NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 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 September 30, 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 a bionutrition
company focused on the discovery, development and commercialization of products that improve muscle health and performance. The
Company was incorporated under the laws of the State of Nevada on April 11, 2007. On March 17, 2016, the Company merged with its
wholly-owned subsidiary and changed its name from MYOS Corporation to MYOS RENS Technology Inc. As used in these financial statements,
the terms “the Company”, “MYOS”, “our”, or “we”, refers to MYOS RENS Technology
Inc. and its subsidiary, unless the context indicates otherwise.
We continue to pursue additional distribution
and branded sales opportunities. We expect to continue developing our own core branded products in markets such as functional foods,
sports and fitness nutrition and rehabilitation and restorative health and to pursue international sales opportunities. There can
be no assurance that we will be able to secure distribution arrangements on terms acceptable to the Company, or that we will be
able to generate significant sales of our current and future branded products.
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.
On January 6, 2017, 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 Purchase Agreement. See NOTE 14-LEGAL PROCEEDINGS.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 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 $3,158 for the nine
months ended September 30, 2018 and $4,058 for the year ended December 31, 2017.
As of September 30, 2018 the Company had
cash of $459 and working capital of $1,155 (current assets of $2,313 less current liabilities of $1,158). For the nine months ended
September 30, 2018 and 2017, our net loss was $3,158 and $2,976, respectively. For the nine months ended September 30, 2018 and
2017, net cash used in operating activities was $2,550 and $3,200 respectively.
The Company has historically recorded minimal
sales during the past seventeen consecutive quarters. In June 2018, the Company launched a Fortetropin
®
based pet
product called Myos Canine Muscle Formula. In April 2018, the Company launched Yolked
TM
, a new sports nutrition product
line. In March 2017, the Company launched Qurr, a Fortetropin
®
powered product line to support the vital role of
muscle in overall well-being.
As of the filing date of this 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. 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 accompanying
condensed consolidated 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 were originally recorded as a long term other asset on the Company’s condensed
consolidated balance sheets. Since this sales agreement expired by June 30, 2018 the remaining deferred offering costs of $96 were
recognized as legal expenses recorded within the accompanying condensed consolidated statements of operations as general and administrative
expenses in the nine months ended September 30, 2018.
On January 19, 2018, the Company sold 140,295
shares of common stock for $2.111 per share for gross proceeds of $296 in an at-the-market offering. On various dates in April
2018, the Company sold an aggregate of 131,225 shares of common stock at various prices for aggregate gross proceeds of $176 under
the Company’s existing at-the-market program. As of the filing date of this Form 10-Q, a total of 771,520 shares were sold
under this program for aggregate gross proceeds of $1,544.
On July 24, 2018, the Company entered into
a new sales agreement with H.C. Wainwright which established a new at-the-market equity program pursuant to which the Company may
offer and sell shares of common stock from time to time through H.C. Wainwright. The Company incurred $108 of deferred offering
costs in connection with this program as of September 30, 2018 which was recorded as a long term other asset on the Company’s
condensed consolidated balance sheets. The deferred offering costs will be reflected as a reduction in equity as the Company incurs
sales of its stock pursuant to this program. Management continues to evaluate the ongoing progress of this program and its related
outstanding deferred offering costs.
Private Placement
On April 25, 2018, the Company entered
into a securities purchase agreement with private investors providing for the issuance and sale by the Company of 806,452 shares
of common stock, in a private placement offering at a purchase price of $1.24 per share, for gross proceeds of $1,000 and net proceeds
of $978.
Promissory Note Payable
On August 30, 2018, the Company executed
an unsecured promissory note (the “Note”) in the principal amount of up to $750 in favor of Joseph Mannello, the Company’s
chief executive officer (the “Lender”). Pursuant to the Note, on August 30, 2018, the Lender advanced $500 of funds
to the Company. On September 27, 2018, the Lender advanced an additional $250 of funds to the Company. The Note accrues interest
at a rate of 5% per annum and all payments of principal, interest and other amounts under the Note are payable on August 31, 2019
or earlier under certain circumstances. The Company may prepay, in whole or in part, at any time, the principal, interest and
other amounts owing under the Note, without penalty. The proceeds of the Note will be used by the Company for general working
capital purposes. As of September 30, 2018, the Company accrued $2 of interest expense on the Note. On November 13, 2018, the
Company amended and restated the Note to increase the maximum amount that may be drawn down under the Note from $750 to $1,000.
The Company expects to draw down an additional $250 under the Note in November 2018.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 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 consolidated 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.
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. Management believes that we have the ability to sell raw materials to a third party in the event the Company does not obtain the requisite amount of revenue.
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 September 30,
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
September 30, 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. For the three months and
nine months ended September 30, 2018 a $25 reserve was recorded for expiring product within cost of sales on the condensed consolidated
statements of operations.
Deferred Offering Costs
The Company defers as other assets the direct incremental costs of raising capital until such time as
the offering is completed. At the time of the completion of the offering, the costs are charged against the capital raised. Should
the offering not be completed, deferred offering costs are charged to operations during the period in accordance with SEC guidance.
Since the February 21, 2017 sales agreement expired by June 30, 2018 the remaining deferred offering costs of $96 on the Company’s
condensed consolidated balance sheets were recognized and recorded within the Company’s condensed consolidated statements
of operations as general and administrative expenses for the nine months ended September 30, 2018.
On July 24, 2018, the Company entered into
a new sales agreement, incurring $108 of deferred offering costs as of September 30, 2018 which was recorded as a long term other
asset on the accompanying condensed consolidated balance sheet.
Fair Value of Long-Lived Assets
We test long-lived assets, including fixed assets and intangibles with finite lives, for recoverability
when events or changes in circumstances indicate that the net carrying amount is greater than its fair value. Assets are grouped
and evaluated at the lowest level for their identifiable cash flows that are largely independent of the cash flows of other groups
of assets. We consider historical performance and future estimated results in our evaluation of potential impairment and then compare
the carrying amount of the asset to the future estimated cash flows expected to result from the use of the asset. If the carrying
amount of the asset exceeds estimated expected undiscounted future cash flows, we measure the amount of impairment by comparing
the carrying amount of the asset to its fair value. The estimation of fair value is generally measured by discounting expected
future cash flows at the rate we utilize to evaluate potential investments. We estimate fair value based on the information available
in making the necessary estimates, judgments and projections.
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 condensed consolidated statements of operations.
Depreciation is provided using the straight-line
method for all fixed assets. Repairs and maintenance costs are expensed as incurred.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2018
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
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. 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 manufacturing 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.
Our policy is to evaluate intangible assets subject to amortization for possible impairment whenever events
or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Impairment testing of intangible
assets subject to amortization involves comparing the carrying amount of the asset to the forecasted undiscounted future cash flows.
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.
There were no impairment charges for the
nine months ended September 30, 2018 and the year ended December 31, 2017. Intangible assets at September 30, 2018 and December
31, 2017 consisted of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Intangibles with finite lives:
|
|
|
|
|
|
|
Intellectual property
|
|
$
|
2,101
|
|
|
$
|
2,101
|
|
Website - qurr.com
|
|
|
380
|
|
|
|
380
|
|
Less: accumulated amortization – intellectual property
|
|
|
(942
|
)
|
|
|
(784
|
)
|
Less: accumulated amortization - website
|
|
|
(114
|
)
|
|
|
(57
|
)
|
Total intangible assets, net
|
|
$
|
1,425
|
|
|
$
|
1,640
|
|
Assuming no additions, disposals or adjustments
are made to the carrying values and/or useful lives of the intangible assets, amortization expense for intangible assets is estimated
to be as follows:
Years Ended December 31,
|
|
Amount
|
|
2018 (remaining three months)
|
|
$
|
72
|
|
2019
|
|
|
286
|
|
2020
|
|
|
286
|
|
2021
|
|
|
286
|
|
2022
|
|
|
229
|
|
2023
|
|
|
210
|
|
2024
|
|
|
56
|
|
Total
|
|
$
|
1,425
|
|
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2018
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
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 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 to customer payments made in advance of the customer obtaining control of the product, as well as liabilities associated
with sales incentives. At September 30, 2018 and December 31, 2017, the Company had no contract liability balances.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2018
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
Disaggregation of Revenue
Our net revenues by product type are presented
below for the three months ended September 30, 2018 and 2017.
|
|
Three-month Period
|
|
Product Type
|
|
September 30,
2018
|
|
|
September 30,
2017
|
|
QURR (1)
|
|
$
|
40
|
|
|
$
|
51
|
|
YOLKED (2)
|
|
|
13
|
|
|
|
-
|
|
Myos Canine Muscle Formula (3)
|
|
|
8
|
|
|
|
-
|
|
Physician Muscle Health Formula (4)
|
|
|
5
|
|
|
|
7
|
|
Cenegenics (5)
|
|
|
-
|
|
|
|
100
|
|
Rē Muscle Health (6)
|
|
|
-
|
|
|
|
2
|
|
Total Net Revenues
|
|
$
|
66
|
|
|
$
|
160
|
|
Our net revenues by product type are presented
below for the nine months ended September 30, 2018 and 2017.
|
|
Nine-month Period
|
|
Product Type
|
|
September 30,
2018
|
|
|
September 30,
2017
|
|
QURR (1)
|
|
$
|
156
|
|
|
$
|
123
|
|
YOLKED (2)
|
|
|
28
|
|
|
|
-
|
|
Myos Canine Muscle Formula (3)
|
|
|
8
|
|
|
|
-
|
|
Physician Muscle Health Formula (4)
|
|
|
19
|
|
|
|
10
|
|
Cenegenics (5)
|
|
|
-
|
|
|
|
100
|
|
Egg Yolk Powder (6)
|
|
|
-
|
|
|
|
116
|
|
Rē Muscle Health (6)
|
|
|
-
|
|
|
|
20
|
|
Total Net Revenues
|
|
$
|
211
|
|
|
$
|
369
|
|
(1)
|
QURR product was
launched in April 2017
|
(2)
|
YOLKED product was
launched in April 2018
|
(3)
|
Myos Canine Muscle Formula was launched in June 2018
|
(4)
|
Physician’s Muscle Health Formula was launched in June 2016
|
(5)
|
Cenegenics is a private label fortetropin based product
we produce as ordered
|
(6)
|
Egg Yolk Powder and Rē Muscle Health products were
no longer available after 2017
|
Advertising
The Company charges advertising expenses
to selling, marketing and research as incurred. Advertising expenses were $15 and $83 for the three months ended September 30,
2018 and 2017, respectively, and $269 and $395 for the nine months ended September 30, 2018 and 2017, respectively.
Research and Development
Research and development expenses consist
primarily of 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.
Research and development expenses were
$62 and $1 for the three months ended September 30, 2018 and 2017, respectively, and $353 and $42 for the nine months ended September
30, 2018 and 2017, respectively.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2018
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
Shipping and Handling
The Company records expenses for shipping
and handling of products to our customers as cost of sales. These expenses were $11 and $9 for the three months ended September
30, 2018 and 2017, respectively, and $35 and $28 for the nine months ended September 30, 2018 and 2017, respectively.
Stock-based Compensation
Stock-based payments are measured at their
estimated fair value on the date of grant. 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 we recognize
compensation cost on the unvested shares and options on a straight-line basis over the remaining vesting period. These expenses
are included as personnel and benefits within the condensed consolidated statements of operations. Stock-based compensation expenses
were $30 and $40 for the three months ended September 30, 2018 and 2017, respectively, and $195 and $121 for the nine months ended
September 30, 2018 and 2017, respectively.
The Company uses the Black-Scholes
option-pricing model to estimate the fair value of stock options and the market price of our common stock on the date of
grant for the fair value of restricted stock issued. Our determination of the fair value of stock-based awards is affected by
our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables
include, but are not limited to, our expected stock price volatility over the term of the awards, and certain other market
variables such as the risk-free interest rate.
Segment Information
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 September 30, 2018 and December 31, 2017 the Company’s financial instruments consisted primarily of cash, 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.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2018
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
Basic and Diluted Loss Per Share
Basic net loss per share is computed by
dividing net loss available to common stockholders for the period by the weighted average number of common shares outstanding during
the period. Diluted net loss per share is computed by dividing net loss for the period by the weighted average number of common
shares outstanding during the period increased to include the number of additional shares of common stock that would have been
outstanding if potential dilutive securities outstanding had been issued. The Company uses the “treasury stock” method
to determine the dilutive effect of common stock equivalents such as options, warrants and restricted stock. For the nine months
ended September 30, 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 September 30, 2018 excluded from the diluted net loss per
share computation because their inclusion would be anti-dilutive were 1,429,942, which includes warrants to purchase an aggregate
of 821,202 shares of common stock and options to purchase an aggregate of 608,740 shares of common stock.
The aggregate number of potentially dilutive common stock equivalents outstanding at September 30, 2017
excluded from the diluted net loss per share computation because their inclusion would be anti-dilutive were 1,384,219, which
includes outstanding and exercisable warrants to purchase an aggregate of 821,202 shares of common stock, and vested stock options
to purchase an aggregate of 253,310 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 significant 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 incurred 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 nine months ended September 30, 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
September 30, 2018
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) – Disclosure
Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The new guidance improves and clarifies the
fair value measurement disclosure requirement of ASC 820. The new disclosure requirements include the changes in unrealized gains
or losses included in other comprehensive income for recurring Level 3 fair value measurement held at the end of reporting period
and the explicit requirement to disclose the range and weighted average used to develop significant unobservable inputs for Level
3 fair value measurements. The other provisions of ASU 2018-13 also include eliminated and modified disclosure requirements. The
guidance is effective for fiscal years beginning after December 15, 2019 with early adoption permitted, including in an interim
period for which financial statements have not been issued or made available for issuance. The Company has evaluated the impact
of early adoption of this ASU and determined that it will not have a significant impact on its condensed consolidated financial
statements.
In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements
to Nonemployee Share-Based Payment Accounting. The new guidance expands the scope of Topic 718 to include share-based payments
granted to nonemployees in exchange for goods or services used or consumed in an entity’s own operations, and supersedes
the guidance in ASC 505-50, Equity-Based Payments to Non-Employees. The most significant change resulting from this update is that
stock-based awards granted to non-employees will no longer need to be re-measured at fair value at each financial reporting date
until performance is complete, as these awards will be measured at fair value at the grant date. The guidance is effective January
1, 2019 with early adoption permitted, including in an interim period for which financial statements have not been issued. The
Company has evaluated the impact of early adoption of this ASU and determined that it will not have a significant impact on
its condensed consolidated financial statements.
In March 2018, the FASB issued ASU 2018-5
– Income Taxes (Topic 740): Amendments to SEC Paragraphs pursuant to SEC Staff Accounting Bulletin No. 118. This ASU provided
guidance related to Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 118 (“SAB 118”),
which addresses the accounting implications of the Tax Act. SAB 118 allows a company to record provisional amounts during a measurement
period not to extend beyond one year of the enactment date and was effective upon issuance. We have analyzed the Tax Act, and in
certain areas, have made reasonable estimates of the effects on our condensed consolidated financial statements and tax disclosures.
In February 2016, the FASB issued ASU No.
2016-02, Leases (Topic 842) (“ASU 2016-02”), which requires lessees to recognize on the balance sheet the assets and
liabilities for the rights and obligations created by leases with lease terms of more than 12 months. The recognition, measurement,
and presentation of expenses and cash flows arising from a lease by a lessee will continue to primarily depend on its classification
as a finance or operating lease. However, unlike current U.S. GAAP, which requires only capital leases to be recognized on the
balance sheet, ASU 2016-02 will require both types of leases to be recognized on the balance sheet. ASU 2016-02 also requires disclosures
about the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative
requirements, providing additional information about the amounts recorded in the financial statements. ASU 2016-02 is effective
beginning January 1, 2019, with early application permitted. In July 2018, the FASB issued ASU No. 2018-11, which provides targeted
improvements to the new lease standard, including an option to apply the transition provisions at its adoption date instead of
at the earliest comparative period presented in its financial statements. We have evaluated the adoption of ASU 2016-02 and determined
that the standard will not have a significant impact on the Company’s condensed consolidated financial statements.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2018
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
NOTE 4 – INVENTORIES, NET
Inventories, net at September 30, 2018
and December 31, 2017 consisted of the following:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
Raw materials
|
|
$
|
1,809
|
|
|
$
|
2,223
|
|
Work in process
|
|
|
61
|
|
|
|
64
|
|
Finished goods
|
|
|
261
|
|
|
|
203
|
|
|
|
|
2,131
|
|
|
|
2,490
|
|
Less: inventory reserves
|
|
|
(390
|
)
|
|
|
(711
|
)
|
Inventories, net
|
|
$
|
1,741
|
|
|
$
|
1,779
|
|
NOTE 5 – FIXED ASSETS
Fixed assets at September 30, 2018 and
December 31, 2017 consisted of the following:
|
|
September 30,
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
|
|
|
(273
|
)
|
|
|
(246
|
)
|
Net book value of fixed assets
|
|
$
|
157
|
|
|
$
|
184
|
|
Depreciation expense was $28 and $39 for
the nine months ended September 30, 2018 and 2017, respectively.
NOTE 6 – 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 September 30, 2018 and December 31, 2017 consisted of the following:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
Prepaid insurance
|
|
$
|
19
|
|
|
$
|
88
|
|
Prepaid consulting
|
|
|
12
|
|
|
|
10
|
|
Prepaid legal
|
|
|
50
|
|
|
|
50
|
|
Prepaid other
|
|
|
27
|
|
|
|
15
|
|
Total prepaid expenses and other current assets
|
|
$
|
108
|
|
|
$
|
163
|
|
MYOS RENS TECHNOLOGY
INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 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 September 30, 2018 and December
31, 2017 consisted of the following:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
Professional fees
|
|
$
|
71
|
|
|
$
|
153
|
|
Deferred rent
|
|
|
12
|
|
|
|
19
|
|
Payroll
|
|
|
21
|
|
|
|
17
|
|
Insurance financing and other
|
|
|
11
|
|
|
|
66
|
|
Research
|
|
|
122
|
|
|
|
-
|
|
Total accrued expenses and other current liabilities
|
|
$
|
237
|
|
|
$
|
255
|
|
NOTE 8 - PROMISSORY NOTE PAYABLE
On August 30, 2018, the Company executed an
unsecured promissory note (the “Note”) in the principal amount of $750 in favor of Joseph Mannello, the Company’s
chief executive officer (the “Lender”). Pursuant to the Note, on August 30, 2018, the Lender advanced $500 of funds
to the Company. On September 26, 2018, the Lender advanced an additional $250 of funds to the Company. The Note accrues interest
at a rate of 5% per annum and all payments of principal, interest and other amounts under the Note are payable on August 31, 2019
or earlier under certain circumstances. The Company may prepay, in whole or in part, at any time, the principal, interest and
other amounts owing under the Note, without penalty. The proceeds of the Note will be used by the Company for general working
capital purposes. As of September 30, 2018 the Company accrued $2 of interest expense on the Note. On November 13, 2018, the Company
amended and restated the Note to increase the maximum amount that may be drawn down under the Note from $750 to $1,000. The Company
expects to draw down an additional $250 under the Note in November 2018.
Note
9 – Stockholders’ Equity
Changes in stockholders’ equity for
the nine months ended September 30, 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
|
|
|
271,520
|
|
|
|
-
|
|
|
|
466
|
|
|
|
-
|
|
|
|
466
|
|
Net proceeds from private sale of stock
|
|
|
806,452
|
|
|
|
1
|
|
|
|
977
|
|
|
|
|
|
|
|
978
|
|
Stock-based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
140
|
|
|
|
-
|
|
|
|
140
|
|
Issuance of restricted stock options
|
|
|
55,147
|
|
|
|
-
|
|
|
|
55
|
|
|
|
|
|
|
|
55
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,158
|
)
|
|
|
(3,158
|
)
|
Balance at September 30, 2018
|
|
|
7,473,723
|
|
|
$
|
7
|
|
|
$
|
37,840
|
|
|
$
|
(35,002
|
)
|
|
$
|
2,845
|
|
Preferred Stock Purchase Rights
Effective February 14, 2017, the Board
of Directors declared a dividend of one right (“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 September 30, 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
September 30, 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 nine months ended September 30, 2018 and 2017 the Company
has received aggregate gross proceeds of $1,472 and $2,125 from these offerings:
|
|
|
|
|
Gross
|
|
Date
|
|
Shares
|
|
|
Proceeds
|
|
April 29, 2018
|
|
|
806,452
|
(1)
|
|
$
|
1,000
|
|
April 4 – April 23, 2018
|
|
|
131,225
|
(2)
|
|
|
176
|
|
January 19, 2018
|
|
|
140,295
|
(3)
|
|
|
296
|
|
February 8, 2017
|
|
|
500,000
|
(4)
|
|
|
2,125
|
|
(1)
|
Shares issued pursuant to a private placement with accredited investors for $1.24 per share.
|
(2)
|
Shares of common stock sold for between $1.25 and $1.38 per share in an at-the-market offering.
|
(3)
|
Shares of common stock sold for $2.111 per share in an at-the-market offering.
|
(4)
|
Shares issued pursuant to a registered direct offering with an institutional investor for $4.25 per share.
|
In addition, the Company issued 55,147 shares of restricted common stock under its equity incentive plan
(see Note 11)
Note
10 – Warrants
The following table summarizes information
about outstanding and exercisable warrants at September 30, 2018:
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Underlying
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Warrants
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Exchanged,
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
Exercised
|
|
|
Outstanding
|
|
|
|
|
|
Expiration
|
|
|
|
|
|
Originally
|
|
|
or
|
|
|
and
|
|
|
Exercise
|
|
|
Term
|
|
Description
|
|
Grant Date
|
|
Granted
|
|
|
or Expired
|
|
|
Exercisable
|
|
|
Price
|
|
|
in years
|
|
Series B
(1)
|
|
January 27, 2014
|
|
|
157,846
|
|
|
|
-
|
|
|
|
157,846
|
|
|
$
|
45.00
|
|
|
|
1.82
|
|
Series C
(2)
|
|
November 19, 2014
|
|
|
145,399
|
|
|
|
(142,957
|
)
|
|
|
2,442
|
|
|
$
|
12.00
|
|
|
|
3.13
|
|
Repricing Series C
(2)
|
|
November 19, 2014
|
|
|
|
|
|
|
142,957
|
|
|
|
142,957
|
|
|
$
|
9.00
|
|
|
|
3.13
|
|
Repricing Series E
(2)
|
|
November 19, 2014
|
|
|
|
|
|
|
142,957
|
|
|
|
142,957
|
|
|
$
|
9.00
|
|
|
|
5.13
|
|
Rens
(3)
|
|
March 3, 2016
|
|
|
375,000
|
|
|
|
-
|
|
|
|
375,000
|
|
|
$
|
7.00
|
|
|
|
2.06
|
|
|
|
|
|
|
678,245
|
|
|
|
142,957
|
|
|
|
821,202
|
|
|
|
|
|
|
|
|
|
(1)
|
Issued in connection with the January 27, 2014 private placement transaction.
|
(2)
|
Issued in connection with the November 19, 2014 registered-direct public offering, and subsequently revised pursuant to Warrant Exercise Agreements entered into on May 18, 2015.
|
(3)
|
Shares issued pursuant to the closing of the first tranche of the financing with RENS Technology Inc.
|
MYOS RENS TECHNOLOGY
INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2018
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
NOTE 11 – 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 September 30, 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.
Stock Options
The following table summarizes stock option
activity for the nine months ended September 30, 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
|
|
|
|
9.50
|
|
Options canceled
|
|
|
(10,000
|
)
|
|
|
4.00
|
|
|
|
-
|
|
Balance at September 30, 2018
|
|
|
608,740
|
|
|
$
|
6.76
|
|
|
|
5.65
|
|
At September 30, 2018 and December 31,
2017, the exercisable options had no intrinsic value.
As of September 30, 2018, 253,310 options
have vested and 355,430 options remain unvested. The vesting terms range from zero to 9.50 years and the vested options have a
weighted average remaining term of 5.65 years and a weighted average exercise price of $6.76 per share.
The weighted average grant date fair value
of the 57,000 stock options granted during the nine months ended September 30, 2018 was $0.32. The following table summarizes
the assumptions used to value stock using a Black-Scholes model:
Expected annualized volatility:
|
|
|
50.00
|
%
|
Annual risk-free interest rate:
|
|
|
2.38
|
%
|
Expected time to maturity:
|
|
|
7 years
|
|
Exercise Price
|
|
$
|
4.00
|
|
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 annualized volatility is based on
the volatility of the Company’s historical stock prices.
Restricted Stock
The following table summarizes unvested restricted
stock awards activity for the nine months ended September 30, 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
|
|
|
(56,397
|
)
|
|
|
1.39
|
|
Restricted stock awards unvested at September 30, 2018
|
|
|
-
|
|
|
|
|
|
Stock-Based Compensation:
Stock-based compensation consists of expenses
related to the issuance of stock options and restricted stock. Stock-based compensation expenses were $30 and $39 for the three
months ended September 30, 2018 and 2017, respectively, and $195 and $121 for the nine months ended September 30, 2018 and 2017,
respectively.
The aggregate unrecognized compensation expense
of stock options and restricted stock at September 30, 2018 was $73, which will be recognized through January 2021.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2018
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
Note
12 – 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 $12) 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 September 30, 2018, the future minimum payments under the supply agreement was €30 (approximately $36).
Clinical and Basic Research Programs
The Company invests in research and development
activities externally through academic and industry collaborations aimed at enhancing the Company’s products and optimizing
manufacturing. At September 30, 2018, the future minimum payments for collaborations with various academic centers in excess of
one year is as follows:
Years Ended December 31,
|
|
Amount
|
|
2018 (remaining three months)
|
|
$
|
90
|
|
2019
|
|
|
140
|
|
Total
|
|
$
|
230
|
|
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 September 30, 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 three months)
|
|
$
|
18
|
|
2019
|
|
|
72
|
|
Total
|
|
$
|
90
|
|
Rent expense including common area maintenance
charges and taxes were $59 and $46 for the nine months ended September 30, 2018 and 2017, respectively, and $20 and $21 for the
three months ended September 30, 2018 and 2017, respectively.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 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 $27 and $17 for the nine months ended September 30, 2018 and 2017, respectively and $10 and $8 for the three
months ended September 30, 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 September 30, 2018 and December 31, 2017, the Company had not recorded any accruals
for product liability claims.
Note
13 – Related Party Transactions
The following is a description of the transactions
we have engaged in with our directors, director nominees and officers and beneficial owners of more than five percent of our voting
securities and their affiliates:
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 14), the Company recorded an allowance for bad debt of $59 for the nine
months ended September 30, 2017 related to the receivable due from RENS Agriculture.
On August 31, 2018, the Company issued
an unsecured promissory note in the principal amount of $750 (the “Note”) to Joseph Mannello, our CEO. The Note bears
interest at a rate of 5% per annum and matures on August 31, 2019 (the “Maturity Date”). The principal amount of the
Note and any accrued interest can be repaid at any time prior to the Maturity Date. The Note includes standard events of default
including non-payment of the principal or accrued interest due on the Note. As of September 30, 2018, the Company accrued $2 of
interest expense on the Note. Upon an event of default, all obligations under the Note will become due and payable.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2018
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
Note
14 – legal PROCEEDINGS
On October 27, 2016, Cutler Holdings, L.L.C.
(“Cutler”) filed a complaint in the Superior Court of New Jersey alleging that the Company failed to make certain rental
payments. On March 30, 2017, the Company entered into a settlement agreement with Cutler, pursuant to which Cutler released the
Company from any liability for the claims asserted in the complaint.
On January 6,
2017, in connection with the financing contemplated by a securities purchase agreement with RENS Technology Inc. (the “Purchaser”),
we commenced an action in the Supreme Court of New York, County of New York (the “Court”), against the Purchaser, RENS
Agriculture, the parent company of the Purchaser, and Ren Ren, a principal in both entities and one of our directors, arising from
the Purchaser’s breach of the agreement under which the Purchaser agreed to invest an aggregate of $20.25 million in our
company in exchange for an aggregate of 3,537,037 shares of our common stock and warrants to purchase an aggregate of 884,259 shares
of common stock.
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 December 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 as of the date of this report. An application on consent to adjourn
the hearing date on the receiver application and motion to dismiss is pending.
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 EVENT
On November 13, 2018, the Company amended
and restated the Note to increase the maximum amount that may be drawn down under the Note from $750 to $1,000. The Company expects
to draw down an additional $250 under the Note in November 2018.