Business Overview
Guardion Health Sciences, Inc. (GHSI) is a clinical nutrition company that develops and distributes clinically supported dietary supplements. The company offers a portfolio of science-based, clinically supported products designed to support 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.Guardion Health Sciences, Inc. has two main product lines - the Viactiv® brand and the ocular products line. The Viactiv® brand, which the company acquired in 2021, accounted for 97.2% and 96.3% of the company's total operating revenue for the years ended December 31, 2023 and 2022, respectively, and 97.3% and 97.0% of the company's total operating revenue for the three months ended March 31, 2024 and 2023, respectively. The Viactiv® brand offers a range of calcium soft chews and other nutritional supplements. The company's ocular products line includes the Lumega-Z product, which is a medical food that supports retinal health.
Recent Developments
On January 30, 2024, the company entered into an Equity Purchase Agreement to sell its Viactiv® brand and business to Doctor's Best Inc., a wholly-owned subsidiary of Kingdomway USA Corp., for aggregate cash consideration of $17,200,000, subject to certain adjustments. This transaction, if approved by Guardion's shareholders, would result in the sale of substantially all of the company's assets and revenue-generating operations.Following the completion of the proposed transaction, Guardion would be left with minimal operations, primarily consisting of its ocular products line. The company's board of directors has determined that it is advisable and in the best interests of the company and its shareholders to approve a voluntary dissolution and liquidation of the company pursuant to a Plan of Liquidation and Dissolution, which would be subject to shareholder approval.
Financials
For the fiscal year ended December 31, 2023, Guardion reported annual revenue of $12,248,550, annual net income of $158,033, annual operating cash flow of -$4,369,885, and annual free cash flow of -$4,373,677.For the three months ended March 31, 2024, the company reported revenue of $2,999,645, a decrease of 5.8% compared to the same period in the prior year. This decrease was primarily driven by the phasing of shipments, with customers pulling forward orders into December 2023 from January 2024, as well as supply chain disruptions at the company's contract manufacturer for its Viactiv® products.
Gross profit for the three months ended March 31, 2024 was $1,179,000, representing a gross profit margin of 39.3%, compared to a gross profit of $1,335,302 and a gross profit margin of 41.9% in the same period of the prior year. The reduction in gross profit margin was primarily due to the decrease in revenue while cost of goods sold remained relatively constant.
The company reported a net loss of $4,746,744 for the three months ended March 31, 2024, compared to net income of $533,091 in the same period of the prior year. This net loss was primarily driven by a $3,268,588 loss from the change in fair value of the company's warrant derivative liability.
Liquidity
As of March 31, 2024, Guardion had cash and cash equivalents of $5,605,035 and working capital (including cash) of $9,110,684. The company has a history of operating losses and negative cash flows, and expects to continue to incur net losses and negative operating cash flows in the near-term.Even though the company's management identified certain indicators, including the current period loss from operations, the potential impact of inflation and general economic uncertainty, and the continuing costs with respect to the pending sale of its Viactiv® brand and business, management concluded these indicators do not raise substantial doubt regarding the company's ability to continue as a going concern within one year after the date the financial statements are issued. As of March 31, 2024, management determined that it is probable that the company will be able to fund its current operating plan and meet all of its obligations due within one year from the date the financial statements are issued.
However, this determination is based on management's current expectations and assumptions about future events, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. These matters include, but are not limited to, the pending sale of the Viactiv® brand and business, including whether the sale is approved by the shareholders, whether the sale is closed on an expeditious basis, and whether the voluntary Plan of Liquidation and Dissolution is approved by shareholders.
Concentration of Risk
Guardion has significant customer and supplier concentrations that pose risks to its business. During the three months ended March 31, 2024, the company had two customers that accounted for an aggregate of 72% of total revenue, with the largest customer accounting for 46% of total revenue and the second largest customer accounting for 26% of total revenue. As of March 31, 2024, the company had accounts receivable from two customers which comprised approximately 81% of its total accounts receivable.Additionally, the company utilizes one manufacturer for most of its production and packaging of its dietary supplement products, with total purchases from this manufacturer accounting for approximately 40% of all purchases during the three months ended March 31, 2024. The company also utilizes a firm to manage and handle media and advertising of its dietary supplement products, with total purchases from this vendor accounting for approximately 10% of all purchases during the three months ended March 31, 2024.
Risks and Challenges
Guardion faces several risks and uncertainties that could impact its business and financial performance. These include the successful completion of the proposed sale of the Viactiv® brand and business, the company's ability to maintain compliance with Nasdaq's continued listing requirements, the potential for the company to be classified as a "shell company" by the SEC if the Plan of Liquidation and Dissolution is not approved, and the potential for the company's warrant holders to exercise their repurchase rights, which could reduce the amount available for distribution to shareholders.Additionally, the company and its suppliers continue to experience significant broad-based inflation and labor cost pressures, which are expected to continue through at least the remainder of 2024. The consequences of higher government deficits and debt, tighter monetary policy, and potentially higher long-term interest rates may result in a higher cost of capital for the business and an increase in operating expenses.