PART
I
Overview
We
are an emerging company focused on the discovery, development and commercialization of advanced nutrition products that improve
muscle health and performance. As used in this report, the “Company”, “MYOS”, “our”, or “we”
refers to MYOS RENS Technology Inc. and its wholly-owned subsidiary, unless the context indicates otherwise.
We
were incorporated under the laws of the State of Nevada on April 11, 2007. On March 17, 2016, we merged with our wholly-owned
subsidiary and changed our name from MYOS Corporation to MYOS RENS Technology Inc. Prior to February 2011, we did not have any
operations and did not generate revenues. In February 2011, we entered into an intellectual property purchase agreement pursuant
to which our subsidiary purchased from Peak Wellness, Inc. 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.
Since
February 2011, our principal business activities have been
focused on the discovery, development
and commercialization of advanced nutrition products, functional foods, and other technologies aimed at maintaining or improving
the health and performance of muscle tissue. 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.
We
continue to pursue additional distribution and branded sales opportunities. We expect to continue developing our own core branded
products in markets such as functional foods, sports and fitness nutrition, rehabilitation and restorative health, and domestic
pets, and to pursue international sales opportunities. There can be no assurance that we will be able to secure distribution arrangements
on terms acceptable to us, or that we will be able to generate significant sales of our current and future branded products.
Our
executive offices are currently located at 45 Horsehill Road, Suite 106, Cedar Knolls, New Jersey 07927 and our telephone number
is (973) 509-0444. Our corporate website address is http://www.myosrens.com and our product websites are http://www.yolked.com;
http://www.myospet.com and http://www.qurr.com. Neither the information on our current or future website is, nor shall such information
be deemed to be, a part of this Report or incorporated in filings we make with the Securities and Exchange Commission.
General
Following
our purchase of Fortetropin
®
in February 2011, we have been focusing on the discovery, development, and commercialization
of nutritional ingredients, functional foods, and other technologies aimed at maintaining or improving the health and performance
of muscle tissue.
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.
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 $250 billion in annual worldwide sales in 2017. The market for the global sports nutrition segment grew to $14 billion
in 2017 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 $8.3 billion in 2017 consisting of nearly 60% of the total with a growth of 11% per year through
2022, reaching an expected $13 billion by 2021 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. These data suggests that muscular strength adds to the protective effect of cardiorespiratory
fitness against the risk of death in men. Moreover, it might be possible to reduce all-cause mortality among men by promoting
regular resistance training.
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
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Biochemical
characterization of Fortetropin
®
, including proteomic and lipidomic approaches;
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Identification
and isolation of proteins, peptides, and lipids in Fortetropin® responsible for pro-myogenic activity.
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Pre-Clinical
Research
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Effect
of Fortetropin
®
to reverse disuse atrophy in dogs after an orthopedic surgery procedure to repair the cranial
cruciate ligament (CCL);
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Effect
of Fortetropin® on quality of life and activity in geriatric dogs;
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Effect
of Fortetropin® on serum myostatin levels in healthy dogs.
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Clinical
Research
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Effect
of Fortetropin
®
on skeletal muscle protein fractional synthetic rate in older men and women;
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Effect
of Fortetropin
®
on muscle function and recovery after orthopedic procedures.
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Our
research program is actively evaluating the many active proteins, lipids and peptides in Fortetropin
®
. We believe
our research programs will establish a basis for the continued prosecution of patent applications in order to 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
We
invest in research and development activities externally through academic and industry collaborations aimed at enhancing our products,
optimizing manufacturing and broadening the product portfolio. We have developed the following collaborations with various academic
centers:
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In
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®.
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In March 2018, we
entered into a research agreement with Rutgers University, The State University of New Jersey, to work with Rutgers researchers
in a program focused on discovering compounds and products for improving muscle health and performance.
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In December
2017, we entered into an agreement with the University of California, Berkeley’s Department
of Nutritional Sciences & Toxicology. The research project will study the effects
of Fortetropin
®
on increasing the fractional rate of skeletal muscle protein
synthesis in men and women between 60 and 75 years old. The Principal Investigator for this
clinical study is William J. Evans, PhD, Adjunct Professor of Human Nutrition at the Department
of Nutritional Sciences & Toxicology at the University of California, Berkeley. Professor
Evans, a leading authority in muscle health research, is coordinating the activities of a
multi-disciplinary team of scientists and physicians. In this randomized, double-blind,
placebo-controlled clinical study, 20 subjects, men and women 60 – 75 years of age,
will consume either Fortetropin
®
or a placebo for 21 days along with daily
doses of a heavy water tracer. After 21 days, a micro-biopsy will be collected from
each subject to determine the fractional rate of muscle protein synthesis. In July 2018,
we agreed to pay for additional costs incurred in connection with the study. We anticipate
the clinical study will be completed by the end of the second quarter of 2019.
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In
April 2017, we entered into an agreement with the College of Veterinary Medicine at Kansas State University to study the
impact of Fortetropin
®
on reducing muscle atrophy in dogs after Tibial-Plateau-Leveling Osteotomy (“TPLO”)
surgery to repair the cranial cruciate ligament (CCL). 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.
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In
May 2015, we initiated a dose response clinical study led by Jacob Wilson, Ph.D., CSCS*D, Professor of Health Sciences and
Human Performance at the University of Tampa, to examine the effects of Fortetropin
®
supplementation on plasma
myostatin levels at various dosing levels in young adult males and females. This study is intended to help us better define
the dose response curve, the minimal effective dose and effects of Fortetropin
®
on serum myostatin. In this
double blind placebo controlled clinical study, 80 male and female subjects ranging in ages between 18 and 22 were randomized
into four groups such that no significant differences in serum myostatin concentration existed between groups. Following assignment
to one of the four groups, blood samples were collected to establish baseline values. Subjects were subsequently supplemented
with three different doses of Fortetropin
®
(2.0g, 4.0g and 6.6g) and a matching placebo for one week. Following
one week of supplementation, blood samples were collected and serum myostatin levels were assayed. Results demonstrated that
Fortetropin
®
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.
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In
August 2014, we entered into a research agreement with Human Metabolome Technologies America, Inc., (“HMT”), to
apply their proprietary, state-of-the-art capillary electrophoresis-mass spectrometry (CE-MS) technologies to characterize
the metabolomic profiles of plasma samples obtained from healthy male subjects who used either Fortetropin
®
or placebo with the goal of identifying metabolites with pro-myogenic activity in the plasma samples of subjects who took
Fortetropin
®
as well as examining the effect on glucose and fat metabolism. HMT used a metabolite database
of over 290 lipids and over 900 metabolites to identify potential plasma biomarkers 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.
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In
May 2014, we entered into an agreement with the University of Tampa to study the effects of Fortetropin
®
supplementation
in conjunction with modest resistance training 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 55
th
annual conference. A separate mechanism of action study at the University of Tampa demonstrated that in addition to reducing
serum myostatin levels, Fortetropin
®
showed activity in mTOR and Ubiquitin pathways, two other crucial signaling
pathways in the growth and maintenance of healthy muscle. Specifically, the preclinical data showed that Fortetropin
®
up-regulates the mTOR regulatory pathway. The mTOR pathway is responsible for production of a protein kinase related
to cell growth and proliferation that increases skeletal muscle mass. Up-regulation of the mTOR pathway is important in preventing
muscle atrophy. 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.
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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. The formula was sold under the
brand name MYO-T12 and later as MYO-X through an exclusive distribution agreement that terminated in March 2015 and the product
line was discontinued.
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. The Company recorded $200 of sales in 2017 to Cenegenics. There were no sales
to Cenegenics in 2018. As of the filing date of this Report we have not received any new sales orders from Cenegenics.
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 $22 of net sales in 2017 of Rē Muscle Health
®
products and no net sales in 2018. 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
$24 of net sales in 2017 of Physician Muscle Health Formula
®
and $24 of net sales in 2018. Any remaining expired
inventory was written off as of the year ended December 31, 2018.
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. Qurr
®
is a line of flavored puddings, powders, and
shakes for daily use. Our Qurr
®
line of muscle-focused over-the-counter products are available through a convenient,
direct-to-consumer e-commerce platform. All Qurr
®
products contain Fortetropin
®
, our proprietary
ingredient which has been clinically demonstrated to reduce serum myostatin levels which helps increase muscle size and lean body
mass in conjunction with resistance training. We recorded $164 of net sales in 2017 and $175 of net sales in 2018 for our Qurr
®
product line. Any remaining expired inventory was written off as of the year ended December 31, 2018.
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 $117 of net sales in 2018 for our Yolked
®
product line.
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 2018 we recorded $44 of net sales of MCMF.
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 # 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:
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Methods
of treating degenerative muscle disease – covering methods of treating various degenerative muscle diseases, such as
sarcopenia, with avian egg-based products and the compositions thereof.
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Methods
and products for increasing muscle mass – covering various combinations of proteins, lipids and other molecules, which
are active in the natural form of our core commercial products, which may be combined to yield improved products and methods
for increasing muscle mass.
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Egg-based
product containing hydroxymethylbutyrate, or HMB, for the treatment of degenerative muscle disease – covering a line
of products combining avian egg-based products with HMB for improved treatment of degenerative muscle diseases and the methods
of treating the same.
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Egg-based
product containing leucine for treatment of degenerative muscle disease - covering a line of products combining avian egg-based
products with leucine for improved treatment of degenerative muscle diseases and the methods of treating the same.
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Methods
of treatment of degenerative muscle disease using egg-based products and testosterone replacement therapy – covering
methods of treating degenerative muscle disease in combination with testosterone replacement therapy for improved results.
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Methods
of treatment of cancer and neurological diseases using avian egg powder.
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Methods
of treatment of insulin resistance and Type II diabetes using avian egg powder.
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Method
of enhancing overall health and longevity using avian egg powder.
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In
addition to patent protection, we are also engaged in protecting our brands, including corporate brands and product brands, and
have sought trademark registrations in the United States for the same. We have implemented a clearance strategy for new brands
that we intend to launch, to ensure any risk of encroaching on the rights of third parties is minimized.
We
regard our trademarks and other proprietary rights as valuable assets and believe that protecting our key trademarks is crucial
to our business strategy of building strong brand name recognition. These trademarks are crucial elements of our business, and
have significant value in the marketing of our products. Federally registered trademarks have a perpetual life, provided that
they are maintained and renewed on a timely basis and used correctly as trademarks, subject to the rights of third parties to
attempt to cancel a trademark if priority is claimed or there is confusion of usage. We rely on common law trademark rights to
protect our unregistered trademarks. Common law trademark rights generally are limited to the geographic area in which the trademark
is actually used, while a United States federal registration of a trademark enables the registrant to stop the unauthorized use
of the trademark by third parties in the United States. Much of our ongoing work, including our research and development, is kept
highly confidential. As such, we have adopted corporate confidentiality policies that comply with the Uniform Trade Secrets Act
and the New Jersey Trade Secret Act to protect our most valuable intellectual property assets.
Regulatory
Environment
The
importing, manufacturing, processing, formulating, packaging, labeling, distributing, selling and advertising of our current and
future products may be subject to regulation by one or more federal or state agencies. The Food and Drug Administration, or the
FDA, has primary jurisdiction over our products pursuant to the Federal Food, Drug and Cosmetic Act, as amended by the Dietary
Supplement and Health Education Act, or the 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. Since the
beginning of 2012, we have been focusing 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 supplements is highly competitive. Companies operating in the space include PepsiCo Inc., Glanbia Plc.
GNC Holdings, The Coca-Cola Company, GlaxoSmithKline, Abbott Laboratories, Nestle S.A. and Universal Nutrition. Competition is
based on price, quality, customer service, marketing and product effectiveness. Our competition includes numerous nutritional
supplement companies that are highly fragmented in terms of geographic market coverage, distribution channels and product categories.
In addition, large pharmaceutical companies and packaged food and beverage companies compete with us in the nutritional supplement
market. These companies and certain nutritional supplement companies have broader product lines and/or larger sales volumes than
us and have greater financial and other resources available to them and possess extensive manufacturing, distribution and marketing
capabilities. Other companies are able to compete more effectively due to a greater extent of vertical integration. Private label
products of our competitors, which in recent years have significantly increased in certain nutrition categories, compete directly
with our products. In several product categories, private label items are the market share leaders. Increased competition from
such companies, including private label pressures, could have a material adverse effect on our results of operations and financial
condition. Many companies within our industry are privately-held and therefore, we are unable to assess the size of all of our
competitors or where we rank in comparison to such privately-held competitors with respect to sales.
Insurance
We
maintain commercial liability, including product liability coverage, and property insurance. Our policy provides for a general
liability of $5.0 million per occurrence, and $10.0 million annual aggregate coverage. We carry property coverage on our main
office facility to cover our 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 12 full-time employees (including one executive officer). We also employ several consultants. None of our employees
are represented by a labor union and we consider our employee relations to be good.
Investing
in our securities involves a high degree of risk. Before deciding whether to invest in our securities, you should carefully consider
the risk factors set forth below, and other information contained in this Report including our financial statements and the related
notes thereto. The risks and uncertainties set forth below are not the only ones we face. Additional risks and uncertainties not
presently known to us or that we currently consider immaterial may also adversely affect us. If any of the described risks occur,
our business, financial condition or results of operations could be materially harmed. In such case, the value of our securities
could decline and you may lose all or part of your investment. Amounts in this section are in thousands, unless otherwise indicated.
RISKS
RELATING TO OUR BUSINESS
Our
limited operating history makes it difficult to evaluate our future prospects and results of operations
.
We
are an early stage company and have a limited operating history. Our future prospects should be considered in light of the risks
and uncertainties experienced by early stage companies in evolving markets such as the market for our current and future products,
if any, in the United States. We will continue to encounter risks and difficulties that companies at a similar stage of development
frequently experience, including the potential failure to:
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increase
awareness and develop customer loyalty;
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adequately
protect and build our intellectual property;
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develop
new products while maintaining effective control of our costs and expenses;
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conduct
successful research and development activities;
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respond
to requirements and changes in our regulatory environment;
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to competitive market conditions;
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availability
of sufficient capital resources to adequately promote and market our products; and
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attract,
retain and motivate qualified personnel.
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If
we are unable to address any or all of 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, 2018, our net sales were $360, of which $76,
or 21%, was attributable to Vitamin Shoppe. For the year ended December 31, 2017, our net sales were $526, of which $200, or 38%,
was attributable to Cenegenics.
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.
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, 2018, we had cumulative net losses from inception of $35,067. Our net loss for the years ended December 31, 2018
and 2017 were $3,223 and $4,058, 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, 2018 were $360 and our sales for the year ended December 31, 2017 were $526. We cannot give
assurances that our current business model will enable us to increase our sales.
The
report of our independent registered public accounting firm expresses substantial doubt about our ability to continue as a going
concern.
Our
auditors have indicated in their report on our financial statements for the years ended December 31, 2018 and December 31, 2017
that conditions exist that raise substantial doubt about our ability to continue as a going concern since we may not have sufficient
capital resources from operations and existing financing arrangements to meet our operating expenses and working capital requirements.
A “going concern” opinion could impair our ability to finance our operations through the sale of equity, or other
financing alternatives. There can be no assurance that we will be able to generate the level of operating revenues projected in
our business plan, or if additional sources of financing will be available on acceptable terms, if at all. If no additional sources
of financing become available, our future operating prospects may be adversely affected and investors may lose all or a part of
their investment.
Our
intangible assets, which represent a significant amount of our total assets, are subject to impairment testing and may result
in impairment charges, which would adversely affect our results of operations and financial condition.
At
December 31, 2018, our total assets were $4,480
, of which $1,245, or approximately 28%, 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 eighteen (18) 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 the intellectual property for impairment in the fourth quarter of 2018 and 2017 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
expect that our current funds will not be sufficient to fund our projected operations through December 2019. 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 seek additional funding in 2019 through public
or private financing or through collaborative arrangements with strategic partners.
We
cannot assure you that we will be able to obtain additional financing or that such financing would be sufficient to meet our needs.
If we cannot obtain additional funding, we may be required to limit our marketing efforts, decrease or eliminate capital expenditures
or cease all or a portion of our operations, including any research and development activities. Any available additional financing
may not be adequate to meet our goals.
Even
if we are able to locate a source of additional capital 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.
Since
our revenues are generated in U.S. dollars but a portion of our expenses are incurred in foreign currencies, our earnings may
be reduced due to currency exchange rate fluctuations.
Our
revenues are generated in U.S. dollars, while a portion of our expenses related to our supply agreement are incurred in foreign
currencies, principally the payments to our primary manufacturer that are paid in euros. The exchange rates between the U.S. dollar
and other currencies fluctuate and are affected by, among other things, changes in political and economic conditions. Any significant
fluctuation in the exchange rate for these currencies may materially and adversely affect our earnings, cash flows and financial
condition.
If
we are unable to manage our infrastructure growth, our business results may be materially and adversely affected.
We
need to manage our infrastructure growth to support and maximize our potential revenue growth and achieve our expected business
results. Engaging the full capacity of our limited staff may place a significant strain on our management, operations, and accounting
and information systems. We expect that we will need to continue to improve our financial controls, operating procedures and management
information systems. The failure to manage our infrastructure growth could adversely affect our business results.
If
we are not able to implement our business objectives, our operations and financial performance may be adversely affected.
Our
principal objectives are to: (i) create a sales platform through marketing products containing our proprietary ingredient Fortetropin
®
in established, growing, and new markets and strategic selection of partnerships and collaborations to maximize near-term
and future revenues, (ii) deepen the scientific understanding of the activity of Fortetropin
®
, 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 primary third-party manufacturer
to produce Fortetropin
®
under a fixed price agreement that ran through December 2018. We have not renewed the agreement
but we believe we will be able to negotiate a new one before any shortages
in our raw materials
could adversely affect our operations. Price increases from a supplier will affect our profitability if we are not able to pass
price increases on to customers. The inability to obtain adequate supplies of raw materials in a timely manner of our raw materials
could 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, 2018 and 2017 included slow moving obsolete/damaged
goods inventory charges of $-0- and $2, respectively. Future required write-offs or reserves could have a material adverse effect
on our business, financial condition and results of operations.
We
have no manufacturing capacity and anticipate continued reliance on third-party manufacturers for the development and commercialization
of our products.
We
do not currently operate manufacturing facilities for production of our product. We lack the resources and the capabilities to
manufacture our products on a commercial scale. We 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.
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. We endeavor to accurately predict these trends and avoid overstocking
or understocking our products. Demand for products, however, can change significantly between the time inventory is ordered and
the date of sale. In addition, when we begin selling or manufacturing a new product, it may be difficult to determine appropriate
product selection, and accurately forecast demand. The acquisition of inventory may require significant lead-time and prepayment
and we may be unable to sell products in sufficient quantities or during the relevant selling seasons. Any one of these risks
may adversely affect our operating results.
Our
failure to respond appropriately to competitive challenges, changing consumer preferences and demand for new products could significantly
harm our customer relationships and product sales.
The
nutritional supplement industry is characterized by intense competition for product offerings and rapid and frequent changes in
consumer demand. Our failure to predict accurately product trends could negatively impact our products and cause our revenues
to decline.
Our
success with any particular product offering (whether new or existing) depends upon a number of factors, including our ability
to:
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deliver
quality products in a timely manner in sufficient volumes;
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accurately
anticipate customer needs and forecast accurately to our manufacturers;
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differentiate
our product offerings from those of our competitors;
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competitively
price our products; and
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develop
new products.
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Furthermore,
products often have to be promoted heavily in stores or in the media to obtain visibility and consumer acceptance. Acquiring distribution
for products is difficult and often expensive due to slotting and other promotional charges mandated by retailers. Products can
take substantial periods of time to develop consumer awareness, consumer acceptance and sales volume. Accordingly, some products
may fail to gain or maintain sufficient sales volume and as a result may have to be discontinued.
Our
industry is highly competitive, and our failure to compete effectively could adversely affect our market share, financial condition
and future growth.
The
nutritional supplement industry is highly competitive with respect to:
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price;
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shelf
space and store placement;
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brand
and product recognition;
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product
introductions; and
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raw
materials.
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Most
of our competitors are larger, more established companies and possess greater financial strength, personnel, distribution and
other resources than we have. We face competition in the supplement market from a number of large nationally known manufacturers,
private label brands and many smaller manufacturers.
Adverse
publicity or consumer perception of our products and any similar products distributed by others could harm our reputation and
adversely affect our sales.
We
believe we are highly dependent upon positive consumer perceptions of the safety and quality of our products as well as similar
products distributed by other nutritional supplement companies. Consumer perception of nutritional supplements and our products
in particular can be substantially influenced by scientific research or findings, national media attention and other publicity
about product use. Adverse publicity from these sources regarding the safety, quality or efficacy of nutritional supplements and
our products could harm our reputation and results of operations. The mere publication of news articles or reports asserting that
such products may be harmful or questioning their efficacy could have a material adverse effect on our business, financial condition
and results of operations, regardless of whether such news articles or reports are scientifically supported or whether the claimed
harmful effects would be present at the dosages recommended for such products.
Changes
in the economies of the markets in which we do business may affect consumer demand for our products.
Consumer
spending habits, including spending for our products, are affected by, among other things, prevailing economic conditions, levels
of employment, fuel prices, changes in exchange rates, salaries and wages, the availability of consumer credit, consumer confidence
and consumer perception of economic conditions. Economic slowdowns in the markets in which we do business and an uncertain economic
outlook may adversely affect consumer spending habits, which may result in lower sales of our products in future periods. A prolonged
global or regional economic downturn could have a material negative impact on our financial position, results of operation or
cash flows.
Our
insurance coverage may be insufficient to cover our legal claims or other losses that we may incur in the future.
We
maintain insurance, including property, general and product liability and other forms of insurance to protect ourselves against
potential loss exposures. In the future, insurance coverage may not be available at adequate levels or on adequate terms to cover
potential losses. If insurance coverage is inadequate or unavailable, we may face claims that exceed coverage limits or that are
not covered, which could increase our costs and adversely affect our operating results.
We
may be subject to uncertain and costly compliance with government regulations.
The
importing, manufacturing, processing, formulating, packaging, labeling, distributing, selling and advertising of our current and
future products may be subject to regulation by one or more federal or state agencies. The Food and Drug Administration, or the
FDA, has primary jurisdiction over our products pursuant to the Federal Food, Drug and Cosmetic Act, as amended by the Dietary
Supplement and Health Education Act, or the 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.
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.
If
the Nasdaq Capital Market delists our shares of common stock from trading on its exchange and we are not able to list our securities
on another national securities exchange, we expect our securities could be quoted on an over-the-counter market. If this were
to occur, we could face significant material adverse consequences, including:
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a
limited availability of market quotations for our securities;
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reduced
liquidity for our shares;
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a
determination that our common stock is a “penny stock” which will require brokers trading in our common stock
to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market
for our shares;
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limited amount of news and analyst coverage; and
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a
decreased ability to issue additional securities or obtain additional financing in the future.
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An
active and visible trading market for our common stock may not develop.
We
cannot predict whether an active market for our common stock will develop in the future. In the absence of an active trading market:
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investors
may have difficulty buying and selling our common stock or obtaining market quotations;
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market
visibility for our common stock may be limited; and
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a
lack of visibility for our common stock may have a depressive effect on the market price.
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The
trading price of our common stock is expected to be subject to significant fluctuations in response to variations in quarterly
operating results, changes in analysts’ earnings estimates, announcements of innovations by us or our competitors, general
conditions in the industry in which we operate and other factors. These fluctuations, as well as general economic and market conditions,
may have a material or adverse effect on the market price of our common stock.
The
market price for our stock may be volatile.
The
market price for our stock may be volatile and subject to wide fluctuations in response to factors including the following:
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actual
or anticipated fluctuations in our quarterly operating results;
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changes
in financial estimates by securities research analysts;
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conditions
in nutritional supplement markets;
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changes
in the economic performance or market valuations of other nutritional supplement companies;
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announcements
by us or our competitors of new products, new clinical studies, acquisitions, strategic partnerships, joint ventures or capital
commitments;
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addition
or departure of key personnel;
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intellectual
property prosecution or other litigation; and
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general
economic or political conditions.
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In
addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related
to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market
price of our stock.
Our
stockholders may experience significant dilution if future equity offerings are used to fund operations or acquire complementary
businesses or as a result of the issuance of a substantial number of shares of common stock upon the exercise of outstanding options
and warrants.
If
our future operations or acquisitions are financed through the issuance of equity securities, our stockholders could experience
significant dilution. In addition, securities issued in connection with future financing activities or potential acquisitions
may have rights and preferences senior to the rights and preferences of our common stock. We have also reserved 850,000 shares
of our common stock under an equity incentive plan for our directors, officers, employees, consultants and advisors and granted
options to purchase shares of our common stock under the plan. The issuance of shares of our common stock upon the exercise of
these options as well as upon the exercise of outstanding warrants to purchase up to 821,202 shares of our common stock, which
includes a warrant to purchase 375,000 shares of common stock previously issued to RENS Technology Inc., may result in significant
dilution to our stockholders.
Mr.
Ren can exert significant influence over us and make decisions that are not in the best interests of all stockholders.
Mr.
Ren and his affiliates currently beneficially own 1,897,568 shares, or approximately 20.7% 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 4,966,397 or approximately 54.2% 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 officers
or directors of our company.
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.
Item
1B.
|
Unresolved
Staff Comments.
|
Not
applicable.
We
do not own any real estate or other physical properties materially important to our operation. Our executive office is located
at 45 Horsehill Road, Suite 106, Cedar Knolls, New Jersey 07927. Our office space consists of 5,225 square feet. The lease expires
on December 31, 2019. We have two options to renew our lease for an additional three years each. We consider our current office
space adequate for our current operations. For additional information refer to Part IV, Item 15, “Notes to Consolidated
Financial Statements: Note 13 – Commitments and Contingencies.”
Item
3.
|
Legal
Proceedings.
|
On
January 6, 2017, in connection with the financing contemplated by a securities purchase agreement with RENS Technology Inc. (the
“Purchaser”), we commenced an action in the Supreme Court of New York, County of New York (the “Court”),
against the Purchaser, RENS Agriculture, the parent company of the Purchaser, and Ren Ren, a principal in both entities and one
of our directors, arising from the Purchaser’s breach of the agreement under which the Purchaser agreed to invest an aggregate
of $20.25 million in our company in exchange for an aggregate of 3,537,037 shares of our common stock and warrants to purchase
an aggregate of 884,259 shares of common stock.
On
April 11, 2017, the Court noted that we had demonstrated a likelihood of success on the merits of the breach of contract claim.
Thereafter, a hearing was scheduled on the application by the Purchaser to dismiss the complaint and various pre-trial discovery
applications by both parties.
In
August 2017, the Company amended its complaint repeating most of the initial claims but adding several additional claims against
RENS Agriculture, Mr. Ren and two additional Chinese defendants, including a claim against RENS Agriculture for breaching the
exclusive distribution agreement, as well as claims against all defendants for theft and misappropriation of our confidential
proprietary information and trade secrets, breach of fiduciary duty and duty of loyalty, misappropriation of corporate opportunity,
unfair competition and a number of other torts. We are seeking damages and injunctive relief. The Purchaser has filed a motion
to dismiss the amended complaint, which is still pending and scheduled for oral argument in the second quarter of 2019.
On
August 16, 2017, the Purchaser commenced an action in the District Court of Clark County in the State of Nevada against us and
Joseph Mannello, our then interim Chief Executive Officer, alleging that Mr. Mannello had breached his fiduciary duties and was
grossly negligent in managing our company. The action seeks monetary damages and injunctive relief from Mr. Mannello as well as
the appointment of a receiver over us. Subsequently, the Purchaser submitted a petition to appoint a receiver and we and Mr. Mannello
submitted a motion to dismiss the action, both of which are currently pending as of the date of this report. An application on
consent to adjourn the hearing date on the receiver application and motion to dismiss is pending as of the date of this Report.
The
Company and Purchaser are currently in settlement discussions regarding the foregoing matters.
Item
4.
|
Mine
Safety Disclosures.
|
None.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2018
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
NOTE
1 – NATURE OF OPERATIONS, BASIS OF PRESENTATION AND LIQUIDITY
Nature
of Operations
MYOS
RENS Technology Inc. is an emerging company focused on the discovery, development and commercialization of advanced nutrition
products that improve muscle health and performance. The Company was incorporated under the laws of the State of Nevada on April
11, 2007. On March 17, 2016, the Company merged with its wholly-owned subsidiary and changed its name from MYOS Corporation to
MYOS RENS Technology Inc. As used in these financial statements, the terms “the Company”, “MYOS”, “our”,
or “we”, refers to MYOS RENS Technology Inc. and its subsidiary, unless the context indicates otherwise. On February
25, 2011, the Company entered into an agreement to acquire the intellectual property for Fortetropin
®
, our proprietary
active ingredient from Peak Wellness, Inc. The Company’s activities are subject to significant risks and uncertainties.
Our
commercial focus is to leverage our clinical data to develop multiple products to target the large, but currently underserved,
markets focused on muscle health. The sales channels through which we sell our products are evolving. The first product we introduced
was MYO-T12, which was sold in the sports nutrition market. MYO-T12 is a proprietary formula containing Fortetropin
®
and other ingredients. The formula was sold under the brand name MYO-T12 and later as MYO-X through an exclusive distribution
agreement with Maximum Human Performance, or MHP. The distribution agreement was terminated in March 2015 and there have been
no subsequent sales to MHP since.
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. The Company recorded $200 of net sales for the year ended December 31, 2017
to Cenegenics. There were no sales to Cenegenics in 2018. As of the filing date of this report we have not received any new sales
orders from Cenegenics.
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 powered by a full 6.6 gram single serving dose of Fortetropin
®
. Rē
Muscle Health products were sold through our e-commerce website, remusclehealth.com, and amazon.com until March 2017 when the
product line was discontinued. The Company recorded $22 of net sales for the year ended December 31, 2017 of Rē Muscle Health
products and no sales for the year ended December 31, 2018. Any remaining inventory was written off in the year ended December
31, 2018.
In
May 2016, we launched Physician Muscle Health Formula, a proprietary formulation containing Fortetropin
®
and sold
directly to physicians to give to their patients who are focused on wellness. The Company recorded $24 of net sales of Physician
Muscle Health Formula for the year ended December 31, 2018, and December 31, 2017, respectively. Any remaining expired inventory
was written off in the year ended December 31, 2018.
In
March 2017 we launched Qurr®, a Fortetropin
®
-powered product line of flavored puddings, powders, and shakes
for daily use 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. All Qurr®
products contain Fortetropin
®
, our proprietary ingredient which has been clinically demonstrated to help increase
muscle size and lean body mass in conjunction with resistance training. The Company recorded $175 of net sales for the year ended
December 31, 2018 and $164 of net sales for the year ended December 31, 2017 for our Qurr® product line. Any remaining expired
inventory was written off in the year ended December 31, 2018.
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. The Company recorded $117 of net sales for the year ended December 31, 2018 for our Yolked® product line.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2018
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
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 saw 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 Kansas State University study, will enable us to grow our pet business product line.
The Company recorded $44 of net sales for the year ended December 31, 2018
of MCMF.
We
continue to pursue additional distribution and branded sales opportunities. There can be no assurance that we will be able to
secure distribution arrangements on terms acceptable to us, or that we will be able to generate significant sales of our current
and future branded products. We expect to continue developing our own core branded products in markets such as functional foods,
sports and fitness nutrition and to pursue international sales opportunities. 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.
Strategic
Investment Transaction
On
December 17, 2015, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with RENS Technology
Inc. (the “Purchaser”), pursuant to which the Purchaser agreed to invest $20.25 million in the Company in three tranches
(the “Financing”) in exchange for an aggregate of 3,537,037 shares (the “Shares”) of the Company’s
common stock, par value $0.001 per share (“Common Stock”). In the first tranche which closed on March 3, 2016 the
Purchaser acquired 1,500,000 Shares and a warrant to purchase 375,000 shares of Common Stock (the “Initial Warrant”)
for $5.25 million. On August 19, 2016, the Purchaser notified the Company that it did not intend to fulfill its obligation to
fund the second tranche of the Financing in accordance with terms of the Purchase Agreement.
On
January 6, 2017, in connection with the financing contemplated by a securities purchase agreement with RENS Technology Inc. (the
“Purchaser”), the Company commenced an action in the Supreme Court of New York, County of New York (the “Court”),
against the Purchaser, RENS Agriculture, the parent company of the Purchaser, and Ren Ren, a principal in both entities and one
of our directors, arising from the Purchaser’s breach of the aforementioned agreement. See
Note
15 – legal PROCEEDINGS.
Going
Concern and Liquidity
The
accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S.
GAAP”), which contemplates continuation of the Company as a going concern. The Company has suffered recurring losses from
operations and incurred a net loss of approximately $3,223 for the year ended December 31, 2018 and $4,058 for the year ended
December 31, 2017.
The
Company has historically recorded minimal sales during the past eighteen (18) consecutive quarters. In June 2018, the Company
launched a Fortetropin
®
based pet product called Myos Canine Muscle Formula®. In March 2018, the Company launched
Yolked®
TM
, a new sports nutrition product line. In March 2017, the Company launched Qurr®, a Fortetropin
®
powered product line to support the vital role of muscle in overall well-being.
As
of the filing date of this Report, management believes that there may not be sufficient capital resources from operations and
existing financing arrangements in order to meet operating expenses and working capital requirements for the next twelve months,
primarily due to the failure of RENS Technology Inc. to fund the required amounts. These facts raise substantial doubt about the
Company’s ability to continue as a going concern.
Accordingly,
we are evaluating various alternatives, including reducing operating expenses, securing additional financing through debt or equity
securities to fund future business activities and other strategic alternatives. There can be no assurance that the Company will
be able to generate the level of operating revenues in its business plan, or if additional sources of financing will be available
on acceptable terms, if at all. If no additional sources of financing are available, our future operating prospects may be adversely
affected. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2018
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
At-the-Market
Offering
On
February 21, 2017, the Company entered into a sales agreement with H.C. Wainwright & Co., LLC (“H.C. Wainwright”)
which established an at-the-market equity program pursuant to which the Company may offer and sell up to $6.0 million of its shares
of common stock from time to time through H.C. Wainwright. The Company incurred $125 of deferred offering costs in connection
with this program which were originally recorded as a long term other asset on the Company’s consolidated balance sheets.
Since this sales agreement expired by June 30, 2018 the remaining deferred offering costs of $96 were recognized and recorded
within the accompanying consolidated statements of operations as general and administrative expenses for the year ended December
31, 2018.
On
October 26, 2017, the Company sold 500,000 shares of common stock for $2.144 per share for gross proceeds of $1,070 in an at-the-market
offering.
On
January 19, 2018, the Company sold 140,295 shares of common stock for $2.111 per share for gross proceeds of $296 in an at-the-market
offering. On various dates in April 2018, the Company sold an aggregate of 131,225 shares of common stock at various prices for
aggregate gross proceeds of $176 under the Company’s existing at-the-market program.
On
July 24, 2018, the Company entered into a new sales agreement with H.C. Wainwright which established a new at-the-market equity
program pursuant to which the Company may offer and sell up to $1.6 million shares of common stock from time to time through H.C.
Wainwright. The Company incurred $108 of deferred offering costs in connection with this program as of December 31, 2018 which
was recorded as a long term other asset on the Company’s consolidated balance sheets. The deferred offering costs will be
reflected as a reduction in equity as the Company incurs sales of its stock pursuant to this program. Management continues to
evaluate the ongoing progress of this program and its related outstanding deferred offering costs.
Subsequent
to year end on January 15, 2019, the Company sold 32,489 shares of common stock for $2.00 per share for gross proceeds of $65
in an at-the-market offering. As of the filing date of this Form 10-K, a total of 804,009 shares were sold under this program
for aggregate gross proceeds of $1,609.
Private
Placement
On
April 25, 2018, the Company entered into a securities purchase agreement with private investors providing for the issuance and
sale by the Company of 806,452 shares of common stock, in a private placement offering at a purchase price of $1.24 per share,
for gross proceeds of $1,000 and net proceeds of $978.
Promissory
Note Payable
On
August 30, 2018, the Company executed an unsecured promissory note (the “Note”) in the principal amount of up to $750
in favor of Joseph Mannello, the Company’s chief executive officer (the “Lender”). On November 13, 2018, the
Company amended and restated the Note to increase the maximum amount that may be drawn down under the Note from $750 to $1,000.
Pursuant
to the Note, on August 30, 2018, the Lender advanced $500 of funds to the Company. On September 26, 2018, the Lender advanced
an additional $250 of funds to the Company. On December 27, 2018, the Lender advanced an additional $250 of funds to the Company.
The
Note accrues interest at a rate of 5% per annum and all payments of principal, interest and other amounts under the Note are payable
on August 31, 2019 or earlier under certain circumstances. The Company may prepay, in whole or in part, at any time, the principal,
interest and other amounts owing under the Note, without penalty. The proceeds of the Note will be used by the Company for general
working capital purposes. As of December 31, 2018, the Company accrued $15 of interest expense on the Note.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2018
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying consolidated financial statements have been prepared in accordance to U.S. GAAP and the rules and regulations of
the U.S. Securities and Exchange Commission (“SEC”). The consolidated financial information presented herein reflects
all normal adjustments that are, in the opinion of management, necessary for a fair statement of the financial position, results
of operations and cash flows for the periods presented. The Company is responsible for the consolidated financial statements included
in this report.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of MYOS RENS Technology Inc. and its wholly-owned subsidiary,
Atlas Acquisition Corp. All material intercompany balances and transactions have been eliminated in consolidation.
Reclassification
of Prior Year Presentation
Certain
prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications did not
have an impact on the reported results of operations.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, equity and the disclosures of contingent assets and liabilities at the date of
the financial statement and the reported amounts of revenues and expenses during the reporting period. Making estimates requires
management to exercise significant judgment. It is possible that the estimate of the effect of a condition, situation or set of
circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could
change in the near term due to one or more future non-conforming events. Accordingly, the actual results could differ significantly
from estimates. Significant items subject to such estimates include but are not limited to the valuation of stock-based awards,
measurement of allowances for doubtful accounts and inventory reserves, the selection of asset useful lives, fair value estimations
used to test long-lived assets, including intangibles, impairments and provisions necessary for assets and liabilities.
The
Company has recorded minimal sales to its distributors during the past eighteen consecutive quarters. Management’s estimates,
including evaluation of impairment of long-lived assets and inventory reserves are based in part on forecasted future results.
A variety of factors could cause actual results to differ from forecasted results and these differences could have a significant
effect on asset carrying amounts.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments purchased with a maturity of three months or less and money market accounts to
be cash equivalents. At December 31, 2018 and 2017, the Company had no cash equivalents. The Company maintains its bank accounts
with high credit quality financial institutions and has never experienced any losses related to these bank accounts. The Company
minimizes its credit risk associated with cash by periodically evaluating the credit quality of its financial institutions. As
part of our ongoing liquidity assessments management evaluates our cash, cash equivalents. The amount of funds held in bank can
fluctuate due to the timing of receipts and payments in the ordinary course of business and due to other reasons, such as business-development
activities so the Company may at times have exposure to cash in excess of FDIC insured limits.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2018
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
Concentrations
of Credit Risk, Significant Customers and Significant Supplier
Management regularly reviews accounts receivable,
and if necessary, establishes an allowance for doubtful accounts that reflects management’s best estimate of amounts that
may not be collectible based on historical collection experience and specific customer information. Accounts receivable is non-interest
bearing. Credit is issued to customers without collateral. If an account becomes delinquent management will review if a write off
is appropriate. Expense recognized as a result of an allowance for doubtful accounts is classified under selling, general and administrative
expenses in the consolidated statements of operations.
As
part of our ongoing liquidity assessments, management evaluates our cash and cash equivalents. The amount of funds held in the
bank can fluctuate due to the timing of receipts and payments during the ordinary course of business and other reasons, such as
business-development activities. The Company maintains cash balances, at times, with financial institutions in excess of amounts
insured by the FDIC. Management monitors the soundness of these institutions to minimize the
Company’s risk. As a result, the Company may have exposure to cash in excess of FDIC insured limits.
For
the year ended December 31, 2018, the Company had a concentration of revenue with one major customer accounting for 21% of
total revenue. For the year ended December 31, 2017, the Company had a concentration of revenue with one major customer
accounting for 38 percent of total revenue. A loss of a major customer could have a material adverse effect on future operating
results.
As
of December 31, 2018, accounts receivable from this major customer amounted to approximately 99% of total accounts receivable.
For the year ended December 31, 2017 there were no receivables from a major customer. Failure to collect these receivables could
have a material adverse effect on our future operating results.
For
the years ended December 31, 2018 and 2017, the Company purchased its raw material from one third party supplier.
The Company believes alternative suppliers could be located in the event of a disruption in availability of goods from this supplier.
The
Company had the following concentrations of accounts receivable with customers:
|
|
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
Direct-to-consumer
|
|
$
|
78
|
|
|
$
|
4
|
|
Related party sale
|
|
|
-
|
|
|
|
59
|
|
Subtotal
|
|
|
78
|
|
|
|
63
|
|
Allowance
for doubtful accounts
|
|
|
-
|
|
|
|
(59
|
)
|
Accounts receivable,
net
|
|
$
|
78
|
|
|
$
|
4
|
|
The
Company had the following concentrations of revenues with customers:
|
|
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
Cenegenics
|
|
|
-
|
|
|
|
38
|
%
|
Vitamin Shoppe
|
|
|
21
|
%
|
|
|
-
|
|
Inventories,
net
Inventories
are valued at the lower of cost or net realizable value, with cost determined on a first in, first-out basis. Each quarter the
Company evaluates the need for a change in the inventory reserve based on sales and expiration dates of products. As of December
31, 2018, all expired product had been fully reserved and removed from inventory.
Fixed
Assets
Fixed
assets are stated at cost and depreciated to their estimated residual value over their estimated useful lives of 3 to 7 years.
Leasehold improvements are amortized over the lesser of the asset’s useful life or the contractual remaining lease term
including expected renewals. When assets are retired or otherwise disposed of, the assets and related accumulated depreciation
are reversed from the accounts and the resulting gains or losses are included in the Consolidated Statements of Operations. Repairs
and maintenance are expensed as incurred.
Depreciation
is provided using the straight-line method for all fixed assets.
We
review our fixed assets for impairment when events or changes in circumstances indicate that the carrying value of an asset may
not be recoverable. We use an estimate of future undiscounted net cash flows of the related assets or groups of assets over their
remaining lives in measuring whether the assets are recoverable. If the assets are determined to be unrecoverable, an impairment
loss is calculated by determining the difference between the carrying values and the estimated fair value. We did not consider
any of our fixed assets to be impaired during the years ended December 31, 2018 and 2017.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2018
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
Deferred
Offering Costs
The Company defers as other assets the direct
incremental costs of raising capital until such time as the offering is completed. At the time of the completion of the offering,
the costs are charged against the capital raised. Should the offering not be completed, deferred offering costs are charged to
operations during the period in accordance with SEC guidance. Since the February 21, 2017 sales agreement expired by June 30, 2018,
the remaining deferred offering costs of $96 on the Company’s consolidated balance sheets were recognized and recorded
within the Company’s consolidated statements of operations as general and administrative expenses for the year ended December
31, 2018.
On July 24, 2018, the Company entered into a new sales agreement, incurring
$108 of deferred offering costs as of December 31, 2018 which was recorded as a long term other asset on the accompanying consolidated
balance sheet.
Intangible
Assets
The
Company’s intangible assets consist primarily of intellectual property pertaining to Fortetropin
®
, including
its formula, trademarks, trade secrets, patent application and domain names, which were determined to have a fair value of $2,000
as of December 31, 2011. Management determined that the intellectual property had a finite useful life of ten (10) years and began
amortizing the asset over its estimated useful life beginning April 2014.
In
July 2014, the Company acquired the United States patent application for the manufacture of Fortetropin
®
from Deutsches
Institut fur Lebensmitteltechnik e.V. – the German Institute for Food Technologies (“DIL”). The cost of the
patent application, which was capitalized as an intangible asset, was determined to be $101, based on the present value of the
minimum guaranteed royalty payable to DIL using a discount rate of 10%. The intangible asset is being amortized over an estimated
useful life of ten (10) years.
In
March 2017, the Company launched a new product line Qurr® and a related website qurr.com. The Company capitalized $380 of
the costs to build the website in accordance with U.S. GAAP and initially amortized this asset over 60 month’s useful life
to March 2022. As of December 31, 2018 the company accelerated the amortization of this asset to December 31, 2019 to mirror the
expiration date of the remaining Qurr® in its inventory.
Intangible
assets also includes patent costs associated with applying for a patent and being issued
a patent. Costs to defend a patent and costs to invalidate a competitor’s patent or patent application are expensed as incurred.
Upon issuance of the patent, capitalized patent costs are reclassified from intangibles with indefinite lives to intangibles with
finite lives and amortized on a straight-line basis over the shorter of the estimated economic life or the initial term of the
patent, generally 20 years.
Intangible
assets at December 31, 2018 and December 31, 2017 consisted of the following:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Intangibles with finite lives:
|
|
|
|
|
|
|
Intellectual
property
|
|
$
|
2,101
|
|
|
$
|
2,101
|
|
Website - qurr.com
|
|
|
380
|
|
|
|
380
|
|
Less: accumulated
amortization - intellectual property
|
|
|
(994
|
)
|
|
|
(784
|
)
|
Less:
accumulated amortization - website
|
|
|
(242
|
)
|
|
|
(57
|
)
|
Total intangibles
with finite lives
|
|
|
1,245
|
|
|
|
1,640
|
|
Intangibles
with indefinite lives
|
|
|
-
|
|
|
|
-
|
|
Total intangible
assets, net
|
|
$
|
1,245
|
|
|
$
|
1,640
|
|
Amortization
expense related to intangible assets for the years ended December 31, 2018 and 2017 was $395 and $267.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2018
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
Impairment
testing of intangible assets subject to amortization involves comparing the carrying amount of the asset to the forecasted, undiscounted
future cash flows whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
In the event the carrying value of the asset exceeds the undiscounted future cash flows, the carrying value is considered not
recoverable and an impairment exists. An impairment loss is measured as the excess of the asset’s carrying value over its
fair value, calculated using a discounted future cash flow method. The computed impairment loss is recognized in the period that
the impairment occurs. Assets which are not impaired may require an adjustment to the remaining useful lives for which to amortize
the asset. Impairment testing requires the development of significant estimates and assumptions involving the determination of
estimated net cash flows, selection of the appropriate discount rate to measure the risk inherent in future cash flow streams,
assessment of an asset’s life cycle, competitive trends impacting the asset as well as other factors. Changes in these underlying
assumptions could significantly impact the asset’s estimated fair value.
Based
on eighteen consecutive quarters of minimal revenues combined with changes in the sales channels through which the Company sells
its products and an inability to predict future orders, if any, we tested the intellectual property for impairment in the fourth
quarter of 2018 and determined that the asset value was recoverable and therefore no impairment was recognized. We did not have
any impairment losses recorded during the years ended December 31, 2018 and 2017, respectively.
Assuming
no additions, disposals or adjustments are made to the carrying values and/or useful lives of the intangible assets, annual amortization
expense for intangible assets is estimated to be as follows:
(In thousand $)
|
|
|
|
Years
Ended December 31,
|
|
Amount
|
|
2019
|
|
$
|
345
|
|
2020
|
|
|
200
|
|
2021
|
|
|
200
|
|
2022
|
|
|
200
|
|
2023
|
|
|
200
|
|
2024
|
|
|
100
|
|
Total
|
|
$
|
1,245
|
|
Fair
Value of Long-Lived Assets
We
test long-lived assets, including fixed assets and intangibles with finite lives, for recoverability when events or changes in
circumstances indicate that the net carrying amount is greater than its fair value. Assets are grouped and evaluated at the lowest
level for their identifiable cash flows that are largely independent of the cash flows of other groups of assets. We consider
historical performance and future estimated results in our evaluation of potential impairment and then compare the carrying amount
of the asset to the future estimated cash flows expected to result from the use of the asset. If the carrying amount of the asset
exceeds estimated expected undiscounted future cash flows, we measure the amount of impairment by comparing the carrying amount
of the asset to its fair value. The estimation of fair value is generally measured by discounting expected future cash flows at
the rate we utilize to evaluate potential investments. We estimate fair value based on the information available in making the
necessary estimates, judgments and projections.
Revenue
Effective
January 1, 2018, the Company adopted the provisions of Financial Accounting Standards Board (“FASB”) issued Accounting
Standards Update (“ASU”) No. 2014-09 (“ASU 2014-09”), as amended, using the modified retrospective method.
ASU 2014-09, which is codified in the FASB Accounting Standards Codification as Topic 606,
Revenue from Contracts with Customers,
supersedes nearly all previous revenue recognition guidance under U.S. GAAP and requires revenue to be recognized when promised
goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for
those goods or services. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant
judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2018
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
The
adoption of ASU 2014-09 did not impact the Company’s timing or amounts of revenue recognition. As such, the Company recorded
no transition adjustment as of January 1, 2018. However, the additional required qualitative and quantitative disclosures to Topic
606 are provided below.
Revenue
Recognition
Net
revenues include products and shipping and handling charges, net of estimates for incentives and other sales allowances or discounts.
Our product sales generally do not provide for rights of return. Revenue is measured as the amount of consideration we expect
to receive in exchange for transferring products. All revenue is recognized when we satisfy our performance obligations under
the contract. We recognize revenue by transferring the promised products to the customer, with revenue recognized at the point
in time the customer obtains control of the products. We consider charges associated with shipping and handling activities as
costs to fulfill our performance obligations. Using probability assessments, we estimate sales incentives expected to be paid
over the term of the contract. The majority of our contracts have a single performance obligation and are short term in nature.
Sales taxes that are collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore
are excluded from net sales.
Disaggregation
of Revenue
Our
net revenues by product type are presented below for the year ended December 31, 2018 and 2017.
|
|
Twelve-month
Period
|
|
Product
Type
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Qurr® (1)
|
|
$
|
175
|
|
|
$
|
164
|
|
Yolked® (2)
|
|
|
117
|
|
|
|
-
|
|
Myos Canine Muscle Formula® (3)
|
|
|
44
|
|
|
|
-
|
|
Physician Muscle Health Formula (4)
|
|
|
24
|
|
|
|
24
|
|
Cenegenics (5)
|
|
|
-
|
|
|
|
200
|
|
Egg Yolk Powder (6)
|
|
|
-
|
|
|
|
116
|
|
Rē Muscle
Health (6)
|
|
|
-
|
|
|
|
22
|
|
Total
Net Revenues
|
|
$
|
360
|
|
|
$
|
526
|
|
(1)
|
Qurr® product
was launched in March 2017
|
(2)
|
Yolked® product
was launched in March 2018
|
(3)
|
Myos Canine Muscle
Formula® was launched in June 2018
|
(4)
|
Physician’s
Muscle Health Formula was launched in May 2016
|
(5)
|
Cenegenics is a
Fortetropin
®
based product we produce as a private label as it is ordered.
|
(6)
|
Egg Yolk Powder
and Rē Muscle Health products were no longer available after 2017
|
Advertising
The
Company charges the costs of advertising to sales and marketing expenses as incurred. Advertising and marketing costs were $308
and $267 for the years ended December 31, 2018 and 2017, respectively. For the year ended December 31, 2018, advertising costs
consisted primarily of marketing costs for our new products Yolked® and Myos Canine Muscle Formula®. For the year ended
December 31, 2017, advertising costs consisted primarily of marketing costs for our Qurr® line of products.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2018
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
Shipping
and Handling Costs
The
Company records costs for the shipping and handling of products to our customers in cost of sales. These expenses were $48 and
$37 for the years ended December 31, 2018 and 2017, respectively.
Research
and Development
Research
and development expenses consist primarily of the cost of manufacturing our product for clinical study, the cost of conducting
clinical studies and the cost of conducting preclinical and research activities. Nonrefundable advance payments for goods or services
that will be used or rendered for future research and development activities are initially capitalized and are then recognized
as an expense as the related goods are consumed or the services are performed. During the years ended December 31, 2018 and 2017,
the Company incurred research and development expenses of $417 and $240 respectively. These included payments to DIL for research
of $150 and $210 for the years ended December 31, 2018 and 2017.
Share-based
Compensation
Share-based
payments are measured at their estimated fair value on the date of grant. Share-based awards to non-employees are re-measured
at fair value each financial reporting date until performance is completed. Share-based compensation expense recognized during
a period is based on the estimated number of awards that are ultimately expected to vest. For stock options and restricted stock
that do not vest immediately but which contain only a service vesting feature, we recognize compensation cost on the unvested
shares and options on a straight-line basis over the remaining vesting period.
The
Company uses the Black-Scholes option-pricing model to estimate the fair value of options and the market price of our common stock
on the date of grant for the fair value of restricted stock issued. Our determination of the fair value of stock-based awards
is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables
include, but are not limited to, our expected stock price volatility over the term of the awards, and certain other market variables
such as the risk-free interest rate.
Segment
Information
Accounting
Standards Codification (“ASC”) 280,
Disclosures about Segments of an Enterprise and Related Information
, establishes
standards for reporting information about operating segments and requires selected information for those segments to be presented
in the financial statements. It also establishes standards for related disclosures about products and services and geographic
areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is
available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate
resources and assess performance. Management has determined that the Company operates in one segment.
Fair
Value Measurement
Fair
value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction
between market participants. The authoritative guidance on fair value measurements establishes a consistent framework for measuring
fair value on either a recurring or nonrecurring basis whereby observable and unobservable inputs, used in valuation techniques,
are assigned a hierarchical level.
The
following are the hierarchy levels of inputs to measure fair value:
|
Level
1
:
|
Inputs that utilize
quoted prices (unadjusted) in active markets for identical assets or liabilities.
|
|
Level 2
:
|
Inputs that utilize
observable quoted prices for similar assets and liabilities in active markets and observable quoted prices for identical or
similar assets in markets that are not very active.
|
|
Level 3:
|
Inputs that utilize
unobservable inputs and include valuations of assets or liabilities for which there is little, if any, market activity.
|
A
financial asset or liability’s classification within the above hierarchy is determined based on the lowest level input that
is significant to the fair value measurement. At December 31, 2018 and 2017, the Company’s financial instruments consist
primarily of cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued
expenses and other current liabilities. Due to their short-term nature, the carrying amounts of the Company’s financial
instruments approximated their fair values.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2018
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
Basic
and Diluted Loss per Share
Basic
net loss per share is computed by dividing net loss available to common stockholders for the period by the weighted average number
of common shares outstanding during the period. Diluted net loss per share is computed by dividing net loss for the period by
the weighted average number of common shares outstanding during the period increased to include the number of additional shares
of common stock that would have been outstanding if potential dilutive securities outstanding had been issued. The Company uses
the “treasury stock” method to determine the dilutive effect of common stock equivalents such as options, warrants
and restricted stock. For the years ended December 31, 2018 and 2017, the Company incurred a net loss. Accordingly, the Company’s
common stock equivalents were anti-dilutive and excluded from the diluted net loss per share computation.
The aggregate number of potentially dilutive
common stock equivalents outstanding at December 31, 2018 excluded from the diluted net loss per share computation because their
inclusion would be anti-dilutive were 1,083,082, which includes warrants to purchase an aggregate 821,202 shares of common stock,
options to purchase an aggregate of 261,880 shares of common stock and rights under the Rights Agreement.
The aggregate number of potentially dilutive
common stock equivalents outstanding at December 31, 2017 excluded from the diluted net loss per share computation because their
inclusion would be anti-dilutive were 1,067,332, which includes warrants to purchase an aggregate 821,202 shares of common stock,
options to purchase an aggregate of 244,880 shares of common stock, and unvested restricted stock awards of 1,250 shares of common
stock.
Income
Taxes
Income
taxes are accounted for under the asset and liability method in accordance with ASC 740,
Accounting for Income Taxes
(“ASC
740”). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between
the financial carrying amounts of existing assets and liabilities and their respective tax bases as well as operating loss and
tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the periods in which those temporary differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred
tax assets are reduced by a valuation allowance to the extent that the recoverability of the asset is unlikely to be recognized.
The Company follows ASC 740 rules governing uncertain tax positions, which provides guidance for recognition and measurement.
This prescribes a threshold condition that a tax position must meet for any of the benefits of the uncertain tax position to be
recognized in the financial statements. It also provides accounting guidance on recognition, classification and disclosure of
these uncertain tax positions. The Company has no uncertain income tax positions.
The
Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017. The Tax Act contains several key provisions
including, among other things, reducing the U.S. federal corporate tax rate from thirty-five percent to twenty-one percent. Changes
in tax law are accounted for in the period of enactment. In addition, Federal net operating losses (“NOL”) generated
during future periods will be carried forward indefinitely, but will be subject to an eighty percent utilization against taxable
income. The carryback provision has been revoked for NOL after January 1, 2018.
Interest
costs and penalties related to income taxes are classified as interest expense and operating expenses, respectively, in the Company’s
financial statements. For the years ended December 31, 2018 and 2017, the Company did not recognize any interest or penalty expense
related to income taxes. The Company files income tax returns in the U.S. federal jurisdiction and states in which it does business.
The
Company continues to evaluate the impact of the Tax Act and analyze additional guidance.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2018
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
NOTE
3 – RECENT ACCOUNTING PRONOUNCEMENTS
In
August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes
to the Disclosure Requirements for Fair Value Measurement. The new guidance improves and clarifies the fair value measurement
disclosure requirement of ASC 820. The new disclosure requirements include the changes in unrealized gains or losses included
in other comprehensive income for recurring Level 3 fair value measurement held at the end of reporting period and the explicit
requirement to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value
measurements. The other provisions of ASU 2018-13 also include eliminated and modified disclosure requirements. The guidance is
effective for fiscal years beginning after December 15, 2019 with early adoption permitted, including in an interim period for
which financial statements have not been issued or made available for issuance. The Company has evaluated the impact of early
adoption of this ASU and determined that it will not have a significant impact on its consolidated financial statements.
In
June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting. The new guidance expands the scope of Topic 718 to include share-based payments granted to nonemployees in
exchange for goods or services used or consumed in an entity’s own operations, and supersedes the guidance in ASC 505-50, Equity-Based Payments to Non-Employees.
The most significant change resulting from this update is that stock-based awards granted to non-employees will no longer need
to be re-measured at fair value at each financial reporting date until performance is complete, as these awards will be measured
at fair value at the grant date. The guidance is effective January 1, 2019 with early adoption permitted, including in an interim
period for which financial statements have not been issued. The Company has evaluated the impact of early adoption of this ASU
and determined that it will not have a significant impact on its consolidated financial statements.
In
March 2018, the FASB issued ASU 2018-5 – Income Taxes (Topic 740): Amendments to SEC Paragraphs pursuant to SEC Staff Accounting
Bulletin No. 118. This ASU provided guidance related to Securities and Exchange Commission (“SEC”) Staff Accounting
Bulletin No. 118 (“SAB 118”), which addresses the accounting implications of the Tax Act. SAB 118 allows a company
to record provisional amounts during a measurement period not to extend beyond one year of the enactment date and was effective
upon issuance. We have analyzed the Tax Act, and in certain areas, have made reasonable estimates of the effects on our consolidated
financial statements and tax disclosures.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2018
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
In
September 2017, the FASB issued ASU No. 2017-13, Revenue from Contracts with Customers which amended FASB Accounting Standards
Codification® (ASC) by creating Topic 606, Revenue from Contracts with Customers. In May 2014, the FASB issued ASU No. 2014-09,
“Revenue from Contracts with Customers” (“ASU 2014-09”). ASU 2014-09 supersedes nearly all existing revenue
recognition guidance under U.S. GAAP and requires revenue to be recognized when promised goods or services are transferred to
customers in an amount that reflects the consideration that is expected to be received for those goods or services. Additionally,
qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments,
and assets recognized from the costs to obtain or fulfill a contract.
The
FASB also issued the following amendments to ASU No. 2014-09 to provide clarification on the guidance:
|
●
|
ASU
No. 2015-14, Revenue from Contracts with Customers (Topic 606) – Deferral of the Effective Date
|
|
|
|
|
●
|
ASU No. 2016-08, Revenue from
Contracts with Customers (Topic 606) – Principal versus Agent (Reporting Revenue Gross vs. Net)
|
|
|
|
|
●
|
ASU
No. 2016-10, Revenue from Contracts with Customers (Topic 606) – Identifying Performance Obligations and Licensing
|
|
|
|
|
●
|
ASU
No. 2016-12, Revenue from Contracts with Customers (Topic 606) – Narrow-Scope Improvements and Practical Expedients
|
The
adoption of Topic 606 is required for public entities for reporting periods beginning after December 15, 2017. The Company has
adopted the provisions of this ASU for its fiscal year beginning January 1, 2018 using the modified retrospective transition method.
This method involves application of the new guidance to either: (a) all contracts at the date of initial application or (b) only
contracts that are not completed at the date of initial application. Under this method, if necessary, a cumulative effect adjustment
is recognized as of the date of initial application. The adoption of ASU 2014-09 did not have an impact on the Company, therefore,
no cumulative effect adjustment was required.
In
May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718). The amendments in this Update
provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification
accounting in Topic 718. This update is effective for all entities for annual periods, and interim periods within those annual
periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public
business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for
reporting periods for which financial statements have not yet been made available for issuance. The amendments in this update
should be applied prospectively to an award modified on or after the adoption date. Th
is accounting
guidance was effective for us beginning January 1, 2018. The Company has evaluated the impact of the updated guidance and has
determined that the adoption of ASU 2017-09 did not have a significant impact on its consolidated financial statements.
In
January 2017, the FASB issued ASU No. 2017-04, “Simplifying the Test for Goodwill”, which accomplishes exactly what
its title indicates by eliminating the second step in the current goodwill impairment calculation. Currently there is a two-step
process for determining the amount of any goodwill impairment. In Step 1 an entity determines if the carrying value of the reporting
unit (for which goodwill has been recorded) exceeds the fair value of the reporting unit. If the calculation in Step 1 indicates
that the carrying value of a reporting unit for which goodwill has been recorded exceeds the fair value, the entity would have
to determine the implied fair value of the reporting unit’s goodwill. An impairment would be recorded to the extent that
the goodwill carrying value exceeded the implied fair value of goodwill at the reporting date. The amount of any goodwill impairment
must take into consideration the effects of income taxes for any tax deductible goodwill. The effective date to adopt the ASU
is for fiscal years beginning after December 15, 2019. The ASU is to be applied prospectively. Early adoption is permitted. The
Company has evaluated the impact of the updated guidance and has determined that the adoption of ASU 2017-04 is not expected to
have a significant impact on its consolidated financial statements.
In
August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments (a consensus of the
Emerging Issues Task Force).” The amendments in this Update relate to eight specific types of cash receipts and cash payments
which current U.S. GAAP either is unclear or does not include specific guidance on the cash flow classification issues. The amendments
in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods
within those fiscal years. The Company has adopted the provisions of this ASU for its fiscal year beginning January 1, 2018. The
adoption of ASU 2016-15 did not have a significant impact on its consolidated financial statements.
In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which requires lessees to recognize
on the balance sheet the assets and liabilities for the rights and obligations created by leases with lease terms of more than
12 months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will continue
to primarily depend on its classification as a finance or operating lease. However, unlike current U.S. GAAP, which requires only
capital leases to be recognized on the balance sheet, ASU 2016-02 will require both types of leases to be recognized on the balance
sheet. ASU 2016-02 also requires disclosures about the amount, timing, and uncertainty of cash flows arising from leases. These
disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in
the financial statements. ASU 2016-02 is effective beginning January 1, 2019, with early application permitted. In July 2018,
the FASB issued ASU No. 2018-11, which provides targeted improvements to the new lease standard, including an option to apply
the transition provisions at its adoption date instead of at the earliest comparative period presented in its financial statements.
We have evaluated the adoption of ASU 2016-02 and determined that the standard did not have a significant impact on the Company’s
consolidated financial statements.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2018
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
NOTE
4 – INVENTORIES, NET
Inventories,
net at December 31, 2018 and 2017 consisted of the following:
(In thousands $)
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Raw materials
|
|
$
|
1,769
|
|
|
$
|
2,223
|
|
Work in process
|
|
|
37
|
|
|
|
64
|
|
Finished goods
|
|
|
135
|
|
|
|
203
|
|
|
|
|
1,941
|
|
|
|
2,490
|
|
Less: inventory
reserves
|
|
|
(265
|
)
|
|
|
(711
|
)
|
Inventories, net
|
|
$
|
1,676
|
|
|
$
|
1,779
|
|
NOTE
5 – FIXED ASSETS
Fixed
assets at December 31, 2018 and 2017 consisted of the following:
(In thousands
$)
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Furniture, fixtures and
equipment
|
|
$
|
116
|
|
|
$
|
116
|
|
Computers and software
|
|
|
68
|
|
|
|
68
|
|
Leasehold improvements
|
|
|
239
|
|
|
|
239
|
|
Other
|
|
|
7
|
|
|
|
7
|
|
Total fixed assets
|
|
|
430
|
|
|
|
430
|
|
Less: accumulated
depreciation and amortization
|
|
|
(281
|
)
|
|
|
(246
|
)
|
Net book value
of fixed assets
|
|
$
|
149
|
|
|
$
|
184
|
|
Depreciation
expense was $35 and $51 for the years ended December 31, 2018 and 2017, respectively. Repairs and maintenance costs are expensed
as incurred.
NOTE
6 – PREPAID EXPENSES
Prepaid
expenses consist of various payments that the Company has made in advance for goods or services to be received in the future.
Prepaid expenses at December 31, 2018 and 2017 consisted of the following:
(In thousands
$)
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Prepaid insurance
|
|
$
|
-
|
|
|
$
|
88
|
|
Prepaid consulting
and other
|
|
|
10
|
|
|
|
25
|
|
Total prepaid
expenses
|
|
$
|
10
|
|
|
$
|
113
|
|
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2018
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
NOTE
7 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued
Expenses and Other Current Liabilities
Accrued
expenses and other current liabilities consist of estimated future payments that relate to the current and prior accounting periods.
Management reviews these estimates regularly to determine their reasonableness. Accrued expenses and other current liabilities
at December 31, 2018 and 2017 consisted of the following:
(In thousands $)
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Professional fees
|
|
$
|
85
|
|
|
$
|
151
|
|
Accrued board compensation
|
|
|
181
|
|
|
|
|
|
Research and development
|
|
|
91
|
|
|
|
-
|
|
Insurance premium financing
|
|
|
-
|
|
|
|
66
|
|
Deferred rent
|
|
|
10
|
|
|
|
19
|
|
Other accrued
expenses
|
|
|
16
|
|
|
|
19
|
|
Total accrued
expenses
|
|
$
|
383
|
|
|
$
|
255
|
|
NOTE
8 – RELATED PARTY PROMISSORY NOTE
AND ACCRUED INTEREST
In
August 2018 the Company issued an unsecured promissory note (the “Note”) in the principal amount of $750 in favor
of Joseph Mannello, the Company’s chief executive officer (the “Lender”). This Note was approved by the Company’s
board of directors (the “Board”). Pursuant to the Note, on August 30, 2018, the Lender advanced $500 of funds to the
Company. On September 26, 2018, the Lender advanced an additional $250 of funds to the Company. On November 13, 2018, the Company
amended and restated the Note to increase the maximum amount that may be drawn down under the Note from $750 to $1,000. On November
19, 2018, the Lender advanced an additional $250 of funds to the Company. As of December 31, 2018 the Company recorded $1,000
as a liability on the consolidated balance sheets.
The
Note accrues interest at a rate of 5% per annum and all payments of principal, interest and other amounts under the Note are payable
on August 31, 2019 or earlier under certain circumstances. The Company may prepay, in whole or in part, at any time, the principal,
interest and other amounts owing under the Note, without penalty. The proceeds of the Note will be used by the Company for general
working capital purposes. As of December 31, 2018 the Company accrued $15 of interest expense on the Note.
Subsequent to year end, on March 20, 2019,
the Company entered into a securities purchase agreement with a group of accredited investors, including two members of the Company’s
board of directors, in a private placement for aggregate gross proceeds of $2.1 million, which includes the conversion of $250
of the principal amount of a $1.0 million promissory note previously issued by the Company to its chief executive officer.
Note
9 – Stockholders’ Equity
Preferred
Stock Rights
Effective
February 14, 2017, the Board declared a dividend of one Right for each of the Company’s issued and outstanding shares of
common stock. The Rights were granted to the stockholders of record at the close of business on February 24, 2017. Each Right
entitles the registered holder, upon the occurrence of certain events specified in the Rights Agreement, to purchase from the
Company one one-thousandth of a share of the Company’s Series A Preferred Stock at a price of $7.00, subject to certain
adjustments. The Rights are not exercisable until the occurrence of certain events, including a person acquiring or obtaining
the right to acquire beneficial ownership of 10% or more of the Company’s outstanding common stock. The Rights are evidenced
by certificates for the common stock and automatically transfer with the common stock unless they become exercisable. If the Rights
become exercisable, separate certificates evidencing the Rights will be distributed to each holder of common stock. Holders of
the preferred stock will be entitled to certain dividend, liquidation and voting rights. The rights are redeemable by the Company
at a fixed price as determined by the Board, after certain defined events.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2018
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
As
of December 31, 2018, the Rights have no dilutive effect on the earnings per common share calculation and no shares of preferred
stock have been issued. The Company has determined that these rights have a de minimis fair value. The description and terms of
the Rights are set forth in the Rights Agreement dated as of February 14, 2017 between the Company and Island Stock Transfer,
as Rights Agent.
Issuance
of Common Stock
The
Company has periodically issued common stock in connection with certain private and public offerings. For the years ended December
31, 2018 and 2017 the Company has received aggregate gross proceeds of $1,472 and $3,197
from these
offerings:
|
|
|
|
|
Gross
|
|
Date
|
|
Shares
|
|
|
Proceeds
|
|
April
29, 2018
|
|
|
806,452
|
(1)
|
|
$
|
1,000
|
|
April 4 –
April 23, 2018
|
|
|
131,225
|
(2)
|
|
|
176
|
|
January 19, 2018
|
|
|
140,295
|
(3)
|
|
|
296
|
|
October 31, 2017
|
|
|
500,000
|
(4)
|
|
|
1,072
|
|
February 8, 2017
|
|
|
500,000
|
(5)
|
|
|
2,125
|
|
Total
|
|
|
2,077,972
|
|
|
$
|
4,669
|
|
(1)
|
Shares issued pursuant to a private placement
with accredited investors for $1.24 per share.
|
(2)
|
Shares of common stock sold for between $1.25
and $1.38 per share in an at-the-market offering.
|
(3)
|
Shares of common stock sold for $2.111 per share
in an at-the-market offering.
|
(4)
|
Shares of common stock sold for $2.144 per share in an at-the-market
offering.
|
(5)
|
Shares issued pursuant to a registered direct
offering with an institutional investor for $4.25 per share.
|
In
addition, the Company issued 55,147 shares of restricted common stock under its 2012 equity incentive plan in January 2018 valued
at $65,000 as Board compensation for 2017.
Registered
Direct Offering
On
February 3, 2017, the Company entered into a securities purchase agreement with an institutional investor providing for the issuance
and sale by the Company of 500,000 shares of common stock, in a registered direct offering at a purchase price of $4.25 per share,
for gross proceeds of $2,125. The offering closed on February 8, 2017. Offering costs of $199 were recognized as an offset to
additional paid in capital.
At-the-Market
Offering
On
February 21, 2017, the Company entered into a sales agreement with H.C. Wainwright & Co., LLC (“H.C. Wainwright”)
which established an at-the-market equity program pursuant to which the Company may offer and sell up to $6.0 million of its shares
of common stock from time to time through H.C. Wainwright. The Company incurred $125 of deferred offering costs in connection
with this program which were originally recorded as a long term other asset on the Company’s consolidated balance sheets.
Since this sales agreement expired by June 30, 2018 the remaining deferred offering costs of $96 were recognized and recorded
within the accompanying consolidated statements of operations as general and administrative expenses for the year ended December
31, 2018.
On
October 26, 2017, the Company sold 500,000 shares of common stock for $2.144 per share for gross proceeds of $1,072 in an at-the-market
offering
.
On
January 19, 2018, the Company sold 140,295 shares of common stock for $2.111 per share for gross proceeds of $296 in an at-the-market
offering. On various dates in April 2018, the Company sold an aggregate of 131,225 shares of common stock at various prices for
aggregate gross proceeds of $176 under the Company’s existing at-the-market program.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2018
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
On
July 24, 2018, the Company entered into a new sales agreement with H.C. Wainwright which established a new at-the-market equity
program pursuant to which the Company may offer and sell shares of common stock from time to time through H.C. Wainwright up to
$1.6 million worth. The Company incurred $108 of deferred offering costs in connection with this program as of December 31, 2018
which was recorded as a long term other asset on the Company’s consolidated balance sheets. The deferred offering costs
will be reflected as a reduction in equity as the Company incurs sales of its stock pursuant to this program. Management continues
to evaluate the ongoing progress of this program and its related outstanding deferred offering costs.
Subsequent
to year end on January 15, 2019 the Company sold 32,489 shares of common stock for $2.00 per share for gross proceeds of $65 in
an at-the-market offering. On March 19, 2019 the Company sold 78,640 shares of common stock for $1.85 per share for gross proceeds
of $145 in an at-the-market offering. As of the filing date of this Form 10-K, a total of 882,649 shares were sold under these
programs for aggregate gross proceeds of $1,755.
Private
Placement
On
April 25, 2018, the Company entered into a securities purchase agreement with private investors providing for the issuance and
sale by the Company of 806,452 shares of common stock, in a private placement offering at a purchase price of $1.24 per share,
for gross proceeds of $1,000 and net proceeds of $978.
Note
10 – Warrants
The
following table summarizes information about outstanding and exercisable warrants at December 31, 2018:
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
|
|
|
Underlying
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Warrants
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Exchanged,
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
Exercised
|
|
|
Outstanding
|
|
|
|
|
|
Expiration
|
|
|
|
|
|
Originally
|
|
|
or
|
|
|
and
|
|
|
Exercise
|
|
|
Term
|
|
Description
|
|
Grant
Date
|
|
Granted
|
|
|
or
Expired
|
|
|
Exercisable
|
|
|
Price
|
|
|
in
years
|
|
Series B
(1)
|
|
January 27, 2014
|
|
|
157,846
|
|
|
|
-
|
|
|
|
157,846
|
|
|
$
|
45.00
|
|
|
|
0.07
|
|
Series C
(2)
|
|
November 19, 2014
|
|
|
145,399
|
|
|
|
(142,957
|
)
|
|
|
2,442
|
|
|
$
|
12.00
|
|
|
|
1.38
|
|
Repricing Series C
(2)
|
|
November 19, 2014
|
|
|
|
|
|
|
142,957
|
|
|
|
142,957
|
|
|
$
|
9.00
|
|
|
|
1.38
|
|
Repricing Series E
(2)
|
|
November 19, 2014
|
|
|
|
|
|
|
142,957
|
|
|
|
142,957
|
|
|
$
|
9.00
|
|
|
|
3.38
|
|
Rens
(3)
|
|
March 3, 2016
|
|
|
375,000
|
|
|
|
-
|
|
|
|
375,000
|
|
|
$
|
7.00
|
|
|
|
1.06
|
|
|
|
|
|
|
678,245
|
|
|
|
142,957
|
|
|
|
821,202
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Issued in connection
with the January 27, 2014 private placement transaction.
|
|
(2)
|
Issued in connection
with the November 19, 2014 registered-direct public offering, and subsequently revised pursuant to Warrant Exercise Agreements
entered into on May 18, 2015.
|
|
(3)
|
Shares issued pursuant to the closing of the first tranche of
the financing with RENS Technology Inc.
|
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2018
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
NOTE
11 – STOCK COMPENSATION
Equity
Incentive Plan
The
Company increased the number of shares available for issuance under its 2012 Equity Incentive Plan (as amended, the “Plan”)
from 550,000 to 850,000 in November 2016, which was approved by the Company’s shareholders in December 2016. The plan provides
for the issuance of up to 850,000 shares. The Plan provides for grants of stock options, stock appreciation rights, restricted
stock, other stock-based awards and other cash-based awards. As of December 31, 2018, the remaining shares of common stock available
for future issuances of awards was 251,260. The Company granted an aggregate of 30,000 options to purchase restricted common stock
to certain directors prior to the adoption of the Plan.
Stock
options generally vest and become exercisable with respect to 100% of the common stock subject to such stock option on the third
(3rd) anniversary of the date of grant. Any unvested portion of a stock option shall expire upon termination of employment or
service of the participant granted the stock option, and the vested portion shall remain exercisable in accordance with the provisions
of the Plan.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2018
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
Stock
Options
The
following table summarizes stock option activity for the years ended December 31, 2018 and 2017:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
Shares
|
|
|
Average
|
|
|
Remaining
|
|
|
|
Under
|
|
|
Exercise
|
|
|
Contractual
|
|
|
|
Options
|
|
|
Price
|
|
|
Term (Years)
|
|
Balance at December 31, 2016
|
|
|
300,340
|
|
|
$
|
15.09
|
|
|
|
6.71
|
|
Options granted
|
|
|
300,000
|
|
|
|
4.00
|
|
|
|
|
|
Options forfeited
|
|
|
(38,600
|
)
|
|
|
7.15
|
|
|
|
|
|
Balance at December 31, 2017
|
|
|
561,740
|
|
|
$
|
7.32
|
|
|
|
5.61
|
|
Options granted
|
|
|
57,000
|
|
|
$
|
4.00
|
|
|
|
|
|
Options forfeited
|
|
|
(20,000
|
)
|
|
|
4.00
|
|
|
|
|
|
Balance at December 31, 2018
|
|
|
598,740
|
|
|
$
|
6.76
|
|
|
|
5.65
|
|
The
weighted average grant date fair value of stock options granted during 2018 was $1.25. The following table summarizes the assumptions
used to value stock options granted in 2018 and 2017 using a Black-Scholes model:
|
|
2018
|
|
|
2017
|
|
Risk-free interest rate
|
|
|
2.38
|
%
|
|
|
2.19
|
%
|
Expected volatility
|
|
|
100
|
%
|
|
|
100
|
%
|
Expected forfeiture rate
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected term (years)
|
|
|
6.0
|
|
|
|
6.0
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
The
risk-free rate is based on the U.S. Treasury rate for a note with a similar term in effect at the time of the grant. The expected
volatility is based on the volatility of the Company’s historical stock prices.
At
December 31, 2018 and 2017, the exercisable options had no intrinsic value.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2018
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
The
following table summarizes information about options outstanding and exercisable at December 31, 2018
that
were granted under the Plan:
Options
Outstanding
|
|
|
Options
Exercisable
|
|
|
|
|
|
|
|
Weighted
Average
|
|
|
|
|
|
|
|
|
Weighted
Average
|
|
Exercise
|
|
|
Options
|
|
|
Remaining
|
|
|
Exercise
|
|
|
Options
|
|
|
Remaining
|
|
Price
|
|
|
Outstanding
|
|
|
Contractual
Life
|
|
|
Price
|
|
|
Exercisable
|
|
|
Contractual
Life
|
|
$
|
4.00
|
|
|
|
337,000
|
|
|
|
9.00
|
|
|
$
|
4.00
|
|
|
|
17,000
|
|
|
|
9.00
|
|
$
|
8.60
|
|
|
|
16,000
|
|
|
|
5.19
|
|
|
$
|
8.60
|
|
|
|
16,000
|
|
|
|
5.19
|
|
$
|
10.00
|
|
|
|
40
|
|
|
|
3.89
|
|
|
$
|
10.00
|
|
|
|
40
|
|
|
|
3.89
|
|
$
|
12.10
|
|
|
|
30,000
|
|
|
|
5.35
|
|
|
$
|
12.10
|
|
|
|
30,000
|
|
|
|
5.35
|
|
$
|
12.50
|
|
|
|
81,700
|
|
|
|
5.42
|
|
|
$
|
12.50
|
|
|
|
67,278
|
|
|
|
5.42
|
|
$
|
13.45
|
|
|
|
2,000
|
|
|
|
5.47
|
|
|
$
|
13.45
|
|
|
|
1,000
|
|
|
|
5.47
|
|
$
|
13.50
|
|
|
|
12,000
|
|
|
|
5.49
|
|
|
$
|
13.50
|
|
|
|
10,562
|
|
|
|
5.49
|
|
$
|
17.50
|
|
|
|
100,000
|
|
|
|
4.11
|
|
|
$
|
17.50
|
|
|
|
100,000
|
|
|
|
4.11
|
|
$
|
32.00
|
|
|
|
15,000
|
|
|
|
2.54
|
|
|
$
|
32.00
|
|
|
|
15,000
|
|
|
|
2.54
|
|
$
|
34.50
|
|
|
|
5,000
|
|
|
|
2.57
|
|
|
$
|
34.50
|
|
|
|
5,000
|
|
|
|
2.57
|
|
|
|
|
|
|
598,740
|
|
|
|
|
|
|
|
|
|
|
|
261,880
|
|
|
|
|
|
As
of December 31, 2018, 261,880 options have vested and 336,860 options remain unvested. The vesting terms range from 4.5 to 9.0
years and the vested options have a weighted average remaining term of 5.7 years and a weighted average exercise price of $15.7
per share.
Restricted
Stock
The
following table summarizes restricted stock awards activity for the years ended December 31, 2018 and 2017:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant
Date
|
|
|
|
Shares
|
|
|
Share
Price
|
|
Restricted stock awards
unvested at December 31, 2016
|
|
|
53,857
|
|
|
$
|
2.74
|
|
Vested
|
|
|
(46,607
|
)
|
|
|
5.17
|
|
Forfeited
|
|
|
(6,000
|
)
|
|
|
1.75
|
|
Restricted stock awards unvested
at December 31, 2017
|
|
|
1,250
|
|
|
|
1.02
|
|
Granted
|
|
|
63,137
|
|
|
|
1.36
|
|
Vested
|
|
|
(64,387
|
)
|
|
|
1.30
|
|
Restricted stock
awards unvested at December 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
At
December 31, 2018, there were no unvested restricted stock awards.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2018
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
Share-Based
Compensation
Share-based
compensation was $235
and $160 for the years ended December 31, 2018 and 2017, respectively. Share-based
compensation consists of expenses related to the issuance of stock options and restricted stock.
There
was no unrecognized compensation expense of stock options and restricted stock at December 31, 2018.
NOTE
12 – INCOME TAXES
Income
tax expense for the years ended December 31, 2018 and 2017 is shown as follows:
|
|
December 31,
|
|
|
December 31,
|
|
(In thousand
$)
|
|
2018
|
|
|
2017
|
|
Current provision
|
|
$
|
(1,124
|
)
|
|
$
|
-
|
|
Deferred provision
|
|
|
-
|
|
|
|
-
|
|
Total tax provision
(benefit)
|
|
$
|
(1,124
|
)
|
|
$
|
-
|
|
The
significant components of the Company’s deferred tax assets and liabilities at December 31, 2018 and 2017 are as follows:
|
|
December 31,
|
|
|
December 31,
|
|
(In thousand
$)
|
|
2018
|
|
|
2017
|
|
Federal net operating losses
|
|
$
|
5,669
|
|
|
$
|
5,029
|
|
State net operating losses
|
|
|
31
|
|
|
|
886
|
|
Stock options
|
|
|
646
|
|
|
|
701
|
|
Federal tax credit
|
|
|
190
|
|
|
|
190
|
|
Amortization
|
|
|
198
|
|
|
|
283
|
|
Depreciation
|
|
|
20
|
|
|
|
(3
|
)
|
Accrued expenses
|
|
|
4
|
|
|
|
-
|
|
Contributions
|
|
|
10
|
|
|
|
14
|
|
Other
|
|
|
62
|
|
|
|
194
|
|
Total
gross deferred tax assets/(liabilities)
|
|
|
6,830
|
|
|
|
7,294
|
|
|
|
|
|
|
|
|
|
|
Less valuation
allowance
|
|
|
(6,830
|
)
|
|
|
(7,294
|
)
|
|
|
|
|
|
|
|
|
|
Net
deferred tax assets/(liabilities)
|
|
$
|
-
|
|
|
$
|
-
|
|
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2018
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
On
December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (“Tax Reform Legislation”), which made significant
changes to U.S. federal income tax law. The Company expects that certain aspects of the Tax Reform Legislation will positively
impact the Company’s future after-tax earnings primarily due to the lower federal statutory tax rate. Beginning January
1, 2018, the Company’s U.S. income will be taxed at a 21 percent federal corporate rate. Further, we are required to recognize
the effect of this rate change on our deferred tax assets and liabilities, and deferred tax asset valuation allowances in the
period the tax rate change is enacted.
The
income tax benefit for the year ended December 31, 2018 differed from the amounts computed by applying the U.S. federal income
tax rate of 21% to loss before tax benefit as a result of nondeductible expenses, tax credits generated, utilization of net operating
loss carryforwards, increases in the Company’s valuation allowance, and the benefit received from the sale of New Jersey
net operating losses.
|
|
December 31,
|
|
|
December 31,
|
|
(In thousand
$)
|
|
2018
|
|
|
2017
|
|
Federal statutory tax benefit
|
|
$
|
(676
|
)
|
|
$
|
(852
|
)
|
Sale of NJ NOL credits
|
|
|
(1,124
|
)
|
|
|
-
|
|
Permanent differences
|
|
|
30
|
|
|
|
35
|
|
Research & development
|
|
|
-
|
|
|
|
(42
|
)
|
State taxes
|
|
|
2
|
|
|
|
1
|
|
True up
|
|
|
54
|
|
|
|
-
|
|
Valuation allowance
|
|
|
591
|
|
|
|
(2,307
|
)
|
Effective tax
rate dollars
|
|
$
|
(1,123
|
)
|
|
$
|
(3,165
|
)
|
Effective tax rate
percentage
|
|
|
34.74
|
%
|
|
|
77.98
|
%
|
A
valuation allowance is required to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more
likely than not that some portion or all of the deferred tax assets will not be realized.
After
consideration of the available evidence, both positive and negative, the Company determined that valuation allowances of $6.8
million and $7.3 million at December 31, 2018 and 2017, respectively, were necessary to reduce the deferred tax assets to the
amount that will more likely than not be realized.
At December 31, 2018 and 2017, the Company
had approximately $26.9 million and $23.7 million, respectively, of gross federal net operating loss carry-forwards, respectively.
If not utilized, the federal and state net operating loss carry-forwards will begin to expire in 2027. The utilization of such
net operating loss carry-forwards and realization of tax benefits in future years depends predominantly upon having taxable income.
The Company also has $190 of federal research and development credits which will begin to expire in 2033 if not utilized. In November
2018 the Company received approval to sell a portion of its state net operating losses through the State of New Jersey Economic
Development Authority (NJEDA) Technology Business Tax Certificate Program. In January 2019 the Company received net proceeds of
$1,124 from the sale of its net operating losses. The Company plans to apply to sell additional net operating losses under the
same program in 2019.
The
Company may be subject to the net operating loss provisions of Section 382 of the Internal Revenue Code. The Company has
not calculated if an ownership change has occurred. The effect of an ownership change would be the imposition of an annual limitation
on the use of NOL carryforwards attributable to periods before the change. The amount of the annual limitation depends upon the
value of the Company immediately before the change, changes to the Company’s capital during a specified period, and the
federal published interest rate.
Entities
are also required to evaluate, measure, recognize and disclose any uncertain income tax provisions taken on their income tax returns.
The Company has analyzed its tax positions and has concluded that as of December 31, 2018 there were no uncertain positions. The
federal and state income tax returns of the Company for 2014, 2015, 2016 and 2017 are subject to examination by the IRS and state
taxing authorities, generally for three years after they are filed. Interest and penalties, if any, as they relate to income taxes
assessed, are included in the income tax provision. There was no income tax related interest and penalties included in the income
tax provision for 2018 and 2017.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2018
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
Note
13 – Commitments and Contingencies
Operating
Lease
The
Company leases its corporate offices under an operating lease. The term of the lease is five years commencing on January 1, 2015
and expiring on December 31, 2019. The Company has two options to renew its lease for an additional three years each.
At
December 31, 2018, the future minimum lease payments under the non-cancellable operating lease in excess of one year is as follows:
(In thousand $)
|
|
|
|
Years
Ended December 31,
|
|
Amount
|
|
2019
|
|
$
|
72
|
|
Total
|
|
$
|
72
|
|
Rent
expense including common area maintenance charges and taxes for the years ended December 31, 2018 and 2017 was $79 and $68, respectively.
Defined
Contribution Plan
The
Company established a 401(K) Plan (the “401(K) Plan”) for eligible employees of the Company effective April 1, 2014.
Generally, all employees of the Company who are at least twenty-one years of age and who have completed three months of service
are eligible to participate in the 401(K) Plan. The 401(K) Plan is a defined contribution plan that provides that participants
may make salary deferral contributions, of up to the statutory maximum allowed by law (subject to catch-up contributions) in the
form of voluntary payroll deductions. The Company’s matching contribution is equal to 100 percent on the first four percent
of a participant’s compensation which is deferred as an elective deferral. The Company’s aggregate matching contributions
were $33 and $26 for the years ended December 31, 2018 and 2017, respectively.
Clinical
and Basic Research Programs
The
Company invests in research and development activities externally through academic and industry collaborations aimed at enhancing
the Company’s products and optimizing manufacturing. At December 31, 2018, the future minimum payments for collaborations
with various academic centers is as follows:
Years
Ended December 31,
|
|
Amount
|
|
2019
|
|
$
|
91
|
|
2020
|
|
|
102
|
|
Total
|
|
$
|
193
|
|
Supply
Agreement
On
November 18, 2016, the Company entered into an Amended Supply Agreement with DIL Technologie GmbH (“DIL”). Pursuant
to the agreement (and so long as the agreement is effective), DIL will manufacture and supply the Company with Fortetropin
®
,
the active ingredient for its products, and the Company will purchase quantities of Fortetropin
®
from DIL at its
discretion. DIL will manufacture the formula exclusively for the Company in perpetuity, and may not manufacture the formula for
other entities (but may manufacture it for its own non-commercial research).
The
Company agreed, commencing January 2017, to pay DIL €10 (approximately USD $12) per month for collaborative research.
For the years ended December 31, 2018 and 2017 the Company paid USD $150 and $194 to DIL for collaborative research. The monthly
payments terminate upon the earlier of: (a) the date that the Company orders additional product in accordance with the terms of
the agreement and (b) December 31, 2018, and the Company has no further financial obligations to DIL thereafter.
The
Company also agreed to pay DIL €400 (approximately USD $480) in satisfaction of all prior liabilities and obligations
under its prior agreements with DIL. The agreement expired on December 31, 2018, and the Company has not elected to renew the
agreement as of the date of the filing of this 10-K report.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2018
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
Product
Liability
As
a manufacturer of nutritional supplements that are ingested by consumers, the Company may be subject to various product liability
claims. Although we have not had any claims to date, it is possible that future product liability claims could have a material
adverse effect on our business or financial condition, results of operations or cash flows. The Company currently maintains products
liability insurance of $5 million per-occurrence and a $10 million annual aggregate coverage. At December 31, 2018 and 2017, the
Company had not recorded any accruals for product liability claims.
Note
14 – Related Party Transactions
The
following is a description of the transactions we have engaged in with our directors, director nominees and officers and beneficial
owners of more than five percent of our voting securities and their affiliates:
In
October 2016, the Company received a purchase order from RENS Agriculture, an affiliate of Rens Technology Inc., and Ren Ren,
one of the Company’s directors, to purchase $116 of our product. The Company received a 50% deposit in November 2016 in
order to manufacture the product. The goods were shipped in January 2017 and received in China in March 2017. The Company has
not received payment for the order to date. As a result of the ongoing litigation (see Note 15), the Company recorded an allowance
for bad debt of $59 for the year ended December 30, 2017 related to the receivable due from RENS Agriculture and the allowance
was reversed as of December 31, 2018 when the receivable was reversed.
On
August 30, 2018, the Company issued an unsecured promissory note (the “Note”) in the principal amount of $750 in favor
of Joseph Mannello, the Company’s chief executive officer (the “Lender”). Pursuant to the Note, on August 30,
2018, the Lender advanced $500 of funds to the Company. On September 26, 2018, the Lender advanced an additional $250 of funds
to the Company. On November 13, 2018, the Company amended and restated the Note to increase the maximum amount that may be drawn
down under the Note from $750 to $1,000. On December 29, 2018, the Lender advanced an additional $250 of funds to the Company.
As of December 31, 2018, the Company recorded $1,000 as a liability on the consolidated balance sheets.
The Note accrues interest at a rate of 5% per
annum and all payments of principal, interest and other amounts under the Note are payable on August 31, 2019 or earlier under
certain circumstances. The Company may prepay, in whole or in part, at any time, the principal, interest and other amounts owing
under the Note, without penalty. The proceeds of the Note will be used by the Company for general working capital purposes. As
of December 31, 2018 the Company accrued $15 of interest expense on the Note.
In January 2019, prior to receipt of the proceeds
from the sale of its net operating losses, the Company received a Board approved advance from its chief executive officer of $250
that was repaid on January 29, 2019.
Subsequent to year end, on March 20, 2019,
the Company entered into a securities purchase agreement with a group of accredited investors, including two members of the Company’s
board of directors, in a private placement for aggregate gross proceeds of $2.1 million, which includes the conversion of $250
of the principal amount of a $1.0 million promissory note previously issued by the Company to its chief executive officer.
Note
15 – legal PROCEEDINGS
On
January 6, 2017, in connection with the financing contemplated by a securities purchase agreement with RENS Technology Inc. (the
“Purchaser”), we commenced an action in the Supreme Court of New York, County of New York (the “Court”),
against the Purchaser, RENS Agriculture, the parent company of the Purchaser, and Ren Ren, a principal in both entities and one
of our directors, arising from the Purchaser’s breach of the agreement under which the Purchaser agreed to invest an aggregate
of $20.25 million in our company in exchange for an aggregate of 3,537,037 shares of our common stock and warrants to purchase
an aggregate of 884,259 shares of common stock.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2018
(amounts
in thousands, except share and per share amounts, unless otherwise indicated)
On
April 11, 2017, the Court noted that we had demonstrated a likelihood of success on the merits of the breach of contract claim.
Thereafter, a hearing was scheduled on the application by the Purchaser to dismiss the complaint and various pre-trial discovery
applications by both parties.
In
August 2017, before the hearing occurred, the Company amended its complaint repeating most of the initial claims but adding several
additional claims against RENS Agriculture, Mr. Ren and two additional Chinese defendants, including a claim against RENS Agriculture
for breaching the exclusive distribution agreement, as well as claims against all defendants for theft and misappropriation of
our confidential proprietary information and trade secrets, breach of fiduciary duty and duty of loyalty, misappropriation of
corporate opportunity, unfair competition and a number of other torts. We are seeking damages and injunctive relief. The Purchaser
has filed a motion to dismiss the amended complaint, which is still pending and scheduled for oral argument in the second quarter
of 2019.
On
August 16, 2017, the Purchaser commenced an action in the District Court of Clark County in the State of Nevada against us and
Joseph Mannello, our then interim Chief Executive Officer, alleging that Mr. Mannello had breached his fiduciary duties and was
grossly negligent in managing our company. The action seeks monetary damages and injunctive relief from Mr. Mannello as well as
the appointment of a receiver over us. Subsequently, the Purchaser submitted a petition to appoint a receiver and we and Mr. Mannello
submitted a motion to dismiss the action, both of which are currently pending and are due to be heard in the second quarter of
2019. An application on consent to adjourn the hearing date on the receiver application and motion to dismiss is pending.
The
parties are currently in settlement discussions regarding the foregoing matters.
The
outcome of the aforementioned matters cannot be determined as of the date of these consolidated financial statements.
NOTE
16 – SUBSEQUENT EVENTS
At-the-Market
Offering
Subsequent to year end on January 15, 2019,
the Company sold 32,489 shares of common stock for $2.00 per share for gross proceeds of $65 in an at-the-market offering. On March
19, 2019 the Company sold 78,640 shares of common stock for $1.85 per share for gross proceeds of $145 in an at-the-market offering.
As of the filing date of this Report, a total of 882,649 shares were sold under at-the market offerings for aggregate gross proceeds
of $1,755.
In November 2018 the Company received approval
to sell a portion of its state net operating losses through the State of New Jersey Economic Development Authority (NJEDA) Technology
Business Tax Certificate Program. In January 2019 the Company received net proceeds of $1,124 for the sale of its net operating
losses. In January 2019, prior to receipt of the sale proceeds, the Company received a Board approved advance from its chief executive
officer of $250 that was repaid on January 29, 2019.
Subsequent to year
end, on March 20, 2019, the Company entered into a securities purchase agreement with a group of accredited investors, including
two members of the Company’s board of directors, providing for the issuance and sale by the Company of 1,438,356 shares of
common stock in a private placement at a purchase price of $1.46 per share, for aggregate gross proceeds of $2.1 million, which
includes the conversion of $250 of the principal amount of a $1.0 million promissory note previously issued by the Company
to its chief executive officer. The offering closed on March 27, 2019.
F-30