Overview
We
are an emerging company focused on the discovery, development and commercialization of nutritional ingredients, functional foods,
and other technologies aimed at maintaining or improving the health and performance of muscle tissue.
We
were incorporated in 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. 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.
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 product websites are http://www.yolked.com;
http://www.myospet.com. The information on our current or future websites is not, 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
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. certain trademarks, trade secrets,
patent applications and certain domain names as well as the intellectual property pertaining to Fortetropin®, a
proprietary bioactive composition derived from fertilized egg yolk that has been shown in clinical trials to increase lean muscle
mass, size and strength.
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 in humans. Fortetropin® has also been shown to reduce muscle atrophy in dogs
following orthopedic surgery. Fortetropin® is made from fertilized chicken egg yolks using a proprietary
process that retains the biological integrity and bioactivity of the product. In a rodent study, Fortetropin® was
shown to up-regulate muscle building pathways and down-regulate muscle degrading pathways.
Plan of Operation
Our initial core ingredient
is Fortetropin®, a natural and proprietary bioactive composition derived from fertilized egg yolk that has been
shown in clinical trials to increase lean muscle mass, size and strength. Our plan of action is 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 our
scientific understanding of the activity of Fortetropin® as a natural product to improve muscle health and performance,
and to leverage this knowledge to strengthen and build our intellectual property estate, (iii) conduct research and development
activities to evaluate the impact of Fortetropin® on muscle health and wellness in humans as well as domestic pets.
(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 and (vii) develop a differentiated
and advantaged consumer positioning, brand name and iconography.
Our principal business activities have been focused on
deepening our scientific understanding relating to the activity of Fortetropin®, and to leverage this knowledge
to strengthen and build our intellectual property estate; developing sales and marketing strategies aimed at expanding our commercial
presence; evaluating the value of Fortetropin® in therapeutic markets, including the treatment of sarcopenia, cachexia,
anorexia, obesity and muscular disorders; and, conducting research and development focused on the discovery, development and commercialization
of other products and technologies aimed at maintaining or improving the health and performance of muscle tissue. Since our inception
in April 2007, we have recognized cumulative revenues of approximately $9.4 million.
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.
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 the Company, 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 rehabilitation and restorative health and to pursue international sales opportunities.
Strategy
Our
strategy is to understand the complex genetic and molecular pathways regulating muscle mass and function. Understanding the impact
of complex regulatory pathways which act to build and maintain healthy lean muscle is central to our research and development
activities. We are developing nutritional products that target specific mechanisms to promote muscle health in ways that cannot
be met by other food products.
We
will seek to gain market share for our core branded products in the 1) sports and fitness nutrition, 2) rehabilitation and restorative
health and 3) domestic pet muscle 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.
Global Market Overview
According
to the Natural Marketing Institute, the Dietary Supplement, Functional Food and Beverage, and Natural Personal Care markets represent
more than $275 billion in annual worldwide sales in 2018. The market for the global sports nutrition segment grew to $15 billion
in 2018 and is expected to continue to grow to $24 billion by 2022, according to data from Euromonitor International. In the United
States alone, revenues reached $9.1 billion in 2018 consisting of nearly 60% of the total with a growth of 11% per year through
2022, reaching an expected $15 billion by 2022 which makes it the fastest growing market for functional foods.
We
believe our proprietary ingredient, Fortetropin® is well-positioned to market to a wide base of consumers looking
for nutritional and performance maximization as well as for wellness and health 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 maintaining their muscle health.
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 to succeed.
Clinical Research
to Evaluate Effects of Fortetropin®
In
March 2013, we completed a human clinical trial which demonstrated that Fortetropin® temporarily reduced 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 serum myostatin levels. Results demonstrated about a 30% decrease in serum myostatin levels in the Fortetropin® arm compared
to baseline during the 24 hour period.
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
consumed 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 reduction in serum myostatin levels in both Fortetropin® arms but not in the placebo group.
The results also 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
Information about the importance of muscle was published in
a clinical study at the Karolinska Institutet’s Department of Biosciences and Nutrition at NOVUM, Unit for Preventive Nutrition,
in Huddinge, Sweden. The study tracked 8,762 men aged 20-80 who 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. It might be possible
to reduce all-cause mortality among men by promoting regular resistance training.
Research and Development
As
an advanced nutrition 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
|
●
|
Biochemical characterization
of Fortetropin®, including proteomic and lipidomic approaches;
|
|
|
|
|
●
|
Identification and
isolation of proteins, peptides, and lipids in Fortetropin® responsible for pro-myogenic activity.
|
|
|
|
Canine Clinical Research
|
●
|
Effect of Fortetropin®
to reverse disuse atrophy in dogs after an orthopedic surgery procedure to repair the cranial cruciate ligament (CCL);
|
|
|
|
|
●
|
Effect of Fortetropin®
on quality of life and activity in geriatric dogs;
|
|
|
|
|
●
|
Effect of Fortetropin®
on serum myostatin levels in healthy dogs.
|
Human Clinical Research
|
●
|
Effect of Fortetropin®
on skeletal muscle protein fractional synthetic rate in older men and women;
|
|
|
|
|
●
|
Effect of Fortetropin®
on muscle function and recovery after orthopedic procedures.
|
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 further protect and augment our intellectual
property assets. We are dedicated to protecting our innovative technology.
We expect our investment
in research and development to continue in the future.
Clinical Studies and Basic Research
Programs
As
an emerging company focused on the discovery, development and commercialization of advanced nutrition products that improve muscle
health and performance, we are dedicated to basic and clinical research that supports our existing and future product portfolio.
Our research program is actively evaluating the many active proteins, lipids and peptides in 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. We are dedicated to protecting our innovative technology and believe that our research programs
will establish a basis for the continued prosecution of patent applications in order to protect and augment the Company’s
intellectual property estate. We expect our investment in research and development to continue to grow in the future.
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:
|
●
|
In August 2019, we entered into a research agreement with the
Department of Kinesiology at McMaster University in Hamilton, Canada to evaluate the impact of Fortetropin on reducing muscle disuse
atrophy in young men. The Principal Investigator for this clinical study is Stuart M. Phillips, PhD, Professor of Kinesiology,
at McMaster University. In this randomized, double-blind, placebo-controlled clinical study, 24 male subjects, will
consume either Fortetropin or a macronutrient-matched placebo for 6 weeks. After a 2-week Fortetropin pre-treatment phase, subjects
will wear a knee brace for a period of 2 weeks in order to simulate immobilization-induced muscle disuse atrophy. Following
the immobilization phase, subjects will remove the knee brace while continuing to consume Fortetropin for an additional 2 weeks
(recovery phase). In order to assess the impact of Fortetropin on muscle atrophy, a series of body composition measurements
will be performed during each phase of the study. In addition, muscle biopsy samples will be collected during each phase
and in-depth biochemical analyses will be performed. We anticipate that the study will be concluded in the first quarter
of 2022. No work has started on this study as of March 24, 2020.
|
|
●
|
In February 2019, we entered into an agreement with the College
of Veterinary Medicine at Kansas State University to study the impact of Fortetropin® on quality of life and activity in geriatric
dogs. The principal investigator for this study is Kenneth R. Harkin DVM, DACVIM (SAIM), Professor and Section Head, College
of Veterinary Medicine, Kansas State University. In this randomized, double-blind, placebo-controlled study, 40 geriatric dogs
will randomly be assigned to two groups where they will consume either Fortetropin® or a placebo for 14 weeks. The quality
of life evaluation at baseline, midpoint and end of study will be based on questionnaires filled by the dog owners. The level
activity at baseline, midpoint and end of study will be based on data recorded on the Vetrax collars worn by the dogs. We anticipate
that the study will be concluded in the first half of 2020.
|
|
●
|
In May 2018, we
entered into a research agreement with Weill Cornell Medical College to study the efficacy of Fortetropin® in preventing
weight and muscle loss associated with cancer in a mouse model of lung cancer. The results from this research did not show
that Fortetropin® had a significant impact on cancer-related weight and muscle loss. Therefore, we have decided not to
pursue future cachexia-related studies with Fortetropin®.
|
|
|
|
|
●
|
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. We anticipate that
the study will be concluded in the second half of 2020.
|
|
●
|
In December 2017, we entered into an agreement with the University
of California, Berkeley’s Department of Nutritional Sciences & Toxicology. The research project studied 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. Professor Evans, a leading
authority in muscle health research, coordinated 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, consumed
either Fortetropin® or a placebo for 21 days along with daily doses of a heavy water tracer. After 21 days,
a micro-biopsy was collected from each subject to determine the fractional rate of muscle protein synthesis. In July 2018,
we agreed to pay for additional costs incurred in connection with the study. This clinical study was completed in June 2019 and
the results showed that among subjects who received Fortetropin, the average FSR of several muscle protein gene ontologies was
significantly higher compared to the placebo group. The proportion of proteins with an increased FSR in the Fortetropin group
relative to the placebo group was found to be statistically significant. The overall magnitude of increase was 15%.
|
|
●
|
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). In August 2018, we agreed to pay for additional costs incurred
in connection with the study. The study was completed and Kenneth R. Harkin DVM, DACVIM (SAIM), Professor and Section
Head, College of Veterinary Medicine, Kansas State University and the principal investigator of the study presented the
results titled, “The Impact of Fortetropin® Supplementation on Dogs Recovering from TPLO surgery”
at the VMX Conference in Orlando in January 2019.
The randomized,
double-blind, placebo-controlled study evaluated the impact of Fortetropin® on attenuating muscle atrophy following
a common surgical procedure known as TPLO in 100 dogs at Kansas State University. TPLO is performed by veterinary
surgeons to repair ruptures of the cranial cruciate ligament (CCL), a canine ligament that is analogous to the anterior
cruciate ligament (ACL) in humans. In the weeks that follow TPLO surgery, the immobilized operated limb frequently
shows significant muscle loss due to muscle disuse atrophy. The objective of the study was to determine whether
Fortetropin® could reduce this muscle atrophy with respect to a macronutrient-matched placebo. The study showed
that: i) Fortetropin® prevented the loss of muscle mass in these dogs as measured by the thigh circumference in their
affected and unaffected limbs; ii) Fortetropin® supplemented dogs had a significant improvement in percentage of weight
supported by the affected limb (more rapid return to normal stance force distribution) than the placebo group; and iii)
Fortetropin® prevented a rise in serum myostatin levels in dogs. We believe the results of this study are not only
relevant to our veterinary business, which was established in 2018, but are also relevant to our human muscle
nutrition business, with a particular focus on recovery and rehabilitation.
|
|
●
|
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® reduces serum myostatin levels 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.
|
|
●
|
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 related to 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 early indications of plasma biomarkers may
guide future study design for Fortetropin® clinical trials by identifying clinically-relevant endpoints. The
results from this study were presented at the Sarcopenia, Cachexia and Wasting Disorders Conference (Berlin, Germany) in December
2016.
|
|
●
|
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 in 18-21 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 levels via high-sensitivity enzyme-linked immunosorbent assay (“ELISA”) based analysis.
Results demonstrated statistically significant reduction in serum myostatin levels in both groups that consumed Fortetropin®
but not in the group that consumed the placebo. 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 55th
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. The preclinical study 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 that Fortetropin®
has the ability to regulate production in the Ubiquitin Proteasome Pathway, which may have significant implications
for preventing age-related muscle loss.
|
The foregoing programs
are an integral part of our business strategy. We believe that they will provide a clear scientific rationale for Fortetropin®
as an advanced nutritional product and support its use in different medical and health applications in the future.
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, and to pursue best in class personnel.
Product Marketing, Distribution and
Sales History
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, a proprietary formula containing Fortetropin® and other ingredients.
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. There
were no sales to Cenegenics in 2018. The Company received a new purchase order in April 2019 and recorded $202 of sales to Cenegenics
in 2019.
In
April 2015 we launched Rē Muscle Health®, our own direct-to-consumer brand with a portfolio of muscle health
bars, meal replacement shakes and daily supplement powders each containing a full 6.6 gram single serving dose of Fortetropin®.
Our Rē Muscle Health® products were sold through our website, www.remusclehealth.com, and www.amazon.com until
March 2017 when the product line was discontinued. The Company recorded no net sales in 2019 and 2018 of Rē Muscle Health®
products. Any remaining expired inventory was written off as of the year ended December 31, 2018.
In May 2016, we launched Physician Muscle Health Formula®,
a proprietary formulation containing Fortetropin® and sold the product directly to physicians to distribute to their
patients who are focused on wellness. The Company recorded $10 and $24 of net sales of Physician Muscle Health Formula®
for the years ended December 31, 2019, and December 31, 2018. The Company relaunched the product as part of its longevity marketing
strategy in December 2019.
In
March 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. Our Qurr line of muscle-focused over-the-counter products are available
through a convenient, direct-to-consumer e-commerce platform at www.qurr.com. We recorded $40 and $175 of net sales in for our
Qurr® product line for the years ended December 31, 2019, and December 31, 2018. Any remaining expired inventory
was written off as of the year ended December 31, 2018. The remaining inventory on hand as of December 31, 2019 expires in March
2021.
In
March 2018, we launched Yolked®, a Fortetropin®-powered product which is NSF Certified for Sports,
and developed and marketed to collegiate and professional athletes who want to increase their muscle size and performance with
an all-natural advanced nutrition product. We recorded $284 and $117 of net sales for our Yolked® product line
for the years ended December 31, 2019, and December 31, 2018.
In June 2018, we launched
our Fortetropin® based pet product Myos Canine Muscle Formula® (“MCMF”). Two veterinarian
hospitals had previously performed some informal observational studies with older dogs experiencing muscle atrophy and observed
positive results after taking our pet product. We believe that the positive feedback received from the veterinarian community,
together with the positive results from our study with Kansas State University, will enable us to grow our domestic pet business
product line. In July 2019 we launched a version of MCMF called VET Strength to focus on veterinarians and their dog patients.
We recorded $476 and $44 of net sales of our pet product Myos Canine Muscle Formula® for the years ended December
31, 2019, and December 31, 2018.
In November 2019, we launched our white label business, working
with manufacturers to create new brands and products using Fortetropin® as the foundation. We had $19 in white label
sales for the year ended December 31, 2019.
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, functional food products in markets such as sports and fitness
nutrition, rehabilitation and restorative health and the domestic pet market while also pursuing international sales opportunities.
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 that
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 January 2019, the United States Patent and Trademark Office
(“USPTO”) issued the Company a new patent (United States Patent No. 10,165,785) titled, “Process
for Producing Composition for Increasing Muscle Mass”. A new patent significantly enhances the Company’s existing intellectual
property portfolio, enabling MYOS to protect its advanced technologies for the development of innovative nutrition products to
address musculoskeletal health. The new patent covers an advanced, state-of-the-art manufacturing process for a fertilized, egg
yolk-derived composition that helps maintain the natural bioactivity of egg yolk without compromising its safety. It was developed
by researchers at the German Institute of Food Technologies/DIL (“DIL”) including Dr. Volker Heinz, Director of DIL
and a co-inventor on the patent. DIL has assigned full rights of this patent to the Company. The processes covered by these patents
are used to manufacture our nutrition products.
In
August 2014, the USPTO, issued U.S. Patent No. 8,815,320 B2 to the Company covering its 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.
We
intend to file as many applications and continuation/divisional/continuation-in-part applications as possible. Several additional
pending patent applications that we are pursuing include:
|
●
|
Methods for alleviating, inhibiting or reversing muscle disuse atrophy in mammals.
|
|
●
|
Methods and compositions for improving skeletal muscle protein fractional synthetic rate.
|
|
●
|
Methods for improving quality of life and increasing activity in aging mammals.
|
|
●
|
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.
|
|
|
|
|
●
|
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 to yield improved products and methods for increasing
muscle mass.
|
|
●
|
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.
|
|
|
|
|
●
|
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.
|
|
|
|
|
●
|
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.
|
|
|
|
|
●
|
Methods of treatment
of cancer and neurological diseases using avian egg powder.
|
|
|
|
|
●
|
Methods of treatment
of insulin resistance and Type II diabetes using avian egg powder.
|
|
|
|
|
●
|
Method of enhancing
overall health and longevity using avian egg powder.
|
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 DSHEA, and the regulations promulgated thereunder. The DSHEA 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 and nutrition products. 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 United States Department of Agriculture 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 a deceptive or unfair practice.
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. We have focused on the efficiency and economics of manufacturing Fortetropin®
and the related production costs to achieve maximum 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
The
market for nutritional foods 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., Purina 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 liability, tenant’s improvements, property, and inventory. We maintain commercial general liability
and products liability insurance with coverage of up to $5.0 million.
Employees
We currently have 15 full-time employees (including one executive
officer). We also employ several consultants. None of our employees is 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. Dollar 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:
|
●
|
build
a strong and compelling consumer brand and;
|
|
|
|
|
●
|
increase awareness
and develop customer loyalty;
|
|
|
|
|
●
|
adequately protect
and build our intellectual property;
|
|
|
|
|
●
|
develop new products
while maintaining effective control of our costs and expenses;
|
|
|
|
|
●
|
conduct successful
research and development activities;
|
|
|
|
|
●
|
respond to requirements
and changes in our regulatory environment;
|
|
|
|
|
●
|
respond to competitive
market conditions;
|
|
|
|
|
●
|
availability of
sufficient capital resources to adequately promote and market our products;
|
|
|
|
|
●
|
attract, retain
and motivate qualified personnel and,
|
|
|
|
|
●
|
respond to business challenges associated with COVID-19.
|
If
we are unable to address any or all of these 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
2018, we launched Yolked® and Myos Canine Muscle Formula® ® as our proprietary branded products,
using multiple delivery formats. Successfully marketing and promoting products is a complex and uncertain process, dependent on
the efforts of our management, sales force and 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 the quality and acceptance of other competing
brands and products; creating effective distribution channels and brand awareness; the availability of alternatives; critical
reviews; general economic conditions; and the availability of sufficient capital resources to adequately promote and market our
products. 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 our existing distributors are
unable or unwilling to purchase our products and we are unable to secure alternative distributors our operating results and financial
condition will be adversely affected.
We
sell a portion of our products through distributors. For the year ended December 31, 2019, our net sales were $1,032, of which
$202, or 20%, was attributable to a major customer. For the year ended December 31, 2018, our net sales were $360, of which $76,
or 21%, was attributable to a major customer.
In 2018 we launched
our websites www.yolked.com and www.myospet.com to go along with www.qurr.com to sell our current brands direct to consumers.
Our products can be purchased via the amazon.com site as well as chewy.com.
If we decide to continue
selling our products to distributors and our existing 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, 2019, we had cumulative net losses from inception of $39,325. Our net loss for the years ended December 31, 2019
and 2018 were $4,258 and $3,223, respectively. We also had negative cash flows from operating activities. Historically, we have
funded our operations from the proceeds from the sale of equity securities, debt issuances, sales of our net operating losses
and 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, 2019 were $1,032 and our sales for the year ended December 31, 2018 were $360. We cannot
give assurances that our current business model will enable us to increase our sales.
There is 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, 2019 and December 31, 2018
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.
As
of December 31, 2019, we had working capital of $46 and accumulated deficit of $39,325. During the year ended December 31, 2019,
we had a net loss of $4,258 and used $2,379 of cash in operations. We have historically incurred operating losses and may continue
to incur operating losses for the foreseeable future. We believe that these conditions raise substantial doubt about our ability
to continue as a going concern. This may hinder our future ability to obtain financing or may force us to obtain financing on less
favorable terms than would otherwise be available. If we are unable to develop sufficient revenues and additional customers
for our products and services, we may not generate enough revenue to sustain our business, and we may fail.
There can be no assurance that we will be able to continue as a going concern.
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, 2019,
our total assets were $3,038, of which $896, or approximately 29%, 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 twenty-two
(22) 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, or to what extent we will be able to secure new distribution
arrangements, we tested our intellectual property for impairment in the fourth quarter of 2019 and determined that
the asset value was recoverable and therefore no impairment was recognized.
We assess the potential
impairment of goodwill and indefinite lived intangible assets on an annual basis, as well as when interim events or changes in
circumstances indicate that the carrying value may not be recoverable. Events or changes in circumstances indicating that the
carrying value of our goodwill or amortizable intangible assets may not be recoverable include disruptions to our business, failure
to realize the economic benefit from acquisitions of other companies and intangible assets, slower industry growth rates and declines
in operating results and market capitalization. Determining whether an impairment exists, along with the amount of the potential
impairment, involves quantitative data and qualitative criteria that are based on estimates and assumptions requiring significant
management judgment. Future events, new information or changes in circumstances may alter management’s valuation of an intangible
asset. The timing and amount of impairment charges recorded in our consolidated statements of operations and write-downs recorded
in our consolidated balance sheets could vary if management’s conclusions change. Accordingly, future impairment testing
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 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. 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 and (vii) cash
generated by sales of those products. We expect that we will need to continue to seek additional funding 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.
If the capital
markets continue to experience volatility in response to the COVID-19 pandemic, we may not be able to raise capital.
The capital markets have
experienced significant volatility due to the ongoing spread of COVID-19. As a result the price of our shares may be negatively
impacted and it may negatively affect our ability to raise additional capital.
Even if
we are able to locate a source of additional capital and/or financing, we may not be able to negotiate terms and conditions for
receiving the additional capital that are acceptable to us.
Any
future capital investments or debt financing, could dilute or otherwise materially adversely affect the holdings or rights of
our existing stockholders. In addition, new equity or debt securities issued by us to obtain financing could have rights, preferences
and privileges senior to our common stock. Debt financing, if available, would result in increased fixed payment obligations and
a portion of our operating cash flows, if any, being dedicated to the payment of principal and interest on such indebtedness.
In addition, debt financing may involve agreements that include restrictive covenants that impose operating restrictions, such
as restrictions on the incurrence of additional debt, the making of certain capital expenditures or the declaration of dividends.
Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our
ability to develop and commercialize our products. In addition, 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.
In addition, the low recent stock price of our shares may adversely impact our fundraising efforts.
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®, and to leverage
this knowledge to strengthen and build our intellectual property, (iii) conduct research and development activities to evaluate
the impact of Fortetropin® on muscle health in both humans and domestic pets, (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.
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.
The use
of social media could harm our business and reputation.
The
use of social media could cause us to suffer brand damage or information leakage. Negative posts or comments about us or our products
on any social networking website could damage our, or our products’ reputations. In addition, employees or others might
disclose non-public sensitive information relating to our business through external media channels. The continuing evolution of
social media may present us with new challenges and risks. The considerable increase in the use of social media over recent years
has greatly expanded the potential scope and scale, and increased the rapidity of the dissemination of negative publicity that
could be generated by negative posts and comments. Claims and concerns on social media about the safety of our products 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 business and 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 essential to our ability to 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 expect to offer retail customers sales incentives,
including the right to return certain agreed upon products. 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 third-party manufacturer
to produce Fortetropin®. 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,
including as a result of COVID-19, could limit our ability to sell our products and have a material adverse effect on our
business, financial condition and results of operations.
While our
raw material inventories and products generally have a long shelf life, we may be required to write-off or reserve for inventories
or products 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 and products that are slow-moving, off-grade, damaged or otherwise not
saleable. Cost of sales for the year ended December 31, 2019 included inventory reserve adjustment to recover $114. Cost of sales
for 2018 did not include any inventory charges. 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 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 have entered and may continue to enter into agreements with third party contract
research organizations, 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, 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.
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 reduced visibility of order status
and package tracking; delays in order processing and product delivery; increased cost of delivery, resulting in reduced margins;
and reduced shipment quality, which may result in damaged products and customer dissatisfaction. 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. If our fulfillment center is unable to deliver our products due to COVID-19, our business, financial condition
and results of operations may be adversely affected.
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. In addition, our products may be less effective if they remain in storage for a significant
period of time even though the products are constantly being tested and have shown to be effective for many years. 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:
|
●
|
deliver quality
products in a timely manner in sufficient volumes;
|
|
|
|
|
●
|
accurately anticipate
customer needs and forecast accurately to our manufacturers;
|
|
|
|
|
●
|
differentiate our
product offerings from those of our competitors;
|
|
|
|
|
●
|
competitively price
our products; and
|
|
|
|
|
●
|
develop new products.
|
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:
|
●
|
price;
|
|
|
|
|
●
|
shelf space and
store placement;
|
|
|
|
|
●
|
brand and product
recognition;
|
|
|
|
|
●
|
product introductions;
and
|
|
|
|
|
●
|
raw materials.
|
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 DSHEA, and regulations promulgated thereunder. The DSHEA 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.
Recent
U.S. tax legislation could adversely affect our business and financial condition
On December 22, 2017,
U.S. tax reform legislation known as the Tax Cuts and Jobs Act (the “TCJA”) was signed into law. The TCJA makes substantial
changes to U.S. tax law, including 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 IRS continues to issue guidance and
interpretations regarding the TCJA which are subject to additional regulatory or administrative developments, including any regulations
or other guidance promulgated by the U.S. Internal Revenue Service, or IRS, and other regulators. The TCJA contains numerous,
complex provisions impacting U.S. companies, and we continue to review and assess the legislative language and guidance promulgated
by the IRS and other regulators to determine the TCJA’s full impact on us. Further, we can provide no assurance our current
interpretations of, and assumptions regarding, the TCJA and any related regulations or guidance will not be reviewed or investigated
by regulators in the future. We urge our stockholders to consult with their tax advisors with respect to the TCJA and the potential
tax consequences of investing in our common stock.
Our business
and operations, and the operations of our customers, may be adversely affected by epidemics and pandemics, such as the recent COVID-19
outbreak.
We may face risks related
to health epidemics and pandemics or other outbreaks of communicable diseases, which could result in a widespread health crisis
that could adversely affect general commercial activity and the economies and financial markets of many countries. For example,
the recent outbreak of COVID-19, which began in China, has been declared by the World Health Organization to be a “pandemic,”
has spread across the globe to many countries and is impacting worldwide economic activity. A health epidemic or pandemic or other
outbreak of communicable diseases, such as the current COVID-19 pandemic, poses the risk that we or our customers, suppliers and
other business partners may be disrupted or prevented from conducting business activities for certain periods of time, the durations
of which are uncertain, and may otherwise experience significant impairments of business activities, including due to, among other
things, operational shutdowns or suspensions that may be requested or mandated by national or local governmental authorities or
self-imposed by us, our customers, suppliers or other business partners. While it is not possible at this time to estimate the
impact that COVID-19 could have on our business, customers, suppliers or other business partners, the continued spread of COVID-19,
the measures taken by the governments of affected countries, actions taken to protect employees, and the impact of the pandemic
on various business activities in affected countries could adversely affect our results of operations and financial condition.
Catastrophic
events or geopolitical conditions may disrupt our business.
A
disruption or failure of our systems or operations because of a major earthquake, weather event, cyberattack, terrorist attack,
or other catastrophic event could cause delays in completing sales, providing services, or performing other critical functions.
We are
exposed to risks related to cybersecurity threats and general information security incidents which may also expose us to liability
under data protection laws including the GDPR.
In the conduct of
our business, we increasingly collect, use, transmit and store data on information technology systems. This data includes confidential
information belonging to us, our customers and other business partners, as well as personally identifiable information of individuals,
including our employees. We have experienced, and expect to continue to be subject to, cybersecurity threats and incidents, ranging
from employee error or misuse to individual attempts to gain unauthorized access to information technology systems, to sophisticated
and targeted measures known as advanced persistent threats, none of which have been material to date.
Although we devote
resources to network security, data encryption and other measures to protect our information technology systems and data from
unauthorized access or misuse, including those measures necessary to meet certain information security standards that may be required
by our customers, there can be no assurance that these measures will be successful in preventing a cybersecurity or general information
security incident. We also rely in part on the reliability of certain tested third parties’ cybersecurity measures, including
firewalls, virus solutions and backup solutions, and our business may be affected if these third-party resources are compromised.
Cybersecurity incidents
may result in business disruption, the misappropriation, corruption or loss of confidential information (including personally
identifiable information) and critical data (ours or that of third parties), reputational damage, litigation with third parties,
regulatory fines, diminution in the value of our investment in research and development and data privacy issues and increased
information security protection and remediation costs. As these cybersecurity threats, and government and regulatory oversight
of associated risks continue to evolve, we may be required to expend additional resources to remediate, enhance or expand upon
the cybersecurity protection and security measures we currently maintain. For example, we are subject to the European Union’s
General Data Protection Regulation (“GDPR”), which became enforceable from May 25, 2018. The GDPR introduced a number
of new obligations for subject companies resulting in the need to continue dedicating financial resources and management time
to GDPR compliance. While we have taken steps to ensure compliance with the GDPR, there can be no assurance that the measures
we have taken will be successful in preventing an incident, including a cybersecurity incident or other data breach, which results
in a breach of the GDPR. Individuals who have suffered damage as a result of a subject company’s non-compliance with the
GDPR also have the right to seek compensation from such a company.
Future cybersecurity
breaches, general information security incidents, further increases in data protection costs or failure to comply with relevant
legal obligations regarding protection of data could therefore have a material adverse effect on our results of operations, financial
position and cash flows.
Failure
to comply with the United States Foreign Corrupt Practices Act could subject us to penalties and other adverse consequences.
We are subject to
the United States Foreign Corrupt Practices Act, which generally prohibits United States companies from engaging in bribery or
other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Foreign companies, including
some that may compete with us, are not subject to these prohibitions. To our knowledge, none of our employees or other agents
have engaged in such practices. However, if our employees or other agents are found to have engaged in such practices, we could
suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and
results of operations.
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.
On November 12, 2019, we received a notice from the staff of the
Listing Qualifications Department of The Nasdaq Stock Market LLC indicating that, based upon the staff’s determination we
were not in compliance with Nasdaq Listing Rule 5550(b)(1) because, based on the reported total stockholders’ equity in our
Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, the Company did not have a minimum of $2,500,000 in stockholders’
equity for continued listing on Nasdaq Capital Market (the “Stockholders’ Equity Requirement”). Specifically,
the Company’s total stockholders’ equity as of the quarter ended September 30, 2019 was approximately $2,365,000, or
approximately $135,000 less than the Stockholders’ Equity Requirement.
We submitted a compliance plan for the Staff’s
review and the staff accepted the plan and granted us an extension to provide evidence of compliance with the Stockholders’
Equity Requirement by May 14, 2020.
The
Company anticipates regaining compliance with the Stockholders’ Equity Requirement during the Extension Period. However,
there can be no assurance that the Company will be able to satisfy the Stockholders’ Equity Requirement.
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:
|
●
|
a limited availability
of market quotations for our securities;
|
|
|
|
|
●
|
reduced liquidity
for our shares;
|
|
|
|
|
●
|
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;
|
|
|
|
|
●
|
a limited amount
of news and analyst coverage; and
|
|
|
|
|
●
|
a decreased ability
to issue additional securities or obtain additional financing in the future.
|
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:
|
●
|
investors may have
difficulty buying and selling our common stock or obtaining market quotations;
|
|
|
|
|
●
|
market visibility
for our common stock may be limited; and
|
|
|
|
|
●
|
a lack of visibility
for our common stock may have a depressive effect on the market price.
|
The
trading price of our common stock is 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:
|
●
|
actual or anticipated
fluctuations in our quarterly operating results;
|
|
|
|
|
●
|
changes in financial
estimates by securities research analysts;
|
|
●
|
conditions in nutritional
supplement markets;
|
|
|
|
|
●
|
changes in the economic
performance or market valuations of other nutritional supplement companies;
|
|
|
|
|
●
|
announcements by
us or our competitors of new products, new clinical studies, acquisitions, strategic partnerships, joint ventures or capital
commitments;
|
|
|
|
|
●
|
addition or departure
of key personnel;
|
|
|
|
|
●
|
intellectual property
prosecution or other litigation; and
|
|
|
|
|
●
|
general economic
or political conditions such as the COVID-19 virus
|
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 1,200,000 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 663,356 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 1,897,568 shares, or approximately 17.5% of our outstanding shares of common
stock. As a result, he is able to assert 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.
Our affiliates
may control our company for the foreseeable future, including the outcome of matters requiring stockholder approval.
Our
officers, directors, and five percent stockholders collectively beneficially own 4,939,284 or approximately 45.5% of our
outstanding shares of common stock, and shares of common stock to be issued upon the exercise of stock option and warrants.
This concentration of voting power and control could have a significant effect in delaying, deferring or preventing an action
that might otherwise be beneficial to our other stockholders and be disadvantageous to our stockholders with interests
different from those entities and individuals. Certain of these individuals also have significant control over our business,
policies and affairs as our officers or directors.
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 biotechnology 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.