NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 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 in order to have 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 bio-nutrition and bio-therapeutics 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. The Company’s
activities are subject to significant risks and uncertainties.
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. Our commercial focus is to leverage our clinical data to develop multiple
products to target the large and currently underserved markets focused on muscle health.
In
February 2014 we expanded our commercial operations into the age management market under a distribution agreement with Cenegenics
Product and Lab Services, LLC (“Cenegenics”), where Cenegenics distributes and promotes a proprietary formulation
containing Fortetropin through its age management centers and its community of physicians focused on treating a growing population
of patients focused on proactively addressing age-related health and wellness concerns. The distribution agreement with Cenegenics
expired in December 2016. In May 2017, we received a purchase order from Cenegenics to deliver more product to them 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 nutrition powders each powered by a full 6.6 gram single serving dose of Fortetropin.
In March 2017, the Company stopped selling these products.
In
March 2017, the Company launched Qurr
®
, a line of flavored puddings, powders and shakes all shown to be safe for
daily use. This Fortetropin
®
-powered product line is formulated to support the vital role of muscle in overall
well-being as well as in fitness. Qurr’s muscle-focused, over-the-counter products are available through convenient direct
online ordering. 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.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 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”). As set forth in the Purchase Agreement 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 was to 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 would acquire 1,111,111 Shares and 277,778 Warrants (the “Third
Warrant”) for $10.0 million. Each of the Warrants would be immediately exercisable upon issuance, would expire five years
after issuance and would 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 parent of RENS Technology, Inc., and the son of Ren Ren, one of our directors. 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 remaining obligation to
fund the second tranche of the Financing notwithstanding its confirmation to the Company in June 2016 that it would provide such
funding in accordance with the terms of the Purchase Agreement. The Purchase Agreement provides that in the event that the Purchaser
notifies the Company that it does not intend to fund the Second Closing Subscription Amount, the Purchaser is required to take
all requisite action to cause the resignation or removal of one of its designees on the Board of Directors of the Company. Pursuant
to the terms of the Purchase Agreement, effective August 23, 2016, Guiying Zhao resigned as a director of the Company. In addition,
the Purchaser’s Rights terminated, effective August 19, 2016.
On January 6, 2017, the Company commenced
an action in the Supreme Court of New York, County of New York, (the “Court”) against the Purchaser, RENS Agriculture
Science & Technology Co., Ltd (“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 the Securities Purchase Agreement.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017
(Unaudited;
amounts in thousands, except share and per share amounts, unless otherwise indicated)
In
addition to seeking compensatory, consequential and other damages in the action, the Company asked the Court to preliminarily
restrain RENS Technology, Inc. and its agents and representatives, including, but not limited to, RENS Agriculture and Ren Ren,
from selling, transferring, conveying, assigning, hypothecating or encumbering the 1,500,000 shares of common stock of the Company
and warrants 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 had 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. As a result, RENS Technology filed a motion to dismiss the complaint to which the
Company filed opposition papers.
On
April 11, 2017, the Court denied the Company’s application for a prejudgment attachment of the Purchaser’s acquired
shares and warrant and a preliminary injunction in aid of the attachment to prevent a sale, transfer, or hypothecation of such
securities, and vacating the preliminary restraints which it had previously entered. However, the Court noted that the Company’s
had demonstrated a likelihood of success on the merits of the breach of contract claim. An application by the Purchaser to dismiss
the complaint and various pre-trial discovery applications by both parties was scheduled for oral argument, but we thereafter
amended the complaint in August 2017. The amended complaint repeated most of the initial claims but added a number of 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. The Company is seeking damages and injunctive relief. The Purchaser
has filed a motion to dismiss the amended complaint, which is still pending.
On August 16, 2017,
the Purchaser commenced an action in the District Court of Clark County in the State of Nevada against the Company and Joseph Mannello,
the Company’s then interim Chief Executive Officer, alleging that Mr. Mannello had breached his fiduciary duties and was
grossly negligent in managing our Company. The action seeks monetary damages and injunctive relief from Mr. Mannello as well as
the appointment of a receiver over the Company. Subsequently, the Purchaser submitted a petition to appoint a receiver and the
Company and Mr. Mannello submitted a motion to dismiss the action, both of which are currently pending and are due to be heard
in December 2017.
Going Concern and Liquidity
The accompanying financial statements have
been prepared in accordance with U.S. GAAP, which contemplates the continuation of the Company as a going concern. As of September
30, 2017 the Company had cash of $468 and working capital of $2,360 (current assets of $2,845 less current liabilities of $485).
Subsequent to the end of the quarter, on October 26, 2017 the Company raised $1,070 from the sale of 500,000 shares of common stock
at $2.144 per share. (See Note 14).
The Company continues to incur recurring losses
from operations and had a net loss of $4,341 for the year ended December 31, 2016. For the three months ended September 30, 2017
and 2016 the Company incurred a net loss of $753 and $866, respectively. For the nine months ended September 30, 2017 and 2016,
the Company incurred a net loss of $2,976 and $3,589, respectively. For the nine months ended September 30, 2017 and 2016, net
cash used in operating activities was $3,200 and $3,031, 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) This
raises substantial doubt about the Company’s ability to continue as a going concern. Accordingly, the Company is evaluating
various alternatives, including reducing operating expenses, securing additional financing through debt or equity securities to
fund future business activities and other strategic alternatives. There can be no assurance that the Company will be able to generate
the level of operating revenues projected 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 become available, the Company’s future operating prospects may be
adversely affected. The financial statements do not reflect any adjustments that may result as a result of these uncertainties.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017
(Unaudited;
amounts in thousands, except share and per share amounts, unless otherwise indicated)
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 September 30, 2017 there were no shares sold under this program. Subsequent to the end of the quarter,
on October 26, 2017 the Company raised $1,070 through the sale of 500,000 shares of common stock at $2.144 per share under the
program. (See Note 14)
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
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 judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation
or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate,
could change in the near term due to one or more future non-conforming events. Accordingly, actual results could differ significantly
from these 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 twelve 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 the 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 September 30, 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.
As
part of our ongoing liquidity assessments, management evaluates our cash. The amount of funds held in the Company’s bank
accounts can fluctuate due to the timing of receipts, payments in the ordinary course of business and other reasons, such as business-development
activities so the Company may have exposure to cash in excess of FDIC insured limits.
Accounts
Receivable, net
Accounts receivable consist primarily of trade
amounts due from customers and from un-cleared credit card transactions. It also includes holdback amounts from credit card companies.
Accounts receivable are recorded at invoiced amounts and do not bear interest.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017
(Unaudited;
amounts in thousands, except share and per share amounts, unless otherwise indicated)
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. Inventories are valued at the
lower of cost or market, with cost determined on a first-in, first-out basis. Our policy is to recognize an inventory reserve
as a loss in earnings in the period in which evidence exists that the market value of inventory is less than its cost due to damage,
physical deterioration, obsolescence, changes in price levels or other causes. Inventory “market value” is initially
deemed to be current replacement cost, but it cannot be more than the net realizable value, and it cannot be less than the net
realizable value, less an approximate normal profit margin. Net realizable value is the estimated selling price in the ordinary
course of business, less costs to complete and sell finished goods, including direct selling costs such as transportation and
sales commissions.
Deferred
Offering Costs
The
Company defers as other assets the direct incremental costs of raising capital until such time as the offering is completed. Once
the offering is completed, the costs are charged against the capital raised. Should the offering not be completed, deferred offering
costs will be charged to operations during the period in accordance with SEC guidance. Deferred offering costs as of September
30, 2017 were $125 relating to legal and accounting fees for the at-the-market transaction. These costs will be charged against the proceeds of future transactions under this program.
Fixed
Assets
Fixed
assets are stated at cost and are 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 expensed using the straight-line method for all fixed assets.
The
Company reviews fixed assets for impairment when events or changes in circumstances indicate that the carrying value of an asset
may not be recoverable. The Company uses 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. The Company
did not consider any of its fixed assets to be impaired during the nine months ended September 30, 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.
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 has
been 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 include patent costs associated with the application and issuance of patents. Costs to defend patents and costs to
invalidate a competitor’s patent or patent application are expensed as incurred. Upon issuance of the patents, capitalized
patent costs are reclassified from intangibles with indefinite lives to intangibles with finite lives and amortized on a straight-line
basis over the shorter of the estimated economic life or the initial term of the patent, generally 20 years.
During
the year ended December 31, 2016, the Company recorded an impairment of $44. The impairment was related to the write-off of capitalized
patent costs due to the unlikelihood of certain patents being issued.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017
(Unaudited;
amounts in thousands, except share and per share amounts, unless otherwise indicated)
In
March 2017, the Company launched a new product line on its e-commerce website
www.qurr.com
. The Company capitalized costs
of $380 to be amortized over 5 years starting with the launch of the website in March 2017 at $19 per quarter.
Intangible
assets at September 30, 2017 and December 31, 2016 consisted of the following:
|
|
September 30,
|
|
|
December 31,
|
|
(In thousand $)
|
|
2017
|
|
|
2016
|
|
Intangibles with finite lives:
|
|
|
|
|
|
|
Intellectual property
|
|
$
|
2,101
|
|
|
$
|
2,101
|
|
Website - qurr.com
|
|
|
380
|
|
|
|
380
|
|
Less: accumulated amortization
|
|
|
(770
|
)
|
|
|
(574
|
)
|
Total intangible assets, net
|
|
$
|
1,711
|
|
|
$
|
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 is estimated to be as follows:
|
|
(In thousand $)
|
|
Years Ended December 31,
|
|
Amount
|
|
2017 (remaining three months)
|
|
$
|
72
|
|
2018
|
|
|
286
|
|
2019
|
|
|
286
|
|
2020
|
|
|
286
|
|
2021
|
|
|
286
|
|
2022
|
|
|
286
|
|
2023
|
|
|
203
|
|
Total
|
|
$
|
1,711
|
|
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 would be considered
not recoverable and an impairment charge would be recorded. An impairment is measured as the excess of the asset’s carrying
value over its fair value and is calculated using discounted future cash flows. The computed impairment is recognized in the period
that it 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 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.
Based
on twelve 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, the Company 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. The
Company’s management tests intangible assets for impairment annually or when events or circumstances occur that may indicate
importance. The Company made an assessment that there were no impairments of intangible assets as of December 31, 2016. There
have been no subsequent events that have occurred to indicate any impairment as of September 30, 2017.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017
(Unaudited;
amounts in thousands, except share and per share amounts, unless otherwise indicated)
Revenue
Recognition
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2014-09, Revenue from Contracts with Customers which amended FASB Accounting Standards Codification® (“ASC”) by
creating Topic 606. The FASB also issued the following amendments to ASU No. 2014-09 to provide clarification on the guidance:
●
|
ASU No. 2015-14, Revenue from Contracts with Customers
(Topic 606) – Deferral of the Effective Date
|
●
|
ASU No. 2016-08, Revenue from Contracts with Customers
(Topic 606) – Principal versus Agent (Reporting Revenue Gross vs Net)
|
●
|
ASU No. 2016-10, Revenue from Contracts with Customers
(Topic 606) – Identifying Performance Obligations and Licensing
|
●
|
ASU No. 2016-12, Revenue from Contracts with Customers
(Topic 606) – Narrow-Scope Improvements and Practical Expedients
|
The adoption of Topic 606 is required for
public entities for reporting periods beginning after December 15, 2017. The Company has evaluated the effects of ASU 2014-09
on the financial statements and believes the effects will be insignificant.
Currently,
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, the Company 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.
Deferred
Revenue
The
Company recognizes revenue from bulk product sales when product is shipped to customers or upon delivery. Deposits received with
a purchase order are recorded as deferred revenue on the balance sheet. Deferred revenue of $10 as of September 30, 2017 represents
revenue in connection with a purchase order received in April 2017 for which we received $20 down payment for product to be shipped
and paid for later in the year. We shipped 50% of the product during the three months ended September 30, 2017 and therefore
recognized $10 of deferred revenue as revenue for the period. The deferred revenue from December 31, 2016 represents a purchase
order received in October 2016 along with $56 down payment. The order was shipped in January 2017.
Advertising
The
Company charges the costs of advertising to selling and marketing as incurred. Advertising and promotional costs were $83 and
$64 for the three months ended September 30, 2017 and 2016, respectively, and $395 and $433 for the nine months ended September
30, 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 those 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 $1 and $4 for the three months ended September 30, 2017 and 2016, respectively, and $42
and $16 for the nine months ended September 30, 2017 and 2016, respectively.
Shipping
and Handling Costs
The
Company records expenses for shipping and handling of products to our customers as cost of sales. These expenses were $9 and $4
for the three months ended September 30, 2017 and 2016, respectively, and $28 and $18 for the nine months ended September 30,
2017 and 2016, respectively.
Stock-based
Compensation
Stock-based
payments are measured at their estimated fair value on the date of grant. Stock-based awards to non-employees are re-measured
at fair value each financial reporting date until performance is completed. Stock-based compensation expense recognized during
a period is based on the estimated number of awards that are ultimately expected to vest. For stock options and restricted stock
that do not vest immediately but which contain only a service vesting feature, we recognize compensation cost on the unvested
shares and options on a straight-line basis over the remaining vesting period. The Company uses the Black-Scholes option-pricing
model to estimate the fair value of options and the market price of our common stock on the date of grant for the fair value of
restricted stock issued. Our determination of fair value of stock-based awards is affected by our stock price as well as assumptions
regarding a number of highly complex and subjective variables. These variables include, but are not limited to, our expected stock
price volatility over the term of the awards, and certain other market variables such as the risk-free interest rate.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017
(Unaudited;
amounts in thousands, except share and per share amounts, unless otherwise indicated)
Segment
Information
ASC
280,
Disclosures about Segments of an Enterprise and Related Information
, establishes standards for reporting information
about operating segments and requires selected information for those segments to be presented in the financial statements. It
also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified
as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating
decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. Management has
determined that the Company operates in one segment.
Concentrations
of Credit Risk
Management
regularly reviews accounts receivables, 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.
Bad debt expense recognized as a result of an allowance for doubtful accounts is included in operating expenses in the condensed
consolidated statements of operations. If we are unable to collect our outstanding accounts receivable from our distributors,
or they are unable or unwilling to purchase our products, our operating results and financial condition will be adversely affected.
Fair
Value Measurement
Fair
value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction
between market participants. The authoritative guidance on fair value measurements establishes a consistent framework for measuring
fair value on either a recurring or nonrecurring basis whereby observable and unobservable inputs, used in valuation techniques,
are assigned a hierarchical level.
The
following are the hierarchy levels of inputs to measure fair value:
|
Level
1
:
|
Inputs
that utilize quoted prices (unadjusted) in active markets for identical assets or liabilities.
|
|
Level
2
:
|
Inputs
that utilize observable quoted prices for similar assets and liabilities in active markets and observable quoted prices for
identical or similar assets in markets that are not very active.
|
|
Level
3:
|
Inputs
that utilize unobservable inputs and include valuations of assets or liabilities for which there is little, if any, market
activity.
|
A
financial asset or liability’s classification within the above hierarchy is determined based on the lowest level input that
is significant to the fair value measurement. At September 30, 2017 and December 31, 2016 the Company’s financial instruments
consist primarily of cash and cash equivalents, accounts receivable, accounts payable and accrued expense. 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 and nine months ended September 30, 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 and nine months ended September 30, 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
September
30, 2017
(Unaudited;
amounts in thousands, except share and per share amounts, unless otherwise indicated)
NOTE
3 – RECENT ACCOUNTING PRONOUNCEMENTS
In
September 2017, FASB issued ASU No. 2017-13, Revenue from Contracts with Customers which amended FASB ASC by creating Topic 606,
Revenue from Contracts with Customers. In May 2014, the FASB issued ASU No. 2014-09 which 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.
The
FASB also issued the following amendments to ASU No. 2014-09 to provide clarification on the guidance:
●
|
ASU No. 2015-14, Revenue from Contracts with Customers
(Topic 606) – Deferral of the Effective Date
|
●
|
ASU No. 2016-08, Revenue from Contracts with Customers
(Topic 606) – Principal versus Agent (Reporting Revenue Gross vs Net)
|
●
|
ASU No. 2016-10, Revenue from Contracts with Customers
(Topic 606) – Identifying Performance Obligations and Licensing
|
●
|
ASU No. 2016-12, Revenue from Contracts with Customers
(Topic 606) – Narrow-Scope Improvements and Practical Expedients
|
The
adoption of Topic 606 is required for public entities for reporting periods beginning after December 15, 2017. 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 looking at our revenue for 2016 & 2017 and related
disclosure and the Company does not expect the adoption to have a significant impact on its consolidated financial statements.
The
Company will adopt the provisions of this ASU for its fiscal year beginning January 1, 2018
In
May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718). The amendments in this Update
provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification
accounting in Topic 718. This update is effective for all entities for annual periods, and interim periods within those annual
periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public
business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for
reporting periods for which financial statements have not yet been made available for issuance. The amendments in this update
should be applied prospectively to an award modified on or after the adoption date. The Company has evaluated the impact of the
updated guidance and has determined that the adoption of ASU 2017-09 is not expected to have a significant impact on its consolidated
financial statements.
In
January 2017, the FASB issued 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 U.S. 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. The Company will adopt 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.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017
(Unaudited;
amounts in thousands, except share and per share amounts, unless otherwise indicated)
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 effective date to adopt the ASU is for fiscal years
beginning after December 15, 2017. 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.
In March 2016, the FASB issued ASU No. 2016-09,
Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting which 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. Application of
the guidance was made prospectively. The adoption of ASU 2016-09 did not have a significant impact on the consolidated financial
statements.
In February 2016, the FASB issued ASU No.
2016-02, Leases (Topic 842), which requires lessees to recognize on the balance sheet the assets and liabilities for the rights
and obligations created by leases with lease terms of more than 12 months. The recognition, measurement, and presentation of expenses
and cash flows arising from a lease by a lessee will continue to primarily depend on its classification as a finance or operating
lease. However, unlike U.S. GAAP, which requires only capital leases to be recognized on the balance sheet, ASU 2016-02 will require
both types of leases to be recognized on the balance sheet. ASU 2016-02 also requires disclosures about the amount, timing, and
uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing
additional information about the amounts recorded in the financial statements. ASU 2016-02 is effective beginning January 1, 2019,
with early application permitted. We have evaluated the adoption of ASU 2016-02 and determined that the standard would not have
a significant impact on the consolidated financial statements.
In
November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes which
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 effective 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 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
September
30, 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 was effective for
us beginning January 1, 2016. The adoption of ASU 2015-03 did not have an impact on the 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 was effective for us beginning December 31, 2016. The impact of the updated guidance has been disclosed in the
footnotes on its consolidated financial statements.
NOTE
4 – INVENTORIES, NET
Inventories,
net at September 30, 2017 and December 31, 2016 consisted of the following:
(In thousand $)
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Raw materials
|
|
$
|
2,231
|
|
|
$
|
2,378
|
|
Work in process
|
|
|
46
|
|
|
|
5
|
|
Finished goods
|
|
|
251
|
|
|
|
188
|
|
|
|
|
2,528
|
|
|
|
2,571
|
|
Less: inventory reserves
|
|
|
(707
|
)
|
|
|
(709
|
)
|
Inventories, net
|
|
$
|
1,821
|
|
|
$
|
1,862
|
|
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017
(Unaudited;
amounts in thousands, except share and per share amounts, unless otherwise indicated)
NOTE
5 – FIXED ASSETS
Fixed
assets at September 30, 2017 and December 31, 2016 consisted of the following:
(In thousand $)
|
|
September 30,
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
|
|
|
(234
|
)
|
|
|
(195
|
)
|
Net book value of fixed assets
|
|
$
|
194
|
|
|
$
|
233
|
|
Depreciation
expense was $13 and $14 for the three months ended September 30, 2017 and 2016, respectively, and $39 and $41 for the nine months
ended September 30, 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, and
the son of Ren Ren, one of our directors. 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 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 September 30, 2017 and December 31, 2016 consisted of the
following:
(In thousand $)
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Prepaid insurance
|
|
$
|
125
|
|
|
$
|
27
|
|
Prepaid inventory purchases
|
|
|
158
|
|
|
|
1
|
|
Prepaid consulting & other
|
|
|
217
|
|
|
|
57
|
|
Total prepaid expenses and other current assets
|
|
$
|
500
|
|
|
$
|
85
|
|
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 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 September 30, 2017 and December 31, 2016 consisted of the following:
(In thousand $)
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Advertising and promotional expenses
|
|
$
|
171
|
|
|
$
|
171
|
|
Insurance financing
|
|
|
93
|
|
|
|
-
|
|
Professional fees
|
|
|
61
|
|
|
|
88
|
|
Payroll related expenses
|
|
|
24
|
|
|
|
62
|
|
Deferred rent
|
|
|
19
|
|
|
|
40
|
|
Total accrued expenses and other current liabilities
|
|
$
|
368
|
|
|
$
|
361
|
|
Note
8 – Stockholders’ Equity
Changes
in stockholders’ equity for the nine months ended September 30, 2017 were as follows:
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid in
|
|
|
Accumulated
|
|
|
Stockholders’
|
|
(In thousand $)
|
|
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
|
|
|
|
1,926
|
|
|
|
-
|
|
|
|
1,927
|
|
Stock-based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
121
|
|
|
|
-
|
|
|
|
121
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,976
|
)
|
|
|
(2,976
|
)
|
Balance at September 30, 2017
|
|
|
5,844,372
|
|
|
$
|
6
|
|
|
$
|
35,146
|
|
|
$
|
(30,762
|
)
|
|
$
|
4,390
|
|
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 $199 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 the Company at a fixed price
as determined by the Board, after certain defined events. As of September 30, 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 that these
rights have a de minimis fair value. The description and terms of the Rights are set forth in the Rights Agreement dated as of
February 14, 2017 between the Company and Island Stock Transfer, as Rights Agent.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 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. During the nine months ended
September 30, 2017 and 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 was immediately exercisable upon issuance, will expire five years after issuance
and has an exercise price of $7.00 per share.
The
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 September 30, 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
|
|
|
|
1.33
|
|
Series C
(2)
|
|
November 19, 2014
|
|
|
145,399
|
|
|
|
(142,957
|
)
|
|
|
2,442
|
|
|
$
|
12.00
|
|
|
|
2.63
|
|
|
|
|
|
|
|
|
|
|
142,957
|
|
|
|
142,957
|
|
|
$
|
9.00
|
|
|
|
2.63
|
|
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
|
|
|
|
4.63
|
|
Rens
(3)
|
|
March 3, 2016
|
|
|
375,000
|
|
|
|
-
|
|
|
|
375,000
|
|
|
$
|
7.00
|
|
|
|
3.42
|
|
|
|
|
|
|
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
September
30, 2017
(Unaudited;
amounts in thousands, except share and per share amounts, unless otherwise indicated)
The
following table summarizes the activities in warrants for the nine months ended September 30, 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 September 30, 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
|
%
|
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’s board of directors authorized an increase in 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 September 30, 2017, 288,260 shares of common stock were available for future
issuances.
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.
On August 24, 2017 the Company granted an incentive
stock option to its Chief Executive Officer to purchase 300,000 shares under the Plan at an exercise price of $4.00 per share to
be vested in eight quarterly installments commencing September 30, 2017. We evaluated the options issued using the Black-Scholes
calculation with a stock price of $1.32, time to maturity of 6 years, risk free rate of 2.19%, and annualized volatility of 100%
to determine that there is no significant adjustment in valuation.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 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 nine months ended September 30, 2017:
|
|
Shares
Under Exercisable
Options
|
|
|
Weighted
Average Exercise
Price
|
|
|
Weighted Average
Remaining Contractual
Term (Years)
|
|
Balance at December 31, 2016
|
|
|
300,340
|
|
|
$
|
15.09
|
|
|
|
6.71
|
|
Options granted
|
|
|
300,000
|
|
|
$
|
4.00
|
|
|
|
9.90
|
|
Options forfeited/expired
|
|
|
(38,600
|
)
|
|
$
|
15.70
|
|
|
|
|
|
Balance at September 30, 2017
|
|
|
561,740
|
|
|
$
|
9.46
|
|
|
|
6.20
|
|
At
September 30, 2017 and December 31, 2016, the exercisable options had no intrinsic value.
The
following table summarizes information about options outstanding and exercisable at September 30, 2017 that were granted under
the Plan:
Exercise
Price
|
|
|
Options
Outstanding
|
|
|
Weighted Average
Remaining
Contractual Life
|
|
|
Options
Exercisable
|
|
|
Weighted Average
Remaining
Contractual Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4.00
|
|
|
|
300,000
|
|
|
|
9.90
|
|
|
|
-
|
|
|
|
9.90
|
|
$
|
8.60
|
|
|
|
16,000
|
|
|
|
6.70
|
|
|
|
16,000
|
|
|
|
6.70
|
|
$
|
10.00
|
|
|
|
40
|
|
|
|
5.39
|
|
|
|
40
|
|
|
|
5.39
|
|
$
|
12.10
|
|
|
|
30,000
|
|
|
|
6.86
|
|
|
|
30,000
|
|
|
|
6.86
|
|
$
|
12.50
|
|
|
|
81,700
|
|
|
|
6.96
|
|
|
|
60,221
|
|
|
|
4.98
|
|
$
|
13.45
|
|
|
|
2,000
|
|
|
|
6.98
|
|
|
|
1,000
|
|
|
|
6.98
|
|
$
|
13.50
|
|
|
|
12,000
|
|
|
|
6.99
|
|
|
|
9,049
|
|
|
|
6.99
|
|
$
|
17.50
|
|
|
|
100,000
|
|
|
|
5.61
|
|
|
|
100,000
|
|
|
|
5.61
|
|
$
|
32.00
|
|
|
|
15,000
|
|
|
|
4.04
|
|
|
|
15,000
|
|
|
|
4.04
|
|
$
|
34.50
|
|
|
|
5,000
|
|
|
|
4.07
|
|
|
|
5,000
|
|
|
|
4.07
|
|
|
|
|
|
|
561,740
|
|
|
|
|
|
|
|
236,310
|
|
|
|
|
|
As
of September 30, 2017, 236,310 options have vested and 325,430 options remain unvested. The vesting terms range from 4.0 to
9.9 years; vested options have a weighted average remaining term of 6.86 years; and a weighted average exercise price of
$9.46 per share.
Restricted
Stock
The
following table summarizes restricted stock awards activity for the nine months ended September 30, 2017:
|
|
Shares
|
|
|
Weighted
Average
Grant Date
Share Price
|
|
Restricted stock awards unvested at December 31, 2016
|
|
|
53,857
|
|
|
$
|
2.74
|
|
Granted
|
|
|
-
|
|
|
|
|
|
Forfeited / expired
|
|
|
-
|
|
|
|
|
|
Vested
|
|
|
50,957
|
|
|
|
2.14
|
|
Restricted stock awards unvested at September 30, 2017
|
|
|
2,900
|
|
|
$
|
1.00
|
|
At
September 30, 2017, the weighted-average remaining vesting period of unvested restricted stock awards was 0.5 years.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017
(Unaudited;
amounts in thousands, except share and per share amounts, unless otherwise indicated)
Stock-Based
Compensation:
Stock-based
compensation was $39 and $38 for the three months ended September 30, 2017 and 2016, respectively, and $121 and $264 for the nine
months ended September 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 September 30, 2017 was $415, which will be
recognized through August 2021.
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 $12,000) per month for prepayment of inventory purchases. 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) 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 September
30, 2017, the future minimum payments under the supply agreement were as follows:
(In thousand $)
|
|
|
|
Years Ended December 31,
|
|
Amount
|
|
2017 (remaining three months)
|
|
$
|
36
|
|
2018
|
|
|
132
|
|
Total
|
|
$
|
168
|
|
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. The Company has two options to renew the lease for an additional three years each. At September
30, 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 three months)
|
|
$
|
18
|
|
2018
|
|
|
71
|
|
2019
|
|
|
72
|
|
Total
|
|
$
|
161
|
|
Rent
expense including common area maintenance charges and taxes for the three months ended September 30, 2017 and 2016 was $21 and
$55, respectively, and for the nine months ended September 30, 2017 and 2016 was $46 and $155, respectively.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017
(Unaudited;
amounts in thousands, except share and per share amounts, unless otherwise indicated)
Defined
Contribution Plan
The
Company established a 401(K) Plan (the “401(K) Plan”) for eligible employees of the Company effective April 1, 2014.
Generally, all employees of the Company who are at least twenty-one years of age and who have completed three months of service
are eligible to participate in the 401(K) Plan. The 401(K) Plan is a defined contribution plan that provides that participants
may make salary deferral contributions of up to the statutory maximum allowed by law (subject to catch-up contributions) in the
form of voluntary payroll deductions. The Company’s matching contribution is equal to 100 percent on the first four percent
of a participant’s compensation which is deferred as an elective deferral. The Company’s aggregate matching contributions
were $8 and $5 for the three months ended September 30, 2017 and 2016, respectively, and $17 and $21 for the nine months ended
September 30, 2017 and 2016, respectively.
Product
Liability
As a manufacturer of nutritional products
that are ingested by consumers, the Company may be subject to various product liability claims. Although we have not had any claims
to date, it is possible that future product liability claims could have a material adverse effect on our business or financial
condition, results of operations or cash flows. The Company currently maintains product liability insurance of $5 million per-occurrence
and a $10 million annual aggregate coverage. At September 30, 2017 and December 31, 2016, the Company had not recorded any accruals
for product liability claims.
Research
Study
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, began in the second quarter of 2017 and is expected to be completed by the second quarter of 2018. The Company’s research
costs were $3 and $1 for the three months ended September 30, 2017 and 2016, respectively, and $42 and $16 for the nine months
ended September 30, 2017 and 2016, respectively.
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 and the
son of Ren Ren, one of our directors. 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).
In October 2016,
the Company entered into a sales agreement with RENS Agriculture. We received a 50% deposit in November 2016 in order to manufacture
the product. The goods were shipped in January 2017 and received in China in March 2017. We have not received payment for the
order to date. As a result of the ongoing litigation (See Note 13), the Company recorded bad debt expense of $59 related to the
receivable due from RENS Agriculture.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 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 our application for a prejudgment attachment of the Purchaser’s acquired shares and warrant
and a preliminary injunction in aid of the attachment to prevent a sale, transfer, or hypothecation of such securities, and vacating
the preliminary restraints which it had previously entered. However, the Court noted that we had demonstrated a likelihood of
success on the merits of the breach of contract claim. An application by the Purchaser to dismiss the complaint and various pre-trial
discovery applications by both parties was scheduled for oral argument, but we thereafter amended the complaint in August 2017.
The amended complaint repeated most of the initial claims but added a number of additional claims against RENS Agriculture, Mr.
Ren and two additional Chinese defendants, including a claim against RENS Agriculture for breaching the exclusive distribution
agreement, as well as claims against all defendants for theft and misappropriation of our confidential proprietary information
and trade secrets, breach of fiduciary duty and duty of loyalty, misappropriation of corporate opportunity, unfair competition
and a number of other torts. We are seeking damages and injunctive relief. The Purchaser has filed a motion to dismiss the amended
complaint, which is still pending.
On
August 16, 2017, the Purchaser commenced an action in the District Court of Clark County in the State of Nevada against us and
Joseph Mannello, our then interim Chief Executive Officer, alleging that Mr. Mannello had breached his fiduciary duties and was
grossly negligent in managing our company. The action seeks monetary damages and injunctive relief from Mr. Mannello as well as
the appointment of a receiver over us. Subsequently, the Purchaser submitted a petition to appoint a receiver and we and Mr. Mannello
submitted a motion to dismiss the action, both of which are currently pending and are due to be heard in December 2017.
Note
14 – SUBSEQUENT EVENTS
Effective October 18, 2017, the Company
entered into a sports marketing agreement to promote its Qurr
®
product line to colleges and universities in
the IMG College network.
Subsequent to the end of the quarter, on October 26, 2017 the Company sold 500,000 shares of common
stock for $2.144 per share for gross proceeds of $1,070 in an at-the-market offering.