NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
September 30, 2019
(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, 2018, which has been derived from audited consolidated financial statements, and the unaudited
interim condensed consolidated financial statements as of September 30, 2019 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, 2018 filed with the SEC on March 27, 2019. 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
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. There can be no assurance that we will be able to secure distribution arrangements on terms acceptable
to us, or that we will be able to generate significant sales of our current and future branded products. We expect to continue
developing our own core branded products in markets such as functional foods, sports and fitness nutrition and to pursue international
sales opportunities. We remain committed to continuing our focus on various clinical trials in support of enhancing our commercial
strategy as well as enhancing our intellectual property assets, to develop product improvements and new products, and to reduce
the cost of our products by finding more efficient manufacturing processes and contract manufacturers.
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
in accordance with terms of the Purchase Agreement.
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,
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 15-LEGAL PROCEEDINGS.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2019
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
Going Concern and Liquidity
The accompanying condensed consolidated
financial statements have been prepared in accordance with U.S. GAAP, which contemplates the continuation of the Company as a going
concern. The Company has suffered recurring losses from operations and incurred a net loss of approximately $3,071 for the nine
months ended September 30, 2019 and $3,223 for the year ended December 31, 2018.
As of September 30, 2019 the Company had
cash of $396 and working capital of $1,115 (current assets of $2,163 less current liabilities of $1,048). For the nine months ended
September 30, 2019 and 2018, our net loss was $3,071 and $3,158 respectively. For the nine months ended September 30, 2019 and
2018, net cash used in operating activities was $1,904 and 2,550, respectively.
The Company has historically recorded
minimal sales during the past twenty-one consecutive quarters. In June 2018, the Company launched a Fortetropin® based
pet product called Myos Canine Muscle Formula. In March 2018, the Company launched Yolked®, a new sports nutrition
product line. The Company is uncertain of the future revenue streams these products will generate.
As of the filing date of this Form 10-Q,
management believes that there may not be sufficient capital resources from operations and existing financing arrangements in order
to meet operating expenses and working capital requirements for the next twelve months. These circumstances raise substantial doubt
about the Company’s ability to continue as a going concern.
Accordingly, the Company is evaluating
various alternatives, including reviewing operating expenses, securing additional financing through debt or equity securities to
fund future business activities and other strategic alternatives. There can be no assurance that the Company will be able to generate
the level of operating revenues in its business plan, or if additional sources of financing will be available on acceptable terms,
if at all. If no additional sources of financing are available, our future operating prospects may be adversely affected. The accompanying
condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
At-the-Market Offering
On February 21, 2017, the Company entered
into a sales agreement with H.C. Wainwright & Co., LLC (“H.C. Wainwright”) which established an at-the-market equity
program pursuant to which the Company may offer and sell up to $6.0 million of its shares of common stock from time to time through
H.C. Wainwright. The Company incurred $125 of deferred offering costs in connection with this program which were originally recorded
as a long-term other asset on the Company’s condensed consolidated balance sheets. Since this sales agreement expired by
June 30, 2018 the remaining deferred offering costs of $96 were recognized as legal expenses recorded within the accompanying condensed
consolidated statements of operations as general and administrative expenses in the nine months ended September 30, 2018.
On January 19, 2018, the Company sold 140,295
shares of common stock for $2.11 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. A total of 771,520 shares were sold under this program for aggregate gross
proceeds of $1,544.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2019
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
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 $1,650 shares of common stock from time to time through H.C. Wainwright. The Company incurred $108
of deferred offering costs in connection with the execution of this new sales agreement which was recorded as a long term
other asset on the Company’s condensed consolidated balance sheets as of December 31, 2018.
The deferred offering costs will be reflected
as a reduction in equity as the Company incurs sales of its stock pursuant to this program. For the nine months ended September
30, 2019, $16 was recognized and reclassified to additional paid in capital. Management continues to evaluate the ongoing progress
of this program and its related remaining deferred offering costs. For the three months ended September 30, 2019 the Company
recorded $3 of deferred offering costs. As of September 30, 2019, the balance of deferred offering costs is $95.
On January 15, 2019, the Company sold 32,489
shares of common stock for $2.00 per share for gross proceeds of $65 in an at-the-market offering.
On March 19, 2019, the Company sold 78,640
shares of common stock for $1.85 per share for gross proceeds of $146 in an at-the-market offering.
As of the filing date of this Form 10-Q,
a total of 111,489 shares were sold under this program for aggregate gross proceeds of $211.
Private Placements
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.
On March 27, 2019, the Company entered
into a securities purchase agreement with private investors providing for the issuance and sale by the Company of 1,438,356 shares
of common stock, in a private placement offering at a purchase price of $1.46 per share, for gross proceeds of $1,850 and $250
related to the conversion of a related party promissory note payable.
Related Party Promissory Note Payable
On August 30, 2018, the Company executed
an unsecured promissory note (the “Note”) in the principal amount of up to $750 in favor of Joseph Mannello, the Company’s
chief executive officer (the “Lender”). Pursuant to the Note, on August 30, 2018, the Lender advanced $500 of funds
to the Company. On September 27, 2018, the Lender advanced an additional $250 of funds to the Company. On November 13, 2018, the
Company amended and restated the Note to increase the maximum amount that may be drawn down under the Note from $750 to $1,000.
The Company drew down an additional $250 under the Note in December 2018. On March 27, 2019 $250 of the Note was converted into
171,233 shares in connection with a private placement transaction.
The Note accrues interest at a rate of
5% per annum and all payments of principal, interest and other amounts under the Note were payable on August 31, 2019. Subsequently on
October 24, 2019, the Company and the Lender agreed to extend the date of maturity to March 1, 2020. The Company may prepay, in
whole or in part, at any time, the principal, interest and other amounts owing under the Note, without penalty.
For the three and nine months ended September 30, 2019, the Company recorded interest expense of $10 and
$31, respectively. As of September 30, 2019, the Company accrued
$44 of interest expense on the Note.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2019
(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 condensed 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 had no impact
on the Company’s prior period net loss or stockholders’ equity.
Use of Estimates
The preparation of condensed 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 condensed
consolidated financial statements 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 condensed consolidated financial statements, which management
considered in formulating its estimate, could change in the near term due to one or more future non-conforming events. Accordingly,
the actual results could differ significantly from estimates. Significant items subject to such estimates include but are not limited
to the valuation of stock-based awards, measurement of allowances for doubtful accounts and inventory reserves, the amount of deferred
offering costs recognized, the selection of asset useful lives, fair value estimations used to test long-lived assets, including
intangibles, impairments and provisions necessary for assets and liabilities.
Management’s estimates, including
evaluation of impairment of long-lived assets and inventory reserves are based in part on forecasted future results. A variety
of factors could cause actual results to differ from forecasted results and these differences could have a significant effect on
asset carrying amounts. Management believes that we have the ability to sell raw materials to a third party in the event the Company
does not obtain the requisite amount of revenue.
Cash and Cash Equivalents
The Company considers all highly liquid
investments purchased with a maturity of three months or less and money market accounts to be cash equivalents. At September 30,
2019 and December 31, 2018 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. At September 30, 2019, total cash was $396,
which exceeded the FDIC coverage limit of $250 by $146. There were no accounts that exceeded the FDIC limit at December 31, 2018.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2019
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
Inventory Reserves
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. Our policy is to recognize
an inventory reserve as a loss in earnings in the period in which evidence exists that the net realizable value of inventory is
less than its cost due to damage, physical deterioration, obsolescence, and changes in inventory reserve estimates, changes in
price levels or other causes. 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 as well as inventory
write-offs. The multiple possible outcomes that can result from applying lower of cost or net realizable value can make inventory
valuation highly complex. For the nine months ended September 30, 2019, no additional reserve was recorded within cost of sales
on the condensed consolidated statements of operations.
Deferred Offering Costs
The Company defers as other assets the
direct incremental costs of raising capital until such time as the offering is completed. At the time of the completion of the
offering, the costs are charged against the capital raised. Should the offering not be completed, deferred offering costs are charged
to operations during the period in accordance with SEC guidance. Since the February 21, 2017 sales agreement expired by June 30,
2018, the remaining deferred offering costs of $96 on the Company’s condensed consolidated balance sheets were recognized
and recorded within the Company’s condensed consolidated statements of operations as general and administrative expenses.
On July 24, 2018, the Company entered into
a new sales agreement, incurring $108 of deferred offering costs. As of September 30, 2019, $95 of deferred offering costs is included
as a long-term asset on the accompanying condensed consolidated balance sheet.
Leases
The Company determines if an arrangement
is a lease at inception. Operating lease assets and liabilities are included in operating lease right of use (“ROU”)
lease assets, current portion of operating lease liabilities, and long-term operating lease liabilities on the Company’s
condensed consolidated balance sheets.
Operating lease right of use assets represent
the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation
to make lease payments arising from the lease. Operating lease right of use assets and liabilities are recognized at the commencement
date of the lease based on the present value of lease payments over the lease term. Since the Company’s leases do not provide
an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in
determining the present value of lease payments. The operating lease right of use assets also include any lease payments made and
excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably
certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over
the lease term.
Fair Value of Long-Lived Assets
We test long-lived assets, including fixed
assets and intangibles with finite lives, for recoverability when events or changes in circumstances indicate that the net carrying
amount is greater than its fair value. Assets are grouped and evaluated at the lowest level for their identifiable cash flows that
are largely independent of the cash flows of other groups of assets. We consider historical performance and future estimated results
in our evaluation of potential impairment and then compare the carrying amount of the asset to the future estimated cash flows
expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future
cash flows, we measure the amount of impairment by comparing the carrying amount of the asset to its fair value. The estimation
of fair value is generally measured by discounting expected future cash flows at the rate we utilize to evaluate potential investments.
We estimate fair value based on the information available in making the necessary estimates, judgments and projections.
Concentrations of Credit Risk
Management regularly reviews accounts receivable,
and if necessary, establishes an allowance for doubtful accounts that reflects management’s best estimate of amounts that
may not be collectible based on historical collection experience and specific customer information. Bad debt expense recognized
as a result of an allowance for doubtful accounts is classified under general and administrative expenses in the statements of
operations. If we are unable to collect our outstanding accounts receivable from our distributors, or if our distributors are unable
or unwilling to purchase our products, our operating results and financial condition will be adversely affected.
Fixed Assets
Fixed assets are stated at cost and depreciated
to their estimated residual value over their estimated useful lives of 3 to 7 years. Leasehold improvements are amortized over
the lesser of the asset’s useful life or the contractual remaining lease term, including expected renewals. When assets are
retired or otherwise disposed of, the assets and related accumulated depreciation are reversed from the accounts and the resulting
gains or losses are included in the condensed consolidated statements of operations.
Depreciation is provided using the straight-line
method for all fixed assets. Repairs and maintenance costs are expensed as incurred.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2019
(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.
Intangible assets also includes patent
costs associated with applying for a patent and being issued a patent. Costs to defend a patent and costs to invalidate a competitor’s
patent or patent application are expensed as incurred. Upon issuance of the patent, capitalized patent costs are reclassified from
intangibles with indefinite lives to intangibles with finite lives and amortized on a straight-line basis over the shorter of the
estimated economic life or the initial term of the patent, generally 20 years.
Our policy is to evaluate intangible assets
subject to amortization for possible impairment whenever events or changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. Impairment testing of intangible assets subject to amortization involves comparing the carrying
amount of the asset to the forecasted undiscounted future cash flows. In the event the carrying value of the asset exceeds the
undiscounted future cash flows, the carrying value is considered not recoverable and an impairment exists. An impairment loss is
measured as the excess of the asset’s carrying value over its fair value, calculated using a discounted future cash flow
method. The computed impairment loss is recognized in the period that the impairment occurs. Assets which are not impaired may
require an adjustment to the remaining useful lives for which to amortize the asset. There were no impairment charges for the three
and nine months ended September 30, 2019 and the year ended December 31, 2018. Intangible assets at September 30, 2019 and December
31, 2018 consisted of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Intangibles with finite lives:
|
|
|
|
|
|
|
Intellectual property
|
|
$
|
2,101
|
|
|
$
|
2,101
|
|
Website - qurr.com
|
|
|
380
|
|
|
|
380
|
|
Less: accumulated amortization – intellectual property
|
|
|
(1,152
|
)
|
|
|
(994
|
)
|
Less: accumulated amortization – website
|
|
|
(346
|
)
|
|
|
(242
|
)
|
Total intangible assets, net
|
|
$
|
983
|
|
|
$
|
1,245
|
|
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
|
|
2019 (remaining three months)
|
|
$
|
87
|
|
2020
|
|
|
210
|
|
2021
|
|
|
210
|
|
2022
|
|
|
210
|
|
2023
|
|
|
210
|
|
2024
|
|
|
56
|
|
Total
|
|
$
|
983
|
|
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2019
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
Net Revenues
Revenue Recognition
Net revenues include products and shipping
and handling charges, net of estimates for incentives and other sales allowances or discounts. Our product sales generally do not
provide for rights of return. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring
products. All revenue is recognized when we satisfy our performance obligations under the contract. We recognize revenue by transferring
the promised products to the customer, with revenue recognized at the point in time the customer obtains control of the products.
We consider charges associated with shipping and handling activities as costs to fulfill our performance obligations. Using probability
assessments, we estimate sales incentives expected to be paid over the term of the contract. The majority of our contracts have
a single performance obligation and are short term in nature. Sales taxes that are collected from customers and remitted to governmental
authorities are accounted for on a net basis and therefore are excluded from net 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. An account that is past due for three
months will be flagged as delinquent and after six months will be sent to collection if necessary. An account past due after one
year will be in consideration to be written off as a bad debt.
Contract Liabilities
Contract liabilities may include deferred
revenue related to customer payments made in advance of the customer obtaining control of the product, as well as liabilities associated
with sales incentives. At September 30, 2019, and December 31, 2018, the Company had no contract liability balances.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2019
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
Disaggregation of Net Revenues
Our net revenues by product type are presented
for the three and nine months ended September 30, 2019 and 2018.
|
|
Three months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
Product Type
|
|
2019
|
|
|
2018
|
|
Myos Canine Muscle Formula® (1)
|
|
$
|
132
|
|
|
$
|
8
|
|
Yolked® (2)
|
|
|
108
|
|
|
|
13
|
|
White label (3)
|
|
|
100
|
|
|
|
-
|
|
Qurr® (4)
|
|
|
10
|
|
|
|
40
|
|
Physician Muscle Health Formula (5)
|
|
|
-
|
|
|
|
5
|
|
Total Net Revenues
|
|
$
|
350
|
|
|
$
|
66
|
|
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
Product Type
|
|
2019
|
|
|
2018
|
|
Myos Canine Muscle Formula® (1)
|
|
$
|
282
|
|
|
$
|
11
|
|
Yolked® (2)
|
|
|
229
|
|
|
|
28
|
|
White label (3)
|
|
|
100
|
|
|
|
-
|
|
Qurr® (4)
|
|
|
37
|
|
|
|
153
|
|
Physician Muscle Health Formula (5)
|
|
|
5
|
|
|
|
19
|
|
Total Net Revenues
|
|
$
|
653
|
|
|
$
|
211
|
|
(1)
|
Launched in June 2018
|
(2)
|
Launched in March 2018
|
(3)
|
White label fortetropin blend
|
(4)
|
Launched in June 2017
|
(5)
|
Fortetropin blend for physicians
|
Advertising
The Company charges advertising expenses
to selling, marketing and research as incurred. These expenses were $667 and $267 for the nine months ended September 30, 2019 and
2018, respectively, and $200 and $8 for the three months ended September 30, 2019 and 2018, respectively.
Research and Development
Research and development expenses consist
primarily of operating expenses, the cost of manufacturing our product for clinical study, the cost of conducting clinical studies
and the cost of conducting preclinical and research activities.
Research and development expenses were $137 and $353 for the
nine months ended September 30, 2019 and 2018, respectively, and $48 and $62 for the three months ended September 30, 2019 and
2018, respectively.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2019
(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 $46 and $35 for the nine months ended September
30, 2019 and 2018, respectively, and were $30 and $11 for the three months ended September 30, 2019 and 2018, 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. These expenses are included as personnel and benefits within the condensed consolidated statements
of operations. Stock-based compensation expenses were $93 and $195 for the nine months ended September 30, 2019 and 2018, respectively,
and were $22 and $30 for the three months ended September 30, 2019 and 2018, respectively.
The Company uses the Black-Scholes option-pricing
model to estimate the fair value of stock options and the market price of our common stock on the date of grant for the fair value
of restricted stock issued. Our determination of the fair value of stock-based awards is affected by our stock price as well as
assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, our
expected stock price volatility over the term of the awards, and certain other market variables such as the risk-free interest
rate.
Segment Information
Accounting Standards Codification (“ASC”)
280, Disclosures about Segments of an Enterprise and Related Information, establishes standards for reporting information
about operating segments and requires selected information for those segments to be presented in the financial statements. It also
establishes standards for related disclosures about products and services. Management has determined that the Company operates
in one segment as all of its product lines include the main ingredient Fortetropin.
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, 2019 and December 31, 2018 the Company’s financial instruments consisted primarily of cash and cash equivalents,
accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses and other current liabilities.
Due to their short-term nature, the carrying amounts of the Company’s financial instruments approximated their fair values.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2019
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
Basic and Diluted Loss Per Share
Basic net loss per share is computed by
dividing net loss available to common stockholders for the period by the weighted average number of common shares outstanding during
the period. Diluted net loss per share is computed by dividing net loss for the period by the weighted average number of common
shares outstanding during the period increased to include the number of additional shares of common stock that would have been
outstanding if potential dilutive securities outstanding had been issued. The Company uses the “treasury stock” method
to determine the dilutive effect of common stock equivalents such as options, warrants and restricted stock. For the three and
nine months ended September 30, 2019 and 2018, the Company incurred a net loss. Accordingly, the Company’s common stock equivalents
were anti-dilutive and excluded from the diluted net loss per share computation.
The aggregate number of potentially dilutive
common stock equivalents outstanding at September 30, 2019 excluded from the diluted net loss per share computation because their
inclusion would be anti-dilutive were 1,216,096 which includes warrants to purchase an aggregate of 663,356 shares of common stock
and options to purchase an aggregate of 555,740 shares of common stock.
The aggregate number of potentially dilutive
common stock equivalents outstanding at September 30, 2018 excluded from the diluted net loss per share computation because their
inclusion would be anti-dilutive were 1,439,942, which includes outstanding and exercisable warrants to purchase an aggregate of
821,202 shares of common stock, and vested stock options to purchase an aggregate of 618,740 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.
For the three and nine months ended September
30, 2019 and 2018, 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 in the states in which it does business.
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2019
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS
In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No.
2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair
Value Measurement. The new guidance improves and clarifies the fair value measurement disclosure requirement of ASC 820. The new
disclosure requirements include the changes in unrealized gains or losses included in other comprehensive income for recurring
Level 3 fair value measurement held at the end of reporting period and the explicit requirement to disclose the range and weighted
average used to develop significant unobservable inputs for Level 3 fair value measurements. The other provisions of ASU 2018-13
also include eliminated and modified disclosure requirements. The guidance is effective for fiscal years beginning after December
15, 2019 with early adoption permitted, including in an interim period for which financial statements have not been issued or made
available for issuance. The Company has evaluated the impact of early adoption of this ASU and determined that the adoption of
ASU 2018-13 will not have a significant impact on its condensed consolidated financial statements.
In June 2018, the FASB issued ASU No. 2018-07,
Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The new guidance
expands the scope of Topic 718 to include share-based payments granted to nonemployees in exchange for goods or services used or
consumed in an entity’s own operations, and supersedes the guidance in ASC 505-50, Equity-Based Payments to Non-Employees.
The most significant change resulting from this update is that stock-based awards granted to non-employees will no longer need
to be re-measured at fair value at each financial reporting date until performance is complete, as these awards will be measured
at fair value at the grant date. The guidance is effective January 1, 2019 with early adoption permitted, including in an interim
period for which financial statements have not been issued. The Company has evaluated the impact of early adoption of this ASU
and determined that the adoption of ASU 2018-07 does not have a significant impact on its condensed consolidated financial
statements.
In March 2018, the FASB issued ASU 2018-5
– Income Taxes (Topic 740): Amendments to SEC Paragraphs pursuant to SEC Staff Accounting Bulletin No. 118. This ASU provided
guidance related to Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 118 (“SAB 118”),
which addresses the accounting implications of the Tax Act. SAB 118 allows a company to record provisional amounts during a measurement
period not to extend beyond one year of the enactment date and was effective upon issuance. The Company has evaluated the Tax Act
and has made reasonable estimates of the effects on its condensed consolidated financial statements and tax disclosures.
In September 2017, the FASB issued ASU
No. 2017-13, Revenue from Contracts with Customers which amended FASB Accounting Standards Codification (ASC) by creating Topic
606, Revenue from Contracts with Customers. In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers”
(“ASU 2014-09”). ASU 2014-09 supersedes nearly all existing revenue recognition guidance under U.S. GAAP and requires
revenue to be recognized when promised goods or services are transferred to customers in an amount that reflects the consideration
that is expected to be received for those goods or services. Additionally, qualitative and quantitative disclosures are required
about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill
a contract.
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 Considerations (Reporting Revenue Gross versus 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
|
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2019
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
The adoption of Topic 606 is required for
public entities for reporting periods beginning after December 15, 2017. The Company has adopted the provisions of this ASU for
its fiscal year beginning January 1, 2018 using the modified retrospective transition method. This method involves application
of the new guidance to either: (a) all contracts at the date of initial application or (b) only contracts that are not completed
at the date of initial application. Under this method, if necessary, a cumulative effect adjustment is recognized as of the date
of initial application. The adoption of ASU 2014-09 did not have an impact on the Company and therefore, no cumulative effect adjustment
was required.
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. This accounting guidance was effective for us beginning January 1, 2018. The Company has evaluated
the impact of the updated guidance and has determined that the adoption of ASU 2017-09 did not have a significant impact on its
condensed consolidated financial statements.
In January 2017, the FASB issued ASU No.
2017-04, “Simplifying the Test for Goodwill”, which eliminates 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 condensed consolidated financial statements.
In February 2016, the FASB issued its final
standard on lease accounting, ASU No. 2016-02, “Leases (Topic 842),” which superseded Topic 840, “Leases,”
which was further modified in ASU No. 2018-10, “Codification Improvements to Topic 842, Leases,” ASU No. 2018-11, “Leases
(Topic 842) Targeted Improvements” and ASU No. 2019-01 “Leases (Topic 842) Codification Improvements” to clarify
the implementation guidance. The new accounting standard was effective for the Company beginning on January 1, 2019 and required
the recognition on the balance sheet of right-of-use assets and lease liabilities for all long-term leases, including operating
leases, on the balance sheet. The Company elected the optional transition method and adopted the new guidance on January 1, 2019
on a modified retrospective basis with no restatement of prior period amounts. As allowed under the new accounting standard, the
Company elected to apply practical expedients to carry forward the original lease determinations, lease classifications and accounting
of initial direct costs for all asset classes at the time of adoption. The Company also elected not to separate lease components
from non-lease components and to exclude short-term leases from its condensed consolidated balance sheet. The Company’s adoption
of the new standard as of January 1, 2019 resulted in the recognition of right-of-use assets of $236 and liabilities of $245 with
no material cumulative effect adjustment to equity as of the date of adoption. In connection with the adoption of this guidance,
as required, the Company reclassified deferred rent liabilities as reductions to lease assets. Adoption of the new standard did
not have a material impact on the Company’s condensed consolidated statements of operations or cash flows. See Note 13- LEASES
for additional information.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2019
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
NOTE 4 – INVENTORIES, NET
Inventories, net at September 30, 2019
and December 31, 2018 consisted of the following:
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
Raw materials
|
|
$
|
1,406
|
|
|
$
|
1,769
|
|
Work in process
|
|
|
192
|
|
|
|
37
|
|
Finished goods
|
|
|
192
|
|
|
|
135
|
|
|
|
|
1,790
|
|
|
|
1,941
|
|
Less: inventory reserves
|
|
|
(165
|
)
|
|
|
(265
|
)
|
Inventories, net
|
|
$
|
1,625
|
|
|
$
|
1,676
|
|
NOTE 5 – FIXED ASSETS
Fixed assets at September 30, 2019 and
December 31, 2018 consisted of the following:
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
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
|
|
|
(301
|
)
|
|
|
(281
|
)
|
Net book value of fixed assets
|
|
$
|
129
|
|
|
$
|
149
|
|
Depreciation expense was $20 and $27 for
the nine months ended September 30, 2019 and 2018, respectively.
NOTE 6 – PREPAID EXPENSES
Prepaid expenses 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, 2019 and December 31, 2018 consisted of the following:
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
Prepaid insurance & investor relations
|
|
$
|
9
|
|
|
$
|
6
|
|
Prepaid expenses
|
|
|
89
|
|
|
|
4
|
|
Total prepaid expenses
|
|
$
|
98
|
|
|
$
|
10
|
|
MYOS
RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2019
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
NOTE 7 – ACCRUED EXPENSES AND
OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities
consist of estimated future payments that relate to the current and prior accounting periods. Management reviews these estimates
regularly to determine their reasonableness. Accrued expenses and other current liabilities at September 30, 2019 and December
31, 2018 consisted of the following:
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
Professional fees and other
|
|
$
|
43
|
|
|
$
|
111
|
|
Research & development
|
|
|
-
|
|
|
|
91
|
|
Board compensation
|
|
|
-
|
|
|
|
181
|
|
Total accrued expenses and other current liabilities
|
|
$
|
43
|
|
|
$
|
383
|
|
NOTE 8 - PROMISSORY NOTE PAYABLE
On August 30, 2018, the Company
executed an unsecured promissory note (the “Note”) in the principal amount of $750 in favor of Joseph Mannello,
the Company’s chief executive officer (the “Lender”). Pursuant to the Note, on August 30, 2018, the Lender
advanced $500 of funds to the Company. On September 26, 2018, the Lender advanced an additional $250 of funds to the Company.
The Note accrues interest at a rate of 5% per annum and all payments of principal, interest and other amounts under the Note
were payable on August 31, 2019 or earlier under certain circumstances. The Company and Mr. Mannello agreed to extend the
maturity date to March 1, 2020. (See Note 16)
The Company may prepay, in whole or
in part, at any time, the principal, interest and other amounts owing under the Note, without penalty. On November 13, 2018,
the Company amended and restated the Note to increase the maximum amount that may be drawn down under the Note from $750 to
$1,000. The Company drew down an additional $250 under the Note in December 2018. As of December 31, 2018, the balance of the
Note was $1,000 and the Company accrued $15 of interest expense. In March 2019, $250 of the Note was converted into 171,233
shares as part of a private placement (see Note 1). The proceeds of the Note will be used by the Company for general working
capital purposes. As of September 30, 2019, the balance of the Note was $750 and $44 of accrued interest was recorded.
Note
9 – Stockholders’ Equity
Preferred Stock Purchase Rights
Effective February 14, 2017, the Board
of Directors declared a dividend of one right (“Right”) for each of the Company’s issued and outstanding shares
of common stock. The Rights were granted to the stockholders of record at the close of business on February 24, 2017. Each Right
entitles the registered holder, upon the occurrence of certain events specified in the Rights Agreement, to purchase from the Company
one one-thousandth of a share of the Company’s Series A Preferred Stock at a price of $7.00, subject to certain adjustments. The
Rights are not exercisable until the occurrence of certain events, including a person acquiring or obtaining the right to acquire
beneficial ownership of 10% or more of the Company’s outstanding common stock. The Rights are evidenced by certificates for
the common stock and automatically transfer with the common stock unless they become exercisable. If the Rights become exercisable,
separate certificates evidencing the Rights will be distributed to each holder of common stock. Holders of the preferred stock
will be entitled to certain dividend, liquidation and voting rights. The rights are redeemable by us at a fixed price as determined
by the Board, after certain defined events. As of September 30, 2019, the Rights have no dilutive effect on the earnings per
common share calculation and no shares of preferred stock have been issued. At the time of issuance, the Company determined that
these Rights have a de minimis fair value. The description and terms of the Rights are set forth in the Rights Agreement dated
as of February 14, 2017 between the Company and its Rights Agent.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2019
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
Issuance of Common Stock
The Company has periodically issued common
stock in connection with certain private and public offerings. For the nine months ended September 30, 2019 and 2018 the Company
has received aggregate gross proceeds of $2,312 and $1,472, respectively, from these offerings:
|
|
|
|
|
Gross
|
|
Date
|
|
Shares
|
|
|
Proceeds
|
|
March 27, 2019
|
|
|
1,438,356
|
(1)
|
|
$
|
2,100
|
|
January 1, 2019 through September 30, 2019
|
|
|
111,129
|
(2)
|
|
|
212
|
|
Aggregate gross proceeds received for the nine months ended September 30, 2019
|
|
|
|
|
|
|
2,312
|
|
|
|
|
|
|
|
|
|
|
April 29, 2018
|
|
|
806,452
|
(3)
|
|
|
1,000
|
|
April 4 through April 23, 2018
|
|
|
131,225
|
(4)
|
|
|
176
|
|
January 19, 2018
|
|
|
140,295
|
(5)
|
|
|
296
|
|
Aggregate gross proceeds received for the nine months ended September 30, 2018
|
|
|
|
|
|
|
1,472
|
|
(1)
|
Shares issued pursuant to a private placement with accredited investors for $1.46 per share.
|
(2)
|
Shares of common stock sold for between $1.85 and $2.00 per share in at-the-market offerings.
|
(3)
|
Shares issued pursuant to a private placement with accredited investors for $1.24 per share.
|
(4)
|
Shares of common stock sold for between $1.25 and $1.38 per share in at-the-market offerings.
|
(5)
|
Shares of common stock sold for $2.111 per share in an at-the-market offering.
|
Note
10 – Warrants
The following table summarizes information
about outstanding and exercisable warrants at September 30, 2019:
|
|
|
|
Number of
|
|
|
Shares
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Warrants
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
Exchanged,
|
|
|
Outstanding
|
|
|
|
|
|
Expiration
|
|
|
|
|
|
Originally
|
|
|
Exercised
|
|
|
and
|
|
|
Exercise
|
|
|
Term
|
|
Description
|
|
Grant Date
|
|
Granted
|
|
|
or Expired
|
|
|
Exercisable
|
|
|
Price
|
|
|
in years
|
|
Series B(1)
|
|
January 27, 2014
|
|
|
157,846
|
|
|
|
(157,846
|
)
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
Series C(2)
|
|
November 19, 2014
|
|
|
145,399
|
|
|
|
(142,957
|
)
|
|
|
2,442
|
|
|
$
|
12.00
|
|
|
|
0.25
|
|
Repricing Series C(2)
|
|
November 19, 2014
|
|
|
|
|
|
|
142,957
|
|
|
|
142,957
|
|
|
$
|
9.00
|
|
|
|
0.25
|
|
Repricing Series E(2)
|
|
November 19, 2014
|
|
|
-
|
|
|
|
142,957
|
|
|
|
142,957
|
|
|
$
|
9.00
|
|
|
|
0.25
|
|
Rens(3)
|
|
March 3, 2016
|
|
|
375,000
|
|
|
|
-
|
|
|
|
375,000
|
|
|
$
|
7.00
|
|
|
|
1.50
|
|
Total
|
|
|
|
|
678,245
|
|
|
|
(14,889
|
)
|
|
|
663,356
|
|
|
|
|
|
|
|
|
|
(1)
|
Issued in connection with the January 27, 2014 private placement transaction and which expired in January 2019.
|
(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, 2019
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
NOTE 11 – STOCK COMPENSATION
Equity Incentive Plan
In November 2016, the Company increased
the number of shares available for issuance under its 2012 Equity Incentive Plan (as amended, the “Plan”) from 550,000
to 850,000, which was approved by the Company’s shareholders in December 2016. The Plan provides for grants of stock options,
stock appreciation rights, restricted stock, other stock-based awards and other cash-based awards. As of September 30, 2019, the
remaining shares of common stock available for future issuances of awards was 179,260. The Company granted an aggregate of 30,000
options to purchase restricted common stock to certain directors prior to the adoption of the Plan. Stock options generally vest
and become exercisable with respect to 100% of the common stock subject to such stock option on the third (3rd) anniversary of
the date of grant. Any unvested portion of a stock option shall expire upon termination of employment or service of the participant
granted the stock option, and the vested portion shall remain exercisable in accordance with the provisions of the Plan.
Stock Options
The following table summarizes stock option
activity for the nine months ended September 30, 2019:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
Shares
|
|
|
Average
|
|
|
Remaining
|
|
|
|
Under
|
|
|
Exercise
|
|
|
Contractual
|
|
|
|
Options
|
|
|
Price
|
|
|
Term (Years)
|
|
Balance at December 31, 2018
|
|
|
598,740
|
|
|
$
|
5.93
|
|
|
|
1.54
|
|
Options granted during the nine months ended September 30, 2019
|
|
|
72,000
|
|
|
|
2.56
|
|
|
|
9.25
|
|
Balance at September 30, 2019
|
|
|
670,740
|
|
|
$
|
5.57
|
|
|
|
6.52
|
|
At September 30, 2019 the exercisable options
had no intrinsic value. As of September 30, 2019, there were 555,740 options vested and 115,000 options remain unvested. The vesting
terms range from zero to 4 years and the vested options have a weighted average remaining term of 6.77 years and a weighted average
exercise price of $5.57 per share.
The weighted average grant date fair value
of the 72,000 stock options granted during the nine months ended September 30, 2019 was $0.76. 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
|
|
$
|
2.00
|
|
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.
Stock-Based Compensation
Stock-based compensation consists of expenses
related to the issuance of stock options and restricted stock. Stock-based compensation expenses were $93 and $195 for nine months
ended September 30, 2019 and 2018, respectively.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2019
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
Note
12 – Commitments and Contingencies
Defined Contribution Plan
The Company established a 401(k) Plan (the
“401(k) Plan”) for eligible employees of the Company effective April 1, 2014. Generally, all employees of the Company
who are at least twenty-one years of age and who have completed three months of service are eligible to participate in the 401(k)
Plan. The 401(k) Plan is a defined contribution plan that provides that participants may make salary deferral contributions up
to the 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 $26 and $25 for the nine months ended September 30, 2019 and 2018, respectively.
Product Liability
As a manufacturer of nutritional supplements
that are ingested by consumers, the Company may be subject to various product liability claims. Although we have not had any claims
to date, it is possible that future product liability claims could have a material adverse effect on our business or financial
condition, results of operations or cash flows. The Company currently maintains product liability insurance of $5 million per-occurrence
and a $10 million annual aggregate coverage. At September 30, 2019 and December 31, 2018, the Company had not recorded any accruals
for product liability claims.
Endorsement Agreements
The Company has entered into various
endorsement agreements with three athletes to endorse the Company’s Yolked product. Under the terms of the agreements, the
athletes have agreed to make personal appearances and provide social media and other content posts featuring Yolked. As of
September 30, 2019, under the terms of the agreements, the Company is obligated to pay these athletes a total of $87 in the fourth
quarter of 2019 and an additional $42 through April 2020.
Note
13 – LEASES
Operating Leases
The Company has operating leases for its
executive office and office equipment. The remaining terms on these leases range from 4 to 5 years. The Company entered into an
operating lease in August 2012, which was amended in March 2019, for its executive office located at 45 Horsehill Road, Suite 106,
Hanover Township, Morris County, New Jersey, which consists of approximately 5,225 square feet of space. The lease agreement expires
in December 2022 and contains an additional three year option to extend the lease and annual escalating payments. We use a discount
rate of 12% to calculate the right of use asset and operating lease liability recorded on our condensed consolidated balance sheet.
The Company uses this facility as its corporate headquarters, and as a research and manufacturing facility.
The Company’s office equipment operating
lease is for a copier and the agreement expires in November 2023. The components of lease expense of $48 for the nine months ended
September 30, 2019 were recorded in the condensed consolidated statement of operations.
The following table provides a breakdown
of lease balances within the condensed consolidated balance sheet as of September 30, 2019:
|
|
September 30,
2019
|
|
Operating lease right of use asset
|
|
$
|
203
|
|
|
|
|
|
|
Operating lease liability:
|
|
|
|
|
Lease Liability : current
|
|
$
|
46
|
|
Lease Liability : non-current
|
|
|
160
|
|
Total operating lease liability
|
|
$
|
206
|
|
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2019
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
Other information related to leases are as follows:
|
|
September 30,
2019
|
|
Cash paid for rent included in the measurement of operating lease liabilities cash flows
|
|
$
|
57
|
|
|
|
|
|
|
Right-of-use asset obtained in exchange for new operating lease liability
|
|
|
-
|
|
|
|
|
|
|
Weighted-average remaining lease term- operating leases, in years
|
|
|
3.79
|
|
|
|
|
|
|
Weighted-average discount rate - operating leases
|
|
|
11.7
|
%
|
Future minimum lease payments for operating
leases with initial or remaining noncancellable lease terms in excess of one year as of September 30, 2019 are as follows:
For years ending
|
|
Amount
|
|
2019 (remaining three months)
|
|
$
|
21
|
|
2020
|
|
|
69
|
|
2021
|
|
|
77
|
|
2022
|
|
|
80
|
|
2023
|
|
|
3
|
|
Total future minimum lease payments
|
|
$
|
250
|
|
Imputed interest
|
|
|
(54
|
)
|
Total Lease Liability
|
|
$
|
196
|
|
There were no material operating leases
that the Company had entered into and that were yet to commence as of September 30, 2019.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2019
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
Note
14 – 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 30, 2018, the Company
executed an unsecured promissory note (the “Note”) in the principal amount of $750 in favor of Joseph Mannello,
the Company’s chief executive officer (the “Lender”). The Note accrues interest at a rate of 5% per annum
and all payments of principal, interest and other amounts under the Note were payable on August 31, 2019. The Company and the
Lender have agreed to extend the maturity date of the Note to March 1, 2020.
The Company may prepay, in whole or in part, at any time, the principal, interest and other
amounts owing under the Note, without penalty. The Note includes standard events of default including non-payment of the principal
or accrued interest due on the Note.
On November 13, 2018, the Company amended
and restated the Note to increase the maximum amount that may be drawn down under the Note from $750 to $1,000. The Company drew
down an additional $250 under the Note in December 2018. As of December 31, 2018, the balance of the Note was $1,000 and the Company
accrued $15 of interest expense. In March 2019, $250 of the Note was converted into 171,233 shares as part of a private placement.
As of September 30, 2019, the balance of the Note was $750 and the Company recorded $44 of accrued interest.
MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2019
(Unaudited; amounts in thousands, except
share and per share amounts, unless otherwise indicated)
Note
15 – legal PROCEEDINGS
On January 6, 2017, the Company commenced
an action in the Supreme Court of New York, County of New York (the “Court”), against RENS Technology, Inc. (“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 the Company in exchange for an aggregate of 3,537,037 shares of its common stock and warrants to purchase
an aggregate of 884,259 shares of common stock.
On April 11, 2017, the Court issued a decision
finding that the Company had demonstrated a likelihood of success on the merits of the breach of contract claim but refused to
grant the Company a pre-judgment attachment on shares of the Company’s stock owned by the Purchaser.
In August 2017, the Company amended its
complaint 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. The Purchaser has filed a motion
to dismiss the amended complaint, and the Company has filed a motion to compel discovery, both of which are still pending because
the parties have agreed to adjourn the hearing date a number of times to negotiate a settlement of the matter. The parties are
currently in settlement discussions regarding the matter.
The outcome of
this matter cannot be determined as of the date of this report.
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 had mismanaged the Company. The action sought monetary damages against Mr. Mannello and the appointment of a receiver over
the Company. The Purchaser filed an application to appoint a receiver, and the Company filed a motion to dismiss the action
on various grounds. On April 11, 2019, the parties filed, and the court entered, a Stipulation and Order of dismissal which
dismissed this action in its entirety without the payment of any monetary damages by the Company or Mr. Mannello.
Note
16 – SUBSEQUENT EVENT
On October
24, 2019 the Company and its Chief Executive Officer, Joseph Mannello, agreed to extend the maturity date of its related
party promissory note payable from August 31, 2019 to March 1, 2020.