NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
June 30, 2020
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
NOTE 1 – NATURE OF OPERATIONS,
BASIS OF PRESENTATION AND LIQUIDITY
Nature of Operations
MYOS RENS Technology Inc. (the “Company”
or “MYOS”) is focused on the discovery, development and commercialization of advanced nutrition products that improve
muscle health and performance. The Company was incorporated under the laws of the State of Nevada on April 11, 2007. On March 17,
2016, the Company merged with its wholly-owned subsidiary and changed its name from MYOS Corporation to MYOS RENS Technology Inc.
As used in these condensed consolidated financial statements, the terms “the Company”, “MYOS”, “our”,
or “we”, refers to MYOS RENS Technology Inc. and its subsidiary, unless the context indicates otherwise. On February
25, 2011, the Company entered into an agreement to acquire the intellectual property for Fortetropin®, our proprietary
active ingredient from Peak Wellness, Inc. The Company’s activities are subject to significant risks and uncertainties.
Our commercial
focus is to leverage our clinical data to develop multiple products to target the large, but currently underserved, markets focused
on muscle health. The sales channels through which we sell our products are evolving. The first product we introduced was MYO-T12,
a proprietary formula containing Fortetropin® and other ingredients which was sold in the sports nutrition market.
In May 2016, we
launched Physician Muscle Health Formula®, a proprietary formulation containing Fortetropin® and
sold the product directly to physicians to distribute to their patients who are focused on wellness. The Company relaunched the
product as part of its longevity marketing strategy in December 2019. In March 2017 we launched Qurr®, a Fortetropin®-powered
product line that is available on our direct-to-consumer platform. We recorded $10 and $32 in net revenues for the six months ended
June 30, 2020 and June 30, 2019, respectively, for our longevity product lines.
In March 2018,
we launched Yolked®, a Fortetropin®-powered product which is NSF Certified for Sports, and developed and marketed to collegiate
and professional athletes who want to increase their muscle size and performance with an all-natural advanced nutrition product.
The Company recorded $104 and $121 of net revenues for the six months ended June 30, 2020 and June 30, 2019, respectively, for
our Yolked® product line.
In June 2018,
we launched our Fortetropin® based pet product Myos Canine Muscle Formula® (“MCMF”). Two veterinarian
hospitals had previously performed some informal observational studies with older dogs experiencing muscle atrophy and saw positive
results after taking our pet product. We believe that the positive feedback received from the veterinarian community, together
with the positive results from our Kansas State University study, will enable us to grow our pet business product line. The Company
recorded $477 and $150 of net revenues for the six months ended June 30, 2020 and June 30, 2019, respectively, for our MCMF product
line.
In November 2019, we launched our white
label business, working with manufacturers to create new brands and products using Fortetropin® as the foundation.
We recorded $28 of net revenues for the six months ended June 30, 2020.
We continue to pursue additional distribution
and branded sales opportunities. There can be no assurance that we will be able to secure distribution arrangements on terms acceptable
to us, or that we will be able to generate significant sales of our current and future branded products. We expect to continue
developing our own core branded products in markets such as functional foods, sports and fitness nutrition and to pursue international
sales opportunities. We remain committed to continuing our focus on various clinical trials in support of enhancing our commercial
strategy as well as enhancing our intellectual property assets, to develop product improvements and new products, and to reduce
the cost of our products by finding more efficient manufacturing processes and contract manufacturers.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
June 30, 2020
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
Merger with MedAvail, Inc.
Merger Agreement
On June 30, 2020, MYOS and MedAvail, Inc.,
a privately-held Delaware corporation (“MedAvail”), entered into an Agreement and Plan of Merger and Reorganization
(the “Merger Agreement”), by and among MYOS, MedAvail, and Matrix Merger Sub, Inc., a newly-created wholly-owned subsidiary
of MYOS (“Merger Sub”), pursuant to which, subject to the satisfaction or waiver of the conditions set forth in the
Merger Agreement, Merger Sub will merge with and into MedAvail, with MedAvail being the surviving corporation and a wholly-owned
subsidiary of MYOS (the “Merger”). The Boards of Directors of MYOS and MedAvail have both approved the Merger and have
recommended approval of the Merger by their respective shareholders. MedAvail is a private, in-clinic telemedicine-enabled pharmacy
organization based in Ontario, Canada that has developed and commercialized a proprietary robotic dispensing platform and home
delivery operation focused on the Medicare Advantage market in the United States.
At the effective time of the Merger (the
“Effective Time”): (a) each share of MedAvail’s common stock and each share of MedAvail’s preferred stock
outstanding immediately prior to the Effective Time, excluding any dissenting shares, will
be automatically converted solely into the right to receive a number of shares of MYOS common stock (“MYOS Common Stock”)
calculated according to the exchange ratio described below; (b) each outstanding MedAvail stock option that has not been
exercised prior to the Effective Time will be assumed by MYOS; and (c) each outstanding warrant to acquire MedAvail capital stock
that has not been exercised prior to the Effective Time will be assumed by MYOS. Under the exchange ratio formula in the Merger
Agreement, as of immediately after the Merger, the former MedAvail security holders are expected to own approximately 96.5% of
the aggregate number of fully-diluted shares of MYOS Common Stock outstanding following the consummation of the Merger (the “Post-Closing
Shares”), and the stockholders of MYOS immediately prior to the Merger are expected to own approximately 3.5% of the Post-Closing
Shares, subject to the adjustments set forth in the Merger Agreement. The exchange ratio will be fixed prior to the closing of
the Merger to reflect MYOS’s and MedAvail’s respective capitalizations as of immediately prior to the Effective Time.
The Merger is intended to qualify for federal income tax purposes as a tax-free reorganization under the provisions of Section
368(a) of the Internal Revenue Code of 1986, as amended.
Immediately
following the Merger, the name of the post-merger combined company (the “Post-Merger Combined Company”) is expected
to be changed from “MYOS RENS Technology Inc.” to “MedAvail Holdings, Inc.” The Merger Agreement provides
that the Board of Directors of the Post-Merger Combined Company will consist of members who are currently directors of MedAvail.
The executive officers of the Post-Merger Combined Company will be designated by MedAvail, with MedAvail’s Chief Executive
Officer, Ed Kilroy, expected to be the Post-Merger Combined Company’s Chief Executive Officer and MedAvail’s Chief
Financial Officer, Ryan Ferguson, expected to be the Post-Merger Combined Company’s Chief Financial Officer.
The Merger Agreement contains certain customary
termination rights, including, among others, (a) the right of either MYOS or MedAvail to terminate the Merger Agreement if the
other party’s stockholders fail to adopt and approve the Merger Agreement, (b) the right of either party to terminate the
Merger Agreement if the other party’s board of directors changes or withdraws its recommendation in favor of the transactions,
(c) the right of either party to terminate the Merger Agreement if the Merger has not occurred by the six month anniversary of
the date of the Merger Agreement, (d) the right of either party to terminate the Merger Agreement due to a material breach by the
other party of any of its representations, warranties or covenants which would result in the closing conditions not being satisfied,
subject to certain conditions, and (e) the right of either party to terminate the Merger Agreement if a court of competent jurisdiction
or other governmental body issues a final and non-appealable order, decree or ruling, or has taken any other action, having the
effect of permanently restraining, enjoining or otherwise prohibiting the Merger and related transactions. Upon the termination
of the Merger Agreement by MYOS or MedAvail, a termination fee of (i) $500,000 may be payable by MYOS to MedAvail, or (ii) $750,000
may be payable by MedAvail to MYOS.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
June 30, 2020
(Unaudited; amounts
in thousands, except share and per share amounts, unless otherwise indicated)
Assignment and Assumption Agreement
and Subscription and Stock Purchase Agreement
The Merger Agreement provides that, prior
to the consummation of the Merger, MYOS will transfer and assign all of its assets and liabilities into MYOS Corp., a newly-created,
wholly-owned subsidiary of MYOS, pursuant to an Assignment and Assumption Agreement (the “Assignment and Assumption Agreement”)
and a related Subscription and Stock Purchase Agreement (the “Subscription and Stock Purchase Agreement”). The shares
of MYOS Corp., immediately after the closing of the Merger, will be spun-out from the Post-Merger Combined Company through a dividend
of the stock of MYOS Corp. to the pre-Merger MYOS shareholders, resulting in MYOS Corp., a private company, continuing the current
business operations of MYOS. MedAvail will pay MYOS Corp. $2 million in cash upon the closing of the Merger and issue a promissory
note for an additional $3 million, payable in installments within one year of the closing of the Merger.
Amendment to Rights Agreement
On June 30, 2020 MYOS entered into the
Second Amendment to Rights Agreement (the “Amendment”) with Transhare, as rights agent, which amends the Rights Agreement,
dated as of February 14, 2017, previously entered into between MYOS and Island Stock Transfer as rights agent, as amended on February
14, 2020, with Transhare as the successor rights agent (the “Rights Agreement”). The Amendment amends the Rights Agreement
to provide, among other things, that (i) neither the approval, execution, delivery or performance or, if approved by the board
of directors of MYOS, amendment, modification or waiver of the Merger Agreement or the Voting Agreement or the consummation of
the Merger or any other transaction contemplated by the Merger Agreement or the Voting Agreement, nor the public announcement of
any of the foregoing will (a) cause any person to (1) become an Acquiring Person (as defined in the Rights Agreement) or be deemed
to have become an Acquiring Person or (2) be deemed to have acquired Beneficial Ownership (as defined in the Rights Agreement)
of any securities of MYOS or (b) result in the occurrence or deemed occurrence of a Distribution Date (as defined in the Rights
Agreement), consolidation or merger or other event or occurrence resulting in a triggering of rights of holders of Rights (as defined
in the Rights Agreement), or of obligations of MYOS under the Rights Agreement, and (ii) the Rights will expire in their entirety,
and the Rights Agreement will terminate upon the earliest of (a) immediately prior to the Effective Time, (b) the Close of Business
(as defined in the Rights Agreement) on February 21, 2021, (c) the time at which all Rights are redeemed, (d) the time at which
all Rights are exchanged and (e) the closing of any merger or other acquisition involving MYOS at which time the Rights are terminated.
Basis of Presentation
The accompanying condensed consolidated
balance sheet as of December 31, 2019 has been derived from our audited consolidated financial statements, and the unaudited interim
condensed consolidated financial statements as of June 30, 2020 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, 2019 filed with the SEC on March 24, 2020. 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 results of any interim period are
not necessarily indicative of the results for the full year.
MYOS RENS TECHNOLOGY
INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
June 30, 2020
(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 and the realization of assets and satisfaction of liabilities in the normal course of business. The condensed consolidated
financial statements do not include any adjustment that might become necessary should the Company be unable to continue as a going
concern.
The Company has suffered recurring losses
from operations and incurred a net loss of $1,637 for the six months ended June 30, 2020. The accumulated deficit as of June 30,
2020 was $40,962. The Company has not yet achieved profitability and expects to continue to incur cash outflows from
operations. It is expected that its operating expenses will continue to increase and, as a result, the Company will eventually
need to generate significant product revenues to achieve profitability. These conditions indicate that there is substantial doubt
about the Company’s ability to continue as a going concern within one year after the condensed consolidated financial statement
issuance date.
As of June 30, 2020, the Company had cash
of $1,334 and working capital of $2,226 (current assets of $3,028 less current liabilities of $802). For the six months ended June
30, 2020 and 2019, our net loss was $1,637 and $2,150, respectively. For the six months ended June 30, 2020 and 2019, net cash
used in operating activities was $1,668 and $1,135, respectively.
As of the filing date of this quarterly
report on Form 10-Q (the “Report”), management believes that there may not be sufficient capital resources from operations
and existing financing arrangements in order to meet operating expenses and working capital requirements for the next twelve months.
Accordingly, we are evaluating various alternatives,
including reducing operating expenses, securing additional financing through debt or equity securities to fund future business
activities and other strategic alternatives. The Company entered into the Merger Agreement on June 30, 2020 and expects the Merger
to close before the end of the year. 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 condensed consolidated financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Since the date of the Annual Report on
Form 10-K for the year ended December 31, 2019, there have been no material changes to the Company’s significant accounting
policies, except as disclosed in this note.
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 June 30, 2020
and December 31, 2019, the Company had no cash equivalents. The Company maintains its bank accounts with high credit quality financial
institutions and has never experienced any losses related to these bank accounts. The Company minimizes its credit risk associated
with cash by periodically evaluating the credit quality of its financial institutions. As part of our ongoing liquidity assessments
management evaluates our cash and cash equivalents. 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. At June 30, 2020, total cash in the Company’s
bank accounts was $1,334, which exceeded the FDIC coverage limit of $250. There were no accounts that exceeded the FDIC limit at
December 31, 2019.
MYOS RENS TECHNOLOGY INC. AND
SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
June 30, 2020
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
Concentrations of Credit Risk, Customers
and Suppliers
Management regularly reviews accounts receivable,
and if necessary, establishes an allowance for doubtful accounts that reflects management’s best estimate of amounts that
may not be collectible based on historical collection experience and specific customer information. Accounts receivable is non-interest
bearing. Credit is issued to customers without collateral. If an account becomes delinquent, management will review if a write
off is appropriate. Expense recognized as a result of an allowance for doubtful accounts is classified under general and administrative
expenses in the condensed consolidated statements of operations.
For the three and six months ended June
30, 2020 and 2019, the Company did not have any revenue, accounts receivable or supplier concentrations.
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 in accordance with SEC guidance. As of June 30, 2020 and December 31, 2019, deferred offering costs of $0 and $95,
respectively, were included as a noncurrent asset on the accompanying condensed consolidated balance sheets related to a July 2018
sales agreement.
Intangible Assets
The Company’s intangible assets consist
primarily of intellectual property pertaining to Fortetropin®, including its formula, trademarks, trade secrets,
patent application and domain names which were determined to have a fair value of $2,000 as of December 31, 2011. Management determined
that the intellectual property had a finite useful life of ten (10) years and began amortizing the asset over its estimated useful
life beginning April 2014.
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 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. 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 three and six months ended June 30, 2020 and 2019. Intangible assets at June 30, 2020
and December 31, 2019 consisted of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Intangibles with finite lives:
|
|
|
|
|
|
|
Intellectual property
|
|
$
|
2,101
|
|
|
$
|
2,101
|
|
Website - qurr.com
|
|
|
380
|
|
|
|
380
|
|
Less: accumulated amortization – intellectual property
|
|
|
(1,310
|
)
|
|
|
(1,205
|
)
|
Less: accumulated amortization - website
|
|
|
(380
|
)
|
|
|
(380
|
)
|
Total intangible assets, net
|
|
$
|
791
|
|
|
$
|
896
|
|
Amortization expense related to intangible
assets for the six months ended June 30, 2020 and 2019 was $105 and $165, respectively, and $53 and $103 for the three months ended
June 30, 2020 and 2019, respectively.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
June 30, 2020
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
Net Revenues
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 revenues.
Disaggregation of Net Revenues
Our net revenues by product type are presented
below for the three months ended June 30, 2020 and 2019.
|
|
Three months ended
|
|
Product Type
|
|
June 30,
2020
|
|
|
June 30,
2019
|
|
Myos Canine Muscle Formula® (1)
|
|
$
|
261
|
|
|
$
|
89
|
|
Yolked® (2)
|
|
|
53
|
|
|
|
53
|
|
Longevity (includes Qurr® (3) and Physician Muscle Health Formula (4) brands)
|
|
|
4
|
|
|
|
12
|
|
White Label (5)
|
|
|
11
|
|
|
|
-
|
|
Total Net Revenues
|
|
$
|
329
|
|
|
$
|
154
|
|
Our net revenues by product type are presented
below for the six months ended June 30, 2020 and 2019.
|
|
Six months ended
|
|
Product Type
|
|
June 30,
2020
|
|
|
June 30,
2019
|
|
Myos Canine Muscle Formula® (1)
|
|
$
|
477
|
|
|
$
|
150
|
|
Yolked® (2)
|
|
|
104
|
|
|
|
121
|
|
Longevity (includes Qurr® (3) and Physician Muscle Health Formula (4) brands)
|
|
|
10
|
|
|
|
32
|
|
White Label (5)
|
|
|
28
|
|
|
|
-
|
|
Total Net Revenues
|
|
$
|
619
|
|
|
$
|
303
|
|
(1)
|
Launched in June 2018
|
(2)
|
Launched in March 2018
|
(3)
|
Launched in March 2017
|
(4)
|
Launched in May
2016; relaunched in December 2019
|
(5)
|
Launched in December 2019
|
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
June 30, 2020
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
Contract Assets and Liabilities
The Company did not have any contract assets
and contract liabilities from contracts with customers as of June 30, 2020 or December 31, 2019. Contract liabilities represent
payments received from customers for which the Company had not yet satisfied its performance obligation under the contract. For
the three and six months ended June 30, 2020 and 2019 there was no revenue recognized from performance obligations satisfied (or
partially satisfied) in previous periods.
Advertising, Marketing and Promotions
The Company charges the costs of advertising
to sales and marketing expenses as incurred. Advertising and marketing costs were $248 and $467 for the six months ended June 30,
2020 and 2019, respectively, and $70 and $131 for the three months ended June 30, 2020 and 2019, respectively. Advertising costs
consisted primarily of marketing costs for our Yolked® and Myos Canine Muscle Formula® products.
Shipping and Handling Costs
The Company records costs for the shipping
and handling of products to its customers in cost of revenues. These expenses were $16 and $16 for the six months ended June 30,
2020 and 2019, respectively and $7 and $10 for the three months ended June 30, 2020 and 2019, respectively.
Research and Development
Research and development expenses consist
primarily of the cost of manufacturing our product for clinical study, the cost of conducting clinical studies and the cost of
conducting preclinical and research activities. Nonrefundable advance payments for goods or services that will be used or
rendered for future research and development activities are initially capitalized and are then recognized as an expense as the
related goods are consumed or the services are performed. Research and development expenses were $27 and $89 for the six months
ended June 30, 2020 and 2019, respectively and $5 and $80 for the three months ended June 30, 2020 and 2019, respectively.
MYOS RENS TECHNOLOGY
INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
June 30, 2020
(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 three and
six months ended June 30, 2020 and 2019, the Company incurred a net loss. Accordingly, the Company’s common stock equivalents
were anti-dilutive and excluded from the diluted net loss per share computation.
The aggregate number of potentially dilutive
common stock equivalents outstanding at June 30, 2020 excluded from the diluted net loss per share computation because their inclusion
would be anti-dilutive were 1,034,740, which includes warrants to purchase an aggregate of 375,000 shares of common stock and options
to purchase an aggregate of 659,740 shares of common stock and rights under the Rights Agreement.
The aggregate number of potentially dilutive
common stock equivalents outstanding at June 30, 2019 excluded from the diluted net loss per share computation because their inclusion
would be anti-dilutive were 1,216,096 which includes warrants to purchase an aggregate of 663,356 shares of common stock and options
to purchase an aggregate of 555,740 shares of common stock.
Income Taxes
On March 27, 2020,
President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The CARES
Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security
payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction
limitations and technical corrections to tax depreciation methods for qualified improvement property. Under Accounting Standards
Codification Topic 740 (“ASC 740”), Income Taxes, the effects of new legislation are recognized upon enactment.
Accordingly, the CARES Act is effective beginning in the quarter ended March 31, 2020. While the Company is currently evaluating
how provisions in the CARES Act will impact its condensed consolidated financial statements, it does not currently believe that
such provisions will have a material impact on the Company’s condensed consolidated financial statements.
NOTE 3 – RECENTLY ISSUED ACCOUNTING
STANDARDS
In December 2019,
the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. The amendments in ASU 2019-12 simplify
the accounting for income taxes by removing certain exceptions to the general principles in ASC 740. The amendments also improve
consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12
will be effective for the Company’s fiscal year beginning after December 15, 2020, with early adoption permitted. The transition
requirements are dependent upon each amendment within this update and will be applied either prospectively or retrospectively.
The Company does not expect this ASU to have a material impact on its condensed consolidated financial statements.
MYOS RENS TECHNOLOGY
INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
June 30, 2020
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
NOTE 4 – INVENTORIES, NET
Inventories, net at June 30, 2020 and December
31, 2019 consisted of the following:
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
Raw materials
|
|
$
|
1,117
|
|
|
$
|
1,264
|
|
Work in process
|
|
|
1
|
|
|
|
15
|
|
Finished goods
|
|
|
419
|
|
|
|
450
|
|
|
|
|
1,537
|
|
|
|
1,729
|
|
Less: inventory reserves
|
|
|
(63
|
)
|
|
|
(63
|
)
|
Inventories, net
|
|
$
|
1,474
|
|
|
$
|
1,666
|
|
NOTE 5 – FIXED ASSETS, NET
Fixed assets, net at June 30, 2020 and
December 31, 2019 consisted of the following:
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
Furniture, fixtures and equipment
|
|
$
|
116
|
|
|
$
|
116
|
|
Computers and software
|
|
|
68
|
|
|
|
68
|
|
Leasehold improvements
|
|
|
239
|
|
|
|
239
|
|
Other
|
|
|
7
|
|
|
|
7
|
|
Total fixed assets
|
|
|
430
|
|
|
|
430
|
|
Less: accumulated depreciation and amortization
|
|
|
(342
|
)
|
|
|
(333
|
)
|
Net book value of fixed assets
|
|
$
|
88
|
|
|
$
|
97
|
|
Depreciation expense was $9 and $13 for
the six months ended June 30, 2020 and 2019, respectively, and $4 and $6 for the three months ended June 30, 2020 and 2019, 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 June 30, 2020 and December 31, 2019 consisted of the following:
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
Prepaid consulting fees
|
|
$
|
57
|
|
|
$
|
9
|
|
Prepaid legal fees
|
|
|
50
|
|
|
|
-
|
|
Prepaid Nasdaq fees
|
|
|
22
|
|
|
|
-
|
|
Prepaid marketing expenses
|
|
|
40
|
|
|
|
6
|
|
Prepaid other expenses
|
|
|
18
|
|
|
|
8
|
|
Total prepaid expenses and other current assets
|
|
$
|
187
|
|
|
$
|
23
|
|
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
June 30, 2020
(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 June 30, 2020 and December 31, 2019
consisted of the following:
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
Board compensation
|
|
$
|
-
|
|
|
$
|
209
|
|
Other
|
|
|
3
|
|
|
|
21
|
|
Total accrued expenses and other current liabilities
|
|
$
|
3
|
|
|
$
|
230
|
|
NOTE 8 – RELATED PARTY PROMISSORY
NOTE PAYABLE
On August 30, 2018, the Company issued
an unsecured promissory note (the “Note”) in the principal amount of $750 in favor of Joseph Mannello, the Company’s
chief executive officer (the “Lender”).
The Note accrues interest at a rate of
5% per annum and all payments of principal, interest and other amounts under the original Note were payable on March 31, 2020.
On March 31, 2020, the Company modified its Note to extend the maturity to March 31, 2021. The Company may prepay, in whole or
in part, at any time, the principal, interest and other amounts owed under the Note, without penalty.
In January 2020, the Lender advanced an
additional $300 to the Company for general working capital purposes.
On March 2, 2020,
the Company entered into securities purchase agreements for a private placement with a group of accredited investors, including
four members of the Company’s board of directors. In connection with the closing of the private placement on March 5, 2020,
the Company issued 851,240 shares of common stock for aggregate cash proceeds of $1,030 and $825 of the principal amount of the
Note was exchanged for 681,818 shares of common stock.
As of June 30, 2020, the total amounts outstanding under the
Note was $580 of principal and $74 of accrued interest.
Note
9 – NOTE PAYABLE – PAYCHECK PROTECTION PROGRAM
On April 22, 2020, the Company received
loan proceeds in the amount of $310 under the Paycheck Protection Program (“PPP”). The PPP, established as part of
the CARES Act, provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses
of the qualifying business. The loans and accrued interest are forgivable after eight weeks as long as the borrower uses the loan
proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of
loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period.
The unforgiven portion of the PPP loan
is payable over two years at an interest rate of 1% per annum, with a deferral of payments for the first six months. The Company
intends to use the proceeds for purposes consistent with the PPP. While the Company currently believes that its use of the loan
proceeds will meet the conditions for forgiveness of the loan in whole, there can be no assurance that it will not take actions
that could cause the Company to be ineligible for forgiveness of the loan, in whole or in part. As of June 30, 2020, no amount
of the PPP loan had been forgiven.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
June 30, 2020
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
Note
10 – Stockholders’ Equity
Authorized Capital
As of June 30, 2020, the Company was authorized
to issue 15,000,000 shares of common stock, $0.001 par value, and 500,000 shares of preferred stock, $0.001 par value. The holders
of the Company’s common stock are entitled to one vote per share.
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 the Company at a fixed price
as determined by the board of directors, after certain defined events.
On February 14, 2020, the Company amended
the Rights Agreement to, among other things extend the expiration date to February 14, 2021. In connection with the Merger Agreement,
the Company amended the Rights Agreement on June 30, 2020 (see Note 1.)
As of June 30, 2020, the Rights have no
dilutive effect on the earnings per common share calculation and no shares of preferred stock have been issued. At the time of
issuance, the Company determined that these Rights have a de minimis fair value.
Issuance of Common Stock
The Company has periodically issued common
stock in connection with certain private and public offerings. For the six months ended June 30, 2020, the Company received aggregate
net proceeds of $2,233 from these offerings:
|
|
|
|
|
Net
|
|
Date
|
|
Shares
|
|
|
Proceeds
|
|
March 5, 2020
|
|
|
851,240
|
(1)
|
|
$
|
1,030
|
|
January 1, 2020 through June 30, 2020 at-the-market offerings
|
|
|
964,102
|
(2)
|
|
|
1,203
|
|
(1)
|
Shares issued pursuant to a private placement with accredited investors for $1.21 per share.
|
(2)
|
Shares of common stock sold at various prices in at-the-market offerings from $1.18 to $1.55 per share.
|
See Note 8 for a description of the issuance
of common stock on March 5, 2020 in connection with the exchange of a portion of the related party promissory notes payable.
MYOS RENS TECHNOLOGY
INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
June 30, 2020
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
At-the-Market Offering
On January 23, 2020, the Company sold 7,322
shares of common stock for $1.50 per share for gross proceeds of $11 in an at-the-market offering.
On February 3, 2020, the Company sold 140,085
shares of common stock for $1.55 per share for gross proceeds of $217 in an at-the-market offering.
On May 12, 2020, the Company sold 81,695
shares of common stock for $1.18 per share for gross proceeds of $97 in an at-the-market offering.
On May 26, 2020, the Company sold 735,000
shares of common stock for $1.38 per share for gross proceeds of $976 in an at-the-market offering.
As of the filing date of this Report,
a total of 1,075,231 shares were sold under this program for aggregate gross proceeds of $1,512 since the sales agreement began
in July 2018.
NOTE 11 – STOCK-BASED COMPENSATION
Equity Incentive Plan
The Company increased the number of shares
available for issuance under its 2012 Equity Incentive Plan (as amended, the “Plan”) from 850,000 to 1,200,000 in December
2019, which was approved by the Company’s shareholders in December 2019. The plan provides for the issuance of up to 1,200,000
shares. The Plan provides for grants of stock options, stock appreciation rights, restricted stock, other stock-based awards and
other cash-based awards. As of June 30, 2020, the remaining shares of common stock available for future issuances of awards was
increased due to forfeitures to 560,260.
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-Based Compensation
Stock-based compensation consists of expenses
related to the issuance of stock options and restricted stock. Stock-based compensation expenses were $9 and $28 for the three
months ended June 30, 2020 and 2019, respectively, and $18 and $71 for the six months ended June 30, 2020 and 2019, respectively.
On March 31, 2020, the Company issued
172,727 shares of its common stock with a fair value of $209 to members of its board of directors in connection with 2019 services.
These restricted shares vested immediately upon issuance.
MYOS RENS TECHNOLOGY
INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
June 30, 2020
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
Note
12 – Commitments and Contingencies
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. As
of April 1, 2020 the Company decided to not match 401(k) contributions until the Company becomes profitable. The Company’s
aggregate matching contributions were $11 and $18 for the six months ended June 30, 2020 and 2019, respectively, and $0 and $15
for the three months ended June 30, 2020 and 2019, respectively.
Note
13 – OPERATING LEASES
The Company has operating leases for its
executive office (approximately 5,225 square feet of space) and office equipment. The remaining terms on these leases range from
3 to 4 years. The Company does not have any financing leases. The components of lease expense of $33 and $38 for the six months
ended June 30, 2020 and June 30, 2019, respectively, were recorded in the condensed consolidated statements of operations. The
components of lease expense of $18 and $22 for the three months ended June 30, 2020 and June 30, 2019, respectively, were recorded
in the condensed consolidated statements of operations.
There were no material operating and financing
leases that the Company had entered into that were yet to commence as of June 30, 2020. Components of the Company’s right-of-use
assets and liabilities calculations are as follows:
Cash paid for rent included in the measurement of operating lease liabilities cash flows
|
|
$
|
32
|
|
Right-of-use asset obtained in exchange for new operating lease liability
|
|
|
236
|
|
Weighted-average remaining lease term - operating leases, in years
|
|
|
2.55
|
|
Weighted-average discount rate - operating leases
|
|
|
11.7
|
%
|
Future minimum lease payments for operating
leases in excess of one year are as follows:
For the year ending December 31,
|
|
Amount
|
|
2020
|
|
$
|
38
|
|
2021
|
|
|
77
|
|
2022
|
|
|
79
|
|
2023
|
|
|
3
|
|
Total future minimum lease payments
|
|
|
197
|
|
Imputed interest
|
|
|
(28
|
)
|
Total
|
|
$
|
169
|
|
MYOS RENS TECHNOLOGY
INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
June 30, 2020
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
Note
14 – Related Party Transactions
See Notes 8 and 10 for additional information
relating to the Note issued to the Company’s chief executive officer as well as details associated with the issuance of common
stock to certain related parties in connection with securities purchase agreements.
Note
15 – legal PROCEEDINGS
On January 6,
2017, in connection with the financing contemplated by a securities purchase agreement with RENS Technology Inc. (the “Purchaser”),
we commenced an action in the Supreme Court of New York, County of New York (the “Court”), against the Purchaser, RENS
Agriculture, the parent company of the Purchaser, and Ren Ren, a principal in both entities and one of our directors, arising from
the Purchaser’s breach of the agreement under which the Purchaser agreed to invest an aggregate of $20.25 million in our
company in exchange for an aggregate of 3,537,037 shares of our common stock and warrants to purchase an aggregate of 884,259 shares
of common stock.
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.
On July 13, 2020, the Company entered into
a settlement agreement (the “Settlement Agreement”) with the Purchaser, Mr. Ren and Mr. Mannello to settle all claims
in connection with all pending litigation matters between the parties (the “Claims”). Pursuant to the Settlement Agreement,
the parties agreed to file the appropriate documentation in the Nevada and New York courts to dismiss the Claims within five days
of the execution of the Settlement Agreement. In addition, the Purchaser and Mr. Ren agreed to: (i) vote all of their shares of
common stock of the Company in favor of the transactions contemplated by the Merger Agreement and (ii) waive and forfeit any right
to receive any ownership interest in the private company (which will include the assets and liabilities for the Company’s
existing muscle health business) to be spun-out from the Company in connection with the Merger. The Purchaser also agreed that,
simultaneous with the closing of the Merger, it will deliver its warrant to purchase 375,000 shares of common stock to the Company
for cancellation or, if the warrant cannot be located, execute documents necessary to ensure that the warrant is cancelled. The
Settlement Agreement further provides that Mr. Ren will resign as the Company’s Global Chairman and as a member of the Company’s
board of directors upon the execution of the Settlement Agreement. The Settlement Agreement also includes mutual releases by the
parties against each other for any claims or actions (including the Claims) through the date of the Settlement Agreement.
Note
16 – SUBSEQUENT EVENT
On July 13, 2020, the Company entered into
the Settlement Agreement to settle all claims in connection with all pending litigation matters between the parties. The litigation
was dismissed on July 23, 2020. (See Note 15)