SecProbe.io

CORRESP
1
filename1.htm

January
10, 2025

Via
EDGAR

U.S.
Securities and Exchange Commission

Division
of Corporation Finance

Office
of Life Sciences

100
F Street, N.E.

Washington,
D.C. 20549

    Attn:

    Ms.
    Ibolya Ignat / Ms. Angela Connell

    Re:
    Impact
    BioMedical, INC.

    Form
    10-K for the fiscal year ended December 31, 2023 Filed February 20, 2024

    Form
    10-Q for the quarter ended September 30, 2024 Filed November 12, 2024

    File
    No. 001-42212

Dear
Ms. Ignat and Ms. Connell:

On
behalf of Impact BioMedical, INC. (the “Company”), we have set forth below responses to the comments of the staff
(the “Staff”) of the Securities and Exchange Commission (the “SEC”) contained in its letter of
December 20, 2024 with respect to the Company’s Annual Report on Form 10-K (the “Form 10-K”) and Quarterly Report
on Form 10-Q (the “Form 10-Q”) as noted above.

For
your convenience, the text of the Staff’s comments is set forth below in bold, followed in each case by the Company’s responses.
Please note that all references to page numbers in the responses are references to the page numbers in the Amendment No. 1 to the Form
10-K (the “10-K/A”) and Amendment No. 1 to the Form 10-Q (the “10-Q/A”) submitted concurrently
with the submission of this letter in response to the Staff’s comments.

Form
10-Q for the Quarterly Period Ended September 30, 2024

Notes
to Consolidated Financial Statements

Note
7. Note payable, related party, page 12

1.
We note your disclosure on page 9 that your Note payable, related party contains an embedded derivative in the form of payment via equity
and therefore has been accounted for in accordance with ASC 815. We further note your disclosure of the movement in the liability and
derivative components of the Note payable, related party on page 12. Please address the following:

 ● Provide
                                            us with a copy of the Revolving Promissory Note, as amended on July 24, 2024. In this regard,
                                            we could not locate this most recent amendment in your exhibits.

 ● Provide
                                            us with a robust accounting analysis for this transaction, including your consideration of
                                            the guidance set forth in ASC 470-50-40 as it relates to debt modifications and ASC 815-15-25
                                            as it relates to bifurcation of the embedded conversion option. In this regard, cite the
                                            specific guidance you relied upon in determining that the conversion option required bifurcation.

1185
AVENUE OF THE AMERICAS | 31ST FLOOR | NEW YORK, NY | 10036

T (212) 930-9700 | F (212) 930-9725 | WWW.SRFC.LAW

 ● Explain
                                            how you applied the guidance in ASC 815-15-30-2 in allocating the carrying amount of the
                                            hybrid instrument between the debt host contract and the embedded derivative and how this
                                            allocation resulted in a $5.6 million gain. In this regard, it is unclear to us why if the
                                            embedded derivative was determined to have a fair value of $1.4 million (as disclosed on
                                            page 12), $7.1 million was allocated from the carrying amount of the Note payable, related
                                            party, resulting in a $5.6 million gain. ASC 815-15-30-2 requires the embedded derivative
                                            to be recognized at its fair value at inception and the carrying value assigned to the host
                                            contract to be calculated as the difference between the previous carrying amount of the hybrid
                                            instrument and the fair value of the derivative. Please advise.

Response:
In response to the Staff’s first question regarding Note 7 within the September 30, 2024, financial statements of the Company,
the Company respectfully advises the Staff to please see attached related promissory note that was amended in July of 2024, as well as
the attached memo written to support the accounting treatment, annexed hereto as Exhibit A.

 In
regards to your third bullet of the first question, Management does believe that the transaction is accurately accounted for within the
Condensed Consolidated Balance Sheet, Condensed Consolidated Statement of Operations and Condensed Consolidated Statement of Cash Flows.
However, upon further review of this disclosure, which illustrates a bifurcation of the embedded derivative, Management has determined
that what was disclosed does not adequately depict the accounting treatment of the Note payable, related party. Our attached memo correctly
identifies that the embedded derivative is not to be bifurcated. Although the disclosure in Note 7 does not adequately depict the accounting
treatment, no restatement is deemed needed for the period ended September 30, 2024. Aside from a revised disclosure to be utilized for
the December 31, 2024 10-K filing, the Company will also be changing the description on the Condensed Consolidated Statement of Operations
from “Change in fair value of embedded derivative” to “Change in fair value of Note payable, related party”.

Form
10-K for the Fiscal Year Ended December 31, 2023

Notes
to the Consolidated Financial Statements

12.
Commitments and Contingencies, page 41

2.
We note your disclosure regarding the Equivir License Agreement which was entered into with ProPhase BioPharma on March 18, 2022. Please
revise your future filings to also disclose the significant terms of the July 18, 2022 License Agreement with ProPhase for the development
and commercialization of your LB-1 and LB-2 compounds. Please also disclose your revenue recognition policy for each of these agreements,
including your performance obligations under each contract, your determination of the transaction price and the method by which revenue
is being recognized. As it relates to the July 18, 2022 License Agreement, explain how you determined that upfront recognition of the
$50,000 license fee was appropriate.

Response:
In response to your second question regarding the disclosure of significant terms for the licensing of our LB-1 and LB-2 compounds
to ProPhase, the Company respectfully advises the Staff that we have noted your comment and future filings will be adjusted accordingly.

1185
AVENUE OF THE AMERICAS | 31ST FLOOR | NEW YORK, NY | 10036

T (212) 930-9700 | F (212) 930-9725 | WWW.SRFC.LAW

As
it relates to the recognition of the upfront non-refundable $50,000 fee associated with this contract,
the guidance in ASC 606 provides that an entity’s promise to provide a customer with a right to use the entity’s intellectual
property is satisfied at the point in time the customer is able to use and benefit from the license, because the entity’s promise
in granting the license is solely to make the underlying intellectual property available for the customer’s use and benefit. The
provision in the contract with ProPhase pertaining to this fee grants ProPhase the right to use, develop, and commercialize this compound
for their benefit. Therefore, it was deemed appropriate to recognize this amount in 2022.

We
trust that the above is responsive to your comments.

Should
you have any questions relating to the foregoing or wish to discuss any aspect of the Company’s filing, please contact me at (212)
930-9700.

    Sincerely,

    /s/
    Darrin M. Ocasio

    Darrin
    M. Ocasio, Esq.

    Sichenzia
    Ross Ference Carmel LLP

1185
AVENUE OF THE AMERICAS | 31ST FLOOR | NEW YORK, NY | 10036

T (212) 930-9700 | F (212) 930-9725 | WWW.SRFC.LAW

EXHIBIT
A

CONVERTIBLE
DEBT MEMORANDUM

interoffice
memorandum

    to:
    Accounting
    files

    from:
    Todd
    D. Macko, CFO

    subject:
    Accounting
    for converible debt

    date:
    09.30.2024

    CC:
    Grassi

Purpose:

This
memo will the account treatment of the Company’s Promissory note with DSS, Inc. which allows the utilization of Company shares
for payment of principal and interest.

Background:

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 Note was further amended
on July 24, 2024 with an effective date of September 16,2024 to i) allow the Company to pay certain principal and/or interest payments
owing under the repayment terms in an exchange for potential of equity in the Company, ii) change the quarterly interest due dates to
the last day of each calendar quarter (i.e. December 31, March 31, June 30 and September 30), iii) to partially eliminate the “On
Demand, if No Demand” feature so that the “On Demand, if no Demand” feature only starts after the 24th month, iv) continue
the planned repayment program commencing on the 37th month and on the last day of each month thereafter through August 31, 2030 to pay
a fixed monthly payment of $126,381, v) to continue the scheduled maturity date of September 30, 2030, and vi) adjusts the interest rate
to be the WSJ Prime Rate plus 0.50%.

Accounting
Consideration:

When
a debt instrument include embedded components (common stock of the Company), a borrower should evaluate these embedded components to
determine whether they are embedded derivatives are within the scope of ASC 480 or ASC 815 (and further should be separately carried
at fair value under ASC 815).

As
per ASC 480-10, to be accounted for under this scope, the financial instrument would need to be freestanding.

Conclusion:
Management has determined that this instrument would not be considered freestanding, and therefore not accounted for under ASC 480
for the following reasons:

 1. The
                                            conversion option was issued in conjunction with the promissory note.

 2. The
                                            holder cannot sell, transfer and/or exercise each contract separately.

Once
its been determine that the financial instrument is not within the scope of ASC 480-10, we need to determine whether it meets the definition
of a derivative. Per ASC 815-10-15-83, a derivative is a financial instrument or other contract with all of the following characteristics:

1. Underlying,
                                            notional amount, payment provision. The contract has both of the following terms,
                                            which determine the amount of the settlement or settlements, and, in some cases, whether
                                            or not a settlement is required:

 a. One
                                            or more underlyings

 b. One
                                            or more notional amounts or payment provisions or both.

2. Initial
                                            net investment. The contract requires no initial net investment or an initial net investment
                                            that is smaller than would be required for other types of contracts that would be expected
                                            to have a similar response to changes in market factors.

3. Net
                                            settlement. The contract can be settled net by any of the following means:

 a. Its
                                            terms implicitly or explicitly require or permit net settlement.

 b. It
                                            can readily be settled net by a means outside the contract.

 c. It
                                            provides for delivery of an asset that puts the recipient in a position not substantially
                                            different from net settlement.

Conclusion:
Management has concluded that the promissory note meets all of the above criteria and the option to repay utilizing Company shares
constitutes an embedded derivative.

In
determining if the embedded derivative requires bifurcation, from the host contract under ASC 815-15-25-1. The following chart illustrates
this decision process:

Step
B1: The concept of clearly and closely related refers to the relationship between the economic characteristics and risks of the embedded
conversion option and the economic characteristics and risks of the host contract. The factors to consider include the type of host and
the underlying. For a debt host contract, clearly and closely related underlyings include interest rates, inflation, and creditworthiness.
For an equity host contract, the clearly and closely related underlyings include the price of a share in the entity. ASC 815-15-25-51
states “changes in fair value of an equity interest and the interest rates on a debt instrument are not clearly and closely related.”

The
Company has concluded that the line of credit (host contract) and embedded conversion option have different characteristics and risks,
therefore they are not closely related. Move to Step B2.

Step
B2: Under ASC 815-15 and 825-10, companies have an option to carry certain hybrid instruments at fair value with remeasurement at each
balance sheet date and changes in fair value reported in the income statement. The fair value election under ASC 815-15-25 and ASC 825-10
can be made only when a financial instrument is initially recorded or when certain events occur such as a business combination,
significant modification of debt as defined in ASC 470-50 or another event designated in the accounting literature as
requiring a financial instrument to be remeasured at fair value at the time of the event.

The
Company has elected the option to carry this instrument at fair value, therefore the bifurcation is not required under ASC 815.

Conclusion:
Management has concluded embedded derivative within the promissory note qualifies to be accounted for at fair value initially
under subsection ASC 815-10-30-1 and subsequently under subsection ASC 815-10-35-1.