This Annual Report on
Form 10-K (the “Report”) includes certain “forward-looking statements” relating to such matters as anticipated
financial performance, future revenues or earnings, business prospects, projected ventures, new products and services, anticipated
market performance and similar matters. The words “may,” “will,” expect,” anticipate,” “continue,”
“estimate,” “project,” “intend,” and similar expressions are intended to identify forward-looking
statements regarding events, conditions, and financial trends that may affect future plans of operations, business strategy, operating
results, and financial position.
PART
I
Overview
We
are an emerging bionutrition and biotherapeutics company focused on the discovery, development and commercialization of products
that improve muscle health and function essential to the management of sarcopenia, cachexia and degenerative muscle diseases,
and as an adjunct to the treatment of obesity. As used in this report, the “Company”, “MYOS”, “our”,
or “we” refers to MYOS RENS Technology Inc. and its wholly-owned subsidiary, unless the context indicates otherwise.
We
were incorporated under the laws of the State of Nevada on April 11, 2007. On March 17, 2016, we merged with our wholly-owned
subsidiary and changed our name from MYOS Corporation to MYOS RENS Technology Inc. Prior to February 2011, we did not have any
operations and did not generate revenues. In February 2011, we entered into an intellectual property purchase agreement pursuant
to which our subsidiary purchased from Peak Wellness, Inc., or Peak, the intellectual property pertaining to Fortetropin
®
,
a dietary supplement that has been shown in clinical studies to temporarily decrease the levels of serum myostatin, MYO-T12, a
proprietary formulation containing Fortetropin
®
, certain trademarks, trade secrets, patent applications and certain
domain names.
Since
February 2011, our principal business activities have been to: (i) deepen our scientific understanding of the activity of Fortetropin
®
,
which refers to a proprietary proteo-lipid composition derived from fertilized eggs of specific chicken species processed using
a patented methodology which preserves the bioactivity of the constituent proteins and lipids, specifically as a natural, reversible,
temporary reducing agent of myostatin, and to leverage this knowledge to strengthen and build our intellectual property; (ii)
conduct research and development activities to evaluate myostatin modulation in a range of both wellness and disease states; (iii)
identify other products and technologies which may broaden our portfolio and define a business development strategy to protect,
enhance and accelerate the growth of our products; (iv) reduce the cost of manufacturing through process improvement; (v) identify
contract manufacturing organizations that can fully meet our future growth requirements; (vi) develop a differentiated and advantaged
consumer positioning, brand name and iconography; and, (vii) create sales and marketing capabilities to maximize near-term and
future revenues.
We believe that existing wellness and therapeutic targets, such as myostatin, represent a rational entry
point for additional drug discovery efforts and are evaluating a separate, concurrent objective in this area. We continue to pursue
additional distribution and branded sales opportunities. We expect to continue developing our own core branded products in markets
such as functional foods, sports and fitness nutrition and rehabilitation and restorative health and to pursue international sales
opportunities. There can be no assurance that we will be able to secure distribution arrangements on terms acceptable to us, or
that we will be able to generate significant sales of our current and future branded products.
Our
executive offices are currently located at 45 Horsehill Road, Suite 106, Cedar Knolls, New Jersey 07927 and our telephone number
is (973) 509-0444. Our corporate website address is http://www.myosrens.com and our new muscle health education and product website
is http://www.qurr.com. Neither the information on our current or future website is, nor shall such information be deemed to be,
a part of this Report or incorporated in filings we make with the Securities and Exchange Commission.
General
Following
our purchase of Fortetropin
®
in February 2011, we have been focusing on the discovery, development, and commercialization
of nutritional ingredients, functional foods, therapeutic products, and other technologies aimed at maintaining or improving the
health and performance of muscle tissue. Our officers, directors and members of our Scientific Advisory Board, including Dr. Robert
Hariri, Dr. Louis Aronne, Dr. Neilank Jha and Dr. Caroline Apovian, have significant research and development experience.
Fortetropin
®
is the Company’s proprietary all-natural food ingredient clinically shown to increase muscle size, lean body mass
and strength as part of resistance training. Fortetropin
®
is made from fertilized chicken egg yolks using
a proprietary process that retains the biological integrity and bioactivity of the product. In an animal study, Fortetropin
®
was shown to up-regulate muscle building pathways and down-regulate muscle degrading pathways. While Fortetropin
®
is our first proprietary ingredient, we plan to discover, develop, formulate and/or acquire additional products in the future.
We
are developing nutritional and therapeutic products aimed at maintaining and improving the health and performance of muscle tissue.
Our research is focused on developing strategies and therapeutic interventions to address muscle related conditions including
sarcopenia, cachexia, and inherited and acquired muscle diseases as described in more detail below.
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Sarcopenia
is a degenerative process characterized by the progressive loss of muscle mass with advancing age. The loss of muscle
affects all individuals regardless of ethnicity or gender although the rate and degree of muscle loss varies between individuals
and is affected by many factors. Those individuals who have lost significant amounts of muscle mass and strength often require
assistance for accomplishing daily living activities, which has a significant economic burden on a nation’s healthcare
system and impacts the overall economy. In addition to the many direct costs, sarcopenia adversely affects the overall quality
of life.
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Cachexia
is
a syndrome that occurs in many diseases such as cancer, chronic heart failure, chronic
kidney failure and AIDS. It is characterized by a significant loss of body weight as
a consequence of pathological changes in different metabolic pathways, with the loss
of muscle mass as the core component of the syndrome. Cachexia leads to a poor quality
of life and increased mortality. As skeletal muscle is diminished, individuals experience
a reduced ability to move, a loss of strength, and an increase in conditions associated
with immobility such as thrombosis, pneumonia, respiratory failure and ultimately death.
Weight loss is an important prognosticator in cancer therapy with the greater the weight
loss, generally the shorter the survival time. Weight loss in cancer patients due to
cachexia arises from the loss of both adipose tissue and skeletal muscle.
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Inherited
and acquired muscle diseases
,
such as muscular dystrophy and muscle dysfunction that occur as a consequence of denervation
such as seen in amyotrophic lateral sclerosis (ALS), are conditions marked by the progressive
deterioration of muscle tissue that results in weakness and impairs normal function.
These diseases are typified by difficulty with walking, balance, and coordination with
many such diseases affecting speech, swallowing, and breathing. There are currently very
few treatment options for most degenerative muscle diseases.
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Myostatin
Myostatin,
which is a natural regulatory protein, plays a central role in skeletal muscle health. Interest in myostatin continues to grow
within the medical community. Research on animals and humans with genetic deficiency for producing myostatin have shown an increased
muscle mass, suggesting that myostatin is responsible for down-regulating muscle growth and development.
A
1997 article in the journal
Nature
first described the discovery of a novel member of the transforming growth factor-β
(TGF-β) superfamily of growth and differentiation factors. This factor was expressed specifically in adult skeletal muscle
and referred to as growth/differentiation factor-8 (GDF-8) (McPherron
et al
., 1997). The researchers created “knockout”
mice, whereby they disrupted the expression of GDF-8 throughout the organism, with the resulting mice showing a large and widespread
increase in skeletal muscle mass. Individual muscles of mutant animals weighted 2-3 times more than those of wild-type animals,
with the increase a result of both muscle cell hypertrophy and hyperplasia. The newly created mice were subsequently named “mighty
mice”. Based on the phenotype, the researchers dubbed the newly discovered protein myostatin.
This
work suggests myostatin exerts an effect on both muscle hypertrophy and hyperplasia, as myostatin knock-out “mighty mice”
were shown to have an increase in both the number of muscle fibers and in fiber sizes. Hypertrophy refers to the enlargement of
a tissue or organ due to the enlargement of its component cells. In contrast, hyperplasia refers to an increase in the number
of cells or a proliferation of cells. Both of these processes can lead to enlargement of an organ.
Skeletal
muscle is the primary producer of myostatin, where it is secreted into the blood stream and acts as a negative regulator of muscle
differentiation and growth. The protein begins as a 375 amino acid dimer that is cleaved by proteases to a 109 amino acid active
domain. The active form of the protein binds to activin type II receptors, ActRIIA and ActRIIB (Lee
et al
., 2001). Binding
to the receptors initiates a signaling cascade that results in an increase in protein breakdown and subsequent inhibition of protein
synthesis.
Clinical
Research to Evaluate Effects of Fortetropin
®
In
March 2013, we completed a human clinical trial which demonstrated the beneficial effects of Fortetropin
®
in suppressing
free serum myostatin levels. In this double blind, randomized, placebo-controlled, parallel, single dose study involving 12 healthy
adult male subjects per arm, test subjects in the active arm were administered a 6.6 gram dose of Fortetropin
®
mixed with vanilla fat free/sugar free pudding. An equal amount of vanilla fat free/sugar free pudding alone was given to the
placebo arm. Blood samples were collected at baseline (before dosing) and at 6, 12, 18, and 24 hours post dose intervals for measurement
of myostatin blood concentration. Results demonstrated greater than 30% decrease in serum myostatin levels compared to baseline
during the 24 hour period. No study related adverse events were reported during this study.
In another study performed
on our behalf at the University of Tampa, a randomized, double-blind, placebo-controlled trial examined the effects of Fortetropin
®
on skeletal muscle growth, lean body mass, strength, and power in recreationally trained individuals who rely heavily on
satellite cell activation. Forty-five subjects were divided into placebo, 6.6 gram and 19.8 gram dosing arms of Fortetropin
®
daily for a period of 12 weeks. All exercise sessions were conducted and monitored by trained personnel. Standardized diets
consisted of roughly 54% carbohydrates, 22% fat and 24% protein. There were no differences in total calories and macronutrients
between groups. Dual emission X-ray absorptiometry (DEXA) was utilized to measure lean body mass and fat mass. Direct ultrasound
measurements determined muscle thickness of the quadriceps.
Results
demonstrated a statistically significant increase in both muscle thickness and lean body mass in subjects taking Fortetropin
®
but not in subjects taking a placebo. Strength and power endpoints, as measured by bench press, leg press and Wingate power,
significantly increased from baseline in all study groups. No study related adverse events were reported during the study.
*
p <0.05 post measurement compared to pre
Association
between Muscular Strength and Mortality
In
a clinical study at the Karolinska Institutet’s Department of Biosciences and Nutrition at NOVUM, Unit for Preventive Nutrition,
in Huddinge, Sweden, 8,762 men aged 20-80 were evaluated over an average period of 18.9 years in a prospective cohort study to
measure the association between muscular strength and mortality in men. After adjusting for age, physical activity, smoking, alcohol
intake, body mass index, baseline medical conditions, and family history of cardiovascular disease, the study found that muscular
strength is inversely and independently associated with deaths from all causes and cancer in men. The findings were valid for
men of normal weight, those who were overweight, and younger or older men, and were valid even after adjusting for several potential
confounders, including cardiorespiratory fitness. This study extends previous studies that showed the importance of muscular strength
as a predictor of death from all causes, cardiovascular disease, and cancer in a large cohort of men. Several prospective studies
have also shown that muscular strength is inversely associated with all-cause mortality. These data suggests that muscular strength
adds to the protective effect of cardiorespiratory fitness against the risk of death in men. Moreover, it might be possible to
reduce all-cause mortality among men by promoting regular resistance training.
WADA
Compliance
Fortetropin
®
has received Certified Drug Free® certification from the Banned Substances Control Group (BSCG). The BSCG Certified
Drug Free® program is a comprehensive certification program for the dietary supplement industry and includes screening for
substances prohibited by the World Anti-Doping Agency (WADA) along with most U.S. professional sports leagues. WADA is a foundation
created through a collective initiative led by the International Olympic Committee to promote, coordinate and monitor the fight
against drugs in sports.
Research
and Development
As an advanced nutrition and biotherapeutics company, we are dedicated to basic and clinical research
that supports our existing and future product portfolio. We are focused on the following areas of research:
Basic
Research
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Biochemical characterization of Fortetropin
®
, including cutting edge proteomic and lipidomic
approaches
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Novel
biotherapeutics products
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Computational
design of novel peptide inhibitors of myostatin
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Identifying
proteins, peptides, and lipids responsible for pro-myogenic activity
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Pro-myogenic
activity of novel bioactive molecules and formulations
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Pre-Clinical
Research
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Effect of Fortetropin
®
to reverse disuse atrophy in dogs after orthopedic surgery to repair
the cranial cruciate ligament (CCL)
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PK/PD
studies of novel bioactive molecules with pro-myogenic activity
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Clinical
Research
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Effect
of Fortetropin
®
on lean muscle mass, thickness and strength in older adults
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Effect
of Fortetropin
®
on muscle function and recovery after orthopedic procedures
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We
expect our investment in research and development to continue in the future
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Our research program is actively evaluating the many active proteins, lipids and peptides in Fortetropin
®
.
We believe our research programs will establish a basis for the continued prosecution of patent applications in order to protect
and augment our intellectual property assets. We are dedicated to protecting our innovative technology.
Clinical
and Basic Research Programs
We
invest in research and development activities externally through academic and industry collaborations aimed at enhancing our products,
optimizing manufacturing and broadening the product portfolio. We have developed the following collaborations with various academic
centers:
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In March 2018, we entered into a research agreement with Rutgers University, The State University of New Jersey, to work with Rutgers researchers in a program focused on discovering compounds and products for improving muscle health and performance.
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In December 2017, we entered into an agreement with the University of California, Berkeley’s Department of Nutritional Sciences & Toxicology. The research project will study the effects of Fortetropin
®
on increasing the fractional rate of skeletal muscle protein synthesis in men and women between 60 and 75 years old. The Principal Investigator for this clinical study is William J. Evans, PhD, Adjunct Professor of Human Nutrition at the Department of Nutritional Sciences & Toxicology at the University of California, Berkeley campus. Professor Evans, a leading authority in muscle health research, will coordinate the activities of a multi-disciplinary team of scientists and physicians. In this randomized, double-blind, placebo-controlled clinical study, 20 subjects, men and women 60 – 75 years of age, will consume either Fortetropin
®
or a placebo for 21 days along with daily doses of a heavy water tracer. After 21 days, a micro-biopsy will be collected from each subject to determine the fractional rate of muscle protein synthesis. MYOS anticipates the clinical study will be completed and its results announced in the second half of 2018.
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In April 2017, we entered into an agreement with the College of Veterinary Medicine at Kansas State University to study the impact of Fortetropin
®
on reducing muscle atrophy in dogs after tibial-plateau-leveling osteotomy (TPLO) surgery to repair the cranial cruciate ligament (CCL). The study is expected to be completed by the end of the second quarter of 2018.
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In May 2015, we initiated a dose response clinical study led by Jacob Wilson, Ph.D., CSCS*D, Professor
of Health Sciences and Human Performance at the University of Tampa, to examine the effects of Fortetropin
®
supplementation
on plasma myostatin levels at various dosing levels in young adult males and females. This study is intended to help us better
define the dose response curve, the minimal effective dose and effects of Fortetropin
®
on serum myostatin. In this
double blind placebo controlled clinical study, 80 male and female subjects ranging in ages between 18 and 22 were randomized into
four groups such that no significant differences in serum myostatin concentration existed between groups. Following assignment
to one of the four groups, blood samples were collected to establish baseline values. Subjects were subsequently supplemented with
three different doses of Fortetropin
®
(2.0g, 4.0g and 6.6g) and a matching placebo for one week. Following one week
of supplementation, blood samples were collected and serum myostatin levels were assayed. Results demonstrated that Fortetropin
®
is effective as a myostatin reducing agent at daily doses of 4.0g and 6.6g. This research, which continues to build upon our current
understanding of Fortetropin
®
, may result in the formulation of new products. An abstract of this study was presented
at the 2016 International Conference on Frailty & Sarcopenia Research (Philadelphia, PA) in April 2016.
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In August 2014, we entered into a research agreement with Human Metabolome Technologies America, Inc.,
(“HMT”), to apply their proprietary, state-of-the-art capillary electrophoresis-mass spectrometry (CE-MS) technologies
to characterize the metabolomic profiles of plasma samples obtained from healthy male subjects who used either Fortetropin
®
or placebo with the goal of identifying metabolites with pro-myogenic activity in the plasma samples of subjects who took Fortetropin
®
as well as examining the effect on glucose and fat metabolism. HMT used a metabolite database of over 290 lipids and over 900 metabolites
to identify potential plasma biomarkers of muscle growth. The study was completed during the fourth quarter of 2014. Initial data
from this study indicated that subjects who received Fortetropin
®
displayed differential metabolomic profiles relative
to subjects who received placebo. The results of this study enhance our understanding of the mechanism of action of Fortetropin
®
and provides guidance for the development of biotherapeutics based on Fortetropin
®
. Additionally, the early indications
of plasma biomarkers may guide future study design for Fortetropin
®
clinical trials by identifying clinically-relevant
endpoints and potential stratification of patient populations. The results from this study were presented at the Sarcopenia, Cachexia
and Wasting Disorders Conference (Berlin, Germany) in December 2016.
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In May 2014, we entered into an agreement with the University of Tampa to study the effects of Fortetropin
®
supplementation in conjunction with modest resistance training in18-21 year old males. The study was a double-blind, placebo-controlled
trial which examined the effects of Fortetropin
®
on skeletal muscle growth, lean body mass, strength, and power
in recreationally trained males. Forty-five subjects were divided into placebo, 6.6g and 19.8g dosing arms of Fortetropin
®
daily for a period of 12 weeks. Results demonstrated a statistically significant increase in both muscle thickness and lean body
mass in subjects taking Fortetropin
®
but not in subjects taking placebo. The clinical study also analyzed blood
myostatin and cytokines levels via high-sensitivity enzyme-linked immunosorbent assay (“ELISA”) based analysis. Serum
was analyzed for a plethora of relative cytokine levels via high-sensitivity enhanced chemiluminescent-based methods. The Interferon-Gamma
(“IFN-γ”) inflammatory cytokine protocol screening showed no statistically significant changes in serum levels
of IFN-γ for subjects in the placebo group. However, subjects in both Fortetropin
®
daily dosing arms experienced
statistically significant decreases (p < 0.05) in serum levels of the IFN-γ inflammatory cytokine. IFN-γ is recognized
as a signature pro-inflammatory cytokine protein that plays a central role in inflammation and autoimmune diseases. Excess levels
of inflammatory cytokines are associated with muscle-wasting diseases such as sarcopenia and cachexia. The lipid serum safety protocol
demonstrated that daily use of Fortetropin
®
at recommended and three times the recommended dose had no adverse lipid
effect and did not adversely affect cholesterol, HDL or triglyceride levels. Data from the study was presented at the American
College of Nutrition’s 55
th
annual conference. A separate mechanism of action study at the University of Tampa
demonstrated that in addition to reducing serum myostatin levels, Fortetropin
®
showed activity in mTOR and Ubiquitin
pathways, two other crucial signaling pathways in the growth and maintenance of healthy muscle. Specifically, the preclinical data
showed that Fortetropin
®
up-regulates the mTOR regulatory pathway. The mTOR pathway is responsible for production
of a protein kinase related to cell growth and proliferation that increases skeletal muscle mass. Up-regulation of the mTOR pathway
is important in preventing muscle atrophy. We believe Fortetropin
®
’s ability to affect the mTOR pathway may
have a significant impact in treating patients suffering from degenerative muscle diseases and suggests that Fortetropin
®
-based
products may help slow muscle loss secondary to immobility and denervation. The preclinical data also demonstrated that Fortetropin
®
acts to reduce the synthesis of proteins in the Ubiquitin Proteasome Pathway, a highly selective, tightly regulated system that
serves to activate muscle breakdown. Over-expression of the Ubiquitin Proteasome Pathway is responsible for muscle degradation.
We believe Fortetropin
®
’s ability to regulate production in the Ubiquitin Proteasome Pathway may have significant
implications for repairing age-related muscle loss and for patients suffering from chronic diseases such as cachexia.
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In
May 2014, we entered into a three-year master service agreement with Rutgers University. The initial phase under the agreement
was to develop cell-based assays for high-throughput screening studies of next generation myostatin inhibitors. Additionally,
we initiated a second phase of the agreement to develop a secondary assay for measuring myostatin activity using a genetically
engineered muscle cell line that fluoresce in the presence of myostatin. Phase I and II were completed in 2015. We believe
the assays developed will enable us to elucidate the specific molecules in Fortetropin
®
that impart activity
as it relates to the development of muscle tissue.
|
The foregoing agreements
are an integral part of our business strategy and we believe they will provide a clear scientific rationale for Fortetropin
®
’s
role as an advanced nutritional product and support its use in different medical and health applications in the future.
We are also building a
small molecule and biologics discovery program aimed at regulators of myostatin synthesis and activation and the different pathways
that act upon muscle development. In July 2014, we entered into a research and development agreement with Cloud Pharmaceuticals,
Inc., (“Cloud”), to discover product candidates related to the inhibition of targets in the myostatin regulatory pathway
as well as inflammatory mediators associated with sarcopenia and cachexia. Cloud utilizes cloud computing technology to identify
and design small molecule drug candidates based on their proprietary Inverse Design drug discovery platform. The research is focusing
on the development of product candidates related to the myostatin pathway. Cloud has identified several peptides that may have
myostatin inhibition properties based on computational modeling. We intend to evaluate the physiological activity of these peptides
on myostatin.
We intend to pursue additional
clinical studies and medical research to support differentiated and advantaged marketing claims, to build and enhance our competitive
insulation through an aggressive intellectual property strategy, to develop product improvements and new products in consumer
preferred dosage forms, to enhance overall marketing, to establish a scientific foundation for therapeutic applications for our
technology, and to pursue best in class personnel.
Market
Overview
According
to the Natural Marketing Institute, the Dietary Supplement, Functional Food and Beverage, and Natural Personal Care markets represent
more than $250 billion in annual worldwide sales. The global market for functional foods alone in 2017 was worth an estimated
$54 billion. In 2018, it is expected to continue to grow and the United States is expected to be the fastest growing market for
functional foods. The global sports nutrition market was valued at $30.7 billion in 2017, and is expected to grow at a compounded
annual growth rate of 8.1% during the period from 2018 to 2022 up to $45 billion. We believe our proprietary ingredient, Fortetropin
®
,
which is the only clinically proven natural supplement available in the market that temporarily reduces free serum myostatin level,
is well-positioned to market to a wide base of consumers looking for nutritional and performance maximization as well as for wellness
and maintenance products as they age. Additionally, the medical community has increased its focus on muscle health, specifically
focusing on the aging U.S. population that can benefit most from myostatin modulation.
We
believe the combination of the foregoing marketplace characteristics, combined with the experience of our directors and our management
team and our current and future products, will enable our business model to succeed.
Strategy
Our
strategy is to understand the complex genetic and molecular pathways regulating muscle mass and function as well as other disease
mechanisms. Understanding the impact of complex regulatory pathways which act to build and maintain healthy lean muscle is central
to our biotherapeutic research. We are developing nutritional products that target specific mechanisms to promote muscle health
in ways that cannot be met by other diets or lifestyle changes.
We
will seek to gain market share for our core branded products in functional foods, sports and fitness nutrition and rehabilitation
and restorative health verticals by (i) formulating and developing new and complementary product lines, (ii) expanding U.S. distribution
by increasing the channels of sale, (iii) expanding distribution geography beyond the U.S. and (iv) seeking strategic relationships
with other distributors. Our strategy is to utilize the revenue and awareness generated by the sales and marketing of Fortetropin
®
to further advance our research and development of therapeutic treatments for muscular disorders, including sarcopenia.
Marketing,
Sales and Distribution
Our
commercial focus is to leverage our clinical data to develop multiple products to target the large, but currently underserved
markets focused on muscle health. The sales channels through which we sell our products are evolving. The first product we introduced
was MYO-T12, which was sold in the sports nutrition market. MYO T-12 is a proprietary formula containing Fortetropin
®
and other ingredients. The formula was sold under the brand name MYO-T12 and later as MYO-X through an exclusive distribution
agreement with Maximum Human Performance (“MHP”). The exclusive distribution agreement with MHP terminated in March
2015 and there were no subsequent sales to MHP.
In
February 2014, we expanded our commercial operations into the age management market through a distribution agreement with Cenegenics
Product and Lab Services, LLC (“Cenegenics”), under which Cenegenics distributed and promoted a proprietary formulation
containing Fortetropin
®
through its age management centers and its community of physicians focused on treating a
growing population of patients focused on proactively addressing age-related health and wellness concerns. The distribution agreement
with Cenegenics expired in December 2016. As of December 31, 2016 we recognized all of the deferred revenue. In 2017, we recorded
$200 of sales to Cenegenics.
During
the second quarter of 2015 we launched Rē Muscle Health
TM
, our own direct-to-consumer brand with a portfolio of
muscle health bars, meal replacement shakes and daily supplement powders each powered by a full 6.6 gram single serving dose of
Fortetropin
®
. Our Rē Muscle Health products were sold through our e-commerce website, remusclehealth.com,
and amazon.com until March 2017 when we introduced our new Qurr line of products.
On
March 13, 2017 we launched Qurr, a Fortetropin
®
-powered product line formulated to support the vital role of muscle
in overall well-being as well as in fitness. Qurr is a line of flavored puddings, powders, and shakes for daily use. Our Qurr
line of muscle-focused over-the-counter products are available through a convenient, direct-to-consumer e-commerce platform. All
Qurr products contain Fortetropin
®
, our proprietary ingredient which has been clinically demonstrated to reduce
serum myostatin levels which helps increase muscle size and lean body mass in conjunction with resistance training.
We
expect to launch our Fortetropin based pet product in the near future. Two veterinarian hospitals, which performed some informal
observational studies with older dogs experiencing muscle atrophy and saw positive results after taking our pet product, are seeking
to purchase our product. We believe that the positive feedback we are receiving from these two hospitals, together with the potential
results from our Kansas State University study, will enable us to launch and grow our pet business product line.
We continue to pursue additional distribution and branded sales opportunities. There can be no assurance
that we will be able to secure distribution arrangements on terms acceptable to us, or that we will be able to generate significant
sales of our current and future branded products. We expect to continue developing our own core branded products in markets such
as functional foods, sports and fitness nutrition and to pursue international sales opportunities. The growing awareness of the
potential uses of myostatin reducing ingredients supports continued development of our own core products. We remain committed to
continuing our focus on various clinical trials in support of enhancing our commercial strategy as well as enhancing our intellectual
property assets, to develop product improvements and new products, and to reduce the cost of our products by finding more efficient
manufacturing processes and contract manufacturers.
Intellectual
Property
We
have adopted a comprehensive intellectual property strategy, the implementation of which is ongoing. We are focusing our efforts
on ensuring our current commercial products and processes, and those currently under development, are being protected to the maximum
extent possible. We are in the process of filing multiple patent applications in the United States and abroad, and we are currently
prosecuting pending patent applications in the United States, all of which are directed towards our compositions and methods of
manufacturing the same. In addition to a proactive protection strategy, we are conducting defensive due diligence to ensure our
products and processes do not encroach upon the rights of third parties. Moreover, we are also engaged in a survey of the intellectual
property landscape of potential competitors, and are devising a proactive path to stay ahead of such potential competitors.
In
August 2014, the U.S. Patent and Trademark Office, or USPTO, issued U.S. Patent No. 8,815,320 B2 to us covering our proprietary
methods of manufacturing Fortetropin
®
. The patent entitled “Process for Producing a Composition Containing
Active Follistatin,” provides intellectual property protection for manufacturing Fortetropin
®
, the key ingredient
in our core commercial muscle health products, and carries a patent term through early 2033. Additionally, we are currently prosecuting
a core patent application covering the basic science on which our business was built, which is currently undergoing examination
at the USPTO. The scope of this application covers the various applications of avian follistatin products and the benefits thereof.
In particular, this application is focused on the composition currently in our commercially available Fortetropin
®
-powered
products and the known benefits thereof.
We
intend to file as many applications as possible as continuation/divisional/continuation-in-part applications. Several additional
pending patent applications that we are pursuing include:
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Method
of obtaining effective amounts of avian follistatin - covering a method of controlling the amount of avian follistatin and
the concentrations thereof within a product by extracting the proteins from various parts of fertilized and unfertilized avian
eggs.
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Methods
of treating degenerative muscle disease – covering methods of treating various degenerative muscle diseases, such as
sarcopenia, with avian egg-based products and the compositions thereof.
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Methods
and products for increasing muscle mass – covering various combinations of proteins, lipids and other molecules, which
are active in the natural form of our core commercial products, which may be combined in advantageous amounts to yield improved
products and methods for increasing muscle mass.
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Egg-based product containing hydroxymethylbutyrate, or HMB, for the treatment of degenerative muscle disease
– covering a line of products combining avian egg-based products with HMB for improved treatment of degenerative muscle diseases
and the methods of treating the same.
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Egg-based product containing leucine for treatment of degenerative muscle disease - covering a line of
products combining avian egg-based products with leucine for improved treatment of degenerative muscle diseases and the methods
of treating the same.
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Methods
of treatment of degenerative muscle disease using egg-based products and testosterone replacement therapy – covering
methods of treating degenerative muscle disease in combination with testosterone replacement therapy for improved results.
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Methods
of treatment of cancer using avian egg powder.
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Methods
of treatment of insulin resistance and Type II diabetes using avian egg powder.
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Methods
of treatment of neurological diseases using avian egg powder.
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Method
of enhancing overall health and longevity using avian egg powder.
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In
addition to patent protection, we are also engaged in protecting our brands, including corporate brands and product brands, and
have sought trademark registrations in the United States for the same. We have implemented a clearance strategy for new brands
that we intend to launch, to ensure any risk of encroaching on the rights of third parties is minimized.
We
regard our trademarks and other proprietary rights as valuable assets and believe that protecting our key trademarks is crucial
to our business strategy of building strong brand name recognition. These trademarks are crucial elements of our business, and
have significant value in the marketing of our products. Federally registered trademarks have a perpetual life, provided that they
are maintained and renewed on a timely basis and used correctly as trademarks, subject to the rights of third parties to attempt
to cancel a trademark if priority is claimed or there is confusion of usage. We rely on common law trademark rights to protect
our unregistered trademarks. Common law trademark rights generally are limited to the geographic area in which the trademark is
actually used, while a United States federal registration of a trademark enables the registrant to stop the unauthorized use of
the trademark by third parties in the United States. Much of our ongoing work, including our research and development, is kept
highly confidential. As such, we have adopted corporate confidentiality policies that comply with the Uniform Trade Secrets Act
and the New Jersey Trade Secret Act to protect our most valuable intellectual property assets.
Regulatory
Environment
The
importing, manufacturing, processing, formulating, packaging, labeling, distributing, selling and advertising of our current and
future products may be subject to regulation by one or more federal or state agencies. The Food and Drug Administration, or the
FDA, has primary jurisdiction over our products pursuant to the Federal Food, Drug and Cosmetic Act, as amended by the Dietary
Supplement and Health Education Act, or the FDCA, and the regulations promulgated thereunder. The FDCA provides the regulatory
framework for the safety and labeling of dietary supplements, foods and medical foods. In particular, the FDA regulates the safety,
manufacturing, labeling and distribution of dietary supplements. In addition, the Animal Plant Health and Inspection Service,
or APHIS, regulates the importation of our primary product from Germany. The Federal Trade Commission, or the FTC, and the FDA
share jurisdiction over the promotion and advertising of dietary supplements. Pursuant to a memorandum of understanding between
the two agencies, the FDA has primary jurisdiction over claims that appear on product labels and labeling and the FTC has primary
jurisdiction of product advertising.
The
term “medical foods” does not pertain to all foods fed to sick patients. Medical foods are prescription foods specially
formulated and intended for the dietary management of a disease that has distinctive nutritional needs that cannot be met by normal
diet alone. They were defined in the FDA’s 1988 Orphan Drug Act Amendments and are subject to the general food safety and
labeling requirements of the FDCA but are exempt from the labeling requirements for health claims and nutrient content claims
under the Nutrition Labeling and Education Act of 1990. Medical foods are distinct from the broader category of foods for special
dietary use and from traditional foods that bear a health claim. In order to be considered a medical food, a product must, at
a minimum, be a specially formulated and processed product (as opposed to a naturally occurring food in its natural state) for
oral ingestion or tube feeding (nasogastric tube), be labeled for the dietary management of a specific medical disorder, disease
or condition for which there are distinctive nutritional requirements and be intended to be used under medical supervision.
Compliance
with applicable federal, state, and local laws and regulations is a critical part of our business. We endeavor to comply with
all applicable laws and regulations. However, as with any regulated industry, the laws and regulations are subject to interpretation
and there can be no assurances that a government agency would necessarily agree with our interpretation of the governing laws
and regulations. Moreover, we are unable to predict the nature of such future laws, regulations, interpretations or applications,
nor can we predict what effect additional governmental regulations or administrative orders, when and if promulgated, would have
on our business in the future. These regulations could, however, require the reformulation of our products to meet new standards,
market withdrawal or discontinuation of certain products not able to be reformulated. The risk of a product recall exists within
the industry although we endeavor to minimize the risk of recalls by distributing products that are not adulterated or misbranded.
However, the decision to initiate a recall is often made for business reasons in order to avoid confrontation with the FDA.
Our
products are required to be prepared in compliance with the FDA’s Good Manufacturing Practices, or GMPs, as set forth in
21 CFR Part 111. Fortetropin
®
, the active ingredient in our products, must be imported into the United States in
conformance with USDA-APHIS’s requirements for egg products. Other statutory obligations include reporting all serious adverse
events on a Medwatch Form 3500A. To date, we have not filed a Medwatch Form 3500A with the FDA nor have we been placed on notice
regarding any serious adverse events related to any of our products. Since eggs are considered a major food allergen under the
Food Allergen Labeling and Consumer Protection Act of 2004, we are required to label all our products containing Fortetropin
®
to note that they contain egg product.
Advertising
of dietary supplement products is subject to regulation by the FTC under the Federal Trade Commission Act, or FTCA, which prohibits
unfair methods of competition and unfair or deceptive trade acts or practices in or affecting commerce. The FTCA provides that
the dissemination of any false advertising pertaining to foods, including dietary supplements, is an unfair or deceptive act or
practice. Under the FTC’s substantiation doctrine, an advertiser is required to have a reasonable basis for all objective product
claims before the claims are made. All advertising is required to be truthful and not misleading. All testimonials are required
to be typical of the results the consumer may expect when using the product as directed. Accordingly, we are required to have
adequate substantiation of all material advertising claims made for our products. Failure to adequately substantiate claims may
be considered either deceptive or unfair practices.
In addition, medical foods
must comply with all applicable requirements for the manufacturing of foods, including food Current Good Manufacturing Practices
(“cGMP”), registration of food facility requirements and, if applicable, FDA regulations for low acid canned food
and emergency permit controls. The FDA considers the statutory definition of medical foods to narrowly constrain the types of
products that fit within this category of food. The FDA inspects medical food manufacturers annually to assure the safety and
integrity of the products. Failure of our contract manufacturers to comply with applicable requirements could lead to sanctions
that could adversely affect our business.
We
cannot predict what effect additional domestic or international governmental legislation, regulations, or administrative orders,
when and if promulgated, would have on our business in the future. New legislation or regulations may require the reformulation
of certain products to meet new standards, require the recall or discontinuance of certain products not capable of reformulation,
impose additional record keeping or require expanded documentation of the properties of certain products, expanded or different
labeling or scientific substantiation.
Manufacturing;
Raw Materials and Suppliers
We
are committed to producing and selling highly efficacious products that are trusted for their quality and safety. To date, our
products have been outsourced to third party manufacturers where the products are manufactured in full compliance with cGMP standards
set by the FDA. All of the raw materials for our current products are currently sourced from third-party suppliers. Any shortages
in our raw materials could result in materially higher raw material prices and adversely affect our ability to source our product.
Since the beginning of 2012, we have been focusing on the efficiency and economics of manufacturing Fortetropin
®
.
Our management has examined the production cost and is working to achieve cost savings in production.
We
currently have an agreement with only one third-party manufacturer of Fortetropin
®
, who will manufacture the formula
exclusively for us in perpetuity, and may not manufacture the formula for other entities. We have multiple vendors for blending,
packaging and labeling our products.
Competition
Given
the large populations that could potentially benefit from myostatin modulation, a number of pharmaceutical companies are currently
developing various types of myostatin inhibitors. Eli Lilly and Co., Novartis AG, Pfizer Inc., Scholar Rock and Acceleron Pharma
Inc, are among the companies that we are aware of that are testing new compounds in the field of myostatin inhibition. The market
for nutritional supplements is highly competitive. Companies operating in the space include PepsiCo Inc., Glanbia Plc. GNC Holdings,
The Coca-Cola Company, GlaxoSmithKline, Abbott Laboratories, Nestle S.A. and Universal Nutrition. Competition is based on price,
quality, customer service, marketing and product effectiveness. Our competition includes numerous nutritional supplement companies
that are highly fragmented in terms of geographic market coverage, distribution channels and product categories. In addition,
large pharmaceutical companies and packaged food and beverage companies compete with us in the nutritional supplement market.
These companies and certain nutritional supplement companies have broader product lines and/or larger sales volumes than us and
have greater financial and other resources available to them and possess extensive manufacturing, distribution and marketing capabilities.
Other companies are able to compete more effectively due to a greater extent of vertical integration. Private label products of
our competitors, which in recent years have significantly increased in certain nutrition categories, compete directly with our
products. In several product categories, private label items are the market share leaders. Increased competition from such companies,
including private label pressures, could have a material adverse effect on our results of operations and financial condition.
Many companies within our industry are privately-held and therefore, we are unable to assess the size of all of our competitors
or where we rank in comparison to such privately-held competitors with respect to sales.
Insurance
We
maintain commercial liability, including product liability coverage, and property insurance. Our policy provides for a general
liability of $5.0 million per occurrence, and $10.0 million annual aggregate coverage. We carry property coverage on our main
office facility to cover our legal liability, tenant’s improvements, business property, and inventory. We maintain commercial
general liability and products liability insurance with coverage of up to $5.0 million.
Employees
We
currently have ten full-time employees (including one executive officer). We also employ several consultants. None of our employees
are represented by a labor union and we consider our employee relations to be good.
Investing
in our securities involves a high degree of risk. Before deciding whether to invest in our securities, you should carefully consider
the risk factors set forth below, and other information contained in this Report including our financial statements and the related
notes thereto. The risks and uncertainties set forth below are not the only ones we face. Additional risks and uncertainties not
presently known to us or that we currently consider immaterial may also adversely affect us. If any of the described risks occur,
our business, financial condition or results of operations could be materially harmed. In such case, the value of our securities
could decline and you may lose all or part of your investment. Amounts in this section are in thousands, unless otherwise indicated.
RISKS
RELATING TO OUR BUSINESS
Our
limited operating history makes it difficult to evaluate our future prospects and results of operations
.
We
are an early stage company and have a limited operating history. Our future prospects should be considered in light of the risks
and uncertainties experienced by early stage companies in evolving markets such as the market for our current and future products,
if any, in the United States. We will continue to encounter risks and difficulties that companies at a similar stage of development
frequently experience, including the potential failure to:
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build
a strong and compelling consumer brand;
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protect and build our intellectual property;
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develop
new products;
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conduct
successful research and development activities;
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increase
awareness of our products and develop customer loyalty;
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respond
to competitive market conditions;
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respond
to requirements and changes in our regulatory environment;
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maintain
effective control of our costs and expenses;
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availability
of sufficient capital resources to adequately promote and market our products; and
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attract,
retain and motivate qualified personnel.
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If
we are unable to address any or all of the foregoing risks, our business may be materially and adversely affected.
If
we are unable to successfully market and promote our own core branded products, we will not be able to increase our sales and
our business and results of operations would be adversely affected.
In
March 2017, we launched Qurr, our proprietary branded products, using multiple delivery formats. Successfully marketing and promoting
products is a complex and uncertain process, dependent on the efforts of management, outside consultants and general economic
conditions, among other things. There is no assurance that we will successfully market and/or promote our own core branded products.
Any factors that adversely impact the marketing or promotion of our products including, but not limited to, competition, acceptance
in the marketplace, or delays related to production and distribution or regulatory issues, will likely have a negative impact
on our cash flow and operating results. The commercial success of our products also depends upon various other factors including:
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the
quality and acceptance of other competing brands and products;
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creating
effective distribution channels and brand awareness;
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critical reviews;
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the availability of alternatives;
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general economic conditions; and
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the
availability of sufficient capital resources to adequately
promote and market our products.
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Each
of these factors is subject to change and cannot be predicted with certainty. We cannot assure you that we will be successful
in marketing or promoting any of our own core branded products. If we are unable to successfully market and promote our own core
branded products or any enhancements to our products which we may develop, we will not be able to increase our sales, and our
results of operations would be adversely affected.
If
distributors are unable or unwilling to purchase our products and we are unable to secure alternative distributors or customers,
our operating results and financial condition will be adversely affected since historically this represents a large percentage
of our sales.
We
have previously sold our products primarily through two distributors, MHP and Cenegenics. For the year ended December 31, 2017,
our net sales were $526, of which 38% was attributable to Cenegenics. For the year ended December 31, 2016, our net sales were
$327, of which 50% was attributable to Cenegenics. We did not sell any products through MHP during the years ended December 31,
2016 and 2017.
In March 2017 we launched a new product line Qurr which we sell direct to consumers. About 80% of our
sales were purchased via our website www.qurr.com and the remainder were purchased via our amazon.com site.
If we decide to continue selling our products to distributors and our prior distributors are unable or
unwilling to purchase our products and we are unable to secure alternative distributors or customers, our operating results and
financial condition will be adversely affected.
We
have a history of losses and cash flow deficits, and we expect to continue to operate at a loss and to have negative cash flow
for the foreseeable future, which could cause the price of our stock to decline.
At
December 31, 2017, we had cumulative net losses from inception of $31,844. Our net loss for the years ended December 31, 2017 and
2016 were $4,058 and $4,341, respectively. We also had negative cash flow from operating activities. Historically, we have funded
our operations from the proceeds from the sale of equity securities, debt issuances, and to a lesser extent, internally generated
funds. Our strategic business plan is likely to result in additional losses and negative cash flow for the foreseeable future.
We cannot give assurances that we will ever become profitable.
There is
no assurance that we will be able to increase our sales.
Our sales for the year ended December 31, 2017 were $526 and our sales for the year ended December 31,
2016 were $327. We cannot give assurances that our current business model will enable us to increase our sales.
The report
of our independent registered public accounting firm expresses substantial doubt about our ability to continue as a going concern.
Our
auditors have indicated in their report on our financial statements for the years ended December 31, 2017 and December 31, 2016
that conditions exist that raise substantial doubt about our ability to continue as a going concern since we may not have sufficient
capital resources from operations and existing financing arrangements to meet our operating expenses and working capital requirements.
A “going concern” opinion could impair our ability to finance our operations through the sale of equity, incurring
debt, or other financing alternatives. There can be no assurance that we will be able to generate the level of operating revenues
projected in our business plan, or if additional sources of financing will be available on acceptable terms, if at all. If no additional
sources of financing become available, our future operating prospects may be adversely affected and investors may lose all or a
part of their investment.
Our intangible assets, which represent
a significant amount of our total assets, are subject to impairment testing and may result in impairment charges, which would adversely
affect our results of operations and financial condition.
At December 31, 2017,
our total assets were $4,795, of which $1,640, or approximately 34%, represents intangible assets, net of accumulated amortization.
Our intangible assets primarily relate to intellectual property pertaining to Fortetropin
®
, including the MYO-T12
formula, trademarks, trade secrets, patent application and domain names acquired from Peak Wellness, Inc. in February 2011. The
intellectual property asset was initially recorded as an indefinite-lived intangible asset and tested annually for impairment or
more frequently if events or circumstances changed that could potentially reduce the fair value of the asset below its carrying
value. Impairment testing requires the development of significant estimates and assumptions involving the determination of estimated
net cash flows, selection of the appropriate discount rate to measure the risk inherent in future cash flow streams, assessment
of an asset’s life cycle, competitive trends impacting the asset as well as other factors. Our forecasted future results
and related net cash flows contemplate the direct offering of product and successfully establishing future sales channels among
other factors. Changes in these underlying assumptions could significantly impact the asset’s estimated fair value.
In
2011, based on (i) assessment of current and expected future economic conditions, (ii) trends, strategies and projected revenues
and (iii) assumptions similar to those that market participants would make in valuing our intangible assets, management determined
that the carrying values of the intellectual property asset exceeded its fair value. Accordingly, we recorded noncash impairment
charges totaling $2,662 and reduced the intellectual property asset to its fair value of $2,000. During the second quarter of
2015, management made an assessment and based on expansion into new markets and introduction of new formulas determined that the
intellectual property had a finite useful life of ten (10) years and began amortizing the carrying value of the intellectual property
asset over its estimated useful life. Management made a separate determination that no further impairment existed at that time.
Based on fourteen consecutive quarters of minimal revenues combined with changes in the sales channels through which we sell our
products and our inability to predict future orders, if any, from MHP or Cenegenics or to what extent we will be able to secure
new distribution arrangements, we tested the intellectual property for impairment in the fourth quarter of 2017 and 2016 and determined
that the asset value was recoverable and therefore no impairment was recognized. Nevertheless, a significant amount of our total
assets are subject to impairment testing and may result in noncash impairment charges, which would adversely affect our results
of operations and financial condition.
We
will need to raise additional funds in the future to continue our operations. If we are unable to raise funds as needed, we may
not be able to maintain our business.
We
expect that our current funds will not be sufficient to fund our projected operations through December 2018. We require substantial
funds for operating expenses, research and development activities, to establish manufacturing capability, to develop consumer
marketing and retail selling capability, and to cover public company costs. In addition, we have incurred substantial costs in
connection with our litigation with Mr. Ren and RENS Technology Inc., or the RENS litigation See “Part 1 Item 3 –
Legal Proceedings” for additional information regarding the RENS litigation. The extent of our capital needs will depend
on numerous factors, including (i) our profitability, (ii) the release of competitive products, (iii) the level of investment
in research and development, (iv) the amount of our capital expenditures, (v) the amount of our working capital including collections
on accounts receivable, (vi) the sales, marketing and distribution investment needed to develop and launch our own core branded
products, (vii) cash generated by sales of those products and (viii) the status of the RENS litigation. We expect that we will
need to seek additional funding in 2018 through public or private financing or through collaborative arrangements with strategic
partners.
We
cannot assure you that we will be able to obtain additional financing or that such financing would be sufficient to meet our needs.
If we cannot obtain additional funding, we may be required to limit our marketing efforts, decrease or eliminate capital expenditures
or cease all or a portion of our operations, including any research and development activities. Any available additional financing
may not be adequate to meet our goals.
Even
if we are able to locate a source of additional capital, we may not be able to negotiate terms and conditions for receiving the
additional capital that are acceptable to us.
Any
future capital investments could dilute or otherwise materially adversely affect the holdings or rights of our existing stockholders.
In addition, new equity or convertible debt securities issued by us to obtain financing could have rights, preferences and privileges
senior to our common stock. There is no assurance that any additional financing will be available, or if available, will be on
terms favorable to us. In addition, any equity financing would result in dilution to stockholders.
Since our
revenues are generated in U.S. dollars but a portion of our expenses are incurred in foreign currencies, our earnings may be reduced
due to currency exchange rate fluctuations.
Our
revenues are generated in U.S. dollars, while a portion of our expenses related to our supply agreement are incurred in foreign
currencies, principally the payments to our primary manufacturer that are paid in euros. The exchange rates between the U.S. dollar
and other currencies fluctuate and are affected by, among other things, changes in political and economic conditions. Any significant
fluctuation in the exchange rate for these currencies may materially and adversely affect our earnings, cash flows and financial
condition.
If
we are unable to manage our infrastructure growth, our business results may be materially and adversely affected.
We
need to manage our infrastructure growth to support and maximize our potential revenue growth and achieve our expected business
results. Engaging the full capacity of our limited staff may place a significant strain on our management, operations, and accounting
and information systems. We expect that we will need to continue to improve our financial controls, operating procedures and management
information systems. The failure to manage our infrastructure growth could adversely affect our business results.
If
we are not able to implement our business objectives, our operations and financial performance may be adversely affected.
Our
principal objectives are to: (i) create a sales platform through marketing products containing our proprietary ingredient Fortetropin
®
in established, growing, and new markets and strategic selection of partnerships and collaborations to maximize near-term
and future revenues, (ii) deepen the scientific understanding of the activity of Fortetropin
®
, specifically as
a natural, reversible, temporary modulator of the regulatory protein myostatin, and to leverage this knowledge to strengthen and
build our intellectual property, (iii) conduct research and development activities to evaluate myostatin modulation in a range
of both wellness and disease states, (iv) identify other products and technologies which may broaden our portfolio and define
a business development strategy to protect, enhance and accelerate the growth of our products, (v) reduce the cost of manufacturing
through process improvement, and (vi) identify contract manufacturing organizations that can fully meet our future growth requirements.
Our business plan is based on circumstances currently prevailing and assumptions that certain circumstances will or will not occur
as well as the inherent risk and uncertainties involved in various stages of development. However, there is no assurance that
we will be successful in achieving our objectives. If we are not able to achieve our objectives, our business operations and financial
performance may be adversely affected.
If
we lose the services of our key personnel, we may be unable to replace them, and our business, financial condition and results
of operations could be adversely affected.
Our
success largely depends on the continued skills, experience, efforts and policies of our management, directors and other key personnel
and our ability to continue to attract, motivate and retain highly qualified employees. In particular, certain of our directors,
including Dr. Robert Hariri and Dr. Louis Aronne have significant research and development experience and are integral to the
creation of our future products and the execution of our business strategy. In addition, our prospects depend substantially on
the services of our executive management team.
If
one or more of our key employees or directors leaves us, we will need to find a replacement with the combination of skills and
attributes necessary to execute our strategy. Because competition for skilled personnel is intense, and the process of finding
qualified individuals can be lengthy and expensive, we believe that the loss of the services of key personnel could adversely
affect our business, financial condition and results of operations. We cannot assure you that we will continue to retain such
personnel.
Our
success depends on our ability to anticipate and respond in a timely manner to changing consumer demands.
Our
success depends on the appeal of our current and future products to a broad range of consumers whose preferences cannot be predicted
with certainty and are subject to change. If our current and future products do not meet consumer demands, our sales may decline.
In addition, our growth depends upon our ability to develop new products through product line extensions and product modifications,
which involve numerous risks. We may not be able to accurately identify consumer preferences, translate our knowledge into customer
accepted products, establish the appropriate pricing for our products or successfully integrate these products with our existing
product platform or operations. We may also experience increased expenses incurred in connection with product development, marketing
and advertising that are not subsequently supported by a sufficient level of sales, which would negatively affect our margins.
Furthermore, product development may divert management’s attention from other business concerns, which could cause sales
of our existing products to suffer. We cannot assure you that newly developed products will contribute favorably to our operating
results.
Products
often have to be promoted heavily in stores or in the media to obtain visibility and consumer acceptance. Acquiring distribution
for products is difficult and often expensive due to slotting and other promotional charges mandated by retailers. Products can
take substantial periods of time to develop consumer awareness, consumer acceptance and sales volume. Accordingly, some products
may fail to gain or maintain sufficient sales volume and as a result may have to be discontinued.
If
our current or future products fail to properly perform, our business could suffer due to increased costs and reduced income.
Failure of our current or future products to meet consumer expectations could result in decreased sales, delayed market acceptance
of our products, increased accounts receivable, unsaleable inventory and customer returns, and divert our resources to reformulation
or alternative products.
Intense
competition from existing and new entities may adversely affect our revenues and profitability
.
We
face competitors that will attempt to create, or are already creating, products that are similar to our current and future products.
Many of our current and potential competitors have significantly longer operating histories and significantly greater managerial,
financial, marketing, technical and other competitive resources, as well as greater brand recognition, than we do. These competitors
may be able to respond more quickly to new or changing opportunities and customer requirements and may be able to undertake more
extensive promotional activities, offer more attractive terms to customers or adopt more aggressive pricing policies. We cannot
assure you that we will be able to compete effectively with current or future competitors or that the competitive pressures we
face will not harm our business.
Our
business is dependent on continually developing or acquiring new and advanced products and processes and our failure to do so
may cause us to lose our competitiveness and may adversely affect our operating results.
To
remain competitive in our industry, we believe it is important to continually develop new and advanced products and processes.
There is no assurance that competitive new products and processes will not render our existing or new products obsolete or non-competitive.
Our competitiveness in the marketplace relies upon our ability to continuously enhance our current products, introduce new products,
and develop and implement new technologies and processes. Our failure to evolve and/or develop new or enhanced products may cause
us to lose our competitiveness in the marketplace and adversely affect our operating results.
Adverse
publicity or consumer perception of our products and any similar products distributed by others could harm our reputation and
adversely affect our sales and revenues.
We
are highly dependent upon positive consumer perceptions of the safety, efficacy and quality of our products as well as similar
products distributed by our competitors. Consumer perception of dietary supplements and our products in particular can be substantially
influenced by scientific research or findings, national media attention including social media attention and other publicity about
product use. Adverse publicity from such sources regarding the safety, efficacy or quality of dietary supplements, in general,
and our products in particular, could harm our reputation and results of operations. The mere publication of reports asserting
that such products may be harmful or questioning their efficacy could have a material adverse effect on our business, financial
condition and results of operations, regardless of whether such reports are scientifically supported or whether the claimed harmful
effects would be present at the dosages recommended for such products.
Marketing
of our products through social media and other advertising methods could harm our business and reputation.
There
are many considerations that can affect the marketing and advertising of our products through social media such as claims and
concerns about safety, new discoveries, patent disputes and claims about adverse side effects. Further, claims and concerns about
safety can result in a negative impact on product sales, product recalls or withdrawals, and/or consumer fraud, product liability
and other litigation and claims. A video published online, a blog on the internet, or a post on a website, can be distributed
rapidly and negatively harm our reputation.
Cyberattacks and other security breaches
could compromise our proprietary and confidential information as well as our e-commerce infrastructure and customer database which
could harm our business and reputation.
We generate, collect and
store proprietary information, including intellectual property and business information. The secure storage, maintenance, and
transmission of and access to this information is important to our operations and reputation. Computer hackers may attempt to
penetrate our computer systems and, if successful, misappropriate our proprietary and confidential information including e-mails
and other electronic communications. In addition, an employee, contractor, or other third-party with whom we do business may attempt
to obtain such information, and may willfully or inadvertently cause a breach involving such information. While we have certain
safeguards in place to reduce the risk of and detect cyber-attacks, our information technology networks and infrastructure may
be vulnerable to unpermitted access by hackers or other breaches, or employee error or malfeasance. Any such compromise of our
data security and access to, or public disclosure or loss of, confidential business or proprietary information could disrupt our
operations, damage our reputation, provide our competitors with valuable information, and subject us to additional costs which
could adversely affect our business.
The
scientific support for Fortetropin
®
is subject to uncertainty.
Our
research, scientific knowledge and clinical testing supporting the benefits of our products are an essential element of our ability
to legally market our products. There is, however, the risk that new or undiscovered information may become available that may
undermine or refute our scientific support. In addition, our clinical studies of Fortetropin
®
have been limited
in scope and additional testing may reveal deficiencies and side effects that we are currently unaware of. A reduction in the
credibility of our scientific support for the effectiveness of Fortetropin
®
could have a material adverse effect
on our operations and financial condition.
If
we are required to withdraw our products from the market, change the labeling of our products and/or are subject to product liability
claims, our operations and financial performance may be adversely affected.
There
is a potential for any ingested product to result in side effects in certain consumers. Although we are not aware of any adverse
effects of our products on the health of consumers, if any such side effects are identified after marketing and sale of the product,
we may be required to withdraw our products from the market or change its labeling. We may also be required to withdraw our products
from the market as a result of regulatory issues. If we are required to withdraw our products from the market, our business operations
and financial performance may be adversely affected. Furthermore, if a product liability claim is brought against us, it may,
regardless of merit or eventual outcome, result in damage to our reputation, decreased demand for our products, costly litigation
and loss of revenue.
An
increase in product returns could negatively impact our operating results and profitability.
Historically,
sales allowances for product returns have not been provided, since under our existing arrangements, customers are not permitted
to return product except for non-conforming product. In certain instances we may permit the return of damaged or defective products
and accept limited amounts of product returns. While such returns have historically been nominal and within management’s
expectations and the provisions established, future return rates may differ from those experienced in the past. Any significant
increase in damaged or defective products or expected returns could have a material adverse effect on our operating results for
the period or periods in which such returns materialize. With respect to future sales, we may need to offer retail customers sales
incentives, including the right to return product. If those customers are not able to sell our products to end-consumers, significant
product returns may materialize, which could have a material adverse effect on our operating results.
We
are dependent on third-party manufacturers, suppliers and processors to produce our products.
We
currently rely on third-party manufacturers, suppliers and processors to produce our products. If our manufacturers, suppliers
or processors are unable to provide us with the required finished products or raw materials or are unable or unwilling to produce
sufficient quantities of our products, our business and revenues will be adversely affected.
A
shortage in the supply of, or a price increase in, raw materials could increase our costs or adversely affect our sales and revenues.
All
of the raw materials for our products are sourced from third-party suppliers. Currently, we have one primary third-party manufacturer
to produce Fortetropin
®
under a fixed price agreement that runs through December 2018. If we are unable to renew
the agreement, any shortages in our raw materials could adversely affect operations. Price increases from a supplier will affect
our profitability if we are not able to pass price increases on to customers. The inability to obtain adequate supplies of raw
materials in a timely manner of our raw materials could have a material adverse effect on our business, financial condition and
results of operations.
While
our raw material inventories generally have a long shelf life, we may be required to write-off or reserve for inventories that
are slow-moving, off-grade, damaged or otherwise not saleable. Such write-offs and/or reserves could have a material adverse effect
on our business, financial condition and results of operations.
Our
raw material inventories are comprised of dried powder derived from egg-yolk, and despite generally having a long shelf life, we
may be required to write-off or reserve for inventories that are slow-moving, off-grade, damaged or otherwise not saleable. Cost
of sales for the year ended December 31, 2017 and 2016 included slow moving obsolete/damaged goods inventory charges of $-2- and
$107, respectively. Future required write-offs or reserves could have a material adverse effect on our business, financial condition
and results of operations.
We
have no manufacturing capacity and anticipate continued reliance on third-party manufacturers for the development and commercialization
of our products.
We
do not currently operate manufacturing facilities for production of our product. We lack the resources and the capabilities to
manufacture our products on a commercial scale. We do not intend to develop facilities for manufacturing our products in the foreseeable
future. We rely on third-party manufacturers to produce bulk products required to meet our sales needs. We plan to continue to
rely upon contract manufacturers to manufacture commercial quantities of our products.
Our
contract manufacturers’ failure to achieve and maintain high manufacturing standards, in accordance with the FDA’s
GMP’s as set forth in 21 CFR Part 111 and/or applicable regulatory requirements, or the incidence of manufacturing errors,
could result in consumer injury or death, product shortages, product recalls or withdrawals, delays or failures in product testing
or delivery, cost overruns or other problems that could seriously harm our business. Contract manufacturing organizations often
encounter difficulties involving production yields, quality control and quality assurance, as well as shortages of qualified personnel.
Our existing manufacturers and any future contract manufacturing organizations may not perform as agreed upon or may not remain
in the contract manufacturing business. In the event of a natural disaster, business failure, strike or other difficulty, we may
be unable to replace a third-party manufacturer in a timely manner and the production of our products would be interrupted, resulting
in delays, additional costs and reduced revenues.
Our
research and development activities may be costly and/or untimely, and there are no assurances that our research and development
activities will either be successful or completed within the anticipated timeframe, if ever at all.
Research
and development activities may be costly and/or untimely, and there are no assurances that our research and development activities
will either be successful or completed within the anticipated timeframe, if at all. The continued research and development relating
to Fortetropin
®
and our future products is important to our success. In addition, the development of new products
requires significant research, development and testing all of which require significant investment and resources. At this time,
our resources are limited and our research and development activities are dependent upon our ability to fund our activities and
to raise capital which may not be possible. We may enter into agreements with third party contract research organizations (CROs),
academic institutes or non-profit research institutes to engage in research and development for us. However, the failure of the
third-party researcher to perform under agreements entered into with us, or our failure to renew important research agreements
with a third party, may delay or curtail our research and development efforts. The research and development of new products is
costly and time consuming, and there are no assurances that our research and development activities will be successful. Even if
a new product is developed, there is no assurance that it will be commercialized or result in sales.
We
may not be able to protect our intellectual property rights which could cause our assets to lose value.
Our
business depends on and will continue to depend on our intellectual property, including our valuable brands and internally-developed
products. We believe our intellectual property rights are important to our continued success and our competitive position. However,
we may be unable or unwilling to strictly enforce our intellectual property rights, including our patents and trademarks, from
infringement due to the substantial costs of such enforcement. In addition, while there are patent applications pending for our
core product, there is no assurance that such applications will issue as patents. Our failure to enforce our intellectual property
rights could diminish the value of our brands and product offerings and harm our business and future growth prospects.
In
addition, unauthorized parties may attempt to copy or otherwise obtain and use our services, technology and other intellectual
property, and we cannot be certain that the steps we have taken to protect our proprietary rights will prevent any misappropriation
or confusion among consumers and merchants, or unauthorized use of these rights. Advancements in technology have exacerbated the
risk by making it easier to duplicate and disseminate intellectual property. In addition, as our business becomes more global
in scope, we may not be able to protect our proprietary rights in a cost-effective manner in a multitude of jurisdictions with
varying laws. If we are unable to procure, protect and enforce our intellectual property rights, we may not realize the full value
of these assets, and our business may suffer. If we need to commence litigation to enforce our intellectual property rights or
determine the validity and scope of the proprietary rights of others, such litigation may be costly and divert the attention of
our management.
We
may be subject to intellectual property rights claims, which are costly to defend, could require us to pay damages and could limit
our ability to sell some of our products.
We
may become subject to intellectual property litigation or infringement claims, which could cause us to incur significant expenses
to defend such claims, divert management’s attention or prevent us from manufacturing, importing, selling or using some
aspect of our current or future products. If we choose or are forced to settle such claims, we may be required to pay for a license
to certain rights, pay royalties on both a retrospective and prospective basis, and/or cease manufacturing importing and selling
certain infringing products. Future infringement claims against us by third parties may adversely impact our business, financial
condition and results of operations.
In
addition, our primary third-party manufacturer assigned its United States patent application for making Fortetropin
®
,
the key ingredient in our products, to us in exchange for royalty payments for each kilogram of Fortetropin
®
that
we produce, for a period of seven years from the expiration date of the supply agreement on December 31, 2016. Subsequent to the
assignment of the patent application, in August 2014, the USPTO issued to us U.S. Patent No. 8,815,320 B2 covering the proprietary
methods of manufacturing Fortetropin
®
.
Our
advertising and marketing efforts may be costly and may not achieve desired results.
We
intend to incur substantial expenses in connection with our advertising and marketing efforts for our products. Although we intend
to target our advertising and marketing efforts on current and potential customers who we believe are likely to be in the market
for the products we sell, we cannot assure you that our advertising and marketing efforts will achieve our desired results. We
will periodically adjust our advertising expenditures in an effort to optimize the return on such expenditures knowing that any
such decrease we make to optimize such return could adversely affect our sales.
We
rely on independent shipping companies to deliver the products we sell.
We
rely upon third party carriers, especially FedEx and UPS, for timely delivery of our product shipments. As a result, we are subject
to carrier disruptions and increased costs due to factors that are beyond our control, including employee strikes, inclement weather
and increased fuel costs. Any failure to deliver products to our customers in a timely and accurate manner may damage our reputation
and brand and could cause us to lose customers. We do not have a written long-term agreement with any of these third party carriers,
and we cannot be sure that these relationships will continue on terms favorable to us, if at all. If our relationship with any
of these third party carriers is terminated or impaired, or if any of these third parties are unable to deliver products for us,
we would be required to use alternatives for shipment of products to our customers. We may be unable to engage alternative carriers
on a timely basis or on terms favorable to us, if at all. Potential adverse consequences include:
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reduced
visibility of order status and package tracking;
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delays
in order processing and product delivery;
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increased
cost of delivery, resulting in reduced margins; and
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reduced
shipment quality, which may result in damaged products and customer dissatisfaction.
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Furthermore,
shipping costs represent a significant operational expense for us. Any future increases in shipping rates could have a material
adverse effect on our business, financial condition and results of operations.
We
rely on fulfillment centers to package and deliver our product to customers who place orders online
We
have an agreement with one fulfillment center to box and ship our products to customers once an order has been placed. We cannot
be sure that our relationship with the fulfillment center will continue on terms favorable to us, if at all. If our relationship
with them is terminated or impaired, or if they are unable to deliver products for us, we would be required to use alternatives
for shipment of products to our customers.
We
face significant inventory risk.
We
are exposed to significant inventory risks that may adversely affect our operating results as a result of new product launches,
rapid changes in product cycles and pricing, defective merchandise, changes in consumer demand and consumer spending patterns,
changes in consumer tastes with respect to our products, and other factors. We endeavor to accurately predict these trends and
avoid overstocking or understocking our products. Demand for products, however, can change significantly between the time inventory
is ordered and the date of sale. In addition, when we begin selling or manufacturing a new product, it may be difficult to determine
appropriate product selection, and accurately forecast demand. The acquisition of inventory may require significant lead-time
and prepayment and we may be unable to sell products in sufficient quantities or during the relevant selling seasons. Any one
of these risks may adversely affect our operating results.
Our
failure to respond appropriately to competitive challenges, changing consumer preferences and demand for new products could significantly
harm our customer relationships and product sales.
The
nutritional supplement industry is characterized by intense competition for product offerings and rapid and frequent changes in
consumer demand. Our failure to predict accurately product trends could negatively impact our products and cause our revenues
to decline.
Our
success with any particular product offering (whether new or existing) depends upon a number of factors, including our ability
to:
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deliver
quality products in a timely manner in sufficient volumes;
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accurately
anticipate customer needs and forecast accurately to our manufacturers;
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differentiate
our product offerings from those of our competitors;
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competitively
price our products; and
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develop
new products.
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Furthermore,
products often have to be promoted heavily in stores or in the media to obtain visibility and consumer acceptance. Acquiring distribution
for products is difficult and often expensive due to slotting and other promotional charges mandated by retailers. Products can
take substantial periods of time to develop consumer awareness, consumer acceptance and sales volume. Accordingly, some products
may fail to gain or maintain sufficient sales volume and as a result may have to be discontinued.
Our
industry is highly competitive, and our failure to compete effectively could adversely affect our market share, financial condition
and future growth.
The
nutritional supplement industry is highly competitive with respect to:
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price;
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shelf
space and store placement;
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brand
and product recognition;
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product
introductions; and
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raw
materials.
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Most
of our competitors are larger, more established companies and possess greater financial strength, personnel, distribution and
other resources than we have. We face competition in the supplement market from a number of large nationally known manufacturers,
private label brands and many smaller manufacturers.
Adverse
publicity or consumer perception of our products and any similar products distributed by others could harm our reputation and
adversely affect our sales.
We
believe we are highly dependent upon positive consumer perceptions of the safety and quality of our products as well as similar
products distributed by other nutritional supplement companies. Consumer perception of nutritional supplements and our products
in particular can be substantially influenced by scientific research or findings, national media attention and other publicity
about product use. Adverse publicity from these sources regarding the safety, quality or efficacy of nutritional supplements and
our products could harm our reputation and results of operations. The mere publication of news articles or reports asserting that
such products may be harmful or questioning their efficacy could have a material adverse effect on our business, financial condition
and results of operations, regardless of whether such news articles or reports are scientifically supported or whether the claimed
harmful effects would be present at the dosages recommended for such products.
Changes
in the economies of the markets in which we do business may affect consumer demand for our products.
Consumer
spending habits, including spending for our products, are affected by, among other things, prevailing economic conditions, levels
of employment, fuel prices, changes in exchange rates, salaries and wages, the availability of consumer credit, consumer confidence
and consumer perception of economic conditions. Economic slowdowns in the markets in which we do business and an uncertain economic
outlook may adversely affect consumer spending habits, which may result in lower sales of our products in future periods. A prolonged
global or regional economic downturn could have a material negative impact on our financial position, results of operation or
cash flows.
Our
insurance coverage may be insufficient to cover our legal claims or other losses that we may incur in the future.
We
maintain insurance, including property, general and product liability and other forms of insurance to protect ourselves against
potential loss exposures. In the future, insurance coverage may not be available at adequate levels or on adequate terms to cover
potential losses. If insurance coverage is inadequate or unavailable, we may face claims that exceed coverage limits or that are
not covered, which could increase our costs and adversely affect our operating results.
We
may be subject to uncertain and costly compliance with government regulations.
The
importing, manufacturing, processing, formulating, packaging, labeling, distributing, selling and advertising of our current and
future products may be subject to regulation by one or more federal or state agencies. The Food and Drug Administration, or the
FDA, has primary jurisdiction over our products pursuant to the Federal Food, Drug and Cosmetic Act, as amended by the Dietary
Supplement and Health Education Act, or the FDCA, and regulations promulgated thereunder. The FDCA provides the regulatory framework
for the safety and labeling of dietary supplements, foods and medical foods. In particular, the FDA regulates the safety, manufacturing,
labeling and distribution of dietary supplements. In addition, the Animal Plant Health and Inspection Service, or APHIS, regulates
the importation of our primary product from Germany. The Federal Trade Commission, or the FTC, and the FDA share jurisdiction
over the promotion and advertising of dietary supplements. Pursuant to a memorandum of understanding between the two agencies,
the FDA has primary jurisdiction over claims that appear on product labels and labeling and the FTC has primary jurisdiction over
product advertising.
Compliance
with applicable federal, state, and local laws and regulations is a critical part of our business. We endeavor to comply with
all applicable laws and regulations. However, as with any regulated industry, the laws and regulations are subject to interpretation
and there can be no assurances that a government agency would necessarily agree with our interpretation of the governing laws
and regulations. Moreover, we are unable to predict the nature of such future laws, regulations, interpretations or applications,
nor can we predict what effect additional governmental regulations or administrative orders, when and if promulgated, would have
on our business in the future. These regulations could, however, require the reformulation of our products to meet new standards,
market withdrawal or discontinuation of certain products not able to be reformulated. The risk of a product recall exists within
the industry although we endeavor to minimize the risk of recalls by distributing products that are not adulterated or misbranded.
However, the decision to initiate a recall is often made for business reasons in order to avoid confrontation with the FDA.
Our
products are required to be prepared in compliance with cGMPs and 21 CFR Part 111 (also known as the FDA’s “Dietary
Supplement Rule”). Fortetropin
®
, the main ingredient in our products, is also required to be imported into
the United States in conformance with APHIS’s requirements for egg products. In the event it is determined that we have
not complied with the foregoing requirements, we may be required to initiate a product recall and/or be subject to financial or
other penalties. We are continuously monitoring and reviewing our processes to ensure compliance with APHIS and limit the likelihood
of potential recalls.
Other
statutory obligations include reporting all serious adverse events on a Medwatch Form 3500A. To date, we have not filed a Medwatch
Form 3500A with the FDA nor have we been placed on notice regarding any serious adverse events related to any of our products.
Since eggs are considered a major food allergen under the Food Allergen Labeling and Consumer Protection Act of 2004, the labeling
of all our products must note that they contain an egg product.
Advertising
of dietary supplement products is subject to regulation by the FTC under the Federal Trade Commission Act, or FTCA, which prohibits
unfair methods of competition and unfair or deceptive trade acts or practices in or affecting commerce. The FTCA provides that
the dissemination of any false advertising pertaining to foods, including dietary supplements, is an unfair or deceptive act or
practice. Under the FTC’s substantiation doctrine, an advertiser is required to have a reasonable basis for all objective product
claims before the claims are made. All advertising is required to be truthful and not misleading. All testimonials are required
to be typical of the results the consumer may expect when using the product as directed. Accordingly, we are required to have
adequate substantiation of all material advertising claims made for our products. Failure to adequately substantiate claims may
be considered either deceptive or unfair practices.
We
cannot predict what effect additional domestic or international governmental legislation, regulations, or administrative orders,
when and if promulgated, would have on our business in the future. New legislation or regulations may require the reformulation
of certain products to meet new standards, require the recall or discontinuance of certain products not capable of reformulation,
impose additional record keeping or require expanded documentation of the properties of certain products, expanded or different
labeling or scientific substantiation.
RISKS
RELATED TO OUR COMMON STOCK
Trading
in our common stock over the last 12 months has fluctuated, so investors may not be able to sell as many of their shares as they
want at prevailing prices.
Our
common stock is listed on the Nasdaq Capital Market. There has been a fluctuation in trading of our shares over the last 12 months,
but it still may be difficult for investors to sell such shares in the public market at any given time.
Our
common stock may be delisted from the Nasdaq Capital Market if we cannot satisfy its continued listing requirements.
Among
the conditions required for continued listing on the Nasdaq Capital Market is that we maintain at least $2.5 million in stockholders’
equity. There can be no assurance that our stockholders’ equity will remain above the $2.5 million minimum. If we fail to
timely comply with the stockholders’ equity requirement, our common stock may be delisted from the Nasdaq Capital Market.
In addition, even if we demonstrate compliance with the stockholders’ equity requirement, we will need to continue to meet
other objective and subjective listing requirements to continue to be listed on the Nasdaq Capital Market. Delisting from the Nasdaq
Capital Market could make trading our common stock more difficult for investors, potentially leading to declines in our share price
and liquidity. Without a Nasdaq Capital Market listing, stockholders may have a difficult time getting a quote for the sale or
purchase of our common stock, the sale or purchase of our common stock would likely be made more difficult and the trading volume
and liquidity of our stock could decline. Delisting from the Nasdaq Capital Market could also result in negative publicity and
could also make it more difficult for us to raise additional capital. The absence of such a listing may adversely affect the acceptance
of our common stock as currency or the value accorded by other parties. Further, if we are delisted, we would be required to incur
additional costs under state blue sky laws in connection with any sale of our securities. These requirements could severely limit
the market liquidity of our common stock and the ability of our stockholders to sell our common stock in the secondary market.
If our common stock is delisted from the Nasdaq Capital Market, our common stock may be eligible to trade on an over-the-counter
quotation system, such as the OTCQB market, where an investor may find it more difficult to sell our stock or obtain accurate quotations
as to the market value of our common stock. We cannot assure you that our common stock, if delisted from the Nasdaq Capital Market,
will be listed on another national securities exchange or quoted on an over-the-counter quotation system.
If
the Nasdaq Capital Market delists our shares of common stock from trading on its exchange and we are not able to list our securities
on another national securities exchange, we expect our securities could be quoted on an over-the-counter market. If this were
to occur, we could face significant material adverse consequences, including:
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a
limited availability of market quotations for our securities;
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reduced
liquidity for our shares;
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a
determination that our common stock is a “penny stock” which will require brokers trading in our common stock
to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market
for our shares;
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a
limited amount of news and analyst coverage; and
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a
decreased ability to issue additional securities or obtain additional financing in the future.
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An
active and visible trading market for our common stock may not develop.
We
cannot predict whether an active market for our common stock will develop in the future. In the absence of an active trading market:
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investors may have difficulty buying and selling our common stock or obtaining market quotations;
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market
visibility for our common stock may be limited; and
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a
lack of visibility for our common stock may have a depressive effect on the market price for our common stock.
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The
trading price of our common stock is expected to be subject to significant fluctuations in response to variations in quarterly
operating results, changes in analysts’ earnings estimates, announcements of innovations by us or our competitors, general
conditions in the industry in which we operate and other factors. These fluctuations, as well as general economic and market conditions,
may have a material or adverse effect on the market price of our common stock.
The
market price for our stock may be volatile.
The
market price for our stock may be volatile and subject to wide fluctuations in response to factors including the following:
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actual
or anticipated fluctuations in our quarterly operating results;
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changes
in financial estimates by securities research analysts;
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conditions
in nutritional supplement markets;
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changes
in the economic performance or market valuations of other nutritional supplement companies;
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announcements
by us or our competitors of new products, acquisitions, strategic partnerships, joint ventures or capital commitments;
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addition
or departure of key personnel;
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intellectual property prosecution or other litigation; and
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general
economic or political conditions.
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In
addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related
to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market
price of our stock.
Our
stockholders may experience significant dilution if future equity offerings are used to fund operations or acquire complementary
businesses or as a result of the issuance of a substantial number of shares of common stock upon the exercise of outstanding options
and warrants.
If
our future operations or acquisitions are financed through the issuance of equity securities, our stockholders could experience
significant dilution. In addition, securities issued in connection with future financing activities or potential acquisitions may
have rights and preferences senior to the rights and preferences of our common stock. We have also reserved 850,000 shares of our
common stock under an equity incentive plan for our directors, officers, employees, consultants and advisors and granted options
to purchase shares of our common stock under the plan. The issuance of shares of our common stock upon the exercise of these options
as well as upon the exercise of outstanding warrants to purchase up to 821,202 shares of our common stock, which includes a warrant
to purchase 375,000 shares of common stock previously issued to RENS Technology Inc., may result in significant dilution to our
stockholders.
Mr.
Ren can exert significant influence over us and make decisions that are not in the best interests of all stockholders.
Mr.
Ren and his affiliates currently beneficially own approximately 27% of our outstanding shares of common stock. As a result, he
is able to assert significant influence over all matters requiring stockholder approval, including the election and removal of
directors and any change in control. In particular, this concentration of ownership of our outstanding shares of common stock
could have the effect of delaying or preventing a change in control, or otherwise discouraging or preventing a potential acquirer
from attempting to obtain control. This, in turn, could have a negative effect on the market price of our common stock. It could
also prevent our stockholders from realizing a premium over the market prices for their shares of common stock. In addition, we
are currently involved in litigation with Mr. Ren and RENS Technology Inc. See “Business – Legal Proceedings”
for additional information regarding the litigation. Moreover, the interests of the owners of this concentration of ownership
may not always coincide with our interests or the interests of other stockholders and, accordingly, could cause us to enter into
transactions or agreements that we would not otherwise consider.
Compliance
with changing corporate governance regulations and public disclosure, and our management’s inexperience with such regulations,
will result in additional expenses and creates a risk of non-compliance.
Our
reporting obligations as a public company will place a significant strain on our management, operational and financial resources
and systems for the foreseeable future. Changing laws, regulations and standards relating to corporate governance and public disclosure,
including the Sarbanes-Oxley Act of 2002 and related SEC regulations, have created uncertainty for public companies and significantly
increased the costs and risks associated with accessing the public markets and public reporting. Our management team will need
to invest significant time and financial resources to comply with both existing and evolving standards for public companies, which
will lead to increased general and administrative expenses and a diversion of management time and attention from revenue generating
activities to compliance activities.
We
do not foresee paying cash dividends in the foreseeable future and, as a result, our investors’ sole source of gain, if
any, will depend on capital appreciation, if any.
We
do not plan to declare or pay any cash dividends on our shares of common stock in the foreseeable future and currently intend
to retain any future earnings for funding growth. As a result, investors should not rely on an investment in our securities if
they require the investment to produce dividend income. Capital appreciation, if any, of our shares may be investors’ sole
source of gain for the foreseeable future. Moreover, investors may not be able to resell their common stock at or above the price
they paid for them.
Provisions
in our charter documents, the shareholder rights plan we have adopted, and under Nevada law could discourage a takeover that stockholders
may consider favorable.
Our
articles of incorporation provides for the authorization to issue up to 500,000 shares of blank check preferred stock with designations,
rights and preferences as may be determined from time to time by our board of directors. Our board of directors is empowered,
without stockholder approval, to issue a series of preferred stock with dividend, liquidation, conversion, voting or other rights
which could dilute the interest of, or impair the voting power of, our common stockholders. The issuance of a series of preferred
stock could be used as a method of discouraging, delaying or preventing a change in control. For example, it would be possible
for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of
any attempt to change control of our company. In addition, we have a classified board of directors that consists of three groups,
which may increase the length of time necessary for an acquirer to change the composition of a majority of directors to gain control
of our board of directors.
We
have also adopted a shareholder rights plan that could make it more difficult for a third party to acquire, or could discourage
a third party from acquiring, us or a large block of our common stock. A third party that acquires 10% or more of our common stock
could suffer substantial dilution of its ownership interest under the terms of the shareholder rights plan through the issuance
of our shares to all stockholders other than the acquiring person. These and other provisions in our articles of incorporation
and bylaws could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or
initiate actions that are opposed by our then-current board of directors, including a merger, tender offer, or proxy contest involving
our company. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market
price of our common stock to decline.
Provisions
of Nevada corporate law limit the personal liability of corporate directors and officers and require indemnification under certain
circumstances.
Section
78.138(7) of the Nevada Revised Statutes provides that, subject to certain very limited statutory exceptions or unless the articles
of incorporation provide for greater individual liability, a director or officer of a Nevada corporation is not individually liable
to the corporation or its stockholders for any damages as a result of any act or failure to act in his or her capacity as a director
or officer, unless it is proven that the act or failure to act constituted a breach of his or her fiduciary duties as a director
or officer and such breach involved intentional misconduct, fraud or a knowing violation of law. We have not included in our articles
of incorporation any provision intended to provide for greater liability as contemplated by this statutory provision.
In
addition, Section 78.7502(3) of the Nevada Revised Statutes provides that to the extent a director or officer of a Nevada corporation
has been successful on the merits or otherwise in the defense of certain actions, suits or proceedings (which may include certain
stockholder derivative actions), the corporation shall indemnify such director or officer against expenses (including attorneys’
fees) actually and reasonably incurred by such director or officer in connection therewith.
If
securities or industry analysts do not publish research or reports about our business, or if they change their recommendations
regarding our stock adversely, our stock price and trading volume could decline.
The
trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish
about us or our business. We do not currently have and may never obtain significant research coverage by industry or financial
analysts. If few analysts commence coverage of us, the trading price of our stock would likely decrease. Even if we do obtain
significant analyst coverage, if one or more of the analysts who cover us downgrade our stock, our stock price would likely decline.
If one or more of these analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in
the financial markets, which in turn could cause our stock price or trading volume to decline.
A
failure of our internal control over financial reporting could materially impact our business or share price.
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting. An internal control
system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of
the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all internal control
systems, internal control over financial reporting may not prevent or detect misstatements. Any failure to maintain an effective
system of internal control over financial reporting could limit our ability to report our financial results accurately and timely
or to detect and prevent fraud, and could expose us to litigation or adversely affect the market price of our common stock.
RISKS
RELATED TO OUR FUTURE PRODUCTS
The research and development of pharmaceutical products, which is separate from nutritional supplements,
entails special considerations and risks. If we are successful in developing pharmaceutical products for muscular disorders, we
will be subject to, and possibly adversely affected by, the following risks:
Our
failure to obtain costly government approvals, including required FDA approvals, or to comply with ongoing governmental regulations
relating to our technologies and proposed products and formulations could delay or limit introduction of our proposed formulations
and products and result in failure to achieve revenues or maintain our ongoing business.
Our
research and development activities for our products and product candidates are currently at an early development stage and are
subject to extensive regulation for safety, efficacy and quality by numerous government authorities in the United States and abroad.
Before receiving FDA regulatory clearance to market our future proposed formulations and products, we will have to demonstrate
that our formulations and products are safe and effective in the patient population and for the indicated diseases that are to
be treated. Clinical trials, manufacturing and marketing of drugs are subject to the rigorous testing and approval process of
the FDA and equivalent foreign regulatory authorities such as the European Medicines Agency (EMA). The Federal Food, Drug and
Cosmetic Act and other federal, state and foreign statutes and regulations govern and influence the testing, manufacturing, labeling,
advertising, distribution and promotion of drugs and medical devices. As a result, regulatory approvals can take a number of years
or longer to accomplish and require the expenditure of substantial financial, managerial and other resources.
Conducting
and completing the clinical trials necessary for FDA approval is costly and subject to intense regulatory scrutiny as well as
the risk of failing to meet the primary endpoint of such trials. We will not be able to commercialize and sell our future products
and formulations without successfully completing such trials.
In
order to conduct clinical trials that are necessary to obtain approval by the FDA to market a formulation or product, it is necessary
to receive clearance from the FDA to conduct such clinical trials. The FDA can halt clinical trials at any time for safety reasons
or because we or our clinical investigators did not follow the FDA’s requirements for conducting clinical trials. If we
are unable to receive clearance to conduct clinical trials or the trials are permanently halted by the FDA, we would not be able
to achieve any revenue from such product as it is illegal to sell any drug or medical device for human consumption or use without
FDA approval.
Data
obtained from clinical trials are susceptible to varying interpretations, which could delay, limit or prevent regulatory clearances.
Data we may obtain in the future, from non-clinical studies and clinical trials do not necessarily predict
the results that will be obtained from later-stage non-clinical studies and clinical trials. Moreover, non-clinical and clinical
data are susceptible to multiple and varying interpretations, which could delay, limit or prevent regulatory approval. A number
of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after promising
results in earlier trials. The failure to adequately demonstrate the safety and effectiveness of a proposed formulation or product
under development could delay or prevent regulatory clearance of the product candidate, resulting in delays to commercialization,
and could materially harm our business. In addition, our clinical trials may not demonstrate sufficient levels of safety and efficacy
necessary to obtain the requisite regulatory approvals for our drugs, and thus our proposed drugs may not be approved for marketing.
Finally, if any of our clinical trials do not meet their primary endpoints, we would need to repeat such clinical trials in order
to progress the development of the investigational drug candidate. These additional trials would be costly and divert resources
from other projects.
Competitors
may develop competing technologies or products which outperform or supplant our technologies or products.
Drug
companies and/or other technology companies may in the future seek to develop and market pharmaceutical products which may compete
with our future technologies and products. Competitors may in the future develop similar or different technologies or products
which may become more accepted by the marketplace or which may supplant our technology entirely. In addition, many of our future
competitors may be significantly larger and better financed than we are, thus giving them a significant advantage over us.
We
may be unable to respond to competitive forces presently in the marketplace (including competition from larger companies), which
would severely impact our business. Moreover, should competing or dominating technologies or products come into existence and
the owners thereof patent the applicable technological advances, we could also be required to license such technologies in order
to continue to manufacture, market and sell our products. We may be unable to secure such licenses on commercially acceptable
terms, or at all, and our resulting inability to manufacture, market and sell the affected products could have a material adverse
effect on us.
The
market for our product candidates is rapidly changing and competitive, and new drug delivery mechanisms, drug delivery technologies,
new drugs and new treatments which may be developed by others could impair our ability to maintain and grow our business and remain
competitive.
Even
if successfully developed, our product candidates may not gain market acceptance among physicians, patients and healthcare payers,
which may not utilize our products. If our product candidates do not achieve market acceptance, our business and financial condition
will be materially adversely affected. The pharmaceutical industry is subject to rapid and substantial technological change. Developments
by others may render our technologies and our product candidates noncompetitive or obsolete, or we may be unable to keep pace
with technological developments or other market factors. Technological competition from pharmaceutical and biotechnology companies,
universities, government entities and others now existing or diversifying into the field is intense and is expected to increase.
Many of these entities have significantly greater research and development capabilities, human resources and budgets than we do,
as well as substantially more marketing, manufacturing, financial and managerial resources. These entities represent significant
competition for us. Acquisitions of, or investments in, competing pharmaceutical or biotechnology companies by large corporations
could increase such competitors’ financial, marketing, manufacturing and other resources.
The market
for our future products is rapidly changing and competitive, and new drug delivery mechanisms, drug delivery technologies, new
drugs and new treatments which may be developed by others could impair our ability to maintain and grow our business and remain
competitive.
Even
if successfully developed, our future products may not gain market acceptance among physicians, patients and healthcare payers,
which may not utilize our products. If our future products do not gain market acceptance, our business and financial condition
will be materially adversely affected. The pharmaceutical industry is subject to rapid and substantial technological change. Developments
by others may render our technologies and our product candidates noncompetitive or obsolete, or we may be unable to keep pace with
technological developments or other market factors. Technological competition from pharmaceutical and biotechnology companies,
universities, governmental entities and other entities now existing or diversifying into the field is intense and is expected to
increase. Many of these entities have significantly greater research and development capabilities, human resources and budgets
than we do, as well as substantially more marketing, manufacturing, financial and managerial resources. These entities represent
significant competition for us. Acquisitions of, or investments in, competing pharmaceutical or biotechnology companies by large
corporations could increase such competitors’ financial, marketing, manufacturing and other resources.
Item
1B.
|
Unresolved
Staff Comments.
|
Not
applicable.
We do not own any real estate or other physical properties materially important to our operation. Our
executive office is located at 45 Horsehill Road, Suite 106, Cedar Knolls, New Jersey 07927. Our office space consists of 5,225
square feet. The lease expires on December 31, 2019. We have two options to renew our lease for an additional three years each.
We consider our current office space adequate for our current operations. For additional information refer to Part IV, Item 15,
“Notes to Consolidated Financial Statements: Note 12 – Commitments and Contingencies.”
Item
3.
|
Legal
Proceedings.
|
On October 27, 2016,
Cutler Holdings, L.L.C. (“Cutler”) filed a complaint in the Superior Court of New Jersey alleging that the Company
failed to make certain rental payments. On March 30, 2017, the Company entered into a settlement agreement with Cutler, pursuant
to which Cutler released the Company from any liability for the claims asserted in the complaint.
On January 6, 2017,
in connection with the financing contemplated by a securities purchase agreement with RENS Technology Inc. (the “Purchaser”),
we commenced an action in the Supreme Court of New York, County of New York (the “Court”), against the Purchaser, RENS
Agriculture, the parent company of the Purchaser, and Ren Ren, a principal in both entities and one of our directors, arising from
the Purchaser’s breach of the agreement under which the Purchaser agreed to invest an aggregate of $20.25 million in our
company in exchange for an aggregate of 3,537,037 shares of our common stock and warrants to purchase an aggregate of 884,259 shares
of common stock.
On April 11,
2017, the Court noted that we had demonstrated a likelihood of success on the merits of the breach of contract claim.
Thereafter, a hearing was scheduled on the application by the Purchaser to dismiss the complaint and various pre-trial
discovery applications by both parties.
In August 2017, the
Company amended its complaint repeating most of the initial claims but adding several additional claims against RENS Agriculture,
Mr. Ren and two additional Chinese defendants, including a claim against RENS Agriculture for breaching the exclusive distribution
agreement, as well as claims against all defendants for theft and misappropriation of our confidential proprietary information
and trade secrets, breach of fiduciary duty and duty of loyalty, misappropriation of corporate opportunity, unfair competition
and a number of other torts. We are seeking damages and injunctive relief. The Purchaser has filed a motion to dismiss the amended
complaint, which is still pending and scheduled for oral argument in April 2018.
On
August 16, 2017, the Purchaser commenced an action in the District Court of Clark County in the State of Nevada against us and
Joseph Mannello, our then interim Chief Executive Officer, alleging that Mr. Mannello had breached his fiduciary duties and was
grossly negligent in managing our company. The action seeks monetary damages and injunctive relief from Mr. Mannello as well as
the appointment of a receiver over us. Subsequently, the Purchaser submitted a petition to appoint a receiver and we and Mr. Mannello
submitted a motion to dismiss the action, both of which are currently pending and are due to be heard in April 2018. An application
on consent to adjourn the hearing date on the receiver application and motion to dismiss is pending.
Item
4.
|
Mine
Safety Disclosures.
|
None.
PART
III
Item
10.
|
Directors
and Executive Officers and Corporate Governance.
|
Our
directors and executive officers are as follows:
Name
|
|
Age
|
|
Position
|
|
Class
|
|
|
|
|
|
|
|
Dr. Robert J. Hariri
|
|
59
|
|
Chairman of the Board of Directors
|
|
I
|
|
|
|
|
|
|
|
Ren Ren
|
|
56
|
|
Director (Global Chairman)
|
|
I
|
|
|
|
|
|
|
|
Joseph Mannello
|
|
59
|
|
Chief Executive Officer and Director
|
|
III
|
|
|
|
|
|
|
|
Dr. Louis J. Aronne
|
|
62
|
|
Director
|
|
II
|
|
|
|
|
|
|
|
Christopher Pechock
|
|
53
|
|
Director
|
|
II
|
|
|
|
|
|
|
|
Victor Mandel
|
|
53
|
|
Director
|
|
III
|
|
|
|
|
|
|
|
John Nosta
|
|
58
|
|
Director
|
|
III
|
|
|
|
|
|
|
|
Bin Zhou
|
|
39
|
|
Director
|
|
I
|
Our
Board is classified into three separate classes, as nearly equal in number as possible, with one class to be elected annually
for staggered three-year term or until their respective successors are duly elected and qualified, or until their earlier resignation,
removal or death.
The term of our current
Class III directors will expire at the 2019 Annual Meeting of Stockholders, the term of our current Class II directors will expire
at the 2020 Annual Meeting of Stockholders and the term of our current Class I directors will expire at the 2018 Annual Meeting
of Stockholders. Any director chosen as a result of a newly created directorship or to fill a vacancy on the Board would hold
office for a term expiring at the next Annual Meeting of Stockholders for the class identified. This does not change the present
number of directors or the Board’s authority to change that number and to fill any vacancies or newly created directorships.
The
experience of each or our directors and executive officers is as follows:
Dr.
Robert J. Hariri
joined us as a Director in July 2011 and was elected Chairman of the Board in April 2012. Dr.
Hariri is currently the CEO and Founder of Celularity, Inc., a private company based in Warren, NJ. Dr. Hariri has
served as the chairman and chief scientific officer of Celgene Cellular Therapeutics, a division of Celgene Corporation
(NASDAQ: CELG), since 2014. From 2002 to 2014, he served in various positions at Celgene Cellular Therapeutics, including
chief executive officer and president. Prior to joining Celgene Cellular Therapeutics, Dr. Hariri was founder, chairman and
chief scientific officer at Anthrogenesis Corporation/LIFEBANK, Inc., a privately held biomedical technology and service
corporation involved in the area of human stem cell therapeutics, which was acquired by Celgene Corporation in 2002. Dr.
Hariri also serves as president of Human Longevity Cellular Therapeutics, Inc., a privately-held genomics and cell
therapy-based diagnostic and therapeutic company focused on extending the healthy, high performance human life span, which he
co-founded in 2013. He has also served as co-founder, vice chairman and chief scientific officer of Neurodynamics, a
privately held medical device and technology corporation. Dr. Hariri is an adjunct associate professor of pathology at the
Mount Sinai School of Medicine and has also held key academic positions at Weill Medical College of Cornell University and
the Cornell University Graduate School of Medical Science, including serving as the director of the Center for Trauma
Research. Dr. Hariri is also a director of Cryoport, Inc. (NASDAQ: CYRX), Bionik Laboratories Corp. (OTCQX: BNKL), Provista
Diagnostics and Rocket Racing, Inc. Dr. Hariri is a member of the scientific advisory board for the Archon X Prize for
Genomics, which is awarded by the X Prize Foundation. Dr. Hariri serves as a trustee of the J. Craig Venter Institute, a
trustee of the Liberty Science Center and a commissioner of the New Jersey Commission for Cancer Research. Dr.
Hariri received the Thomas Alva Edison Award in 2007 and 2011, The Fred J. Epstein Lifetime Achievement Award in 2012 and
numerous other honors for his contributions to biomedicine and aviation. He has served as a member of the board of visitors
at Columbia University School of Engineering & Applied Sciences and the Science & Technology Council of the College
of Physicians and Surgeons. Dr. Hariri received his undergraduate training at Columbia College and Columbia University School
of Engineering and Applied Sciences and was awarded his M.D. and Ph.D. degrees from Cornell University Medical College. Dr.
Hariri received his surgical training at The New York Hospital-Cornell Medical Center and directed the Aitken Neurosurgery
Laboratory and the Center for Trauma Research. We believe Dr. Hariri’s training as a scientist, his knowledge and
experience with respect to the biomedical and pharmaceutical industries and his extensive research and experience qualifies
him to serve on our Board of Directors.
Ren Ren
joined us as a Director (Global Chairman) in March 2016. Mr. Ren has more than 28 years of experiences in China’s food and
agricultural business. Since 2001, he formed and operated Beijing Seasons Investment Group Co, Ltd and RENS Agriculture Science
and Technology Co, Ltd. Mr. Ren is also chairman of China’s Nutrition and Health Guidance Committee, Editor in Chief of The
Capital Food Safety Weekly, chairman of Beijing Seasons Investment Group Co., Ltd, chairman of Anhui Woyang Huadu Properties Co.,
Ltd., chairman of Xingguo Hongtianxia Camellia Oil Co., Ltd, and chairman of Nanjing Xingfeng Ecological Agriculture Co., Ltd.
From 1993 to 2001, he formed and operated multiple companies in Nanchang, Jiangxi Province, mainly engaged in agricultural products
operation and management. From 1987 to 1992, he was a department director at Sheyang Food Bureau, responsible for grain purchasing
and management. We believe Mr. Ren’s extensive knowledge and experience with respect to health and nutrition products and
his extensive food product industry background qualifies him to serve on our Board of Directors.
Joseph Mannello
joined us as a Director in December 2015. He has served as our Chief Executive Officer since August 2017, and as our interim
chief executive officer from September 2016 until August 2017. From May 2015 to September 2016, he served as a consultant at Brean
Capital LLC, an independent investment bank and asset management firm, where he also served as a member of the firm’s operating
committee and from March 2013 to May 2015, he served as their executive managing director. From March 2008 to March 2012, Mr. Mannello
was the head of corporate credit for Gleacher & Company, Inc. (OTC:GLCH), a publicly-traded investment bank. Prior to that,
he was the head of the fixed income division of BNY Capital Markets, Inc., a subsidiary of The Bank of New York Mellon Corp. (NYSE:BK).
We believe that Mr. Mannello’s extensive financial markets and management background qualifies him to serve on our Board
of Directors.
Dr. Louis Aronne
joined us as a Director and a member of our Scientific Advisory Board in July 2011. Dr. Aronne is the Weill Professor of Metabolic
Research and Director of the Comprehensive Weight Control Center which he founded in 1986 at Weill-Cornell Medical College. He
is the Charirman of the American Board of Obesity Medicine and an Adjunct Clinical Associate Professor of Medicine at Columbia
University College of Physicians and Surgeons. Dr. Aronne is former president of the Obesity Society and a fellow of the American
College of Physicians. He has been an investigator on more than 40 trials, authored more than 90 papers and book chapters on obesity
and edited the National Institutes of Health Practical Guide to the Identification, Evaluation, and Treatment of Overweight and
Obesity in Adults. Dr. Aronne has won several awards for teaching, including the Leo M. Davidoff Society Prize from Albert Einstein
College of Medicine in 1983 and Eliot Hochstein Teaching Award from Cornell University in 1990. Dr. Aronne graduated Phi Beta Kappa
from Trinity College with a BS in biochemistry and from Johns Hopkins University School of Medicine. We believe Dr. Aronne’s
skills as a physician and his knowledge and experience with respect to obesity and related metabolic diseases qualifies him to
serve on our Board of Directors.
Christopher Pechock
joined us as a Director in February 2014. Mr. Pechock was a partner at Matlin Patterson Global Advisers, a global alternative
asset manager, since its inception in July 2002 through September 2017. From November 1998 to July 2002, Mr. Pechock served as
a member of the Global Distressed Securities Group Credit Suisse (NYSE:CS). From January 1997 to October 1998, Mr. Pechock served
as a Portfolio Manager and Research Analyst at Turnberry Capital Management, L.P. Prior to that, Mr. Pechock served as a Portfolio
Manager at Eos Partners, L.P. (February 1996 to December 1996), a Vice President and high yield analyst at PaineWebber Inc. (May
1993 to January 1996) and an analyst in risk arbitrage at Wertheim Schroder & Co., Incorporated (August 1987 to April 1991).
He serves on the board of directors of Gleacher & Company, Inc. (NASDAQ: GLCH). Mr. Pechock received a BA in Economics from
the University of Pennsylvania and an MBA from the Columbia University Graduate School of Business. We believe Mr. Pechock’s
extensive financial background qualifies him to serve on our Board of Directors.
Victor Mandel
joined us as a director in August 2016 and previously served as a director of the Company from December 2015 until March 2016.
He has over twenty-five years of experience in investments, corporate strategy and corporate governance. Mr. Mandel previously
served as Co-Chairman of Ambac Financial Group, Inc. (NASDAQ: AMBC) from May 2013 through December 2014 and as a director, chair
of its Governance and Nominating Committee and member of its Audit and Strategy and Risk Policy Committees from May 2013 until
May 2016. Additionally, he has previously served as a member of the board of directors and on the audit committees of Comsys IT
Partners, Inc. (now a Manpower company), Broadpoint Gleacher Securities Group, Inc. (now Gleacher & Co., Inc.), and XLHealth
Corp. (now a United Healthcare company). He previously served as the Chief Financial Officer of Circle.com (NASDAQ:CIRC) and served
as Executive Vice President, Finance and Development of Snyder Communications, Inc. (NYSE:SNC) from 1999 to 2000. From 1991 to
1999, Mr. Mandel served as vice president in the Investment Research department at Goldman Sachs & Co. (NYSE:GS). Mr. Mandel
holds an MBA in Finance from the Wharton School of Business at the University of Pennsylvania, an A.B. in Computer Science from
Harvard University, and is a Chartered Financial Analyst. We believe Mr. Mandel’s extensive financial background qualifies
him to serve on our Board of Directors.
John
Nosta
has served as the founder and president of NOSTALAB, a digital health think tank, since June 2013. He is generally
regarded as a leading global strategic and creative thinker in the digital health area. A leading voice in the convergence of
technology and health, Mr. Nosta helps define, dissect and deliberate global trends in digital health. He has also served as a
member of the Google Health Advisory Board since October 2014 and has penned HEALTH CRITICAL for Forbes, a top global blog on
health and technology. For over 20 years, Mr. Nosta was part of the leadership of Omnicom and WPP, leading healthcare communication
companies. Prior to founding NOSTALAB, Mr. Nosta was employed by Ogilvy CommonHealth, a leading healthcare communication company,
from April 2003 to June 2013, where he held a series of positions including Chief Creative Officer, Chief Strategic Officer and
unit President. From 1990 to 1997, he held various senior-level positions at LLNS, a division of Omnicom Group Inc. (NYSE:OMC),
a leading healthcare communication company. Mr. Nosta previously served as a director of the Company from December 2015 until
March 2016. Mr. Nosta served as a research associate at Harvard University Medical School from 1980 to 1981 and has co-authored
several papers with global thought-leaders in the field of cardiovascular physiology, with a focus on acute myocardial infarction,
ventricular arrhythmias and sudden cardiac death. He received a Bachelor of Arts degree from Boston University in 1981. We believe
Mr. Nosta’s scientific and pharmaceuticals industry background qualifies him to serve on our Board of Directors.
Bin
Zhou
joined us as a Director in March 2016. Mr. Zhou is an attorney licensed in the State of New Jersey. Since November
2007, he has been an attorney and a partner at Bernard & Yam, LLP, a New York law firm. He has advised companies on their
public listings on U.S. stock exchanges including NASDAQ, NYSE and OTC markets, as well as on their private and public offering
of securities. He received a bachelor’s degree in Economic Laws from Nanjing University, China, in 2001. He received a Master
of Social Work from University of Georgia in 2003 and a Juris Doctor’s degree from Rutgers University School of Law in 2006.
We believe Mr. Zhou’s extensive background in corporate compliance and international law qualifies him to serve on our Board
of Directors.
Members
of the Scientific Advisory Board
In
addition to our Board of Directors, we maintain a Scientific Advisory Board, comprised of scientists and medical professionals
who advise us on science and medical health issues, medical conditions and health care trends as they relate to our current and
future products. Members of the Scientific Advisory Board provide us with advice, insights, contacts and other assistance based
on their extensive knowledge and experience. Specifically, they advise us on: (a) the use of myostatin modulators in the treatment
of various disorders including sarcopenia, obesity, muscle repair, anti-aging and longevity therapy, (b) the biological activities
of our products and (c) the development of clinical research programs relating to the biomedical activities and benefits of our
products. We enter into advisory board agreements with members of the Scientific Advisory Board pursuant to which they are entitled
to receive a fixed number of shares of common stock (which may vary as determined by the Board of Directors), which generally
vest over a number of years. The Scientific Advisory Board is currently comprised of the following members: Dr. Robert J. Hariri,
Dr. Louis Aronne, Dr. Caroline Apovian and Dr. Neilank Jha.
The
experience of each of the members of the Scientific Advisory Board (other than members who are our current directors, whose experience
is set forth above) is as follows:
Dr. Caroline
Apovian
joined the Scientific Advisory Board in February 2013. Since November 2010, Dr. Apovian has served as Professor
of Medicine and Pediatrics, in the Section of Endocrinology, Diabetes, and Nutrition at Boston University School of Medicine. She
has also served as Director of the Center for Nutrition and Weight Management at Boston Medical Center since January 2000. Dr.
Apovian is a nationally and internationally recognized authority on nutrition and has been in the field of obesity and nutrition
since 1990. Dr. Apovian was a recipient of the Physician Nutrition Specialist Award given by the American Society of Clinical Nutrition
for her work on developing and providing nutrition education, to medical students and physicians in training at Boston University
School of Medicine. She has published over 200 articles, chapters, and reviews on the topics of obesity, nutrition, and the relationship
between adipose tissue and risk of developing cardiovascular disease. Dr. Apovian has recently published a new book entitled
The
Age-Defying Diet
and has also written two popular books called
The Overnight Diet
and
The ALLI Diet Plan
. Dr.
Apovian has been a member of The Obesity Society since 1992, and has served on the Clinical Committee as well as Secretary/Treasurer
and is currently serving as its President. Additionally, she serves as Associate Editor for the Society’s journal, Obesity.
Dr. Apovian received her B.A. from Barnard College and her M.D. from the University of Medicine and Dentistry of New Jersey.
Dr.
Neilank Jha
joined the Scientific Advisory Board
in December 2011. Since July 2010, Dr. Jha has served as a Clinical Fellow in the Spinal Program of Toronto Western Hospital.
From 2004 to 2010, he was in the Neurosurgery Residency Program at McMaster University. Dr. Jha received his B.S. from the University
of Toronto and his Doctor of Medicine from McMaster University.
Biographical
information for Dr. Robert Hariri and Dr. Louis Aronne is set forth above in “Directors and Executive Officers.”
Board
Meetings
During the fiscal year
ended December 31, 2017, the Board held twelve formal meetings. We have no written policy regarding director attendance at annual
meetings of stockholders. Our last annual meeting of stockholders was held on December 28, 2017 and five of our directors attended
such meeting.
Director
Independence
The
Board evaluates the independence of each nominee for election as a director in accordance with the Nasdaq listing rules (the “Nasdaq
Listing Rules”). Pursuant to these rules, a majority of our Board must be “independent directors” within the
meaning of the Nasdaq Listing Rules, and all directors who sit on our Audit Committee and Compensation Committee must also be
independent directors.
The
Nasdaq definition of “independence” includes a series of objective tests, such as the director or director nominee
is not, and was not during the last three years, our employee and has not received certain payments from, or engaged in various
types of business dealings with, us. In addition, as further required by the Nasdaq Listing Rules, the Board has made a subjective
determination as to each independent director that no relationships exist which, in the opinion of the Board, would interfere
with such individual’s exercise of independent judgment in carrying out his or her responsibilities as a director. In making
these determinations, the Board reviewed and discussed information provided by the directors with regard to each director’s
business and personal activities as they may relate to us and our management.
As
a result, the Board has affirmatively determined that other than Mr. Ren and Mr. Mannello, none of our directors has a material
relationship with the Company. The Board has also affirmatively determined that all members of our Audit Committee and Compensation
Committee are independent directors.
Audit
Committee and Audit Committee Financial Expert
In
April 2014, we established a separately-designated standing Audit Committee in accordance with Section 3(a) (58) (A) of the Exchange
Act and the Nasdaq Listing Rules. The Audit Committee is comprised of Victor Mandel (chair), Chris Pechock and Bin Zhou. Our Board
has determined that Mr. Mandel qualifies as an audit committee financial expert as defined by the rules of the SEC, based on his
education, experience and background. During the fiscal year ended December 31, 2017, the Audit Committee held four formal meetings.
The
Audit Committee:
|
●
|
oversees
the accounting and financial reporting processes of the Company and the audits of the financial statements of the Company;
|
|
|
|
|
●
|
meets
at least once per fiscal year with the Company’s outside auditors with respect to matters relating to the Company’s
accounting and financial reporting processes, the audits of the Company’s financial statements, the Company’s
application of accounting principles and the Company’s internal controls, and advises the Board of Directors with respect
thereto;
|
|
|
|
|
●
|
is
responsible for ensuring its receipt from the outside auditors of a formal written statement delineating all relationships
between the auditor and the Company, actively engaging in a dialogue with the auditor with respect to any disclosed relationships
or services that may impact the objectivity and independence of the auditor and taking, or recommending that the full Board
take, appropriate action to oversee the independence of the outside auditor;
|
|
|
|
|
●
|
is
directly responsible for the appointment, compensation, retention, oversight of the work and, where appropriate, replacement
of any registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other
audit, review or attest services for the Company, and each such registered public accounting firm must report directly to
the Audit Committee; and
|
|
|
|
|
●
|
oversees
procedures established for (i) the receipt, retention and treatment of complaints received by the Company regarding accounting,
internal accounting controls or auditing matters; (ii) confidential, anonymous submissions by the Company’s employees
of concerns regarding questionable accounting or auditing matters and compliance with the Company’s Code of Ethics;
and (iii) the review and oversight of all related party transactions.
|
Compensation
Committee
In April 2014, we established a separately-designated standing Compensation Committee in accordance with
the Nasdaq Listing Rules. The Compensation Committee is comprised of Christopher Pechock (chair) and Dr. Louis J. Aronne. During
the fiscal year ended December 31, 2017, the Compensation Committee held two formal meetings.
The
Compensation Committee:
|
●
|
oversees
the compensation policies and their specific application to our executive officers;
|
|
|
|
|
●
|
prepares
an annual report on executive compensation for inclusion in our Annual Report on Form 10-K and/or proxy statement;
|
|
|
|
|
●
|
negotiates
and approves the compensation of our chief executive officer and our other executive officers;
|
|
|
|
|
●
|
selects
a peer group of companies against which to compare our compensation of our executive officers, if it deems such comparison
necessary;
|
|
|
|
|
●
|
monitors
compensation trends and solicits independent advice when deemed appropriate; and
|
|
|
|
|
●
|
approves,
rejects or modifies incentive bonus compensation plans for our senior management, as recommended by management.
|
Director
Nominations
Our
Board of Directors does not maintain a separate nominating committee. Functions customarily performed by a nominating committee
are performed by the independent members of our Board. In evaluating and determining whether to nominate a candidate for a position
on the Board, the independent members of our Board utilize a variety of methods and considers criteria such as high professional
ethics and values, experience on the policy-making level in business or scientific/medical research experience relevant to our
product candidates and a commitment to enhancing stockholder value. Candidates may be brought to the attention of the independent
members of the Board by current Board members, stockholders, officers or other persons. The independent members of the Board will
review all candidates in the same manner regardless of the source of the recommendation.
We
have no formal policy regarding diversity of our Board of Directors. The independent members of our Board may therefore consider
a broad range of factors relating to the qualifications and background of nominees, which may include diversity, which is not
only limited to race, gender or national origin. The priority of the independent members of our Board in selecting members of
the Board of Directors is identifying persons who will further the interests of our stockholders through his or her established
record of professional accomplishment, the ability to contribute positively to the collaborative culture among Board members and
professional and personal experiences and expertise relevant to our growth strategy.
The
independent members of the Board also consider stockholder recommendations for director nominees that are properly received in
accordance with the applicable rules and regulations of the SEC. In order to validly nominate a candidate for election or reelection
as a director, stockholders must give timely notice of such nomination in writing to our Corporate Secretary and include, as to
each person whom the stockholder proposes to nominate, all information relating to such person that is required to be disclosed
in solicitations of proxies for the election of directors in an election contest, or is otherwise required, in each case pursuant
to Regulation 14A under the Exchange Act, and the rules and regulations thereunder (including such person’s written consent
to being named in the proxy statement as a nominee and to serving as a director if elected).
Board
Leadership Structure
Dr.
Robert J. Hariri serves as Chairman of the Board of Directors and Mr. Ren serves as our Global Chairman. Mr. Mannello currently
serves as our principal executive officer. The Board of Directors has chosen to separate the principal executive officer and chairman
positions because it believes that (i) independent oversight of management is an important component of an effective board of
directors and (ii) this structure benefits the interests of all stockholders. If the Board of Directors convenes for a special
meeting, the non-management directors will meet in executive session if circumstances warrant. Given the composition of the Board
of Directors with a strong slate of independent directors, the Board of Directors does not believe that it is necessary to formally
designate a lead independent director at this time, although it may consider appointing a lead independent director if circumstances
change. We believe that the structure described above is the best structure to lead us in the achievement of our goals and objectives
and establishes an effective balance between management leadership and appropriate oversight by independent directors.
Board
Role in Risk Oversight
Senior
management is responsible for assessing and managing our various exposures to risk on a day-to-day basis, including the creation
of appropriate risk management programs and policies. The Board is responsible for overseeing management in the execution of its
responsibilities and for assessing our approach to risk management. In addition, an overall review of risk is inherent in the
Board’s consideration of our long-term strategies and in the transactions and other matters presented to the Board, including
capital expenditures, acquisitions and divestitures, and financial matters.
Code
of Ethics
We have adopted a corporate
Code of Ethics. The text of our Code of Ethics, which applies to our employees, officers and directors, is posted in the “Corporate
Governance” section of our website, http://www.myosrens.com. A copy of our Code of Conduct and Ethics is also available
in print, free of charge, upon written request to 45 Horsehill Road, Suite 106, Cedar Knolls, New Jersey 07927 Attention: Joseph
Mannello.
Compliance
with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended requires our directors and executive
officers, and persons who beneficially own more than 10% of a registered class of our equity securities, to report their initial
beneficial ownership and any subsequent changes in that beneficial ownership of our securities to the SEC. Based solely on a review
of the copies of the reports furnished to us, we believe that all such reports for the year ended December 31, 2017 were filed
on a timely basis.
Item
11.
|
Executive
Compensation.
|
Summary
Compensation Table
The
table below sets forth the compensation earned for services rendered to us, for fiscal years indicated, by our executive officers.
Name and Position
|
|
Fiscal
Year
|
|
|
Salary
($)
|
|
|
Stock Awards
($)
|
|
|
Option Awards
($) (5)
|
|
|
All Other Compensation
($) (6)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph Mannello (1)
|
|
|
2017
|
|
|
|
167,400
|
|
|
|
-
|
|
|
|
258,000
|
|
|
|
-
|
|
|
|
425,400
|
|
(Chief Executive Officer)
|
|
|
2016
|
|
|
|
82,600
|
|
|
|
12,631
|
|
|
|
-
|
|
|
|
16,081
|
|
|
|
111,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
K. Bryce Toussaint (2)
|
|
|
2017
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
(Former Chief Executive Officer)
|
|
|
2016
|
|
|
|
173,569
|
|
|
|
1,755
|
|
|
|
-
|
|
|
|
4,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph C. DosSantos (3)
|
|
|
2017
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
(Former Chief Financial Officer)
|
|
|
2016
|
|
|
|
122,437
|
|
|
|
9,350
|
|
|
|
52,700
|
|
|
|
37,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Robert C. Ashton, Jr. (4)
|
|
|
2017
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
(Former Chief Medical Officer)
|
|
|
2016
|
|
|
|
55,687
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
(1)
|
On
August 24, 2017, the board of directors appointed Joseph Mannello as the Company’s permanent Chief Executive Officer,
|
(2)
|
K.Bryce Toussaint was hired as Chief Executive Officer on December 17, 2015 and resigned on August 31, 2016.
|
|
|
(3)
|
On June 30, 2016, Joseph C. DosSantos resigned as the Chief Financial Officer.
|
|
|
(4)
|
Dr. Ashton resigned as Chief Medical Officer on January 31, 2016.
|
(5)
|
Amounts reflect the aggregate grant date fair value of stock option awards computed in accordance with Accounting Standards Codification (“ASC”) 718,
“Compensation – Stock Compensation.”
The assumptions used in determining the grant date fair value of these awards for their respective years are set forth in Part IV, Item 15, “Notes to Consolidated Financial Statements: Note 10 – Stock Compensation.”
|
(6)
|
The
amounts in All Other Compensation column of the Summary Compensation Table reflect the following:
|
Name
|
|
Fiscal Year
|
|
|
Health Insurance Expenses
|
|
|
401(k) Matching Contribution
|
|
|
Total Other Compensation
|
|
Joseph Mannello
|
|
|
2017
|
|
|
|
18,750
|
|
|
|
-
|
|
|
$
|
18,750
|
|
|
|
|
2016
|
|
|
|
5,170
|
|
|
|
-
|
|
|
$
|
5,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
K. Bryce Toussaint
|
|
|
2017
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
2016
|
|
|
|
14,590
|
|
|
|
-
|
|
|
$
|
14,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph C. DosSantos
|
|
|
2017
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
2016
|
|
|
|
14,590
|
|
|
|
4,183
|
|
|
$
|
18,830
|
|
Employment
Agreements
Joseph
Mannello
On
August 30, 2016, we entered into an offer letter with Joseph Mannello, pursuant to which Mr. Mannello agreed to serve as our interim
Chief Executive Officer commencing September 1, 2016. Pursuant to the terms of the Offer Letter, Mr. Mannello will work a full-time
basis as an at-will employee for an annual base salary of $240,000. Mr. Mannello will be entitled to an annual bonus of up to
100% of his annual base salary, as determined by the Board (or its compensation committee) in its sole discretion. Mr. Mannello
also received a grant of 10,000 shares of common stock which vested upon the six-month anniversary of his start date.
On August 24, 2017, we
entered into an employment agreement with Mr. Mannello to serve as the permanent Chief Executive Officer of the Company, effective
immediately. Pursuant to the terms of the agreement, Mr. Mannello agreed to work for the Company on a full-time basis and receive
a weekly base salary of $455. He may receive an annual bonus in cash or equity of the Company, as may be determined by the Board
in its sole discretion. Mr. Mannello was also granted a stock option to purchase 300,000 shares of the Company’s common
stock at an exercise price of $4.00 per share, which option will vest in eight equal annual installments on the last day of each
fiscal quarter starting with September 30, 2017. The initial term of the agreement is two years, and the agreement will automatically
renew for successive one-year periods, unless a notice of non-renewal is provided by either party at least sixty days prior to
the expiration date of the term.
In
the event Mr. Mannello’s employment is terminated by the Company for cause (as defined in the agreement) or as a result of
death or disability, or if Mr. Mannello terminates his employment without good reason (as defined in the agreement), Mr. Mannello
will be entitled to receive any accrued and unpaid base salary, any unreimbursed reasonable business expenses and employee benefits
up to the date of termination as well as retain any portion of the stock option that has previously vested.
In
the event Mr. Mannello’s employment is terminated by the Company for any reason other than cause, death or disability, or
if Mr. Mannello terminates his employment for good reason, he will be entitled to receive any accrued and unpaid base salary and
employee benefits up to the date of termination as well as the vested portion of the stock option. In addition, he will be
entitled to receive accrued and unpaid base salary up to the date of the termination, full reimbursement of all business expenses
prior to termination, all applicable COBRA-related health insurance continuation rights to the extent provided for under applicable
law or based on the Company’s practice and an amount equal to 100% of the COBRA premiums for him and his family for twelve
months following the date of termination.
In
the event Mr. Mannello’s employment is terminated by the Company without cause and in connection with, or as a result of,
a change of control (as defined in the agreement), or if Mr. Mannello terminates his employment for good reason following a change
in control, he will also be entitled to retain the stock option and the unvested portion of the stock option will vest as of the
date of the consummation of the change in control.
The
agreement contains customary non-competition and non-solicitation provisions that extend to two years after termination of Mr.
Mannello’s employment with the Company. Mr. Mannello also agreed to customary terms regarding confidentiality
and ownership of product ideas.
Outstanding
Equity Awards at 2017 Fiscal Year End
The
following table presents, for each of the named executive officers, information regarding outstanding equity awards as of December
31, 2017.
Outstanding Equity Awards
|
|
|
|
|
|
Option Awards
|
|
|
|
Stock Awards
|
|
Name
|
|
Grant Date
|
|
|
Number of Securities Underlying Unexercised Options Exercisable
|
|
|
|
Number of Securities Underlying Unexercised Options Unexercisable
|
|
|
|
Option Exercise
Price ($)
|
|
|
|
Option Expiration
Date
|
|
|
|
Number of Shares or Units of Stock That Have Not Vested (#)
|
|
|
|
Market Value of Shares or Units That Have Not Vested ($)
|
|
Joseph Mannello (1)
|
|
8/24/2017
|
|
|
75,000
|
|
|
|
225,000
|
|
|
|
4.00
|
|
|
|
8/24/2027
|
|
|
|
-
|
|
|
|
-
|
|
(1)
|
Mr.
Mannello was hired as the Company’s permanent Chief Executive Officer effective September 1, 2017
|
Stock
Vested at 2017 Fiscal Year End
Director
Compensation
The following table
summarizes the compensation earned by our non-employee board of directors for the fiscal year ended December 31, 2017. All compensation
paid to our employee directors is included under the summary compensation table above.
Name
|
|
Share
Awards(1)
|
|
|
Cash
Paid ($)
|
|
Dr. Robert J. Hariri
|
|
|
7,353
|
|
|
$
|
10,000
|
|
Dr. Louis J. Aronne
|
|
|
9,191
|
|
|
|
12,500
|
|
Christopher Pechock
|
|
|
11,949
|
|
|
|
16,250
|
|
Victor Mandel
|
|
|
10,110
|
|
|
|
13,750
|
|
John Nosta
|
|
|
9,191
|
|
|
|
12,500
|
|
|
|
|
40,441
|
|
|
$
|
65,000
|
|
(1)
|
The
value of awards and stock options equals the aggregate grant date fair value of awards
computed in accordance with ASC 718. The assumptions used in determining the grant date
fair value of these awards for their respective years are set forth in Part IV, Item
15, “Notes to Consolidated Financial Statements: Note 10 - Stock Compensation.”
These share awards and cash payments were made in January 2018.
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
|
Under
Rule 13d-3, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement,
understanding, relationship, or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the
voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares. Certain
shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the
power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right
to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided.
In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares
beneficially owned by such person (and only such person) by reason of these acquisition rights.
The following table sets
forth information known to us regarding the beneficial ownership of our common stock as of March 26, 2018 by:
|
●
|
each
person known by us at that date to be the beneficial owner of more than 5% of the outstanding shares of our based solely on
Schedule 13D/13G filings with the SEC;
|
|
|
|
|
●
|
each
of our executive officers and directors at such date; and
|
|
|
|
|
●
|
all
of our executive officers and directors at such date, as a group.
|
Unless otherwise indicated,
we believe that all persons named in the table below have sole voting and investment power with respect to all shares of common
stock beneficially owned by them. As of March 26, 2018, there were 6,480,899 shares of our common stock outstanding.
Name of Beneficial Owner (1)
|
|
Number of Shares Beneficially Owned
|
|
|
Percentage of Class
|
|
RENS Technology Inc. & Ren Ren (2)
|
|
|
1,897,568
|
|
|
|
29.2
|
%
|
Joseph Mannello (6)
|
|
|
616,811
|
|
|
|
9.6
|
%
|
Dr. Robert J. Hariri (3)
|
|
|
429,250
|
|
|
|
6.6
|
%
|
Christopher Pechock (5)
|
|
|
185,386
|
|
|
|
2.9
|
%
|
Victor Mandel
|
|
|
62,021
|
|
|
|
*
|
|
Dr. Louis J. Aronne (4)
|
|
|
60,086
|
|
|
|
*
|
|
Bin Zhou
|
|
|
4,386
|
|
|
|
*
|
|
John Nosta
|
|
|
-
|
|
|
|
-
|
|
Directors and officers as a group (8 persons)
|
|
|
3,255,508
|
|
|
|
50.2
|
%
|
* Less than 1%
(1)
|
Unless
otherwise indicated, the business address of each of the individuals is c/o MYOS RENS Technology Inc., 45 Horsehill Road,
Suite 106, Cedar Knolls, New Jersey 07927.
|
(2)
|
Mr. Ren has 22,568 of his own shares and has sole voting and investment control over the 1,875,000 securities
held by RENS Technology Inc. which includes 375,000 shares issuable upon a warrant.
|
(3)
|
Includes
166,000 shares held by Hariri Family Ltd. Partnership and 150,250 shares issuable upon exercise of vested stock options.
|
(4)
|
Includes
30,500 shares issuable upon exercise of vested stock options.
|
(5)
|
Includes
75,000 shares issuable upon exercise of warrants and 3,000 shares issuable upon exercise of vested stock options.
|
(6)
|
Includes
100,001 shares issuable upon exercise of warrants.
|
Item
13.
|
Certain
Relationships and Related Transactions and Director Independence.
|
The following is a
description of the transactions we have engaged in during the year ended December 31, 2017 and through the date of this Report,
with our directors and officers and beneficial owners of more than five percent of our voting securities and their affiliates.
On
December 17, 2015, we issued an unsecured promissory note in the principal amount of $575,000 to Gan Ren, the son of Ren Ren,
a current director and our largest stockholder. The note bears interest at a rate of 8% per annum and matures one year from the
date of issuance. On December 17, 2016 the note and accrued interest of $46,000 was automatically converted into 225,864 shares
of common stock at $2.75 per share.
On
December 17, 2015, we entered into the Purchase Agreement with the Purchaser, an entity which is controlled by Ren Ren, a current
director and our largest stockholder. Pursuant to terms of the Purchase Agreement, the Purchaser agreed to invest $20.25 million
in the Company in exchange for (i) an aggregate of 3,537,037 shares of common stock and (ii) warrants to purchase an aggregate
of 884,259 shares of common stock. In connection with the Financing, the Board agreed to issue Mr. Ren 18,182 shares of common
stock following the closing of the Financing for his services to the Company as a member of the Board.
On March 3, 2016, we completed
the first tranche of the Financing pursuant to which the Purchaser acquired 1,500,000 shares of common stock and a warrant to
purchase 375,000 shares of the Company’s common stock for $5.25 million.
On
August 19, 2016, the Purchaser notified the Company that it did not intend to fulfill its obligation to fund the second tranche
of the Financing, notwithstanding its confirmation to the Company in June 2016 that the Purchaser would provide such funding in
accordance with the terms of the Purchase Agreement.
In
October 2016, the Company received a purchase order from RENS Agriculture to purchase $118 of our product. We received a 50% deposit
in November 2016 in order to manufacture the product. The goods were shipped in January 2017 and received in China in March 2017.
We have not received payment for the order to date. As a result of the ongoing litigation, the Company recorded an allowance for
bad debt of $59 related to the receivable due from RENS Agriculture.
On
January 6, 2017, in connection with the financing contemplated by a securities purchase agreement with RENS Technology Inc. (the
“Purchaser”), the Company commenced an action in the Supreme Court of New York, County of New York (the “Court”),
against the Purchaser, RENS Agriculture, the parent company of the Purchaser, and Ren Ren, a principal in both entities and one
of our directors, arising from the Purchaser’s breach of the agreement under which the Purchaser agreed to invest an aggregate
of $20.25 million in our company in exchange for an aggregate of 3,537,037 shares of the Company’s common stock and warrants
to purchase an aggregate of 884,259 shares of common stock.
On April 11,
2017, the Court noted that we had demonstrated a likelihood of success on the merits of the breach of contract claim.
Thereafter, a hearing was scheduled on the application by the Purchaser to dismiss the complaint and various pre-trial
discovery applications by both parties.
In August 2017
the Company amended its complaint, repeating most of the initial claims but added several additional claims against RENS Agriculture,
Mr. Ren and two additional Chinese defendants, including a claim against RENS Agriculture for breaching the exclusive distribution
agreement, as well as claims against all defendants for theft and misappropriation of our confidential proprietary information
and trade secrets, breach of fiduciary duty and duty of loyalty, misappropriation of corporate opportunity, unfair competition
and a number of other torts. We are seeking damages and injunctive relief. The Purchaser has filed a motion to dismiss the amended
complaint, which is still pending and scheduled for oral argument in April 2018.
On
August 16, 2017, the Purchaser commenced an action in the District Court of Clark County in the State of Nevada against us and
Joseph Mannello, our then interim Chief Executive Officer, alleging that Mr. Mannello had breached his fiduciary duties and was
grossly negligent in managing our company. The action seeks monetary damages and injunctive relief from Mr. Mannello as well as
the appointment of a receiver over us. Subsequently, the Purchaser submitted a petition to appoint a receiver and we and Mr. Mannello
submitted a motion to dismiss the action, both of which are currently pending and are due to be heard in April 2018. An application
on consent to adjourn the hearing date on the receiver application and motion to dismiss is pending.
Review,
Approval or Ratification of Transactions with Related Persons.
Our
Board of Directors has established an audit committee consisting of independent directors. This committee, among other duties,
is charged to review, and if appropriate, ratify all agreements and transactions which had been entered into with related parties,
as well as review and ratify all future related party transactions.
Item
14.
|
Principal
Account Fees and Services.
|
For fiscal years ended December 31, 2017 and December 31, 2016, WithumSmith+Brown, PC, served as our principal
accountant.
Audit
Fees
. Audit fees consist of fees for professional services rendered for the annual audits of our financial statements, quarterly
reviews of financial statements and services that are normally provided in connection with statutory and regulatory filings or
engagements. Audit fees billed by WithumSmith+
Brown, PC for
the fiscal years ended December 31, 2017 and December 31, 2016 were approximately $108,000 and $84,000 respectively.
Audit-Related Fees
.
Audit-related services consist of fees for assurance and related services that are reasonably related to performance of the audit
or review of our financial statements and are not reported under “Audit Fees.” These services include attest services
that are not required by statute or regulation and consultations concerning financial accounting and reporting standards. There
were no fees billed for audit-related services rendered during the last two fiscal years.
Tax
Fees
. Tax services consist of fees for the preparation of federal and state tax returns. Tax fees estimated to be billed by
WithumSmith+Brown, PC for the fiscal year ended December 31, 2017 are $10,700. Tax fees paid to WithumSmith+Brown, PC in 2017
for the tax return related to the fiscal year ended December 31, 2016 were $9,500.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
NOTE
1 – NATURE OF OPERATIONS, BASIS OF PRESENTATION AND LIQUIDITY
Nature
of Operations
MYOS RENS
Technology Inc. is an emerging bionutrition and biotherapeutics company focused on the discovery, development and commercialization
of products that improve muscle health and function. The Company was incorporated under the laws of the State of Nevada on April
11, 2007. On March 17, 2016, the Company merged with its wholly-owned subsidiary and changed its name from MYOS Corporation to
MYOS RENS Technology Inc. As used in these financial statements, the terms “the Company”, “MYOS”, “our”,
or “we”, refers to MYOS RENS Technology Inc. and its subsidiary, unless the context indicates otherwise. On February
25, 2011, the Company entered into an agreement to acquire the intellectual property for Fortetropin
®
, our proprietary
active ingredient from Peak Wellness, Inc. The Company’s activities are subject to significant risks and uncertainties.
Our
commercial focus is to leverage our clinical data to develop multiple products to target the large, but currently underserved,
markets focused on muscle health. The sales channels through which we sell our products are evolving. The first product we introduced
was MYO-T12, which was sold in the sports nutrition market. MYO-T12 is a proprietary formula containing Fortetropin
®
and
other ingredients. The formula was sold under the brand name MYO-T12 and later as MYO-X through an exclusive distribution agreement
with Maximum Human Performance, or MHP. The exclusive distribution agreement was terminated in March 2015 and there were no subsequent
sales to MHP.
In February 2014,
we expanded our commercial operations into the age management market through a distribution agreement with Cenegenics Product and
Lab Services, LLC (“Cenegenics”), under which Cenegenics distributed and promoted a proprietary formulation containing
Fortetropin
®
through its age management centers and its community of physicians focused on treating a growing population
of patients focused on proactively addressing age-related health and wellness concerns. The distribution agreement with Cenegenics
expired in December 2016.
During
the second quarter of 2015 we launched Rē Muscle Health
TM
, our own direct-to-consumer portfolio of muscle health
bars, meal replacement shakes and daily supplement powders each powered by a full 6.6 gram single serving dose of Fortetropin
®
.
Our Rē Muscle Health
TM
products were sold through our direct-to-consumer e-commerce platform, remusclehealth.com,
and amazon.com until March 2017 when we introduced our new Qurr
line
of products.
In March 2017
the Company launched Qurr, its Fortetropin
®
-powered product line formulated to support the vital role of muscle
in overall well-being as well as in fitness. Qurr is a line of flavored puddings, powders, and shakes proven to be safe for daily
use, muscle-focused, natural, over-the-counter products which are available through convenient direct online ordering without a
prescription. All Qurr products are blended with Fortetropin
®
, MYOS’ proprietary ingredient. MYOS’ earlier
product formulations featuring Fortetropin
®
have become part of the daily routine of many athletes and fitness-conscious
people.
We continue
to pursue additional distribution and branded sales opportunities. We expect to continue developing our own core branded products
in markets such as functional foods, sports and fitness nutrition and rehab and restorative health and to pursue international
sales opportunities. There can be no assurance that we will be able to secure distribution arrangements on terms acceptable to
the Company, or that we will be able to generate significant sales of our current and future branded products.
MYOS RENS
TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
Strategic
Investment Transaction
On December 17, 2015,
the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with RENS Technology Inc. (the
“Purchaser”), pursuant to which the Purchaser agreed to invest $20.25 million in the Company in three tranches (the
“Financing”) in exchange for an aggregate of 3,537,037 shares (the “Shares”) of the Company’s common
stock, par value $0.001 per share (“Common Stock”).
In the first tranche
which closed on March 3, 2016 the Purchaser acquired 1,500,000 Shares and a warrant to purchase 375,000 shares of Common Stock
(the “Initial Warrant”) for $5.25 million.
On August 19, 2016,
the Purchaser notified the Company that it did not intend to fulfill its obligation to fund the second tranche of the Financing,
notwithstanding its confirmation to the Company in June 2016 that the Purchaser would provide such funding in accordance with the
terms of the Purchase Agreement.
Pursuant to the terms
of the Purchase Agreement, effective August 23, 2016, Guiying Zhao resigned as a director of the Company. In addition, the Purchaser’s
Rights terminated, effective August 19, 2016.
On January 6, 2017, in connection with
the financing contemplated by a securities purchase agreement with RENS Technology Inc. (the “Purchaser”), the Company
commenced an action in the Supreme Court of New York, County of New York (the “Court”), against the Purchaser, RENS
Agriculture, the parent company of the Purchaser, and Ren Ren, a principal in both entities and one of our directors, arising
from the Purchaser’s breach of the aforementioned agreement. See
Note 14 –
legal PROCEEDINGS.
Going Concern
The accompanying consolidated financial
statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”),
which contemplates continuation of the Company as a going concern. The Company has suffered recurring losses from operations and
incurred a net loss of approximately $4,058 for the year ended December 31, 2017 and $4,341 for the year ended December 31, 2016.
As of the filing date of this Report, management believes that there may not be sufficient capital resources from operations and
existing financing arrangements in order to meet operating expenses and working capital requirements for the next twelve months,
primarily due to the failure of RENS Technology Inc. to fund the required amounts. These facts raise substantial doubt about the
Company’s ability to continue as a going concern.
Accordingly,
we are evaluating various alternatives, including reducing operating expenses, securing additional financing through debt or equity
securities to fund future business activities and other strategic alternatives. There can be no assurance that the Company will
be able to generate the level of operating revenues in its business plan, or if additional sources of financing will be available
on acceptable terms, if at all. If no additional sources of financing are available, our future operating prospects may be adversely
affected. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
MYOS RENS
TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The accompanying consolidated financial
statements have been prepared in accordance to U.S. GAAP and the rules and regulations of the U.S. Securities and Exchange Commission
(“SEC”). The consolidated financial information presented herein reflects all normal adjustments that are, in the opinion
of management, necessary for a fair statement of the financial position, results of operations and cash flows for the periods presented.
The Company is responsible for the consolidated financial statements included in this report.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of MYOS RENS Technology Inc. and its wholly-owned subsidiary,
Atlas Acquisition Corp. All material intercompany balances and transactions have been eliminated in consolidation.
Reclassification
of Prior Year Presentation
Certain
prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications did not
have an impact on the reported results of operations.
Estimates
The preparation
of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, equity and the disclosures of contingent assets and liabilities at the date of the financial
statement and the reported amounts of revenues and expenses during the reporting period. Making estimates requires management
to exercise significant judgment. It is possible that the estimate of the effect of a condition, situation or set of circumstances
that existed at the date of the financial statements, which management considered in formulating its estimate, could change in
the near term due to one or more future non-conforming events. Accordingly, the actual results could differ significantly from
estimates. Significant items subject to such estimates include but are not limited to the valuation of stock-based awards, measurement
of allowances for doubtful accounts and inventory reserves, the selection of asset useful lives, fair value estimations used to
test long-lived assets, including intangibles, impairments and provisions necessary for assets and liabilities.
The Company has recorded minimal sales
to its distributors during the past fourteen consecutive quarters, and launched its Qurr portfolio of branded products in March
2017. Management’s estimates, including evaluation of impairment of long-lived assets and inventory reserves are based
in part on forecasted future results. A variety of factors could cause actual results to differ from forecasted results and these
differences could have a significant effect on asset carrying amounts.
Cash and Cash Equivalents
The Company
considers all highly liquid investments purchased with a maturity of three months or less and money market accounts to be cash
equivalents. At December 31, 2017 and 2016, the Company had no cash equivalents.
The Company maintains its bank accounts with high credit quality financial institutions and has never
experienced any losses related to these bank accounts. The Company minimizes its credit risk associated with cash by periodically
evaluating the credit quality of its financial institutions.
As part of our ongoing liquidity assessments
management evaluates our cash, cash equivalents. The amount of funds held in bank can fluctuate due to the timing of receipts
and payments in the ordinary course of business and due to other reasons, such as business-development activities so the Company
may at times have exposure to cash in excess of FDIC insured limits.
MYOS RENS
TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
Concentrations
of Credit Risk, Significant Customers and Significant Supplier
Management regularly reviews accounts
receivable, and if necessary, establishes an allowance for doubtful accounts that reflects management’s best estimate of
amounts that may not be collectible based on historical collection experience and specific customer information. Expense recognized
as a result of an allowance for doubtful accounts is classified under general and administrative expenses in the Consolidated
Statements of Operations. Based primarily on collections, during the year ended December 31, 2017, management determined that
the allowance for doubtful accounts should be increased. Accordingly, an allowance for doubtful accounts of $59 was recorded
for the year ended December 31, 2017. There was no such allowance recorded in 2016.
At
December 31, 2017 and 2016, the Company had the following concentrations of net accounts receivable with customers:
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Egg Yolk Powder
|
|
$
|
59
|
|
|
$
|
-
|
|
Direct-to-consumer
|
|
|
4
|
|
|
|
8
|
|
Subtotal
|
|
|
-
|
|
|
|
8
|
|
Allowance for doubtful accounts
|
|
|
(59
|
)
|
|
|
-
|
|
Accounts receivable, net
|
|
$
|
4
|
|
|
$
|
8
|
|
For
the years ended December 31, 2017 and 2016, the Company had the following concentrations of revenues with customers:
|
|
December
31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Cenegenics
|
|
|
38
|
%
|
|
|
50
|
%
|
Inventories,
net
Inventories
are valued at the lower of cost or net realizable value
,
with cost determined on a first in, first-out basis. Each quarter the Company evaluates the need for a change in the inventory
reserve based on sales and expiration dates of products.
Fixed
Assets
Fixed
assets are stated at cost and depreciated to their estimated residual value over their estimated useful lives of 3 to 7
years. Leasehold improvements are amortized over the lesser of the asset’s useful life or the contractual remaining
lease term including expected renewals. When assets are retired or otherwise disposed of, the assets and related accumulated
depreciation are reversed from the accounts and the resulting gains or losses are included in the Consolidated Statements of
Operations. Repairs and maintenance are expensed as incurred.
Depreciation
is provided using the straight-line method for all fixed assets.
We review
our fixed assets for impairment when events or changes in circumstances indicate that the carrying value of an asset may not be
recoverable. We use an estimate of future undiscounted net cash flows of the related assets or groups of assets over their remaining
lives in measuring whether the assets are recoverable. If the assets are determined to be unrecoverable, an impairment loss is
calculated by determining the difference between the carrying values and the estimated fair value. We did not consider any of
our fixed assets to be impaired during the years ended December 31, 2017 and 2016.
Intangible
Assets
The Company’s
intangible assets consist primarily of intellectual property pertaining to Fortetropin
®
, including its formula,
trademarks, trade secrets, patent application and domain names, which were determined to have a fair value of $2,000 as of December
31, 2011. Based on expansion into new markets and introduction of new formulas, management determined that the intellectual property
had a finite useful life of ten (10) years and began amortizing the asset over its estimated useful life beginning April 2014.
MYOS RENS
TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
In July
2014, the Company acquired the United States patent application for the manufacture of Fortetropin
®
from Deutsches
Institut fur Lebensmitteltechnik e.V. - the German Institute for Food Technologies (“DIL”). The cost of the patent
application, which was capitalized as an intangible asset, was determined to be $101, based on the present value of the minimum
guaranteed royalty payable to DIL using a discount rate of 10%. The intangible asset is being amortized over an estimated useful
life of ten (10) years. The remaining contingent royalty payments will be recorded as the contingency is resolved and the royalty
becomes payable under the arrangement. For additional information on the amended supply agreement with DIL refer to “NOTE
12 – Commitments and Contingencies - Supply Agreement.”
In March 2017, the Company launched a new
product line QURR and a related website qurr.com. The Company capitalized $380 of the costs to build the website in accordance
with U.S. GAAP and will amortize this asset over 60 month’s useful life.
Intangible
assets at December 31, 2017 and December 31, 2016 consisted of the following:
|
|
December 31,
|
|
|
December 31,
|
|
(In thousand $)
|
|
2017
|
|
|
2016
|
|
Intangibles with finite lives:
|
|
|
|
|
|
|
Intellectual property
|
|
$
|
2,101
|
|
|
$
|
2,101
|
|
Website - qurr.com
|
|
|
380
|
|
|
|
380
|
|
Less: accumulated amortization
|
|
|
(841
|
)
|
|
|
(574
|
)
|
Total intangibles with
finite lives:
|
|
|
1,640
|
|
|
|
1,907
|
|
Intangibles with indefinite lives:
|
|
|
|
|
|
|
|
|
Patent costs
|
|
|
44
|
|
|
|
44
|
|
Less: impairment charge on patent costs
|
|
|
(44
|
)
|
|
|
(44
|
)
|
Total intangibles with
indefinite lives:
|
|
|
-
|
|
|
|
-
|
|
Total intangible assets, net
|
|
$
|
1,640
|
|
|
$
|
1,907
|
|
Amortization expense related to intangible
assets for the years ended December 31, 2017 and 2016 was $267 and $210
Based on
fourteen consecutive quarters of minimal revenues combined with changes in the sales channels through which the Company sells its products
and an inability to predict future orders, if any, we tested the intellectual property for impairment in the fourth quarter of
2017 and determined that the asset value was recoverable and therefore no impairment was recognized.
We had impairment
losses recorded during the years ended December 31, 2017 and 2016 of $-0- and $44, respectively. The impairment losses were related
to the write-off of capitalized patent costs due to the unlikelihood of certain patents being issued.
Assuming
no additions, disposals or adjustments are made to the carrying values and/or useful lives of the intangible assets, annual amortization
expense for intangible assets is estimated to be $286 in each of the next five years.
Intangible
assets also includes patent costs associated with applying for a patent and being issued a patent. Costs to defend a patent and
costs to invalidate a competitor’s patent or patent application are expensed as incurred. Upon issuance of the patent, capitalized
patent costs are reclassified from intangibles with indefinite lives to intangibles with finite lives and amortized on a straight-line
basis over the shorter of the estimated economic life or the initial term of the patent, generally 20 years.
Impairment
testing of intangible assets subject to amortization involves comparing the carrying amount of the asset to the forecasted, undiscounted
future cash flows whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
In the event the carrying value of the asset exceeds the undiscounted future cash flows, the carrying value is considered not
recoverable and an impairment exists. An impairment loss is measured as the excess of the asset’s carrying value over its
fair value, calculated using a discounted future cash flow method. The computed impairment loss is recognized in the period that
the impairment occurs. Assets which are not impaired may require an adjustment to the remaining useful lives for which to amortize
the asset. Impairment testing requires the development of significant estimates and assumptions involving the determination of
estimated net cash flows, selection of the appropriate discount rate to measure the risk inherent in future cash flow streams,
assessment of an asset’s life cycle, competitive trends impacting the asset as well as other factors. Changes in these underlying
assumptions could significantly impact the asset’s estimated fair value.
MYOS RENS
TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
Revenue
Recognition
The Company
records revenue from product sales when persuasive evidence of an arrangement exists, product has been shipped or delivered, the
sales price to the customer is fixed or determinable, and collectability is reasonably assured. Product sales represent revenue
from the sale of products and related shipping amounts billed to customers, net of promotional discounts, rebates, and return
allowances. Depending on individual customer agreements, sales are recognized either upon shipment of product to customers or
upon delivery. With respect to direct-to-consumer sales, both title and risk of loss transfer to customers upon our delivery to
the customer. The Company’s gross product sales may be subject to sales allowances and deductions in arriving at reported
net product sales. For example, we may periodically offer discounts and sales incentives to customers to encourage purchases.
Sales incentives are treated as a reduction to the purchase price of the related transaction. Reductions from gross sales for
customer discounts and rebates have been minimal, and sales allowances for product returns have not been provided, since under
our existing arrangements, customers are not permitted to return product except for non-conforming product.
The adoption of Topic 606 is required
for public entities for reporting periods beginning after December 15, 2017. This accounting guidance is effective for us beginning
January 1, 2018 using one of two prescribed transition methods. The Company will adopt the provisions of Topic 606 for its fiscal
year beginning January 1, 2018 using the modified retrospective transition method. This method involves application of the new
guidance to either: (a) all contracts at the date of initial application or (b) only contracts that are not completed at the date
of initial application. Under this method, a cumulative effect adjustment is recognized as of the date of initial application.
The Company has evaluated the impact of the updated guidance and has determined that the adoption is not expected to have a significant
impact on its consolidated financial statements for 2016 and 2017 and related disclosure.
Advertising
The Company charges the costs of advertising
to sales and marketing expenses as incurred. Advertising costs were $267 and $172 for the years ended December 31, 2017 and 2016,
respectively. For the year ended December 31, 2017, advertising costs consisted primarily of marketing costs for our QURR products.
For the year ended December 31, 2016, advertising costs consisted primarily of marketing costs for our Rē Muscle Health products.
Research
and Development
Research and development expenses consist
primarily of the cost of manufacturing our product for clinical study, the cost of conducting clinical studies and the cost of
conducting preclinical and research activities. Nonrefundable advance payments for goods or services that will be used or rendered
for future research and development activities are initially capitalized and are then recognized as an expense as the related goods
are consumed or the services are performed. During the years ended December 31, 2017 and 2016, the Company incurred research and
development expenses of $46 and $-0- respectively which are charged to sales and marketing expenses in the consolidated statement
of operations.
Shipping
and Handling Costs
The
Company records costs for the shipping and handling of products to our customers in cost of sales. These expenses were $37
and $21 for the years ended December 31, 2017 and 2016, respectively.
Share-based
Compensation
Share-based payments are measured at their
estimated fair value on the date of grant. Share-based awards to non-employees are re-measured at fair value each financial reporting
date until performance is completed. Share-based compensation expense recognized during a period is based on the estimated number
of awards that are ultimately expected to vest. For stock options and restricted stock that do not vest immediately but which
contain only a service vesting feature, we recognize compensation cost on the unvested shares and options on a straight-line basis
over the remaining vesting period.
The
Company uses the Black-Scholes option-pricing model to estimate the fair value of options and the market price of our common
stock on the date of grant for the fair value of restricted stock issued. Our determination of the fair value of stock-based
awards is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables.
These variables include, but are not limited to, our expected stock price volatility over the term of the awards, and certain
other market variables such as the risk-free interest rate.
MYOS RENS
TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
Deferred Offering Costs
Upon the successful completion of issuance
of our common stock the Company recognizes offering costs as a reduction of equity. In the event that an offering is aborted, such
costs are recorded as an expense.
Segment
Information
Accounting
Standards Codification (“ASC”) 280,
Disclosures about Segments of an Enterprise and Related Information
, establishes
standards for reporting information about operating segments and requires selected information for those segments to be presented
in the financial statements. It also establishes standards for related disclosures about products and services and geographic
areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is
available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate
resources and assess performance. Management has determined that the Company operates in one segment.
Fair
Value Measurement
Fair value
is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction
between market participants. The authoritative guidance on fair value measurements establishes a consistent framework for measuring
fair value on either a recurring or nonrecurring basis whereby observable and unobservable inputs, used in valuation techniques,
are assigned a hierarchical level.
The following
are the hierarchy levels of inputs to measure fair value:
|
Level
1
:
|
Inputs that utilize
quoted prices (unadjusted) in active markets for identical assets or liabilities.
|
|
Level 2
:
|
Inputs that utilize
observable quoted prices for similar assets and liabilities in active markets and observable quoted prices for identical or
similar assets in markets that are not very active.
|
|
Level 3:
|
Inputs that utilize
unobservable inputs and include valuations of assets or liabilities for which there is little, if any, market activity.
|
A financial asset or liability’s
classification within the above hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
At December 31, 2017 and 2016, the Company’s financial instruments consist primarily of cash and cash equivalents, accounts
receivable, prepaid expenses and other current assets, accounts payable and accrued expenses and other current liabilities. Due
to their short-term nature, the carrying amounts of the Company’s financial instruments approximated their fair values.
Basic
and Diluted Loss Per Share
Basic
net loss per share is computed by dividing net loss available to common stockholders for the period by the weighted average
number of common shares outstanding during the period. Diluted net loss per share is computed by dividing net loss for the
period by the weighted average number of common shares outstanding during the period increased to include the number of
additional shares of common stock that would have been outstanding if potential dilutive securities outstanding had been
issued. The Company uses the “treasury stock” method to determine the dilutive effect of common stock equivalents
such as options, warrants and restricted stock. For the years ended December 31, 2017 and 2016, the Company incurred a net
loss.
Accordingly, the Company’s common stock equivalents were anti-dilutive and excluded from the diluted net
loss per share computation.
The aggregate number of potentially dilutive
common stock equivalents outstanding at December 31, 2017 excluded from the diluted net loss per share computation because their
inclusion would be anti-dilutive were 1,384,192, which includes warrants to purchase an aggregate 821,202 shares of common stock,
options to purchase an aggregate of 561,740 shares of common stock, and unvested restricted stock awards of 1,250 shares of common
stock.
The aggregate number of potentially dilutive
common stock equivalents outstanding at December 31, 2016 excluded from the diluted net loss per share computation because their
inclusion would be anti-dilutive were 1,491,075, which includes warrants to purchase an aggregate 1,136,878 shares of common stock,
options to purchase an aggregate of 300,340 shares of common stock, and unvested restricted stock awards of 53,857 shares of common
stock.
MYOS RENS
TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
Income
Taxes
Income taxes
are accounted for under the asset and liability method in accordance with ASC 740,
Accounting for Income Taxes
(“ASC
740”). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between
the financial carrying amounts of existing assets and liabilities and their respective tax bases as well as operating loss and
tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the periods in which those temporary differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred
tax assets are reduced by a valuation allowance to the extent that the recoverability of the asset is unlikely to be recognized.
The Company follows ASC 740 rules governing uncertain tax positions, which provides guidance for recognition and measurement.
This prescribes a threshold condition that a tax position must meet for any of the benefits of the uncertain tax position to be
recognized in the financial statements. It also provides accounting guidance on recognition, classification and disclosure of
these uncertain tax positions. The Company has no uncertain income tax positions.
The Tax Cut and Jobs Act (the “Tax
Act”) was enacted on December 22, 2017. The Tax Act contains several key provisions including, among other things, reducing
the U.S. federal corporate tax rate from thirty-five percent to twenty-one percent. Changes in tax law are accounted for in the
period of enactment. In addition, Federal net operating losses (“NOL”) generated during future periods will be carried
forward indefinitely, but will be subject to an eighty percent utilization against taxable income. The carryback provision has
been revoked for NOL after January 1, 2018.
The Company continues to evaluate the impact
of the Tax Act and analyze additional guidance.
Interest
costs and penalties related to income taxes are classified as interest expense and operating expenses, respectively, in the Company’s
financial statements. For the years ended December 31, 2017 and 2016, the Company did not recognize any interest or penalty expense
related to income taxes. The Company files income tax returns in the U.S. federal jurisdiction and states in which it does business.
NOTE
3 – RECENT ACCOUNTING PRONOUNCEMENTS
In September 2017, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-13, Revenue from Contracts
with Customers which amended FASB Accounting Standards Codification® (ASC) by creating Topic 606, Revenue from Contracts with
Customers. In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”).
ASU 2014-09 supersedes nearly all existing revenue recognition guidance under U.S. GAAP and requires revenue to be recognized when
promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received
for those goods or services. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant
judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract.
The FASB also issued the following amendments to ASU No. 2014-09
to provide clarification on the guidance:
●
|
ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606) – Deferral of the Effective Date
|
●
|
ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606) – Principal versus Agent (Reporting Revenue Gross vs. Net)
|
●
|
ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606) – Identifying Performance Obligations and Licensing
|
●
|
ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606) – Narrow-Scope Improvements and Practical Expedients
|
The adoption of Topic 606 is required for public entities for reporting periods beginning after December
15, 2017. This accounting guidance is effective for us beginning January 1, 2018 using one of two prescribed transition methods.
The Company has evaluated the impact of the updated guidance and has determined that the adoption of ASU 2017-09 is not expected
to have a significant impact on its consolidated financial statements for 2016 and 2017 and related disclosure.
MYOS RENS
TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
The Company will adopt the provisions of
this ASU for its fiscal year beginning January 1, 2018 using the modified retrospective transition method. This method involves
application of the new guidance to either: (a) all contracts at the date of initial application or (b) only contracts that are
not completed at the date of initial application. Under this method, a cumulative effect adjustment is recognized as of the date
of initial application.
In May 2017, the FASB issued ASU No. 2017-09,
Compensation – Stock Compensation (Topic 718). The amendments in this Update provide guidance about which changes to the
terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This update
is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15,
2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods
for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements
have not yet been made available for issuance. The amendments in this update should be applied prospectively to an award modified
on or after the adoption date. The Company has evaluated the impact of the updated guidance and has determined that the adoption
of ASU 2017-09 is not expected to have a significant impact on its consolidated financial statements.
In January 2017, the FASB issued ASU No.
2017-04, “Simplifying the Test for Goodwill”, which accomplishes exactly what its title indicates by eliminating the second step
in the current goodwill impairment calculation. Currently there is a two-step process for determining the amount of any goodwill
impairment. In Step 1 an entity determines if the carrying value of the reporting unit (for which goodwill has been recorded) exceeds
the fair value of the reporting unit. If the calculation in Step 1 indicates that the carrying value of a reporting unit for which
goodwill has been recorded exceeds the fair value, the entity would have to determine the implied fair value of the reporting unit’s
goodwill. An impairment would be recorded to the extent that the goodwill carrying value exceeded the implied fair value of goodwill
at the reporting date. The amount of any goodwill impairment must take into consideration the effects of income taxes for any tax
deductible goodwill. The effective date to adopt the ASU is for fiscal years beginning after December 15, 2019. The ASU is to be
applied prospectively. Early adoption is permitted. The Company has evaluated the impact of the updated guidance and has determined
that the adoption of ASU 2017-04 is not expected to have a significant impact on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15,
“Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force).” The amendments
in this Update relate to eight specific types of cash receipts and cash payments which current U.S. GAAP either is unclear or does
not include specific guidance on the cash flow classification issues. The amendments in this Update are effective for public business
entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company has adopted
the provisions of this ASU for its fiscal year beginning January 1, 2018. The adoption of ASU 2016-15 did not have a significant
impact on its consolidated financial statements.
In February 2016, the FASB issued ASU No.
2016-02, Leases (Topic 842) (“ASU 2016-02”), which requires lessees to recognize on the balance sheet the assets and
liabilities for the rights and obligations created by leases with lease terms of more than 12 months. The recognition, measurement,
and presentation of expenses and cash flows arising from a lease by a lessee will continue to primarily depend on its classification
as a finance or operating lease. However, unlike U.S. GAAP, which requires only capital leases to be recognized on the balance
sheet, ASU 2016-02 will require both types of leases to be recognized on the balance sheet. ASU 2016-02 also requires disclosures
about the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative
requirements, providing additional information about the amounts recorded in the financial statements. ASU 2016-02 is effective
beginning January 1, 2019, with early application permitted. We have evaluated the adoption of ASU 2016-12 and determined that
the standard will not have a significant impact on our consolidated financial statements.
In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330) “Simplifying the Measurement
of Inventory” (“ASU 2015-11”), which changes the measurement principle for inventory from the lower of cost or
market to the lower of cost and net realizable value. ASU 2015-11 defines net realizable value as estimated selling prices in the
ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The new guidance must
be applied on a prospective basis by us beginning January 1, 2017, with early adoption permitted. The adoption of ASU 2015-17 did
not have a significant impact on the consolidated financial statements.
MYOS RENS
TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
In August 2014, the FASB issued ASU No.
2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about
an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”). The amendments in this update define
management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue
as a going concern and provides related footnote disclosure requirements. Under U.S. GAAP, financial statements are prepared under
the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances.
Financial reporting under this presumption is commonly referred to as the going concern basis of accounting. The going concern
basis of accounting establishes the fundamental basis for measuring and classifying assets and liabilities. This update provides
guidance on when there is substantial doubt about an organization’s ability to continue as a going concern and how the underlying
conditions and events should be disclosed in the footnotes. It is intended to reduce diversity that existed in footnote disclosures
because of the lack of guidance about when substantial doubt existed. The amendments in this update are effective for us beginning
December 31, 2016. The Company has evaluated the impact of the updated guidance and has disclosed the impact in the footnotes
on its consolidated financial statements.
NOTE
4 – INVENTORIES, NET
Inventories,
net at December 31, 2017 and 2016 consisted of the following:
(In thousands $)
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
Raw materials
|
|
$
|
2,223
|
|
|
$
|
2,378
|
|
Work in process
|
|
|
64
|
|
|
|
5
|
|
Finished goods
|
|
|
203
|
|
|
|
188
|
|
|
|
|
2,490
|
|
|
|
2,571
|
|
Less: inventory reserves
|
|
|
(711
|
)
|
|
|
(709
|
)
|
Inventories, net
|
|
$
|
1,779
|
|
|
$
|
1,862
|
|
NOTE
5 – FIXED ASSETS
Fixed assets
at December 31, 2017 and 2016 consisted of the following:
(In thousands $)
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
Furniture, fixtures and equipment
|
|
$
|
116
|
|
|
$
|
116
|
|
Computers and software
|
|
|
68
|
|
|
|
66
|
|
Leasehold improvements
|
|
|
239
|
|
|
|
239
|
|
Other
|
|
|
7
|
|
|
|
7
|
|
Total fixed assets
|
|
|
430
|
|
|
|
428
|
|
Less: accumulated depreciation and amortization
|
|
|
(246
|
)
|
|
|
(195
|
)
|
Net book value of fixed assets
|
|
$
|
184
|
|
|
$
|
233
|
|
Depreciation
and amortization expense was $51 and $54 for the years ended December 31, 2017 and 2016, respectively. Repairs and maintenance
costs are expensed as incurred.
NOTE
6 – DEBT
Convertible
Note
On December 17, 2015, concurrent with the
execution of a securities purchase agreement with RENS Technology Inc., the Company issued an unsecured promissory note in the
principal amount of $575 (the “Note”) to Gan Ren, a related party of RENS Agriculture. The Note accrued interest at
a rate of 8% per annum and matured on December 17, 2016. On December 17, 2016, the Note and accrued interest of $46 were automatically
converted into 225,860 shares of common stock at $2.75 per share.
MYOS RENS
TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
Term
Note
On September 10, 2015, the Company converted
its outstanding revolving note of $400 with City National Bank, which had a termination date of August 31, 2015, into a term note
(the “Term Note”). At December 31, 2015, the balance under the Term Note was $100, which was subsequently paid in full
in January 2016 (as reflected in cash flows from financing activities in our Consolidated Statements of Cash Flows as of December
31, 2016).
NOTE
7 – PREPAID EXPENSES, ACCRUED EXPENSES, OTHER CURRENT ASSETS AND LIABILITIES
Prepaid
Expenses and Other Current Assets
Prepaid
expenses and other current assets consist of various payments that the Company has made in advance for goods or services to be
received in the future. Prepaid expenses and other current assets at December 31, 2017 and 2016 consisted of the following:
(In
thousands $)
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
Prepaid
insurance
|
|
$
|
88
|
|
|
$
|
27
|
|
Prepaid
consulting and other
|
|
|
75
|
|
|
|
58
|
|
Total
prepaid expenses and other current assets
|
|
$
|
163
|
|
|
$
|
85
|
|
Accrued
Expenses and Other Current Liabilities
Accrued
expenses and other current liabilities consist of estimated future payments that relate to the current and prior accounting periods.
Management reviews these estimates regularly to determine their reasonableness. Accrued expenses and other current liabilities
at December 31, 2017 and 2016 consisted of the following:
(In thousands $)
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
Marketing
|
|
$
|
-
|
|
|
$
|
171
|
|
Audit and tax fees
|
|
|
82
|
|
|
|
88
|
|
Insurance premium financing
|
|
|
66
|
|
|
|
-
|
|
Deferred rent
|
|
|
19
|
|
|
|
23
|
|
Bonus
|
|
|
17
|
|
|
|
15
|
|
Legal fees
|
|
|
69
|
|
|
|
47
|
|
Other accrued expenses
|
|
|
2
|
|
|
|
17
|
|
Total accrued expenses
|
|
$
|
255
|
|
|
$
|
361
|
|
MYOS RENS
TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
Note
8 – Stockholders’ Equity
Preferred
Stock Rights
Effective February 14, 2017, the Board
of Directors declared a dividend of one Right for each of the Company’s issued and outstanding shares of common stock. The
Rights were granted to the stockholders of record at the close of business on February 24, 2017. Each Right entitles the registered
holder, upon the occurrence of certain events specified in the Rights Agreement, to purchase from the Company one one-thousandth
of a share of the Company’s Series A Preferred Stock at a price of $7.00), subject to certain adjustments. The Rights are
not exercisable until the occurrence of certain events, including a person acquiring or obtaining the right to acquire beneficial
ownership of 10% or more of the Company’s outstanding common stock. The Rights are evidenced by certificates for the common
stock and automatically transfer with the common stock unless they become exercisable. If the Rights become exercisable, separate
certificates evidencing the Rights will be distributed to each holder of common stock. Holders of the preferred stock will be entitled
to certain dividend, liquidation and voting rights. The rights are redeemable by the Company at a fixed price as determined by
the Board, after certain defined events.
As of December 31, 2017, the Rights have
no dilutive effect on the earnings per common share calculation and no shares of preferred stock have been issued. The Company
has determined that these rights have a de minimis fair value. The description and terms of the Rights are set forth in the Rights
Agreement dated as of February 14, 2017 between the Company and Island Stock Transfer, as Rights Agent.
Increase
in Number of Authorized Shares
On March 8, 2016, the Company filed a
Certificate of Amendment to its Articles of Incorporation with the Secretary of State of the State of Nevada to increase the number
of authorized shares of common stock. As a result of the amendment, the number of the Company’s authorized shares of common
stock increased from 8,000,000 to 12,000,000.
Issuance
of Common Stock
The Company has periodically issued common
stock in connection with certain private and public offerings. For the years ended December 31, 2017 and 2016, the Company has
received aggregate gross proceeds of $8,447 from these offerings as follows:
(In thousand $)
|
|
|
|
|
Gross
|
|
Date
|
|
Shares
|
|
|
Proceeds
|
|
March 3, 2016
|
|
|
1,500,000
|
(1)
|
|
$
|
5,250
|
|
February 8, 2017
|
|
|
500,000
|
(2)
|
|
|
2,125
|
|
October 31, 2017
|
|
|
500,000
|
(3)
|
|
|
1,072
|
|
|
|
|
2,000,000
|
|
|
$
|
8,447
|
|
(1)
|
Shares issued pursuant to the closing of first
tranche of the financing with RENS Technology Inc.
|
(2)
|
Shares issued pursuant to a registered direct
offering at a purchase price of $4.25 per share.
|
(3)
|
Shares issued at $2.144 per share under the at the market program.
|
Registered Direct Offering
On February 3, 2017, the Company entered
into a securities purchase agreement with an institutional investor providing for the issuance and sale by the Company of 500,000
shares of common stock, in a registered direct offering at a purchase price of $4.25 per share, for gross proceeds of $2,125. The
offering closed on February 8, 2017. Offering costs of $199 were recognized as an offset to additional paid in capital.
At-the-Market Offering
On
February 21, 2017, the Company entered into a sales agreement with H.C. Wainwright & Co., LLC which established an at-the-market
equity program pursuant to which the Company may offer and sell up to $6.0 million of its shares of common stock from time to
time through H.C. Wainwright. The Company incurred $125 of deferred offering costs in connection with this program which it has
recorded as a long term other asset on the accompanying balance sheet. In October 2017 the Company raised $1,072 through the sale
of 500,000 shares of common stock at $2.144 per share under the program and recognized deferred costs of $54 with this offering.
Subsequent to year end on January 19,
2018 the Company sold 140,295 shares of common stock at $2.111 per share for gross proceeds of $296 less deferred costs of $9
in an at-the-market transaction.
MYOS RENS
TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
Note
9 – Warrants
On March 3, 2016, the Company completed
the first tranche of the financing, in which it issued a warrant to purchase 375,000 shares of common stock. The warrant is immediately
exercisable upon issuance, will expire five years after issuance and has an exercise price of $7.00 per share. The warrant was
determined to have an estimated aggregate fair value of $480 at issuance.
The following
table summarizes information about outstanding and exercisable warrants at December 31, 2017:
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Underlying
|
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Warrants
|
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Exchanged,
|
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
Exercised
|
|
|
at
|
|
|
|
|
|
Expiration
|
|
|
|
|
|
Originally
|
|
|
or
|
|
|
December 31,
|
|
|
Exercise
|
|
|
Term
|
|
Description
|
|
Grant Date
|
|
Granted
|
|
|
Expired
|
|
|
2017
|
|
|
Price
|
|
|
in years
|
|
Series A
(1)
|
|
January 27, 2014
|
|
|
315,676
|
|
|
|
(315,676
|
)
|
|
|
-
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Series B
(1)
|
|
January 27, 2014
|
|
|
157,846
|
|
|
|
-
|
|
|
|
157,846
|
|
|
$
|
45.00
|
|
|
|
1.07
|
|
Series C
(2)
|
|
November 19, 2014
|
|
|
145,399
|
|
|
|
(142,957
|
)
|
|
|
2,442
|
|
|
$
|
12.00
|
|
|
|
2.38
|
|
|
|
|
|
|
|
|
|
|
142,957
|
|
|
|
142,957
|
|
|
$
|
9.00
|
|
|
|
2.38
|
|
Series D
(2)
|
|
November 19, 2014
|
|
|
193,865
|
|
|
|
(193,865
|
)
|
|
|
-
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Series E
(2)
|
|
November 19, 2014
|
|
|
145,399
|
|
|
|
(145,399
|
)
|
|
|
-
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
142,957
|
|
|
|
142,957
|
|
|
$
|
9.00
|
|
|
|
4.38
|
|
Rens
(3)
|
|
March 3, 2016
|
|
|
375,000
|
|
|
|
-
|
|
|
|
375,000
|
|
|
$
|
7.00
|
|
|
|
3.17
|
|
|
|
|
|
|
1,333,185
|
|
|
|
(511,983
|
)
|
|
|
821,202
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Issued in connection
with the January 27, 2014 private placement transaction.
|
|
(2)
|
Issued in connection
with the November 19, 2014 registered-direct public offering, and subsequently revised pursuant to Warrant Exercise Agreements
entered into on May 18, 2015.
|
|
(3)
|
Shares
issued pursuant to the closing of the first tranche of the financing with RENS Technology Inc.
|
MYOS RENS
TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
The
following table summarizes the activities in warrants for the years ended December 31, 2017 and 2016
:
|
|
Shares Underlying Warrants
|
|
|
Average
Exercise
Price
|
|
Balance at December 31, 2015
|
|
|
761,878
|
|
|
$
|
18.95
|
|
Warrants granted
|
|
|
375,000
|
|
|
|
7.00
|
|
Balance at December 31, 2016
|
|
|
1,136,878
|
|
|
$
|
15.01
|
|
Warrants expired
|
|
|
(315,676
|
)
|
|
|
15.00
|
|
Balance at December 31, 2017
|
|
|
821,202
|
|
|
$
|
11.68
|
|
The
following table summarizes the assumptions used to value the warrants at the issuance date using the Black-Scholes option pricing
model:
|
|
|
|
Number
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant /
|
|
Underlying
|
|
|
Price on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modification
|
|
Warrants
|
|
|
Measurement
|
|
|
Exercise
|
|
|
Expected
|
|
|
Expected
|
|
|
Dividend
|
|
|
Risk Free
|
|
Description
|
|
Date
|
|
Granted
|
|
|
Date
|
|
|
Price
|
|
|
Term
|
|
|
Volatility
|
|
|
Yield
|
|
|
Rate
|
|
Series B
|
|
1/27/2014
|
|
|
157,846
|
|
|
$
|
7.00
|
|
|
$
|
45.00
|
|
|
|
5.00
|
|
|
|
150.00
|
%
|
|
|
0.00
|
%
|
|
|
1.61
|
%
|
Series C
|
|
11/19/2014
|
|
|
2,442
|
|
|
$
|
9.37
|
|
|
$
|
12.00
|
|
|
|
5.50
|
|
|
|
94.60
|
%
|
|
|
0.00
|
%
|
|
|
1.64
|
%
|
Repricing Series C
|
|
5/18/2015
|
|
|
142,957
|
|
|
$
|
5.95
|
|
|
$
|
9.00
|
|
|
|
5.00
|
|
|
|
96.34
|
%
|
|
|
0.00
|
%
|
|
|
1.46
|
%
|
Repricing Series E
|
|
5/18/2015
|
|
|
142,957
|
|
|
$
|
5.95
|
|
|
$
|
9.00
|
|
|
|
7.00
|
|
|
|
96.34
|
%
|
|
|
0.00
|
%
|
|
|
1.87
|
%
|
Rens
|
|
3/3/2016
|
|
|
375,000
|
|
|
$
|
7.00
|
|
|
$
|
7.00
|
|
|
|
4.00
|
|
|
|
96.34
|
%
|
|
|
0.00
|
%
|
|
|
1.87
|
%
|
NOTE
10 – STOCK COMPENSATION
Equity
Incentive Plan
The
Company increased the number of shares available for issuance under its 2012 Equity Incentive Plan (as amended, the “Plan”)
from 550,000 to 850,000 in November 2016, which was approved by the Company’s shareholders in December 2016. The plan provides
for the issuance of up to 850,000 shares. The Plan provides for grants of stock options, stock appreciation rights, restricted
stock, other stock-based awards and other cash-based awards. As of December 31, 2017, the remaining shares of common stock available
for future issuances of awards was 288,260. The Company granted an aggregate of 30,000 options to purchase restricted common stock
to certain directors prior to the adoption of the Plan.
Stock options
generally vest and become exercisable with respect to 100% of the common stock subject to such stock option on the third (3rd)
anniversary of the date of grant. Any unvested portion of a stock option shall expire upon termination of employment or service
of the participant granted the stock option, and the vested portion shall remain exercisable in accordance with the provisions
of the Plan.
MYOS RENS
TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
Stock
Options
The
following table summarizes stock option activity for the years ended December 31, 2017 and 2016:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
Shares
|
|
|
Average
|
|
|
Remaining
|
|
|
|
Under
|
|
|
Exercise
|
|
|
Contractual
|
|
|
|
Options
|
|
|
Price
|
|
|
Term (Years)
|
|
Balance at December 31, 2015
|
|
|
400,545
|
|
|
$
|
14.56
|
|
|
|
7.82
|
|
Options cancelled
|
|
|
(65,455
|
)
|
|
|
13.14
|
|
|
|
|
|
Options forfeited
|
|
|
(34,750
|
)
|
|
|
12.51
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
300,340
|
|
|
$
|
15.09
|
|
|
|
6.71
|
|
Options granted
|
|
|
300,000
|
|
|
$
|
4.00
|
|
|
|
|
|
Options forfeited
|
|
|
(38,600
|
)
|
|
|
7.15
|
|
|
|
|
|
Balance at December 31, 2017
|
|
|
561,740
|
|
|
$
|
7.32
|
|
|
|
5.61
|
|
The weighted average grant date fair value
of stock options granted during 2017 was $0.86. The following table summarizes the assumptions used to value stock options granted
in 2017 using a Black-Scholes model:
|
|
2017
|
|
Risk-free interest rate
|
|
|
2.19
|
%
|
Expected volatility
|
|
|
100
|
%
|
Expected forfeiture rate
|
|
|
0
|
%
|
Expected term (years)
|
|
|
6.0
|
|
Expected dividend yield
|
|
|
0
|
%
|
The risk-free
rate is based on the U.S. Treasury rate for a note with a similar term in effect at the time of the grant. The expected volatility
is based on the volatility of the Company’s historical stock prices.
At December 31, 2017 and 2016, the exercisable options had no intrinsic value.
MYOS RENS
TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
The
following table summarizes information about options outstanding and exercisable at December 31, 2017 that were granted under
the Plan:
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
Exercise
|
|
|
Options
|
|
|
Remaining
|
|
|
Exercise
|
|
|
Options
|
|
|
Remaining
|
|
Price
|
|
|
Outstanding
|
|
|
Contractual Life
|
|
|
Price
|
|
|
Exercisable
|
|
|
Contractual Life
|
|
$
|
4.00
|
|
|
|
300,000
|
|
|
|
9.65
|
|
|
$
|
4.00
|
|
|
|
-
|
|
|
|
9.65
|
|
$
|
8.60
|
|
|
|
16,000
|
|
|
|
6.19
|
|
|
$
|
8.60
|
|
|
|
16,000
|
|
|
|
6.19
|
|
$
|
10.00
|
|
|
|
40
|
|
|
|
4.89
|
|
|
$
|
10.00
|
|
|
|
40
|
|
|
|
4.89
|
|
$
|
12.10
|
|
|
|
30,000
|
|
|
|
6.35
|
|
|
$
|
12.10
|
|
|
|
30,000
|
|
|
|
6.35
|
|
$
|
12.50
|
|
|
|
81,700
|
|
|
|
6.42
|
|
|
$
|
12.50
|
|
|
|
67,278
|
|
|
|
5.94
|
|
$
|
13.45
|
|
|
|
2,000
|
|
|
|
6.47
|
|
|
$
|
13.45
|
|
|
|
1,000
|
|
|
|
6.47
|
|
$
|
13.50
|
|
|
|
12,000
|
|
|
|
6.49
|
|
|
$
|
13.50
|
|
|
|
10,562
|
|
|
|
6.49
|
|
$
|
17.50
|
|
|
|
100,000
|
|
|
|
5.11
|
|
|
$
|
17.50
|
|
|
|
100,000
|
|
|
|
5.11
|
|
$
|
32.00
|
|
|
|
15,000
|
|
|
|
3.54
|
|
|
$
|
32.00
|
|
|
|
15,000
|
|
|
|
3.54
|
|
$
|
34.50
|
|
|
|
5,000
|
|
|
|
3.57
|
|
|
$
|
34.50
|
|
|
|
5,000
|
|
|
|
3.57
|
|
|
|
|
|
|
561,740
|
|
|
|
|
|
|
|
|
|
|
|
244,880
|
|
|
|
|
|
As of December 31, 2017, 244,880 options
have vested and 316,860 options remain unvested. The vesting terms range from 4.5 to 9.7 years and the vested options have a weighted
average remaining term of 5.7 years and a weighted average exercise price of $15.3 per share.
Restricted
Stock
The following table summarizes restricted stock awards activity for the years ended December 31, 2017
and 2016:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Share Price
|
|
Restricted stock awards unvested at December 31, 2015
|
|
|
18,450
|
|
|
$
|
9.09
|
|
Granted
|
|
|
70,639
|
|
|
|
2.08
|
|
Vested
|
|
|
(30,232
|
)
|
|
|
5.40
|
|
Forfeited
|
|
|
(5,000
|
)
|
|
|
2.27
|
|
Restricted stock awards unvested at December 31, 2016
|
|
|
53,857
|
|
|
|
2.74
|
|
Vested
|
|
|
46,607
|
|
|
|
5.17
|
|
Forfeited
|
|
|
(6,000
|
)
|
|
|
1.75
|
|
Restricted stock awards unvested at December 31, 2017
|
|
|
1,250
|
|
|
$
|
1.02
|
|
At December 31, 2017, the weighted-average vesting period of unvested restricted stock awards was 1.02
years.
MYOS RENS
TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
Share-Based Compensation
Share-based compensation was $160 and $392
for the years ended December 31, 2017 and 2016, respectively. Share-based compensation consists of expenses related to the issuance
of stock options and restricted stock.
The aggregate unrecognized compensation
expense of stock options and restricted stock at December 31, 2017 was $154, which will be recognized through January 2019.
NOTE
11 – INCOME TAXES
Income tax expense for the years ended
December 31, 2017 and 2016 is shown as follows:
|
|
December 31,
|
|
|
December 31,
|
|
(In thousand $)
|
|
2017
|
|
|
2016
|
|
Current provision
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred provision
|
|
|
-
|
|
|
|
-
|
|
Total tax provision (benefit)
|
|
$
|
-
|
|
|
$
|
-
|
|
The significant components of the Company’s
deferred tax assets and liabilities at December 31, 2017 and 2016 are as follows:
|
|
December 31,
|
|
|
December 31,
|
|
(In thousand $)
|
|
2017
|
|
|
2016
|
|
Federal net operating losses
|
|
$
|
5,031
|
|
|
$
|
6,714
|
|
State net operating losses
|
|
|
1,060
|
|
|
|
635
|
|
Stock options
|
|
|
733
|
|
|
|
1,043
|
|
Federal tax credit
|
|
|
190
|
|
|
|
190
|
|
Amortization
|
|
|
295
|
|
|
|
448
|
|
Depreciation
|
|
|
(3
|
)
|
|
|
11
|
|
Contributions
|
|
|
15
|
|
|
|
21
|
|
Other
|
|
|
202
|
|
|
|
392
|
|
Total gross deferred tax assets/(liabilities)
|
|
|
7,523
|
|
|
|
9,454
|
|
|
|
|
|
|
|
|
|
|
Less valuation allowance
|
|
|
(7,523
|
)
|
|
|
(9,454
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets/(liabilities)
|
|
$
|
-
|
|
|
$
|
-
|
|
MYOS RENS
TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
On December 22, 2017, the United States
enacted the Tax Cuts and Jobs Act ("Tax Reform Legislation"), which made significant changes to U.S. federal income tax
law. The Company expects that certain aspects of the Tax Reform Legislation will positively impact the Company’s future after-tax
earnings primarily due to the lower federal statutory tax rate. Beginning January 1, 2018, the Company’s U.S. income will
be taxed at a 21 percent federal corporate rate. Further, we are required to recognize the effect of this rate change on our deferred
tax assets and liabilities, and deferred tax asset valuation allowances in the period the tax rate change is enacted. We do not
expect any material non-cash impact from this rate change, with adjustments to deferred tax balances offset by adjustments to deferred
tax valuation allowances.
The income tax benefit for the year ended December 31, 2017 differed from the amounts computed by applying
the U.S. federal income tax rate of 34% to loss before tax benefit as a result of nondeductible expenses, tax credits generated,
utilization of net operating loss carryforwards, and increases in the Company’s valuation allowance.
|
|
December 31,
|
|
|
December 31,
|
|
(In thousand $)
|
|
2017
|
|
|
2016
|
|
Federal statutory tax benefit
|
|
$
|
(1,380
|
)
|
|
$
|
(1,568
|
)
|
Permanent differences
|
|
|
55
|
|
|
|
103
|
|
Federal tax rate change
|
|
|
3,696
|
|
|
|
-
|
|
Valuation allowance
|
|
|
(2,371
|
)
|
|
|
1,465
|
|
Income tax provision (benefit)
|
|
$
|
-
|
|
|
$
|
-
|
|
A valuation
allowance is required to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
At December 31, 2017, the Company
had approximately $23.9 million of gross federal net operating loss carry-forwards. At December 31, 2017, the Company had
approximately $14.9 million of gross state net operating loss carry-forwards. If not utilized, the federal and state net operating
loss carry-forwards will begin to expire in 2027. The utilization of such net operating loss carry-forwards and realization of
tax benefits in future years depends predominantly upon having taxable income. The Company also has $190 of federal research and
development credits which will begin to expire in 2033 if not utilized.
The Company
may be subject to the net operating loss provisions of Section 382 of the Internal Revenue Code. The Company has not calculated
if an ownership change has occurred. The effect of an ownership change would be the imposition of an annual limitation on the
use of NOL carryforwards attributable to periods before the change. The amount of the annual limitation depends upon the value
of the Company immediately before the change, changes to the Company’s capital during a specified period, and the federal
published interest rate.
Entities are also required to evaluate,
measure, recognize and disclose any uncertain income tax provisions taken on their income tax returns. The Company has analyzed
its tax positions and has concluded that as of December 31, 2017 there were no uncertain positions. The federal and state income
tax returns of the Company for 2013, 2014, 2015 and 2016 are subject to examination by the IRS and state taxing authorities, generally
for three years after they are filed. Interest and penalties, if any, as they relate to income taxes assessed, are included in
the income tax provision. There was no income tax related interest and penalties included in the income tax provision for 2017
and 2016.
MYOS RENS
TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
Note
12 – Commitments and Contingencies
Operating
Lease
The Company leases its corporate offices
under an operating lease. The term of the lease is five years commencing on January 1, 2015 and expiring on December 31, 2019.
The Company has two options to renew its lease for an additional three years each.
At December
31, 2017, the future minimum lease payments under the non-cancellable operating lease in excess of one year is as follows:
(In thousand $)
|
|
|
|
Years Ended
December 31,
|
|
Amount
|
|
2018
|
|
$
|
71
|
|
2019
|
|
|
72
|
|
Total
|
|
$
|
143
|
|
Rent expense
including common area maintenance charges and taxes for the years ended December 31, 2017 and 2016 was $68 and $72, respectively.
Defined
Contribution Plan
The Company
established a 401(K) Plan (the “401(K) Plan”) for eligible employees of the Company effective April 1, 2014. Generally,
all employees of the Company who are at least twenty-one years of age and who have completed three months of service are eligible
to participate in the 401(K) Plan. The 401(K) Plan is a defined contribution plan that provides that participants may make salary
deferral contributions, of up to the statutory maximum allowed by law (subject to catch-up contributions) in the form of voluntary
payroll deductions. The Company’s matching contribution is equal to 100 percent on the first four percent of a participant’s
compensation which is deferred as an elective deferral. The Company’s aggregate matching contributions were $26 and $26
for the years ended December 31, 2017 and 2016, respectively.
Supply
Agreement
On November 18, 2016, the Company entered
into an Amended Supply Agreement with DIL Technologie GmbH (“DIL”). Pursuant to the agreement (and so long as the agreement
is effective), DIL will manufacture and supply the Company with Fortetropin
®
, the active ingredient for its products,
and the Company will purchase quantities of Fortetropin
®
from DIL at its discretion. DIL will manufacture the formula
exclusively for the Company in perpetuity, and may not manufacture the formula for other entities (but may manufacture it for its
own non-commercial research).
The Company agreed, commencing January
2017, to pay DIL €10 (approximately USD $12) per month for collaborative research. For the year ended December 31,
2017 the Company paid USD $194 to DIL for collaborative research. The monthly payments terminate upon the earlier of: (a) the
date that the Company orders additional product in accordance with the terms of the agreement and (b) December 31, 2018, and the
Company has no further financial obligations to DIL thereafter.
The Company also agreed to pay DIL
€400 (approximately USD $480) in satisfaction of all prior liabilities and obligations under its prior agreements
with DIL. The agreement expires on December 31, 2018, and the Company has the unilateral right to renew the agreement for
subsequent one-year terms.
At December 31, 2017, the future minimum
payments based on exchange rates under the supply agreement were as follows:
(In thousand $)
|
|
|
|
Years Ended December 31,
|
|
Amount
|
|
2018
|
|
|
132
|
|
Total
|
|
$
|
132
|
|
MYOS RENS
TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
Product Liability
As a manufacturer
of nutritional supplements that are ingested by consumers, the Company may be subject to various product liability claims. Although
we have not had any claims to date, it is possible that future product liability claims could have a material adverse effect on
our business or financial condition, results of operations or cash flows. The Company currently maintains products liability insurance
of $5 million per-occurrence and a $10 million annual aggregate coverage. At December 31, 2017 and 2016, the Company had not recorded
any accruals for product liability claims.
Note
13 – Related Party Transactions
The following
is a description of the transactions we have engaged in with our directors, director nominees and officers and beneficial owners
of more than five percent of our voting securities and their affiliates:
On December
17, 2015, concurrent with the execution of the Purchase Agreement with RENS Technology Inc., the Company issued an unsecured promissory
note in the principal amount of $575 (the “Note”) to Gan Ren, a related party of RENS Agriculture. The Note accrued
interest at a rate of 8% per annum and matured (the “Maturity Date”) on December 17, 2016. On the Maturity Date,
the Note and accrued interest of $46 were automatically converted into 225,864 shares of Common Stock at $2.75 per share.
On
December 17, 2015, we entered into the Purchase Agreement with Rens Technology Inc. (the “Purchaser”), an entity which
is controlled by Ren Ren, who is currently a director of the Company and its largest stockholder. For additional information refer
to Note 1 – Strategic Investment Transaction. The Board agreed to issue Mr. Ren 18,182 shares of the Company’s common
stock upon completion of the first tranche of the Financing for his services to the Company as a member of the Board. (See Note
14 - Legal Proceedings)
In October 2016,
the Company received a purchase order from RENS Agriculture to purchase $118 of our product. We received a 50% deposit in November
2016 in order to manufacture the product. The goods were shipped in January 2017 and received in China in March 2017. We have not
received payment for the order to date. As a result of the ongoing litigation (See Note 14), the Company recorded an allowance
for bad debt of $59 related to the receivable due from RENS Agriculture.
Note
14 – legal PROCEEDINGS
On October 27, 2016, Cutler Holdings, L.L.C.
(“Cutler”) filed a complaint in the Superior Court of New Jersey alleging that the Company failed to make certain rental
payments. On March 30, 2017, the Company entered into a settlement agreement with Cutler, pursuant to which Cutler released the
Company from any liability for the claims asserted in the complaint.
On January 6,
2017, in connection with the financing contemplated by a securities purchase agreement with RENS Technology Inc. (the “Purchaser”),
we commenced an action in the Supreme Court of New York, County of New York (the “Court”), against the Purchaser, RENS
Agriculture, the parent company of the Purchaser, and Ren Ren, a principal in both entities and one of our directors, arising from
the Purchaser’s breach of the agreement under which the Purchaser agreed to invest an aggregate of $20.25 million in our
company in exchange for an aggregate of 3,537,037 shares of our common stock and warrants to purchase an aggregate of 884,259 shares
of common stock.
MYOS RENS
TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
On April 11, 2017, the Court noted that
we had demonstrated a likelihood of success on the merits of the breach of contract claim. Thereafter, a hearing was scheduled
on the application by the Purchaser to dismiss the complaint and various pre-trial discovery applications by both parties.
In August 2017, before the hearing occurred,
the Company amended its complaint repeating most of the initial claims but adding several additional claims against RENS Agriculture,
Mr. Ren and two additional Chinese defendants, including a claim against RENS Agriculture for breaching the exclusive distribution
agreement, as well as claims against all defendants for theft and misappropriation of our confidential proprietary information
and trade secrets, breach of fiduciary duty and duty of loyalty, misappropriation of corporate opportunity, unfair competition
and a number of other torts. We are seeking damages and injunctive relief. The Purchaser has filed a motion to dismiss the amended
complaint, which is still pending and scheduled for oral argument in April 2018.
On
August 16, 2017, the Purchaser commenced an action in the District Court of Clark County in the State of Nevada against us and
Joseph Mannello, our then interim Chief Executive Officer, alleging that Mr. Mannello had breached his fiduciary duties and was
grossly negligent in managing our company. The action seeks monetary damages and injunctive relief from Mr. Mannello as well as
the appointment of a receiver over us. Subsequently, the Purchaser submitted a petition to appoint a receiver and we and Mr. Mannello
submitted a motion to dismiss the action, both of which are currently pending and are due to be heard in April 2018. An application
on consent to adjourn the hearing date on the receiver application and motion to dismiss is pending.
The outcome of the aforementioned matters cannot be determined as of the date of these financial statements.
Note
15 – Subsequent Events
At-the-Market Offering
On January 19, 2018 the Company sold 140,295
shares of common stock at $2.111 per share for gross proceeds of $296 less deferred costs of $9 in an at-the-market transaction
pursuant to the sales agreement with H.C. Wainwright & Co., LLC.
On March 27, 2018, we announced that we entered into a research
agreement with Rutgers University, The State University of New Jersey, to work with Rutgers researchers in a program focused on
discovering compounds and products for improving muscle health and performance.
F-27