Quarterly report pursuant to Section 13 or 15(d)

Nature of Operations, Basis of Presentation and Liquidity

v3.7.0.1
Nature of Operations, Basis of Presentation and Liquidity
6 Months Ended
Jun. 30, 2017
Nature of Operations, Basis of Presentation and Liquidity [Abstract]  
NATURE OF OPERATIONS, BASIS OF PRESENTATION AND LIQUIDITY

NOTE 1 – NATURE OF OPERATIONS, BASIS OF PRESENTATION AND LIQUIDITY

 

Basis of Presentation

 

The accompanying condensed consolidated balance sheets as of December 31, 2016, which has been derived from audited consolidated financial statements and the unaudited interim condensed consolidated financial statements, have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and disclosures required by U.S. GAAP in order to have complete consolidated financial statements have been condensed or omitted herein. The unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 31, 2017. The unaudited interim condensed consolidated financial statements presented herein reflect all normal adjustments that are, in the opinion of management, necessary for a fair presentation of the statement of the financial position, results of operations and cash flows for the periods presented. The Company is responsible for the unaudited interim condensed consolidated financial statements included in this report. The results of any interim period are not necessarily indicative of the results for the full year.

 

Nature of Operations

 

MYOS RENS Technology Inc. is an emerging bionutrition and biotherapeutics company focused on the discovery, development and commercialization of products that improve muscle health and function. The Company was incorporated under the laws of the State of Nevada on April 11, 2007. On March 17, 2016, the Company merged with its wholly-owned subsidiary and changed its name from MYOS Corporation to MYOS RENS Technology Inc. As used in these financial statements, the terms “the Company”, “MYOS”, “our”, or “we”, refers to MYOS RENS Technology Inc. and its subsidiary, unless the context indicates otherwise. On February 25, 2011, the Company entered into an agreement to acquire the intellectual property for Fortetropin®, our proprietary active ingredient, from Peak Wellness, Inc. The Company’s activities are subject to significant risks and uncertainties.

 

Our commercial focus is to leverage our clinical data to develop multiple products to target the large and currently underserved markets focused on muscle health. The first product we introduced was MYO-T12, which was sold in the sports nutrition market. MYO T-12 is a proprietary formula containing Fortetropin and other ingredients.  The formula was sold under the brand name MYO T-12 and later as MYO-X under an exclusive distribution agreement with Maximum Human Performance, or MHP. There were no sales to MHP in 2016 and we do not expect any orders from MHP in 2017.

 

In February 2014 we expanded our commercial operations into the age management market under a distribution agreement with Cenegenics Product and Lab Services, LLC (“Cenegenics”), where Cenegenics distributes and promotes a proprietary formulation containing Fortetropin through its age management centers and its community of physicians focused on treating a growing population of patients focused on proactively addressing age-related health and wellness concerns. The distribution agreement with Cenegenics expired in December 2016. In May 2017, we received a purchase order from Cenegenics to deliver more product to them in 2017.

 

During the second quarter of 2015 we launched Rē Muscle HealthTM, our own direct-to-consumer portfolio of muscle health bars, meal replacement shakes and daily supplement powders each powered by a full 6.6 gram single serving dose of Fortetropin. In March 2017, the Company stopped selling these products.

 

In March 2017, the Company launched Qurr, a line of flavored puddings, powders and shakes all proven to be safe for daily use. This Fortetropin®-powered product line is formulated to support the vital role of muscle in overall well-being as well as in fitness. Qurr’s muscle-focused, natural, over-the-counter products are available through convenient direct online ordering without a prescription. All Qurr products are blended with Fortetropin®, MYOS’ proprietary ingredient, which has been clinically demonstrated to reduce serum myostatin levels, which helps increase muscle size and lean body mass. MYOS’ earlier product formulations featuring Fortetropin® have become part of the daily routine of many athletes and fit-conscious people.

 

We continue to pursue additional distribution and branded sales opportunities. We expect to continue developing our own core branded products in markets such as functional foods, sports and fitness nutrition and rehab and restorative health and to pursue international sales opportunities. There can be no assurance that we will be able to secure distribution arrangements on terms acceptable to the Company or that we will be able to generate significant sales of our current and future branded products.

  

Strategic Investment Transaction

 

On December 17, 2015, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with RENS Technology Inc. (the “Purchaser”), pursuant to which the Purchaser agreed to invest $20.25 million in the Company (the “Financing”) in exchange for (i) an aggregate of 3,537,037 shares (the “Shares”) of the Company’s common stock, par value $0.001 per share (“Common Stock”), and (ii) warrants to purchase an aggregate of 884,259 shares of Common Stock (the “Warrants”, and together with the Shares, the “Securities”). As set forth in the Purchase Agreement the Purchaser would purchase the Securities in three tranches over twenty-four months. In the first tranche, which closed on March 3, 2016, the Purchaser acquired 1,500,000 Shares and 375,000 Warrants (the “Initial Warrant”) for $5.25 million. In the second tranche, which was to close within six months of the closing of the first tranche, the Purchaser would acquire 925,926 Shares and 231,481 Warrants (the “Second Warrant”) for $5.0 million. In the third tranche, which was to close within eighteen months of the closing of the second tranche, the Purchaser would acquire 1,111,111 Shares and 277,778 Warrants (the “Third Warrant”) for $10.0 million. Each of the Warrants will be immediately exercisable upon issuance, will expire five years after issuance and will have the following exercise prices: (a) $7.00 per share for the Initial Warrant, (b) $10.80 per share for the Second Warrant and (c) $18.00 per share for the Third Warrant. In addition, the Company agreed: (i) that the Purchaser will have the right to appoint four persons to the Company’s board of directors, subject to adjustment based on the Purchaser’s ownership percentage of the Company (ii) to provide the Purchaser with a right to participate in 50% (or 100% if shares are to be issued for less than $3.50 per share) of any future financings pursued by the Company within 12 months from the closing of the third tranche of the Financing and (iii) until the closing of the third tranche, the Company will not take certain actions, including issuing shares (except for certain permitted issuances) or appointing new officers and directors, without the Purchaser’s consent.

 

In addition, on December 17, 2015, the Company issued a Convertible Note in the amount of $575 to Gan Ren, a related party of RENS Agriculture, the parent of RENS Technology, Inc., and the son of Ren Ren, one of our directors. The Convertible Note provided short-term funding to the Company prior to the closing of the first tranche of the Financing. On December 17, 2016 the Convertible Note and accrued interest was converted into 225,860 shares at $2.74 per share. For additional information on the Convertible Note with Gan Ren refer to “NOTE 6 – Debt – Convertible Note.” 

 

The first tranche of the Financing was completed on March 3, 2016. The Company used the net proceeds from the first tranche of the Financing to fund its working capital, product development and marketing, research and development and other general corporate purposes. On August 19, 2016, the Purchaser notified the Company that it did not intend to fulfill its remaining obligation to fund the second tranche of the Financing notwithstanding its confirmation to the Company in June 2016 that it would provide such funding in accordance with the terms of the Purchase Agreement. The Purchase Agreement provides that in the event that the Purchaser notifies the Company that it does not intend to fund the Second Closing Subscription Amount, the Purchaser is required to take all requisite action to cause the resignation or removal of one of its designees on the Board of Directors of the Company. Pursuant to the terms of the Purchase Agreement, effective August 23, 2016, Guiying Zhao resigned as a director of the Company. In addition, the Purchaser’s Rights terminated, effective August 19, 2016.

 

On January 6, 2017, the Company commenced an action in the Supreme Court of New York, County of New York, against RENS Technology, Inc., RENS Agriculture Science & Technology Co., Ltd (“RENS Agriculture”), the parent company of RENS Technology, and Ren Ren, a principal in both entities and a director of the Company, arising from RENS Technology’s breach of a Securities Purchase Agreement. Under the Securities Purchase Agreement, RENS Technology agreed to invest an aggregate of $20.25 million in the Company in exchange for an aggregate of 3,537,037 shares of common stock of the Company and warrants to purchase an aggregate of 884,259 shares of common stock. 

 

In addition to seeking compensatory, consequential and other damages in the action, the Company asked the Court to preliminarily restrain RENS Technology, Inc. and its agents and representatives, including, but not limited to, RENS Agriculture and Ren Ren, from selling, transferring, conveying, assigning, hypothecating or encumbering the 1,500,000 shares of common stock of the Company and warrants permitting the purchase of 375,000 shares at a price of $7.00 per share that RENS Technology had purchased under the Securities Purchase Agreement and, after the parties had an opportunity to submit opposition and reply papers in connection with the Company’s application, a preliminary injunction prohibiting RENS Technology from selling, transferring, conveying, assigning, hypothecating or encumbering the 1,500,000 shares and warrant during the pendency of the action and an order attaching the stock and warrant to satisfy any judgment entered in favor of the Company.

 

On January 11, 2017, the Court granted the Company the preliminary restraints that it had requested, which prevents RENS Technology, among others, from selling, transferring, conveying, assigning, hypothecating or encumbering the 1,500,000 shares of the Company’s common stock or the aforementioned warrant.  The Court scheduled a hearing on February 14, 2017, at which time the Court heard oral argument on the application for a preliminary injunction and prejudgment attachment of the stock and warrants to satisfy any judgment entered in favor of the Company. As a result, RENS Technology filed a motion to dismiss the complaint to which the Company filed opposition papers.

 

On April 11, 2017, the Court denied the Company’s application for a prejudgment attachment of the 1,500,000 shares of common stock and warrant and a preliminary injunction in aid of the attachment to prevent a sale, transfer, or hypothecation of those shares and warrant, and vacating the preliminary restraints which it had previously entered. However, the Court noted that the Company had demonstrated a likelihood of success on the merits of the breach of contract claim. An application by RENS Technology to dismiss the complaint and various pre-trial discovery applications by both parties is scheduled for oral argument in September 2017.

 

Going Concern and Liquidity

The accompanying financial statements have been prepared in accordance with U.S. GAAP, which contemplates continuation of the Company as a going concern. The Company incurred recurring losses from operations and had a net loss of approximately $2,223 for the six months ended June 30, 2017 and $4,341 for the year ended December 31, 2016.

 

As of June 30, 2017 the Company had cash of $1,144 and working capital of $2,988 (current assets of $3,322 less current liabilities of $334. For the three months ended June 30, 2017 and 2016 the Company incurred a net loss of $1,106 and $1,503 respectively, For the six months ended June 30, 2017 and 2016 the Company incurred a net loss of $2,223 and $2,723, respectively. For the six months ended June 30, 2017 and 2016 net cash used in operating activities was $2,523 and $2,173 respectively.

 

As of the filing date of this Form 10-Q, management believes that there may not be sufficient capital resources from operations and existing financing arrangements in order to meet operating expenses and working capital requirements for the next twelve months primarily due to the failure of RENS Technology Inc. to fund the required amounts. (See Note 13 – Legal Proceedings) This raises substantial doubt about the Company’s ability to continue as a going concern.

 

Accordingly, the Company is evaluating various alternatives, including reducing operating expenses, securing additional financing through debt or equity securities to fund future business activities and other strategic alternatives. There can be no assurance that the Company will be able to generate the level of operating revenues projected in its business plan, or if additional sources of financing will be available on acceptable terms, if at all. If no additional sources of financing become available, the Company’s future operating prospects may be adversely affected. The financial statements do not reflect any adjustments that may result as a result of these uncertainties.

 

At-the-Market Offering

On February 21, 2017, the Company entered into a sales agreement with H.C. Wainwright & Co., LLC which established an at-the-market equity program pursuant to which the Company may offer and sell up to $6.0 million of its shares of common stock from time to time through H.C. Wainwright. The Company incurred $125 of deferred offering costs in connection with this program which it has recorded as a long term other asset on the accompanying balance sheet. As of the filing date of this Form 10-Q, there have been no shares sold under this program.