible for the Viactiv brand at Adare Pharmaceuticals, Inc.
    ("Adare") as our Chief Commercial Officer. This senior executive was a member
    of the executive leadership team of Adare, and he has contributed strong
    sales, marketing and research and development skills and experiences to our
    leadership team. We have combined his skill set with other professionals on
    our team that had complementary skills, including manufacturing, logistics,
    financial management and medical education. Building out our team in this
    manner has helped us scale our capabilities and better exploit our collective
    industry experience.

  ? Established distribution - Viactiv's products are currently marketed through
    many of the nation's largest retailers, including, among others, Walmart
    (retail and online), Target and Amazon. We added a direct-to-consumer
    eCommerce capability on our website viactiv.com earlier this year to expand
    our sales channels. The Viactiv calcium chews can now be purchased through any
    of these channels, and we subsequently added our ocular products to this
    platform. We are also working to leverage our distribution and supply networks
    to grow our Omega Boost Gel Bites product which is currently sold on our
    direct-to-consumer site as well as one online retailer. We are evaluating
    additional channel expansion for Omega Boost Gel Bites in addition to offering
    bundles with other GHSI products to our customers.

  ? Track record of financial performance - The Viactiv brand has a strong history
    of financial success both before and after our acquisition of the brand. Sales
    in the first nine months of 2022 were impacted by supply chain challenges that
    limited the inventory we were able to distribute for sale. Our results have
    also been adversely impacted by general economic conditions that have
    negatively affected the broader vitamin, mineral and supplement category at
    retail outlets. Viactiv generated net revenues of approximately $10,640,000 in
    2022 which accounts for 96% of our total revenues in 2022. For the year ended
    December 31, 2021, on a pro forma basis, our total revenues would have been
    approximately $12,766,000 and the Viactiv products would have accounted for
    94% of our pro forma total revenues for the year. Over time, we expect the
    acquisition of Viactiv to contribute increasing revenue and consistent
    operating margins and profitability, as well as a multitude of growth
    opportunities, to our Company.



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Availability of Capital

We may continue to seek to raise additional debt and/or equity capital to fund future operations and acquisitions as necessary, but there can be no assurances that we will be able to secure such additional financing in the amounts necessary to fully fund our operating requirements on acceptable terms or at all. If we are unable to access sufficient capital resources on a timely basis, we may be forced to reduce or discontinue our product development programs and curtail or cease operations.

The Company will continue to incur significant expenses related to the commercialization of its products and with respect to its efforts to build its infrastructure, expand its operations, and execute on its business plans. Even if profitability is achieved in the future, the Company may not be able to sustain profitability on a consistent basis. The Company expects to continue to incur substantial losses and negative cash flow from operations for the foreseeable future.

The Company does not have any credit facilities as a source of present or future funds. If the Company raises additional funds through the issuance of equity or convertible debt securities, the percentage ownership of the Company's stockholders could be significantly diluted, and these newly issued securities may have rights, preferences or privileges senior to those of existing stockholders. Debt financing, if obtained, may involve agreements that include covenants limiting or restricting the ability to take specific actions, such as incurring additional debt, would increase expenses and may require that Company assets secure such debt.





Recent Developments



Reverse Stock Split

We held a special meeting of stockholders on January 5, 2023 (the "Meeting"), to consider and approve a proposal to amend the Company's Certificate of Incorporation to effect a reverse split of the Company's outstanding shares of common stock, par value $0.001, at a specific ratio, up to a maximum of a 1-for-100 split, with the exact ratio to be determined by the Company's board of directors in its sole discretion (the "Proposal"). The primary reason for recommending the Proposal were to allow the Company's common stock to regain compliance with the minimum bid requirement of the Nasdaq Capital Market.

The Proposal was approved by the Company's stockholders at the Special Meeting and on January 5, 2023, the board of directors approved a one-for-fifty (1-for-50) reverse split of the Company's issued and outstanding shares of common stock (the "Reverse Stock Split"). On January 6, 2023, the Company filed with the Secretary of State of the State of Delaware a certificate of amendment to its certificate of incorporation (the "Certificate of Amendment") to effect the Reverse Stock Split. The Reverse Stock Split became effective as of 4:01 p.m. Eastern Time on January 6, 2023, and the Company's common stock began trading on a split-adjusted basis when the Nasdaq Stock Market opened on January 9, 2023.

When the Reverse Stock Split became effective, every 50 shares of the Company's issued and outstanding common stock were automatically combined, converted and changed into 1 share of the Company's common stock, without any change in the number of authorized shares or the par value per share. In addition, a proportionate adjustment was be made to the per share exercise price and the number of shares issuable upon the exercise of all outstanding stock options, restricted stock units and warrants to purchase shares of common stock and the number of shares reserved for issuance pursuant to the Company's equity incentive compensation plans. Any fraction of a share of common stock that created as a result of the Reverse Stock Split was rounded up to the next whole share. As a result, we issued an additional 35,281 common shares for rounding. Accordingly, all common shares, stock options, stock warrants and per share amounts in these consolidated financial statements have been adjusted retroactively to reflect the reverse stock splits as if the splits occurred at the beginning of the earliest period presented in this Annual Report.

On January 24, 2023, the Company received a letter from The Nasdaq Stock Market LLC ("Nasdaq") stating that because the Company's common stock had a closing bid price at or above $1.00 per share for a minimum of 10 consecutive trading days, the Company had regained compliance with the minimum bid price requirement of $1.00 per share follr continued listing on The Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5550(a)(2).





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November 2022 Securities Offering

On November 29, 2022, the Company, entered into a Securities Purchase Agreement (the "Purchase Agreement") with certain institutional investors, pursuant to which the Company agreed to issue and sell, in a private placement (the "Offering"), 495,000 shares of the Company's Series C Convertible Redeemable Preferred Stock, par value $0.001 per share and stated value of $10.00 per share (the "Series C Preferred Stock"), and 5,000 shares of the Company's Series D Redeemable Preferred Stock, par value $0.001 per share and stated value of $10.00 per share (the "Series D Preferred Stock"), which are collectively referred to herein as the "Preferred Stock", at an offering price of $9.50 per share, representing a 5% original issue discount to the stated value of $10.00 per share, for gross proceeds of $4,750,000 in the aggregate for the Offering, before the deduction of discounts, fees and offering expenses. The shares of Series C Preferred Stock will be convertible, at a conversion price of $0.15768 ($7.884 as adjusted for the Reverse Stock Split) per share (subject in certain circumstances to adjustments), into shares of the Company's common stock, par value $0.001 per share at the option of the holders and, in certain circumstances, mandatorily by the Company. The Purchase Agreement contains customary representations, warranties and agreements by the Company and customary conditions to closing. The November 2022 Offering closed on November 30, 2022.

The Company held a special meeting of stockholders on January 5, 2023 to consider an amendment (the "Amendment") to the Company's Certificate of Incorporation, as amended, to authorize a reverse split of the Common Stock (the "Reverse Split"). Each Investor had separately agreed pursuant to a side letter (the "Side Letter") to vote their respective shares of Preferred Stock on the Reverse Split proposal at the special meeting of stockholders and to not transfer, offer, sell, contract to sell, hypothecate, pledge or otherwise dispose of the shares of the Preferred Stock, unless and until the Reverse Split has been approved by the Company's stockholders. Pursuant to the certificate of designation of the Series C Preferred Stock, the shares of Series C Preferred Stock have the right to vote on such Amendment on an as-converted to Common Stock basis. In addition, pursuant to the Side Letter, the shares of Series D Preferred Stock shall automatically be voted in a manner that "mirrors" the proportions on which the shares of Common Stock (excluding any shares of Common Stock that are not voted) and Series C Preferred Stock are voted on the Amendment. The Amendment requires the approval of the majority of the votes associated with the Company's outstanding classes of stock entitled to vote on the proposal. Because the Series D Preferred Stock will automatically and without further action of the purchaser be voted in a manner that "mirrors" the proportions on which the shares of Common Stock (excluding any shares of Common Stock that are not voted) and Series C Preferred Stock are voted on the Reverse Split, abstentions by common stockholders did not have any effect on the votes cast by the holders of the Series D Preferred Stock.

Pursuant to the Purchase Agreement, on November 29, 2022, the Company filed separate certificates of designation (each, a "Certificate of Designation") with the Secretary of State of the State of Delaware designating the rights, preferences and limitations of the shares of Series C Preferred Stock and Series D Preferred Stock, which will provide, in particular, that the Preferred Stock will have no voting rights other than the right to vote on the Amendment and as a class on certain other specified matters, and, with respect to the Series D Certificate of Designation, the right to cast 1,000,000 votes per share of Series D Preferred Stock on the Reverse Split proposal, provided that the Series D preferred stock contains a provision that limits the total voting power of a holder of Series D preferred stock to a maximum of 9.99% of the total voting power of the Company.

The holders of shares of Series C Preferred Stock are entitled to dividends, on an as-if converted basis, equal to dividends actually paid, if any, on shares of Common Stock. The Series C Preferred Stock is convertible, at the option of the holders and, in certain circumstances, by the Company, into shares of Common Stock at a conversion price of $0.15768 ($7.884 as adjusted for the Reverse Stock Split) per share. The conversion price can be adjusted pursuant to the Series C Preferred Stock Certificate of Designation for stock dividends and stock splits, subsequent rights offering, pro rata distributions of dividends or the occurrence of a fundamental transaction (as defined in the applicable Certificate of Designation). The holders of the Preferred Stock have the right to require the Company to redeem their shares of preferred stock for cash at 105% of the stated value of such shares commencing after the earlier of the receipt of stockholder approval of the Reverse Split and 60 days after the closing of the issuances of the Preferred Stock, and until 90 days after such closing. The Company has the option to redeem the Preferred Stock for cash at 105% of the stated value commencing after receipt of stockholder approval of the Reverse Split, subject to the rights of the holders of Series C Preferred Stock to convert their shares of Series C Preferred Stock into common stock prior to such redemption.





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The proceeds of the Offering were held in a third-party escrow account, along with the additional amount that would be necessary to fund the 105% redemption price, until the expiration of the redemption period for the Preferred Stock, as applicable, subject to the earlier payment to redeeming holders.

In connection with the Offering, the Company agreed to pay Roth Capital Partners, LLC, the Company's Placement Agent for the Offering (the "Placement Agent"), a financial advisory fee of $200,000 and to reimburse the Placement Agent for certain of its expenses, including legal costs, in an amount not to exceed $50,000. In addition, the Company agreed to pay the Placement Agent a cash fee equal to 5% of the gross proceeds received from any shares of Series C Preferred Stock that are ultimately converted into Common Stock.

As a result of the November 2022 Offering and pursuant to the terms of the Warrants, on November 30, 2022 the exercise price for all of the Warrants was reduced to $7.884. Thereafter, as a result of the Reverse Stock Split and pursuant to the terms of the Warrants, the exercise price for all Warrants was reduced to $7.57 on January 13, 2023.

As of February 8, 2023, no shares of Preferred Stock were outstanding, all investors were paid in full and the escrow account was closed. There were no conversions of the Preferred Stock into the Company's common stock. We have Restricted Cash on our December 31, 2022 balance sheet in the amount of $5,250,000, all of which was restricted for use to fund the redemption of this Preferred Stock.

Supply Chain Constraints; Inflationary Pressures

We experienced supply chain constraints due to the COVID-19 pandemic and its aftermath. These constraints began in approximately December 2021 and continued through approximately the third quarter of 2022. These constraints had impacted the Company's ability to obtain inventory to fulfill customer orders for its Viactiv branded products and may continue to impact its ability to fulfill customer orders going forward which would have a material adverse effect on the Company's business and results of operations. 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 our Viactiv products. The Company paid approximately $83,000 in such fees in 2022 to these retailers. Additionally, the Company and its suppliers are experiencing significant broad-based inflation of manufacturing and distribution costs as well as transportation challenges. The Company expects input cost inflation to continue at least throughout 2023.

Launch of Viactiv® Omega Boost Gel Bites

In February 2022, we began the marketing of our Viactiv® Omega Boost Gel Bites product, our first expansion of the Viactiv brand since we acquired the business in June 2021. The 1,200 mg Omega-3 gel bites are designed to provide total body support, including cardiovascular, brain, joint and eye health. The new dosage form is able to provide the potency of large, hard-to-swallow soft gels, in a great tasting chewable format that has ten times more Omega-3 than the leading fish oil gummies. The gel bite dosage form has been shown to have better absorption and fewer digestive issues than regular soft gel formulas, as well as no unpleasant fishy aftertaste and no sugar, which is associated with many other Omega-3 products. During the three months ended September 30, 2022, we announced interim results of an independent clinical study designed to evaluate the effectiveness of our new Viactiv Omega Boost Gel Bites at increasing Omega-3 saturation levels on red blood cells. Our interim clinical results showed a 50% improvement in Omega-3 levels in just 4 weeks of customer usage.

We hope that this new product will not only increase our revenues but also be the first of many new product launches over upcoming quarters. The Omega Boost Gel Bites also represent an expansion of the Viactiv brand beyond calcium products. Initial customer reaction has been positive as judged by online reviews. Although sales of our Omega Boost Gel Bites have been modest since its launch, we are optimistic about the potential of the product as we increase consumer awareness, receive additional clinical support for the efficacy of the product, refine our marketing activities and increase distribution.

Adding these products has enabled us to create additional value in multiple ways. We believe the Viactiv brand and established distribution will make our Omega Boost Gel Bites sales and marketing functions more successful. Introducing this new product in 2022 expanded our portfolio beyond calcium chews which is an important aspect of our growth strategy. The Viactiv brand has traditionally focused its marketing of calcium supplements to female purchasers at different life stages. We believe this target audience will also be interested in purchasing our omega-3 supplements that we believe provide a preferred alternative to existing omega-3 soft gels and gummy products.





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The introduction of the Omega Boost Gel Bites product greatly expanded the total addressable market for Viactiv by expanding the brand into the established sizeable omega-3 market. We hope that our omega-3 product will distinguish itself from the competition over time.

We have also expanded our sales channels for Viactiv by launching a direct-to-consumer website. This new channel offers Viactiv customers an additional channel to purchase our products, but it also provides customers with more customized offers and information.

We plan to leverage the established distribution channels and marketing experience that Viactiv enjoys to our other products, which we hope will accelerate those products' revenue growth. Viactiv has traditionally distributed its calcium chews through traditional retailers with physical locations, online retailers and direct to consumer via our website. We launched our Omega Boost Gel Bites on the viactiv.com website, and we continue to add online retailers. We are currently evaluating whether to expand distribution to traditional retailers. Initial customer reaction to the Omega Boost Gel Bites has been positive as judged by online reviews, customer surveys and focus groups. While sales of our Omega Boost Gel Bites have been modest, we are optimistic about the product's potential as we increase consumer awareness, receive additional clinical support for the efficacy of the product, and refine our marketing activities.

Launch of Direct-to-Consumer Online Store for Viactiv Products

During January 2022, we launched our new e-commerce venue through a Shopify store for our Viactiv line of products (which can be found at www.viactiv.com). The new e-commerce platform offers Viactiv customers the option of shopping via retail outlets (e.g., grocery, pharmacy, etc.) or online through those same retail websites or directly through our new branded website. We derived approximately 4% of our sales revenue from this channel during the year ended December 31, 2022. We hope to increase this revenue segment through a targeted marketing effort to attract existing and new customers through a digital marketing strategy which entails mobile optimization, performance marketing, and brand awareness.

Strategic Objectives, Goals and Strategies

Our ability to maximize stockholder value requires that we build a solid corporate foundation and demonstrate growth and commercial success on top of that foundation. We have taken a number of steps the last two years to strengthen our corporate foundation, including acquiring Viactiv, winding down and reevaluating Vector Vision, hiring key team members, launching a new product, strengthening our eCommerce capabilities and streamlining operations.

Our three primary objectives are:





  ? Demonstrate Commercial Success: We are focused on growing sales of our
    existing Viactiv product portfolio, growing sales of new products introduced
    in 2022 and positioning the other clinical nutrition products to maximize
    results. We have taken steps to address this objective during 2022 by
    launching the new Omega Boost Gel Bites, which adds a key product to our
    portfolio. New products are also important to reduce the risk of customer of
    supplier concentrations. We continue to work with our manufacturing partners
    to begin rebuilding inventories which were negatively impacted by the supply
    chain constraints we have experienced. Lack of inventory was the biggest
    impediment to our ability to grow sales of our calcium products in the first
    half of 2022, but we have made progress in rebuilding these stocks and
    re-stocking retailers during the second half of 2022. We have also
    communicated a price increase to our retail partners that was implemented
    during the year. Despite the operational improvements, our sales declined in
    the twelve months ended December 31, 2022. These sales declines are consistent
    with declines in the broader vitamin, mineral and supplement category at
    retail locations and were also the result of the continuing supply constraints
    we experienced during the six months ended December 31, 2022.




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  ? Strengthen our Commercial Engine: We believe we need to effectively implement
    several strategies, including expanding our distribution within the sales
    channels, strengthening our Viactiv brand and related marketing, building our
    innovation pipeline and strengthening our team. During the year, we continued
    to discuss new distribution opportunities with new and existing customers as
    well as enhancing our direct-to-consumer capability on viactiv.com. We also
    advanced our marketing efforts by conducting consumer surveys and focus
    groups. We continue to monitor customer trends and identify opportunities for
    new product development.. As we enter 2023, we plan to focus our efforts on
    commercializing the Omega Boost Gel Bites that were introduced in 2022, and we
    will evaluate plans to launch another product in 2023. During the six months
    ended December 31, 2022, we strengthened our inventory levels in order to
    increase our marketing trials in an effort to get back to consistent selling
    levels with Amazon.com. We continue to pursue additional marketing strategies
    to increase the distribution of all Viactiv products across our existing sales
    channels.

  ? Strengthen our Clinical Nutrition Strategy: We are strengthening our Clinical
    Nutrition Strategy, by, among others, advancing clinical evidence regarding
    our existing and future products, partnering with specialty manufacturers and
    suppliers to leverage innovations, and working to increase awareness of our
    products within the healthcare community. During the twelve months ended
    December 31, 2022, we announced interim results of an independent clinical
    study designed to evaluate the effectiveness of new Viactiv Omega Boost Gel
    Bites at increasing Omega-3 saturation levels on red blood cells. Our interim
    clinical results showed a 50% improvement in Omega-3 levels in just 4 weeks of
    customer usage. Finally, we continue to meet with manufacturing partners to
    research the supply of science based ingredients and new formats that could be
    incorporated into our future products.

Evaluation of Strategic Alternatives

The Company is also evaluating alternative strategic paths focused on maximizing stockholder value, and we have hired a financial advisor to support this process. In March 2023, we retained Alantra, LLC ("Alantra") as the Company's exclusive financial advisor to implement a strategic review to evaluate alternatives to maximize stockholder value in the near-term, which could include, among other alternatives, a sale of the Company or the Viactiv brand, or a merger, acquisition, reverse acquisition, or other strategic transaction.

Our management team and Board of Directors believe that the current market valuation of the Company does not accurately reflect the potential value of the Company and the clinical nutrition platform and the brand that we are building. The Company is therefore exploring a diverse range of strategic options to help grow the Company and enhance stockholder value, including, among other things, a sale of the Company or Viactiv brand, merger, acquisition, reverse acquisition, or other strategic transaction. There can be no assurances, however, that this process will result in a transaction, or that if a transaction is completed, it will ultimately enhance stockholder value. There is no set timetable for the strategic review process and the Company does not intend to provide periodic updates until the Board of Directors makes a formal decision and determines that disclosure is appropriate and/or necessary under the circumstances.





Concentration of Risk

As a result of the recent banking failures in the U.S. and abroad there has been a much-highlighted focus on what is being done to preserve capital. The Company's cash is held in a cash bank deposit program maintained by BMO Harris Bank ("BMO"), an FDIC-insured banking institution regulated by the Office of the Comptroller of the Currency ("OCC"). The Company's policy is to maintain its cash balances with financial institutions with high credit ratings and in accounts insured by the Federal Deposit Insurance Corporation (the "FDIC") and/or by the Securities Investor Protection Corporation (the "SIPC"). The Company periodically has cash balances in financial institutions in excess of the FDIC and SIPC insurance limits of $250,000 and $500,000, respectively. 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., The Company has not experienced any losses to date resulting from this policy.





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Revenue

During the year ended December 31, 2022, we had one customer that accounted for 57% of total revenue. During the year ended December 31, 2021, we had one customers that accounted for 49% of total revenue, respectively. No other customer accounted for more than 10% of revenue during the years ended December 31, 2022 or 2021.





Accounts receivable

As of December 31, 2022, we had accounts receivable from one customer which comprised approximately 88% of accounts receivable. As of December 31, 2021, we had accounts receivable from one customer which comprised approximately 81% of accounts receivable. No other customer accounted for more than 10% of accounts receivable as of December 31, 2022 or 2021. The Company has no recent history of significant uncollectible accounts receivable from customers.





Purchases from vendors

During the years ended December 31, 2022 and 2021, we utilized one manufacturer for most our production and packaging of clinical nutrition products. Total purchases from this manufacturer accounted for approximately 48% and 70% of all purchases for the years ended December 31 2022 and 2021, respectively. No other vendor accounted for more than 10% of purchases during the years ended December 31, 2022 or 2021.





Accounts payable

As of December 31, 2022, one vendor accounted for 88% of total accounts payable. As of December 31, 2021, one vendor accounted for 46% of total accounts payable. No other vendor accounted for more than 10% of accounts payable as of December 31, 2022 or 2021.

Critical Accounting Policies and Estimates

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

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





Revenue Recognition

We recognize revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers. Revenue is recognized when control of promised goods or services is transferred to the customer in an amount that reflects the consideration to which we expect to be entitled in exchange for those products or services. We review our sales transactions to identify contractual rights, performance obligations, and transaction prices, including the allocation of prices to separate performance obligations, if applicable.

All products sold by us 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.





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Inventories

Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out ("FIFO") basis. We record adjustments to our 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. 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 is not subsequently written up.





Intangible Assets

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.

Goodwill

The Company tests goodwill for impairment annually on December 31, or more frequently if a triggering event occurs and it updates its test with information that becomes available through the end of the period reported. Goodwill impairment exists when the fair value of goodwill is less than its carrying value. The Company is its sole reporting unit.





Convertible Preferred Stock

Preferred shares subject to mandatory redemption are classified as liability instruments and are measured at fair value. The Company classifies conditionally redeemable preferred shares, which includes preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company's control, as temporary equity ("mezzanine") until such time as the conditions are removed or lapse.





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Business Combinations

We account for our business combinations using the acquisition method of accounting where the purchase consideration is allocated to the tangible and intangible assets acquired, and liabilities assumed, based on their respective fair values as of the acquisition date. The excess of the fair value of the purchase consideration over the estimated fair values of the net assets acquired is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing intangible assets include, but are not limited to, expected future cash flows, which includes consideration of future growth and margins, future changes in technology, expected cost and time to develop in-process research and development, brand awareness and discount rates. Fair value estimates are based on the assumptions that management believes a market participant would use in pricing the asset or liability.





Stock-Based Compensation

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

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

Recent Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

Recent Trends - Market Conditions

We have been experiencing supply chain constraints due to the COVID-19 pandemic. These constraints began in approximately December 2021 and continued into the third quarter of 2022. These supply chain issues constrained our ability to obtain inventory to fulfill customer orders for our Viactiv brand products from approximately the third quarter of 2021 through the third quarter of 2022, and we have not experienced any disruptions since. We are subject to out-of-stock fees to certain retailers in the event that we are unable to adequately maintain certain inventory levels of our Viactiv products. Additionally, we and our suppliers are experiencing significant broad-based inflation pressures. We expect input cost inflation to continue at least throughout 2023.





Plan of Operations



General Overview

We are focused on building a leading clinical nutrition company. Our team continues to assess the business, the core fundamentals, and the market opportunity for our products and services. With the acquisition of Viactiv brand and business in 2021, management believes that we will be able to accelerate our growth and development.

Our team is focused on building a strong foundation by developing a business model and infrastructure that is designed for long-term commercial success. This process will take time, but we continue to take important steps required to build a stronger company. Based on the availability of sufficient funding, we intend to increase our commercialization and business development activities, including engaging in new product development and further strategic transaction acquisitions, to capitalize on growth opportunities. We are also exploring, with the assistance of our financial advisor, a diverse range of strategic options to help grow the Company and enhance stockholder value, including, among other things, a sale of the Company or Viactiv brand, merger, acquisition, reverse acquisition, or other strategic transaction.

Over the long-term, we believe one of the critical keys to our success will be to create value in well-differentiated and robust brands through strong clinically proven claims that address consumer needs in growing markets, both domestically and internationally. We are committed to bringing compelling products to market under meaningful and differentiated brands supported by strong science.





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We are currently working on several initiatives that we believe will help achieve these long-term goals as described above under "Strategic Objectives, Goals and Strategies" and below.

Our growth initiatives are focused on increasing revenue and bringing compelling products to market under meaningful and differentiated brands that are supported by strong science. Management intends to focus on those products that possess the greatest chance for commercial success within a reasonable period of time and with a reasonable deployment of capital.





  ? We intend to improve our sales channels by increasing product
    commercialization through better access to sales channels and to leverage our
    collective experience, particularly from the Viactiv product distribution, to
    increase and improve the distribution of all of our products. We added a
    direct-to-consumer eCommerce capability on viactiv.com during 2022 to expand
    our sales channels. Our calcium chews can now be purchased through a number of
    sales channels, including stores owned by traditional retailers, websites of
    online retailers and directly from Viactiv at viactiv.com. We launched our
    Omega Boost Get Bites earlier in 2022 on the Viactiv direct-to-consumer site,
    and we added distribution of the product by adding it to certain online
    retailers during the year.

  ? We intend to enhance our product strategy by continuing to develop new
    products that increase our product breadth, like the Omega Boost Gel Bites.
    New products are an important component of our sales growth strategy, but they
    also diversify our customer base and supply chains. We also continue to
    critically evaluate our current product portfolio in order to improve or
    discontinue certain of our existing products. We are focused on products with
    differentiated formulations, product taste, compelling product formats, and
    competitive cost structures.

  ? We intend to improve our brand strategy by improving the management and
    exploitation of our brand portfolio particularly, by leveraging Viactiv's
    strong consumer awareness and acceptance. Launching the Omega Boost Gel Bites
    was an important step to introducing new products to consumers aware of the
    Viactiv brand. This new product introduction also reinforced key attributes of
    the Viactiv brand, including consumer experience and product efficacy.

  ? We intend to strengthen our clinical nutrition strategy by continuing to
    advance clinical evidence regarding our products, working with manufacturers
    and suppliers to leverage our partner's innovations and increasing awareness
    of our products and efforts within the healthcare community.

  ? We plan to expand our scientific work by improving the science that supports
    our products and drives our product development process and increasing
    clinical evidence regarding our products from established health care
    professionals. For example, during the twelve months ended December 31, 2022,
    we announced interim results of an independent clinical study designed to
    evaluate the effectiveness of new Viactiv Omega Boost Gel Bites at increasing
    Omega-3 saturation levels on red blood cells. Our interim clinical results
    showed a 50% improvement in Omega-3 levels in just 4 weeks of customer usage.




Results of Operations

Through December 31, 2022, we have primarily been engaged in product development, commercialization, completing the integration of Activ and raising capital. We have incurred and will continue to incur significant expenditures for the development of our products and intellectual property, which includes nutrition, medical foods and supplements. These products support healthcare professionals, their patients and consumers in achieving health goals. With the acquisition of the Viactiv brand and business effective June 1, 2021, and its successful integration into our operations since that date, we have established a significant baseline level of gross revenues. When comparing the Company's financial performance for the years ended December 31, 2022 and December 31, 2021 below, consider that the Company only operated the Viactiv business for seven months in 2021 versus 12 months in 2022.





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At December 31, 2021, we ceased the then-current operations of VectorVision. The Company is exploring various alternative ways to preserve, manage and exploit the various related intellectual property rights, including our U.S. patents, associated with the VectorVision technology, which rights we believe are valuable and marketable.

We previously had two reportable segments, a Clinical Nutrition Segment and a Medical Devices Segment. In December 2021, we announced the transition of VectorVision, which, while representing the bulk of the medical device business, only accounted for approximately 4% of total Company revenue in 2021. As a result, the Company no longer expects to generate any material revenues or expenses in the Medical Devices Segment, and accordingly, as of December 31, 2021, the Company is the sole reporting unit.

Comparison of Years Ended December 31, 2022 and 2021





                                         Years Ended
                                        December 31,
                                   2022              2021                     Change
Revenue                        $  11,049,772     $   7,233,118     $   3,816,654              53 %
Cost of goods sold                 6,529,385         4,122,684         2,406,701              58 %
Gross Profit                       4,520,387         3,110,434         1,409,953              45 %
Operating Expenses:
Research and development             193,800            64,358           129,442             201 %
Sales and marketing                2,069,660         2,324,569          (254,909 )           (11 %)
General and administrative         9,602,244        11,204,885        (1,602,641 )           (14 %)
Impairment of Intangible
assets                            10,065,833                 -        10,065,833
Impairment of Goodwill                     -        11,893,134       (11,893,134 )
Acquisition transaction
costs                                      -         2,103,680        (2,103,680 )
Loss on disposal of
equipment                              9,448           160,137          (150,689 )           (94 %)
Loss on lease termination,
net                                        -           106,477          (106,477 )
Total Operating Expenses          21,940,985        27,857,240        (5,916,255 )           (21 %)
Loss from Operations             (17,420,598 )     (24,746,806 )      (7,326,208 )           (30 %)
Other Income (Expense):
Change in fair value of
warrant derivative liability       2,345,800                 -         2,345,800
Interest income                      152,570             1,797           150,773             839 %
Total other Income (Expense)       2,498,370             1,797         2,496,573
Net loss                         (14,922,228 )     (24,745,009 )       9,822,781             (40 %)
Preferred stock deemed
dividend                             941,585                 -           941,585
Net Loss available to common
stockholders                   $ (15,863,813 )   $ (24,745,009 )   $   8,881,196             (36 %)




Revenue

For the year ended December 31, 2022, revenue from product sales was approximately $11,050,000 compared to revenue of approximately $7,233,000 for the year ended December 31, 2021, resulting in an increase of approximately $3,817,000 or 53%. The increase is primarily driven by the revenue of approximately $10,640,000 generated during the year ended December 31, 2022 by our Viactiv product line. In 2021 we owned the Viactiv product line for 7 months versus 12 months in 2022.





Cost of Goods Sold

For the year ended December 31, 2022, cost of goods sold was approximately $6,529,000 compared to cost of goods sold of approximately $4,123,000 for the year ended December 31, 2021, resulting in an increase of approximately $2,406,000 or 58%. This increase is primarily driven by the approximate $6,181,000 cost of sales related to our Viactiv product line.





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Gross Profit

For the year ended December 31, 2022, gross profit was approximately $4,520,000 compared to gross profit of approximately $3,110,000 for the year ended December 31, 2021, resulting in an increase of approximately $1,410,000 or 45%. Gross profit represented 41% of revenues for the year ended December 31, 2022. Approximately $4,559,000 or 99% of the 2022 versus $2,991,000 or 96% of the 2021 gross profit was generated from the sale of the Viactiv products.





Research and Development

For the year ended December 31, 2022, research and development costs were approximately $194,000 compared to costs of approximately $64,000 for the year ended December 31, 2021, resulting in an increase of approximately $130,000 or 201%. Research and development costs during the year ended December 31, 2022 and 2021 consist primarily of clinical studies related to our clinical nutrition products.





Sales and Marketing

For the year ended December 31, 2022, sales and marketing expenses were approximately $2,070,000 compared to expenses of approximately $2,325,000 for the year ended December 31, 2021. The decrease in sales and marketing expenses of approximately $255,000 or 11% compared to the prior period was primarily due to the increased focus on targeted marketing spend related to our Viactiv line of products and increased fiscal discipline.





General and Administrative

For the year ended December 31, 2022, general and administrative expenses were approximately $9,602,000 compared to expenses of approximately $11,205,000 for the year ended December 31, 2021. The decrease of approximately $1,603,000 or 14% compared to the prior period. This decrease was primarily due to decreases in stock-based compensation of approximately $962,000, professional fees of approximately $775,000, consulting fees of approximately $719,000, rent of approximately $119,000, License and fees of approximately $97,000, Franchise and non-income related tax of approximately $75,000, computer and call center expense of approximately $54,000 and repairs and maintenance of approximately $51,000 offset by increases in amortization of intangibles of approximately $496,000, administrative and broker fees of approximately $263,000, legal fees of approximately $229,000, warehousing fees of approximately $150,000, shareholder meetings of approximately $65,000, payroll and benefits of approximately $61,000 recruitment fees of approximately $49,000 and dues and subscriptions of approximately $46,000.

Acquisition Transaction Costs

For the year ended December 31, 2021, acquisition transaction costs were approximately $2,104,000, all of which relate to our acquisition of Activ. We did not have any acquisition costs in 2022.

Impairment of Intangible Assets

On December 31, 2022, as a result of the widespread delays and disruptions in the supply chain impacting the global economic environment during 2022, the Company performed an impairment analysis of its intangible assets and determined its intangible assets to be fully impaired. As a result, the Company wrote-down the full $10,065,833 remaining value of the intangible assets as of December 31, 2022 through an impairment loss recognized on our consolidated statement of operations for the year ended December 31, 2022. For additional information, see Note 6 to the consolidated financial statements.





Impairment of Goodwill

We evaluate goodwill for impairment annually on December 31, or more frequently if a triggering event occurs. Goodwill impairment exists when the fair value of goodwill is less than its carrying value. The Company is the sole reporting unit as of December 31, 2021. During the fourth quarter of 2021, we experienced a sustained decrease in the Company's share price on NASDAQ, and as of December 31, 2021, our market capitalization was below the carrying value of our net assets. We concluded that this was an impairment triggering event and concluded that there was goodwill impairment of $11,893,134 for the year ended December 31, 2021. Following the impairment charge, we had no remaining goodwill as of December 31, 2021.





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Loss on Disposal of Fixed Assets

For the year ended December 31, 2022, loss on disposal of fixed assets was approximately $9,000 as compared to a loss of approximately $160,000 for the year ended December 31, 2021, a decrease of approximately $151,000 or 94%. The 2021 losses were attributable to the termination of our headquarters lease in San Diego, California, and disposal of related fixed assets.





Loss on Lease Termination

For the year ended December 31, 2021, impairment loss on lease termination was approximately $106,000. During 2021, we terminated our corporate office and warehouse lease in San Diego, California and recorded a loss on lease termination. There was no comparable charge in the current period.

Change in Fair Value of Warrant Derivative Liability

For the year ended December 31, 2022, the gain on change in fair value of warrant derivative liabilities was approximately $2,346,000 as compared to $0 for the year ended December 31, 2021, an increase of approximately $2,346,000. The increase is due to the issuance of the Series A warrants and Series B warrants issued in the February Offering, and is based on the change in the fair value of the warrants from the issuance date to December 31, 2022, based on fluctuations in the Company's stock price, estimated lives, any adjustments to date, and the exercise price utilizing the Binomial Lattice model to calculate the fair value at each reporting date, as a noncash adjustment.





Interest Expense

There was no interest expense during the years ended December 31, 2022 and December 31, 2021.





Net Loss

For the year ended December 31, 2022, we incurred a net loss of approximately $14,922,000 compared to a net loss of approximately $24,745,000 for the year ended December 31, 2021. The decrease in net loss of approximately $9,823,000 or 36% for the year ended December 31, 2022 as compared to the year ended December 31, 2021 is primarily due to the 2021 charges to goodwill impairment of approximately $11,893,000, transaction costs associated with the 2021 acquisition of Activ of approximately $2,104,000, partially offset by the 2022 intangible asset impairment charge of approximately $10,066,000, the change in fair value of warrant liabilities of $2,345,000 and net reductions during 2022 in general and administrative costs as a result of our cost cutting initiatives.

Preferred Stock Deemed Dividend

As a result of the offering on November 29, 2022, the issuance of the Preferred Stock triggered a deemed dividend of approximately $942,000 which reduced the income available to common stockholders. The $942,000 is comprised of interest in the amount of $500,000, placement fees $250,000, legal fees $158,585, accounting fees $30,500 and escrow account fees $2,500. As the Company has an accumulated deficit balance, there is no overall impact to additional paid-in capital, as the deemed dividend is recorded as offsetting debit and credit entries to additional paid-in capital. Therefore, the amounts were not presented on the Statement of Stockholders' (Deficit) Equity.

Liquidity and Capital Resources

For the year ended December 31, 2022, we incurred a net loss of approximately $14,922,000 and used cash in operating activities of approximately $7,447,000. At December 31, 2022, we had cash and cash equivalents on hand of approximately $10,655,000 and working capital of approximately $14,307,000. Working Capital includes the sum of (current assets - restricted cash) - (current liabilities - the current portion of warrant derivative liabilities).

Notwithstanding the net loss for 2022, management believes that our current cash balance is sufficient to fund operations for in excess of one year from the date of the Company's 2022 financial statements are issued.





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Our financing has historically come primarily from the issuance of convertible notes, promissory notes and from the sale of common and preferred stock. We will continue to incur significant expenses for continued commercialization activities related to our clinical nutrition product lines and building our infrastructure. Development and commercialization of clinical nutrition products involves a lengthy and complex process. Additionally, our long-term viability and growth may depend upon the successful development and commercialization of new complementary products or product lines.

We may continue to seek to raise additional debt and/or equity capital to fund future operations and acquisitions as necessary, but there can be no assurances that we will be able to secure such additional financing in the amounts necessary to fully fund our operating requirements on acceptable terms or at all. If we are unable to access sufficient capital resources on a timely basis, we may be forced to reduce or discontinue our product development programs and curtail or cease operations.





Sources and Uses of Cash

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





                                                               Years Ended
                                                               December 31,
                                                          2022             2021
Net cash used in operating activities                 $ (7,446,812 )   $ (10,644,416 )

Net cash provided by (used in) investing activities 4,990,054 (31,011,401 ) Net cash provided by financing activities

               14,268,321        37,231,012
Net increase (decrease) in cash                       $ 11,811,563     $  (4,424,805 )




Operating Activities

Net cash used in operating activities was approximately $7,447,000 during the year ended December 31, 2022, as compared to approximately $10,644,000 used during the comparable prior year period. The change in operating activities stems primarily from our acquisition of the Viactiv business in 2021, the associated purchases of inventory and operating expense.





Investing Activities

Net cash provided by investing activities was approximately $4,990,000 for the year ended December 31, 2022 and the net cash used in investing activities was approximately $31,011,000 for the year ended December 31, 2021. For the year ended December 31, 2022, we purchased approximately $77,592,000 in U.S. Treasury Bills which was offset by sales and maturities of those U.S. Treasury Bills of approximately $82,587,000.

In 2021, we used cash of approximately $26,000,000 for the acquisition of Activ and $77,000 for purchases of property and equipment.





Financing Activities

Net cash provided by financing activities was approximately $14,268,000 for the year ended December 31, 2022 and consisted of the sale of common stock with net proceeds of approximately $8,835,000, the sale of preferred stock with net proceeds of approximately $4,308,000 and warrant exercises during the period with proceeds of approximately $1,134,000. Net cash provided by financing activities was approximately $37,231,000 for the year ended December 31, 2021 and consisted of the sale of common stock with net proceeds of approximately $33,663,000 and warrant exercises during the period with proceeds of approximately $3,568,000.





JOBS Act

On April 5, 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an "emerging growth company" can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.





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We have chosen to take advantage of the extended transition periods available to emerging growth companies under the JOBS Act for complying with new or revised accounting standards until those standards would otherwise apply to private companies provided under the JOBS Act. As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates for complying with new or revised accounting standards.

Subject to certain conditions set forth in the JOBS Act, as an "emerging growth company," we intend to rely on certain of these exemptions, including, without limitation, (i) providing an auditor's attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an "emerging growth company" until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of our initial public offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.





PRINCIPAL COMMITMENTS



Appointment of CEO

Effective on January 6, 2021, the Board of Directors appointed Bret Scholtes as President and Chief Executive Officer and as a director of the Company.

The Company and Mr. Scholtes entered into an employment pursuant to which Mr. Scholtes' annual base salary is $400,000. The Employment Agreement provides that Mr. Scholtes shall have an annual target cash bonus opportunity of no less than $400,000 (the "Bonus") based on the achievement of Company and individual performance objectives to be determined by the Board of Directors.

If Mr. Scholtes' employment is terminated by the Company without cause (as defined in the Employment Agreement), if the Term expires after a notice of non-renewal is delivered by the Company or if Mr. Scholtes' employment is terminated following a change of control (as defined in the Incentive Plan), Mr. Scholtes will be entitled to (a) twelve months' base salary, (b) the prorated portion of the Bonus for the year in which the termination occurs, based on actual performance and (c) base salary and benefits accrued through the date of termination.

None of the Company's executives were paid bonuses for the year ended December 31, 2022.





Office lease

In July, 2021, the Company entered into a month-to-month lease for its primary corporate office space located in Houston, Texas, with current lease payments of approximately $2,700 per month.

Trends, Events and Uncertainties

Other than as discussed above, we are not currently aware of any trends, events or uncertainties that are likely to have a material effect on our financial condition in the near term, although it is possible that new trends or events may develop in the future that could have a material effect on our financial condition.

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