PART
I
Overview
We
are an emerging bionutrition and biotherapeutics company focused on the discovery, development and commercialization of products
that improve muscle health and function essential to the management of sarcopenia, cachexia and degenerative muscle diseases,
and as an adjunct to the treatment of obesity. As used in this report, the “Company”, “MYOS”, “our”,
or “we” refers to MYOS RENS Technology Inc. and its wholly-owned subsidiary, unless the context indicates otherwise.
We
were incorporated under the laws of the State of Nevada on April 11, 2007. On March 17, 2016, we merged with our wholly-owned
subsidiary and changed our name from MYOS Corporation to MYOS RENS Technology Inc. Prior to February 2011, we did not have any
operations and did not generate revenues. In February 2011, we entered into an intellectual property purchase agreement pursuant
to which our subsidiary purchased from Peak Wellness, Inc., or Peak, the intellectual property pertaining to Fortetropin
®
,
a dietary supplement that has been shown in clinical studies to temporarily decrease the levels of serum myostatin, MYO-T12, a
proprietary formulation containing Fortetropin, certain trademarks, trade secrets, patent applications and certain domain names.
Since
February 2011, our principal business activities have been to: (i) deepen our scientific understanding of the activity of Fortetropin,
which refers to a proprietary proteo-lipid composite derived from fertilized eggs of specific chicken species processed using
a patented methodology which preserves the bioactivity of the constituent proteins and lipids, specifically as a natural, reversible,
temporary reducing agent of myostatin, and to leverage this knowledge to strengthen and build our intellectual property; (ii)
conduct research and development activities to evaluate myostatin modulation in a range of both wellness and disease states; (iii)
identify other products and technologies which may broaden our portfolio and define a business development strategy to protect,
enhance and accelerate the growth of our products; (iv) reduce the cost of manufacturing through process improvement; (v) identify
contract manufacturing resources that can fully meet our future growth requirements; (vi) develop a differentiated and advantaged
consumer positioning, brand name and iconography; and, (vii) create sales and marketing capabilities to maximize near-term and
future revenues. We believe that existing wellness and therapeutic targets, such as myostatin, represent a rational entry point
for additional drug discovery efforts and are evaluating a separate, concurrent objective in this area.
Our
executive offices are currently located at 45 Horsehill Road, Suite 106, Cedar Knolls, New Jersey 07927 and our telephone number
is (973) 509-0444. Our corporate website address is http://www.myosrens.com and our new muscle health education and product website
is http://www.qurr.com. Neither the information on our current or future website is, nor shall such information be deemed
to be, a part of this report or incorporated in filings we make with the Securities and Exchange Commission.
General
Following
our purchase of Fortetropin in February 2011, we have been focusing on the discovery, development, and commercialization of nutritional
supplements, functional foods, therapeutic products, and other technologies aimed at maintaining or improving the health and performance
of muscle tissue. Our officers, directors and members of our Scientific Advisory Board, including Dr. Robert Hariri, Dr. Louis
Aronne, Dr. Neilank Jha and Dr. Caroline Apovian, have significant research and development experience. While Fortetropin is our
first proprietary ingredient, we plan to discover, develop, formulate and/or acquire additional products in the future.
We
are developing nutritional and therapeutic products aimed at maintaining and improving the health and performance of muscle tissue.
One current target of research which we are actively evaluating is the modulation of myostatin. Our research is focused on developing
strategies and therapeutic interventions to address muscle related conditions including sarcopenia, cachexia, and inherited and
acquired muscle diseases as described in more detail below.
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Sarcopenia
is a degenerative process characterized by the progressive loss of muscle mass with advancing age. The loss of muscle
affects all individuals regardless of ethnicity or gender although the rate and degree of muscle loss varies between individuals
and is affected by many factors. Those individuals who have lost significant amounts of muscle mass and strength often require
assistance for accomplishing daily living activities, which has a significant economic burden on a nation’s healthcare
system and impacts the overall economy. In addition to the many direct costs, sarcopenia adversely affects the overall quality
of life.
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Cachexia
is a syndrome that occurs in many diseases such as cancer, chronic heart failure, chronic kidney failure and AIDS.
It is characterized by a loss of body weight as a consequence of pathological changes in different metabolic pathways, with
the loss of muscle mass as the core component of the syndrome. Cachexia leads to a poor quality of life and increased mortality.
As skeletal muscle is diminished, individuals experience a reduced ability to move, a loss of strength, and an increase in
conditions associated with immobility such as thrombosis, pneumonia, respiratory failure and ultimately death. Weight loss
is an important prognosticator in cancer therapy with the greater the weight loss the shorter the survival time. Weight loss
in cancer patients due to cachexia arises from the loss of both adipose tissue and skeletal muscle.
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Inherited
and acquired muscle diseases
, such as muscular dystrophy and muscle dysfunction that occur as a consequence of denervation
such as seen in amyotrophic lateral sclerosis (ALS), are conditions marked by the progressive deterioration of muscle tissue
that results in weakness and impairs normal function. These diseases are typified by difficulty with walking, balance, and
coordination with many such diseases affecting speech, swallowing, and breathing. There are currently no cures for degenerative
muscle diseases outside of palliative care.
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Myostatin
Myostatin,
which is a natural regulatory protein, plays a central role in skeletal muscle health. Interest in myostatin continues to grow
within the medical community. Research on animals and humans with genetic deficiency for producing myostatin have shown an increased
muscle mass, suggesting that myostatin is responsible for down-regulating muscle growth and development.
A
1997 article in the journal
Nature
first described the discovery of a novel member of the transforming growth factor-β
(TGF-β) superfamily of growth and differentiation factors. This factor was expressed specifically in adult skeletal muscle
and referred to as growth/differentiation factor-8 (GDF-8) (McPherron
et al
., 1997). The researchers created “knockout”
mice, whereby they disrupted the expression of GDF-8 throughout the organism, with the resulting mice showing a large and widespread
increase in skeletal muscle mass. Individual muscles of mutant animals weighted 2-3 times more than those of wild-type animals,
with the increase a result of both muscle cell hypertrophy and hyperplasia. The newly created mice were subsequently named “mighty
mice”. Based on the phenotype, the researchers dubbed the newly discovered protein myostatin.
This
work suggests myostatin exerts an effect on both muscle hypertrophy and hyperplasia, as myostatin knock-out “mighty mice”
were shown to have an increase in both the number of muscle fibers and in fiber sizes. Hypertrophy refers to the enlargement of
a tissue or organ due to the enlargement of its component cells. In contrast, hyperplasia refers to an increase in the number
of cells or a proliferation of cells. Both of these processes can lead to enlargement of an organ.
Skeletal
muscle is the primary producer of myostatin, where it is secreted into the blood stream and acts as a negative regulator of muscle
differentiation and growth. The protein begins as a 375 amino acid dimer that is cleaved by proteases to a 109 amino acid active
domain. The active form of the protein binds to activin type II receptors, ActRIIA and ActRIIB (Lee
et al
., 2001). Binding
to the receptors initiates a signaling cascade that results in an increase in protein breakdown and subsequent inhibition of protein
synthesis.
Clinical
Research to Evaluate Effects of Fortetropin
In
March 2013, we completed a human clinical trial which confirmed the beneficial effects of Fortetropin in suppressing free serum
myostatin levels. In this double blind, randomized placebo controlled, parallel, single dose study involving 12 healthy adult
male subjects per arm, test subjects in the active arm were administered a 6.6 gram dose of Fortetropin mixed with vanilla fat
free/sugar free pudding. An equal amount of vanilla fat free/sugar free pudding alone was given to the placebo arm. Blood samples
were collected at baseline (before dosing) and at 6, 12, 18, and 24 hours post dose intervals for measurement of myostatin blood
concentration. Results demonstrated greater than 30% decrease in serum myostatin levels compared to baseline during the 24 hour
period. No study related adverse events were reported during this study.
In
another study performed on behalf of the Company at the University of Tampa, a double-blind, placebo controlled trial
examined the effects of Fortetropin on skeletal muscle growth, lean body mass, strength, and power in recreationally
trained individuals who rely heavily on satellite cell activation. Forty-five subjects were divided into placebo, 6.6 gram
and 19.8 gram dosing arms of Fortetropin daily for a period of 12 weeks. All exercise sessions were conducted and monitored
by trained personnel. Standardized diets consisted of roughly 54% carbohydrates, 22% fat and 24% protein. There were no
differences in total calories and macronutrients between groups. Dual emission X-ray absorptiometry was utilized to measure
lean body mass and fat mass. Direct ultrasound measurements determined muscle thickness of the quadriceps.
Results
demonstrated a statistically significant increase in both muscle thickness and lean body mass in subjects taking Fortetropin but
not in subjects taking placebo. Strength and power endpoints, as measured by bench press, leg press and Wingate power, significantly
increased from baseline in all study groups. No study related adverse events were reported during the study.
*
p <0.05 post measurement compared to pre
Association
between Muscular Strength and Mortality
In
a clinical study at the Karolinska Institutet’s Department of Biosciences and Nutrition at NOVUM, Unit for Preventive Nutrition,
in Huddinge, Sweden, 8,762 men aged 20-80 were evaluated over an average period of 18.9 years in a prospective cohort study to
measure the association between muscular strength and mortality in men. After adjusting for age, physical activity, smoking, alcohol
intake, body mass index, baseline medical conditions, and family history of cardiovascular disease, the study found that muscular
strength is inversely and independently associated with deaths from all causes and cancer in men. The findings were valid for
men of normal weight, those who were overweight, and younger or older men, and were valid even after adjusting for several potential
confounders, including cardiorespiratory fitness. This study extends previous studies that showed the importance of muscular strength
as a predictor of death from all causes, cardiovascular disease, and cancer in a large cohort of men. Several prospective studies
have also shown that muscular strength is inversely associated with all-cause mortality. These data suggests that muscular strength
adds to the protective effect of cardiorespiratory fitness against the risk of death in men. Moreover, it might be possible to
reduce all-cause mortality among men by promoting regular resistance training.
We
believe improving lean muscle mass should be a therapeutic objective in the management of aging and chronic illness and all individuals
seeking optimal wellness. Fortetropin, the only clinically proven natural myostatin reducing agent available to increase muscle
mass and lean body mass, provides us with a compelling product in the competitive marketplace. Further studies are planned to
examine its role in the treatment of many disease states in various dosing regimens and delivery mechanisms.
WADA
Compliance
Fortetropin®
has received Certified Drug Free® certification from the Banned Substances Control Group (BSCG). The BSCG Certified Drug Free®
program is a comprehensive certification program for the dietary supplement industry and includes screening for substances prohibited
by the World Anti-Doping Agency (WADA) along with most U.S. professional sports leagues. WADA is a foundation created through
a collective initiative led by the International Olympic Committee to promote, coordinate and monitor the fight against drugs
in sports.
Research
and Development
As
a bionutritional and biotherapeutics company, we are dedicated to basic and clinical research that supports our existing and future
product portfolio. We are focused on the following areas of research:
Basic
Research
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Biochemical
characterization of Fortetropin
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Novel
biotherapeutics products
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Computational
design of novel peptide inhibitors of myostatin
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Identifying
proteins, peptides, and lipids responsible for pro-myogenic activity
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Pro-myogenic
activity of novel bioactive molecules and formulations
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Cutting
edge proteomic and lipidomic approaches
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Pre-Clinical
Research
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Effect
of Fortetropin to reverse disuse atrophy in dogs after orthopedic surgery
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Synergistic
effects of Fortetropin and metformin
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Adjunctive
approach for management for obesity and type II diabetes
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PK/PD
studies of novel bioactive molecules with pro-myogenic activity
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Clinical
Research
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Effect
of Fortetropin on lean muscle mass, thickness and strength in older adults
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Effect
of Fortetropin on muscle function and recovery after orthopedic procedures
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We
expect our investment in research and development to continue to grow in the future.
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Our
research program is actively evaluating the many active proteins, lipids and peptides in Fortetropin. We believe our research
programs will establish a basis for the continued submission of patent applications to help protect our intellectual property.
We are dedicated to protecting our innovative technology.
Clinical
and Basic Research Programs
We
invest in research and development activities externally through academic and industry collaborations aimed at enhancing our products,
optimizing manufacturing and broadening the product portfolio. We have developed the following collaborations with various academic
centers:
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In
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 a week of supplementation,
blood samples were collected and serum myostatin levels were assayed. Results demonstrated
that Fortetropin is effective as a myostatin reducing agent at daily doses of 4.0g and
6.6g. This research, which continues to build upon our current knowledge 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 in April 2016.
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In
August 2014, we entered into a research agreement with Human Metabolome Technologies
America, Inc., (“HMT”), to apply their proprietary, state-of-the-art capillary
electrophoresis-mass spectrometry (CE-MS) technologies to characterize the metabolomic
profiles of plasma samples obtained from healthy male subjects who used either Fortetropin
or placebo with the goal of identifying metabolites with pro-myogenic activity in the
plasma samples of subjects who took Fortetropin as well as examining the effect on glucose
and fat metabolism. HMT used a metabolite database of over 290 lipids and over 900 metabolites
to identify potential plasma biomarkers of muscle growth. The study was completed during
the fourth quarter of 2014. Initial data from this study indicated that subjects who
received Fortetropin displayed differential metabolomic profiles relative to subjects
who received placebo. The results of this study enhance our understanding of the mechanism
of action of Fortetropin and provides guidance for the development of biotherapeutics
based on Fortetropin. Additionally, the early indications of plasma biomarkers may guide
future study design for Fortetropin clinical trials by identifying clinically-relevant
endpoints and potential stratification of patient populations.
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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 average
men. The study was a double-blind, placebo-controlled trial which examined the effects
of Fortetropin on skeletal muscle growth, lean body mass, strength, and power in recreationally
trained males. Forty-five subjects were divided into placebo, 6.6g and 19.8g dosing arms
of Fortetropin daily for a period of 12 weeks. Results demonstrated a statistically significant
increase in both muscle thickness and lean body mass in subjects taking Fortetropin but
not in subjects taking placebo. The clinical study also analyzed blood myostatin and
cytokines levels via high-sensitivity enzyme-linked immunosorbent assay (“ELISA”)
based spectrophotometric. Serum was analyzed for a plethora of relative cytokine levels
via high-sensitivity enhanced chemiluminescent-based methods. The Interferon-Gamma (“IFN-γ”)
inflammatory cytokine protocol screening showed no statistically significant changes
in serum levels of IFN-γ for subjects in the placebo group. However, subjects in
both Fortetropin daily dosing arms experienced statistically significant decreases (p
< 0.05) in serum levels of the IFN-γ inflammatory cytokine. IFN-γ is recognized
as a signature pro-inflammatory cytokine protein that plays a central role in inflammation
and autoimmune diseases. Excess levels of inflammatory cytokines are associated with
muscle-wasting diseases such as sarcopenia and cachexia. The lipid serum safety protocol
demonstrated that daily use of Fortetropin at recommended and three times the recommended
dose had no adverse lipid effect and did not adversely affect cholesterol, HDL or triglyceride
levels. Data from the study was presented at the American College of Nutrition’s
55
th
annual conference. A separate mechanism of action study at the University
of Tampa demonstrated that in addition to reducing serum myostatin levels, Fortetropin
showed activity in mTOR and Ubiquitin pathways, two other crucial signaling pathways
in the growth and maintenance of healthy muscle. Specifically, the preclinical data showed
that Fortetropin up-regulates the mTOR regulatory pathway. The mTOR pathway is responsible
for production of a protein kinase related to cell growth and proliferation that increases
skeletal muscle mass. Up-regulation of the mTOR pathway is important in preventing muscle
atrophy. We believe Fortetropin's ability to affect the mTOR pathway may have a significant
impact in treating patients suffering from degenerative muscle diseases and suggests
that Fortetropin-based products may help slow muscle loss secondary to immobility and
denervation. The preclinical data also demonstrated that Fortetropin acts to reduce the
synthesis of proteins in the Ubiquitin pathway, a highly selective, tightly regulated
system that serves to activate muscle breakdown. Over-production in the Ubiquitin pathway
is responsible for muscle degradation. We believe Fortetropin's ability to regulate production
in the Ubiquitin pathway may have significant implications for repairing age-related
muscle loss and for patients suffering from chronic diseases causing cachexia.
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In
May 2014, we entered into a three-year master service agreement with Rutgers University.
The initial phase under the agreement was to develop cell-based assays for high-throughput
screening studies of next generation myostatin inhibitors. Additionally, we initiated
a second phase of the agreement to develop a secondary assay for measuring myostatin
activity using a genetically engineered muscle cell line that fluoresce in the presence
of myostatin. Phase I and II were completed in 2015. We believe the assays developed
will enable us to elucidate the specific molecules in Fortetropin that impart activity
as it relates to the development of muscle tissue.
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The
foregoing agreements are an integral part of our business strategy and we believe they will provide a clear scientific rationale
for Fortetropin's role as a nutritional product and support its use in different medical and health applications in the future.
We
are also building a small molecule and biologics discovery program aimed at regulators of myostatin synthesis and activation and
the different pathways that act upon muscle development. In July 2014, we entered into a research and development agreement with
Cloud Pharmaceuticals, Inc., (“Cloud”), to discover product candidates related to the inhibition of targets in the
myostatin regulatory pathway as well as inflammatory mediators associated with sarcopenia and cachexia. Cloud utilizes cloud computing
technology to initiate and design small molecule drug candidates based on their Inverse Design proprietary cheminformatics tool.
The research is focusing on the development of product candidates related to the myostatin pathway. Cloud has identified several
peptides that may have myostatin inhibition properties. We intend to evaluate the physiological activity of these peptides on
myostatin.
We
intend to pursue additional clinical studies and medical research to support differentiated and advantaged marketing claims, to
build and enhance our competitive insulation via strategically based additional intellectual property, to develop product improvements
and new products in consumer preferred dosage forms, to enhance overall marketing, to establish a scientific foundation for therapeutic
applications for our technology, and to pursue best in class personnel.
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 (the “Financing”)
in exchange for (i) an aggregate of 3,537,037 shares (the “Shares”) of the Company’s common stock, par value
$0.001 per share (“Common Stock”), and (ii) warrants to purchase an aggregate of 884,259 shares of Common Stock (the
“Warrants”, and together with the Shares, the “Securities”). The Purchaser agreed to purchase the Securities
in three tranches over twenty-four months. 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 “First Closing Warrant”) for $5.25 million. In
the second tranche, which we had expected to close in September 2016, the Purchaser would have acquired 925,926 Shares and a warrant
to purchase 231,481 shares of Common Stock (the “Second Closing Warrant”) for $5.0 million. In the third tranche,
which we had expected to close within eighteen months of the closing of the second tranche, the Purchaser would have acquired
1,111,111 Shares and a warrant to purchase 277,778 shares of Common Stock (the “Third Closing Warrant”) for $10.0
million.
Each
of the Warrants would have been immediately exercisable upon issuance, would expire five years after issuance and would have the
following exercise prices: (a) $7.00 per share for the First Closing Warrant, (b) $10.80 per share for the Second Closing Warrant
and (c) $18.00 per share for the Third Closing Warrant. In addition, the Company agreed: (i) that the Purchaser would have the
right to appoint four persons to the Company’s board of directors, subject to adjustment based on the Purchaser’s
ownership percentage of the Company; (ii) to provide the Purchaser with a right to participate in 50% (or 100% if shares are to
be issued for less than $3.50 per share) of any future financings pursued by the Company within 12 months from the closing of
the third tranche of the Financing; and, (iii) until the closing of the third tranche, the Company would not take certain actions,
including issuing shares (except for certain permitted issuances) or appointing new officers and directors, without the Purchaser’s
consent (collectively the “Purchaser’s Rights”).
On
August 19, 2016, the Purchaser notified the Company that it did not intend to fulfill its obligation to fund the second tranche
of the Financing, notwithstanding its confirmation to the Company in June 2016 that the Purchaser would provide such funding in
accordance with the terms of the Purchase Agreement.
The
Purchase Agreement provides that in the event that the Purchaser notifies the Company that it does not intend to fund the Second
Closing Subscription Amount, the Purchaser is required to take all requisite action to cause the resignation or removal of one
of its designees on the Board of Directors of the Company. Pursuant to the terms of the Purchase Agreement, effective August 23,
2016, Guiying Zhao resigned as a director of the Company. In addition, the Purchaser’s Rights terminated, effective August
19, 2016.
On
January 6, 2017, the Company commenced an action in the Supreme Court of New York, County of New York, against the Purchaser, the parent company of the Purchaser, and
Ren Ren, a principal in both entities and a director of the Company, arising from the Purchaser’s breach of the Purchase
Agreement under which the Purchaser agreed to invest an aggregate of $20.25 million in the Company in exchange for an
aggregate of 3,537,037 shares of common stock of the Company and warrants to purchase an aggregate of 884,259 shares of
common stock. In addition to seeking compensatory, consequential and other damages in the action, the Company asked the Court
to preliminarily restrain the Purchaser and its agents and representatives, including, but not limited to, RENS Agriculture
and Ren Ren, from selling, transferring, conveying, assigning, hypothecating or encumbering 1,500,000 shares of common stock
of the Company and a warrant permitting the purchase of 375,000 share at a price of $7.00 per share that the Purchaser
had purchased under the Purchase Agreement and, after the parties had an opportunity to submit opposition and reply papers
in connection with the Company’s application, a preliminary injunction prohibiting RENS Technology from
selling, transferring, conveying, assigning, hypothecating or encumbering the 1,500,000 shares and warrant during the
pendency of the action and an order attaching the stock and warrant to satisfy any judgment entered in favor of the
Company.
On
January 11, 2017, the Court granted the Company the preliminary restraints that it requested, which prevents the Purchaser,
among others, from selling, transferring, conveying, assigning, hypothecating or encumbering the 1,500,000 shares of the Company’s
common stock or the aforementioned warrant. The Court scheduled a hearing on February 14, 2017, at which time the Court heard
oral argument on the application for a preliminary injunction and prejudgment attachment of the stock and warrants to satisfy
any judgment entered in favor of the Company. Since then, the Purchaser filed a motion to dismiss the complaint which the Company
has opposed. No decision has been made by the Court on these two pending applications.
Market
Overview
According
to the Natural Marketing Institute, the Dietary Supplement, Functional Food and Beverage, and Natural Personal Care markets
represent more than $250 billion in annual worldwide sales. The global market for functional foods alone in 2016 was worth an
estimated $43.3 billion. In 2017, it is expected to grow to $54 billion, and the United States is expected to be the fastest
growing market for functional foods. The global sports nutrition market was valued at $28.4 billion in 2016, and is expected
to grow at a compounded annual growth rate of 8.1% during the period from 2017 to 2022 up to $45 billion. We believe our
proprietary ingredient, Fortetropin, which is the only clinically proven natural supplement available in the market that
temporarily reduces free serum myostatin level, is well-positioned to market to a wide base of consumers looking for
nutritional and performance maximization as well as for wellness and maintenance products as they age. Additionally, the
medical community has increased its focus on muscle health, specifically focusing on the aging U.S. population that can
benefit most from myostatin modulation. We believe persons suffering from sarcopenia, a muscle loss condition due to aging,
and cachexia, a syndrome characterized by loss of body weight in many diseases such as cancer, may also benefit from
Fortetropin as muscle loss can be slowed by a reduction of myostatin in the body.
We
believe the combination of the foregoing marketplace characteristics, combined with the experience of our directors and our management
team and our current and future products, will enable our business model to succeed.
Strategy
Our
strategy is to understand the complex genetic and molecular pathways regulating muscle mass and function as well as other disease
mechanisms. Understanding the impact of complex regulatory pathways which act to build and maintain healthy lean muscle is central
to our biotherapeutic research. This research is the foundation of our bionutritional product development. We are developing nutritional
products that target specific mechanisms to promote health in ways that cannot be met by other treatments, diets or lifestyle
changes.
We
will seek to gain market share for our core branded products in functional foods, sports and fitness nutrition and rehab and restorative
health verticals by (i) formulating and developing new and complementary product lines, (ii) expanding U.S. distribution by increasing
the channels of sale, (iii) expanding distribution geography beyond the U.S., including China and Southeast Asia and (iv) seeking
strategic relationships with other distributors. Our strategy is to utilize the revenue and awareness generated by the sales and
marketing of Fortetropin to further advance our research and development of nutritional and therapeutic treatments for muscular-related
conditions, including sarcopenia.
Marketing,
Sales and Distribution
Our commercial
focus is to leverage our clinical data to develop multiple products to target the large, but currently underserved, markets focused
on muscle health. The sales channels through which we sell our products are evolving. The first product we introduced was MYO-T12,
which was sold in the sports nutrition market. MYO T-12 is a proprietary formula containing Fortetropin and other ingredients.
The formula was sold under the brand name MYO T-12 and later as MYO-X through an exclusive distribution agreement with Maximum
Human Performance (“MHP”). The exclusive distribution agreement with MHP terminated in March 2015. The Company had
sales to MHP of $57 in 2015. There were no sales to MHP in 2016 and we do not expect any orders from MHP in 2017.
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 distributes and promotes
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.
On November 28, 2014, we entered into a settlement agreement with Cenegenics wherein we agreed to accept $1.9 million by
April 2016, (i.e., $300 thousand in the fourth quarter of 2014 and $100 thousand per month from January 2015 through April
2016) in full satisfaction of Cenegenics’ outstanding obligations with respect to units of product produced by the
Company, including units that had not yet been shipped to Cenegenics at the time of the settlement agreement. In exchange, we
agreed to withdraw our October 10, 2014 request for arbitration before the International Chamber of Commerce. During the
second quarter of 2015, Cenegenics accepted delivery of the remaining units that we were storing on its behalf. Given the
settlement agreement’s extended payment schedule, the Company deferred the revenue and related cost associated with the
shipment and will record the revenue and cost of sales when the related payments are received, which is expected to be in
early 2016. The distribution agreement with Cenegenics expired in December 2016. The Company does not expect any sales to
Cenegenics in 2017.
During
the second quarter of 2015 we launched Rē Muscle Health
TM
, our own direct-to-consumer portfolio of muscle health
bars, meal replacement shakes and daily supplement powders each powered by a full 6.6 gram single serving dose of Fortetropin.
Our Rē Muscle Health products were sold through our e-commerce website, remusclehealth.com, and amazon.com until March 2017
when we introduced our new Qurr line of products.
On
March 13, 2017 the Company launched Qurr, its Fortetropin®-powered product line formulated to support the vital role of muscle
in overall well-being as well as in fitness. The introduction of Qurr's muscle-focused, natural, over-the-counter products will
make the Qurr line available through convenient direct online ordering without a prescription. All Qurr products are blended with
Fortetropin®, MYOS' proprietary ingredient which has been clinically demonstrated to reduce serum myostatin levels, which
helps increase muscle size and lean body mass. MYOS' earlier product formulations featuring Fortetropin® have become part
of the daily routine of many athletes and fit-conscious people.
Qurr
is a line of deliciously flavored puddings, powders, and shakes all proven to be safe for daily use. While pharmaceutical companies
are working on drugs to accomplish what Fortetropin® already does, there is no pharmaceutical drug that can reduce myostatin,
safely. Fortetropin® has been shown in clinical trials to reduce serum myostatin levels and increase lean muscle mass and
thickness when taken in conjunction with resistance training. Testimonials from enthusiastic core users of Fortetropin® also
describe increases in lean muscle mass and thickness when combined with exercise.
We
continue to pursue additional distribution and branded sales opportunities. There can be no assurance that we will be able to
secure distribution arrangements on terms acceptable to the Company, or that we will be able to generate significant sales of
our current and future branded products. We expect to continue developing our own core branded products in markets such as functional
foods, sports and fitness nutrition and rehab and restorative health and to pursue international sales opportunities. The growing
awareness of the potential therapeutic uses of myostatin reducing agents supports continued development of our own core products.
We remain committed to continuing our focus on various clinical trials in support of our marketing claims as well as to enhance
our intellectual property, 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 diligence to ensure our products
and processes do not encroach upon the rights of third parties. Moreover, we are also engaged in a survey of the intellectual
property owned by potential competitors, and are devising a proactive path to stay ahead of such potential competitors.
In
August 2014, the U.S. Patent and Trademark Office, or USPTO, issued U.S. Patent No. 8,815,320 B2 to us covering our proprietary
methods of manufacturing Fortetropin. The patent entitled “Process for Producing a Composition Containing Active Follistatin,”
provides intellectual property protection for making Fortetropin, the key ingredient in our core commercial muscle health products,
and carries a patent term through early 2033. Additionally, we are currently prosecuting a core patent application covering the
basic science on which our business was built, which application is currently undergoing examination at the USPTO. The scope of
this application covers the various applications of avian follistatin products and the benefits thereof. In particular, this application
is focused on the composition currently in our commercially sold Fortetropin-powered products and the known benefits thereof.
We
intend to file as many applications as possible as continuation/divisional/continuation-in-part applications. Several additional
pending patent applications that we are pursuing include:
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Method
of obtaining effective amounts of avian follistatin - covering a method of controlling the amount of avian follistatin and
the concentrations thereof within a product by extracting the proteins from various parts of fertilized and unfertilized avian
eggs.
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Methods
of treating degenerative muscle disease – covering methods of treating various degenerative muscle diseases, such as
sarcopenia, with avian egg-based products and the compositions thereof.
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Methods
and products for increasing muscle mass – covering various combinations of proteins, lipids and other molecules, which
are active in the natural form of our core commercial products, which may be combined in advantageous amounts to yield improved
products and methods for increasing muscle mass.
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Egg-based
product having 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 having leucine for treatment of degenerative muscle disease - covering a line of products combining avian egg-based
products with leucine for improved treatment of degenerative muscle diseases and the methods of treating the same.
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Methods
of treatment of degenerative muscle disease using egg-based products and testosterone replacement therapy – covering
methods of treating degenerative muscle disease in combination with testosterone replacement therapy for improved results.
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Methods
of treatment of cancer using avian egg powder.
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Methods
of treatment of insulin resistance and Type II diabetes using avian egg powder.
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Methods
of treatment of neurological diseases using avian egg powder.
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Method
of enhancing overall health and longevity using avian egg powder.
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In
addition to patent protection, we are also engaged in protecting our brands, including corporate brands and product brands, and
have sought trademark registrations in the United States for the same. We have implemented a clearance strategy for new brands
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 are in the process of adopting corporate confidentiality policies that comply with the Uniform
Trade Secrets Act and the New Jersey Trade Secret Act to protect some of our most valuable intellectual property assets.
Regulatory
Environment
The
importing, manufacturing, processing, formulating, packaging, labeling, distributing, selling and advertising of our current and
future products may be subject to regulation by one or more federal or state agencies. The Food and Drug Administration, or the
FDA, has primary jurisdiction over our products pursuant to the Federal Food, Drug and Cosmetic Act, as amended by the Dietary
Supplement and Health Education Act, or the FDCA, and the regulations promulgated thereunder. The FDCA provides the regulatory
framework for the safety and labeling of dietary supplements, foods and medical foods. In particular, the FDA regulates the safety,
manufacturing, labeling and distribution of dietary supplements. In addition, the Animal Plant Health and Inspection Service,
or APHIS, regulates the importation of our primary product from Germany. The Federal Trade Commission, or the FTC, and the FDA
share jurisdiction over the promotion and advertising of dietary supplements. Pursuant to a memorandum of understanding between
the two agencies, the FDA has primary jurisdiction over claims that appear on product labels and labeling and the FTC has primary
jurisdiction of product advertising.
The
term “medical foods” does not pertain to all foods fed to sick patients. Medical foods are prescription foods specially
formulated and intended for the dietary management of a disease that has distinctive nutritional needs that cannot be met by normal
diet alone. They were defined in the FDA’s 1988 Orphan Drug Act Amendments and are subject to the general food safety and
labeling requirements of the FDCA but are exempt from the labeling requirements for health claims and nutrient content claims
under the Nutrition Labeling and Education Act of 1990. Medical foods are distinct from the broader category of foods for special
dietary use and from traditional foods that bear a health claim. In order to be considered a medical food, a product must, at
a minimum, be a specially formulated and processed product (as opposed to a naturally occurring food in its natural state) for
oral ingestion or tube feeding (nasogastric tube), be labeled for the dietary management of a specific medical disorder, disease
or condition for which there are distinctive nutritional requirements and be intended to be used under medical supervision.
Compliance
with applicable federal, state, and local laws and regulations is a critical part of our business. We endeavor to comply with
all applicable laws and regulations. However, as with any regulated industry, the laws and regulations are subject to interpretation
and there can be no assurances that a government agency would necessarily agree with our interpretation of the governing laws
and regulations. Moreover, we are unable to predict the nature of such future laws, regulations, interpretations or applications,
nor can we predict what effect additional governmental regulations or administrative orders, when and if promulgated, would have
on our business in the future. These regulations could, however, require the reformulation of our products to meet new standards,
market withdrawal or discontinuation of certain products not able to be reformulated. The risk of a product recall exists within
the industry although we endeavor to minimize the risk of recalls by distributing products that are not adulterated or misbranded.
However, the decision to initiate a recall is often made for business reasons in order to avoid confrontation with the FDA.
Our
products are required to be prepared in compliance with the FDA’s Good Manufacturing Practices, or GMPs, for dietary supplements.
Fortetropin, the active ingredient in our products, must be imported into the United States in conformance with APHIS’s
requirements for egg products. Other statutory obligations include reporting all serious adverse events on a Medwatch Form 3500A.
To date, we have not filed a Medwatch Form 3500A with the FDA nor have we been placed on notice regarding any serious adverse
events related to any of our products. Since eggs are considered a major food allergen under the Food Allergen Labeling and Consumer
Protection Act of 2004, we are required to label all our products containing Fortetropin to note that they contain egg product.
Advertising
of dietary supplement products is subject to regulation by the FTC under the Federal Trade Commission Act, or FTCA, which prohibits
unfair methods of competition and unfair or deceptive trade acts or practices in or affecting commerce. The FTCA provides that
the dissemination of any false advertising pertaining to foods, including dietary supplements, is an unfair or deceptive act or
practice. Under the FTC's substantiation doctrine, an advertiser is required to have a reasonable basis for all objective product
claims before the claims are made. All advertising is required to be truthful and not misleading. All testimonials are required
to be typical of the results the consumer may expect when using the product as directed. Accordingly, we are required to have
adequate substantiation of all material advertising claims made for our products. Failure to adequately substantiate claims may
be considered either deceptive or unfair practices.
In
March 2009, the General Accounting Office, or GAO, issued a report that made four recommendations to enhance the FDA’s oversight
of dietary supplements. The GAO recommended that the Secretary of the Department of Health and Human Services direct the Commissioner
of the FDA to: (i) request authority to require dietary supplement companies to identify themselves as a dietary supplement company
and update this information annually, provide a list of all dietary supplement products they sell and a copy of the labels and
update this information annually, and report all adverse events related to dietary supplements, not just serious adverse events;
(ii) issue guidance to clarify when an ingredient is considered a new dietary ingredient, the evidence needed to document the
safety of new dietary ingredients, and appropriate methods for establishing ingredient identity; (iii) provide guidance to industry
to clarify when products should be marketed as either dietary supplements or conventional foods formulated with added dietary
ingredients; and (iv) coordinate with stakeholder groups involved in consumer outreach to identify additional mechanisms for educating
consumers about the safety, efficacy, and labeling of dietary supplements, implement these mechanisms, and assess their effectiveness.
These recommendations could lead to increased regulation by the FDA or future legislation concerning dietary supplements.
In
addition, medical foods must comply with all applicable requirements for the manufacture of foods, including food Current Good
Manufacturing Practices (“cGMP”), registration of food facility requirements and, if applicable, FDA regulations for
low acid canned food and emergency permit controls. The FDA considers the statutory definition of medical foods to narrowly constrain
the types of products that fit within this category of food. The FDA inspects medical food manufacturers annually to assure the
safety and integrity of the products. Failure of our contract manufacturers to comply with applicable requirements could lead
to sanctions that could adversely affect our business.
We
cannot predict what effect additional domestic or international governmental legislation, regulations, or administrative orders,
when and if promulgated, would have on our business in the future. New legislation or regulations may require the reformulation
of certain products to meet new standards, require the recall or discontinuance of certain products not capable of reformulation,
impose additional record keeping or require expanded documentation of the properties of certain products, expanded or different
labeling or scientific substantiation.
Manufacturing;
Raw Materials and Suppliers
We
are committed to producing and selling highly efficacious products that are trusted for their quality and safety. To date, our
products have been outsourced to third party manufacturers where the products are manufactured in full compliance with cGMP standards
set by the FDA. All of the raw materials for our current products are currently sourced from third-party suppliers. Any shortages
in our raw materials could result in materially higher raw material prices and adversely affect our ability to source our product.
Since the beginning of 2012, we have been focusing on the efficiency and economics of manufacturing Fortetropin. Our management
has examined the production cost and is working to achieve cost savings in production.
We
currently have an agreement with only one third-party manufacturer of Fortetropin, who will manufacture the formula exclusively
for the Company in perpetuity, and may not manufacture the formula for other entities. We have multiple vendors for blending,
packaging and labeling our products.
Competition
Given
the large patient populations that could potentially benefit from treatments targeted at myostatin, a number of pharmaceutical
companies are currently developing various types of myostatin inhibitors. Eli Lilly and Co., Novartis AG, Pfizer Inc., Regeneron
Pharmaceuticals Inc., Sanofi S.A., Scholar Rock and Acceleron Pharma Inc, are among the companies that we are aware of that are
testing new compounds in the field of myostatin inhibition. The market for nutritional supplements is highly competitive. Companies
operating in the space include PepsiCo Inc., Glanbia Plc. GNC Holdings, The Coca-Cola Company, GlaxoSmithKline, Abbott Laboratories,
Nestle S.A. and Universal Nutrition. Competition is based on price, quality, customer service, marketing and product effectiveness.
Our competition includes numerous nutritional supplement companies that are highly fragmented in terms of geographic market coverage,
distribution channels and product categories. In addition, large pharmaceutical companies and packaged food and beverage companies
compete with us in the nutritional supplement market. These companies and certain nutritional supplement companies have broader
product lines and/or larger sales volumes than us and have greater financial and other resources available to them and possess
extensive manufacturing, distribution and marketing capabilities. Other companies are able to compete more effectively due to
a greater extent of vertical integration. Private label products of our competitors, which in recent years have significantly
increased in certain nutrition categories, compete directly with our products. In several product categories, private label items
are the market share leaders. Increased competition from such companies, including private label pressures, could have a material
adverse effect on our results of operations and financial condition. Many companies within our industry are privately-held and
therefore, we are unable to assess the size of all of our competitors or where we rank in comparison to such privately-held competitors
with respect to sales.
Insurance
We
maintain commercial liability, including product liability coverage, and property insurance. Our policy provides for a general
liability of $5.0 million per occurrence, and $10.0 million annual aggregate coverage. We carry property coverage on our main
office facility to cover our legal liability, tenant’s improvements, business property, and inventory. We maintain product
liability insurance with an aggregate cap on retained loss of $10.0 million.
Employees
We
currently have nine 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.
Our
business, operations and financial condition are subject to various risks. Investing in our securities involves a high degree
of risk. Before purchasing our common stock, you should carefully consider the following risk factors as well as other information
contained in this report, including our financial statements and the related notes. The risks and uncertainties described below
are not the only ones facing us. Additional risks and uncertainties that we are unaware of, or that we currently deem immaterial,
also may become important factors that affect us. If any of the following risks occurs, our business, financial condition or results
of operations could be materially and adversely affected. In that case, the trading price of our securities could decline, and
you may lose some or all of your investment. Amounts in this section are in thousands, unless otherwise indicated.
RISKS
RELATING TO OUR BUSINESS
Our
limited operating history makes it difficult to evaluate our future prospects and results of operations
.
We
are an early stage company and have a limited operating history. Our future prospects should be considered in light of the risks
and uncertainties experienced by early stage companies in evolving markets such as the market for our current and future products,
if any, in the United States. We will continue to encounter risks and difficulties that companies
at a similar stage of development frequently experience, including the potential failure to:
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build
a strong and compelling consumer brand;
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adequately
protect and build our intellectual property;
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develop
new products;
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conduct
successful research and development activities;
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increase
awareness of our products and develop customer loyalty;
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respond
to competitive market conditions;
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respond
to requirements and changes in our regulatory environment;
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maintain
effective control of our costs and expenses;
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availability
of sufficient capital resources to adequately promote and market our products; and
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attract,
retain and motivate qualified personnel.
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If
we are unable to address any or all of the foregoing risks, our business may be materially and adversely affected.
If
we are unable to successfully market and promote our own core branded products, we will not be able to increase our sales and
our business and results of operations would be adversely affected.
We
recently launched Qurr, our own proprietary branded products using multiple delivery formats. Successfully marketing and
promoting products is a complex and uncertain process, dependent on the efforts of management, outside consultants and
general economic conditions, among other things. There is no assurance that we will successfully market and/or promote our
own core branded products. Any factors that adversely impact the marketing or promotion of our products including, but not
limited to, competition, acceptance in the marketplace, or delays related to production and distribution or regulatory
issues, will likely have a negative impact on our cash flow and operating results. The commercial success of our products
also depends upon various other factors including:
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the
quality and acceptance of other competing brands and products;
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creating
effective distribution channels and brand awareness;
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critical
reviews;
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the
availability of alternatives;
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general
economic conditions; and
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availability
of sufficient capital resources to adequately promote and market our products.
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Each
of these factors is subject to change and cannot be predicted with certainty. We cannot assure you that we will be successful
in marketing or promoting any of our own core branded products. If we are unable to successfully market and promote our own core
branded products or any enhancements to our products which we may develop, we will not be able to increase our sales, and our
results of operations would be adversely affected.
We
currently do not sell to distributors but if we decide to resume selling to
our
prior distributors and they 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
previously sold our products primarily through two distributors, MHP and Cenegenics. For the year ended December 31, 2015, our
net sales were $159, of which 36% was attributable to MHP. For the year ended December 31, 2016, our net sales were $327, of which
50% was attributable to Cenegenics. We launched our Rē Muscle Health portfolio of branded products in March 2015, which were
not sold to distributors. In March 2017 we launched a new product line Qurr which we will be selling direct to consumers on our
website and Amazon.
If we decide to resume selling
our products to distributors and our prior distributors are unable or unwilling to purchase our products and we are unable to
secure alternative distributors or customers, our operating results and financial condition will be adversely affected.
We
have a history of losses and cash flow deficits, and we expect to continue to operate at a loss and to have negative cash flow
for the foreseeable future, which could cause the price of our stock to decline.
At December
31, 2016, we had cumulative net losses from inception of $27,786. Our net loss for the years ended December 31, 2016 and 2015
were $4,341 and $5,078, respectively. We also had negative cash flow from operating activities. Historically, we have funded our
operations from the proceeds from the sale of equity securities, debt issuances, and to a lesser extent, internally generated
funds. Our strategic business plan is likely to result in additional losses and negative cash flow for the foreseeable future.
We cannot give assurances that we will ever become profitable.
There
is no assurance that we will be able to increase our sales.
Our
sales for the year ended December 31, 2016 were $327, a 106% increase compared to sales for the year ended December 31, 2015. This
increase was primarily due to recognition of $163.5 sales to Cenegenics related to the collection of deferred revenues and an
increase in our proprietary branded products using multiple delivery formats. We cannot give assurances that our new business
model will enable us to increase our sales.
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, 2016, our total assets were $5,961, of which $1,527, or approximately 25% 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. The Company’s 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 the Company's intangible
assets, management determined that the carrying values of the intellectual property asset exceeded its fair value.
Accordingly, the Company recorded noncash impairment charges totaling $2,662 and reduced the intellectual property asset to
its fair value of $2,000. Management performed annual impairment tests in 2012, 2013 and 2014 and determined no further
impairment existed. 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 ten consecutive quarters of minimal
revenues combined with changes in the sales channels through which we sell our products and our inability to predict future
orders, if any, from MHP or Cenegenics or to what extent we will be able to secure new distribution arrangements, we tested
the intellectual property for impairment in the fourth quarter of 2016 and 2015 and determined that the asset value was
recoverable and therefore no impairment was recognized. Nevertheless, a significant amount of our total assets are subject to
impairment testing and may result in noncash impairment charges, which would adversely affect our results of operations and
financial condition.
We
will need to raise additional funds in the future to grow our business. If we are unable to raise funds as needed, we may not
be able to maintain or expand our business.
We
require substantial funds for operating expenses, research and development activities, to establish manufacturing capability,
to develop consumer marketing and retail selling capability, and to cover public company costs. The extent of our capital needs
will depend on numerous factors, including (i) our profitability, (ii) the release of competitive products, (iii) the level of
investment in research and development, (iv) the amount of our capital expenditures, (v) the amount of our working capital including
collections on accounts receivable, (vi) the sales, marketing and distribution investment needed to develop and launch our own
core branded products and (vii) cash generated by sales of those products.
We
cannot assure you that we will be able to obtain additional financing or that such financing would be sufficient to meet our needs.
If we cannot obtain additional funding, we may be required to limit our marketing efforts, decrease or eliminate capital expenditures
or cease all or a portion of our operations, including any research and development activities. Any available additional financing
may not be adequate to meet our goals.
Even
if we are able to locate a source of additional capital, we may not be able to negotiate terms and conditions for receiving the
additional capital that are acceptable to us.
Any
future capital investments could dilute or otherwise materially adversely affect the holdings or rights of our existing stockholders.
In addition, new equity or convertible debt securities issued by us to obtain financing could have rights, preferences and privileges
senior to our common stock. There is no assurance that any additional financing will be available, or if available, will be on
terms favorable to us. In addition, any equity financing would result in dilution to stockholders.
Since
our revenues are generated in U.S. dollars but a significant portion of our expenses may be 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 significant portion of our expenses may be incurred in foreign currencies, principally
the payments to our primary manufacturer that are paid in euros. The exchange rates between the U.S. dollar and other currencies
fluctuate and are affected by, among other things, changes in political and economic conditions. Any significant fluctuation in
the exchange rate for these currencies may materially and adversely affect our earnings, cash flows and financial condition.
If
we are unable to manage our infrastructure growth, our business results may be materially and adversely affected.
We
need to manage our infrastructure growth to support and maximize our potential revenue growth and achieve our expected business
results. Engaging the full capacity of our limited staff may place a significant strain on our management, operations, and accounting
and information systems. We expect that we will need to continue to improve our financial controls, operating procedures and management
information systems. The failure to manage our infrastructure growth could adversely affect our business results.
If
we are not able to implement our business objectives, our operations and financial performance may be adversely affected.
Our
principal objectives are to: (i) create a sales platform through marketing products containing our proprietary ingredient Fortetropin
in established, growing, and new markets and strategic selection of partnerships and collaborations to maximize near-term and
future revenues, (ii) deepen the scientific understanding of the activity of Fortetropin, specifically as a natural, reversible,
temporary modulator of the regulatory protein myostatin, and to leverage this knowledge to strengthen and build our intellectual
property, (iii) conduct research and development activities to evaluate myostatin modulation in a range of both wellness and disease
states, (iv) identify other products and technologies which may broaden our portfolio and define a business development strategy
to protect, enhance and accelerate the growth of our products, (v) reduce the cost of manufacturing through process improvement,
and (vi) identify contract manufacturing resources that can fully meet our future growth requirements. Our business plan is based
on circumstances currently prevailing and assumptions that certain circumstances will or will not occur as well as the inherent
risk and uncertainties involved in various stages of development. However, there is no assurance that we will be successful in
achieving our objectives. If we are not able to achieve our objectives, our business operations and financial performance may
be adversely affected.
If
we lose the services of our key personnel, we may be unable to replace them, and our business, financial condition and results
of operations could be adversely affected.
Our
success largely depends on the continued skills, experience, efforts and policies of our management, directors and other key personnel
and our ability to continue to attract, motivate and retain highly qualified employees. In particular, certain of our directors,
including Dr. Robert Hariri and Dr. Louis Aronne have significant research and development experience and are integral to the
creation of our future products and the execution of our business strategy. In addition, our prospects depend substantially on
the services of our executive management team.
If
one or more of our key employees or directors leaves us, we will need to find a replacement with the combination of skills and
attributes necessary to execute our strategy. Because competition for skilled personnel is intense, and the process of finding
qualified individuals can be lengthy and expensive, we believe that the loss of the services of key personnel could adversely
affect our business, financial condition and results of operations. We cannot assure you that we will continue to retain such
personnel.
Our
success depends on our ability to anticipate and respond in a timely manner to changing consumer demands.
Our
success depends on the appeal of our current and future products to a broad range of consumers whose preferences cannot be predicted
with certainty and are subject to change. If our current and future products do not meet consumer demands, our sales may decline.
In addition, our growth depends upon our ability to develop new products through product line extensions and product modifications,
which involve numerous risks. We may not be able to accurately identify consumer preferences, translate our knowledge into customer
accepted products, establish the appropriate pricing for our products or successfully integrate these products with our existing
product platform or operations. We may also experience increased expenses incurred in connection with product development, marketing
and advertising that are not subsequently supported by a sufficient level of sales, which would negatively affect our margins.
Furthermore, product development may divert management’s attention from other business concerns, which could cause sales
of our existing products to suffer. We cannot assure you that newly developed products will contribute favorably to our operating
results.
Products
often have to be promoted heavily in stores or in the media to obtain visibility and consumer acceptance. Acquiring distribution
for products is difficult and often expensive due to slotting and other promotional charges mandated by retailers. Products can
take substantial periods of time to develop consumer awareness, consumer acceptance and sales volume. Accordingly, some products
may fail to gain or maintain sufficient sales volume and as a result may have to be discontinued.
If
our current or future products fail to properly perform, our business could suffer due to increased costs and reduced income.
Failure of our current or future products to meet consumer expectations could result in decreased sales, delayed market acceptance
of our products, increased accounts receivable, unsaleable inventory and customer returns, and divert our resources to reformulation
or alternative products.
Intense
competition from existing and new entities may adversely affect our revenues and profitability
.
We
face competitors that will attempt to create, or are already creating, products that are similar to our current and future products.
Many of our current and potential competitors have significantly longer operating histories and significantly greater managerial,
financial, marketing, technical and other competitive resources, as well as greater name 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 and other publicity about product use. Adverse publicity
from such sources regarding the safety, efficacy or quality of dietary supplements, in general, and our products in particular,
could harm our reputation and results of operations. The mere publication of reports asserting that such products may be harmful
or questioning their efficacy could have a material adverse effect on our business, financial condition and results of operations,
regardless of whether such reports are scientifically supported or whether the claimed harmful effects would be present at the
dosages recommended for such products.
Marketing
of our products through social media and other advertising methods could harm our business and reputation.
There
are many considerations that can affect the marketing and advertising of our products through social media such as claims
and concerns about safety, new discoveries, patent disputes and claims about adverse side effects. Further, claims and
concerns about safety can result in a negative impact on product sales, product recalls or withdrawals, and/or consumer
fraud, product liability and other litigation and claims. A video published online, a blog on the internet, or a post on a
website, can be distributed rapidly and negatively harm our reputation
.
Cyberattacks
and other security breaches could compromise our proprietary and confidential information as well as our e-commerce and
customer information 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 purposefully or inadvertently cause
a breach involving such information. While we have certain safeguards in place to reduce the risk of and detect cyber-attacks,
our information technology networks and infrastructure may be vulnerable to unpermitted access by hackers or other breaches, or
employee error or malfeasance. Any such compromise of our data security and access to, or public disclosure or loss of, confidential
business or proprietary information could disrupt our operations, damage our reputation, provide our competitors with valuable
information, and subject us to additional costs which could adversely affect our business.
The
scientific support for Fortetropin is subject to uncertainty.
Our
research, scientific knowledge and clinical testing supporting the benefits of our products are an essential element of our ability
to legally market our products. There is, however, the risk that new or undiscovered information may become available that may
undermine or refute our scientific support. In addition, our clinical testing of Fortetropin has 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 conditions.
If
we are required to withdraw our products from the market, change the labeling of our products and/or are subject to product liability
claims, our operations and financial performance may be adversely affected.
There
is a potential for any ingested product to result in side effects in certain consumers. Although we are not aware of any adverse
effects of our products on the health of consumers, if any such side effects are identified after marketing and sale of the product,
we may be required to withdraw our products from the market or change its labeling. We may also be required to withdraw our products
from the market as a result of regulatory issues. If we are required to withdraw our products from the market, our business operations
and financial performance may be adversely affected. Furthermore, if a product liability claim is brought against us, it may,
regardless of merit or eventual outcome, result in damage to our reputation, decreased demand for our products, costly litigation
and loss of revenue.
An
increase in product returns could negatively impact our operating results and profitability.
Historically,
sales allowances for product returns have not been provided, since under our existing arrangements, customers are not permitted
to return product except for non-conforming product. In certain instances we may permit the return of damaged or defective products
and accept limited amounts of product returns. While such returns have historically been nominal and within management’s
expectations and the provisions established, future return rates may differ from those experienced in the past. Any significant
increase in damaged or defective products or expected returns could have a material adverse effect on our operating results for
the period or periods in which such returns materialize. With respect to future sales, we may need to offer retail customers
sales incentives, including the right to return product. If those customers are not able to sell our products to end-consumers,
significant product returns may materialize, which could have a material adverse effect on our operating results.
We
are dependent on third-party manufacturers, suppliers and processors to produce our products.
We
currently rely on third-party manufacturers, suppliers and processors to produce our products. If our manufacturers, suppliers
or processors are unable to provide us with the required finished products or raw materials or are unable or unwilling to produce
sufficient quantities of our products, our business and revenues will be adversely affected.
A
shortage in the supply of, or a price increase in, raw materials could increase our costs or adversely affect our sales and revenues.
All
of the raw materials for our products are sourced from third-party suppliers. Currently, we have one primary third-party manufacturer
to produce Fortetropin under a fixed price agreement that runs through December 2018. Any shortages in our raw materials could
adversely affect operations. Price increases from a supplier will affect our profitability if we are not able to pass price increases
on to customers. The inability to obtain adequate supplies of raw materials in a timely manner of our raw materials could have
a material adverse effect on our business, financial condition and results of operations.
While
our raw material inventories generally have a long shelf life, we may be required to write-off or reserve for inventories that
are slow-moving, off-grade, damaged or otherwise not saleable. Such write-offs and/or reserves could have a material adverse effect
on our business, financial condition and results of operations.
Our
raw material inventories are comprised of dried powder derived from egg-yolk, and despite generally having a long shelf life,
we may be required to write-off or reserve for inventories that are slow-moving, off-grade, damaged or otherwise not saleable.
Cost of sales for the year ended December 31, 2016 and 2015 included slow moving obsolete/damaged goods inventory charges of $106
and $697, respectively. Future required write-offs or reserves could have a material adverse effect on our business, financial
condition and results of operations.
We
have no manufacturing capacity and anticipate continued reliance on third-party manufacturers for the development and commercialization
of our products.
We
do not currently operate manufacturing facilities for production of our product. We lack the resources and the capabilities to
manufacture our products on a commercial scale. We do not intend to develop facilities for the manufacture of our products in
the foreseeable future. We rely on third-party manufacturers to produce bulk products required to meet our sales needs. We plan
to continue to rely upon contract manufacturers to manufacture commercial quantities of our products.
Our
contract manufacturers’ failure to achieve and maintain high manufacturing standards, in accordance with 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 manufacturers 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 manufacturers may not perform
as agreed 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 of
Fortetropin and our future products is important to our success. In addition, the development of new products requires significant
research, development and testing all of which require significant investment and resources. At this time, our resources are limited
and our research and development activities are dependent upon our ability to fund our activities and to raise capital which may
not be possible. We may enter into agreements with third party vendors to engage in research and development for us. However,
the failure of the third-party researcher to perform under agreements entered into with us, or our failure to renew important
research agreements with a third party, may delay or curtail our research and development efforts. The research and development
of new products is costly and time consuming, and there are no assurances that our research and development activities will be
successful. Even if a new product is developed, there is no assurance that it will be commercialized or result in sales.
We
may not be able to protect our intellectual property rights which could cause our assets to lose value.
Our
business depends on and will continue to depend on our intellectual property, including our valuable brands and internally-developed
products. We believe our intellectual property rights are important to our continued success and our competitive position. However,
we may be unable or unwilling to strictly enforce our intellectual property rights, including our patents and trademarks, from
infringement due to the substantial costs of such enforcement. In addition, while there are patent applications pending for our
core product, there is no assurance that such applications will issue as patents. Our failure to enforce our intellectual property
rights could diminish the value of our brands and product offerings and harm our business and future growth prospects.
In
addition, unauthorized parties may attempt to copy or otherwise obtain and use our services, technology and other intellectual
property, and we cannot be certain that the steps we have taken to protect our proprietary rights will prevent any misappropriation
or confusion among consumers and merchants, or unauthorized use of these rights. Advancements in technology have exacerbated the
risk by making it easier to duplicate and disseminate intellectual property. In addition, as our business becomes more global
in scope, we may not be able to protect our proprietary rights in a cost-effective manner in a multitude of jurisdictions with
varying laws. If we are unable to procure, protect and enforce our intellectual property rights, we may not realize the full value
of these assets, and our business may suffer. If we need to commence litigation to enforce our intellectual property rights or
determine the validity and scope of the proprietary rights of others, such litigation may be costly and divert the attention of
our management.
We
may be subject to intellectual property rights claims, which are costly to defend, could require us to pay damages and could limit
our ability to sell some of our products.
We
may become subject to intellectual property litigation or infringement claims, which could cause us to incur significant expenses
to defend such claims, divert management’s attention or prevent us from manufacturing, importing,
selling or using some aspect of our current or future products. If we choose or are forced to settle such claims, we may be required
to pay for a license to certain rights, pay royalties on both a retrospective and prospective basis, and/or cease manufacturing
importing and selling certain infringing products. Future infringement claims against us by third parties may adversely
impact our business, financial condition and results of operations.
In
addition, our primary third-party manufacturer assigned its United States patent application for making Fortetropin, the key ingredient
in our products, to us in exchange for royalty payments for each kilogram of Fortetropin that we produce, for a period of seven
years from the expiration date of the supply agreement on December 31, 2016. Subsequent to the assignment of the patent application,
in August 2014, the USPTO issued to us U.S. Patent
No. 8,815,320 B2 covering the proprietary methods of manufacturing Fortetropin.
Our
advertising and marketing efforts may be costly and may not achieve desired results.
We
intend to incur substantial expenses in connection with our advertising and marketing efforts for our products. Although we intend
to target our advertising and marketing efforts on current and potential customers who we believe are likely to be in the market
for the products we sell, we cannot assure you that our advertising and marketing efforts will achieve our desired results. We
will periodically adjust our advertising expenditures in an effort to optimize the return on such expenditures knowing that any
such decrease we make to optimize such return could adversely affect our sales.
We
rely on independent shipping companies to deliver the products we sell.
We
rely upon third party carriers, especially FedEx and UPS, for timely delivery of our product shipments. As a result, we are subject
to carrier disruptions and increased costs due to factors that are beyond our control, including employee strikes, inclement weather
and increased fuel costs. Any failure to deliver products to our customers in a timely and accurate manner may damage our reputation
and brand and could cause us to lose customers. We do not have a written long-term agreement with any of these third party carriers,
and we cannot be sure that these relationships will continue on terms favorable to us, if at all. If our relationship with any
of these third party carriers is terminated or impaired, or if any of these third parties are unable to deliver products for us,
we would be required to use alternatives for shipment of products to our customers. We may be unable to engage alternative carriers
on a timely basis or on terms favorable to us, if at all. Potential adverse consequences include:
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reduced
visibility of order status and package tracking;
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delays
in order processing and product delivery;
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increased
cost of delivery, resulting in reduced margins; and
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reduced
shipment quality, which may result in damaged products and customer dissatisfaction.
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Furthermore,
shipping costs represent a significant operational expense for us. Any future increases in shipping rates could have a material
adverse effect on our business, financial condition and results of operations.
We
rely on fulfillment centers to package and deliver our product to customers who place orders online
We
have an agreement with one fulfillment center to box and ship our products to customers once an order has been placed. We cannot
be sure that our relationship with the fulfillment center will continue on terms favorable to us, if at all. If our relationship
with them is terminated or impaired, or if they are unable to deliver products for us, we would be required to use alternatives
for shipment of products to our customers.
We
face significant inventory risk.
We
are exposed to significant inventory risks that may adversely affect our operating results as a result of new product launches,
rapid changes in product cycles and pricing, defective merchandise, changes in consumer demand and consumer spending patterns,
changes in consumer tastes with respect to our products, and other factors. We endeavor to accurately predict these trends and
avoid overstocking or understocking our products. Demand for products, however, can change significantly between the time inventory
is ordered and the date of sale. In addition, when we begin selling or manufacturing a new product, it may be difficult to determine
appropriate product selection, and accurately forecast demand. The acquisition of inventory may require significant lead-time
and prepayment and we may be unable to sell products in sufficient quantities or during the relevant selling seasons. Any one
of these risks may adversely affect our operating results.
Our
failure to respond appropriately to competitive challenges, changing consumer preferences and demand for new products could significantly
harm our customer relationships and product sales.
The
nutritional supplement industry is characterized by intense competition for product offerings and rapid and frequent changes in
consumer demand. Our failure to predict accurately product trends could negatively impact our products and cause our revenues
to decline.
Our
success with any particular product offering (whether new or existing) depends upon a number of factors, including our ability
to:
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deliver
quality products in a timely manner in sufficient volumes;
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accurately
anticipate customer needs and forecast accurately to our manufacturers;
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differentiate
our product offerings from those of our competitors;
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competitively
price our products; and
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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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shelf
space and store placement;
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brand
and product recognition;
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product
introductions; and
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Most
of our competitors are larger, more established companies and possess greater financial strength, personnel, distribution and
other resources than we have. We face competition in the supplement market from a number of large nationally known manufacturers,
private label brands and many smaller manufacturers.
Adverse
publicity or consumer perception of our products and any similar products distributed by others could harm our reputation and
adversely affect our sales.
We
believe we are highly dependent upon positive consumer perceptions of the safety and quality of our products as well as similar
products distributed by other nutritional supplement companies. Consumer perception of nutritional supplements and our products
in particular can be substantially influenced by scientific research or findings, national media attention and other publicity
about product use. Adverse publicity from these sources regarding the safety, quality or efficacy of nutritional supplements and
our products could harm our reputation and results of operations. The mere publication of news articles or reports asserting that
such products may be harmful or questioning their efficacy could have a material adverse effect on our business, financial condition
and results of operations, regardless of whether such news articles or reports are scientifically supported or whether the claimed
harmful effects would be present at the dosages recommended for such products.
Changes
in the economies of the markets in which we do business may affect consumer demand for our products.
Consumer
spending habits, including spending for our products, are affected by, among other things, prevailing economic conditions, levels
of employment, fuel prices, changes in exchange rates, salaries and wages, the availability of consumer credit, consumer confidence
and consumer perception of economic conditions. Economic slowdowns in the markets in which we do business and an uncertain economic
outlook may adversely affect consumer spending habits, which may result in lower sales of our products in future periods. A prolonged
global or regional economic downturn could have a material negative impact on our financial position, results of operation or
cash flows.
Our
insurance coverage may be insufficient to cover our legal claims or other losses that we may incur in the future.
We
maintain insurance, including property, general and product liability and other forms of insurance to protect ourselves against
potential loss exposures. In the future, insurance coverage may not be available at adequate levels or on adequate terms to cover
potential losses. If insurance coverage is inadequate or unavailable, we may face claims that exceed coverage limits or that are
not covered, which could increase our costs and adversely affect our operating results.
We
may be subject to uncertain and costly compliance with government regulations.
The
importing, manufacturing, processing, formulating, packaging, labeling, distributing, selling and advertising of our current and
future products may be subject to regulation by one or more federal or state agencies. The Food and Drug Administration, or the
FDA, has primary jurisdiction over our products pursuant to the Federal Food, Drug and Cosmetic Act, as amended by the Dietary
Supplement and Health Education Act, or the FDCA, and regulations promulgated thereunder. The FDCA provides the regulatory framework
for the safety and labeling of dietary supplements, foods and medical foods. In particular, the FDA regulates the safety, manufacturing,
labeling and distribution of dietary supplements. In addition, the Animal Plant Health and Inspection Service, or APHIS, regulates
the importation of our primary product from Germany. The Federal Trade Commission, or the FTC, and the FDA share jurisdiction
over the promotion and advertising of dietary supplements. Pursuant to a memorandum of understanding between the two agencies,
the FDA has primary jurisdiction over claims that appear on product labels and labeling and the FTC has primary jurisdiction over
product advertising.
Compliance
with applicable federal, state, and local laws and regulations is a critical part of our business. We endeavor to comply with
all applicable laws and regulations. However, as with any regulated industry, the laws and regulations are subject to interpretation
and there can be no assurances that a government agency would necessarily agree with our interpretation of the governing laws
and regulations. Moreover, we are unable to predict the nature of such future laws, regulations, interpretations or applications,
nor can we predict what effect additional governmental regulations or administrative orders, when and if promulgated, would have
on our business in the future. These regulations could, however, require the reformulation of our products to meet new standards,
market withdrawal or discontinuation of certain products not able to be reformulated. The risk of a product recall exists within
the industry although we endeavor to minimize the risk of recalls by distributing products that are not adulterated or misbranded.
However, the decision to initiate a recall is often made for business reasons in order to avoid confrontation with FDA.
Our
products are required to be prepared in compliance with the FDA’s GMPs, for dietary supplements. 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 egg product.
Advertising
of dietary supplement products is subject to regulation by the FTC under the Federal Trade Commission Act, or FTCA, which prohibits
unfair methods of competition and unfair or deceptive trade acts or practices in or affecting commerce. The FTCA provides that
the dissemination of any false advertising pertaining to foods, including dietary supplements, is an unfair or deceptive act or
practice. Under the FTC's substantiation doctrine, an advertiser is required to have a reasonable basis for all objective product
claims before the claims are made. All advertising is required to be truthful and not misleading. All testimonials are required
to be typical of the results the consumer may expect when using the product as directed. Accordingly, we are required to have
adequate substantiation of all material advertising claims made for our products. Failure to adequately substantiate claims may
be considered either deceptive or unfair practices.
We
cannot predict what effect additional domestic or international governmental legislation, regulations, or administrative orders,
when and if promulgated, would have on our business in the future. New legislation or regulations may require the reformulation
of certain products to meet new standards, require the recall or discontinuance of certain products not capable of reformulation,
impose additional record keeping or require expanded documentation of the properties of certain products, expanded or different
labeling or scientific substantiation.
RISKS
RELATED TO OUR COMMON STOCK
Trading
in our common stock over the last 12 months has fluctuated, so investors may not be able to sell as many of their shares as
they want at prevailing prices.
Our
common stock is listed on the Nasdaq Capital Market. There has been an increase 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 as prices have fluctuated.
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 sales of our securities. These requirements
could severely limit the market liquidity of our common stock and the ability of our stockholders to sell our common stock in
the secondary market. If our common stock is delisted from the Nasdaq Capital Market, our common stock may be eligible to trade
on an over-the-counter quotation system, such as the OTCQB market, where an investor may find it more difficult to sell our stock
or obtain accurate quotations as to the market value of our common stock. We cannot assure you that our common stock, if delisted
from the Nasdaq Capital Market, will be listed on another national securities exchange or quoted on an over-the-counter quotation
system.
If
the Nasdaq Capital Market delists our shares of common stock from trading on its exchange and we are not able to list our securities
on another national securities exchange, we expect our securities could be quoted on an over-the-counter market. If this were
to occur, we could face significant material adverse consequences, including:
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a
limited availability of market quotations for our securities;
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reduced
liquidity for our shares;
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a
determination that our common stock is a “penny stock” which will require brokers trading in our common stock
to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market
for our shares;
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a
limited amount of news and analyst coverage; and
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a
decreased ability to issue additional securities or obtain additional financing in the future.
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An
active and visible trading market for our common stock may not develop.
We
cannot predict whether an active market for our common stock will develop in the future. In the absence of an active trading market:
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investors
may have difficulty buying and selling or obtaining market quotations;
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market
visibility for our common stock may be limited; and
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a
lack of visibility for our common stock may have a depressive effect on the market price for our common stock.
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The
trading price of our common stock is expected to be subject to significant fluctuations in response to variations in quarterly
operating results, changes in analysts’ earnings estimates, announcements of innovations by us or our competitors, general
conditions in the industry in which we operate and other factors. These fluctuations, as well as general economic and market conditions,
may have a material or adverse effect on the market price of our common stock.
The
market price for our stock may be volatile.
The
market price for our stock may be volatile and subject to wide fluctuations in response to factors including the following:
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actual
or anticipated fluctuations in our quarterly operating results;
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changes
in financial estimates by securities research analysts;
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conditions
in nutritional supplement and pharmaceutical markets;
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changes
in the economic performance or market valuations of other nutritional supplement companies;
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announcements
by us or our competitors of new products, acquisitions, strategic partnerships, joint ventures or capital commitments;
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addition
or departure of key personnel;
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intellectual
property 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 issued to RENS Technology Inc. in connection with the first tranche
of the Financing, may result in significant dilution to our stockholders.
Mr.
Ren can exert significant influence over us and make decisions that are not in the best interests of all stockholders.
Mr.
Ren and his affiliates currently beneficially own approximately 32% of our outstanding shares of common stock. As a result, he
will be able to assert significant influence over all matters requiring stockholder approval, including the election and removal
of directors and any change in control. In particular, this concentration of ownership of our outstanding shares of common stock
could have the effect of delaying or preventing a change in control, or otherwise discouraging or preventing a potential acquirer
from attempting to obtain control. This, in turn, could have a negative effect on the market price of our common stock. It could
also prevent our stockholders from realizing a premium over the market prices for their shares of common stock. Moreover, the
interests of the owners of this concentration of ownership may not always coincide with our interests or the interests of other
stockholders and, accordingly, could cause us to enter into transactions or agreements that we would not otherwise consider.
Compliance
with changing corporate governance regulations and public disclosure, and our management’s inexperience with such regulations,
will result in additional expenses and creates a risk of non-compliance.
Our
reporting obligations as a public company will place a significant strain on our management, operational and financial resources
and systems for the foreseeable future. Changing laws, regulations and standards relating to corporate governance and public disclosure,
including the Sarbanes-Oxley Act of 2002 and related SEC regulations, have created uncertainty for public companies and significantly
increased the costs and risks associated with accessing the public markets and public reporting. Our management team will need
to invest significant time and financial resources to comply with both existing and evolving standards for public companies, which
will lead to increased general and administrative expenses and a diversion of management time and attention from revenue generating
activities to compliance activities.
We
do not foresee paying cash dividends in the foreseeable future and, as a result, our investors’ sole source of gain, if
any, will depend on capital appreciation, if any.
We
do not plan to declare or pay any cash dividends on our shares of common stock in the foreseeable future and currently intend
to retain any future earnings for funding growth. As a result, investors should not rely on an investment in our securities if
they require the investment to produce dividend income. Capital appreciation, if any, of our shares may be investors’ sole
source of gain for the foreseeable future. Moreover, investors may not be able to resell their common stock at or above the price
they paid for them.
Provisions in our charter
documents, the shareholder rights plan we have adopted, and under Nevada law could discourage a takeover that stockholders may
consider favorable.
Our
articles of incorporation provides for the authorization to issue up to 500,000 shares of blank check preferred stock with designations,
rights and preferences as may be determined from time to time by our board of directors. Our board of directors is empowered,
without stockholder approval, to issue a series of preferred stock with dividend, liquidation, conversion, voting or other rights
which could dilute the interest of, or impair the voting power of, our common stockholders. The issuance of a series of preferred
stock could be used as a method of discouraging, delaying or preventing a change in control. For example, it would be possible
for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of
any attempt to change control of our company. In addition, we have a classified board of directors that consists of three groups,
which may increase the length of time necessary for an acquirer to change the composition of a majority of directors to gain control
of our board of directors.
We have also adopted a shareholder rights plan that could make it more difficult for a third party to acquire, or could discourage
a third party from acquiring, us or a large block of our common stock. A third party that acquires 10% or more of our common
stock could suffer substantial dilution of its ownership interest under the terms of the shareholder rights plan through the
issuance of our shares to all stockholders other than the acquiring person. These and other provisions in our articles of
incorporation and bylaws could make it more difficult for stockholders or potential acquirers to obtain control of our board
of directors or initiate actions that are opposed by our then-current board of directors, including a merger, tender offer,
or proxy contest involving our company. Any delay or prevention of a change of control transaction or changes in our board
of directors could cause the market price of our common stock to decline.
Provisions
of Nevada corporate law limit the personal liability of corporate directors and officers and require indemnification under certain
circumstances.
Section
78.138(7) of the Nevada Revised Statutes provides that, subject to certain very limited statutory exceptions or unless the articles
of incorporation provide for greater individual liability, a director or officer of a Nevada corporation is not individually liable
to the corporation or its stockholders for any damages as a result of any act or failure to act in his or her capacity as a director
or officer, unless it is proven that the act or failure to act constituted a breach of his or her fiduciary duties as a director
or officer and such breach involved intentional misconduct, fraud or a knowing violation of law. We have not included in our articles
of incorporation any provision intended to provide for greater liability as contemplated by this statutory provision.
In
addition, Section 78.7502(3) of the Nevada Revised Statutes provides that to the extent a director or officer of a Nevada corporation
has been successful on the merits or otherwise in the defense of certain actions, suits or proceedings (which may include certain
stockholder derivative actions), the corporation shall indemnify such director or officer against expenses (including attorneys’
fees) actually and reasonably incurred by such director or officer in connection therewith.
If
securities or industry analysts do not publish research or reports about our business, or if they change their recommendations
regarding our stock adversely, our stock price and trading volume could decline.
The
trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish
about us or our business. We do not currently have and may never obtain significant research coverage by industry or financial
analysts. If few analysts commence coverage of us, the trading price of our stock would likely decrease. Even if we do obtain
significant analyst coverage, if one or more of the analysts who cover us downgrade our stock, our stock price would likely decline.
If one or more of these analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in
the financial markets, which in turn could cause our stock price or trading volume to decline.
A
failure of our internal control over financial reporting could materially impact our business or share price.
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting. An internal control
system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of
the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all internal control
systems, internal control over financial reporting may not prevent or detect misstatements. Any failure to maintain an effective
system of internal control over financial reporting could limit our ability to report our financial results accurately and timely
or to detect and prevent fraud, and could expose us to litigation or adversely affect the market price of our common stock.
RISKS
RELATED TO OUR FUTURE PRODUCTS
The
research and development of pharmaceutical products, which is separate from nutritional supplements, entails special considerations
and risks. If we are successful in developing pharmaceutical products for muscular-related conditions, 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. The Federal Food, Drug and Cosmetic Act and other federal, state and foreign
statutes and regulations govern and influence the testing, manufacture, 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 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 redo such clinical trials in order to progress development of the
subject product. These additional trials would be costly and divert resources from other projects.
Competitors
may develop competing technologies or products which outperform or supplant our technologies or products.
Drug
companies and/or other technology companies may in the future seek to develop and market pharmaceutical products which may compete
with our future technologies and products. Competitors may in the future develop similar or different technologies or products
which may become more accepted by the marketplace or which may supplant our technology entirely. In addition, many of our future
competitors may be significantly larger and better financed than we are, thus giving them a significant advantage over us.
We
may be unable to respond to competitive forces presently in the marketplace (including competition from larger companies), which
would severely impact our business. Moreover, should competing or dominating technologies or products come into existence and
the owners thereof patent the applicable technological advances, we could also be required to license such technologies in order
to continue to manufacture, market and sell our products. We may be unable to secure such licenses on commercially acceptable
terms, or at all, and our resulting inability to manufacture, market and sell the affected products could have a material adverse
effect on us.
The
market for our product candidates is rapidly changing and competitive, and new drug delivery mechanisms, drug delivery technologies,
new drugs and new treatments which may be developed by others could impair our ability to maintain and grow our business and remain
competitive.
Even
if successfully developed, our product candidates may not gain market acceptance among physicians, patients and healthcare payers,
which may not utilize our products. If our product candidates do not achieve market acceptance, our business and financial condition
will be materially adversely affected. The pharmaceutical industry is subject to rapid and substantial technological change. Developments
by others may render our technologies and our product candidates noncompetitive or obsolete, or we may be unable to keep pace
with technological developments or other market factors. Technological competition from pharmaceutical and biotechnology companies,
universities, governmental 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.
Item
1B.
|
Unresolved
Staff Comments.
|
Not
applicable.
We
do not own any real estate or other physical properties materially important to our operation. Our executive office is located
at 45 Horsehill Road, Suite 106, Cedar Knolls, New Jersey 07927. Our office space consists of 5,225 square feet. The lease expires
on December 31, 2019. We have two options to renew our lease for an additional three years each. We consider our current office
space adequate for our current operations. For additional information refer to Part IV, Item 15, “Notes to Consolidated
Financial Statements: Note 12 – Commitments and Contingencies.”
Item
3.
|
Legal
Proceedings.
|
On October 27, 2016, Cutler
Holdings, L.L.C. (“Cutler”) filed a complaint in the Superior Court of New Jersey alleging that the Company
failed to make certain rental payments. On March 30, 2017, the Company entered into a settlement agreement with Cutler,
pursuant to which Cutler released the Company from any liability for the claims asserted in the complaint.
On
January 6, 2017, the Company commenced an action in the Supreme Court of New York, County of New York, against
RENS Technology, Inc. (“the Purchaser”), RENS Agriculture, the parent company of the Purchaser, and Ren Ren, a
principal in both entities and a director of the Company, arising from the Purchaser’s breach of a Securities Purchase
Agreement under which the Purchaser agreed to invest an aggregate of $20.25 million in the Company in exchange for an
aggregate of 3,537,037 shares of common stock of the Company and warrants to purchase an aggregate of 884,259 shares of
common stock. In addition to seeking compensatory, consequential and other damages in the action, the Company asked the Court
to preliminarily restrain the Purchaser and its agents and representatives, including, but not limited to, RENS Agriculture
and Ren Ren, from selling, transferring, conveying, assigning, hypothecating or encumbering 1,500,000 shares of common stock
of the Company and a warrant permitting the purchase of 375,000 share at a price of $7.00 per share that the Purchaser had
purchased under the Securities Purchase Agreement and, after the parties had an opportunity to submit opposition and reply
papers in connection with the Company’s application, a preliminary injunction prohibiting the Purchaser from
selling, transferring, conveying, assigning, hypothecating or encumbering the 1,500,000 shares and warrant during the
pendency of the action and an order attaching the stock and warrant to satisfy any judgment entered in favor of the
Company.
On
January 11, 2017, the Court granted the Company the preliminary restraints that it requested, which prevents RENS Technology,
among others, from selling, transferring, conveying, assigning, hypothecating or encumbering the 1,500,000 shares of the Company’s
common stock or the aforementioned warrant. The Court scheduled a hearing on February 14, 2017, at which time the Court heard
oral argument on the application for a preliminary injunction and prejudgment attachment of the stock and warrants to satisfy
any judgment entered in favor of the Company. Since then, RENS Technology filed a motion to dismiss the complaint which the Company
has opposed. No decision has been made by the Court on these two pending applications.
Item
4.
|
Mine
Safety Disclosures.
|
None.
PART
III
Item
10.
|
Directors
and Executive Officers and Corporate Governance.
|
Our
directors and executive officers are as follows:
Name
|
|
Age
|
|
Position
|
|
Class
|
|
|
|
|
|
|
|
Dr.
Robert J. Hariri
|
|
58
|
|
Chairman
of the Board of Directors
|
|
I
|
|
|
|
|
|
|
|
Ren
Ren
|
|
55
|
|
Director
(Global Chairman)
|
|
I
|
|
|
|
|
|
|
|
Joseph
Mannello
|
|
59
|
|
Interim
Chief
Executive Officer and Director
|
|
III
|
|
|
|
|
|
|
|
Dr.
Louis J. Aronne
|
|
61
|
|
Director
|
|
II
|
|
|
|
|
|
|
|
Christopher
Pechock
|
|
52
|
|
Director
|
|
II
|
|
|
|
|
|
|
|
Victor
Mandel
|
|
52
|
|
Director
|
|
III
|
|
|
|
|
|
|
|
John
Nosta
|
|
57
|
|
Director
|
|
III
|
|
|
|
|
|
|
|
Bin
Zhou
|
|
38
|
|
Director
|
|
I
|
Our
Board is classified into three separate classes, as nearly equal in number as possible, with one class to be elected annually
for staggered three-year term or until their respective successors are duly elected and qualified, or until their earlier resignation,
removal or death.
The
term of our current Class III directors will expire at the 2019 Annual Meeting of Stockholders, the term of our current Class
II directors will expire at the 2017 Annual Meeting of Stockholders and the term of our current Class I directors will expire
at the 2018 Annual Meeting of Stockholders. Any director chosen as a result of a newly created directorship or to fill a vacancy
on the Board would hold office for a term expiring at the next Annual Meeting of Stockholders for the class identified. This does
not change the present number of directors or the Board’s authority to change that number and to fill any vacancies or newly
created directorships.
The
experience of each or our directors and executive officers is as follows:
Dr.
Robert J. Hariri
joined us as a Director in July 2011 and was elected Chairman of the Board in April 2012. Dr. Hariri
has served as the chairman and chief scientific officer of Celgene Cellular Therapeutics, a division of Celgene Corporation (NASDAQ:
CELG), since 2014. From 2002 to 2014, he served in various positions at Celgene Cellular Therapeutics, including chief executive
officer and president. Prior to joining Celgene Cellular Therapeutics, Dr. Hariri was founder, chairman and chief scientific officer
at Anthrogenesis Corporation/LIFEBANK, Inc., a privately held biomedical technology and service corporation involved in the area
of human stem cell therapeutics, which was acquired by Celgene Corporation in 2002. Dr. Hariri also serves as president of Human
Longevity Cellular Therapeutics, Inc., a privately-held genomics and cell therapy-based diagnostic and therapeutic company focused
on extending the healthy, high performance human life span, which he co-founded in 2013. He has also served as co-founder, vice
chairman and chief scientific officer of Neurodynamics, a privately held medical device and technology corporation. Dr. Hariri
is an adjunct associate professor of pathology at the Mount Sinai School of Medicine and has also held key academic positions
at Weill Medical College of Cornell University and the Cornell University Graduate School of Medical Science, including serving
as the director of the Center for Trauma Research. Dr. Hariri is also a director of Cryoport, Inc. (NASDAQ: CYRX), Bionik Laboratories
Corp. (OTCQX: BNKL), Provista Diagnostics and Rocket Racing, Inc. Dr. Hariri is a member of the scientific advisory board for
the Archon X Prize for Genomics, which is awarded by the X Prize Foundation. Dr. Hariri serves as a trustee of the J. Craig Venter
Institute, a trustee of the Liberty Science Center and a commissioner of the New Jersey Commission for Cancer Research. Dr. Hariri
received the Thomas Alva Edison Award in 2007 and 2011, The Fred J. Epstein Lifetime Achievement Award in 2012 and numerous other
honors for his contributions to biomedicine and aviation. He has served as a member of the board of visitors at Columbia University
School of Engineering & Applied Sciences and the Science & Technology Council of the College of Physicians and Surgeons.
Dr. Hariri received his undergraduate training at Columbia College and Columbia University School of Engineering and Applied Sciences
and was awarded his M.D. and Ph.D. degrees from Cornell University Medical College. Dr. Hariri received his surgical training
at The New York Hospital-Cornell Medical Center and directed the Aitken Neurosurgery Laboratory and the Center for Trauma Research.
We believe Dr. Hariri’s training as a scientist, his knowledge and experience with respect to the biomedical and pharmaceutical
industries and his extensive research and experience qualifies him to serve on our Board of Directors.
Ren
Ren
joined us as a Director (Global Chairman) in March 2016. Mr. Ren has more than 28 years of experiences in China’s
food and agricultural business. Since 2001, he formed and operated Beijing Seasons Investment Group Co, Ltd and RENS Agriculture
Science and Technology Co, Ltd. Mr. Ren is also chairman of China’s Nutrition and Health Guidance Committee, Editor in Chief
of The Capital Food Safety Weekly, chairman of Beijing Seasons Investment Group Co., Ltd, chairman of Anhui Woyang Huadu Properties
Co., Ltd., chairman of Xingguo Hongtianxia Camellia Oil Co., Ltd, and chairman of Nanjing Xingfeng Ecological Agriculture Co.,
Ltd. From 1993 to 2001, he formed and operated multiple companies in Nanchang, Jiangxi Province, mainly engaged in agricultural
products operation and management. From 1987 to 1992, he was a department director at Sheyang Food Bureau, responsible for grain
purchasing and management. We believe Mr. Ren’s extensive knowledge and experience with respect to health and nutrition
products and his extensive food product industry background qualifies him to serve on our Board of Directors.
Joseph
Mannello
joined us as a Director in December 2015 and has served as our interim chief executive officer since September
2016. From May 2015 to September 2016, he served as a consultant. From March 2013 to May 2015, he served as the executive managing
director at Brean Capital LLC, an independent investment bank and asset management firm, where he also served as a member of the
firm’s operating committee. From March 2008 to March 2012, Mr. Mannello was the head of corporate credit for Gleacher &
Company, Inc. (OTC:GLCH), a publicly-traded investment bank. Prior to that, he was the head of the fixed income division of BNY
Capital Markets, Inc., a subsidiary of The Bank of New York Mellon Corp. (NYSE:BK). We believe that Mr. Mannello’s extensive
financial markets background qualifies him to serve on our Board of Directors.
Dr.
Louis Aronne
joined us as a Director and a member of our Scientific Advisory Board in July 2011. Dr. Aronne is the Weill
Professor of Metabolic Research and Director of the Comprehensive Weight Control Center which he founded in 1986 at Weill-Cornell
Medical College. He is an Adjunct Clinical Associate Professor of Medicine at Columbia University College of Physicians and Surgeons.
Dr. Aronne is former president of the Obesity Society and a fellow of the American College of Physicians. He has been an investigator
on more than 40 trials, authored more than 60 papers and book chapters on obesity and edited the National Institutes of Health
Practical Guide to the Identification, Evaluation, and Treatment of Overweight and Obesity in Adults. Dr. Aronne has won several
awards for teaching, including the Leo M. Davidoff Society Prize from Albert Einstein College of Medicine in 1983 and Eliot Hochstein
Teaching Award from Cornell University in 1990. Dr. Aronne graduated Phi Beta Kappa from Trinity College with a BS in biochemistry
and from Johns Hopkins University School of Medicine. We believe Dr. Aronne’s skills as a physician and his knowledge and
experience with respect to obesity and related metabolic diseases qualifies him to serve on our Board of Directors.
Christopher
Pechock
joined us as a Director in February 2014. Mr. Pechock has been a partner at Matlin Patterson Global Advisers,
a global alternative asset manager, since its inception in July 2002. From November 1998 to July 2002, Mr. Pechock served as a
member of the Global Distressed Securities Group Credit Suisse (NYSE:CS). From January 1997 to October 1998, Mr. Pechock served
as a Portfolio Manager and Research Analyst at Turnberry Capital Management, L.P. Prior to that, Mr. Pechock served as a Portfolio
Manager at Eos Partners, L.P. (February 1996 to December 1996), a Vice President and high yield analyst at PaineWebber Inc. (May
1993 to January 1996) and an analyst in risk arbitrage at Wertheim Schroder & Co., Incorporated (August 1987 to April 1991).
He serves on the board of directors of Gleacher & Company, Inc. (NASDAQ: GLCH), and Oceanus LLC, a private ship-owning company.
Mr. Pechock received a BA in Economics from the University of Pennsylvania and an MBA from the Columbia University Graduate School
of Business. We believe Mr. Pechock’s extensive financial background qualifies him to serve on our Board of Directors.
Victor
Mandel
joined us as a director in August 2016 and previously served as a director of the Company from December 2015 until
March 2016. He is the founding partner of Criterion Capital Management, LLC and has over twenty-five years of experience in investments,
corporate strategy and corporate governance. Mr. Mandel previously served as Co-Chairman of Ambac Financial Group, Inc. (NASDAQ:
AMBC) from May 2013 through December 2014 and as a director, chair of its Governance and Nominating Committee and member of its
Audit and Strategy and Risk Policy Committees from May 2013 until May 2016. Additionally, he has previously served as a member
of the board of directors and on the audit committees of Comsys IT Partners, Inc. (now a Manpower company), Broadpoint Gleacher
Securities Group, Inc. (now Gleacher & Co., Inc.), and XLHealth Corp. (now a United Healthcare company). He previously served
as the Chief Financial Officer of Circle.com (NASDAQ:CIRC) and served as Executive Vice President, Finance and Development of
Snyder Communications, Inc. (NYSE:SNC) from 1999 to 2000. From 1991 to 1999, Mr. Mandel served as vice president in the Investment
Research department at Goldman Sachs & Co. (NYSE:GS). Mr. Mandel holds an MBA in Finance from the Wharton School of Business
at the University of Pennsylvania, an A.B. in Computer Science from Harvard University, and is a Chartered Financial Analyst.
We believe Mr. Mandel’s extensive financial background qualifies him to serve on our Board of Directors.
John
Nosta
has served as the founder and president of NOSTALAB, a digital health think tank, since June 2013. He is generally
regarded as a leading global strategic and creative thinker in the digital health area. A leading voice in the convergence of
technology and health, Mr. Nosta helps define, dissect and deliberate global trends in digital health. He has also served as a
member of the Google Health Advisory Board since October 2014 and has penned HEALTH CRITICAL for Forbes, a top global blog on
health and technology. For over 20 years, Mr. Nosta was part of the leadership of Omnicom and WPP, leading healthcare communication
companies. Prior to founding NOSTALAB, Mr. Nosta was employed by Ogilvy CommonHealth, a leading healthcare communication company,
from April 2003 to June 2013, where he held a series of positions including Chief Creative Officer, Chief Strategic Officer and
unit President. From 1990 to 1997, he held various senior-level positions at LLNS, a division of Omnicom Group Inc. (NYSE:OMC),
a leading healthcare communication company. Mr. Nosta previously served as a director of the Company from December 2015 until
March 2016. Mr. Nosta served as a research associate at Harvard University Medical School from 1980 to 1981 and has co-authored
several papers with global thought-leaders in the field of cardiovascular physiology, with a focus on acute myocardial infarction,
ventricular arrhythmias and sudden cardiac death. He received a Bachelor of Arts degree from Boston University in 1981. We believe
Mr. Nosta’s scientific and pharmaceuticals industry background qualifies him to serve on our Board of Directors.
Bin
Zhou
joined us as a Director in March 2016. Mr. Zhou is an attorney licensed in the State of New Jersey. Since November
2007, he has been an attorney and a partner at Bernard & Yam, LLP, a New York law firm. He has advised companies on their
public listings on U.S. stock exchanges including NASDAQ, NYSE and OTC markets, as well as on their private and public offering
of securities. He received a bachelor’s degree in Economic Laws from Nanjing University, China, in 2001. He received a Master
of Social Work from University of Georgia in 2003 and a Juris Doctor’s degree from Rutgers University School of Law in 2006.
We believe Mr. Zhou’s extensive background in corporate compliance and international law qualifies him to serve on our Board
of Directors.
Members
of the Scientific Advisory Board
In
addition to our Board of Directors, we maintain a Scientific Advisory Board, comprised of scientists and medical professionals
who advise us on science and medical health issues, medical conditions and health care trends as they relate to our current and
future products. Members of the Scientific Advisory Board provide us with advice, insights, contacts and other assistance based
on their extensive knowledge and experience. Specifically, they advise us on: (a) the use of myostatin modulators in the treatment
of various disorders including sarcopenia, obesity, muscle repair, anti-aging and longevity therapy, (b) the biological activities
of our products and (c) the development of clinical research programs relating to the biomedical activities and benefits of our
products. We enter into advisory board agreements with members of the Scientific Advisory Board pursuant to which they are entitled
to receive a fixed number of shares of common stock (which may vary as determined by the Board of Directors), which generally
vest over a number of years. The Scientific Advisory Board is currently comprised of the following members: Dr. Robert J. Hariri,
Dr. Louis Aronne, Dr. Michael Donnelly, Dr. Caroline Apovian and Dr. Neilank Jha.
The
experience of each of the members of the Scientific Advisory Board (other than members who are our current directors, whose experience
is set forth above) is as follows:
Dr.
Caroline Apovian
joined the Scientific Advisory Board in February 2013. Since November 2010, Dr. Apovian has served as
Professor of Medicine and Pediatrics, in the Section of Endocrinology, Diabetes, and Nutrition at Boston University School of
Medicine. She has also served as Director of the Center for Nutrition and Weight Management at Boston Medical Center since January
2000. Dr. Apovian is a nationally and internationally recognized authority on nutrition and has been in the field of obesity and
nutrition since 1990. Dr. Apovian was a recipient of the Physician Nutrition Specialist Award given by the American Society of
Clinical Nutrition for her work on developing and providing nutrition education, to medical students and physicians in training
at Boston University School of Medicine. She has published over 200 articles, chapters, and reviews on the topics of obesity,
nutrition, and the relationship between adipose tissue and risk of developing cardiovascular disease. Dr. Apovian has recently
published a new book entitled
The Age-Defying Diet
and has also written two popular books called
The Overnight Diet
and
The ALLI Diet Plan
. Dr. Apovian has been a member of The Obesity Society since 1992, and has served on the Clinical
Committee as well as Secretary/Treasurer and the Executive Committee from 2005 to 2008. Additionally, she serves as Associate
Editor for the Society's journal, Obesity. Dr. Apovian received her BA from Barnard College and her MD from the University of
Medicine and Dentistry of New Jersey.
Dr.
Neilank Jha
joined the Scientific Advisory Board in December 2011. Since July 2010, Dr. Jha has served as a Clinical Fellow
in the Spinal Program of Toronto Western Hospital. From 2004 to 2010, he was in the Neurosurgery Residency Program at McMaster
University. Dr. Jha received his BS from the University of Toronto and his Doctor of Medicine from McMaster University.
Biographical
information for Dr. Robert Hariri and Dr. Louis Aronne is set forth above in “Directors and Executive Officers.”
Board
Meetings
During
the fiscal year ended December 31, 2016, the Board held eleven formal meetings and otherwise acted by unanimous written consent.
We have no written policy regarding director attendance at annual meetings of stockholders. Our last annual meeting of stockholders
was held on December 21, 2016 and seven of our directors attended such meeting.
Director
Independence
The
Board evaluates the independence of each nominee for election as a director in accordance with the Nasdaq listing rules (the “Nasdaq
Listing Rules”). Pursuant to these rules, a majority of our Board must be “independent directors” within the
meaning of the Nasdaq Listing Rules, and all directors who sit on our Audit Committee and Compensation Committee must also be
independent directors.
The
Nasdaq definition of “independence” includes a series of objective tests, such as the director or director nominee
is not, and was not during the last three years, our employee and has not received certain payments from, or engaged in various
types of business dealings with, us. In addition, as further required by the Nasdaq Listing Rules, the Board has made a subjective
determination as to each independent director that no relationships exist which, in the opinion of the Board, would interfere
with such individual’s exercise of independent judgment in carrying out his or her responsibilities as a director. In making
these determinations, the Board reviewed and discussed information provided by the directors with regard to each director’s
business and personal activities as they may relate to us and our management.
As
a result, the Board has affirmatively determined that other than Mr. Ren and Mr. Mannello, none of our directors has a
material relationship with the Company. The Board has also affirmatively determined that all members of our Audit Committee
and Compensation Committee are independent directors.
Audit
Committee and Audit Committee Financial Expert
In
April 2014, we established a separately-designated standing Audit Committee in accordance with Section 3(a) (58) (A) of the
Exchange Act and the Nasdaq Listing Rules. The Audit Committee is comprised of Victor Mandel (chair), Chris Pechock and Bin
Zhou. Our Board has determined that Mr. Mandel qualifies as an audit committee financial expert as defined by the rules of
the SEC, based on his education, experience and background. During the fiscal year ended December 31, 2016, the Audit
Committee held four formal meetings.
The
Audit Committee:
|
●
|
oversees
the accounting and financial reporting processes of the Company and the audits of the financial statements of the Company;
|
|
|
|
|
●
|
meets
at least once per fiscal year with the Company’s outside auditors with respect to matters relating to the Company’s
accounting and financial reporting processes, the audits of the Company’s financial statements, the Company’s
application of accounting principles and the Company’s internal controls, and advises the Board of Directors with respect
thereto;
|
|
|
|
|
●
|
is
responsible for ensuring its receipt from the outside auditors of a formal written statement delineating all relationships
between the auditor and the Company, actively engaging in a dialogue with the auditor with respect to any disclosed relationships
or services that may impact the objectivity and independence of the auditor and taking, or recommending that the full Board
take, appropriate action to oversee the independence of the outside auditor;
|
|
|
|
|
●
|
is
directly responsible for the appointment, compensation, retention, oversight of the work and, where appropriate, replacement
of any registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other
audit, review or attest services for the Company, and each such registered public accounting firm must report directly to
the Audit Committee; and
|
|
|
|
|
●
|
oversees
procedures established for (i) the receipt, retention and treatment of complaints received by the Company regarding accounting,
internal accounting controls or auditing matters; (ii) confidential, anonymous submissions by the Company’s employees
of concerns regarding questionable accounting or auditing matters and compliance with the Company’s Code of Ethics;
and (iii) the review and oversight of all related party transactions.
|
Compensation
Committee
In
April 2014, we established a separately-designated standing Compensation Committee in accordance with the Nasdaq Listing
Rules. The Compensation Committee is comprised of Christopher Pechock (chair) and Dr. Louis J. Aronne. During the fiscal year
ended December 31, 2016, the Compensation Committee held 3 formal meetings.
The
Compensation Committee:
|
●
|
oversees
the compensation policies and their specific application to our executive officers;
|
|
|
|
|
●
|
prepares
an annual report on executive compensation for inclusion in the our Annual Report on Form 10-K and/or proxy statement;
|
|
|
|
|
●
|
negotiates
and approves the compensation of our chief executive officer and our other executive officers;
|
|
|
|
|
●
|
selects
a peer group of companies against which to compare our compensation of our executive officers, if it deems such comparison
necessary;
|
|
|
|
|
●
|
monitors
compensation trends and solicits independent advice when deemed appropriate; and
|
|
|
|
|
●
|
approves,
rejects or modifies incentive bonus compensation plans for our senior management, as recommended by management.
|
Director
Nominations
Our
Board of Directors does not maintain a separate nominating committee. Functions customarily performed by a nominating committee
are performed by the independent members of our Board. In evaluating and determining whether to nominate a candidate for a position
on the Board, the independent members of our Board utilize a variety of methods and considers criteria such as high professional
ethics and values, experience on the policy-making level in business or scientific/medical research experience relevant to our
product candidates and a commitment to enhancing stockholder value. Candidates may be brought to the attention of the independent
members of the Board by current Board members, stockholders, officers or other persons. The independent members of the Board will
review all candidates in the same manner regardless of the source of the recommendation.
We
have no formal policy regarding diversity of our Board of Directors. The independent members of our Board may therefore consider
a broad range of factors relating to the qualifications and background of nominees, which may include diversity, which is not
only limited to race, gender or national origin. The priority of the independent members of our Board in selecting members of
the Board of Directors is identifying persons who will further the interests of our stockholders through his or her established
record of professional accomplishment, the ability to contribute positively to the collaborative culture among Board members and
professional and personal experiences and expertise relevant to our growth strategy.
The
independent members of the Board also consider stockholder recommendations for director nominees that are properly received in
accordance with the applicable rules and regulations of the SEC. In order to validly nominate a candidate for election or reelection
as a director, stockholders must give timely notice of such nomination in writing to our Corporate Secretary and include, as to
each person whom the stockholder proposes to nominate, all information relating to such person that is required to be disclosed
in solicitations of proxies for the election of directors in an election contest, or is otherwise required, in each case pursuant
to Regulation 14A under the Exchange Act, and the rules and regulations thereunder (including such person’s written consent
to being named in the proxy statement as a nominee and to serving as a director if elected).
Board
Leadership Structure
Dr. Robert J. Hariri serves as
Chairman of the Board of Directors and Mr. Ren serves as our Global Chairman. Mr. Mannello currently serves as our principal executive
officer. The Board of Directors has chosen to separate the principal executive officer and chairman positions because it believes
that (i) independent oversight of management is an important component of an effective board of directors and (ii) this structure
benefits the interests of all stockholders. If the Board of Directors convenes for a special meeting, the non-management directors
will meet in executive session if circumstances warrant. Given the composition of the Board of Directors with a strong slate of
independent directors, the Board of Directors does not believe that it is necessary to formally designate a lead independent director
at this time, although it may consider appointing a lead independent director if circumstances change. We believe that the structure
described above is the best structure to lead us in the achievement of our goals and objectives and establishes an effective balance
between management leadership and appropriate oversight by independent directors.
Board
Role in Risk Oversight
Senior
management is responsible for assessing and managing our various exposures to risk on a day-to-day basis, including the creation
of appropriate risk management programs and policies. The Board is responsible for overseeing management in the execution of its
responsibilities and for assessing our approach to risk management. In addition, an overall review of risk is inherent in the
Board’s consideration of our long-term strategies and in the transactions and other matters presented to the Board, including
capital expenditures, acquisitions and divestitures, and financial matters.
Code
of Ethics
We
have adopted a corporate Code of Ethics. The text of our Code of Ethics, which applies to our employees, officers and directors,
is posted in the “Corporate Governance” section of our website, http://www.myosrens.com. A copy of our Code of Conduct
and Ethics is also available in print, free of charge, upon written request to 45 Horsehill Road, Suite 106, Cedar Knolls, New
Jersey 07927, Attention: Joseph Mannello.
Compliance
with Section 16(a) of the Exchange Act
Section
16(a) of the Securities Exchange Act of 1934, as amended requires our directors and executive officers, and persons who beneficially
own more than 10% of a registered class of our equity securities, to report their initial beneficial ownership and any subsequent
changes in that beneficial ownership of our securities to the SEC. Based solely on a review of the copies of the reports furnished
to us, we believe that all such reports for the year ended December 31, 2016 were filed on a timely basis with the exceptions
of two late Form 4 filings for Mr. Lyu and one late Form 4 filing for each of Messrs Ren, Zhou and Aronne.
Item
11.
|
Executive
Compensation.
|
Summary
Compensation Table
The
table below sets forth the compensation earned for services rendered to us, for fiscal years indicated, by our executive officers.
Name and Position
|
|
Fiscal
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock Awards
($)
|
|
|
Option Awards
($) (6)
|
|
|
All Other Compensation
($) (7)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph Mannello (5)
|
|
2016
|
|
|
|
82,600
|
|
|
|
-
|
|
|
|
12,631
|
|
|
|
-
|
|
|
|
16,081
|
|
|
|
111,312
|
|
(Interim Chief Executive Officer)
|
|
2015
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
K. Bryce Toussaint (1)
|
|
2016
|
|
|
|
173,569
|
|
|
|
-
|
|
|
|
1,755
|
|
|
|
-
|
|
|
|
4,123
|
|
|
|
179,447
|
|
(Former Chief Executive Officer)
|
|
2015
|
|
|
|
9,230
|
|
|
|
-
|
|
|
|
22,700
|
|
|
|
-
|
|
|
|
20,000
|
|
|
|
51,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph C. DosSantos (2)
|
|
2016
|
|
|
|
122,437
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
172,437
|
|
(Former Chief Financial Officer)
|
|
2015
|
|
|
|
200,000
|
|
|
|
50,000
|
|
|
|
9,350
|
|
|
|
52,700
|
|
|
|
37,660
|
|
|
|
349,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Robert C. Ashton, Jr. (3)
|
|
2016
|
|
|
|
55,687
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
105,687
|
|
(Former Chief Medical Officer)
|
|
2015
|
|
|
|
237,167
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
52,700
|
|
|
|
39,781
|
|
|
|
379,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter Levy (4)
|
|
2016
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
(Former President) (4)
|
|
2015
|
|
|
|
171,475
|
|
|
|
-
|
|
|
|
-
|
|
|
|
52,700
|
|
|
|
21,165
|
|
|
|
245,340
|
|
(1)
|
K.Bryce
Toussaint was hired as Chief Executive Officer on December 17, 2015 and resigned on
August 31, 2016.
|
|
|
(2)
|
On
June 30, 2016, Joseph C. DosSantos resigned as the Chief Financial Officer.
|
|
|
(3)
|
Dr.
Ashton resigned as Chief Medical Officer on January 31, 2016.
|
(4)
|
Mr.
Levy resigned as President, Chief Operating Officer on September 7, 2015.
|
(5)
|
On August 26, 2016, the board of directors appointed
Joseph Mannello as the Company’s interim Chief Executive Officer, effective as of September 1, 2016.
|
(6)
|
Amounts reflect the aggregate grant date fair value
of stock option awards computed in accordance with Accounting Standards Codification (“ASC”) 718,
“Compensation
– Stock Compensation.”
The assumptions used in determining the grant date fair value of these awards for their
respective years are set forth in Part IV, Item 15, “Notes to Consolidated Financial Statements: Note 10 – Stock Compensation.”
|
(7)
|
The amounts in All Other Compensation column of the
Summary Compensation Table reflect the following:
|
Name
|
|
Fiscal Year
|
|
Consulting Agreements
|
|
|
Health Insurance Expenses
|
|
|
401(k) Matching Contribution
|
|
|
Other Perquisites
|
|
|
Total Other Compensation
|
|
Joseph Mannello
|
|
2016
|
|
$
|
-
|
|
|
|
5,170
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
5,170
|
|
|
|
2015
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
K. Bryce Toussaint
|
|
2016
|
|
$
|
-
|
|
|
|
14,590
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
14,590
|
|
|
|
2015
|
|
$
|
20,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph C. DosSantos
|
|
2016
|
|
$
|
-
|
|
|
|
14,590
|
|
|
|
4,183
|
|
|
|
57
|
|
|
$
|
18,830
|
|
|
|
2015
|
|
$
|
-
|
|
|
|
29,180
|
|
|
|
8,366
|
|
|
|
114
|
|
|
$
|
37,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Robert C. Ashton, Jr.
|
|
2016
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
2015
|
|
$
|
-
|
|
|
|
29,180
|
|
|
|
10,487
|
|
|
|
114
|
|
|
$
|
39,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter Levy
|
|
2016
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
2015
|
|
$
|
-
|
|
|
|
14,421
|
|
|
|
6,667
|
|
|
|
77
|
|
|
$
|
21,165
|
|
Employment
Agreements
Joseph
Mannello
On August 30, 2016, we entered
into an offer letter with Joseph Mannello, pursuant to which Mr. Mannello agreed to serve as our interim Chief Executive Officer
commencing September 1, 2016. Pursuant to the terms of the Offer Letter, Mr. Mannello will work a full-time basis as an at-will
employee for an annual base salary of $240,000. Mr. Mannello will be entitled to an annual bonus of up to 100% of his annual base
salary, as determined by the Board (or its compensation committee) in its sole discretion. Mr. Mannello also received a grant
of 10,000 shares of common stock which vested upon the six-month anniversary of his start date.
K.
Bryce Toussaint
On December
17, 2015, we entered into an employment agreement with K. Bryce Toussaint pursuant to which Mr. Toussaint agreed to serve as our
Chief Executive Officer. Pursuant to the terms of the employment agreement, Mr. Toussaint agreed to work for us on a full-time
basis for an annual base salary of $240,000. Mr. Toussaint was to receive an annual cash bonus in an amount up to 100% of his
base salary, as may be determined by the Board in its sole discretion. Mr. Toussaint resigned as Chief Executive Officer as of
August 31, 2016 and contined to serve as a member of the Company’s board of directors until December 21, 2016.
Joseph
C. DosSantos
On
May 19, 2014, we entered into an employment agreement with Joseph C. DosSantos pursuant to which Mr. DosSantos agreed to serve
as our Chief Financial Officer. Pursuant to the terms of the employment agreement, Mr. DosSantos worked for us on a full-time
basis for an annual base salary of $200,000. Mr. DosSantos may receive an annual cash bonus in an amount up to 50% of
his base salary, as may be determined by the Board in its sole discretion. Mr. DosSantos also received a signing bonus of $15,000.
In addition, Mr. DosSantos was granted a stock option to purchase 20,000 shares of the Company’s common stock at $12.55,
which shares will vest in four equal annual installments commencing on May 19, 2015. Mr. DosSantos resigned as
Chief Financial Officer effective as of June 30, 2016.
Dr.
Robert C. Ashton, Jr.
On
February 12, 2014, we entered into an offer letter with Dr. Robert C. Ashton, Jr. to serve as our Chief Medical Officer. Pursuant
to the terms of the offer letter, Dr. Ashton agreed to work for us on a full-time basis as an at-will employee and receive an
annual base salary of $250,000. Dr. Ashton’s targeted annual bonus was 50% of his annual base salary, of which $50,000 was
guaranteed and the remainder was to be based on his and the Company’s performance, as determined by our board of directors
in its sole discretion. Dr. Ashton also received a stock option to purchase 20,000 shares of the Company’s common stock
at $12.50 per share which was to vest in four equal semi-annual installments commencing upon the six-month anniversary of his
start date. Effective January 1, 2016, Dr. Ashton became a part-time consultant and received a monthly retainer of $5,000 for
his services. Dr. Ashton subsequently resigned as Chief Medical Officer on January 31, 2016.
Peter
Levy
On
February 8, 2013, we entered into an amended and restated employment agreement with Peter Levy to continue to serve as our Chief
Operating Officer and Executive Vice President. The agreement replaced Mr. Levy’s existing employment agreement dated February
10, 2012. Pursuant to the terms of the agreement, Mr. Levy agreed to continue to work as Chief Operating Officer and Executive
Vice President on a full-time basis and receive an annual base salary of $200,000. Mr. Levy was to receive an annual cash bonus
in an amount up to 100% of his base salary, as may be determined by the Board in its sole discretion. The 10,000 shares of common
stock previously granted to Mr. Levy vested in four equal semi-annual installments commencing on August 10, 2012. On September
7, 2015, Mr. Levy resigned from his positions.
Outstanding
Equity Awards at 2016 Fiscal Year End
The
following table presents, for each of the named executive officers, information regarding outstanding equity awards as of December
31, 2016.
Outstanding Equity Awards
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
Name
|
|
Grant Date
|
|
Number of Securities
Underlying Unexercised Options Exercisable
|
|
|
Number
of Securities Underlying Unexercised Options Unexercisable
|
|
|
|
Option
Exercise
Price
($)
|
|
|
|
Option
Expiration
Date
|
|
|
Number of Shares
or Units of Stock That Have Not Vested (#)
|
|
|
Market
Value of Shares or Units That Have Not Vested ($)
|
|
Joseph Mannello (1)
|
|
8/31/2016
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
10,000
|
|
|
18,600
|
|
(1)
|
Mr. Mannello was hired as Chief Executive Officer
effective September 1, 2016
|
Stock
Vested at 2016 Fiscal Year End
The
following table sets forth for each of the named executive officers the restricted stock that vested during 2016. No options were
exercised by the named executive officers during 2016.
|
|
Stock Awards
|
|
Name (a)
|
|
Number of Shares Acquired on Vesting
(b)
|
|
|
Value Realized on Vesting
($)(c)
|
|
K. Bryce Toussaint (1)(3)
|
|
|
5,000
|
|
|
$
|
5,675
|
|
Joseph DosSantos (1)(5)
|
|
|
5,000
|
|
|
$
|
9,350
|
|
Dr. Robert C. Ashton, Jr. (4)
|
|
|
-
|
|
|
$
|
-
|
|
Peter Levy (2)
|
|
|
-
|
|
|
$
|
-
|
|
Joseph Mannello
|
|
|
-
|
|
|
$
|
-
|
|
(1)
|
The
dollar amount shown in column (c) above for each of the named executive officers was
determined by multiplying the number of shares shown in column (b) by the fair value
of the shares on the vesting date.
|
(2)
|
Mr.
Levy resigned as President on September 7, 2015.
|
(3)
|
Mr.
Toussaint resigned as Chief Executive Officer on August 31, 2016.
|
(4)
|
Mr.
Ashton resigned as Chief Medical Officer on January 31, 2016.
|
(5)
|
Mr. DosSantos resigned
as Chief Financial Officer on June 30, 2016.
|
Director
Compensation
The
following table summarizes the compensation for our non-employee board of directors for the fiscal year ended December 31, 2016.
All compensation paid to our employee directors is included under the summary compensation table above.
Name
|
|
Stock
Awards(1)
|
|
|
Cash
Paid ($)
|
|
Dr. Robert J. Hariri
|
|
|
4,386
|
|
|
$
|
10,308
|
|
Ren Ren
|
|
|
4,386
|
|
|
|
10,308
|
|
Dr. Louis J. Aronne
|
|
|
4,386
|
|
|
|
18,554
|
|
Christopher Pechock
|
|
|
4,386
|
|
|
|
30,923
|
|
Victor Mandel
|
|
|
1,755
|
|
|
|
10,719
|
|
Bin Zhou
|
|
|
4,386
|
|
|
|
18,554
|
|
(1)
|
The value of awards and stock options equals the aggregate grant date fair value of awards computed
in accordance with ASC 718. The assumptions used in determining the grant date fair value of these awards for their
respective years are set forth in Part IV, Item 15, “Notes to Consolidated Financial Statements: Note 10 - Stock Compensation.”
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
|
Under
Rule 13d-3, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement,
understanding, relationship, or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the
voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares. Certain
shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the
power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right
to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided.
In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares
beneficially owned by such person (and only such person) by reason of these acquisition rights.
The
following table sets forth information known to us regarding the beneficial ownership of our common stock as of March 30, 2017
by:
|
●
|
each person known by us at that date to be the beneficial
owner of more than 5% of the outstanding shares of our based solely on Schedule 13D/13G filings with the SEC;
|
|
|
|
|
●
|
each of our executive officers and directors at such
date; and
|
|
|
|
|
●
|
all of our executive officers and directors at such
date, as a group.
|
Unless
otherwise indicated, we believe that all persons named in the table below have sole voting and investment power with respect to
all shares of common stock beneficially owned by them. As of March 30, 2017, there were 5,844,372 shares of our common stock outstanding.
Name of Beneficial Owner (1)
|
|
Number of Shares Beneficially Owned
|
|
|
Percentage of Class
|
|
Ren Ren (2) (7)
|
|
|
1,893,182
|
|
|
|
32.4
|
%
|
RENS Technology Inc. (2)
|
|
|
1,875,000
|
|
|
|
32.1
|
%
|
Joseph Mannello (6)
|
|
|
291,811
|
|
|
|
5.2
|
%
|
Dr. Robert J. Hariri (3)
|
|
|
421,000
|
|
|
|
7.2
|
%
|
Christopher Pechock (5)
|
|
|
183,886
|
|
|
|
3.1
|
%
|
Victor Mandel
|
|
|
62,021
|
|
|
|
1.1
|
%
|
Dr. Louis J. Aronne (4)
|
|
|
26,586
|
|
|
|
0.5
|
%
|
Bin Zhou
|
|
|
4,386
|
|
|
|
0.1
|
%
|
John Nosta
|
|
|
-
|
|
|
|
-
|
|
Directors and officers as a group (8 persons)
|
|
|
2,882,972
|
|
|
|
49.6
|
%
|
(1)
|
Unless otherwise indicated, the business address of
each of the individuals is c/o MYOS RENS Technology Inc., 45 Horsehill Road, Suite 106, Cedar Knolls, New Jersey 07927.
|
(2)
|
Includes 375,000 shares issuable upon a warrant. Mr.
Ren has sole voting and investment control over the securities held by RENS Technology Inc.
|
(3)
|
Includes 166,000 shares held by Hariri Family Ltd. Partnership
and 150,250 shares issuable upon exercise of vested stock options.
|
(4)
|
Includes 30,500 shares issuable upon exercise of vested
stock options.
|
(5)
|
Includes 75,000 shares issuable upon exercise of warrants
and 3,000 shares issuable upon exercise of vested stock options.
|
(6)
|
Includes 100,001 shares issuable upon exercise of warrants.
|
(7)
|
Includes 18,182
shares of common stock previously issued to Mr. Ren following the closing of the first tranche of the Financing for his
services to the Company as a member of the Board.
|
Item
13.
|
Certain
Relationships and Related Transactions and Director Independence.
|
The
following is a description of the transactions we have engaged in during the year ended December 31, 2016 and through the date
of this Report, with our directors and officers and beneficial owners of more than five percent of our voting securities and their
affiliates.
On
August 1, 2015, we entered into a consulting agreement with Muscle Longevity LLC, a company that has the same owner as Ultra Pro
Sports, LLC, which was previously a greater than 5% beneficial owner of our common stock. Under the terms of the agreement, Muscle
Longevity LLC will provide introductions and referrals to new distribution channels for our products including, but not limited
to, health and wellness centers and sports nutrition companies and to conduct industry research and advise us regarding distributors,
markets, and sales opportunities for the Company’s products. As compensation for the services, Muscle Longevity LLC was
paid a consulting fee of $16,000 per month until the agreement ended on October 1, 2016.
On
December 17, 2015, we issued an unsecured promissory note in the principal amount of $575,000 to Gan Ren, the son of Ren
Ren, a current director and our largest stockholder. The note bears interest at a rate of 8% per annum and matures one year
from the date of issuance. On December 17, 2016 the note and accrued interest of $46,000 was automatically converted into
225,864 shares of common stock at $2.75 per share.
On
December 17, 2015, we entered into the Purchase Agreement with the Purchaser, an entity which is controlled by Ren Ren, a current
director and our largest stockholder. Pursuant to terms of the Purchase Agreement, the Purchaser agreed to invest $20.25 million
in the Company in exchange for (i) an aggregate of 3,537,037 shares of common stock and (ii) warrants to purchase an aggregate
of 884,259 shares of common stock. In connection with the Financing, the Board agreed to issue Mr. Ren 18,182 shares of common
stock following the closing of the Financing for his services to the Company as a member of the Board. On March 3, 2016, we completed
the first tranche of the Financing pursuant to which the Purchaser acquired 1,500,000 shares of common stock and a warrant to
purchase 375,000 shares of the Company’s common stock for $5.25 million.
On
August 19, 2016, the Purchaser notified the Company that it did not intend to fulfill its obligation to fund the second tranche
of the Financing, notwithstanding its confirmation to the Company in June 2016 that the Purchaser would provide such funding in
accordance with the terms of the Purchase Agreement.
On January 6, 2017, the Company
commenced an action in the Supreme Court of New York, County of New York, against the Purchaser, the parent company of the Purchaser,
and Ren Ren, a principal in both entities and a director of the Company, arising from the Purchaser’s breach of the Purchase
Agreement under which the Purchaser agreed to invest an aggregate of $20.25 million in the Company in exchange for an aggregate
of 3,537,037 shares of common stock of the Company and warrants to purchase an aggregate of 884,259 shares of common stock. In
addition to seeking compensatory, consequential and other damages in the action, the Company asked the Court to preliminarily
restrain the Purchaser and its agents and representatives, including, but not limited to, RENS Agriculture and Ren Ren, from selling,
transferring, conveying, assigning, hypothecating or encumbering 1,500,000 shares of common stock of the Company and a warrant
permitting the purchase of 375,000 share at a price of $7.00 per share that the Purchaser had purchased under the Purchase Agreement
and, after the parties had an opportunity to submit opposition and reply papers in connection with the Company’s application,
a preliminary injunction prohibiting RENS Technology from selling, transferring, conveying, assigning, hypothecating or encumbering
the 1,500,000 shares and warrant during the pendency of the action and an order attaching the stock and warrant to satisfy any
judgment entered in favor of the Company.
On
January 11, 2017, the Court granted the Company the preliminary restraints that it requested, which prevents RENS Technology,
among others, from selling, transferring, conveying, assigning, hypothecating or encumbering the 1,500,000 shares of the Company’s
common stock or the aforementioned warrant. The Court scheduled a hearing on February 14, 2017, at which time the Court
heard oral argument on the application for a preliminary injunction and prejudgment attachment of the stock and warrants to satisfy
any judgment entered in favor of the Company. Since then, RENS Technology filed a motion to dismiss the complaint which the Company
has opposed. No decision has been made by the Court on these two pending applications.
Review,
Approval or Ratification of Transactions with Related Persons.
Our
Board of Directors has established an audit committee consisting of independent directors. This committee, among other duties,
is charged to review, and if appropriate, ratify all agreements and transactions which had been entered into with related parties,
as well as review and ratify all future related party transactions.
Item
14.
|
Principal
Account Fees and Services.
|
From
May 17, 2016 to December 31, 2016 and for fiscal year ended December 31, 2016 WithumSmith+Brown, PC, served as our principal
accountant. From January 1, 2015 to June 1, 2016 and for the fiscal year ended December 31, 2015, EisnerAmper, LLP, or
EisnerAmper, served as our principal accountant.
Audit
Fees
. Audit fees consist of fees for professional services rendered for the annual audits of our financial statements, quarterly
reviews of financial statements and services that are normally provided in connection with statutory and regulatory filings or
engagements. Audit fees billed by WithumSmith+Brown, PC for the fiscal year ended December 31, 2016 were approximately $84,000.
Audit fees billed by EisnerAmper for the fiscal year ended December 31, 2015 were approximately $104,000.
Audit-Related Fees
. Audit-related
services consist of fees for assurance and related services that are reasonably related to performance of the audit or review
of our financial statements and are not reported under “Audit Fees.” These services include attest services that are
not required by statute or regulation and consultations concerning financial accounting and reporting standards. There were no
fees billed for audit-related services rendered during the last two fiscal years.
Tax
Fees
. Tax services consist of fees for the preparation of federal and state tax returns. Tax fees estimated to be billed by
WithumSmith+Brown, PC for the fiscal year ended December 31, 2016 were $7,500. Tax fees paid to EisnerAmper in 2016 for the tax return related to the fiscal year ended December 31, 2015 were $9,500.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
December 31, 2016
(amounts in thousands, except share and per share amounts, unless
otherwise indicated)
NOTE
1 – NATURE OF OPERATIONS, BASIS OF PRESENTATION AND LIQUIDITY
Nature
of Operations
MYOS
RENS Technology Inc. is an emerging bionutrition and biotherapeutics company focused on the discovery, development and commercialization
of products that improve muscle health and function. The Company was incorporated under the laws of the State of Nevada on April
11, 2007. On March 17, 2016, the Company merged with its wholly-owned subsidiary and changed its name from MYOS Corporation to
MYOS RENS Technology Inc. As used in these financial statements, the terms “the Company”, “MYOS”, “our”,
or “we”, refers to MYOS RENS Technology Inc. and its subsidiary, unless the context indicates otherwise. On February
25, 2011, the Company entered into an agreement to acquire the intellectual property for Fortetropin
®
, our proprietary
active ingredient from Peak Wellness, Inc. The Company’s activities are subject to significant risks and uncertainties.
Our
commercial focus is to leverage our clinical data to develop multiple products to target the large, but currently
underserved, markets focused on muscle health. The sales channels through which we sell our products are evolving. The first
product we introduced was MYO-T12, which was sold in the sports nutrition market. MYO T-12 is a proprietary formula
containing Fortetropin and other ingredients. The formula was sold under the brand name MYO T-12 and later as MYO-X
through an exclusive distribution agreement with Maximum Human Performance, or MHP. While the exclusive distribution
agreement with MHP terminated in March 2015, MHP continues to distribute its remaining MYO-X inventories on popular retailer
websites and in specialty retailers principally in the U.S. Sales to MHP for the year ended December 31, 2015 were $57. There
were no sales to MHP in 2016 and we do not expect any orders from MHP in 2017.
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 promotes
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.
On November 28, 2014, we entered into a settlement agreement with Cenegenics wherein we agreed to accept $1,900 by April
2016, (i.e., $300 in the fourth quarter of 2014 and $100 per month from January 2015 through April 2016) in full satisfaction
of Cenegenics’s outstanding obligations with respect to units of product produced by the Company, including units that
had not yet been shipped to Cenegenics at the time of the settlement agreement. In exchange, we agreed to withdraw our
October 10, 2014 request for arbitration before the International Chamber of Commerce. During the second quarter of 2015,
Cenegenics accepted delivery of the remaining units that we were storing on its behalf. Given the settlement
agreement’s extended payment schedule, the Company deferred the revenue and related cost associated with the shipment
and recorded the revenue and cost of sales when the related payment was received in 2016. The distribution agreement with
Cenegenics expired in December 2016. As of December 31, 2016 we recognized all of the deferred revenue. We do not expect any
orders from Cenegenics in 2017.
During
the second quarter of 2015 we launched Rē Muscle Health
TM
, our own direct-to-consumer portfolio of muscle health
bars, meal replacement shakes and daily supplement powders each powered by a full 6.6 gram single serving dose of Fortetropin.
Our Rē Muscle Health products are sold through our e-commerce website, remusclehealth.com, and amazon.com.
On
March 1, 2017 the Company announced the upcoming launch of Qurr, its Fortetropin®-powered product line formulated to support
the vital role of muscle in overall well-being as well as in fitness. The introduction of Qurr's muscle-focused, natural, over-the-counter
products will make the Qurr line available through convenient direct online ordering without a prescription. All Qurr products
are blended with Fortetropin®, MYOS' proprietary ingredient which has been clinically demonstrated to reduce serum myostatin
levels, which helps increase muscle size and lean body mass. MYOS' earlier product formulations featuring Fortetropin® have
become part of the daily routine of many athletes and fit-conscious people. Qurr is a line of flavored puddings, powders,
and shakes all proven to be safe for daily use.
We
continue to pursue additional distribution and branded sales opportunities. We expect to continue developing our own core branded
products in markets such as functional foods, sports and fitness nutrition and rehab and restorative health and to pursue international
sales opportunities. There can be no assurance that we will be able to secure distribution arrangements on terms acceptable to
the Company, or that we will be able to generate significant sales of our current and future branded products.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
December 31, 2016
(amounts in thousands, except share and per share amounts, unless
otherwise indicated)
Strategic
Investment Transaction
On
December 17, 2015, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with RENS
Technology Inc. (the “Purchaser”), pursuant to which the Purchaser agreed to invest $20.25 million in the Company
(the “Financing”) in exchange for (i) an aggregate of 3,537,037 shares (the “Shares”) of the
Company’s common stock, par value $0.001 per share (“Common Stock”), and (ii) warrants to purchase an
aggregate of 884,259 shares of Common Stock (the “Warrants”, and together with the Shares, the
“Securities”). The Purchaser would purchase the Securities in three tranches over twenty-four months. In the
first tranche, which closed on March 3, 2016, the Purchaser acquired 1,500,000 Shares and 375,000 Warrants (the
“Initial Warrant”) for $5.25 million. In the second tranche, which would close within six months of the closing
of the first tranche, the Purchaser would acquire 925,926 Shares and 231,481 Warrants (the “Second Warrant”) for
$5.0 million. In the third tranche, which was to close within eighteen months of the closing of the second tranche, the
Purchaser will acquire 1,111,111 Shares and 277,778 Warrants (the “Third Warrant”) for $10.0 million. Each of the
Warrants will be immediately exercisable upon issuance, will expire five years after issuance and will have the
following exercise prices: (a) $7.00 per share for the Initial Warrant, (b) $10.80 per share for the Second Warrant and (c)
$18.00 per share for the Third Warrant. In addition, the Company agreed: (i) that the Purchaser will have the right to
appoint four persons to the Company’s board of directors, subject to adjustment based on the Purchaser’s
ownership percentage of the Company; (ii) to provide the Purchaser with a right to participate in 50% (or 100% if shares are
to be issued for less than $3.50 per share) of any future financings pursued by the Company within 12 months from the closing
of the third tranche of the Financing; and, (iii) until the closing of the third tranche, the Company will not take certain
actions, including issuing shares (except for certain permitted issuances) or appointing new officers and directors, without
the Purchaser’s consent.
In
addition, on December 17, 2015, the Company issued a convertible note in the amount of $575 to Gan Ren, a related party of RENS
Agriculture. The convertible note provided short-term funding to the Company prior to the closing of the first tranche of the
Financing. On December 17, 2016 the convertible note and accrued interest was converted into 225,860 shares at $2.74 per share.
For additional information on the convertible note with Gan Ren refer to “NOTE 6 – Debt – Convertible Note.”
The
first tranche of the Financing was completed on March 3, 2016. The Company used the net proceeds from the first tranche of the
Financing to fund its working capital, product development and marketing, research and development and other general corporate
purposes. On August 19, 2016, the Purchaser notified the Company that it did not intend to fulfill its obligation to fund the
second tranche of the Financing, notwithstanding its confirmation to the Company in June 2016 that the Purchaser would provide
such funding in accordance with the terms of the Purchase Agreement. The Purchase Agreement provides that in the event that the
Purchaser notifies the Company that it does not intend to fund the Second Closing Subscription Amount, the Purchaser is required
to take all requisite action to cause the resignation or removal of one of its designees on the Board of Directors of the Company.
Pursuant to the terms of the Purchase Agreement, effective August 23, 2016, Guiying Zhao resigned as a director of the Company.
In addition, the Purchaser’s Rights terminated, effective August 19, 2016.
On
January 6, 2017, the Company commenced an action in the Supreme Court of New York, County of New York, against RENS Technology,
Inc., RENS Agriculture Science & Technology Co., Ltd (“RENS Agriculture”), the parent company of RENS Technology,
and Ren Ren, a principal in both entities and a director of the Company, arising from RENS Technology’s breach of a Securities
Purchase Agreement under which RENS Technology agreed to invest an aggregate of $20.25 million in the Company in exchange for
an aggregate of 3,537,037 shares of common stock of the Company and warrants to purchase an aggregate of 884,259 shares of common
stock. In addition to seeking compensatory, consequential and other damages in the action, the Company asked the Court to
preliminarily restrain RENS Technology and its agents and representatives, including, but not limited to, RENS Agriculture and
Ren Ren, from selling, transferring, conveying, assigning, hypothecating or encumbering 1,500,000 shares of common stock of the
Company and a warrant permitting the purchase of 375,000 shares at a price of $7.00 per share that RENS Technology had purchased
under the Securities Purchase Agreement and, after the parties had an opportunity to submit opposition and reply papers in connection
with the Company’s application, a preliminary injunction prohibiting RENS Technology from selling, transferring, conveying,
assigning, hypothecating or encumbering the 1,500,000 shares and warrant during the pendency of the action and an order attaching
the stock and warrant to satisfy any judgment entered in favor of the Company.
On
January 11, 2017, the Court granted the Company the preliminary restraints that it requested, which prevents RENS Technology,
among others, from selling, transferring, conveying, assigning, hypothecating or encumbering the 1,500,000 shares of the Company’s
common stock or the aforementioned warrant. The Court scheduled a hearing on February 14, 2017, at which time the Court
heard oral argument on the application for a preliminary injunction and prejudgment attachment of the stock and warrants to satisfy
any judgment entered in favor of the Company. Since then, RENS Technology filed a motion to dismiss the complaint which the Company
has opposed. No decision has been made by the Court on these two pending applications.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
December 31, 2016
(amounts in thousands, except share and per share amounts, unless
otherwise indicated)
Going Concern
The accompanying financial statements have been prepared
in accordance with U.S. generally accepted accounting principles, which contemplates continuation of the Company as a going concern.
The Company has suffered recurring losses from operations and incurred a net loss of approximately $4,341,000 for the year ended
December 31, 2016. As of the filing date of this Form 10-K, 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 these uncertainties.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the U.S. (“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.
Reclassification
of Prior Year Presentation
Certain
prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications did
not have a material impact on the reported results of operations.
Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, equity and the disclosures of contingent assets and liabilities at the date of
the financial statement and the reported amounts of revenues and expenses during the reporting period. Making estimates requires
management to exercise significant judgment. It is possible that the estimate of the effect of a condition, situation or set of
circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could
change in the near term due to one or more future non-conforming events. Accordingly, the actual results could differ significantly
from estimates. Significant items subject to such estimates include but are not limited to the valuation of stock-based awards,
measurement of allowances for doubtful accounts and inventory reserves, the selection of asset useful lives, fair value estimations
used to test long-lived assets, including intangibles, impairments and provisions necessary for assets and liabilities.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
December 31, 2016
(amounts in thousands, except share and per share amounts, unless
otherwise indicated)
The
Company has recorded minimal sales to its distributors during the past ten consecutive quarters, and has only recently launched
its QURR portfolio of branded products. 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
& 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, 2016 and 2015,
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. The balance at times may exceed federally insured limits.
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 have exposure to cash in excess of FDIC insured limits.
Concentrations
of Risk, Significant Customers and Significant Supplier
Management
regularly reviews accounts receivable, and if necessary, establishes an allowance for doubtful accounts that reflects
management’s best estimate of amounts that may not be collectible based on historical collection experience and
specific customer information. Expense recognized as a result of an allowance for doubtful accounts is classified under
selling, general and administrative expenses in the Consolidated Statements of Operations. Based primarily on collections,
during the year ended December 31, 2015, management determined that the Cenegenics’ allowance for doubtful accounts
should be reduced to $0. Accordingly, a reduction in bad debt expense of $390 was recorded for the year ended December 31,
2015. There was no such expense recorded in 2016.
At
December 31, 2016 and 2015, the Company had the following concentrations of net accounts receivable with customers:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Cenegenics
|
|
$
|
-
|
|
|
$
|
400
|
|
Direct-to-consumer
|
|
|
8
|
|
|
|
6
|
|
Subtotal
|
|
|
8
|
|
|
|
406
|
|
Allowance for doubtful accounts
|
|
|
-
|
|
|
|
-
|
|
Accounts receivable, net
|
|
$
|
8
|
|
|
$
|
406
|
|
For
the years ended December 31, 2016 and 2015, the Company had the following concentrations of revenues with customers:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
MHP
|
|
|
0
|
%
|
|
|
36
|
%
|
Cenegenics
|
|
|
50
|
%
|
|
|
0
|
%
|
Inventories,
net
Inventories
are valued at the lower of cost or market, with cost determined on a first in, first-out basis. Each quarter the Company evaluates
the need for a change in the inventory reserve based on sales and expiration dates of products.
Fixed
Assets
Fixed
assets are stated at cost and depreciated to their estimated residual value over their estimated useful lives of 3 to 7 years.
Leasehold improvements are amortized over the lesser of the asset's useful life or the contractual remaining lease term including
expected renewals. When assets are retired or otherwise disposed of, the assets and related accumulated depreciation are reversed
from the accounts and the resulting gains or losses are included in the Consolidated Statements of Operations.
Depreciation
is provided using the straight-line method for all fixed assets.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
December 31, 2016
(amounts in thousands, except share and per share amounts, unless
otherwise indicated)
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, 2016 and 2015.
Intangible
Assets
The
Company’s intangible assets consist primarily of intellectual property pertaining to Fortetropin, including its formula,
trademarks, trade secrets, patent application and domain names, which were determined to have a fair value of $2,000 as of December
31, 2011. Based on expansion into new markets and introduction of new formulas, management determined that the intellectual property
had a finite useful life of ten (10) years and began amortizing the asset over its estimated useful life beginning April 2014.
Based
on ten 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 2016 and determined that the asset value was recoverable and therefore no impairment was recognized.
W
e
had impairment losses recorded during the years ended December 31, 2016 and 2015 of $44 and $-0-, respectively.
In
July 2014, the Company
acquired the United States patent application for the manufacture
of Fortetropin from
Deutsches Institut fur Lebensmitteltechnik e.V. - the German Institute for Food Technologies (“DIL”).
The cost of the patent application, which was capitalized as an intangible asset, was determined to be $101, based on the present
value of the minimum guaranteed royalty payable to DIL using a discount rate of 10%. The intangible asset is being amortized over
an estimated useful life of ten (10) years. The remaining contingent royalty payments will be recorded as the contingency is resolved
and the royalty becomes payable under the arrangement. For additional information on the amended supply agreement with DIL refer
to “NOTE 12 – Commitments and Contingencies - Supply Agreement.”
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. During the years
ended December 31, 2016 and 2015, the Company recorded impairment losses of $44 and $0, respectively. The impairment losses were
related to the write-off of capitalized patent costs due to the unlikelihood of certain patents being issued.
Intangible
assets at December 31, 2016 and December 31, 2015 consisted of the following:
|
|
December 31,
|
|
|
December 31,
|
|
(In thousand $)
|
|
2016
|
|
|
2015
|
|
Intangibles with finite lives:
|
|
|
|
|
|
|
Intellectual property
|
|
$
|
2,101
|
|
|
$
|
2,101
|
|
Website - qurr.com
|
|
|
380
|
|
|
|
-
|
|
Less: accumulated amortization
|
|
|
(574
|
)
|
|
|
(365
|
)
|
Total intangibles with finite lives:
|
|
|
1,907
|
|
|
|
1,736
|
|
Intangibles with indefinite lives:
|
|
|
|
|
|
|
|
|
Patent costs
|
|
|
44
|
|
|
|
44
|
|
Less: impairment charge on patent costs
|
|
|
(44
|
)
|
|
|
-
|
|
Total intangibles with indefinite lives:
|
|
|
-
|
|
|
|
44
|
|
Total intangible assets, net
|
|
$
|
1,907
|
|
|
$
|
1,780
|
|
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 $210 in each of the next five years.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
December 31, 2016
(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.
Revenue
Recognition
The
Company records revenue from product sales when persuasive evidence of an arrangement exists, product has been shipped or delivered,
the sales price to the customer is fixed or determinable, and collectability is reasonably assured. Product sales represent revenue
from the sale of products and related shipping amounts billed to customers, net of promotional discounts, rebates, and return
allowances. Depending on individual customer agreements, sales are recognized either upon shipment of product to customers or
upon delivery. With respect to direct-to-consumer sales, both title and risk of loss transfer to customers upon our delivery to
the customer. The Company’s gross product sales may be subject to sales allowances and deductions in arriving at reported
net product sales. For example, we may periodically offer discounts and sales incentives to customers to encourage purchases.
Sales incentives are treated as a reduction to the purchase price of the related transaction. Reductions from gross sales for
customer discounts and rebates have been minimal, and sales allowances for product returns have not been provided, since under
our existing arrangements, customers are not permitted to return product except for non-conforming product.
Advertising
The
Company charges the costs of advertising to selling, general and administrative expenses as incurred. Advertising and promotional
costs were $172 and $247 for the years ended December 31, 2016 and 2015, respectively. For the year ended December 31, 2016, advertising
and promotional costs consisted primarily of marketing costs for our Rē Muscle Health products, and for the year ended December
31, 2015, advertising and promotional costs consisted primarily of co-operative advertising fees payable to MHP. Pursuant to the
distribution agreement with MHP, which terminated in March 2015, the Company paid MHP for co-operative advertising.
Research
and Development
Research
and development expenses consist primarily of salaries, benefits, and other related costs, including
stock-based compensation, for personnel serving in our research and development functions, and other internal operating
expenses, 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, 2016 and 2015, the Company
incurred research and development expenses of $-0- and $858 respectively.
Shipping
and Handling Costs
The
Company records costs for shipping and handling of products to our customers in cost of sales. These expenses were $10 and $10
for the years ended December 31, 2016 and 2015, respectively.
Stock-based
Compensation
Stock-based
payments are measured at their estimated fair value on the date of grant. Stock-based awards to non-employees are re-measured
at fair value each financial reporting date until performance is completed. Stock-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 fair value of stock-based awards is affected
by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include,
but are not limited to, our expected stock price volatility over the term of the awards, and certain other market variables such
as the risk-free interest rate.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
December 31, 2016
(amounts in thousands, except share and per share amounts, unless
otherwise indicated)
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, 2016 and 2015, the Company’s financial instruments consist
primarily of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses and short-term debt. Due to
their short-term nature, the carrying amounts of the Company’s financial instruments approximated their fair values.
Basic
and Diluted Loss Per Share
Basic
net loss per share is computed by dividing net loss available to common stockholders for the period by the weighted average number
of common shares outstanding during the period. Diluted net loss per share is computed by dividing net loss for the period by
the weighted average number of common shares outstanding during the period increased to include the number of additional shares
of common stock that would have been outstanding if potential dilutive securities outstanding had been issued. The Company uses
the “treasury stock” method to determine the dilutive effect of common stock equivalents such as options, warrants
and restricted stock. For the years ended December 31, 2016 and 2015, 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, 2016 excluded from the diluted
net loss per share computation because their inclusion would be anti-dilutive were 1,449,308, which includes warrants to purchase
an aggregate 1,136,878 shares of common stock, options to purchase an aggregate of 300,340 shares of common stock, and unvested
restricted stock awards of 53,857 shares of common stock.
The
aggregate number of potentially dilutive common stock equivalents outstanding at December 31, 2015 excluded from the diluted net
loss per share computation because their inclusion would be anti-dilutive were 1,632,963, which includes up to 193,865 Make-Whole
Shares (See NOTE 9 – Warrants), warrants to purchase an aggregate 761,878 shares of common stock, options to purchase an
aggregate of 400,545 shares of common stock and unvested restricted stock awards of 18,450 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.
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, 2016 and 2015, 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.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
December 31, 2016
(amounts in thousands, except share and per share amounts, unless
otherwise indicated)
NOTE
3 – RECENT ACCOUNTING PRONOUNCEMENTS
In
January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update
(“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 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. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the
amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that
interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The Company will adopt
the provisions of this ASU for its fiscal year beginning January 1, 2017. The adoption of ASU 2016-15 does not expect to have
a significant impact on its consolidated financial statements.
In
May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606), Narrow Scope Improvements and
Practical Expedients.” The amendments in ASU 2016-12 affect only the narrow aspects of Topic 606 that are outlined in ASU
2016-12. The effective date and transition requirements for the amendments in this Update are the same as the effective date and
transition requirements of Update 2015-14, which is discussed above. The Company has evaluated the impact of the updated guidance
and has determined that the adoption of ASU 2016-12 is not expected to have a significant impact on its consolidated financial
statements.
In
April 2016, the FASB issued ASU 2016-10 “Revenue from Contracts with Customers: Identifying Performance Obligations and
Licensing.” The amendments in this Update affect entities with transactions included within the scope of Topic 606. The
scope of that Topic includes entities that enter into contracts with customers to transfer goods or services (that are an output
of the entity’s ordinary activities) in exchange for consideration. The effective date and transition requirements for the
amendments in this Update are the same as the effective date and transition requirements of Update 2015-14, which is discussed
above. The Company has evaluated the impact of the updated guidance and has determined that the adoption of ASU 2016-10 is not
expected to have a significant impact on its consolidated financial statements.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
December 31, 2016
(amounts in thousands, except share and per share amounts, unless
otherwise indicated)
In
March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”)
No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee share-Based Payment Accounting (ASU
2016-09”). ASU 216-09 provides guidance designed to simplify several aspects of the accounting for share-based payment transactions,
including guidance relating to accounting for income taxes with respect to share-based payment awards; providing generally that
excess tax benefits related to share-based awards should be recorded as a reduction to income tax expense (currently, excess tax
benefits generally are recorded to additional-paid-in-capital); providing generally that excess tax benefits related to share-based
awards should be classified along with other income tax cash flows as an operating activity (currently, excess tax benefits generally
are separated from other income tax cash flows and classified as a financing activity); providing that an entity may make an accounting
policy election either to base compensation cost accruals on the number of awards expected to vest (as required by current guidance)
or to account for forfeitures when they occur; modifying the current exception to liability classification such that partial cash
settlement of an award for tax withholding purposes would not result, by itself, in liability classification of the award if the
amount withheld does not exceed the maximum statutory tax rate in the employees' applicable jurisdictions (currently, an award
cannot qualify for equity classification, rather than liability classification, if the amount withheld exceeds the minimum statutory
withholding requirements); and providing that cash paid by an employer when directly withholding shares for tax withholding purposes
should be classified as a financing activity on the statement of cash flows (currently there is no authoritative guidance addressing
this classification issue). The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2016. Early adoption is permitted (if early adoption occurs in an interim period, any adjustments will be reflected
as of the beginning of the fiscal year that includes the interim period). Depending on the particular issue addressed by the guidance,
application of the guidance will be made prospectively, retrospectively or subject to a retrospective transition method. We are
currently evaluating the potential impact of adopting this guidance on the Company's results of operations, cash flows and financial
position.
In
February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“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 accounting principles generally accepted in the U.S. (“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 for us beginning January 1, 2019, with early application
permitted. We are currently evaluating the effect that the updated standard will have on our consolidated financial statements
.
In
November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU
2015-17”) ASU 2015-17requires that deferred tax assets and liabilities be classified as noncurrent in a classified statement
of financial position. The amendments in this Update may be applied either prospectively to all deferred tax liabilities and assets
or retrospectively to all periods presented and is effective for periods beginning after December 15, 2016. The Company has evaluated
the impact of the updated guidance and has determined that the adoption of ASU 2015-17 does not expect to have a significant impact
on its consolidated financial statements.
In
July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”),
which changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable
value. ASU 2015-11 defines net realizable value as estimated selling prices in the ordinary course of business, less reasonably
predictable costs of completion, disposal, and transportation. The new guidance must be applied on a prospective basis by us beginning
January 1, 2017, with early adoption permitted. The Company has evaluated the impact of the updated guidance and has determined
that the adoption of ASU 2015-17 is not expected to have a significant impact on its consolidated financial statements.
In
April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs”
(“ASU 2015-03”), which requires all debt issuance costs be presented in the balance sheet as a direct deduction
from the carrying value of the associated debt. Prior to the issuance of this standard, debt issuance costs, which are
specific incremental costs, other than those paid to the lender, that are directly attributable to issuing a debt instrument
(i.e., third party costs), were required to be presented in the balance sheet as a deferred charge (i.e., an asset). Under
ASU 2015-03, the presentation of debt issuance costs is consistent with the presentation for a debt discount, (i.e., a
direct adjustment to the carrying value of the debt). ASU 2015-03 does not affect the recognition and measurement of debt
issuance costs. Accordingly, the amortization of such costs should continue to be calculated using the interest method and be
reported as interest expense. ASU 2015-03 is effective for us beginning January 1, 2016. The Company has evaluated the
impact of the updated guidance and has determined that the adoption of ASU 2015-03 does not expect to have an impact on its
consolidated financial statements and related disclosures.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
December 31, 2016
(amounts in thousands, except share and per share amounts, unless
otherwise indicated)
In
August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic
205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU
2014-15”). The amendments in this update define management’s responsibility to evaluate whether there is
substantial doubt about an organization’s ability to continue as a going concern and provides related footnote
disclosure requirements. Under U.S. GAAP, financial statements are prepared under the presumption that the reporting
organization will continue to operate as a going concern, except in limited circumstances. Financial reporting under this
presumption is commonly referred to as the going concern basis of accounting. The going concern basis of accounting
establishes the fundamental basis for measuring and classifying assets and liabilities. This update provides guidance on when
there is substantial doubt about an organization’s ability to continue as a going concern and how the underlying
conditions and events should be disclosed in the footnotes. It is intended to reduce diversity that existed in footnote
disclosures because of the lack of guidance about when substantial doubt existed. The amendments in this update are effective
for us beginning December 31, 2016. Early application is permitted. The Company has evaluated the impact of the updated
guidance and has disclosed the impact in the footnotes on its consolidated financial statements
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. This accounting guidance
is effective for us beginning January 1, 2018 using one of two prescribed transition methods. We are currently evaluating the
effect that the updated standard will have on our consolidated financial statements and related disclosures.
NOTE
4 – INVENTORIES, NET
Inventories,
net at December 31, 2016 and 2015 consisted of the following:
(In thousand $)
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Raw materials
|
|
$
|
2,378
|
|
|
$
|
1,997
|
|
Work in process
|
|
|
5
|
|
|
|
1
|
|
Finished goods
|
|
|
188
|
|
|
|
167
|
|
|
|
|
2,571
|
|
|
|
2,165
|
|
Less: inventory reserves
|
|
|
(709
|
)
|
|
|
(698
|
)
|
Inventories, net
|
|
$
|
1,862
|
|
|
$
|
1,467
|
|
NOTE
5 – FIXED ASSETS
Fixed
assets at December 31, 2016 and 2015 consisted of the following:
(In thousand $)
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Furniture, fixtures and equipment
|
|
$
|
116
|
|
|
$
|
116
|
|
Computers and software
|
|
|
66
|
|
|
|
66
|
|
Leasehold improvements
|
|
|
239
|
|
|
|
239
|
|
Other
|
|
|
7
|
|
|
|
7
|
|
Total fixed assets
|
|
|
428
|
|
|
|
428
|
|
Less: accumulated depreciation and amortization
|
|
|
(195
|
)
|
|
|
(141
|
)
|
Net book value of fixed assets
|
|
$
|
233
|
|
|
$
|
287
|
|
Depreciation
and amortization expense was $54 and $53 for the years ended December 31, 2016 and 2015, respectively. Repairs and maintenance
costs are expensed as incurred.
NOTE
6 – DEBT
Convertible
Note
On
December 17, 2015, concurrent with the execution of the Purchase Agreement with RENS Technology Inc., the Company issued an
unsecured promissory note in the principal amount of $575 (the “Note”) to Gan Ren, a related party of RENS
Agriculture. The Note accrued interest at a rate of 8% per annum and matured on December 17, 2016. On December 17,
2016, the Note and accrued interest of $46 were automatically converted into 225,864 shares of Common Stock at $2.75 per
share.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
December 31, 2016
(amounts in thousands, except share and per share amounts, unless
otherwise indicated)
Term
Note
On
September 10, 2015, the Company converted its outstanding revolving note with City National Bank, which had a termination date
of August 31, 2015, into a term note (the “Term Note”). The Term Note provided that the then outstanding balance of
$400 shall be payable along with interest thereon on the last day of each month in four (4) consecutive installments of $100,
with the final installment due and payable in full on December 31, 2015. The Term Note was collateralized by all inventory, chattel
paper, accounts, equipment, general intangibles, securities and instruments and contained customary events of default, including
failure to make payment and bankruptcy. As of December 31, 2015, the interest rate on the Term Note was 4.50%. At December 31,
2015, the balance under the Term Note was $100, which was subsequently paid in full on January 7, 2016.
NOTE
7 - PREPAID EXPENSES, ACCRUED EXPENSES, OTHER CURRENT ASSETS AND LIABILITIES
Prepaid
Expenses and Other Current Assets
Prepaid
expenses and other current assets consist of various payments that the Company has made in advance for goods or services to be
received in the future. Prepaid expenses and other current assets at December 31, 2016 and 2015 consisted of the following:
(In thousand $)
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Prepaid insurance
|
|
$
|
27
|
|
|
$
|
32
|
|
Prepaid inventory purchases
|
|
|
1
|
|
|
|
250
|
|
Deferred charges
(1)
|
|
|
-
|
|
|
|
217
|
|
Other
|
|
|
57
|
|
|
|
24
|
|
Total prepaid expenses and other current assets
|
|
$
|
85
|
|
|
$
|
523
|
|
|
(1)
|
Deferred
charges at December 31,2015 includes $153 related to the cost of inventory shipped to
Cenegenics in May 2015 where revenue was deferred until payment of the commensurate sale
was received and recognized in 2016 and deferred financing costs of $65 related
to the Financing. The Financing cost were reclassified to additional paid-in capital
during the first quarter of 2016, upon consummation of the first tranche of the Financing.
|
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, 2016 and 2015 consisted of the following:
(In thousand $)
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Advertising and promotional expense payable
|
|
$
|
171
|
|
|
$
|
171
|
|
Professional fees
|
|
|
88
|
|
|
|
64
|
|
Deferred rent
|
|
|
40
|
|
|
|
47
|
|
Deferred revenue
(1)
|
|
|
56
|
|
|
|
228
|
|
Research & development
|
|
|
-
|
|
|
|
30
|
|
Accrued salaries & bonuses
|
|
|
15
|
|
|
|
151
|
|
Consulting fees
|
|
|
47
|
|
|
|
2
|
|
Other accrued expenses
|
|
|
-
|
|
|
|
24
|
|
Total accrued expenses
|
|
$
|
417
|
|
|
$
|
717
|
|
|
(1)
|
Deferred
revenue represents revenue to be recognized in the future in connection with inventory
shipped. In October 2016 we received a purchase order along with $56 in cash. The sale
was deferred as product was shipped in 2017. In May 2015 revenue for a sale to Cenegenics
was deferred until the cash was collected in January 2016 and recognized for the shipment
made under a settlement agreement with Cenegenics that included extended payment terms.
|
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
December 31, 2016
(amounts in thousands, except share and per share amounts, unless
otherwise indicated)
Note
8 - Stockholders’ Equity
Preferred Stock Rights
Effective February 14, 2017, the Board of
Directors declared a dividend of one right for each of the Company’s issued and outstanding shares of common stock,
$0.001 par value per share. The dividend was paid 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 description and terms of the Rights are set forth in the Rights Agreement dated as of
February 14, between the Company and Island Stock Transfer, as Rights Agent.
Increase
in Number of Authorized Shares
On
March 8, 2016, the Company filed a Certificate of Amendment to its Articles of Incorporation with the Secretary of State of the
State of Nevada to increase the number of authorized shares of common stock. As a result of the amendment, the number of the Company’s
authorized shares of common stock increased from 8,000,000 to 12,000,000.
Issuance
of Common Stock
The
Company has periodically issued common stock in connection with certain private and public offerings. For the years ended December
31, 2016 and 2015, the Company has received aggregate gross proceeds of $6,251 from these offerings as follows:
(In thousand $)
|
|
|
|
|
Gross
|
|
Date
|
|
Shares
|
|
|
Proceeds
|
|
May 18, 2015
|
|
|
190,609
|
(1)
|
|
|
1,001
|
|
November 30, 2015
|
|
|
193,865
|
(2)
|
|
|
-
|
|
March 6, 2016
|
|
|
1,500,000
|
(3)
|
|
|
5,250
|
|
|
|
|
1,884,474
|
|
|
$
|
6,251
|
|
(1)
|
Shares issued pursuant to Warrant Exercise Agreements with certain holders of the Series D warrants.
|
(2)
|
Shares issued pursuant to Make-Whole Shares provision of the November 2014 registered offering.
|
(3)
|
Shares issued pursuant to the closing of the first tranche of the Financing with RENS Technology Inc. on March 3, 2016.
|
Note
9 – Warrants
On
May 18, 2015, the Company entered into Warrant Exercise Agreements with certain holders of outstanding Series D warrants to purchase
an aggregate of 190,609 shares of common stock in the Company (the “Agreements”). Pursuant to the terms of the Agreements,
the exercise price of the Series D Warrants exercised was reduced, immediately prior to their exercise, from $9.37 per share to
$5.25 per share in exchange for the immediate cash exercise of such warrants. In addition, the Company agreed to (a) reduce the
exercise price of its outstanding Series C Warrants from $12.00 per share to $9.00 per share and (b) reduce the exercise price
of its outstanding Series E Warrants, which are exercisable only if the Series D Warrants are exercised, from $15.00 per share
to $9.00 per share. The Company received aggregate gross proceeds of $1,001, or $916 net of cash fees of $85, from the cash exercise
of the Series D Warrants. The Company accepted any and all Series D Warrants properly exercised at $5.25 per share, in accordance
with the terms of the Series D Warrants, by May 21, 2015. Except for the changes set forth above, the terms of the Company’s
outstanding warrants remain unchanged. The incremental fair value (i.e., the change in the fair value of the warrants before and
after reducing the exercise price) determined using a Black-Scholes option pricing model was $38, $136 and $51 for the Series
C Warrants, Series D Warrants and Series E Warrants, respectively. The amount of $225 in aggregate, was recorded in additional
paid-in capital, since the modified warrants were initially classified within equity and remained classified within equity after
the warrant modification. The Company also reflected the amount as an allocation against net loss attributable to common shareholders
in the computation of earnings per share, even though there is no impact to net loss, based on the guidance in ASC No. 260-10,
Earnings per Share (Subtopic S99-3). The following table summarizes the assumptions used to calculate the incremental fair value
of the warrants:
Expected volatility
|
|
96%-227%
|
Risk-free interest rate
|
|
0.02%-1.87%
|
Expected term in years
|
|
0.0-7.0
|
Expected dividend yield
|
|
0%
|
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
December 31, 2016
(amounts in thousands, except share and per share amounts, unless
otherwise indicated)
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 price.
At
May 18, 2015, the modified Series C Warrants and Series E Warrants were determined to have an estimated aggregate fair value of
$569 and $653, respectively. A total of 3,256 Series D Warrants not presented for exercise by May 21, 2015 expired unexercised,
along with 2,442 Series E Warrants, which did not become exercisable since the related Series D Warrants were not exercised.
On
March 3, 2016, the Company completed the first tranche of the Financing, pursuant to which the Purchaser acquired a warrant to
purchase 375,000 shares of common stock. The warrant is immediately exercisable upon issuance, will expire five
years after issuance and has an exercise price of $7.00 per share. The First Closing Warrant was determined to have an estimated
aggregate fair value of $480 at issuance.
The
following table summarizes information about outstanding and exercisable warrants at December 31, 2016:
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Underlying
|
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Warrants
|
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Exchanged,
|
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
Exercised
|
|
|
at
|
|
|
|
|
|
Expiration
|
|
|
|
|
|
Originally
|
|
|
or
|
|
|
December 31,
|
|
|
Exercise
|
|
|
Term
|
|
Description
|
|
Grant Date
|
|
Granted
|
|
|
Expired
|
|
|
2016
|
|
|
Price
|
|
|
in years
|
|
Series A
(1)
|
|
January 27, 2014
|
|
|
315,676
|
|
|
|
-
|
|
|
|
315,676
|
|
|
$
|
15.00
|
|
|
|
.08
|
|
Series B
(1)
|
|
January 27, 2014
|
|
|
157,846
|
|
|
|
-
|
|
|
|
157,846
|
|
|
$
|
45.00
|
|
|
|
2.07
|
|
Series C
(2)
|
|
November 19, 2014
|
|
|
145,399
|
|
|
|
(142,957
|
)
|
|
|
2,442
|
|
|
$
|
12.00
|
|
|
|
3.38
|
|
|
|
|
|
|
|
|
|
|
142,957
|
|
|
|
142,957
|
|
|
$
|
9.00
|
|
|
|
3.38
|
|
Series D
(2)
|
|
November 19, 2014
|
|
|
193,865
|
|
|
|
(193,865
|
)
|
|
|
-
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Series E
(2)
|
|
November 19, 2014
|
|
|
145,399
|
|
|
|
(145,399
|
)
|
|
|
-
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
142,957
|
|
|
|
142,957
|
|
|
$
|
9.00
|
|
|
|
5.38
|
|
Rens
(3)
|
|
March 3, 2016
|
|
|
375,000
|
|
|
|
-
|
|
|
|
375,000
|
|
|
$
|
7.00
|
|
|
|
2.31
|
|
|
|
|
|
|
1,333,185
|
|
|
|
(196,307
|
)
|
|
|
1,136,878
|
|
|
|
|
|
|
|
|
|
|
(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. on March 3, 2016.
|
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
December 31, 2016
(amounts in thousands, except share and per share amounts, unless
otherwise indicated)
The
following table summarizes the activities in warrants for the years ended December 31, 2016 and 2015:
|
|
Shares Underlying Warrants
|
|
|
Average
Exercise
Price
|
|
Balance at December 31, 2014
|
|
|
958,185
|
|
|
$
|
18.35
|
|
Warrants exercised
|
|
|
(190,609
|
)
|
|
|
5.25
|
|
Warrants expired
|
|
|
(5,698
|
)
|
|
|
12.59
|
|
Balance at December 31, 2015
|
|
|
761,878
|
|
|
$
|
18.95
|
|
Warrants granted
|
|
|
375,000
|
|
|
|
2.31
|
|
Balance at December 31, 2016
|
|
|
1,136,878
|
|
|
$
|
15.01
|
|
The
following table summarizes the assumptions used to value the warrants at the issuance date using the Black-Scholes option pricing
model:
|
|
|
|
Number
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant /
|
|
Underlying
|
|
|
Price on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modification
|
|
Warrants
|
|
|
Measurement
|
|
|
Exercise
|
|
|
Expected
|
|
|
Expected
|
|
|
Dividend
|
|
|
Risk Free
|
|
Description
|
|
Date
|
|
Granted
|
|
|
Date
|
|
|
Price
|
|
|
Term
|
|
|
Volatility
|
|
|
Yield
|
|
|
Rate
|
|
Series A
|
|
1/27/2014
|
|
|
315,676
|
|
|
$
|
7.00
|
|
|
$
|
15.00
|
|
|
|
3.00
|
|
|
|
150.00
|
%
|
|
|
0.00
|
%
|
|
|
0.76
|
%
|
Series B
|
|
1/27/2014
|
|
|
157,846
|
|
|
$
|
7.00
|
|
|
$
|
45.00
|
|
|
|
5.00
|
|
|
|
150.00
|
%
|
|
|
0.00
|
%
|
|
|
1.61
|
%
|
Series C
|
|
11/19/2014
|
|
|
145,399
|
|
|
$
|
9.37
|
|
|
$
|
12.00
|
|
|
|
5.50
|
|
|
|
94.60
|
%
|
|
|
0.00
|
%
|
|
|
1.64
|
%
|
Repricing Series C
|
|
5/18/2015
|
|
|
142,957
|
|
|
$
|
5.95
|
|
|
$
|
9.00
|
|
|
|
5.00
|
|
|
|
96.34
|
%
|
|
|
0.00
|
%
|
|
|
1.46
|
%
|
Series D
|
|
11/19/2014
|
|
|
193,865
|
|
|
$
|
9.37
|
|
|
$
|
9.37
|
|
|
|
0.50
|
|
|
|
93.44
|
%
|
|
|
0.00
|
%
|
|
|
0.07
|
%
|
Repricing Series D
|
|
5/18/2015
|
|
|
190,609
|
|
|
$
|
5.95
|
|
|
$
|
5.25
|
|
|
|
0.00
|
|
|
|
226.56
|
%
|
|
|
0.00
|
%
|
|
|
0.02
|
%
|
Series E
|
|
11/19/2014
|
|
|
145,399
|
|
|
$
|
9.37
|
|
|
$
|
15.00
|
|
|
|
7.50
|
|
|
|
94.60
|
%
|
|
|
0.00
|
%
|
|
|
1.64
|
%
|
Repricing Series E
|
|
5/18/2015
|
|
|
142,957
|
|
|
$
|
5.95
|
|
|
$
|
9.00
|
|
|
|
7.00
|
|
|
|
96.34
|
%
|
|
|
0.00
|
%
|
|
|
1.87
|
%
|
Rens Technology
|
|
3/3/2016
|
|
|
375,000
|
|
|
$
|
7.00
|
|
|
$
|
7.00
|
|
|
|
4.00
|
|
|
|
96.34
|
%
|
|
|
0.00
|
%
|
|
|
1.87
|
%
|
NOTE
10 - STOCK COMPENSATION
Equity
Incentive Plan
The
Company increased the number of shares available for issuance under its 2012 Equity Incentive Plan (as amended, the
“Plan”) from 550,000 to 850,000 in November 2016, which was approved by the Company’s shareholders in
December 2016. The plan provides for the issuance of up to 850,000 shares. The Plan provides for grants of stock options,
stock appreciation rights, restricted stock, other stock-based awards and other cash-based awards. As of December 31, 2016,
the remaining shares of common stock available for future issuances of awards was 543,606. The Company granted an aggregate
of 30,000 options to purchase restricted common stock to certain directors prior to the adoption of the Plan.
St
ock
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, 2016
(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, 2016 and 2015:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
Shares
|
|
|
Average
|
|
|
Remaining
|
|
|
|
Under
|
|
|
Exercise
|
|
|
Contractual
|
|
|
|
Options
|
|
|
Price
|
|
|
Term (Years)
|
|
Balance at December 31, 2014
|
|
|
367,080
|
|
|
$
|
14.68
|
|
|
|
8.50
|
|
Options granted
|
|
|
108,000
|
|
|
|
12.50
|
|
|
|
|
|
Options cancelled
|
|
|
(38,940
|
)
|
|
|
12.50
|
|
|
|
|
|
Options forfeited
|
|
|
(35,595
|
)
|
|
|
12.03
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
400,545
|
|
|
$
|
14.56
|
|
|
|
7.82
|
|
Options cancelled
|
|
|
(65,455
|
)
|
|
|
13.14
|
|
|
|
|
|
Options forfeited
|
|
|
(34,750
|
)
|
|
|
12.51
|
|
|
|
|
|
|
|
|
300,340
|
|
|
$
|
15.09
|
|
|
|
6.71
|
|
The
weighted average grant date fair value of stock options granted during 2015 was $5.22. The following table summarizes the
assumptions used to value stock options granted in 2015 using a Black-Scholes model:
|
|
2015
|
|
Risk-free interest rate
|
|
1.39%-1.69%
|
|
Expected volatility
|
|
98%
|
|
Weighted average expected volatility
|
|
98%
|
|
Expected term (years)
|
|
5.8-6.3
|
|
Expected dividend yield
|
|
0%
|
|
The
risk-free rate is based on the U.S. Treasury rate for a note with a similar term in effect at the time of the grant. The expected
volatility is based on the volatility of the Company’s historical stock prices.
At
December 31, 2016 and 2015, the exercisable options had no intrinsic value.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
December 31, 2016
(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, 2016 that were granted under
the Plan:
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
Options
|
|
|
Remaining
|
|
|
|
|
|
Options
|
|
|
Remaining
|
|
Exercise
Price
|
|
|
Outstanding
|
|
|
Contractual Life
|
|
|
Exercise
Price
|
|
|
Exercisable
|
|
|
Contractual Life
|
|
$
|
7.00
|
|
|
|
5,000
|
|
|
|
5.40
|
|
|
$
|
7.00
|
|
|
|
5,000
|
|
|
|
5.40
|
|
$
|
8.60
|
|
|
|
22,000
|
|
|
|
7.19
|
|
|
$
|
8.60
|
|
|
|
22,000
|
|
|
|
7.19
|
|
$
|
10.00
|
|
|
|
5,040
|
|
|
|
6.11
|
|
|
$
|
10.00
|
|
|
|
5,040
|
|
|
|
6.11
|
|
$
|
11.00
|
|
|
|
3,000
|
|
|
|
6.02
|
|
|
$
|
11.00
|
|
|
|
3,000
|
|
|
|
6.02
|
|
$
|
12.10
|
|
|
|
30,500
|
|
|
|
7.35
|
|
|
$
|
12.10
|
|
|
|
30,500
|
|
|
|
7.35
|
|
$
|
12.50
|
|
|
|
94,800
|
|
|
|
7.42
|
|
|
$
|
12.50
|
|
|
|
53,050
|
|
|
|
6.94
|
|
$
|
13.45
|
|
|
|
2,000
|
|
|
|
7.47
|
|
|
$
|
13.45
|
|
|
|
1,000
|
|
|
|
7.47
|
|
$
|
13.50
|
|
|
|
12,000
|
|
|
|
7.49
|
|
|
$
|
13.50
|
|
|
|
6,000
|
|
|
|
7.49
|
|
$
|
13.75
|
|
|
|
6,000
|
|
|
|
7.67
|
|
|
$
|
13.75
|
|
|
|
6,000
|
|
|
|
7.67
|
|
$
|
17.50
|
|
|
|
100,000
|
|
|
|
6.11
|
|
|
$
|
17.50
|
|
|
|
100,000
|
|
|
|
6.11
|
|
$
|
32.00
|
|
|
|
15,000
|
|
|
|
4.54
|
|
|
$
|
32.00
|
|
|
|
15,000
|
|
|
|
4.54
|
|
$
|
34.50
|
|
|
|
5,000
|
|
|
|
4.57
|
|
|
$
|
34.50
|
|
|
|
5,000
|
|
|
|
4.57
|
|
|
|
|
|
|
300,340
|
|
|
|
|
|
|
|
|
|
|
|
251,590
|
|
|
|
|
|
As
of December 31, 2016, 251,590 options have vested and 48,750 options remain unvested. The vesting terms range from zero to 4.5
years and the vested options have a weighted average remaining term of 6.7 years and a weighted average exercise price of $15.09
per share.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
December 31, 2016
(amounts in thousands, except share and per share amounts, unless
otherwise indicated)
Restricted
Stock
The
following table summarizes restricted stock awards activity for the years ended December 31, 2016 and 2015:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Share Price
|
|
Restricted stock awards unvested at December 31, 2014
|
|
|
22,200
|
|
|
$
|
14.95
|
|
Granted
|
|
|
66,099
|
|
|
|
2.73
|
|
Vested
|
|
|
(68,849
|
)
|
|
|
4.91
|
|
Forfeited
|
|
|
(1,000
|
)
|
|
|
7.50
|
|
Restricted stock awards unvested at December 31, 2015
|
|
|
18,450
|
|
|
$
|
9.09
|
|
Granted
|
|
|
70,639
|
|
|
|
2.08
|
|
Vested
|
|
|
(30,232
|
)
|
|
|
5.40
|
|
Forfeited
|
|
|
(5,000
|
)
|
|
|
2.27
|
|
Restricted stock awards unvested at December 31, 2016
|
|
|
53,857
|
|
|
$
|
2.74
|
|
At
December 31, 2016, the weighted-average remaining vesting period of unvested restricted stock awards was 2.74 years.
Stock-Based
Compensation:
Stock-based
compensation was $392 and $931 for the years ended December 31, 2016 and 2015, respectively. Stock-based compensation
consists of expenses related to the issuance of stock options and restricted stock.
The
aggregate unrecognized compensation expense of stock options and restricted stock at December 31, 2016 was $251, which will be
recognized through January 2019.
NOTE
11 - INCOME TAXES
Income
tax expense for the years ended December 31, 2016 and 2015 is shown as follows:
|
|
December 31,
|
|
|
December 31,
|
|
(In thousand $)
|
|
2016
|
|
|
2015
|
|
Current provision
|
|
$
|
-
|
|
|
$
|
2
|
|
Deferred provision
|
|
|
-
|
|
|
|
-
|
|
Total tax provision (benefit)
|
|
$
|
-
|
|
|
$
|
2
|
|
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
December 31, 2016
(amounts in thousands, except share and per share amounts, unless
otherwise indicated)
The
significant components of the Company's deferred tax assets and liabilities at December 31, 2016 and 2015 are as follows:
|
|
December 31,
|
|
|
December 31,
|
|
(In thousand $)
|
|
2016
|
|
|
2015
|
|
Federal net operating losses
|
|
$
|
6,714
|
|
|
$
|
5,335
|
|
State net operating losses
|
|
|
635
|
|
|
|
394
|
|
Stock options
|
|
|
1,043
|
|
|
|
1,043
|
|
Federal tax credit
|
|
|
190
|
|
|
|
110
|
|
Amortization
|
|
|
448
|
|
|
|
478
|
|
Depreciation
|
|
|
11
|
|
|
|
(1
|
)
|
Contributions
|
|
|
21
|
|
|
|
13
|
|
Other
|
|
|
392
|
|
|
|
297
|
|
Total gross deferred tax assets/(liabilities)
|
|
|
9,454
|
|
|
|
7,669
|
|
|
|
|
|
|
|
|
|
|
Less valuation allowance
|
|
|
(9,454
|
)
|
|
|
(7,669
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets/(liabilities)
|
|
$
|
-
|
|
|
$
|
-
|
|
The net deferred tax asset as
of the years ended December 31, 2016 and 2015 remains fully offset by a valuation due to the Company’s history of losses.
The
income tax benefit for the year ended December 31, 2016 differed from the amounts computed by applying the U.S. federal income
tax rate of 34% to loss before tax benefit as a result of nondeductible expenses, tax credits generated, utilization of net operating
loss carryforwards, and increases in the Company’s valuation allowance.
|
|
December 31,
|
|
|
December 31,
|
|
(In thousand $)
|
|
2016
|
|
|
2015
|
|
Federal statutory tax benefit
|
|
$
|
(1,568
|
)
|
|
$
|
(1,726
|
)
|
Permanent differences
|
|
|
103
|
|
|
|
306
|
|
State taxes
|
|
|
1
|
|
|
|
1
|
|
Valuation allowance
|
|
|
1,464
|
|
|
|
1,421
|
|
Income tax provision (benefit)
|
|
$
|
-
|
|
|
$
|
2
|
|
A
valuation allowance is required to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more
likely than not that some portion or all of the deferred tax assets will not be realized.
At
December 31, 2016, the Company had approximately $19.7 million of gross federal net operating loss carry-forwards. At December 31,
2016, the Company had approximately $10.6 million of gross state net operating loss carry-forwards. If not utilized, the federal
and state net operating loss carry-forwards will begin to expire in 2027. The utilization of such net operating loss carry-forwards
and realization of tax benefits in future years depends predominantly upon having taxable income. The Company also has $190 of
federal research and development credits which will begin to expire in 2033 if not utilized.
The
Company may be subject to the net operating loss provisions of Section 382 of the Internal Revenue Code. The Company has
not calculated if an ownership change has occurred. The effect of an ownership change would be the imposition of an annual limitation
on the use of NOL carryforwards attributable to periods before the change. The amount of the annual limitation depends upon the
value of the Company immediately before the change, changes to the Company’s capital during a specified period, and the
federal published interest rate.
Entities
are also required to evaluate, measure, recognize and disclose any uncertain income tax provisions taken on their income tax returns.
The Company has analyzed its tax positions and has concluded that as of December 31, 2015 there were no uncertain positions. The
federal and state income tax returns of the Company for 2012, 2013, 2014 and 2015 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 2016 and 2015.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
December 31, 2016
(amounts in thousands, except share and per share amounts, unless
otherwise indicated)
Note
12 – Commitments and Contingencies
Operating
Lease
The
Company leases its corporate offices under an operating lease. The term of the lease is five years commencing on January 1, 2015
and expiring on December 31, 2019. We have two options to renew our lease for an additional three years each.
At
December 31, 2016, 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
|
|
2017
|
|
$
|
69
|
|
2018
|
|
|
71
|
|
2019
|
|
|
72
|
|
Total
|
|
$
|
212
|
|
Rent expense including common area maintenance charges
and taxes for the years ended December 31, 2016 and 2015 was $72 and $225, respectively.
Defined
Contribution Plan
The
Company established a 401(K) Plan (the “401(K) Plan”) for eligible employees of the Company effective April 1, 2014.
Generally, all employees of the Company who are at least twenty-one years of age and who have completed three months of service
are eligible to participate in the 401(K) Plan. The 401(K) Plan is a defined contribution plan that provides that participants
may make salary deferral contributions, of up to the statutory maximum allowed by law (subject to catch-up contributions) in the
form of voluntary payroll deductions. The Company’s matching contribution is equal to 100 percent on the first four percent
of a participant’s compensation which is deferred as an elective deferral. The Company’s aggregate matching contributions
were $26 and $49 for the years ended December 31, 2016 and 2015, respectively.
Supply
Agreement
On
November 18, 2016, the Company entered into an Amended Supply Agreement with DIL Technologie GmbH (“ DIL ”).
Pursuant to the agreement (and so long as the agreement is effective), DIL will manufacture and supply the Company with Fortetropin®,
the active ingredient for its products, and the Company will purchase quantities of Fortetropin® from DIL in 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 €10,000
per month 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 €400,000 in satisfaction of all prior liabilities and obligations
under its prior agreements with DIL. The agreement expires on December 31, 2018, and the Company has the unilateral right to renew
the agreement for subsequent one-year terms.
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, 2016 and 2015, the
Company had not recorded any accruals for product liability claims.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
December 31, 2016
(amounts in thousands, except share and per share amounts, unless
otherwise indicated)
Note
13 – Related Party Transactions
The
following is a description of the transactions we have engaged in with our directors, director nominees and officers and beneficial
owners of more than five percent of our voting securities and their affiliates:
On August 1, 2015, we entered
into a consulting agreement with Muscle Longevity LLC, a company that has the same owner as Ultra Pro Sports, LLC, a then greater
than 5% beneficial owner of our common stock. Under the terms of the agreement, Muscle Longevity LLC then agreed to provide introductions
and referrals to new distribution channels for our products including, but not limited to, health and wellness centers and sports
nutrition companies and to conduct industry research and advise us regarding distributors, markets, and sales opportunities for
the Company’s products. As compensation for the services, Muscle Longevity LLC was paid a consulting fee of $16 per month.
The agreement was terminated in October 2016.
On December 17, 2015, concurrent with the execution
of the Purchase Agreement with RENS Technology Inc., the Company issued an unsecured promissory note in the principal amount of
$575 (the “Note”) to Gan Ren, a related party of RENS Agriculture. The Note accrued interest at a rate of 8% per annum
and matured (the “Maturity Date”) on December 17, 2016. On the Maturity Date, the Note and accrued interest of
$46 were automatically converted into 225,864 shares of Common Stock at $2.75 per share.
On
December 17, 2015, we entered into the Purchase Agreement with Rens Technology Inc. (the “Purchaser”), an entity
which is controlled by Ren Ren, who is currently a director of the Company and its largest stockholder. For additional
information refer to Note 1 – Strategic Investment Transaction. The Board agreed to issue Mr. Ren 18,182 shares of the
Company’s common stock upon completion of the first tranche of the Financing for his services to the Company as a
member of the Board. (See Note 14 - Legal Proceedings)
Note
14 – legal PROCEEDINGS
On January 6,
2017, the Company commenced an action in the Supreme Court of New York, County of New York, against RENS Technology, Inc. ("the
Purchaser"), RENS Agriculture, the parent company of the Purchaser, and Ren Ren, a principal in both entities and a director
of the Company, arising from the Purchaser's breach of a Securities Purchase Agreement under which the Purchaser agreed to invest
an aggregate of $20.25 million in the Company in exchange for an aggregate of 3,537,037 shares of common stock of the Company
and warrants to purchase an aggregate of 884,259 shares of common stock. In addition to seeking compensatory, consequential and
other damages in the action, the Company asked the Court to preliminarily restrain the Purchaser and its agents and representatives,
including, but not limited to, RENS Agriculture and Ren Ren, from selling, transferring, conveying, assigning, hypothecating or
encumbering 1,500,000 shares of common stock of the Company and a warrant permitting the purchase of 375,000 share at a price
of $7.00 per share that the Purchaser had purchased under the Securities Purchase Agreement and, after the parties had an opportunity
to submit opposition and reply papers in connection with the Company's application, a preliminary injunction prohibiting the Purchaser
from selling, transferring, conveying, assigning, hypothecating or encumbering the 1,500,000 shares and warrant during the pendency
of the action and an order attaching the stock and warrant to satisfy any judgment entered in favor of the Company.
On
January 11, 2017, the Court granted the Company the preliminary restraints that it requested, which prevents RENS Technology,
among others, from selling, transferring, conveying, assigning, hypothecating or encumbering the 1,500,000 shares of the Company’s
common stock or the aforementioned warrant. The Court scheduled a hearing on February 14, 2017, at which time the Court
heard oral argument on the application for a preliminary injunction and prejudgment attachment of the stock and warrants to satisfy
any judgment entered in favor of the Company. Since then, RENS Technology filed a motion to dismiss the complaint which the Company
has opposed. No decision has been made by the Court on these two pending applications.
On October 27, 2016, Cutler Holdings, L.L.C.
(“Cutler”) filed a complaint in the Superior Court of New Jersey alleging that the Company failed to make certain
rental payments. On March 30, 2017, the Company entered into a settlement agreement with Cutler, pursuant to which Cutler
released the Company from any liability for the claims asserted in the complaint.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
December 31, 2016
(amounts in thousands, except share and per share amounts, unless
otherwise indicated)
Note
15 – Subsequent Events
Legal Proceedings
On January 6, 2017, the Company commenced
an action in the Supreme Court of New York, County of New York, against RENS Technology, Inc. (See Note 14)
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 million. The offering closed on February 8, 2017.
Preferred
Stock Purchase Rights
Effective
February 14, 2017, the Board of Directors declared a dividend of one right for each of the Company’s issued and
outstanding shares of common stock, $0.001 par value per share. The dividend will be paid to the stockholders of record at
the close of business on February 24, 2017. Each Right entitles the registered holder, subject to the terms of 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 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.
At-the-Market Offering
On February 21, 2017, the Company entered into a
sales Agreement with H.C. Wainwright & Co., LLC which establishes 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. As of
the filing date of this Form 10-K, no shares have been sold under this program.
Settlement of Lawsuit
On March 30, 2017, the Company entered into a settlement
agreement with Cutler, pursuant to which Cutler released the Company from any liability for the claims asserted in the complaint.
(See Note 14)
F-28