IMPACT BIOMEDICAL INC. 10-K

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial Statements IMPACT BIOMEDICAL INC TABLE OF CONTENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 606 ) 28 Consolidated Financial Statements: Consolidated Balance Sheets 29 Consolidated Statements of Operations 30 Consolidated Statements of Cash Flows 31 Consolidated Statements of Changes in Stockholders’ Equity 32 Notes to the Consolidated Financial Statements 33 27 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Impact Biomedical, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Impact Biomedical, Inc., and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Substantial Doubt Regarding the Company’s Ability to Continue as a Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 2 to the financial statements, the Company has incurred operating losses as well as negative cash flows from operating and investing activities over the past two years, which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. GRASSI & CO., CPAs, P.C. We have served as the Company’s auditor since 2022. Jericho, New York February 20, 2024 28 I mpact BioMedical, Inc. and Subsidiaries Consolidated Balance Sheets As of December 31, 2023 2022 ASSETS Current assets: Cash and cash equivalents $ 1,000 $ 2,000 Current portion of notes receivable 203,000 16,000 Other receivables 128,000 - Prepaid expenses and other current assets - 104,000 Total current assets 332,000 122,000 Property, plant and equipment, net 287,000 276,000 Other investments - 782,000 Notes receivable - 190,000 Goodwill 25,093,000 25,093,000 Other intangible assets, net 18,921,000 20,034,000 Total assets $ 44,633,000 $ 46,497,000 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 832,000 $ 539,000 Accrued expenses 230,000 63,000 Note payable, related party 12,074,000 9,991,000 Total current liabilities 13,136,000 10,593,000 Deferred tax liability, net 3,235,000 3,235,000 Total Liabilities 16,371,000 13,828,000 Commitments and contingencies (Note 12) - - Stockholders’ equity Preferred stock, $ 0.001 par value; 100,000,000 shares authorized, 60,496,041 shares issued and outstanding ( 0 shares issued and outstanding on December 31, 2022); Liquidation value $ 0.001 per share, $ 60,000 , ($ 0 aggregate on December 31, 2022). 60,000 - Common stock, $ 0.001 par value; 4,000,000,000 shares authorized, 10,000,000 shares issued and outstanding ( 70,496,041 on December 31, 2022) 10,000 70,000 Additional paid-in capital 38,113,000 38,113,000 Accumulated deficit ( 12,961,000 ) ( 8,625,000 ) Total stockholders’ equity of the company 25,222,000 29,558,000 Non-controlling interest in subsidiary 3,040,000 3,111,000 Total stockholder’s equity 28,262,000 32,669,000 Total liabilities and stockholders’ equity $ 44,633,000 $ 46,497,000 See accompanying notes. 29 I mpact BioMedical, Inc. and Subsidiaries Consolidated Statements of Operations For the Years Ended December 31, 2023 2022 Revenue: $ - $ 50,000 Costs and expenses: Selling, general and administrative (including stock-based compensation) 315,000 325,000 Amortization 1,120,000 1,113,000 Professional Services 1,262,000 722,000 Research & Development 1,147,000 1,226,000 Other General Expenses 184,000 68,000 Total costs and expenses 4,028,000 3,454,000 Operating loss ( 4,028,000 ) ( 3,404,000 ) Other income (expense): Interest income 13,000 24,000 Other income 52,000 66,000 Interest expense ( 444,000 ) ( 462,000 ) Impairment of investment - ( 4,100,000 ) Loss from operations before income taxes ( 4,407,000 ) ( 7,876,000 ) Income tax benefit - 621,000 Net loss ( 4,407,000 ) ( 7,255,000 ) Loss from operations attributed to noncontrolling interest 71,000 204,000 Net loss attributable to common stockholders ( 4,336,000 ) ( 7,051,000 ) Loss per common share: Basic $ ( 0.07 ) $ ( 0.10 ) Diluted $ ( 0.07 ) $ ( 0.10 ) Shares used in computing loss per common share: Basic 60,248,078 70,496,041 Diluted 60,248,078 70,496,041 See accompanying notes. 30 I mpact BioMedical, Inc. and Subsidiaries Consolidated Statements of Cash Flows For the Years Ended December 31, 2023 2022 Cash flows from operating activities: Net loss $ ( 4,407,000 ) $ ( 7,255,000 ) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 1,120,000 1,113,000 Deferred tax benefit - ( 621,000 ) Impairment of other investments - 4,100,000 Decrease (increase) in assets: Other receivables ( 128,000 ) - Prepaid expenses and other current assets 104,000 ( 60,000 ) Increase (decrease) in liabilities: Accounts payable 293,000 424,000 Accrued expenses 167,000 57,000 Net cash used by operating activities ( 2,851,000 ) ( 2,242,000 ) Cash flows from investing activities: Purchase of property, plant and equipment ( 18,000 ) ( 276,000 ) Purchase of investment - ( 65,000 ) Note receivable investment, net 3,000 ( 8,000 ) Net cash used by investing activities ( 15,000 ) ( 349,000 ) Cash flows from financing activities: Borrowings from note payable, related party 2,865,000 2,547,000 Net cash provided by financing activities 2,865,000 2,547,000 Net decrease in cash ( 1,000 ) ( 44,000 ) Cash and cash equivalents at beginning of year 2,000 46,000 Cash and cash equivalents at end of year $ 1,000 $ 2,000 See accompanying notes. 31 I mpact BioMedical, Inc. and Subsidiaries Consolidated Statements of Changes in Stockholders’ Equity For the Years Ended December 31, Common Stock Preferred Stock Additional Paid-in Accumulated Non- controlling Interest in Shares Amount Shares Amount Capital Deficit Subsidiary Total Balance, December 31, 2021 70,496,041 $ 70,000 - $ - $ 38,113,000 $ ( 1,574,000 ) $ 3,315,000 $ 39,924,000 Net loss - - - - - ( 7,051,000 ) ( 204,000 ) ( 7,255,000 ) Balance, December 31, 2022 70,496,041 $ 70,000 - $ - $ 38,113,000 $ ( 8,625,000 ) $ 3,111,000 $ 32,669,000 Conversion of common stock to preferred stock ( 60,496,041 ) ( 60,000 ) 60,496,041 60,000 - - - - Net loss - - - - - ( 4,336,000 ) ( 71,000 ) ( 4,407,000 ) Balance, December 31, 2023 10,000,041 $ 10,000 60,496,041 $ 60,000 $ 38,113,000 $ ( 12,961,000 ) $ 3,040,000 $ 28,262,000 See accompanying notes. 32 Impact BioMedical Inc and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS Impact BioMedical, Inc. (the “Company”, “Impact BioMedical”, “We”), incorporated in the State of Nevada on October 16, 2018, through the utilization of its intellectual property rights, or through investment in, or through acquisition of companies in the biohealth and biomedical fields, focuses on the advancement of drug discovery and prevention, inhibition, and treatment of neurological, oncological, and immune related diseases. The Company is also developing open-air defense initiatives, which curb transmission of air-borne infectious diseases, such as tuberculosis and influenza. Global BioLife, Inc. (“Global BioLife”), one of the Company’s subsidiaries and the main operating company of the group, focuses on research in four main areas: (i) the “Linebacker” project, which aims to develop a universal therapeutic drug platform; (ii) a new sugar substitute called “Laetose,”; (iii) a multi-use fragrance called “3F” (Functional Fragrance Formulation); and (iv) Equivir/Nemovir, a blend of natural polyphenols designed as an antimicrobial medication. Linebacker Unlike the traditional approach to treat individual diseases with specific drugs, the Linebacker platform seeks to offer a breakthrough therapeutic option for multiple diseases. Linebacker is designed to work by inhibiting a cascade of inflammatory responses responsible for many diseases. Its design is in direct contrast to the traditional approach of targeting individual diseases with specific drugs. Laetose We have also developed a low-calorie, low glycemic level, natural modified sugar through Global BioLife. The product, “Laetose,” is designed to possess low glycemic properties and mitigate inflammation. The Company is presently seeking to license Laetose. Global BioLife established a joint venture, Sweet Sense, Inc. (“Sweet Sense”), with Quality Ingredients, LLC for the development, manufacture, and global distribution of the new sugar substitute. Functional Fragrance Formulation (“3F”) Global BioLife has established a collaboration with U.S.-based Chemia Corporation (“Chemia”) to develop specialized fragrances to counter mosquito-borne diseases such as Zika and Dengue, among other medical applications. The 3F mosquito fragrance product is made from specialized oils sourced from botanicals that mosquitos avoid. Global BioLife is seeking to commercialize this product. Together with Chemia, we are attempting to license 3F. Any potential profits from the 3F project will be split between Global BioLife and Chemia pursuant to the terms of the 20- year Royalty Agreement. Equivir Equivir, is a polyphenol compound that is believed to be successful in antiviral infection treatments. Equivir is a patented medication, which has broad antiviral efficacy against multiple types of infectious disease. As of the date of this report, we have not generated significant revenues from operations. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including possible delays in our research, testing and marketing efforts or wider economic downturns. 33 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation – The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements include all accounts of the Company and its majority owned and controlled subsidiaries. The Company consolidates entities in which it owns more than 50 % of the voting common stock and controls operations. All intercompany transactions and balances among consolidated subsidiaries have been eliminated. Non–controlling interest represents the minority equity investment in the Company’s subsidiaries, plus the minority investors’ share of the net operating results and other components of equity relating to the non–controlling interest. The consolidated financial statements include all accounts of the entities as of the reporting period ending dates and for the reporting periods as follows: Schedule of Condensed Financial Statements Name of consolidated subsidiary State or other jurisdiction of incorporation or organization Date of incorporation or formation Attributable interest as of December 31, 2023 Attributable interest as of December 31, 2022 Global BioMedical, Inc. Nevada April 18, 2017 90.9 % 90.9 % Global BioLife, Inc. Nevada April 14, 2017 81.8 % 81.8 % BioLife Sugar, Inc Nevada April 23, 2018 90.9 % 90.9 % Happy Sugar Inc Nevada August 17, 2018 81.8 % 81.8 % Sweet Sense Inc. Nevada April 30, 2018 95.5 % 95.5 % Global Sugar Solutions Inc. Nevada November 7, 2019 100 % 100 % As of December 31, 2023, and December 31, 2022, the aggregate noncontrolling interest was equity of $ 3,040,000 and $ 3,111,000 , respectively, which are separately disclosed on the Consolidated Balance Sheets. Use of Estimates – The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the balance sheets and reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. Earnings (Loss) per Share - Basic earnings (loss) per share is computed by dividing the net income (loss) attributable to the common stockholders by weighted average number of shares of common stock outstanding during the period. Fully diluted earnings (loss) per share is computed like basic income (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. There were no dilutive financial instruments issued or outstanding for the years ended December 31, 2023 or 2022. Fair Value of Financial Instruments – Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Fair Value Measurement Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include: ● Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets. ● Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and ● Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. The carrying amounts reported in the balance sheet of cash, prepaids, accounts payable and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. The fair value of notes receivable approximates their carrying value as the stated or discounted rates of the notes do reflect recent market conditions. The Company’s investments are recorded at cost as the fair value of these investment in is not readily available. The fair value of notes payable approximates its carrying value as the stated interest rate reflects recent market conditions. 34 Notes receivable, unearned interest, and related recognition – The Company records all future payments of principal and interest on notes as notes receivable, which are then offset by the amount of any related unearned interest income. For financial statement purposes, the Company reports the net investment in the notes receivable on the consolidated balance sheet as current or long-term based on the maturity date of the underlying notes. Such net investment is comprised of the amount advanced on the loans, adjusting for net deferred loan fees or costs incurred at origination, amounts allocated to warrants received upon origination, and any payments received in advance, if applicable. The unearned interest is recognized over the term of the notes and the income portion of each note payment is calculated so as to generate a constant rate of return on the net balance outstanding. Net deferred loan fees or costs, together with discounts recognized in connection with warrants acquired at origination, are accreted as an adjustment to yield over the term of the loan. Recent Accounting Standards - The Financial Accounting Standards Board (FASB) issues various Accounting Standards Updates relating to the treatment and recording of certain accounting transactions. There are several new accounting pronouncements issued by FASB which are not yet effective. Each of these pronouncements, as applicable, has been or will be adopted by the Company. As of December 31, 2023, none of these pronouncements is expected to have a material effect on the financial position, results of operations or cash flows of the Company. On January 1, 2022, the Company adopted amended accounting guidance “ ASU No.2016-13 – Credit Losses” which requires an allowance for credit losses to be deducted from the amortized cost basis of financial assets to present the net carrying value at the amount that is expected to be collected over the contractual term of the asset considering relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. In estimating expected losses in the loan and lease portfolio, borrower-specific financial data and macro-economic assumptions are utilized to project losses over a reasonable and supportable forecast period. Assumptions and judgment are applied to measure amounts and timing of expected future cash flows, collateral values and other factors used to determine the borrowers’ abilities to repay obligations. After the forecast period, the Company utilizes longer-term historical loss experience to estimate losses over the remaining contractual life of the loans. Prior to 2022, the allowance for credit losses represented the amount that in management’s judgment reflected incurred credit losses inherent in the loan and lease portfolio as of the balance sheet date. As of year-ended December 31, 2023 the Company has deemed that no reserve on credit losses were necessary. Investments – Investments in equity securities with a readily determinable fair value, not accounted for under the equity method, are recorded at fair value with unrealized gains and losses included in earnings. For equity securities without a readily determinable fair value, the investment is recorded at cost, less any impairment, plus or minus adjustments related to observable transactions for the same or similar securities, with unrealized gains and losses included in earnings. For equity method investments, the Company regularly reviews its investments to determine whether there is a decline in fair value below book value. If there is a decline that is other-than-temporary, the investment is written down to fair value. (See Note 5 for further discussion on investments) Property, Plant and Equipment – Property, plant and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives or lease period of the assets whichever is shorter. Expenditures for renewals and betterments are capitalized. Expenditures for minor items, repairs and maintenance are charged to operations as incurred. Any gain or loss upon sale or retirement due to obsolescence is reflected in the operating results in the period the event takes place. Research and Development - Research and development costs are expensed as incurred. Total research and development costs were $ 1,147,000 for the year-ended December 31, 2023, and $ 1,226,000 for year-ended December 31, 2022 . 35 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. Goodwill is subject to impairment testing at least annually and will be tested for impairment between annual tests, which takes place during the fourth quarter, if an event occurs or circumstances change that would indicate the carrying amount may be impaired. FASB ASC Topic 350 provides an entity with the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Some of the qualitative factors considered in applying this test include consideration of macroeconomic conditions, industry and market conditions, cost factors affecting the business, and overall financial performance of the business. If, after completing the assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company will proceed to a quantitative test. If qualitative factors are not deemed sufficient to conclude that the fair value of the reporting unit more likely than not exceeds its carrying value, then a one-step approach is applied in making an evaluation. The evaluation utilizes an income approach (discounted cash flow analysis). The computations require management to make significant estimates and assumptions, including, among other things, selection of comparable publicly traded companies, the discount rate applied to future earnings reflecting a weighted average cost of capital, and earnings growth assumptions. The Company believes the estimates and assumptions used in our impairment assessments are reasonable and based on available market information, but variations in any of the assumptions could result in materially different calculations of fair value and determinations of whether or not an impairment is indicated. A discounted cash flow analysis requires management to make various assumptions about future sales, operating margins, capital expenditures, working capital, and growth rates. Cash flow projections are derived from one-year budgeted amounts plus an estimate of later period cash flows, all of which are determined by management. Subsequent period cash flows are developed for each reporting unit using growth rates that management believes are reasonably likely to occur. Impairment of goodwill is measured as the excess of the carrying amount of goodwill over the fair values of recognized and unrecognized assets and liabilities of the reporting unit. No impairment was recognized during the year-ended December 31, 2023 or year ended December 31, 2022. (Note 7) Intangible Assets - The estimated fair values of acquired intangibles are generally determined based upon future economic benefits such as earnings and cash flows. Acquired identifiable intangible assets are recorded at fair value and are amortized over their estimated useful lives. Acquired intangible assets with an indefinite life are not amortized but are reviewed for impairment at least annually as of December 31 st , or more frequently whenever events or changes in circumstances indicate that the carrying amounts of those assets are below their estimated fair values. Impairment is tested under ASC 350. No impairment was recognized as of year-ended December 31, 2023 or the year ended December 31, 2022. (Note 8). Recoverability of Long-Lived Assets We evaluate long-lived assets such as property, equipment and definite lived intangible assets, such as patents, for impairment whenever events or circumstances indicate that the carrying value of the assets recognized in our financial statements may not be recoverable. Factors that we consider include whether there has been a significant decrease in the market value of an asset, a significant change in the way an asset is being utilized, or a significant change, delay or departure in our strategy for that asset, or a significant change in the macroeconomic environment, such as the impact of the COVID-19 pandemic. Our assessment of the recoverability of long-lived assets involves significant judgment and estimation. These assessments reflect our assumptions, which, we believe, are consistent with the assumptions hypothetical marketplace participants use. Factors that we must estimate when performing recoverability and impairment tests include, among others, forecasted revenue, margin costs and the economic life of the asset. If impairment is indicated, we determine if the total estimated future cash flows on an undiscounted basis are less than the carrying amounts of the asset or assets. If so, an impairment loss is measured and recognized. Our impairment loss calculations require that we apply judgment in identifying asset groups, estimating future cash flows, determining asset fair values, and estimating asset’s useful lives. The Company reviews identifiable amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Determination of recoverability is based on the lowest level of identifiable estimated undiscounted cash flows resulting from use of the asset and its eventual disposition. Measurement of any impairment loss is based on the excess of the carrying value of the asset over its fair value. Based on the uncertainty of forecasts inherent with a new product, events such as the failure to generate forecasted revenue from new products could result in a non-cash impairment in future periods. Revenue - The Company has adopted ASC Topic 606 , Revenue from Contracts with Customers (“Topic 606”). The Company enters into licensing and development agreements with collaborators for the development of its technologies. The terms of these agreements contain multiple performance obligations which may include (i) licenses, or options to obtain licenses, to the Company’s technology, (ii) rights to future technological improvements, and/or (iii) research activities to be performed on behalf of the collaborative partner, Payments to the Company under these agreements may include upfront fees, option fees, exercise fees, payments based upon the achievement of certain milestones, and royalties on product sales. Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under the agreements, the Company performs the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when or as the Company satisfies each performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration to which it is entitled in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when or as the performance obligation is satisfied. 36 Provision for Credit Losses - On January 1, 2022, the Company adopted amended accounting guidance “ ASU No.2016-13 – Credit Losses” which requires an allowance for credit losses to be deducted from the amortized cost basis of financial assets to present the net carrying value at the amount that is expected to be collected over the contractual term of the asset considering relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. In estimating expected losses in the loan and lease portfolio, borrower-specific financial data and macro-economic assumptions are utilized to project losses over a reasonable and supportable forecast period. Assumptions and judgment are applied to measure amounts and timing of expected future cash flows, collateral values and other factors used to determine the borrowers’ abilities to repay obligations. After the forecast period, the Company utilizes longer-term historical loss experience to estimate losses over the remaining contractual life of the loans. Prior to 2022, the allowance for credit losses represented the amount that in management’s judgment reflected incurred credit losses inherent in the loan and lease portfolio as of the balance sheet date. As of December 31, 2023 the Company has deemed that no reserve on credit losses were necessary. Continuing Operations and Going Concern - The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of our assets and the satisfaction of liabilities in the normal course of business. As reflected in the accompanying financial statements the Company has incurred operating losses as well as negative cash flows from operating and investing activities over the past two years. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date that the financial statements are issued. These consolidated financial statements do not include any adjustments to the specific amounts and classifications of assets and liabilities, which might be necessary should we be unable to continue as a going concern. To continue as a going concern, the Company has entered into an updated revolving promissory note which extended the maturity through September 30, 2030, and DSS, Inc. (“DSS”), the majority shareholder of the Company, intends to continue to fund the operations of the Company through a year from the date these financial statements were available to be issued. The Company’s management intends to take actions necessary to continue as a going concern. Management’s plans concerning these matters include, among other things, monetization of its intellectual properties, and tightly controlling operating costs. The Company has increased its efforts to raise additional capital through an initial public offering. The Company has engaged an underwriter and has been approved by the NYSE American for listing on its exchange. However, the Company cannot be certain that such capital (from its stockholders or third parties) will be available to the Company or whether such capital will be available on terms that are acceptable to the Company. Reclassifications – Certain amounts on the accompanying consolidated statement of operations for the year ended December 31, 2022, have been reclassified to conform to current period presentation. 3. Notes Receivable On February 19, 2021, Impact BioMedical, Inc, entered into a promissory note with an individual. The Company loaned the principal sum of $ 206,000 , with interest at a rate of 6.5 %, and maturity date of August 19, 2022 later amended to February 19, 2024 . Monthly payments are due on the twenty-first day of each month and continuing each month thereafter until February 19, 2024. This note is secured by certain real property situated in Collier County, Florida. The outstanding principal and interest as of December 31, 2023, approximately $ 203,000 and is classified in current notes receivable on the accompanying consolidated balance sheets. The outstanding principal and interest as of December 31, 2022 is approximately $ 206,000 with $ 16,000 classified in Current portion of notes receivable and $ 190,000 classified as Notes receivable on the accompanying consolidated balance sheets. 4. Prepaid Expenses and other current assets There were no prepaid expenses for year-ended December 31, 2023. Prepaid expenses at December 31, 2022 of $ 104,000 including research and development costs to GRDG, a related party approximating $ 43,000 . 5. Investments On December 19, 2020, Impact BioMedical, entered into a subscription agreement (the “Subscription Agreement”) with BioMed Technologies Asia Pacific Holdings Limited (“BioMed”), a limited liability company incorporated in the British Virgin Islands, pursuant to which the Company agreed to purchase 525 ordinary shares or 4.99 % of BioMed at a purchase price of approximately $ 632,000 . The Subscription Agreement provides, among other things, the Company has the right to appoint a new director to the board of BioMed. With respect to an issuance of shares to a third party by BioMed, the Company will have the right of first refusal to purchase such shares, as well as customary tag-along rights. In connection with the Subscription Agreement, Impact Biomedical entered into an exclusive distribution agreement (the “Distribution Agreement”) with BioMed, to directly market, advertise, promote, distribute, and sell certain BioMed products, which focus on manufacturing natural probiotics, to resellers. This investment is valued at cost, as it does not have a readily determined fair value. This asset and associated Note payable, related party were transferred in June 2022 to DSS BioHealth, Inc, which is a related party. 37 Effective January 1, 2021, the Company entered into a securities purchase agreement (“SPA”) with Nano9, LLC. (“Nano9”), a Utah limited partnership. For the consideration of $ 150,000 the Company obtained 1,000 membership units, or approximately 10 % equitable ownership of Nano9. Nano9 is a scientifically driven company, specializing in the development and production of leading nano-sized health & wellness products utilizing their proprietary nano technology. This asset and associated Note payable, related party were transferred June 2022 to DSS BioHealth, Inc, which is a related party. On March 15, 2021, the Company, through one of its subsidiaries, entered into a Stock Purchase Agreement (the “Vivacitas Agreement #1”) with Vivacitas Oncology Inc. (“Vivacitas”), to purchase 500,000 shares of its common stock at the per share price of $ 1.00 , with an option to purchase 1,500,000 additional shares at the per share price of $ 1.00 . This option will terminate upon one of the following events: (i) Vivacitas’ board of directors cancels this option because it is no longer in the best interest of the Company; (ii) December 31, 2022; or (iii) the date on which Vivacitas receives more than $1.00 per share of the Company’s common stock in a private placement with gross proceeds of $ 500,000 . Under the terms of the Vivacitas Agreement #1, the Company will be allocated two seats on the board of Vivacitas. On March 18, 2021, the Company entered into an agreement with Alset EHome International, Inc. (“Seller”) to purchase from the Seller’s wholly owned subsidiary Impact Oncology PTE Ltd. (“IOPL”) for a purchase price of $ 2,480,000 . The acquisition of IOPL has been treated as an asset acquisition as IOPL does not meet the definition of a business as defined in Topic 805. IOPL owns 2,480,000 shares of common stock of Vivacitas along with the option to purchase an additional 250,000 shares of common stock. The Sellers largest shareholder is Mr. Chan Heng Fai Ambrose, the Chairman of the Company’s board of directors and its largest shareholder. On April 1, 2021, the Company entered into an additional stock purchase agreement with Vivacitas (“Vivacitas Agreement #2”), whereas Vivacitas wished to employ the service of the Chief Business Officer of Impact Biomedical, and in return for the services of this individual, Vivacitas shall issue to the Company, the aggregate purchase price for the Class A Common Shares of Vivacitas at the value of $ 1.00 per share shall be $ 120,000 to be paid in twelve (12) equal monthly installments for the period between April 1, 2021 and March 31, 2022. On July 22, 2021, the Company exercised 1,000,000 of the available options under the Vivacitas Agreement #1 for $ 1,000,000 . This, along with the shares received as part Vivacitas Agreement #2 increased the Company’s equity position in Vivacitas to approximately 16 % as of December 31, 2022. As of December 31, 2022, the Company determined to impair 100 % of its investment in Vivacitas, in the amount of $ 4,100,000 . 6. Property, Plant and Equipment, Net Property, plant and equipment consisted of the following as of: Schedule of Property plant and Equipment Estimated December 31, December 31, Useful Life 2023 2022 Machinery and equipment 5 - 10 years $ 30,000 $ 25,000 Construction in progress 263,000 251,000 Total Cost 293,000 276,000 Less accumulated depreciation 6,000 - Property, plant and equipment, net $ 287,000 $ 276,000 Depreciation expense for the years-ended December 31, 2023 and 2022 were approximately $ 6,000 and $ 0 , respectively. 7. Goodwill Goodwill balances and activity for the year-ended December 31, 2023 and year ended December 31, 2022 consisted of the following: Schedule of Goodwill Balance at December 31, 2022 $ 25,093,000 Goodwill adjustment - Balance at December 31, 2023 $ 25,093,000 During 2023 and 2022, management performed annual goodwill impairment testing. No goodwill impairment was identified as a result of these tests. As of September 30, 2023, a quantitative analysis was prepared utilizing the Market Approach and Income Approach valuing the Company. The guideline public company Market Approach produced a mean business enterprise value indication using estimated 2026 results of $ 49.8 million. The Income Approach was based upon the use of a discounted pro forma cash flow model and produced a business enterprise value indication of $ 44.9 million. A weighting of 30 % to the weighted value indicated was applied under the Market Approach, and a weighting of 70 % to the value indicated under the Income Approach. A lower weighting was applied to the Market Approach due to the fact of using forecasted earnings of the Company. Based upon the above weightings, an initial value of $ 46.4 million for Impact was calculated. Adding cash of $ 201,000 to the initial business enterprise value produced a concluded business enterprise value of $ 46.6 million (rounded) for Impact. Subtracting interest-bearing debt of $ 11.9 million, results in a Fair Value for the common equity of Impact of $ 34.7 million. As of September 30, 2023, the indicated equity value exceeded the carrying amount by approximately $ 5.1 million or 14.7 % . 38 8. Intangible Assets The definite-lived intangible assets, to be amortized over 20 years, balances, and activity for the year-ended December 31, 2023 and year-ended December 31, 2022 consisted of the following: Schedule of Intangible Assets 12/31/2023 12/31/2022 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Definitive-lived: Developed technology $ 22,260,000 $ ( 3,339,000 ) $ 18,921,000 $ 22,260,000 $ ( 2,226,000 ) $ 20,034,000 Total $ 22,260,000 $ ( 3,339,000 ) $ 18,921,000 $ 22,260,000 $ ( 2,226,000 ) $ 20,034,000 The following table represents future amortization of developed technologies for the years ending December 31: Schedule of Future Amortization of Developed Technologies 2024 $ 1,113,000 2025 $ 1,113,000 2026 $ 1,113,000 2027 $ 1,113,000 2028 $ 1,113,000 Thereafter $ 13,356,000 9. SHORT TERM DEBT On December 31, 2020, and later amended, the Company executed a Revolving Promissory Note (“Note”) with DSS, a related party, which accrues interest at a rate of 4.25 % and is due in full at the maturity date of September 30, 2030 . The revolving nature of this Note permits principal amounts borrowed to be repaid and reborrowed. In the case of default, at DSS’s option, (i) eighteen percent (18%) per annum, or (ii) such lesser rate of interest as Lender in its sole discretion may choose to charge; but never more than the Maximum Lawful Rate. In January 2024, this Note was amended to extend the maturity date to September 30, 2030 with interest calculated at the Wall Street Journal prime rate plus 0.50 %. The payment of principal and interest is on demand. If no demand is made, interest is to be paid monthly beginning on February 29, 2024 through January 31, 2026. Principal and interest in an amount approximating $ 126,000 is to be paid monthly thereafter until the Note matures. As of December 31, 2023 and December 31, 2022, the outstanding balance, inclusive of interest was $ 12,074,000 and $ 9,991,000 , respectively. 10. STOCKHOLDERS’ EQUITY On May 10, 2023, the Company, the Company’s Board of Directors approved an amendment to the Articles of Incorporation of the Company to increase the total number of shares of Common Stock to 4,000,000,000 shares with a par value of $ 0.001 . Each share of Common Stock when issued, shall have one (1) vote on all matters presented to the stockholders. Our Amended and Restated Articles of Incorporation also authorized 100,000,000 shares of preferred stock, par value $ 0.001 per share. On May 11, 2023, the Company effected a forward split. As a result, there were 3,877,282,251 shares of our Common Stock and no shares of preferred stock issued and outstanding. Prior to the split, there were 125,073,621 shares of our Common Stock and no shares of preferred stock issued and outstanding. As of December 31,2023, and December 31, 2022, there were 3,877,282,251 shares of our Common Stock and no shares of preferred stock issued and outstanding. On August 8, 2023 DSS, the Company’s largest shareholder, distributed to its shareholders of record on July 10, 2023 4 shares of Impact Bio’s stock for 1 share they owned. Each share of Impact BioMedical distributed as part of the distribution will not be eligible for resale until 180 days from the date Impact BioMedical’s initial public offering becomes effective under the Securities Act, subject to the discretion of the Company to lift the restriction sooner. On October 31, 2023, the Company effected a reverse stock split of 1 for 55 . As of December 31, 2023 and December 31, 2022, there were 3,877,282,251 shares of our Common Stock issued and outstanding which was converted to 70,496,041 shares. Also on October 31, 2023, DSS BioHealth Securities, Inc., the Company’s largest shareholder converted 60,496,041 shares of Common Stock into 60,496,041 shares of Series A Convertible Preferred Shares, reducing its ownership of the Company’s Common Stock from approximately 88% to approximately 12% . Equity Incentive Plan – During 2023, the Company’s shareholders adopted the 2023 Employee, Director and Consultant Equity Incentive Plan (the “2023 Plan”). The 2023 Plan provides for the issuance of an initial 10,574,000 shares of common stock authorized to be issued for grants of options, restricted stock and other forms of equity to employees, directors and consultants. In addition, on the first day of each calendar year, for a period of not more than ten (10) years, commencing January 1, 2025, or the first business day of the calendar year if the first day of the calendar year falls on a Saturday or Sunday, the shares available under this plan will automatically increase in an amount equal to the lesser of (i) two percent (2%) of the total number of shares of Common Stock outstanding as of December 31 of the preceding fiscal year or (ii) such number of shares of Common Stock as determined by the Board of Directors. Under the terms of the 2023 Plan, options granted thereunder may be designated as options which qualify for incentive stock option treatment (“ISOs”) under Section 422A of the Internal Revenue Code, or options which do not qualify (“NQSOs”). As of December 31, 2023, there are 10,574,000 shares available under this plan. Stock-Based Compensation – The Company records stock-based payment expense related to options and warrants based on the grant date fair value in accordance with FASB ASC 718. Stock-based compensation includes expense charges for all stock-based awards to employees, directors and consultants. Such awards include option grants, warrant grants, and restricted stock awards. There were no stock-based payments made during the twelve months ended December 31, 2023, or 2022. 39 11. INCOME TAXES The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities. Deferred tax assets are reduced, if deemed necessary, by a valuation allowance for the amount of tax benefits which are not expected to be realized. The components of income tax benefit for the years ended December 31, 2023, and 2022 are as follows: Schedule of Components of Income Tax Benefit Income Tax Expense (Benefit) Year Ended December 31, 2023 Year Ended December 31, 2022 Current tax payable Federal $ - $ - State - - Total current tax payable - - Deferred tax Federal ( 920,000 ) ( 1,619,000 ) State ( 94,000 ) ( 165,000 ) Total deferred tax $ ( 1,014,000 ) $ ( 1,784,000 ) Less increase in valuation allowance 1,014,000 1,163,000 Total income tax benefit $ - $ ( 621,000 ) Individual components of deferred tax assets and liabilities are approximately as follows: Schedule of Deferred Tax Assets and Liabilities Deferred Tax Assets & Liabilities: Deferred Tax assets: Impairment of investment $ 929,000 $ 929,000 Research & development cost 538,000 250,000 Net Operating loss 2,087,000 1,611,000 Gross deferred tax assets 3,554,000 2,790,000 Deferred tax liability: Intangible assets ( 4,164,000 ) ( 4,414,000 ) Gross deferred tax liability ( 4,164,000 ) ( 4,414,000 ) Less valuation allowance ( 2,625,000 ) ( 1,611,000 ) Net deferred tax liability $ ( 3,235,000 ) $ ( 3,235,000 ) Schedule of Effective Income Tax Rate Reconciliation 2023 2022 Statutory United States federal rate 21.0 % 21.0 % State income taxes net of federal benefit 1.7 % 1.7 % Change in valuation allowance ( 22.7 )% ( 14.8 )% Effective rate 0.0 % 7.9 % As of December 31, 2023, and 2022, the Company has net operating loss carry forwards of approximately $ 9,209,000 and $ 7,109,000 respectively. The Company does not have other temporary differences associated with the amortization of intangible assets. As of December 31, 2023, and 2022, the total deferred tax assets carry-forward were $ 3,554,000 and $ 2,790,000 , respectively. The deferred tax assets could be carried forward indefinitely. The full utilization of the deferred tax assets in the future is dependent upon the Company’s ability to generate taxable income. Considering the development stage of the Company, management believed that it was probable that the Company would not use tax assets in the near future. Accordingly, a valuation allowance of an equal amount has been established. During the years ended December 31, 2023 and December 31, 2022, the valuation allowance increased by $ 1,014,000 and decreased by $ 1,163,000 , respectively. The Company recognizes interest accrued and penalties related to unrecognized tax benefits in tax expense. During the years ended December 31, 2023 and 2022 the Company recognized no interest and penalties. 40 12. COMMITMENTS AND CONTINGENCIES On August 15, 2018, the Company entered into Royalty Agreement with Chemia Corporation (“Chemia”) pursuant to which Chemia transferred to the Company all of its right to 3F (Functional Fragrance Formulation). This agreement has a 20-year term and auto renews for a period of 1 year unless mutually agreed upon by both parties. 3F consists of 3F Mosquito Repellant and 3F Anti-Viral formulations. Based on the Royalty Agreement, the Company should cover all the costs to prepare and finalize necessary patent application and other intellectual property related to 3F. Chemia agreed to support the Company in efforts leading to development of 3F intellectual property and it is licensing. Based on Royalty Agreement any payments received from development, sales, licensing or transfer of 3F technology will be paid 50 % to the Company and 50 % to Chemia. On November 27, 2018, Company and Chemia signed an Addendum to Royalty Agreement (“Addendum”), according to which the Company granted Chemia a royalty-based limited license for purposes of making and selling fragrances embodying the 3F technology. Based on the Addendum, Chemia should pay the Company 5 % of net sales in royalty. On November 8, 2019, both companies entered into Amendment no.1 to Royalty Agreement, based on which certain expenses borne by the Company towards patent application and licensing should be reimbursed to the Company before any royalty payments are made. For the years-ended December 31, 2023 and 2022, there were no reimbursements or royalties paid to the Company and the Company cannot be assured that Chemia’s efforts will end up in any future sales of the technology. On February 15, 2022, the Company and its subsidiaries, Global BioLife, Inc. (“Global”), and Impact BioLife Sciences, Inc. (“BioLife Sciences”), and GRDG entered into a Licensing Proceeds Distribution Agreement (“GRDG Agreement”), whereas GRDG would transfer its 20 % equity position in both Global and BioLife Sciences to the Company in exchange for 20 % interest in Global and/or BioLife Science revenue received from the exclusive or non-exclusive licensing of and/or the sale of Global Intellectual Property to a Third Party, net of specific costs. As of the date of this report, no contingent liability has been recognized under the GRDG Agreement. On March 19, 2022, Impact BioMedical entered into a License Agreement (“Equivir License”) with a third-party (“Licensee”) where the Licensor is granted the right, amongst other things, to develop, commercialize, and sell the Company’s Equivir technology. In exchange, the Licensee shall pay the Company a royalty of 5.5 % of net sales. Under the terms of the Equivir Agreement, the Company shall reimburse the Licensee for 50 % of the development costs provided that the development costs shall not exceed $ 1,250,000 . As of December 31, 2023 and December 31, 2022, $ 200,000 , and $ 0 , respectively, has been recorded in relation to the Equivir License as development of the Equivir technology has not begun and no reasonable amount can be estimated. Contingent Litigation Payments – The Company retains the services of professional service providers, including law firms that specialize in intellectual property licensing, enforcement and patent law. These service providers are often retained on an hourly, monthly, project, contingent or a blended fee basis. In contingency fee arrangements, a portion of the legal fee is based on predetermined milestones or the Company’s actual collection of funds. The Company accrues contingent fees when it is probable that the milestones will be achieved, and the fees can be reasonably estimated. As of December 31, 2023, the Company had no t accrued any contingent legal fees pursuant to these arrangements. Contingent Payments – The Company is party to certain agreements with funding partners who have rights to portions of intellectual property monetization proceeds that the Company receives. As of December 31, 2023, there are no contingent payments due. 41 13. Related Party Transactions Research and Development Activities Based on Shareholders Agreement entered into on April 26, 2017, the Company would fund the scientific operations of GRDG, a company involved in research and development of biomedical products which is a minority stockholder of two of the Company’s subsidiaries and is owned by Daryl Thompson, a director of many subsidiaries of the Company, to do the development and research works on the biomedical products for the Company. On February 15, 2022, the Company and its subsidiaries, Global BioLife, Inc. (“Global”), and Impact BioLife Sciences, Inc. (“BioLife Sciences”), and GRDG entered into a Licensing Proceeds Distribution Agreement (“GRDG Agreement”), whereas GRDG would transfer its 20 % equity position in both Global and BioLife Sciences to the Company in exchange for 20 % interest in Global and/or BioLife Science revenue received from the exclusive or non-exclusive licensing of and/or the sale of Global Intellectual Property to a Third Party, net of specific costs. As of the date of this report, no contingent liability has been recognized under the GRDG Agreement. As of December 31, 2023 and 2022, this funding approximates $ 25,000 and $ 43,000 , respectively, per month. As of December 31, 2023 and 2022, the Company incurred approximately $ 447,000 and $ 546,000 , respectively, in expenses. General and Administrative Costs There are certain general and administrative costs incurred by DSS, a related party, on behalf of the Company which are passed through to the Company on a monthly basis. These costs consist of primarily payroll costs for certain DSS employees and are allocated based on estimated time spent on behalf of the Company. These costs are approximately $ 12,000 per month. As of December 31, 2023, the Company incurred $ 144,000 in related expenses. As of December 31, 2022, the Company incurred approximately $ 98,000 in related expenses. Sharing Services Global Corp (“SHRG”) During 2023, the Company, via a distribution agreement, sold approximately $ 94,000 of healthcare products to SHRG, a related party. It was determined that the amounts owed by SHRG were uncollectible and were subsequently written off and is included in Other general expenses. Mr. Heng Fai Ambrose Chan, chairman of the board of directors of Impact BioMedical is also the chairman of the board of SHRG. 14. SUBSEQUENT EVENTS The Company has evaluated all subsequent events and transactions through February 19, 2024, the date that the consolidated financial statements were available to be issued and noted no subsequent events requiring financial statement recognition or disclosure other than what was identified in Note 9. 42 ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On June 29, 2022, the Company’s board of directors approved replacing Turner Stone as our independent registered public accounting firm, with Grassi & Co. CPAs, P.C. (the “New Accountant”) as our independent registered public accounting firm, effective July 1, 2022. For the year ended December 31, 2021, and through the interim period ended June 30, 2022, there were no “disagreements” (as such term is defined in Item 304 of Regulation S-K) with Turner Stone on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of the Turner Stone, would have caused them to make reference thereto in their reports on the financial statements for such periods. Turner Stone’s audit report on our financial statements for the year ended December 31, 2021 contained no adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope or accounting principles. We authorized the former accountants to respond fully and without limitation to all requests of the New Accountant concerning all matters related to the audited periods by the former accountants, including with respect to the subject matter of each reportable event. Prior to retaining the New Accountant, the Company did not consult with the New Accountant regarding either: (i) the application of accounting principles to a specified transaction, either contemplated or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements; or (ii) any matter that was the subject of a “disagreement” or a “reportable event” (as those terms are defined in Item 304 of Regulation S-K).