NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2017
(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, 2016, which has been derived from audited consolidated financial statements,
and the unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the U.S. (“U.S. GAAP”) and the rules and regulations of the U.S. Securities and
Exchange Commission (“SEC”). 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, 2016 filed with the SEC on March 31, 2017. The unaudited interim
condensed consolidated financial statements presented herein reflect all normal adjustments that are, in the opinion of
management, necessary for a fair presentation of the statement of the financial position, results of operations and cash
flows for the periods presented. The Company is responsible for the unaudited interim condensed consolidated financial
statements included in this report. The results of any interim period are not necessarily indicative of the results for the
full year.
Nature
of Operations
MYOS
RENS Technology Inc. is an emerging bionutrition and biotherapeutics company focused on the discovery, development and commercialization
of products that improve muscle health and function. The Company was incorporated under the laws of the State of Nevada on April
11, 2007. On March 17, 2016, the Company merged with its wholly-owned subsidiary and changed its name from MYOS Corporation to
MYOS RENS Technology Inc. As used in these financial statements, the terms “the Company”, “MYOS”, “our”,
or “we”, refers to MYOS RENS Technology Inc. and its subsidiary, unless the context indicates otherwise. On February
25, 2011, the Company entered into an agreement to acquire the intellectual property for Fortetropin
®
, our proprietary
active ingredient from Peak Wellness, Inc. The Company’s activities are subject to significant risks and uncertainties.
Our commercial focus
is to leverage our clinical data to develop multiple products to target the large, but currently underserved, markets focused
on muscle health. The sales channels through which we sell our products are evolving. The first product we introduced was MYO-T12,
which was sold in the sports nutrition market. MYO T-12 is a proprietary formula containing Fortetropin and other ingredients.
The formula was sold under the brand name MYO T-12 and later as MYO-X through an exclusive distribution agreement with Maximum
Human Performance, or MHP. There were no sales to MHP in 2016 and we do not expect any orders from MHP in 2017.
In
February 2014, we expanded our commercial operations into the age management market through a distribution agreement with Cenegenics
Product and Lab Services, LLC (“Cenegenics”), under which Cenegenics distributed and promotes a proprietary formulation
containing Fortetropin through its age management centers and its community of physicians focused on treating a growing population
of patients focused on proactively addressing age-related health and wellness concerns. On November 28, 2014, we entered into
a settlement agreement with Cenegenics wherein we agreed to accept $1,900 by April 2016, (i.e., $300 in the fourth quarter of
2014 and $100 per month from January 2015 through April 2016) in full satisfaction of Cenegenics’s outstanding obligations
with respect to units of product produced by the Company, including units that had not yet been shipped to Cenegenics at the time
of the settlement agreement. In exchange, we agreed to withdraw our October 10, 2014 request for arbitration before the International
Chamber of Commerce. During the second quarter of 2015, Cenegenics accepted delivery of the remaining units that we were storing
on its behalf. Given the settlement agreement’s extended payment schedule, the Company deferred the revenue and related
cost associated with the shipment and recorded the revenue and cost of sales when the related payment was received in 2016. The
distribution agreement with Cenegenics expired in December 2016. As of December 31, 2016 we recognized all of the deferred revenue.
We do not expect any orders from Cenegenics in 2017.
During
the second quarter of 2015 we launched Rē Muscle Health
TM
, our own direct-to-consumer portfolio of muscle health
bars, meal replacement shakes and daily supplement powders each powered by a full 6.6 gram single serving dose of Fortetropin.
Our Rē Muscle Health products were sold through our e-commerce website, remusclehealth.com, and amazon.com. As of March 2017
the Company is no longer selling these products.
In March 2017
the Company launched Qurr, its Fortetropin®-powered product line formulated to support the vital role of muscle in overall
well-being as well as in fitness. The introduction of Qurr's muscle-focused, natural, over-the-counter products will make the
Qurr line available through convenient direct online ordering without a prescription. All Qurr products are blended with Fortetropin®,
MYOS' proprietary ingredient which has been clinically demonstrated to reduce serum myostatin levels, which helps increase muscle
size and lean body mass. MYOS' earlier product formulations featuring Fortetropin® have become part of the daily routine of
many athletes and fit-conscious people. Qurr is a line of flavored puddings, powders, and shakes all proven to be safe for daily
use.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2017
(Unaudited;
amounts in thousands, except share and per share amounts, unless otherwise indicated)
We
continue to pursue additional distribution and branded sales opportunities. We expect to continue developing our own core branded
products in markets such as functional foods, sports and fitness nutrition and rehab and restorative health and to pursue international
sales opportunities. There can be no assurance that we will be able to secure distribution arrangements on terms acceptable to
the Company, or that we will be able to generate significant sales of our current and future branded products.
Strategic
Investment Transaction
On
December 17, 2015, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with RENS Technology
Inc. (the “Purchaser”), pursuant to which the Purchaser agreed to invest $20.25 million in the Company (the “Financing”)
in exchange for (i) an aggregate of 3,537,037 shares (the “Shares”) of the Company’s common stock, par value
$0.001 per share (“Common Stock”), and (ii) warrants to purchase an aggregate of 884,259 shares of Common Stock (the
“Warrants”, and together with the Shares, the “Securities”). The Purchaser would purchase the Securities
in three tranches over twenty-four months. In the first tranche, which closed on March 3, 2016, the Purchaser acquired 1,500,000
Shares and 375,000 Warrants (the “Initial Warrant”) for $5.25 million. In the second tranche, which would close within
six months of the closing of the first tranche, the Purchaser would acquire 925,926 Shares and 231,481 Warrants (the “Second
Warrant”) for $5.0 million. In the third tranche, which was to close within eighteen months of the closing of the second
tranche, the Purchaser will acquire 1,111,111 Shares and 277,778 Warrants (the “Third Warrant”) for $10.0 million.
Each of the Warrants will be immediately exercisable upon issuance, will expire five years after issuance and will have the following
exercise prices: (a) $7.00 per share for the Initial Warrant, (b) $10.80 per share for the Second Warrant and (c) $18.00 per share
for the Third Warrant. In addition, the Company agreed: (i) that the Purchaser will have the right to appoint four persons to
the Company’s board of directors, subject to adjustment based on the Purchaser’s ownership percentage of the Company;
(ii) to provide the Purchaser with a right to participate in 50% (or 100% if shares are to be issued for less than $3.50 per share)
of any future financings pursued by the Company within 12 months from the closing of the third tranche of the Financing; and,
(iii) until the closing of the third tranche, the Company will not take certain actions, including issuing shares (except for
certain permitted issuances) or appointing new officers and directors, without the Purchaser’s consent.
In
addition, on December 17, 2015, the Company issued a convertible note in the amount of $575 to Gan Ren, a related party of RENS
Agriculture. The convertible note provided short-term funding to the Company prior to the closing of the first tranche of the
Financing. On December 17, 2016 the convertible note and accrued interest was converted into 225,860 shares at $2.74 per share.
For additional information on the convertible note with Gan Ren refer to “NOTE 6 – Debt – Convertible Note.”
The
first tranche of the Financing was completed on March 3, 2016. The Company used the net proceeds from the first tranche of the
Financing to fund its working capital, product development and marketing, research and development and other general corporate
purposes. On August 19, 2016, the Purchaser notified the Company that it did not intend to fulfill its obligation to fund the
second tranche of the Financing, notwithstanding its confirmation to the Company in June 2016 that the Purchaser would provide
such funding in accordance with the terms of the Purchase Agreement. The Purchase Agreement provides that in the event that the
Purchaser notifies the Company that it does not intend to fund the Second Closing Subscription Amount, the Purchaser is required
to take all requisite action to cause the resignation or removal of one of its designees on the Board of Directors of the Company.
Pursuant to the terms of the Purchase Agreement, effective August 23, 2016, Guiying Zhao resigned as a director of the Company.
In addition, the Purchaser’s Rights terminated, effective August 19, 2016.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2017
(Unaudited; amounts
in thousands, except share and per share amounts, unless otherwise indicated)
On
January 6, 2017, the Company commenced an action in the Supreme Court of New York, County of New York, against RENS Technology,
Inc., RENS Agriculture Science & Technology Co., Ltd (“RENS Agriculture”), the parent company of RENS Technology,
and Ren Ren, a principal in both entities and a director of the Company, arising from RENS Technology’s breach of a Securities
Purchase Agreement under which RENS Technology agreed to invest an aggregate of $20.25 million in the Company in exchange for
an aggregate of 3,537,037 shares of common stock of the Company and warrants to purchase an aggregate of 884,259 shares of common
stock. In addition to seeking compensatory, consequential and other damages in the action, the Company asked the Court to
preliminarily restrain RENS Technology and its agents and representatives, including, but not limited to, RENS Agriculture and
Ren Ren, from selling, transferring, conveying, assigning, hypothecating or encumbering 1,500,000 shares of common stock of the
Company and a warrant permitting the purchase of 375,000 shares at a price of $7.00 per share that RENS Technology had purchased
under the Securities Purchase Agreement and, after the parties had an opportunity to submit opposition and reply papers in connection
with the Company’s application, a preliminary injunction prohibiting RENS Technology from selling, transferring, conveying,
assigning, hypothecating or encumbering the 1,500,000 shares and warrant during the pendency of the action and an order attaching
the stock and warrant to satisfy any judgment entered in favor of the Company.
On January 11, 2017, the Court granted
the Company the preliminary restraints that it requested, which prevents RENS Technology, among others, from selling, transferring,
conveying, assigning, hypothecating or encumbering the 1,500,000 shares of the Company’s common stock or the aforementioned
warrant. The Court scheduled a hearing on February 14, 2017, at which time the Court heard oral argument on the application
for a preliminary injunction and prejudgment attachment of the stock and warrants to satisfy any judgment entered in favor of the
Company. Since then, RENS Technology filed a motion to dismiss the complaint which the Company has opposed.
On April 11, 2017, the Court denied
the Company’s application for a prejudgment attachment of the 1,500,000 shares of common stock and warrant and a preliminary
injunction in aid of the attachment to prevent a sale, transfer, or hypothecation of those shares and warrant, and vacating the
preliminary restraints which it had previously entered. However, the Court noted that the Company had demonstrated a likelihood
of success on the merits of the breach of contract claim. An application by RENS Technology to dismiss the complaint and various
pre-trial discovery applications by both parties are currently set for oral argument on May 23, 2017.
Going
Concern and Liquidity
The accompanying financial statements
have been prepared in accordance with U.S. generally accepted accounting principles, which contemplates continuation of the Company
as a going concern. The Company has suffered recurring losses from operations and incurred a net loss of approximately $1,117
for the three months ended March 31, 2017 and $4,341 for the year ended December 31, 2016.
As
of March 31, 2017 the Company had cash of $2,239 and working capital of $3,969 (current assets of $4,435 less current liabilities
of $466). For the three months ended March 31, 2017 and 2016 our net loss was $1,117 and $1,220, respectively. For the three months
ended March 31, 2017 and 2016 net cash used in operating activities was $1,428 and $703 respectively.
As
of the filing date of this Form 10-Q, management believes that there may not be sufficient capital resources from operations and
existing financing arrangements in order to meet operating expenses and working capital requirements for the next twelve months,
primarily due to the failure of RENS Technology Inc. to fund the required amounts. (See Note 13 – Legal Proceedings) These
facts raise substantial doubt about the Company’s ability to continue as a going concern.
Accordingly, we are evaluating various alternatives, including
reducing operating expenses, securing additional financing through debt or equity securities to fund future business activities
and other strategic alternatives. There can be no assurance that the Company will be able to generate the level of operating revenues
in its business plan, or if additional sources of financing will be available on acceptable terms, if at all. If no additional
sources of financing are available, our future operating prospects may be adversely affected. The financial statements do not
include any adjustments that might result from the outcome of these uncertainties.
At-the-Market Offering
On February
21, 2017, the Company entered into a sales agreement with H.C. Wainwright & Co., LLC which established an at-the-market equity
program pursuant to which the Company may offer and sell up to $6.0 million of its shares of common stock from time to time through
H.C. Wainwright. The Company incurred $125 of deferred offering costs in connection with this program which it has recorded as
a long term other asset on the accompanying balance sheet. As of the filing date of this Form 10-Q, no shares have been sold under
this program.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2017
(Unaudited; amounts
in thousands, except share and per share amounts, unless otherwise indicated)
NOTE
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 Year Presentation
Certain
prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications did not
have a material impact on the reported results of operations.
Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, equity and the disclosures of contingent assets and liabilities at the date of
the financial statement and the reported amounts of revenues and expenses during the reporting period. Making estimates requires
management to exercise significant judgment. It is possible that the estimate of the effect of a condition, situation or set of
circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could
change in the near term due to one or more future non-conforming events. Accordingly, the actual results could differ significantly
from estimates. Significant items subject to such estimates include but are not limited to the valuation of stock-based awards,
measurement of allowances for doubtful accounts and inventory reserves, the selection of asset useful lives, fair value estimations
used to test long-lived assets, including intangibles, impairments and provisions necessary for assets and liabilities.
The
Company has recorded minimal sales to its distributors during the past eleven consecutive quarters, and has only recently launched
its QURR portfolio of branded products. Management’s estimates, including evaluation of impairment of long-lived assets
and inventory reserves are based in part on forecasted future results. A variety of factors could cause actual results to differ
from forecasted results and these differences could have a significant effect on asset carrying amounts.
Cash
The
Company considers all highly liquid investments purchased with a maturity of three months or less and money market accounts to
be cash equivalents. At March 31, 2017 and December 31, 2016 the Company had no cash equivalents.
The
Company maintains its bank accounts with high credit quality financial institutions and has never experienced any losses related
to these bank accounts. The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality
of its financial institutions. The balance at times may exceed federally insured limits.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2017
(Unaudited; amounts
in thousands, except share and per share amounts, unless otherwise indicated)
As
part of our ongoing liquidity assessments management evaluates our cash. The amount of funds held in bank
can fluctuate due to the timing of receipts and payments in the ordinary course of business and due to other reasons, such as
business-development activities so the Company may have exposure to cash in excess of FDIC insured limits.
Inventories,
net
Inventories
are valued at the lower of cost or market, with cost determined on a first in, first-out basis. Each quarter the Company evaluates
the need for a change in the inventory reserve based on sales and expiration dates of products.
Deferred Offering Costs
The
Company defers as other assets the direct incremental costs of raising capital until such time as the offering is completed. At
the time of the completion of the offering, the costs are charged against the capital raised.
Should
the offering not be completed, deferred offering costs are charged to operations during the period in accordance with SEC guidance.
Deferred offering costs as of March 31, 2017 were $125 relating to legal and accounting fees for the at the market transaction.
Fixed
Assets
Fixed
assets are stated at cost and depreciated to their estimated residual value over their estimated useful lives of 3 to 7 years.
Leasehold improvements are amortized over the lesser of the asset's useful life or the contractual remaining lease term including
expected renewals. When assets are retired or otherwise disposed of, the assets and related accumulated depreciation are reversed
from the accounts and the resulting gains or losses are included in the Consolidated Statements of Operations.
Depreciation
is provided using the straight-line method for all fixed assets.
We
review our fixed assets for impairment when events or changes in circumstances indicate that the carrying value of an asset may
not be recoverable. We use an estimate of future undiscounted net cash flows of the related assets or groups of assets over their
remaining lives in measuring whether the assets are recoverable. If the assets are determined to be unrecoverable, an impairment
loss is calculated by determining the difference between the carrying values and the estimated fair value. We did not consider
any of our fixed assets to be impaired during the three months ended March 31, 2017 and 2016.
Intangible
Assets
The
Company’s intangible assets consist primarily of intellectual property pertaining to Fortetropin, including its formula,
trademarks, trade secrets, patent application and domain names, which were determined to have a fair value of $2,000 as of December
31, 2011. Based on expansion into new markets and introduction of new formulas, management determined that the intellectual property
had a finite useful life of ten (10) years and began amortizing the asset over its estimated useful life beginning April 2014.
Based
on eleven consecutive quarters of minimal revenues combined with changes in the sales channels through which the Company sells
its products and an inability to predict future orders, if any, we tested the intellectual property for impairment in the fourth
quarter of 2016 and determined that the asset value was recoverable and therefore no impairment was recognized.
In
July 2014, the Company
acquired the United States patent application for the manufacture
of Fortetropin from
Deutsches Institut fur Lebensmitteltechnik e.V. - the German Institute for Food Technologies (“DIL”).
The cost of the patent application, which was capitalized as an intangible asset, was determined to be $101, based on the present
value of the minimum guaranteed royalty payable to DIL using a discount rate of 10%. The intangible asset is being amortized over
an estimated useful life of ten (10) years. The remaining contingent royalty payments will be recorded as the contingency is resolved
and the royalty becomes payable under the arrangement. For additional information on the amended supply agreement with DIL refer
to “NOTE 11 – Commitments and Contingencies - Supply Agreement.”
Intangible
assets also includes patent costs associated with applying for a patent and being issued a patent. Costs to defend a patent and
costs to invalidate a competitor’s patent or patent application are expensed as incurred. Upon issuance of the patent, capitalized
patent costs are reclassified from intangibles with indefinite lives to intangibles with finite lives and amortized on a straight-line
basis over the shorter of the estimated economic life or the initial term of the patent, generally 20 years.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2017
(Unaudited; amounts
in thousands, except share and per share amounts, unless otherwise indicated)
During
the year ended December 31, 2016 the Company recorded an impairment loss of $44. The impairment loss was related to the write-off
of capitalized patent costs due to the unlikelihood of certain patents being issued.
Intangible
assets at March 31, 2017 and December 31, 2016 consisted of the following:
|
|
March 31,
|
|
|
December 31,
|
|
(In thousand $)
|
|
2017
|
|
|
2016
|
|
Intangibles with finite lives:
|
|
|
|
|
|
|
Intellectual property
|
|
$
|
2,101
|
|
|
$
|
2,101
|
|
Website - qurr.com
|
|
|
380
|
|
|
|
380
|
|
Less: accumulated amortization
|
|
|
(627
|
)
|
|
|
(574
|
)
|
Total intangible assets, net
|
|
$
|
1,854
|
|
|
$
|
1,907
|
|
Assuming
no additions, disposals or adjustments are made to the carrying values and/or useful lives of the intangible assets, annual amortization
expense for intangible assets is estimated to be $215 for the remaining nine months in 2017 and approximately $280 in each of
the next five years.
Impairment
testing of intangible assets subject to amortization involves comparing the carrying amount of the asset to the forecasted undiscounted
future cash flows whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
In the event the carrying value of the asset exceeds the undiscounted future cash flows, the carrying value is considered not
recoverable and an impairment exists. An impairment loss is measured as the excess of the asset’s carrying value over its
fair value, calculated using a discounted future cash flow method. The computed impairment loss is recognized in the period that
the impairment occurs. Assets which are not impaired may require an adjustment to the remaining useful lives for which to amortize
the asset. Impairment testing requires the development of significant estimates and assumptions involving the determination of
estimated net cash flows, selection of the appropriate discount rate to measure the risk inherent in future cash flow streams,
assessment of an asset’s life cycle, competitive trends impacting the asset as well as other factors. Changes in these underlying
assumptions could significantly impact the asset’s estimated fair value.
Revenue
Recognition
The
Company records revenue from product sales when persuasive evidence of an arrangement exists, product has been shipped or delivered,
the sales price to the customer is fixed or determinable, and collectability is reasonably assured. Product sales represent revenue
from the sale of products and related shipping amounts billed to customers, net of promotional discounts, rebates, and return
allowances. Depending on individual customer agreements, sales are recognized either upon shipment of product to customers or
upon delivery. With respect to direct-to-consumer sales, both title and risk of loss transfer to customers upon our delivery to
the customer. The Company’s gross product sales may be subject to sales allowances and deductions in arriving at reported
net product sales. For example, we may periodically offer discounts and sales incentives to customers to encourage purchases.
Sales incentives are treated as a reduction to the purchase price of the related transaction. Reductions from gross sales for
customer discounts and rebates have been minimal, and sales allowances for product returns have not been provided, since under
our existing arrangements, customers are not permitted to return product except for non-conforming product.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2017
(Unaudited; amounts
in thousands, except share and per share amounts, unless otherwise indicated)
Advertising
The Company charges the costs of advertising
to selling, marketing and research expenses as incurred. Advertising and promotional costs were $32 and $118 for the three months
ended March 31, 2017 and 2016, respectively.
Research
and Development
Research and development
expenses consist primarily of salaries, benefits, and other related costs, including stock-based compensation, for personnel
serving in our research and development functions, and other internal operating expenses, the cost of manufacturing our
product for clinical study, the cost of conducting clinical studies and the cost of conducting preclinical and research
activities. Nonrefundable advance payments for goods or services that will be used or rendered for future research and
development activities are initially capitalized and are then recognized as an expense as the related goods are consumed or
the services are performed. There was no research and development expense for the three months ended March 31, 2017
and 2016.
Shipping
and Handling Costs
The
Company records costs for shipping and handling of products to our customers in cost of sales. These expenses were $5 and $8 for
the three months ended March 31, 2017 and 2016.
Stock-based
Compensation
Stock-based
payments are measured at their estimated fair value on the date of grant. Stock-based awards to non-employees are re-measured
at fair value each financial reporting date until performance is completed. Stock-based compensation expense recognized during
a period is based on the estimated number of awards that are ultimately expected to vest. For stock options and restricted stock
that do not vest immediately but which contain only a service vesting feature, we recognize compensation cost on the unvested
shares and options on a straight-line basis over the remaining vesting period.
The
Company uses the Black-Scholes option-pricing model to estimate the fair value of options and the market price of our common stock
on the date of grant for the fair value of restricted stock issued. Our determination of fair value of stock-based awards is affected
by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include,
but are not limited to, our expected stock price volatility over the term of the awards, and certain other market variables such
as the risk-free interest rate.
Segment
Information
Accounting
Standards Codification (“ASC”) 280,
Disclosures about Segments of an Enterprise and Related Information
, establishes
standards for reporting information about operating segments and requires selected information for those segments to be presented
in the financial statements. It also establishes standards for related disclosures about products and services and geographic
areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is
available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate
resources and assess performance. Management has determined that the Company operates in one segment.
Fair
Value Measurement
Fair
value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction
between market participants. The authoritative guidance on fair value measurements establishes a consistent framework for measuring
fair value on either a recurring or nonrecurring basis whereby observable and unobservable inputs, used in valuation techniques,
are assigned a hierarchical level.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2017
(Unaudited; amounts
in thousands, except share and per share amounts, unless otherwise indicated)
The
following are the hierarchy levels of inputs to measure fair value:
|
Level
1
:
|
Inputs
that utilize quoted prices (unadjusted) in active markets for identical assets or liabilities.
|
|
Level
2
:
|
Inputs
that utilize observable quoted prices for similar assets and liabilities in active markets and observable quoted prices for
identical or similar assets in markets that are not very active.
|
|
Level
3:
|
Inputs
that utilize unobservable inputs and include valuations of assets or liabilities for which there is little, if any, market
activity.
|
A
financial asset or liability’s classification within the above hierarchy is determined based on the lowest level input that
is significant to the fair value measurement. At March 31, 2017 and December 31, 2016 the Company’s financial instruments
consist primarily of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses and short-term debt.
Due to their short-term nature, the carrying amounts of the Company’s financial instruments approximated their fair values.
Basic
and Diluted Loss Per Share
Basic net loss per share is computed
by dividing net loss available to common stockholders for the period by the weighted average number of common shares outstanding
during the period. Diluted net loss per share is computed by dividing net loss for the period by the weighted average number of
common shares outstanding during the period increased to include the number of additional shares of common stock that would have
been outstanding if potential dilutive securities outstanding had been issued. The Company uses the “treasury stock”
method to determine the dilutive effect of common stock equivalents such as options, warrants and restricted stock. For the three
months ended March 31, 2017 and 2016, 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.
Income
Taxes
Income
taxes are accounted for under the asset and liability method in accordance with ASC 740,
Accounting for Income Taxes
(“ASC
740”). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between
the financial carrying amounts of existing assets and liabilities and their respective tax bases as well as operating loss and
tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the periods in which those temporary differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred
tax assets are reduced by a valuation allowance to the extent that the recoverability of the asset is unlikely to be recognized.
The Company follows ASC 740 rules governing uncertain tax positions, which provides guidance for recognition and measurement.
This prescribes a threshold condition that a tax position must meet for any of the benefits of the uncertain tax position to be
recognized in the financial statements. It also provides accounting guidance on recognition, classification and disclosure of
these uncertain tax positions. The Company has no uncertain income tax positions.
Interest
costs and penalties related to income taxes are classified as interest expense and operating expenses, respectively, in the Company's
financial statements. For the three months ended March 31, 2017 and 2016, the Company did not recognize any interest or penalty
expense related to income taxes. The Company files income tax returns in the U.S. federal jurisdiction and states in which it
does business.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2017
(Unaudited; amounts
in thousands, except share and per share amounts, unless otherwise indicated)
NOTE
3 – RECENT ACCOUNTING PRONOUNCEMENTS
In
January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”)
No. 2017-04, Simplifying the Test for Goodwill, which accomplishes exactly what its title indicates by eliminating the second
step in the current goodwill impairment calculation. Currently there is a two-step process for determining the amount of any goodwill
impairment. In Step 1 an entity determines if the carrying value of the reporting unit (for which goodwill has been recorded)
exceeds the fair value of the reporting unit. If the calculation in Step 1 indicates that the carrying value of a reporting unit
for which goodwill has been recorded exceeds the fair value, the entity would have to determine the implied fair value of the
reporting unit’s goodwill. An impairment would be recorded to the extent that the goodwill carrying value exceeded
the implied fair value of goodwill at the reporting date. The amount of any goodwill impairment must take into consideration the
effects of income taxes for any tax deductible goodwill. The effective date to adopt the ASU is for fiscal years beginning after
December 15, 2019. The ASU is to be applied prospectively. Early adoption is permitted. The Company has evaluated
the impact of the updated guidance and has determined that the adoption of ASU 2017-04 is not expected to have a significant impact
on its consolidated financial statements.
In August 2016, the FASB issued ASU
2016-15, “Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force).”
The amendments in this Update relate to eight specific types of cash receipts and cash payments which current GAAP either is unclear
or does not include specific guidance on the cash flow classification issues. The amendments in this Update are effective for public
business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption
is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments
should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption
must adopt all of the amendments in the same period. The Company has adopted the provisions of this ASU for its fiscal year beginning
January 1, 2018. The adoption of ASU 2016-15 did not have a significant impact on its consolidated financial statements.
In May 2016, the FASB issued ASU 2016-12,
“Revenue from Contracts with Customers (Topic 606), Narrow Scope Improvements and Practical Expedients.” The amendments
in ASU 2016-12 affect only the narrow aspects of Topic 606 that are outlined in ASU 2016-12 and are effective for annual reporting
periods beginning after December 31, 2017, including interim reporting periods within that reporting period. The Company has evaluated
the impact of the updated guidance and has determined that the adoption of ASU 2016-12 is not expected to have a significant impact
on its consolidated financial statements.
In
April 2016, the FASB issued ASU 2016-10 “Revenue from Contracts with Customers: Identifying Performance Obligations and
Licensing.” The amendments in this Update affect entities with transactions included within the scope of Topic 606. The
scope of that Topic includes entities that enter into contracts with customers to transfer goods or services (that are an output
of the entity’s ordinary activities) in exchange for consideration. The Company has evaluated the impact of the updated
guidance and has determined that the adoption of ASU 2016-10 is not expected to have a significant impact on its consolidated
financial statements. The effective date to adopt the ASU is for fiscal years beginning after December 15, 2017.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2017
(Unaudited; amounts
in thousands, except share and per share amounts, unless otherwise indicated)
In March 2016, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2016-09, Compensation – Stock
Compensation (Topic 718): Improvements to Employee share-Based Payment Accounting (ASU 2016-09”). ASU 2016-09 provides guidance
designed to simplify several aspects of the accounting for share-based payment transactions, including guidance relating to accounting
for income taxes with respect to share-based payment awards; providing generally that excess tax benefits related to share-based
awards should be recorded as a reduction to income tax expense (currently, excess tax benefits generally are recorded to additional-paid-in-capital);
providing generally that excess tax benefits related to share-based awards should be classified along with other income tax cash
flows as an operating activity (currently, excess tax benefits generally are separated from other income tax cash flows and classified
as a financing activity); providing that an entity may make an accounting policy election either to base compensation cost accruals
on the number of awards expected to vest (as required by current guidance) or to account for forfeitures when they occur; modifying
the current exception to liability classification such that partial cash settlement of an award for tax withholding purposes would
not result, by itself, in liability classification of the award if the amount withheld does not exceed the maximum statutory tax
rate in the employees' applicable jurisdictions (currently, an award cannot qualify for equity classification, rather than liability
classification, if the amount withheld exceeds the minimum statutory withholding requirements); and providing that cash paid by
an employer when directly withholding shares for tax withholding purposes should be classified as a financing activity on the statement
of cash flows (currently there is no authoritative guidance addressing this classification issue). The guidance was effective for
fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Depending on the particular issue
addressed by the guidance, application of the guidance will be made prospectively, retrospectively or subject to a retrospective
transition method. The adoption of ASU 2016-09 did not have a significant impact on the consolidated financial statements.
In February 2016, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASU
2016-02”), which requires lessees to recognize on the balance sheet the assets and liabilities for the rights and obligations
created by leases with lease terms of more than 12 months. The recognition, measurement, and presentation of expenses and cash
flows arising from a lease by a lessee will continue to primarily depend on its classification as a finance or operating lease.
However, unlike current accounting principles generally accepted in the U.S. (“U.S. GAAP”), which requires only capital
leases to be recognized on the balance sheet, ASU 2016-02 will require both types of leases to be recognized on the balance sheet.
ASU 2016-02 also requires disclosures about the amount, timing, and uncertainty of cash flows arising from leases. These disclosures
include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial
statements. ASU 2016-02 is effective beginning January 1, 2019, with early application permitted. We are currently evaluating
the effect that the updated standard will have on our consolidated financial statements.
In November 2015, the FASB issued ASU
No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”) ASU 2015-17
requires that deferred tax assets and liabilities be classified as noncurrent in a classified statement of financial position.
The amendments in this Update may be applied either prospectively to all deferred tax liabilities and assets or retrospectively
to all periods presented and was e
ffective for periods beginning after
December 15, 2016. The adoption of ASU 2015-17 did not have a significant impact on the consolidated financial statements.
In July 2015, the FASB issued ASU No.
2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”), which changes the measurement
principle for inventory from the lower of cost or market to the lower of cost and net realizable value. ASU 2015-11 defines net
realizable value as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion,
disposal, and transportation. The new guidance must be applied on a prospective basis by us beginning January 1, 2017, with early
adoption permitted. The Company has evaluated the impact of the updated guidance and has determined that the adoption of ASU 2015-17
did not have a significant impact on the consolidated financial statements.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2017
(Unaudited; amounts
in thousands, except share and per share amounts, unless otherwise indicated)
In
April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”),
which requires all debt issuance costs be presented in the balance sheet as a direct deduction from the carrying value of the
associated debt. Prior to the issuance of this standard, debt issuance costs, which are specific incremental costs, other than
those paid to the lender, that are directly attributable to issuing a debt instrument (i.e., third party costs), were required
to be presented in the balance sheet as a deferred charge (i.e., an asset). Under ASU 2015-03, the presentation of debt issuance
costs is consistent with the presentation for a debt discount, (i.e., a direct adjustment to the carrying value of the debt).
ASU 2015-03 does not affect the recognition and measurement of debt issuance costs. Accordingly, the amortization of such costs
should continue to be calculated using the interest method and be reported as interest expense. ASU 2015-03 is effective for us
beginning January 1, 2016. The Company has evaluated the impact of the updated guidance and has determined that the adoption
of ASU 2015-03 does not have an impact on its consolidated financial statements and related disclosures.
In
August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40):
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”).
The amendments in this update define management’s responsibility to evaluate whether there is substantial doubt about an
organization’s ability to continue as a going concern and provides related footnote disclosure requirements. Under U.S.
GAAP, financial statements are prepared under the presumption that the reporting organization will continue to operate as a going
concern, except in limited circumstances. Financial reporting under this presumption is commonly referred to as the going concern
basis of accounting. The going concern basis of accounting establishes the fundamental basis for measuring and classifying assets
and liabilities. This update provides guidance on when there is substantial doubt about an organization’s ability to continue
as a going concern and how the underlying conditions and events should be disclosed in the footnotes. It is intended to reduce
diversity that existed in footnote disclosures because of the lack of guidance about when substantial doubt existed. The amendments
in this update are effective for us beginning December 31, 2016. The Company has evaluated the impact of the updated guidance
and has disclosed the impact in the footnotes on its consolidated financial statements
In
May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”). ASU
2014-09 supersedes nearly all existing revenue recognition guidance under U.S. GAAP and requires revenue to be recognized when
promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received
for those goods or services. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant
judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. This accounting guidance
is effective for us beginning January 1, 2018 using one of two prescribed transition methods. We have evaluated the effect that
the updated standard will have on our consolidated financial statements and related disclosure and the Company does not expect
the adoption to have a significant impact on its consolidated financial statements.
NOTE
4 – INVENTORIES, NET
Inventories,
net at March 31, 2017 and December 31, 2016 consisted of the following:
(In thousand $)
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Raw materials
|
|
$
|
2,299
|
|
|
$
|
2,378
|
|
Work in process
|
|
|
43
|
|
|
|
5
|
|
Finished goods
|
|
|
232
|
|
|
|
188
|
|
|
|
|
2,574
|
|
|
|
2,571
|
|
Less: inventory reserves
|
|
|
(709
|
)
|
|
|
(709
|
)
|
Inventories, net
|
|
$
|
1,865
|
|
|
$
|
1,862
|
|
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2017
(Unaudited; amounts
in thousands, except share and per share amounts, unless otherwise indicated)
NOTE
5 – FIXED ASSETS
Fixed
assets at March 31, 2017 and December 31, 2016 consisted of the following:
(In thousand $)
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Furniture, fixtures and equipment
|
|
$
|
116
|
|
|
$
|
116
|
|
Computers and software
|
|
|
66
|
|
|
|
66
|
|
Leasehold improvements
|
|
|
239
|
|
|
|
239
|
|
Other
|
|
|
7
|
|
|
|
7
|
|
Total fixed assets
|
|
|
428
|
|
|
|
428
|
|
Less: accumulated depreciation
|
|
|
(208
|
)
|
|
|
(195
|
)
|
Net book value of fixed assets
|
|
$
|
220
|
|
|
$
|
233
|
|
Depreciation
expense was $13 and $14 for the three months ended March 31, 2017 and 2016, respectively. Repairs and maintenance costs are expensed
as incurred.
NOTE
6 – DEBT
Convertible Note
On December 17, 2015, concurrent with
the execution of the Purchase Agreement with RENS Technology Inc., the Company issued an unsecured promissory note in the principal
amount of $575 (the “Note”) to Gan Ren, a related party of RENS Agriculture. The Note accrued interest at a rate of
8% per annum and matured on December 17, 2016. On December 17, 2016, the Note and accrued interest of $46 were automatically
converted into 225,864 shares of common stock at $2.75 per share.
Term
Note
On
September 10, 2015, the Company converted its outstanding revolving note with City National Bank, which had a termination date
of August 31, 2015, into a term note (the “Term Note”). The Term Note provided that the then outstanding balance of
$400 shall be payable along with interest thereon on the last day of each month in four (4) consecutive installments of $100.
At December 31, 2015, the balance under the Term Note was $100, which was subsequently paid in full January 7, 2016.
NOTE
7 – PREPAID EXPENSES, ACCRUED EXPENSES, OTHER CURRENT ASSETS AND LIABILITIES
Prepaid
Expenses and Other Current Assets
Prepaid
expenses and other current assets consist of various payments that the Company has made in advance for goods or services to be
received in the future. Prepaid expenses and other current assets at March 31, 2017 and December 31, 2016 consisted of the following:
(In thousand $)
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Prepaid insurance
|
|
$
|
54
|
|
|
$
|
27
|
|
Prepaid inventory purchases
|
|
|
32
|
|
|
|
1
|
|
Prepaid consulting
|
|
|
55
|
|
|
|
50
|
|
Other
|
|
|
125
|
|
|
|
7
|
|
Total prepaid expenses and other current assets
|
|
$
|
266
|
|
|
$
|
85
|
|
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2017
(Unaudited; amounts
in thousands, except share and per share amounts, unless otherwise indicated)
Accrued
Expenses and Other Current Liabilities
Accrued
expenses and other current liabilities consist of estimated future payments that relate to the current and prior accounting periods.
Management reviews these estimates regularly to determine their reasonableness. Accrued expenses and other current liabilities
at March 31, 2017 and December 31, 2016 consisted of the following:
(In thousand $)
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Advertising and promotional expense payable
|
|
$
|
171
|
|
|
$
|
171
|
|
Professional fees
|
|
|
-
|
|
|
|
88
|
|
Deferred rent
|
|
|
23
|
|
|
|
40
|
|
Deferred revenue
(1)
|
|
|
-
|
|
|
|
56
|
|
Other accrued expenses
|
|
|
-
|
|
|
|
62
|
|
Total accrued expenses
|
|
$
|
194
|
|
|
$
|
417
|
|
(1)
|
Deferred
revenue represents revenue in connection with a purchase order received in October 2016 for a $115 sale along with $56 in
cash. The sale was deferred as of December 31, 2016. The order was shipped in January 2017 and received by the purchaser in
March 2017. The revenue was recognized and a receivable for the $59 remaining was recorded.
|
Note
8 – Stockholders’ Equity
Changes
in stockholders’ equity for the three months ended March 31, 2017 were as follows:
(In thousand $)
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
paid-in
|
|
|
Accumulated
|
|
|
stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
deficit
|
|
|
equity
|
|
Balance at December 31, 2016
|
|
|
5,344,372
|
|
|
$
|
5
|
|
|
$
|
33,099
|
|
|
$
|
(27,786
|
)
|
|
$
|
5,318
|
|
Net proceeds from sale of common stock
|
|
|
500,000
|
|
|
|
1
|
|
|
|
1,925
|
|
|
|
-
|
|
|
|
1,926
|
|
Stock-based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
41
|
|
|
|
-
|
|
|
|
41
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,117
|
)
|
|
|
(1,117
|
)
|
Balance at March 31, 2017
|
|
|
5,844,372
|
|
|
$
|
6
|
|
|
$
|
35,065
|
|
|
$
|
(28,903
|
)
|
|
$
|
6,168
|
|
Registered
Direct Offering
On February 3, 2017, the Company entered
into a securities purchase agreement with an institutional investor providing for the issuance and sale by the Company of 500,000
shares of common stock, in a registered direct offering at a purchase price of $4.25 per share, for gross proceeds of $2,125.
The offering closed on February 8, 2017. Offering costs of $200 were recognized as an offset to additional paid in capital.
Preferred
Stock Purchase Rights
Effective February 14, 2017, the Board of Directors
declared one Right for each of the Company’s issued and outstanding shares of common stock. The Rights were granted to the
stockholders of record at the close of business on February 24, 2017. Each Right entitles the registered holder, upon the occurrence
of certain events specified in the Rights Agreement to purchase from the Company one one-thousandth of a share of the Company’s
Series A Preferred Stock at a price of $7.00), subject to certain adjustments.
The Rights are not exercisable until
the occurrence of certain events, including a person acquiring or obtaining the right to acquire beneficial ownership of 10%
or more of the Company’s outstanding common stock. The Rights are evidenced by certificates for the common stock
and automatically transfer with the common stock unless they become exercisable. If the Rights become exercisable,
separate certificates evidencing the Rights will be distributed to each holder of common stock. Holders of the preferred
stock will be entitled to certain dividend, liquidation and voting rights. The rights are redeemable by us at a fixed price
as determined by the Board, after certain defined events. As of March 31, 2017, 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 these
rights have de minimis fair value. The description and terms of the Rights are set forth in the Rights Agreement dated as of
February 14, 2017 between the Company and Island Stock Transfer, as Rights Agent.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2017
(Unaudited; amounts
in thousands, except share and per share amounts, unless otherwise indicated)
Issuance
of Common Stock
The
Company has periodically issued common stock in connection with certain private and public offerings. For the three months ended
March 31, 2017 and March 31, 2016, the Company has received aggregate gross proceeds of $7,375 from these offerings
as follows:
(In thousand $)
|
|
|
|
|
Gross
|
|
Date
|
|
Shares
|
|
|
Proceeds
|
|
March 6, 2016
|
|
|
1,500,000
|
(1)
|
|
$
|
5,250
|
|
February 8, 2017
|
|
|
500,000
|
(2)
|
|
|
2,125
|
|
|
|
|
2,000,000
|
|
|
$
|
7,375
|
|
(1)
|
Shares
issued pursuant to the closing of the first tranche of the Financing with RENS Technology Inc.
|
(2)
|
Shares
issued pursuant to a registered direct offering with an institutional investor.
|
Note
9 – Warrants
On
March 3, 2016, the Company completed the first tranche of the Financing, pursuant to which the Purchaser acquired a warrant to
purchase 375,000 shares of common stock. The warrant is immediately exercisable upon issuance, will expire five years after issuance
and has an exercise price of $7.00 per share. The First Closing Warrant was determined to have an estimated aggregate fair value
of $480 at issuance.
The
following table summarizes information about outstanding and exercisable warrants at March 31, 2017:
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Underlying
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Warrants
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Exchanged,
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
Exercised
|
|
|
Outstanding
|
|
|
|
|
|
Expiration
|
|
|
|
|
Originally
|
|
|
or
|
|
|
and
|
|
|
Exercise
|
|
|
Term
|
Description
|
|
Grant Date
|
|
Granted
|
|
|
Expired
|
|
|
Exercisable
|
|
|
Price
|
|
|
in years
|
Series A
(1)
|
|
January 27, 2014
|
|
|
315,676
|
|
|
|
(315,676
|
)
|
|
|
-
|
|
|
|
N/A
|
|
|
N/A
|
Series B
(1)
|
|
January 27, 2014
|
|
|
157,846
|
|
|
|
-
|
|
|
|
157,846
|
|
|
$
|
45.00
|
|
|
2.07
|
Series C
(2)
|
|
November 19, 2014
|
|
|
145,399
|
|
|
|
(142,957
|
)
|
|
|
2,442
|
|
|
$
|
12.00
|
|
|
3.38
|
|
|
|
|
|
|
|
|
|
142,957
|
|
|
|
142,957
|
|
|
$
|
9.00
|
|
|
3.38
|
Series D
(2)
|
|
November 19, 2014
|
|
|
193,865
|
|
|
|
(193,865
|
)
|
|
|
-
|
|
|
|
N/A
|
|
|
N/A
|
Series E
(2)
|
|
November 19, 2014
|
|
|
145,399
|
|
|
|
(145,399
|
)
|
|
|
-
|
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
142,957
|
|
|
|
142,957
|
|
|
$
|
9.00
|
|
|
5.38
|
Rens
(3)
|
|
March 3, 2016
|
|
|
375,000
|
|
|
|
-
|
|
|
|
375,000
|
|
|
$
|
7.00
|
|
|
2.31
|
|
|
|
|
|
1,333,185
|
|
|
|
(511,983
|
)
|
|
|
821,202
|
|
|
|
|
|
|
|
(1)
|
Issued
in connection with the January 27, 2014 private placement transaction.
|
(2)
|
Issued
in connection with the November 19, 2014 registered-direct public offering, and subsequently revised pursuant to Warrant Exercise
Agreements entered into on May 18, 2015.
|
(3)
|
Shares
issued pursuant to the closing of the first tranche of the Financing with RENS Technology Inc.
|
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2017
(Unaudited; amounts
in thousands, except share and per share amounts, unless otherwise indicated)
The
following table summarizes the activities in warrants for the three months ended March 31, 2017:
|
|
Shares Underlying Warrants
|
|
|
Average
Exercise
Price
|
|
Balance at December 31, 2016
|
|
|
1,136,878
|
|
|
$
|
15.01
|
|
Warrants expired
|
|
|
(315,676
|
)
|
|
|
15.00
|
|
Balance at March 31, 2017
|
|
|
821,202
|
|
|
$
|
15.02
|
|
The
following table summarizes the assumptions used to value the warrants at the issuance date using the Black-Scholes option pricing
model:
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant /
|
|
Underlying
|
|
|
Price on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modification
|
|
Warrants
|
|
|
Measurement
|
|
|
Exercise
|
|
|
Expected
|
|
|
Expected
|
|
|
Dividend
|
|
|
Risk Free
|
|
Description
|
|
Date
|
|
Granted
|
|
|
Date
|
|
|
Price
|
|
|
Term
|
|
|
Volatility
|
|
|
Yield
|
|
|
Rate
|
|
Series B
|
|
1/27/2014
|
|
|
157,846
|
|
|
$
|
7.00
|
|
|
$
|
45.00
|
|
|
|
5.00
|
|
|
|
150.00
|
%
|
|
|
0.00
|
%
|
|
|
1.61
|
%
|
Series C
|
|
11/19/2014
|
|
|
145,399
|
|
|
$
|
9.37
|
|
|
$
|
12.00
|
|
|
|
5.50
|
|
|
|
94.60
|
%
|
|
|
0.00
|
%
|
|
|
1.64
|
%
|
Repricing Series C
|
|
5/18/2015
|
|
|
142,957
|
|
|
$
|
5.95
|
|
|
$
|
9.00
|
|
|
|
5.00
|
|
|
|
96.34
|
%
|
|
|
0.00
|
%
|
|
|
1.46
|
%
|
Series D
|
|
11/19/2014
|
|
|
193,865
|
|
|
$
|
9.37
|
|
|
$
|
9.37
|
|
|
|
0.50
|
|
|
|
93.44
|
%
|
|
|
0.00
|
%
|
|
|
0.07
|
%
|
Repricing Series D
|
|
5/18/2015
|
|
|
190,609
|
|
|
$
|
5.95
|
|
|
$
|
5.25
|
|
|
|
0.00
|
|
|
|
226.56
|
%
|
|
|
0.00
|
%
|
|
|
0.02
|
%
|
Series E
|
|
11/19/2014
|
|
|
145,399
|
|
|
$
|
9.37
|
|
|
$
|
15.00
|
|
|
|
7.50
|
|
|
|
94.60
|
%
|
|
|
0.00
|
%
|
|
|
1.64
|
%
|
Repricing Series E
|
|
5/18/2015
|
|
|
142,957
|
|
|
$
|
5.95
|
|
|
$
|
9.00
|
|
|
|
7.00
|
|
|
|
96.34
|
%
|
|
|
0.00
|
%
|
|
|
1.87
|
%
|
Rens Technology
|
|
3/3/2016
|
|
|
375,000
|
|
|
$
|
7.00
|
|
|
$
|
7.00
|
|
|
|
4.00
|
|
|
|
96.34
|
%
|
|
|
0.00
|
%
|
|
|
1.87
|
%
|
NOTE
10 – STOCK COMPENSATION
Equity
Incentive Plan
The Company increased the number of
shares available for issuance under its 2012 Equity Incentive Plan (as amended, the “Plan”) from 550,000 to 850,000
in November 2016, which was approved by the Company’s shareholders in December 2016. The Plan provides for grants of stock
options, stock appreciation rights, restricted stock, other stock-based awards and other cash-based awards. As of March 31, 2017,
the remaining shares of common stock available for future issuances of awards was 549,660. The Company granted an aggregate of
30,000 options to purchase restricted common stock to certain directors prior to the adoption of the Plan. Stock options generally
vest and become exercisable with respect to 100% of the common stock subject to such stock option on the third (3rd) anniversary
of the date of grant. Any unvested portion of a stock option shall expire upon termination of employment or service of the participant
granted the stock option, and the vested portion shall remain exercisable in accordance with the provisions of the Plan.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2017
(Unaudited; amounts
in thousands, except share and per share amounts, unless otherwise indicated)
Stock
Options
The
following table summarizes stock option activity for the three months ended March 31, 2017:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
Shares
|
|
|
Average
|
|
|
Remaining
|
|
|
|
Under
|
|
|
Exercise
|
|
|
Contractual
|
|
|
|
Options
|
|
|
Price
|
|
|
Term (Years)
|
|
Balance at December 31, 2016
|
|
|
300,340
|
|
|
$
|
15.09
|
|
|
|
6.71
|
|
Options granted
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Options cancelled
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2017
|
|
|
300,340
|
|
|
$
|
15.09
|
|
|
|
6.46
|
|
At
March 31, 2017 and December 31, 2016, the exercisable options had no intrinsic value.
The
following table summarizes information about options outstanding and exercisable at March 31, 2017 that were granted under the
Plan:
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
Weighted Average
|
Exercise
|
|
|
Options
|
|
|
Remaining
|
|
|
Exercise
|
|
|
Options
|
|
|
Remaining
|
Price
|
|
|
Outstanding
|
|
|
Contractual Life
|
|
|
Price
|
|
|
Exercisable
|
|
|
Contractual Life
|
$
|
7.00
|
|
|
|
5,000
|
|
|
|
5.40
|
|
|
$
|
7.00
|
|
|
|
5,000
|
|
|
5.40
|
$
|
8.60
|
|
|
|
22,000
|
|
|
|
7.19
|
|
|
$
|
8.60
|
|
|
|
22,000
|
|
|
7.19
|
$
|
10.00
|
|
|
|
5,040
|
|
|
|
6.11
|
|
|
$
|
10.00
|
|
|
|
5,040
|
|
|
6.11
|
$
|
11.00
|
|
|
|
3,000
|
|
|
|
6.02
|
|
|
$
|
11.00
|
|
|
|
3,000
|
|
|
6.02
|
$
|
12.10
|
|
|
|
30,500
|
|
|
|
7.35
|
|
|
$
|
12.10
|
|
|
|
30,500
|
|
|
7.35
|
$
|
12.50
|
|
|
|
94,800
|
|
|
|
7.42
|
|
|
$
|
12.50
|
|
|
|
53,050
|
|
|
6.94
|
$
|
13.45
|
|
|
|
2,000
|
|
|
|
7.47
|
|
|
$
|
13.45
|
|
|
|
1,000
|
|
|
7.47
|
$
|
13.50
|
|
|
|
12,000
|
|
|
|
7.49
|
|
|
$
|
13.50
|
|
|
|
6,000
|
|
|
7.49
|
$
|
13.75
|
|
|
|
6,000
|
|
|
|
7.67
|
|
|
$
|
13.75
|
|
|
|
6,000
|
|
|
7.67
|
$
|
17.50
|
|
|
|
100,000
|
|
|
|
6.11
|
|
|
$
|
17.50
|
|
|
|
100,000
|
|
|
6.11
|
$
|
32.00
|
|
|
|
15,000
|
|
|
|
4.54
|
|
|
$
|
32.00
|
|
|
|
15,000
|
|
|
4.54
|
$
|
34.50
|
|
|
|
5,000
|
|
|
|
4.57
|
|
|
$
|
34.50
|
|
|
|
5,000
|
|
|
4.57
|
|
|
|
|
|
300,340
|
|
|
|
|
|
|
|
|
|
|
|
251,590
|
|
|
|
As of March 31, 2017, 251,590 options
have vested and 48,750 options remain unvested. The vesting terms range from zero to 4.5 years and the vested options have a weighted
average remaining term of 6.46 years and a weighted average exercise price of $15.09 per share.
Restricted
Stock
The
following table summarizes restricted stock awards activity for the three months ended March 31, 2017:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Share Price
|
|
Restricted stock awards unvested at December 31, 2016
|
|
|
53,857
|
|
|
$
|
2.74
|
|
Granted
|
|
|
-
|
|
|
|
|
|
Vested
|
|
|
32,457
|
|
|
|
2.35
|
|
Forfeited
|
|
|
-
|
|
|
|
|
|
Restricted stock awards unvested at March 31, 2017
|
|
|
21,140
|
|
|
$
|
2.75
|
|
At
March 31, 2017 weighted-average remaining vesting period of unvested restricted stock awards was 2.53 years.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2017
(Unaudited; amounts
in thousands, except share and per share amounts, unless otherwise indicated)
Stock-Based
Compensation:
Stock-based
compensation was $41 and $97 for the three months ended March 31, 2017 and 2016, respectively. Stock-based compensation consists
of expenses related to the issuance of stock options and restricted stock.
The
aggregate unrecognized compensation expense of stock options and restricted stock at March 31, 2017 was $210, which will be recognized
through January 2019.
Note
11 – Commitments and Contingencies
Supply Agreement
On November 18, 2016, the Company entered
into an Amended Supply Agreement with DIL Technologie GmbH (“ DIL ”). Pursuant to the agreement (and so long as the
agreement is effective), DIL will manufacture and supply the Company with Fortetropin®, the active ingredient for its products,
and the Company will purchase quantities of Fortetropin® from DIL in its discretion. DIL will manufacture the formula exclusively
for the Company in perpetuity, and may not manufacture the formula for other entities (but may manufacture it for its own non-commercial
research). The Company agreed, commencing January 2017, to pay DIL €10,000 (approximately $11,000) per month for collaborative
research. The monthly payments terminate upon the earlier of: (a) the date that the Company orders additional product in accordance
with the terms of the agreement and (b) December 31, 2018, and the Company has no further financial obligations to DIL thereafter.
The Company also agreed to pay DIL €400,000 (approximately $525,000 as of [March 31, 2017]) in satisfaction of
all prior liabilities and obligations under its prior agreements with DIL. The agreement expires on December 31, 2018, and the
Company has the unilateral right to renew the agreement for subsequent one-year terms. At March 31, 2017, the future minimum payments
under the supply agreement were as follows:
(In thousand $)
|
|
|
|
Years Ended December 31,
|
|
Amount
|
|
2017 (remaining nine months)
|
|
$
|
99
|
|
2018
|
|
|
132
|
|
Total
|
|
$
|
221
|
|
Operating
Lease
The
Company leases its corporate offices under an operating lease. The term of the lease is five years commencing on January 1, 2015
and expiring on December 31, 2019. We have two options to renew our lease for an additional three years each. At March 31, 2017,
the future minimum lease payments under the non-cancellable operating lease in excess of one year is as follows:
(In thousand $)
|
|
|
|
Years Ended December 31,
|
|
Amount
|
|
2017 (remaining nine months)
|
|
$
|
48
|
|
2018
|
|
|
71
|
|
2019
|
|
|
72
|
|
Total
|
|
$
|
191
|
|
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2017
(Unaudited; amounts
in thousands, except share and per share amounts, unless otherwise indicated)
Rent
expense including common area maintenance charges and taxes for the three months ended March 31, 2017 and 2016 was $21 and $76,
respectively.
Defined
Contribution Plan
The Company established a 401(K) Plan
(the “401(K) Plan”) for eligible employees of the Company effective April 1, 2014. Generally, all employees of the
Company who are at least twenty-one years of age and who have completed three months of service are eligible to participate in
the 401(K) Plan. The 401(K) Plan is a defined contribution plan that provides that participants may make salary deferral contributions,
of up to the statutory maximum allowed by law (subject to catch-up contributions) in the form of voluntary payroll deductions.
The Company’s matching contribution is equal to 100 percent on the first four percent of a participant’s compensation
which is deferred as an elective deferral. The Company’s aggregate matching contributions were $5 and $7 for the three months
ended March 31, 2017 and 2016, respectively.
Product Liability
As a manufacturer of nutritional supplements
that are ingested by consumers, the Company may be subject to various product liability claims. Although we have not had any claims
to date, it is possible that future product liability claims could have a material adverse effect on our business or financial
condition, results of operations or cash flows. The Company currently maintains product liability insurance of $5 million per-occurrence
and a $10 million annual aggregate coverage. At March 31, 2017 and December 31, 2016, the Company had not recorded any accruals
for product liability claims.
Note
12 – Related Party Transactions
The
following is a description of the transactions we have engaged in with our directors, director nominees and officers and beneficial
owners of more than five percent of our voting securities and their affiliates:
On
August 1, 2015, we entered into a consulting agreement with Muscle Longevity LLC, a company that has the same owner as Ultra Pro
Sports, LLC, a then greater than 5% beneficial owner of our common stock. Under the terms of the agreement, Muscle Longevity LLC
then agreed to provide introductions and referrals to new distribution channels for our products including, but not limited to,
health and wellness centers and sports nutrition companies and to conduct industry research and advise us regarding distributors,
markets, and sales opportunities for the Company’s products. As compensation for the services, Muscle Longevity LLC was
paid a consulting fee of $16 per month. The agreement was terminated in October 2016.
On
December 17, 2015, concurrent with the execution of the Purchase Agreement with RENS Technology Inc., the Company issued an unsecured
promissory note in the principal amount of $575 (the “Note”) to Gan Ren, a related party of RENS Agriculture. The
Note accrued interest at a rate of 8% per annum and matured (the “Maturity Date”) on December 17, 2016. On the
Maturity Date, the Note and accrued interest of $46 were automatically converted into 225,864 shares of Common Stock at $2.75
per share.
On
December 17, 2015, we entered into the Purchase Agreement with Rens Technology Inc. (the “Purchaser”), an entity which
is controlled by Ren Ren, who is currently a director of the Company and its largest stockholder. For additional information refer
to Note 1 – Strategic Investment Transaction. The Board agreed to issue Mr. Ren 18,182 shares of the Company’s common
stock upon completion of the first tranche of the Financing for his services to the Company as a member of the Board. (See Note
13 - Legal Proceedings)
In the first quarter of 2017, we recorded a sale of $116 for product shipped to RENS Agriculture
and set up a receivable for $59 for the amount due upon receipt of the product.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2017
(Unaudited; amounts
in thousands, except share and per share amounts, unless otherwise indicated)
Note
13 – legal PROCEEDINGS
On
January 6, 2017, the Company commenced an action in the Supreme Court of New York, County of New York, against RENS Technology,
Inc. ("the Purchaser"), RENS Agriculture, the parent company of the Purchaser, and Ren Ren, a principal in both entities
and a director of the Company, arising from the Purchaser's breach of a Securities Purchase Agreement under which the Purchaser
agreed to invest an aggregate of $20.25 million in the Company in exchange for an aggregate of 3,537,037 shares of common stock
of the Company and warrants to purchase an aggregate of 884,259 shares of common stock. In addition to seeking compensatory, consequential
and other damages in the action, the Company asked the Court to preliminarily restrain the Purchaser and its agents and representatives,
including, but not limited to, RENS Agriculture and Ren Ren, from selling, transferring, conveying, assigning, hypothecating or
encumbering 1,500,000 shares of common stock of the Company and a warrant permitting the purchase of 375,000 share at a price
of $7.00 per share that the Purchaser had purchased under the Securities Purchase Agreement and, after the parties had an opportunity
to submit opposition and reply papers in connection with the Company's application, a preliminary injunction prohibiting the Purchaser
from selling, transferring, conveying, assigning, hypothecating or encumbering the 1,500,000 shares and warrant during the pendency
of the action and an order attaching the stock and warrant to satisfy any judgment entered in favor of the Company.
On January 11, 2017, the Court granted
the Company the preliminary restraints that it requested, which prevents RENS Technology, among others, from selling, transferring,
conveying, assigning, hypothecating or encumbering the 1,500,000 shares of the Company’s common stock or the aforementioned
warrant. The Court scheduled a hearing on February 14, 2017, at which time the Court heard oral argument on the application
for a preliminary injunction and prejudgment attachment of the stock and warrants to satisfy any judgment entered in favor of the
Company. Since then, RENS Technology filed a motion to dismiss the complaint which the Company has opposed.
On April 11, 2017, the Court denied
the Company’s application for a prejudgment attachment of the 1,500,000 shares of common stock and warrant and a preliminary
injunction in aid of the attachment to prevent a sale, transfer, or hypothecation of those shares and warrant, and vacating the
preliminary restraints which it had previously entered. However, the Court noted that the Company had demonstrated a likelihood
of success on the merits of the breach of contract claim. An application by RENS Technology to dismiss the complaint and various
pre-trial discovery applications by both parties are currently set for oral argument on May 23, 2017.
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.
Note
14 – Subsequent Events
In April 2017 the Company entered into an
agreement with the College of Veterinary Medicine at Kansas State University to study the impact of Fortetropin on reducing
muscle atrophy in dogs after ligament tear repair surgery. The study is expected to cost $32, begin in the second quarter of 2017
and be completed by the second quarter of 2018.