NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2018
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
NOTE 1 – NATURE OF OPERATIONS,
BASIS OF PRESENTATION AND LIQUIDITY
Basis of Presentation
The accompanying condensed consolidated
balance sheet as of December 31, 2017, which has been derived from audited consolidated financial statements, and the unaudited
interim condensed consolidated financial statements as of March 31, 2018 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”). Certain information and disclosures required by U.S. GAAP for complete consolidated financial statements have
been condensed or omitted herein. The unaudited interim condensed consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2017 filed with the SEC on March 27, 2018. The unaudited interim condensed consolidated financial statements
presented herein reflect all normal adjustments that are, in the opinion of management, necessary for a fair presentation of the
statement of the financial position, results of operations and cash flows for the periods presented. The Company is responsible
for the unaudited interim condensed consolidated financial statements included in this report. The results of any interim period
are not necessarily indicative of the results for the full year.
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.
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 CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2018
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
Strategic Investment Transaction
On December 17, 2015, the Company entered
into a Securities Purchase Agreement (the “Purchase Agreement”) with RENS Technology Inc. (the “Purchaser”),
pursuant to which the Purchaser agreed to invest $20.25 million in the Company in three tranches (the “Financing”)
in exchange for an aggregate of 3,537,037 shares (the “Shares”) of the Company’s common stock, par value $0.001
per share (“Common Stock”).
In the first tranche which closed on March
3, 2016 the Purchaser acquired 1,500,000 Shares and a warrant to purchase 375,000 shares of Common Stock (the “Initial Warrant”)
for $5.25 million.
On August 19, 2016, the Purchaser notified
the Company that it did not intend to fulfill its obligation to fund the second tranche of the Financing, notwithstanding its confirmation
to the Company in June 2016 that the Purchaser would provide such funding in accordance with the terms of the Purchase Agreement.
On January 6, 2017, in connection with
the financing contemplated by the Purchase Agreement, the Company commenced an action in the Supreme Court of New York, County
of New York (the “Court”), against RENS Agriculture, the parent company of the Purchaser, and Ren Ren, a principal
in both entities and one of our directors, arising from the Purchaser’s breach of the aforementioned agreement. See NOTE
13-LEGAL PROCEEDINGS.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2018
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
Going Concern and Liquidity
The accompanying condensed consolidated
financial statements have been prepared in accordance with U.S. GAAP, which contemplates the continuation of the Company as a going
concern. The Company has suffered recurring losses from operations and incurred a net loss of approximately $1,213 for the three
months ended March 31, 2018 and $4,058 for the year ended December 31, 2017.
As of March 31, 2018 the Company had cash
of $230 and working capital of $1,727 (current assets of $2,174 less current liabilities of $447). For the three months ended March
31, 2018 and 2017 our net loss was $1,213 and $1,117, respectively. For the three months ended March 31, 2018 and 2017 net cash
used in operating activities was $989 and $1,428 respectively.
As of the filing date of this Form 10-Q,
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. (See Note 13 – Legal Proceedings) These circumstances raise substantial doubt about the
Company’s ability to continue as a going concern.
Accordingly, the Company is 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.
At-the-Market Offering
On February 21, 2017, the Company entered
into a sales agreement with H.C. Wainwright & Co., LLC (“H.C. Wainwright”) which established an at-the-market equity
program pursuant to which the Company may offer and sell up to $6.0 million of its shares of common stock from time to time through
H.C. Wainwright. The Company incurred $125 of deferred offering costs in connection with this program which it has recorded as
a long term other asset on the accompanying balance sheet. Since the Company has continued to sell securities in connection with
this program, management has concluded that the program is ongoing and any remaining deferred offering costs is reflected as a
reduction in equity, as the Company incurs sales of its stock pursuant to this program. Management continues to evaluate the ongoing
progress of this program and its related outstanding deferred offering costs.
On January 19, 2018, the Company sold 140,295
shares of common stock for $2.111 per share for gross proceeds of $296 in an at-the-market offering.
Subsequent to quarter end, in April 2018,
the Company sold an aggregate of 131,225 shares of common stock at various prices for aggregate gross proceeds of $176 under the
Company’s existing at-the-market program.
As of the filing date of this Form 10-Q,
a total of 771,520 shares have been sold under this program for aggregate gross proceeds of $1,544 under the Company’s existing
at-the-market program.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2018
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial
statements include the accounts of MYOS RENS Technology Inc. and its wholly-owned subsidiary, Atlas Acquisition Corp. All material
intercompany balances and transactions have been eliminated in consolidation.
Reclassification of Prior Period
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.
Use of Estimates
The preparation of financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities, equity and the disclosures of contingent assets and liabilities at the date of the financial statement and the reported
amounts of revenues and expenses during the reporting period. Making estimates requires management to exercise significant judgment.
It is at least reasonably 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 amount of deferred offering costs recognized, the selection of asset useful lives,
fair value estimations used to test long-lived assets, including intangibles, impairments and provisions necessary for assets and
liabilities.
The Company has historically recorded minimal
sales to its distributors during the past fifteen consecutive quarters, and launched its QURR portfolio of branded products in
March 2017. Management’s estimates, including evaluation of impairment of long-lived assets and inventory reserves are based
in part on forecasted future results. A variety of factors could cause actual results to differ from forecasted results and these
differences could have a significant effect on asset carrying amounts.
Cash and Cash Equivalents
The Company considers all highly liquid
investments purchased with a maturity of three months or less and money market accounts to be cash equivalents. At March 31, 2018
and December 31, 2017 the Company had no cash equivalents.
As part of our ongoing liquidity assessments,
management evaluates our cash and 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 amount of funds held in these accounts
can fluctuate due to the timing of receipts and payments in the ordinary course of business and due to other reasons, such as business-development
activities so the Company may at times have exposure to cash in excess of FDIC insured limits.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2018
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
Inventories, net
Inventories are valued at the lower of
cost or net realizable value, with cost determined on a first in, first-out basis. Each quarter the Company evaluates the need
for a change in the inventory reserve based on projected future sales and expiration dates of products.
Deferred Offering Costs
The Company defers as other assets the
direct incremental costs of raising capital until such time as the offering is completed. At the time of the completion of the
offering, the costs are charged against the capital raised. Should the offering not be completed, deferred offering costs are charged
to operations during the period in accordance with SEC guidance. Deferred offering costs as of March 31, 2018 were $96 relating
to legal and accounting fees for the at the market transaction.
Impairment of Long-lived Assets
We perform impairment testing of fixed
assets and intangible assets subject to amortization by 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. No impairment charges were recorded during the three month periods
ended March 31, 2018 and 2017.
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.
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.
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 11 – 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.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2018
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
There were no impairment charges for the
three months ended March 31, 2018 and the year ended December 31, 2017.
Intangible assets at March 31, 2018 and
December 31, 2017 consisted of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Intangibles with finite lives:
|
|
|
|
|
|
|
Intellectual property
|
|
$
|
2,101
|
|
|
$
|
2,101
|
|
Website - qurr.com
|
|
|
380
|
|
|
|
380
|
|
Less: accumulated amortization – intellectual property
|
|
|
(837
|
)
|
|
|
(784
|
)
|
Less: accumulated amortization - website
|
|
|
(76
|
)
|
|
|
(57
|
)
|
Total intangible assets, net
|
|
$
|
1,568
|
|
|
$
|
1,640
|
|
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 $216 for the remaining nine months in 2018 and approximately $286 in each of the next four years.
Revenue
Effective January 1, 2018, the Company
adopted the provisions of Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2014-09 (“ASU 2014-09”), as amended, using the modified retrospective method. ASU 2014-09, which is codified in
the FASB Accounting Standards Codification as Topic 606,
Revenue from Contracts with Customers,
supersedes nearly all previous
revenue recognition guidance under U.S. GAAP and requires revenue to be recognized when promised goods or services are transferred
to customers in an amount that reflects the consideration that is expected to be received for those goods or services. Additionally,
qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments,
and assets recognized from the costs to obtain or fulfill a contract.
The adoption of ASU 2014-09 did not have
impact the Company’s timing or amounts of revenue recognition. As such, the Company recorded no transition adjustment as
of January 1, 2018. However, the additional required qualitative and quantitative disclosures to Topic 606 are provided below.
Revenue Recognition
Net revenues include products and shipping
and handling charges, net of estimates for incentives and other sales allowances or discounts. Our product sales generally do not
provide for rights of return. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring
products. All revenue is recognized when we satisfy our performance obligations under the contract. We recognize revenue by transferring
the promised products to the customer, with revenue recognized at the point in time the customer obtains control of the products.
We consider charges associated with shipping and handling activities as costs to fulfill our performance obligations. Using probability
assessments, we estimate sales incentives expected to be paid over the term of the contract. The majority of our contracts have
a single performance obligation and are short term in nature. Sales taxes that are collected from customers and remitted to governmental
authorities are accounted for on a net basis and therefore are excluded from net sales.
Accounts Receivable
Credit is extended based upon an evaluation
of the customer’s financial condition. Accounts receivable are stated at their estimated net realizable value. Any allowance
for doubtful accounts is based on an analysis of customer accounts and historical experience.
Contract Liabilities
Contract liabilities, may include deferred
revenue related customer payments made in advance of the customer obtaining control of the product or liabilities associated with
sales incentives. At March 31, 2018 and December 31, 2017, the Company had no contract liability balances.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2018
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
Disaggregation of Revenue
Our product sales by product type are presented
below for the three months ended March 31, 2018 and 2017.
|
|
Three-month Period
|
|
Product Type
|
|
March 31, 2018
|
|
|
March
31, 2017
|
|
Egg Yolk Powder
|
|
$
|
#
|
|
|
$
|
116
|
|
QURR
|
|
|
57
|
|
|
|
*
|
|
Rē Muscle Health
|
|
|
#
|
|
|
|
34
|
|
Total
|
|
$
|
57
|
|
|
$
|
150
|
|
* Qurr product launched in April
2017
# Egg Yolk Powder and Re
product no longer available after May 2017
Advertising
The Company charges the costs of advertising
to selling, marketing and research expenses as incurred. Advertising and promotional costs were $150 and $32 for the three months
ended March 31, 2018 and 2017, respectively.
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. Research and development costs
were $186 for the three months ended March 31, 2018. There was no research and development expense for the three months ended March
31, 2017.
Shipping and Handling Costs
The Company records costs for shipping
and handling of products to our customers in cost of sales. These expenses were $5 and $5 for the three months ended March 31,
2018 and 2017.
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.
Segment Information
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.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2018
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
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 March 31, 2018 and December 31, 2017 the Company’s financial instruments consist primarily of cash and cash equivalents,
accounts receivable, accounts payable and accrued expenses. 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 three months
ended March 31, 2018 and 2017, the Company incurred a net loss. Accordingly, the potential dilutive securities were excluded from
the calculation of diluted loss per share of common stock because their inclusion would have been antidilutive. As a result, diluted
loss per common share is the same as basic loss per common share for all periods presented.
The aggregate number of potentially
dilutive common stock equivalents outstanding at March 31, 2018 excluded from the diluted net loss per share computation
because their inclusion would be anti-dilutive were 1,439,942, which includes warrants to purchase an aggregate of 821,202
shares of common stock and options to purchase an aggregate of 618,740 shares of common stock.
The aggregate number of potentially
dilutive common stock equivalents outstanding at March 31, 2017 excluded from the diluted net loss per share computation
because their inclusion would be anti-dilutive were 1,142,682, which includes warrants to purchase an aggregate of 821,202
shares of common stock, options to purchase an aggregate of 300,340 shares of common stock, and unvested restricted stock
awards of 21,140 shares of common stock.
Income Taxes
Income taxes are accounted for under the
asset and liability method in accordance with ASC 740,
Accounting for Income Taxes
(“ASC 740”). Deferred tax
assets and liabilities are recognized for the future tax consequences attributable to differences between the financial carrying
amounts of existing assets and liabilities and their respective tax bases as well as operating loss and tax credit carry forwards.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the periods in
which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by
a valuation allowance to the extent that the recoverability of the asset is unlikely to be recognized. The Company follows ASC
740 rules governing uncertain tax positions, which provides guidance for recognition and measurement. This prescribes a threshold
condition that a tax position must meet for any of the benefits of the uncertain tax position to be recognized in the financial
statements. It also provides accounting guidance on recognition, classification and disclosure of these uncertain tax positions.
The Company has no uncertain income tax positions.
The Tax Cut and Jobs Act (the “Tax
Act”) was enacted on December 22, 2017. The Tax Act contains several key provisions including, among other things, reducing
the U.S. federal corporate tax rate from thirty-five percent to twenty-one percent. Since the Company has a net deferred tax asset
which has been fully reserved with a valuation allowance, the change in the enacted rate did not have an impact on the Company’s
net deferred tax assets. Changes in tax law are accounted for in the period of enactment. In addition, Federal net operating losses
(“NOL”) generated during future periods will be carried forward indefinitely, but will be subject to an eighty percent
utilization against taxable income. The carryback provision has been revoked for NOL after January 1, 2018.
Interest costs and penalties related to
income taxes are classified as interest expense and operating expenses, respectively, in the Company's financial statements. For
the three months ended March 31, 2018 and 2017, the Company did not recognize any interest or penalty expense related to income
taxes. The Company files income tax returns in the U.S. federal jurisdiction and states in which it does business.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2018
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS
In March 2018, the FASB issued a new accounting
standard to incorporate Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 118 (“SAB 118”),
which addresses the accounting implications of the major tax reform legislation, the Tax Act, enacted on December 22, 2017. SAB
118 allows a company to record provisional amounts during a measurement period not to extend beyond one year of the enactment date
and was effective upon issuance. We continue to analyze the Tax Act, and in certain areas, have made reasonable estimates of the
effects on our condensed consolidated financial statements and tax disclosures. See Note 5, Income taxes, in the accompanying condensed
financial statements.
In May 2017, the FASB issued ASU No. 2017-09,
Compensation – Stock Compensation (Topic 718). The amendments in this Update provide guidance about which changes to the
terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This update
is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15,
2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods
for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements
have not yet been made available for issuance. The amendments in this update should be applied prospectively to an award modified
on or after the adoption date. The adoption of ASU 2017-09, effective January 1, 2018, did not have a significant impact on its
consolidated financial statements.
In February 2016, the FASB issued ASU No.
2016-02, Leases (Topic 842) (“ASU 2016-02”), which requires lessees to recognize on the balance sheet the assets and
liabilities for the rights and obligations created by leases with lease terms of more than 12 months. The recognition, measurement,
and presentation of expenses and cash flows arising from a lease by a lessee will continue to primarily depend on its classification
as a finance or operating lease. However, unlike U.S. GAAP, which requires only capital leases to be recognized on the balance
sheet, ASU 2016-02 will require both types of leases to be recognized on the balance sheet. ASU 2016-02 also requires disclosures
about the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative
requirements, providing additional information about the amounts recorded in the financial statements. ASU 2016-02 is effective
beginning January 1, 2019, with early application permitted. We have evaluated the adoption of ASU 2016-12 and determined that
the standard will not have a significant impact on the Company’s consolidated financial statements.
NOTE 4 – INVENTORIES, NET
Inventories, net at March 31, 2018 and
December 31, 2017 consisted of the following:
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
Raw materials
|
|
$
|
1,871
|
|
|
$
|
2,223
|
|
Work in process
|
|
|
61
|
|
|
|
64
|
|
Finished goods
|
|
|
208
|
|
|
|
203
|
|
|
|
|
2,140
|
|
|
|
2,490
|
|
Less: inventory reserves
|
|
|
(358
|
)
|
|
|
(711
|
)
|
Inventories, net
|
|
$
|
1,782
|
|
|
$
|
1,779
|
|
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2017
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
NOTE 5 – FIXED ASSETS
Fixed assets at March 31, 2018 and December
31, 2017 consisted of the following:
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
Furniture, fixtures and equipment
|
|
$
|
116
|
|
|
$
|
116
|
|
Computers and software
|
|
|
68
|
|
|
|
68
|
|
Leasehold improvements
|
|
|
239
|
|
|
|
239
|
|
Other
|
|
|
7
|
|
|
|
7
|
|
Total fixed assets
|
|
|
430
|
|
|
|
430
|
|
Less: accumulated depreciation
|
|
|
(257
|
)
|
|
|
(246
|
)
|
Net book value of fixed assets
|
|
$
|
173
|
|
|
$
|
184
|
|
Depreciation expense was $11 and $13 for
the three months ended March 31, 2018 and 2017, respectively. Repairs and maintenance costs are expensed as incurred.
NOTE 6 – PREPAID EXPENSES AND
OTHER CURRENT ASSETS
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 March 31, 2018 and December 31, 2017 consisted of the following:
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
Prepaid insurance
|
|
$
|
52
|
|
|
$
|
88
|
|
Prepaid consulting
|
|
|
-
|
|
|
|
10
|
|
Other
|
|
|
109
|
|
|
|
65
|
|
Total prepaid expenses and other current assets
|
|
$
|
161
|
|
|
$
|
163
|
|
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2018
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
NOTE 7 – ACCRUED EXPENSES AND
OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities
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 March 31, 2018 and December 31,
2017 consisted of the following:
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
Audit fees
|
|
$
|
73
|
|
|
$
|
82
|
|
Legal fees
|
|
|
18
|
|
|
|
71
|
|
Deferred rent
|
|
|
15
|
|
|
|
19
|
|
Payroll
|
|
|
17
|
|
|
|
17
|
|
Insurance financing
|
|
|
38
|
|
|
|
66
|
|
Research
|
|
|
102
|
|
|
|
-
|
|
Total accrued expenses
|
|
$
|
263
|
|
|
$
|
255
|
|
Note
8 – Stockholders’ Equity
Changes in stockholders’ equity for
the three months ended March 31, 2018 were as follows:
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
paid-in
|
|
|
Accumulated
|
|
|
stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
deficit
|
|
|
equity
|
|
Balance at December 31, 2017
|
|
|
6,340,604
|
|
|
$
|
6
|
|
|
$
|
36,202
|
|
|
$
|
(31,844
|
)
|
|
$
|
4,364
|
|
Net proceeds from sale of common stock
|
|
|
140,295
|
|
|
|
1
|
|
|
|
289
|
|
|
|
-
|
|
|
|
290
|
|
Stock-based compensation expense
|
|
|
55,147
|
|
|
|
-
|
|
|
|
123
|
|
|
|
-
|
|
|
|
123
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,213
|
)
|
|
|
(1,213
|
)
|
Balance at March 31, 2018
|
|
|
6,536,046
|
|
|
$
|
7
|
|
|
$
|
36,614
|
|
|
$
|
(33,057
|
)
|
|
$
|
3,564
|
|
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. The
Rights were granted to the stockholders of record at the close of business on February 24, 2017. Each Right entitles the registered
holder, upon the occurrence of certain events specified in the Rights Agreement, to purchase from the Company one one-thousandth
of a share of the Company’s Series A Preferred Stock at a price of $7.00, subject to certain adjustments.
The Rights are not exercisable until the
occurrence of certain events, including a person acquiring or obtaining the right to acquire beneficial ownership of 10% or more
of the Company’s outstanding common stock. The Rights are evidenced by certificates for the common stock and automatically
transfer with the common stock unless they become exercisable. If the Rights become exercisable, separate certificates evidencing
the Rights will be distributed to each holder of common stock. Holders of the preferred stock will be entitled to certain dividend,
liquidation and voting rights. The rights are redeemable by us at a fixed price as determined by the Board, after certain defined
events.
As of March 31, 2018 the Rights have no
dilutive effect on the earnings per common share calculation and no shares of preferred stock have been issued. The Company has
determined that these rights have a de minimis fair value. The description and terms of the Rights are set forth in the Rights
Agreement dated as of February 14, 2017 between the Company and Island Stock Transfer, as Rights Agent.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2018
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
Issuance of Common Stock
The Company has periodically issued common
stock in connection with certain private and public offerings. For the three months ended March 31, 2018 and March 31, 2017 the
Company has received aggregate gross proceeds of $296 and $2,125 from these offerings:
|
|
|
|
|
Gross
|
|
Date
|
|
Shares
|
|
|
Proceeds
|
|
January 19, 2018
|
|
|
140,295
|
(1)
|
|
$
|
296
|
|
February 8, 2017
|
|
|
500,000
|
(2)
|
|
|
2,125
|
|
(1)
|
Shares of common stock sold for $2.111 per share in an at-the-market offering.
|
(2)
|
Shares issued pursuant to a registered direct offering with an institutional investor.
|
Note
9 – Warrants
The following table summarizes information
about outstanding and exercisable warrants at March 31, 2018:
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Underlying
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Warrants
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Exchanged,
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
Exercised
|
|
|
Outstanding
|
|
|
|
|
|
Expiration
|
|
|
|
|
Originally
|
|
|
or
|
|
|
and
|
|
|
Exercise
|
|
|
Term
|
Description
|
|
Grant Date
|
|
Granted
|
|
|
Expired
|
|
|
Exercisable
|
|
|
Price
|
|
|
in years
|
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
|
Repricing Series C
(2)
|
|
November 19, 2014
|
|
|
|
|
|
|
142,957
|
|
|
|
142,957
|
|
|
$
|
9.00
|
|
|
3.38
|
Repricing Series E
(2)
|
|
November 19, 2014
|
|
|
|
|
|
|
142,957
|
|
|
|
142,957
|
|
|
$
|
9.00
|
|
|
5.38
|
Rens
(3)
|
|
March 3, 2016
|
|
|
375,000
|
|
|
|
-
|
|
|
|
375,000
|
|
|
$
|
7.00
|
|
|
2.31
|
|
|
|
|
|
678,245
|
|
|
|
142,957
|
|
|
|
821,202
|
|
|
|
|
|
|
|
(1)
|
Issued in connection with the January 27, 2014 private placement transaction.
|
(2)
|
Issued in connection with the November 19, 2014 registered-direct public offering, and subsequently revised pursuant to Warrant Exercise Agreements entered into on May 18, 2015.
|
(3)
|
Shares issued pursuant to the closing of the first tranche of the financing with RENS Technology Inc.
|
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2018
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
The following table summarizes the activities
in warrants for the three months ended March 31, 2018:
|
|
Shares Underlying Warrants
|
|
|
Average
Exercise
Price
|
|
Balance at December 31, 2017
|
|
|
821,202
|
|
|
$
|
15.02
|
|
Warrants expired
|
|
|
-
|
|
|
|
|
|
Balance at March 31, 2018
|
|
|
821,202
|
|
|
$
|
15.02
|
|
NOTE 10 – STOCK COMPENSATION
Equity Incentive Plan
In November 2016, 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, which was approved by the Company’s shareholders in December 2016. The Plan provides for grants of stock options,
stock appreciation rights, restricted stock, other stock-based awards and other cash-based awards. As of March 31, 2018, the remaining
shares of common stock available for future issuances of awards was 231,260. The Company granted an aggregate of 30,000 options
to purchase restricted common stock to certain directors prior to the adoption of the Plan. Stock options generally vest and become
exercisable with respect to 100% of the common stock subject to such stock option on the third (3rd) anniversary of the date of
grant. Any unvested portion of a stock option shall expire upon termination of employment or service of the participant granted
the stock option, and the vested portion shall remain exercisable in accordance with the provisions of the Plan.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2018
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
Stock Options
The following table summarizes stock option
activity for the three months ended March 31, 2018:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
Shares
|
|
|
Average
|
|
|
Remaining
|
|
|
|
Under
|
|
|
Exercise
|
|
|
Contractual
|
|
|
|
Options
|
|
|
Price
|
|
|
Term (Years)
|
|
Balance at December 31, 2017
|
|
|
561,740
|
|
|
$
|
7.32
|
|
|
|
5.61
|
|
Options granted
|
|
|
57,000
|
|
|
|
4.00
|
|
|
|
9.75
|
|
Balance at March 31, 2018
|
|
|
618,740
|
|
|
$
|
6.65
|
|
|
|
7.29
|
|
At March 31, 2018 and December 31, 2017,
the exercisable options had no intrinsic value.
As of March 31, 2018, 562,321 options have
vested and 56,419 options remain unvested. The vesting terms range from zero to 9.8 years and the vested options have a weighted
average remaining term of 6.65 years and a weighted average exercise price of $15.87 per share.
Restricted Stock
The following table summarizes unvested
restricted stock awards activity for the three months ended March 31, 2018:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Share Price
|
|
Restricted stock awards unvested at December 31, 2017
|
|
|
1,250
|
|
|
$
|
2.74
|
|
Granted
|
|
|
55,147
|
|
|
|
1.36
|
|
Vested
|
|
|
(55,147
|
)
|
|
|
1.36
|
|
Restricted stock awards unvested at March 31, 2018
|
|
|
-
|
|
|
|
|
|
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2018
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
Stock-Based Compensation:
Stock-based compensation was $123 and $41
for the three months ended March 31, 2018 and 2017, 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 March 31, 2018 was $145, which will be recognized through January 2022.
Note
11 – Commitments and Contingencies
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 (approximately $13) 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
agreement expires on December 31, 2018, and the Company has the unilateral right to renew the agreement for subsequent one-year
terms. At March 31, 2018, the future minimum payments under the supply agreement was $117.
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 March 31, 2018, the future minimum lease payments
under the non-cancellable operating lease in excess of one year is as follows:
|
|
|
|
Years Ended December 31,
|
|
Amount
|
|
2018 (remaining nine months)
|
|
$
|
54
|
|
2019
|
|
|
72
|
|
Total
|
|
$
|
126
|
|
Rent expense including common area maintenance
charges and taxes for the three months ended March 31, 2018 and 2017 was $19 and $21, respectively.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2018
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
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 $8 and $5 for the three months ended
March 31, 2018 and 2017, respectively.
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 product liability insurance of $5 million per-occurrence
and a $10 million annual aggregate coverage. At March 31, 2018 and December 31, 2017, the Company had not recorded any accruals
for product liability claims.
Note
12 – Related Party Transactions
The following is a description of the transactions
we have engaged in with our directors, director nominees and officers and beneficial owners of more than five percent of our voting
securities and their affiliates:
In October 2016,
the Company received a purchase order from RENS Agriculture, an affiliate of Rens Technology Inc., and Ren Ren, one of the Company’s
directors, to purchase $116 of our product. The Company received a 50% deposit in November 2016 in order to manufacture the product.
The goods were shipped in January 2017 and received in China in March 2017. The Company has not received payment for the order
to date. As a result of the ongoing litigation (see Note 13), the Company recorded an allowance for bad debt of $59 related to
the receivable due from RENS Agriculture.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2018
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
Note
13 – legal PROCEEDINGS
On October 27, 2016, Cutler Holdings, L.L.C.
(“Cutler”) filed a complaint in the Superior Court of New Jersey alleging that the Company failed to make certain rental
payments. On March 30, 2017, the Company entered into a settlement agreement with Cutler, pursuant to which Cutler released the
Company from any liability for the claims asserted in the complaint.
On January 6,
2017, in connection with the financing contemplated by a securities purchase agreement with RENS Technology Inc. (the “Purchaser”),
we commenced an action in the Supreme Court of New York, County of New York (the “Court”), against the Purchaser, RENS
Agriculture, the parent company of the Purchaser, and Ren Ren, a principal in both entities and one of our directors, arising from
the Purchaser’s breach of the agreement under which the Purchaser agreed to invest an aggregate of $20.25 million in our
company in exchange for an aggregate of 3,537,037 shares of our common stock and warrants to purchase an aggregate of 884,259 shares
of common stock.
On April 11, 2017, the Court noted that
we had demonstrated a likelihood of success on the merits of the breach of contract claim. Thereafter, a hearing was scheduled
on the application by the Purchaser to dismiss the complaint and various pre-trial discovery applications by both parties.
In August 2017, before the hearing occurred,
the Company amended its complaint repeating most of the initial claims but adding several additional claims against RENS Agriculture,
Mr. Ren and two additional Chinese defendants, including a claim against RENS Agriculture for breaching the exclusive distribution
agreement, as well as claims against all defendants for theft and misappropriation of our confidential proprietary information
and trade secrets, breach of fiduciary duty and duty of loyalty, misappropriation of corporate opportunity, unfair competition
and a number of other torts. We are seeking damages and injunctive relief. The Purchaser has filed a motion to dismiss the amended
complaint, which is still pending and scheduled for oral argument in June 2018.
On August 16,
2017, the Purchaser commenced an action in the District Court of Clark County in the State of Nevada against us and Joseph Mannello,
our then interim Chief Executive Officer, alleging that Mr. Mannello had breached his fiduciary duties and was grossly negligent
in managing our company. The action seeks monetary damages and injunctive relief from Mr. Mannello as well as the appointment of
a receiver over us. Subsequently, the Purchaser submitted a petition to appoint a receiver and we and Mr. Mannello submitted a
motion to dismiss the action, both of which are currently pending and are due to be heard in June 2018. An application on consent
to adjourn the hearing date on the receiver application and motion to dismiss is pending.
The parties are
currently in settlement discussions regarding the foregoing matters.
The outcome of
the aforementioned matters cannot be determined as of the date of these financial statements.
Note
15 – Subsequent Events
At-the-Market Offering
In April 2018 the Company sold an aggregate
of 131,225 shares of common stock for aggregate gross proceeds of $159 in an at-the-market transaction pursuant to the sales agreement
with H.C. Wainwright & Co., LLC.
On April 27, 2018, the Company consummated
a private placement of shares of Common Stock pursuant to the terms of a securities purchase agreement dated as of April 25, 2018
at a purchase price of $1.24 per share, the closing price of the Common Stock on the Nasdaq Capital Market on such date. In the
private placement, the Company issued 806,452 shares of Common Stock to a group of accredited investors, including two members
of the Company’s board of directors, for aggregate gross proceeds of $1.0 million. The Company intends to use the net proceeds
from the Private Placement primarily for working capital, research and development, strategic initiatives and other general corporate
purposes.
In May 2018, the Company entered into a research agreement with Weill Cornell Medical College to study the efficacy of
Fortetropin® in preventing weight and muscle loss associated with cancer in a mouse model of lung cancer. Under the terms
of the agreement, the Company has quarterly payments to be paid through the first quarter of 2019. It is not expected that these
payments will have a material impact on the results and operations of the Company.