NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018
(Unaudited;
amounts in thousands, except share and per share amounts, unless otherwise indicated)
NOTE
1 – NATURE OF OPERATIONS, BASIS OF PRESENTATION AND LIQUIDITY
Basis
of Presentation
The
accompanying condensed consolidated balance sheet as of December 31, 2017, which has been derived from audited consolidated financial
statements, and the unaudited interim condensed consolidated financial statements as of June 30, 2018 have been prepared in accordance
with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and the rules and regulations of the U.S.
Securities and Exchange Commission (“SEC”). Certain information and disclosures required by U.S. GAAP for complete
consolidated financial statements have been condensed or omitted herein. The unaudited interim condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC on March 27, 2018. The unaudited
interim condensed consolidated financial statements presented herein reflect all normal adjustments that are, in the opinion of
management, necessary for a fair presentation of the statement of the financial position, results of operations and cash flows
for the periods presented. The Company is responsible for the unaudited interim condensed consolidated financial statements included
in this report. The results of any interim period are not necessarily indicative of the results for the full year.
Nature
of Operations
MYOS RENS Technology Inc. is a bionutrition
company focused on the discovery, development and commercialization of products that improve muscle health and performance. The
Company was incorporated under the laws of the State of Nevada on April 11, 2007. On March 17, 2016, the Company merged with its
wholly-owned subsidiary and changed its name from MYOS Corporation to MYOS RENS Technology Inc. As used in these financial statements,
the terms “the Company”, “MYOS”, “our”, or “we”, refers to MYOS RENS Technology
Inc. and its subsidiary, unless the context indicates otherwise.
We
continue to pursue additional distribution and branded sales opportunities. We expect to continue developing our own core branded
products in markets such as functional foods, sports and fitness nutrition and rehabilitation and restorative health and to pursue
international sales opportunities. There can be no assurance that we will be able to secure distribution arrangements on terms
acceptable to the Company, or that we will be able to generate significant sales of our current and future branded products.
Strategic
Investment Transaction
On
December 17, 2015, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with RENS Technology
Inc. (the “Purchaser”), pursuant to which the Purchaser agreed to invest $20.25 million in the Company in three tranches
(the “Financing”) in exchange for an aggregate of 3,537,037 shares (the “Shares”) of the Company’s
common stock, par value $0.001 per share (“Common Stock”).
In
the first tranche, which closed on March 3, 2016, the Purchaser acquired 1,500,000 Shares and a warrant to purchase 375,000 shares
of Common Stock (the “Initial Warrant”) for $5.25 million. On August 19, 2016, the Purchaser notified the Company
that it did not intend to fulfill its obligation to fund the second tranche of the Financing.
On
January 6, 2017, the Company commenced an action in the Supreme Court of New York, County of New York (the “Court”),
against RENS Agriculture, the parent company of the Purchaser, and Ren Ren, a principal in both entities and one of our directors,
arising from the Purchaser’s breach of the Purchase Agreement. See NOTE 13-LEGAL PROCEEDINGS.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018
(Unaudited;
amounts in thousands, except share and per share amounts, unless otherwise indicated)
Going
Concern and Liquidity
The
accompanying condensed consolidated financial statements have been prepared in accordance with U.S. GAAP, which contemplates the
continuation of the Company as a going concern. The Company has suffered recurring losses from operations and incurred a net loss
of approximately $2,247 for the six months ended June 30, 2018 and $4,058 for the year ended December 31, 2017.
As
of June 30, 2018 the Company had cash of $508 and working capital of $1,972 (current assets of $2,389 less current liabilities
of $417). For the six months ended June 30, 2018 and 2017, our net loss was $2,247 and $2,223, respectively. For the six months
ended June 30, 2018 and 2017, net cash used in operating activities was $1,770 and $2,523 respectively.
As of the filing date of this Form 10-Q,
management believes that there may not be sufficient capital resources from operations and existing financing arrangements in order
to meet operating expenses and working capital requirements for the next twelve months (primarily due to the failure of RENS Technology
Inc. to fund the required amounts. (See Note 13 – Legal Proceedings)). These circumstances raise substantial doubt about
the Company’s ability to continue as a going concern.
Accordingly,
the Company is evaluating various alternatives, including reducing operating expenses, securing additional financing through debt
or equity securities to fund future business activities and other strategic alternatives. There can be no assurance that the Company
will be able to generate the level of operating revenues in its business plan, or if additional sources of financing will be available
on acceptable terms, if at all. If no additional sources of financing are available, our future operating prospects may be adversely
affected. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
At-the-Market
Offering
On February 21, 2017, the Company entered
into a sales agreement with H.C. Wainwright & Co., LLC (“H.C. Wainwright”) which established an at-the-market equity
program pursuant to which the Company may offer and sell up to $6.0 million of its shares of common stock from time to time through
H.C. Wainwright. The Company incurred $125 of deferred offering costs in connection with this program which were originally recorded
as a long term other asset on the Company’s condensed consolidated balance sheets. Since this sales agreement expired during
the three months ended June 30, 2018 the remaining deferred offering costs of $96 were recognized as legal expenses recorded within
the accompanying condensed consolidated statements of operations as general and administrative expenses.
On
January 19, 2018, the Company sold 140,295 shares of common stock for $2.111 per share for gross proceeds of $296 in an at-the-market
offering. On various dates in April 2018, the Company sold an aggregate of 131,225 shares of common stock at various prices for
aggregate gross proceeds of $176 under the Company’s existing at-the-market program. As of the filing date of this Form
10-Q, a total of 771,520 shares were sold under this program for aggregate gross proceeds of $1,544.
On
July 24, 2018, the Company entered into a new sales agreement with H.C. Wainwright which established a new at-the-market equity
program pursuant to which the Company may offer and sell shares of common stock from time to time through H.C. Wainwright. The
Company incurred $94 of deferred offering costs in connection with this program as of June 30, 2018 which was recorded as a long
term other asset on the Company’s condensed consolidated balance sheets. The deferred offering costs will be reflected as
a reduction in equity as the Company incurs sales of its stock pursuant to this program. Management continues to evaluate the
ongoing progress of this program and its related outstanding deferred offering costs.
Private Placement
On April 25, 2018, the Company entered
into a securities purchase agreement with private investors providing for the issuance and sale by the Company of 806,452 shares
of common stock, in a private placement offering at a purchase price of $1.24 per share, for gross proceeds of $1,000 and net proceeds of $978.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018
(Unaudited;
amounts in thousands, except share and per share amounts, unless otherwise indicated)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of MYOS RENS Technology Inc. and its wholly-owned subsidiary,
Atlas Acquisition Corp. All material intercompany balances and transactions have been eliminated in consolidation.
Reclassification
of Prior Period Presentation
Certain
prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications did not
have a material impact on the reported results of operations.
Use
of Estimates
The preparation of consolidated financial
statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, equity and the disclosures of contingent assets and liabilities at the date of the financial statement
and the reported amounts of revenues and expenses during the reporting period. Making estimates requires management to exercise
significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances
that existed at the date of the financial statements, which management considered in formulating its estimate, could change in
the near term due to one or more future non-conforming events. Accordingly, the actual results could differ significantly from
estimates. Significant items subject to such estimates include but are not limited to the valuation of stock-based awards, measurement
of allowances for doubtful accounts and inventory reserves, the amount of deferred offering costs recognized, the selection of
asset useful lives, fair value estimations used to test long-lived assets, including intangibles, impairments and provisions necessary
for assets and liabilities.
The Company has historically recorded minimal
sales during the past sixteen consecutive quarters. In June 2018, the Company launched a Fortetropin
®
based pet
product called Myos Canine Muscle Formula. In April 2018, the Company launched Yolked
TM
, a new sports nutrition product
line. In March 2017, the Company launched Qurr, a Fortetropin
®
powered product line to support the vital role of
muscle in overall well-being.
Management’s estimates, including
evaluation of impairment of long-lived assets and inventory reserves are based in part on forecasted future results. A variety
of factors could cause actual results to differ from forecasted results and these differences could have a significant effect on
asset carrying amounts.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments purchased with a maturity of three months or less and money market accounts to
be cash equivalents. At June 30, 2018 and December 31, 2017 the Company had no cash equivalents. As part of our ongoing liquidity
assessments, management evaluates our cash and cash equivalents. The Company maintains its bank accounts with high credit quality
financial institutions and has never experienced any losses related to these bank accounts. The Company minimizes its credit risk
associated with cash by periodically evaluating the credit quality of its financial institutions. The amount of funds held in
these accounts can fluctuate due to the timing of receipts and payments in the ordinary course of business and due to other reasons,
such as business-development activities so the Company may at times have exposure to cash in excess of FDIC insured limits.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018
(Unaudited;
amounts in thousands, except share and per share amounts, unless otherwise indicated)
Inventories,
net
Inventories
are valued at the lower of cost or net realizable value, with cost determined on a first in, first-out basis. Each quarter the
Company evaluates the need for a change in the inventory reserve based on projected future sales and expiration dates of products.
Deferred
Offering Costs
The Company defers as other assets the
direct incremental costs of raising capital until such time as the offering is completed. At the time of the completion of the
offering, the costs are charged against the capital raised. Should the offering not be completed, deferred offering costs are charged
to operations during the period in accordance with SEC guidance. Since the February 21, 2017 sales agreement expired during the
three months ended June 30, 2018 the remaining deferred offering costs of $96 on the Company’s condensed consolidated balance
sheets were recognized and recorded within the Company’s condensed consolidated statements of operations as general and administrative
expenses.
On July 24, 2018, the Company entered into a new sales
agreement, incurring $94 of deferred offering costs as of June 30, 2018 which was recorded as a long term other asset on the
accompanying consolidated balance sheet.
Impairment
of Long-lived Assets
We
perform impairment testing of fixed assets and intangible assets subject to amortization by comparing the carrying amount of the
asset to the forecasted undiscounted future cash flows whenever events or changes in circumstances indicate that the carrying
amount of the asset may not be recoverable. In the event the carrying value of the asset exceeds the undiscounted future cash
flows, the carrying value is considered not recoverable and an impairment exists. An impairment loss is measured as the excess
of the asset’s carrying value over its fair value, calculated using a discounted future cash flow method. The computed impairment
loss is recognized in the period that the impairment occurs. Assets which are not impaired may require an adjustment to the remaining
useful lives for which to amortize the asset. Impairment testing requires the development of significant estimates and assumptions
involving the determination of estimated net cash flows, selection of the appropriate discount rate to measure the risk inherent
in future cash flow streams, assessment of an asset’s life cycle, competitive trends impacting the asset as well as other
factors. Changes in these underlying assumptions could significantly impact the asset’s estimated fair value. No impairment
charges were recorded during the six month periods ended June 30, 2018 and 2017.
Fixed
Assets
Fixed
assets are stated at cost and depreciated to their estimated residual value over their estimated useful lives of 3 to 7 years.
Leasehold improvements are amortized over the lesser of the asset’s useful life or the contractual remaining lease term including
expected renewals. When assets are retired or otherwise disposed of, the assets and related accumulated depreciation are reversed
from the accounts and the resulting gains or losses are included in the Consolidated Statements of Operations.
Depreciation
is provided using the straight-line method for all fixed assets. Repairs and maintenance costs are expensed as incurred.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018
(Unaudited;
amounts in thousands, except share and per share amounts, unless otherwise indicated)
Intangible
Assets
The Company’s intangible assets consist
primarily of intellectual property pertaining to Fortetropin
®
, including its formula, trademarks, trade secrets,
patent application and domain names. Based on expansion into new markets and introduction of new formulas, management determined
that the intellectual property had a finite useful life of ten (10) years and began amortizing the asset over its estimated useful
life beginning April 2014.
In July 2014, the Company acquired
the United States patent application for the manufacturing of Fortetropin
®
from Deutsches Institut fur
Lebensmitteltechnik e.V. - the German Institute for Food Technologies (“DIL”). The cost of the patent
application, which was capitalized as an intangible asset, was determined to be $101, based on the present value of the
minimum guaranteed royalty payable to DIL using a discount rate of 10%. The intangible asset is being amortized over an
estimated useful life of ten (10) years. The remaining contingent royalty payments will be recorded as the contingency is
resolved and the royalty becomes payable under the arrangement. For additional information on the amended supply agreement
with DIL refer to “NOTE 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.
There
were no impairment charges for the six months ended June 30, 2018 and the year ended December 31, 2017.
Intangible
assets at June 30, 2018 and December 31, 2017 consisted of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Intangibles with finite lives:
|
|
|
|
|
|
|
|
|
Intellectual property
|
|
$
|
2,101
|
|
|
$
|
2,101
|
|
Website - qurr.com
|
|
|
380
|
|
|
|
380
|
|
Less: accumulated amortization – intellectual
property
|
|
|
(890
|
)
|
|
|
(784
|
)
|
Less: accumulated amortization
- website
|
|
|
(95
|
)
|
|
|
(57
|
)
|
Total intangible assets, net
|
|
$
|
1,496
|
|
|
$
|
1,640
|
|
Assuming
no additions, disposals or adjustments are made to the carrying values and/or useful lives of the intangible assets, amortization
expense for intangible assets is estimated to be as follows:
Years
Ended December 31,
|
|
Amount
|
|
2018 (remaining six months)
|
|
$
|
143
|
|
2019
|
|
|
286
|
|
2020
|
|
|
286
|
|
2021
|
|
|
286
|
|
2022
|
|
|
229
|
|
2023
|
|
|
210
|
|
2024
|
|
|
56
|
|
Total
|
|
$
|
1,496
|
|
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018
(Unaudited;
amounts in thousands, except share and per share amounts, unless otherwise indicated)
Revenue
Effective
January 1, 2018, the Company adopted the provisions of Financial Accounting Standards Board (“FASB”) issued Accounting
Standards Update (“ASU”) No. 2014-09 (“ASU 2014-09”), as amended, using the modified retrospective method.
ASU 2014-09, which is codified in the FASB Accounting Standards Codification as Topic 606,
Revenue from Contracts with Customers,
supersedes nearly all previous revenue recognition guidance under U.S. GAAP and requires revenue to be recognized when promised
goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for
those goods or services. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant
judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract.
The
adoption of ASU 2014-09 did not impact the Company’s timing or amounts of revenue recognition. As such, the Company recorded
no transition adjustment as of January 1, 2018. However, the additional required qualitative and quantitative disclosures to Topic
606 are provided below.
Revenue
Recognition
Net
revenues include products and shipping and handling charges, net of estimates for incentives and other sales allowances or discounts.
Our product sales generally do not provide for rights of return. Revenue is measured as the amount of consideration we expect
to receive in exchange for transferring products. All revenue is recognized when we satisfy our performance obligations under
the contract. We recognize revenue by transferring the promised products to the customer, with revenue recognized at the point
in time the customer obtains control of the products. We consider charges associated with shipping and handling activities as
costs to fulfill our performance obligations. Using probability assessments, we estimate sales incentives expected to be paid
over the term of the contract. The majority of our contracts have a single performance obligation and are short term in nature.
Sales taxes that are collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore
are excluded from net sales.
Accounts
Receivable
Credit
is extended based upon an evaluation of the customer’s financial condition. Accounts receivable are stated at their estimated
net realizable value. Any allowance for doubtful accounts is based on an analysis of customer accounts and historical experience.
Contract
Liabilities
Contract
liabilities may include deferred revenue related to customer payments made in advance of the customer obtaining control of the
product, as well as liabilities associated with sales incentives. At June 30, 2018 and December 31, 2017, the Company had no contract
liability balances.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018
(Unaudited;
amounts in thousands, except share and per share amounts, unless otherwise indicated)
Disaggregation
of Revenue
Our
net revenues by product type are presented below for the three months ended June 30, 2018 and 2017.
|
|
Three-month Period
|
|
Product Type
|
|
June 30,
2018
|
|
|
June 30,
2017
|
|
QURR (2)
|
|
$
|
56
|
|
|
$
|
49
|
|
YOLKED (3)
|
|
|
15
|
|
|
|
-
|
|
Physician Muscle Health Formula (4)
|
|
|
14
|
|
|
|
10
|
|
Other
|
|
|
3
|
|
|
|
-
|
|
Total Net Revenues
|
|
$
|
88
|
|
|
$
|
59
|
|
Our
net revenues by product type are presented below for the six months ended June 30, 2018 and 2017.
|
|
Six-month Period
|
|
Product Type
|
|
June 30,
2018
|
|
|
June 30,
2017
|
|
Egg Yolk Powder (1)
|
|
$
|
-
|
|
|
$
|
116
|
|
QURR (2)
|
|
|
113
|
|
|
|
62
|
|
YOLKED (3)
|
|
|
15
|
|
|
|
-
|
|
Physician Muscle Health Formula (4)
|
|
|
14
|
|
|
|
10
|
|
Other
|
|
|
3
|
|
|
|
-
|
|
Rē Muscle Health (1)
|
|
|
-
|
|
|
|
21
|
|
Total Net Revenues
|
|
$
|
145
|
|
|
$
|
209
|
|
|
(1)
|
Egg
Yolk Powder and Rē Muscle Health products were no longer available after May 2017
|
|
(2)
|
QURR
product launched in April 2017
|
|
(3)
|
YOLKED
product launched in April 2018
|
|
(4)
|
Physician’s
Muscle Health Formula launched in June 2016
|
Advertising
The Company charges advertising expenses
to selling, marketing and research as incurred. Advertising expenses were $92 for the three months ended June 30, 2018 and 2017, and $259 and $320 for the six months ended June 30, 2018 and 2017, respectively.
Research
and Development
Research
and development expenses consist primarily of salaries, benefits, and other related costs, including stock-based compensation,
for personnel serving in our research and development functions, and other internal operating expenses, the cost of manufacturing
our product for clinical study, the cost of conducting clinical studies and the cost of conducting preclinical and research activities.
Nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities
are initially capitalized and are then recognized as an expense as the related goods are consumed or the services are performed.
Research
and development expenses were $103 and $37 for the three months ended June 30, 2018 and 2017, respectively, and $291 and $41 for
the six months ended June 30, 2018 and 2017, respectively.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018
(Unaudited;
amounts in thousands, except share and per share amounts, unless otherwise indicated)
Shipping
and Handling
The
Company records expenses for shipping and handling of products to our customers as cost of sales. These expenses were $13 and
$11 for the three months ended June 30, 2018 and 2017, respectively, and $24 and $19 for the six months ended June 30, 2018 and
2017, respectively.
Stock-based
Compensation
Stock-based payments are measured at their
estimated fair value on the date of grant. Stock-based compensation expense recognized during a period is based on the estimated
number of awards that are ultimately expected to vest. For stock options and restricted stock that do not vest immediately 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. These expenses are included as personnel and benefits within the condensed consolidated
statements of operations. Stock-based compensation expenses were $79 and $40 for the three months ended June 30, 2018 and 2017,
respectively, and $165 and $82 for the six months ended June 30, 2018 and 2017, respectively.
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 the fair value of stock-based
awards is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables.
These variables include, but are not limited to, our expected stock price volatility over the term of the awards, and certain
other market variables such as the risk-free interest rate.
Segment
Information
ASC
280,
Disclosures about Segments of an Enterprise and Related Information
, establishes standards for reporting information
about operating segments and requires selected information for those segments to be presented in the financial statements. It
also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified
as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating
decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. Management has
determined that the Company operates in one segment.
Fair
Value Measurement
Fair
value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction
between market participants. The authoritative guidance on fair value measurements establishes a consistent framework for measuring
fair value on either a recurring or nonrecurring basis whereby observable and unobservable inputs, used in valuation techniques,
are assigned a hierarchical level.
The
following are the hierarchy levels of inputs to measure fair value:
|
Level
1
:
|
Inputs
that utilize quoted prices (unadjusted) in active markets for identical assets or liabilities.
|
|
Level
2
:
|
Inputs
that utilize observable quoted prices for similar assets and liabilities in active markets and observable quoted prices for
identical or similar assets in markets that are not very active.
|
|
Level
3:
|
Inputs
that utilize unobservable inputs and include valuations of assets or liabilities for which there is little, if any, market
activity.
|
A
financial asset or liability’s classification within the above hierarchy is determined based on the lowest level input that
is significant to the fair value measurement. At June 30, 2018 and December 31, 2017 the Company’s financial instruments
consisted primarily of cash, accounts receivable, accounts payable and accrued expenses. Due to their short-term nature, the carrying
amounts of the Company’s financial instruments approximated their fair values.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018
(Unaudited;
amounts in thousands, except share and per share amounts, unless otherwise indicated)
Basic
and Diluted Loss Per Share
Basic
net loss per share is computed by dividing net loss available to common stockholders for the period by the weighted average number
of common shares outstanding during the period. Diluted net loss per share is computed by dividing net loss for the period by
the weighted average number of common shares outstanding during the period increased to include the number of additional shares
of common stock that would have been outstanding if potential dilutive securities outstanding had been issued. The Company uses
the “treasury stock” method to determine the dilutive effect of common stock equivalents such as options, warrants
and restricted stock. For the six months ended June 30, 2018 and 2017, the Company incurred a net loss. Accordingly, the potential
dilutive securities were excluded from the calculation of diluted loss per share of common stock because their inclusion would
have been antidilutive. As a result, diluted loss per common share is the same as basic loss per common share for all periods
presented.
The aggregate number of potentially dilutive
common stock equivalents outstanding at June 30, 2018 excluded from the diluted net loss per share computation because their inclusion
would be anti-dilutive were 1,439,942, which includes warrants to purchase an aggregate of 821,202 shares of common stock and options
to purchase an aggregate of 608,740 shares of common stock.
The
aggregate number of potentially dilutive common stock equivalents outstanding at June 30, 2017 excluded from the diluted net loss
per share computation because their inclusion would be anti-dilutive were 1,142,682, which includes warrants to purchase an aggregate
of 821,202 shares of common stock, options to purchase an aggregate of 300,340 shares of common stock, and unvested restricted
stock awards of 21,140 shares of common stock.
Income
Taxes
Income
taxes are accounted for under the asset and liability method in accordance with ASC 740,
Accounting for Income Taxes
(“ASC
740”). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between
the financial carrying amounts of existing assets and liabilities and their respective tax bases as well as operating loss and
tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the periods in which those temporary differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred
tax assets are reduced by a valuation allowance to the extent that the recoverability of the asset is unlikely to be recognized.
The Company follows ASC 740 rules governing uncertain tax positions, which provides guidance for recognition and measurement.
This prescribes a threshold condition that a tax position must meet for any of the benefits of the uncertain tax position to be
recognized in the financial statements. It also provides accounting guidance on recognition, classification and disclosure of
these uncertain tax positions. The Company has no uncertain income tax positions.
The Tax Cut and Jobs Act (the “Tax
Act”) was enacted on December 22, 2017. The Tax Act contains several key provisions including, among other things, reducing
the U.S. federal corporate tax rate from thirty-five percent to twenty-one percent. Since the Company has a net deferred tax asset
which has been fully reserved with a valuation allowance, the change in the enacted rate did not have an impact on the Company’s
net deferred tax assets. Changes in tax law are accounted for in the period of enactment. In addition, Federal net operating losses
(“NOL”) generated during future periods will be carried forward indefinitely, but will be subject to an eighty percent
utilization against taxable income. The carryback provision has been revoked for NOL incurred after January 1, 2018.
Interest
costs and penalties related to income taxes are classified as interest expense and operating expenses, respectively, in the Company’s
financial statements. For the six months ended June 30, 2018 and 2017, the Company did not recognize any interest or penalty expense
related to income taxes. The Company files income tax returns in the U.S. federal jurisdiction and states in which it does business.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018
(Unaudited;
amounts in thousands, except share and per share amounts, unless otherwise indicated)
NOTE
3 – RECENT ACCOUNTING PRONOUNCEMENTS
In June 2018, the FASB issued ASU No. 2018-07,
Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The new guidance
expands the scope of Topic 718 to include share-based payments granted to nonemployees in exchange for goods or services used or
consumed in an entity’s own operations, and supersedes the guidance in ASC 505-50, Equity-Based Payments to Non-Employees.
The most significant change resulting from this update is that stock-based awards granted to non-employees will no longer need
to be re-measured at fair value at each financial reporting date until performance is complete, as these awards will be measured
at fair value at the grant date. The guidance is effective January 1, 2019 with early adoption permitted, including in an interim
period for which financial statements have not been issued. The Company has evaluated the impact of early adoption of this ASU
and determined that it will have no impact on its consolidated financial statements.
In
March 2018, the FASB issued ASU 2018-5 – Income Taxes (Topic 740): Amendments to SEC Paragraphs pursuant to SEC Staff
Accounting Bulletin No. 118. This ASU provided guidance related to Securities and Exchange Commission (“SEC”)
Staff Accounting Bulletin No. 118 (“SAB 118”), which addresses the accounting implications of the Tax Act. SAB 118
allows a company to record provisional amounts during a measurement period not to extend beyond one year of the enactment date
and was effective upon issuance. We have analyzed the Tax Act, and in certain areas, have made reasonable estimates of the effects
on our condensed consolidated financial statements and tax disclosures.
In
May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting.
The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require
an entity to apply modification accounting in Topic 718. This update is effective for all entities for annual periods, and interim
periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any
interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued
and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance.
The amendments in this update should be applied prospectively to an award modified on or after the adoption date. The adoption
of ASU 2017-09, effective January 1, 2018, did not have a significant impact on the Company’s condensed consolidated financial
statements.
In February 2016, the FASB issued ASU No.
2016-02, Leases (Topic 842) (“ASU 2016-02”), which requires lessees to recognize on the balance sheet the assets and
liabilities for the rights and obligations created by leases with lease terms of more than 12 months. The recognition, measurement,
and presentation of expenses and cash flows arising from a lease by a lessee will continue to primarily depend on its classification
as a finance or operating lease. However, unlike current U.S. GAAP, which requires only capital leases to be recognized on the
balance sheet, ASU 2016-02 will require both types of leases to be recognized on the balance sheet. ASU 2016-02 also requires disclosures
about the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative
requirements, providing additional information about the amounts recorded in the financial statements. ASU 2016-02 is effective
beginning January 1, 2019, with early application permitted. In July 2018, the FASB issued ASU No. 2018-11, which provides targeted
improvements to the new lease standard, including an option to apply the transition provisions at its adoption date instead of
at the earliest comparative period presented in its financial statements. We have evaluated the adoption of ASU 2016-02 and determined
that the standard will not have a significant impact on the Company’s consolidated financial statements.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018
(Unaudited;
amounts in thousands, except share and per share amounts, unless otherwise indicated)
NOTE
4 – INVENTORIES, NET
Inventories,
net at June 30, 2018 and December 31, 2017 consisted of the following:
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
Raw materials
|
|
$
|
1,851
|
|
|
$
|
2,223
|
|
Work in process
|
|
|
67
|
|
|
|
64
|
|
Finished goods
|
|
|
214
|
|
|
|
203
|
|
|
|
|
2,132
|
|
|
|
2,490
|
|
Less: inventory reserves
|
|
|
(365
|
)
|
|
|
(711
|
)
|
Inventories, net
|
|
$
|
1,767
|
|
|
$
|
1,779
|
|
NOTE
5 – FIXED ASSETS
Fixed
assets at June 30, 2018 and December 31, 2017 consisted of the following:
|
|
June
30,
2018
|
|
|
December 31,
2017
|
|
Furniture, fixtures and equipment
|
|
$
|
116
|
|
|
$
|
116
|
|
Computers and software
|
|
|
68
|
|
|
|
68
|
|
Leasehold improvements
|
|
|
239
|
|
|
|
239
|
|
Other
|
|
|
7
|
|
|
|
7
|
|
Total fixed assets
|
|
|
430
|
|
|
|
430
|
|
Less: accumulated depreciation
|
|
|
(266
|
)
|
|
|
(246
|
)
|
Net book value of fixed assets
|
|
$
|
164
|
|
|
$
|
184
|
|
Depreciation
expense was $20 and $26 for the six months ended June 30, 2018 and 2017, respectively.
NOTE
6 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid
expenses and other current assets consist of various payments that the Company has made in advance for goods or services to be
received in the future. Prepaid expenses and other current assets at June 30, 2018 and December 31, 2017 consisted of the following:
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
Prepaid insurance
|
|
$
|
19
|
|
|
$
|
88
|
|
Prepaid consulting
|
|
|
-
|
|
|
|
10
|
|
Prepaid legal
|
|
|
50
|
|
|
|
50
|
|
Prepaid other
|
|
|
43
|
|
|
|
15
|
|
Total prepaid expenses and other current assets
|
|
$
|
112
|
|
|
$
|
163
|
|
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018
(Unaudited;
amounts in thousands, except share and per share amounts, unless otherwise indicated)
NOTE
7 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued
expenses and other current liabilities consist of estimated future payments that relate to the current and prior accounting periods.
Management reviews these estimates regularly to determine their reasonableness. Accrued expenses and other current liabilities
at June 30, 2018 and December 31, 2017 consisted of the following:
|
|
June
30,
2018
|
|
|
December 31,
2017
|
|
Audit fees
|
|
$
|
14
|
|
|
$
|
82
|
|
Legal fees
|
|
|
18
|
|
|
|
71
|
|
Deferred rent
|
|
|
14
|
|
|
|
19
|
|
Payroll
|
|
|
3
|
|
|
|
17
|
|
Insurance financing
|
|
|
9
|
|
|
|
66
|
|
Research
|
|
|
110
|
|
|
|
-
|
|
Total accrued expenses and
other current liabilities
|
|
$
|
168
|
|
|
$
|
255
|
|
Note
8 – Stockholders’ Equity
Changes
in stockholders’ equity for the six months ended June 30, 2018 were as follows:
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Common
Stock
|
|
|
paid-in
|
|
|
Accumulated
|
|
|
stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
deficit
|
|
|
equity
|
|
Balance at December 31, 2017
|
|
|
6,340,604
|
|
|
$
|
6
|
|
|
$
|
36,202
|
|
|
$
|
(31,844
|
)
|
|
$
|
4,364
|
|
Net proceeds from sale of common stock
|
|
|
271,520
|
|
|
|
-
|
|
|
|
466
|
|
|
|
-
|
|
|
|
466
|
|
Net proceeds from private sale of stock
|
|
|
806,452
|
|
|
|
1
|
|
|
|
977
|
|
|
|
|
|
|
|
978
|
|
Stock-based compensation expense
|
|
|
55,147
|
|
|
|
-
|
|
|
|
165
|
|
|
|
-
|
|
|
|
165
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,247
|
)
|
|
|
(2,247
|
)
|
Balance at June 30, 2018
|
|
|
7,473,723
|
|
|
$
|
7
|
|
|
$
|
37,810
|
|
|
$
|
(34,091
|
)
|
|
$
|
3,726
|
|
Preferred
Stock Purchase Rights
Effective
February 14, 2017, the Board of Directors declared a dividend of one right (“Right”) for each of the Company’s
issued and outstanding shares of common stock. The Rights were granted to the stockholders of record at the close of business
on February 24, 2017. Each Right entitles the registered holder, upon the occurrence of certain events specified in the Rights
Agreement, to purchase from the Company one one-thousandth of a share of the Company’s Series A Preferred Stock at a price
of $7.00, subject to certain adjustments.
The
Rights are not exercisable until the occurrence of certain events, including a person acquiring or obtaining the right to acquire
beneficial ownership of 10% or more of the Company’s outstanding common stock. The Rights are evidenced by certificates
for the common stock and automatically transfer with the common stock unless they become exercisable. If the Rights become exercisable,
separate certificates evidencing the Rights will be distributed to each holder of common stock. Holders of the preferred stock
will be entitled to certain dividend, liquidation and voting rights. The rights are redeemable by us at a fixed price as determined
by the Board, after certain defined events.
As
of June 30, 2018 the Rights have no dilutive effect on the earnings per common share calculation and no shares of preferred stock
have been issued. The Company has determined that these Rights have a de minimis fair value. The description and terms of the
Rights are set forth in the Rights Agreement dated as of February 14, 2017 between the Company and Island Stock Transfer, as Rights
Agent.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018
(Unaudited;
amounts in thousands, except share and per share amounts, unless otherwise indicated)
Issuance
of Common Stock
The
Company has periodically issued common stock in connection with certain private and public offerings. For the six months ended
June 30, 2018 and 2017 the Company has received aggregate gross proceeds of $1,472 and $2,125 from these offerings:
|
|
|
|
|
Gross
|
|
Date
|
|
Shares
|
|
|
Proceeds
|
|
April 29, 2018
|
|
|
806,452
|
(1)
|
|
$
|
1,000
|
|
April 4 – April 23, 2018
|
|
|
131,225
|
(2)
|
|
|
176
|
|
January 19, 2018
|
|
|
140,295
|
(3)
|
|
|
296
|
|
February 8, 2017
|
|
|
500,000
|
(4)
|
|
|
2,125
|
|
(1)
|
Shares
issued pursuant to a private placement with accredited investors for $1.24 per share.
|
(2)
|
Shares
of common stock sold for between $1.25 and $1.38 per share in an at-the-market offering.
|
(3)
|
Shares
of common stock sold for $2.111 per share in an at-the-market offering.
|
(4)
|
Shares
issued pursuant to a registered direct offering with an institutional investor for $4.25 per share.
|
Note
9 – Warrants
The
following table summarizes information about outstanding and exercisable warrants at June 30, 2018:
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Underlying
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Warrants
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Exchanged,
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
Exercised
|
|
|
Outstanding
|
|
|
|
|
|
Expiration
|
|
|
|
|
|
Originally
|
|
|
or
|
|
|
and
|
|
|
Exercise
|
|
|
Term
|
|
Description
|
|
Grant Date
|
|
Granted
|
|
|
or
Expired
|
|
|
Exercisable
|
|
|
Price
|
|
|
in
years
|
|
Series
B
(1)
|
|
January 27, 2014
|
|
|
157,846
|
|
|
|
-
|
|
|
|
157,846
|
|
|
$
|
45.00
|
|
|
|
1.82
|
|
Series
C
(2)
|
|
November 19, 2014
|
|
|
145,399
|
|
|
|
(142,957
|
)
|
|
|
2,442
|
|
|
$
|
12.00
|
|
|
|
3.13
|
|
Repricing
Series C
(2)
|
|
November 19, 2014
|
|
|
|
|
|
|
142,957
|
|
|
|
142,957
|
|
|
$
|
9.00
|
|
|
|
3.13
|
|
Repricing
Series E
(2)
|
|
November 19, 2014
|
|
|
|
|
|
|
142,957
|
|
|
|
142,957
|
|
|
$
|
9.00
|
|
|
|
5.13
|
|
Rens
(3)
|
|
March 3, 2016
|
|
|
375,000
|
|
|
|
-
|
|
|
|
375,000
|
|
|
$
|
7.00
|
|
|
|
2.06
|
|
|
|
|
|
|
678,245
|
|
|
|
142,957
|
|
|
|
821,202
|
|
|
|
|
|
|
|
|
|
(1)
|
Issued
in connection with the January 27, 2014 private placement transaction.
|
(2)
|
Issued
in connection with the November 19, 2014 registered-direct public offering, and subsequently revised pursuant to Warrant Exercise
Agreements entered into on May 18, 2015.
|
(3)
|
Shares
issued pursuant to the closing of the first tranche of the financing with RENS Technology Inc.
|
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018
(Unaudited;
amounts in thousands, except share and per share amounts, unless otherwise indicated)
NOTE
10 – STOCK COMPENSATION
Equity
Incentive Plan
In
November 2016, the Company increased the number of shares available for issuance under its 2012 Equity Incentive Plan (as amended,
the “Plan”) from 550,000 to 850,000, which was approved by the Company’s shareholders in December 2016. The
Plan provides for grants of stock options, stock appreciation rights, restricted stock, other stock-based awards and other cash-based
awards. As of June 30, 2018, the remaining shares of common stock available for future issuances of awards was 231,260. The Company
granted an aggregate of 30,000 options to purchase restricted common stock to certain directors prior to the adoption of the Plan.
Stock options generally vest and become exercisable with respect to 100% of the common stock subject to such stock option on the
third (3rd) anniversary of the date of grant. Any unvested portion of a stock option shall expire upon termination of employment
or service of the participant granted the stock option, and the vested portion shall remain exercisable in accordance with the
provisions of the Plan.
Stock
Options
The
following table summarizes stock option activity for the six months ended June 30, 2018:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
Shares
|
|
|
Average
|
|
|
Remaining
|
|
|
|
Under
|
|
|
Exercise
|
|
|
Contractual
|
|
|
|
Options
|
|
|
Price
|
|
|
Term (Years)
|
|
Balance at December 31, 2017
|
|
|
561,740
|
|
|
$
|
7.32
|
|
|
|
5.61
|
|
Options granted
|
|
|
57,000
|
|
|
|
4.00
|
|
|
|
9.50
|
|
Options canceled
|
|
|
(10,000
|
)
|
|
|
4.00
|
|
|
|
-
|
|
Balance at June 30, 2018
|
|
|
608,740
|
|
|
$
|
6.76
|
|
|
|
5.65
|
|
At
June 30, 2018 and December 31, 2017, the exercisable options had no intrinsic value.
As of June 30, 2018, 253,310 options have
vested and 355,430 options remain unvested. The vesting terms range from zero to 9.50 years and the vested options have a weighted
average remaining term of 5.65 years and a weighted average exercise price of $6.76 per share.
The weighted average grant date fair value
of the 57,000 stock options granted during the six months ended June 30, 2018 was $0.32. The following table summarizes the assumptions
used to value stock using a Black-Scholes model:
Expected annualized volatility:
|
|
|
50.00
|
%
|
Annual risk-free interest rate:
|
|
|
2.38
|
%
|
Expected time to maturity:
|
|
|
7 years
|
|
Exercise Price
|
|
$
|
4.00
|
|
The risk-free rate is based on
the U.S. Treasury rate for a note with a similar term in effect at the time of the grant. The expected annualized volatility is
based on the volatility of the Company’s historical stock prices.
Restricted
Stock
The
following table summarizes unvested restricted stock awards activity for the six months ended June 30, 2018:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Share
Price
|
|
Restricted stock awards unvested at December
31, 2017
|
|
|
1,250
|
|
|
$
|
2.74
|
|
Granted
|
|
|
55,147
|
|
|
|
1.36
|
|
Vested
|
|
|
(56,397
|
)
|
|
|
1.39
|
|
Restricted stock awards unvested
at June 30, 2018
|
|
|
-
|
|
|
|
|
|
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018
(Unaudited;
amounts in thousands, except share and per share amounts, unless otherwise indicated)
Stock-Based
Compensation:
Stock-based
compensation consists of expenses related to the issuance of stock options and restricted stock. Stock-based compensation expenses
were $79 and $40 for the three months ended June 30, 2018 and 2017, respectively, and $165 and $82 for the six months ended June
30, 2018 and 2017, respectively.
The
aggregate unrecognized compensation expense of stock options and restricted stock at June 30, 2018 was $147, which will be recognized
through January 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 (approximately $12) per month for collaborative research.
The monthly payments terminate upon the earlier of: (a) the date that the Company orders additional product in accordance with
the terms of the agreement and (b) December 31, 2018, and the Company has no further financial obligations to DIL thereafter. The
agreement expires on December 31, 2018, and the Company has the unilateral right to renew the agreement for subsequent one-year
terms. At June 30, 2018, the future minimum payments under the supply agreement was €60 (approximately $72).
Clinical and Basic Research Programs
The Company invests in research and development
activities externally through academic and industry collaborations aimed at enhancing the Company’s products and optimizing
manufacturing. At June 30, 2018, the future minimum payments for collaborations with various academic centers in excess of one
year is as follows:
Years Ended December 31,
|
|
Amount
|
|
2018 (remaining six months)
|
|
$
|
100
|
|
2019
|
|
|
140
|
|
Total
|
|
$
|
240
|
|
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 June 30, 2018,
the future minimum lease payments under the non-cancellable operating lease in excess of one year is as follows:
|
|
|
|
Years Ended December 31,
|
|
Amount
|
|
2018 (remaining six months)
|
|
$
|
36
|
|
2019
|
|
|
72
|
|
Total
|
|
$
|
108
|
|
Rent
expense including common area maintenance charges and taxes were $38 and $25 for the six months ended June 30, 2018 and 2017,
respectively, and $20 and $22 for the three months ended June 30, 2018 and 2017, respectively.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018
(Unaudited;
amounts in thousands, except share and per share amounts, unless otherwise indicated)
Defined
Contribution Plan
The
Company established a 401(K) Plan (the “401(K) Plan”) for eligible employees of the Company effective April 1, 2014.
Generally, all employees of the Company who are at least twenty-one years of age and who have completed three months of service
are eligible to participate in the 401(K) Plan. The 401(K) Plan is a defined contribution plan that provides that participants
may make salary deferral contributions, of up to the statutory maximum allowed by law (subject to catch-up contributions) in the
form of voluntary payroll deductions. The Company’s matching contribution is equal to 100 percent on the first four percent
of a participant’s compensation which is deferred as an elective deferral.
The
Company’s aggregate matching contributions were $15 and $9 for the six months ended June 30, 2018 and 2017, respectively,
and $7 and $4 for the three months ended June 30, 2018 and 2017, respectively.
Product
Liability
As
a manufacturer of nutritional supplements that are ingested by consumers, the Company may be subject to various product liability
claims. Although we have not had any claims to date, it is possible that future product liability claims could have a material
adverse effect on our business or financial condition, results of operations or cash flows. The Company currently maintains product
liability insurance of $5 million per-occurrence and a $10 million annual aggregate coverage. At June 30, 2018 and December 31,
2017, the Company had not recorded any accruals for product liability claims.
Note
12 – Related Party Transactions
The
following is a description of the transactions we have engaged in with our directors, director nominees and officers and beneficial
owners of more than five percent of our voting securities and their affiliates:
In October 2016,
the Company received a purchase order from RENS Agriculture, an affiliate of Rens Technology Inc., and Ren Ren, one of the Company’s
directors, to purchase $116 of our product. The Company received a 50% deposit in November 2016 in order to manufacture the product.
The goods were shipped in January 2017 and received in China in March 2017. The Company has not received payment for the order
to date. As a result of the ongoing litigation (see Note 13), the Company recorded an allowance for bad debt of $59 for the six
months ended June 30, 2017 related to the receivable due from RENS Agriculture.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018
(Unaudited;
amounts in thousands, except share and per share amounts, unless otherwise indicated)
Note
13 – legal PROCEEDINGS
On
October 27, 2016, Cutler Holdings, L.L.C. (“Cutler”) filed a complaint in the Superior Court of New Jersey alleging
that the Company failed to make certain rental payments. On March 30, 2017, the Company entered into a settlement agreement with
Cutler, pursuant to which Cutler released the Company from any liability for the claims asserted in the complaint.
On January 6,
2017, in connection with the financing contemplated by a securities purchase agreement with RENS Technology Inc. (the “Purchaser”),
we commenced an action in the Supreme Court of New York, County of New York (the “Court”), against the Purchaser, RENS
Agriculture, the parent company of the Purchaser, and Ren Ren, a principal in both entities and one of our directors, arising from
the Purchaser’s breach of the agreement under which the Purchaser agreed to invest an aggregate of $20.25 million in our
company in exchange for an aggregate of 3,537,037 shares of our common stock and warrants to purchase an aggregate of 884,259 shares
of common stock.
On
April 11, 2017, the Court noted that we had demonstrated a likelihood of success on the merits of the breach of contract claim.
Thereafter, a hearing was scheduled on the application by the Purchaser to dismiss the complaint and various pre-trial discovery
applications by both parties.
In
August 2017, before the hearing occurred, the Company amended its complaint repeating most of the initial claims but adding several
additional claims against RENS Agriculture, Mr. Ren and two additional Chinese defendants, including a claim against RENS Agriculture
for breaching the exclusive distribution agreement, as well as claims against all defendants for theft and misappropriation of
our confidential proprietary information and trade secrets, breach of fiduciary duty and duty of loyalty, misappropriation of
corporate opportunity, unfair competition and a number of other torts. We are seeking damages and injunctive relief. The Purchaser
has filed a motion to dismiss the amended complaint, which is still pending and scheduled for oral argument in August 2018.
On August 16,
2017, the Purchaser commenced an action in the District Court of Clark County in the State of Nevada against us and Joseph Mannello,
our then interim Chief Executive Officer, alleging that Mr. Mannello had breached his fiduciary duties and was grossly negligent
in managing our company. The action seeks monetary damages and injunctive relief from Mr. Mannello as well as the appointment of
a receiver over us. Subsequently, the Purchaser submitted a petition to appoint a receiver and we and Mr. Mannello submitted a
motion to dismiss the action, both of which are currently pending as of the date of this report. An application on consent to adjourn
the hearing date on the receiver application and motion to dismiss is pending.
The
parties are currently in settlement discussions regarding the foregoing matters.
The
outcome of the aforementioned matters cannot be determined as of the date of these financial statements.
Note
14 – Subsequent Event
As
referenced in Note 1, on July 24, 2018, the Company entered into a new sales agreement with H.C. Wainwright which established
an at-the-market equity program pursuant to which the Company may offer and sell s
hares
of common stock from time to time through H.C. Wainwright.