UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

 

or

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______ to _________

 

Commission file number 000-53298

 

MYOS RENS TECHNOLOGY INC.

(Exact name of registrant as specified in its charter)

 

Nevada   90-0772394

(State or other jurisdiction of

incorporation or organization)

  (I.R.S. Employer
Identification No.)
 
45 Horsehill Road, Suite 106
Cedar Knolls, New Jersey 07927
(Address of principal executive offices, including zip code)

 

(973) 509-0444

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class:   Trading Symbol(s)   Name of each exchange on which registered:
Common Stock, $0.001 par value
Series A Preferred Stock Purchase Rights, $0.001 par value
  MYOS   The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant (1) has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

As of August 4, 2020, there were 11,846,795 shares of the registrant’s common stock outstanding.

 

 

 

 

 

MYOS RENS TECHNOLOGY INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

 

Table of Contents

 

    PAGE
PART I - FINANCIAL INFORMATION  
     
Item 1. Financial Statements. 1
     
  Condensed Consolidated Balance Sheets as of June 30, 2020 (unaudited) and December 31, 2019 1
     
  Condensed Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended June 30, 2020 and 2019 2
     
  Condensed Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2020 and 2019 3
     
  Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the Three and Six Months Ended June 30, 2020 and 2019 4
     
  Notes to Condensed Consolidated Financial Statements 5
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 19
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk. 28
     
Item 4. Controls and Procedures. 28
     
PART II - OTHER INFORMATION  
     
Item 1. Legal Proceedings. 29
     
Item 1A. Risk Factors. 29
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 30
     
Item 3. Defaults Upon Senior Securities. 30
     
Item 4. Mine Safety Disclosures. 30
     
Item 5. Other Information. 30
     
Item 6. Exhibits. 31
     
SIGNATURES 32

  

i

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY

CONDENSED Consolidated Balance Sheets

(in thousands, except share and per share amounts)

 

   June 30,   December 31, 
   2020   2019 
ASSETS  (Unaudited)     
Current assets:        
Cash  $1,334   $64 
Accounts receivable, net   33    5 
Inventories, net   1,474    1,666 
Prepaid expenses   187    23 
Total current assets   3,028    1,758 
           
Operating lease right of use asset   165    192 
Deferred offering costs   -    95 
Fixed assets, net   88    97 
Intangible assets, net   791    896 
Total assets  $4,072   $3,038 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable  $108   $277 
Accrued expenses and other current liabilities   3    230 
Operating lease liabilities – current portion   37    46 
Related party promissory note payable and accrued interest   654    1,159 
Total current liabilities   802    1,712 
           
Long-term liabilities:          
Note Payable PPP loan   310    - 
Operating lease liabilities – net of current portion   132    146 
Total liabilities   1,244    1,858 
           
Commitments and contingencies (Note 11)          
           
Stockholders’ equity:          
Preferred stock, $0.001 par value; 500,000 shares authorized; no shares issued and outstanding          
Common stock, $0.001 par value; 15,000,000 shares authorized; 11,846,795 and 9,176,908 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively   12    9 
Additional paid-in capital   43,778    40,496 
Accumulated deficit   (40,962)   (39,325)
Total stockholders’ equity   2,828    1,180 
Total liabilities and stockholders’ equity  $4,072   $3,038 

 

See accompanying notes to condensed consolidated financial statements

 

1

 

 

MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; in thousands, except share and per share amounts)

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2020   2019   2020   2019 
                 
Net revenues  $329   $154   $619    303 
Cost of revenues   172    81    330    142 
Gross profit   157    73    289    161 
Operating expenses:                    
Selling, marketing and research   227    337    429    612 
Personnel and benefits   365    470    833    890 
General and administrative   329    432    644    788 
Total operating expenses   921    1,239    1,906    2,290 
Operating loss   (764)   (1,166)   (1,617)   (2,129)
Other expense, net   (7)   (9)   (20)   (21)
Net loss  $(771)  $(1,175)  $(1,637)  $(2,150)
                     
Net loss per share attributable to common shareholders:                    
Basic and diluted  $(0.07)  $(0.13)  $(0.15)  $(0.23)
                     
Weighted average number of common shares outstanding:                    
Basic and diluted   11,404,497    9,170,658    10,562,389    9,170,658 

 

See accompanying notes to condensed consolidated financial statements

 

2

 

 

MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in thousands)

 

   Six Months Ended 
   June 30, 
   2020   2019 
Cash Flows From Operating Activities:        
Net loss  $(1,637)  $(2,150)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation   9    13 
Amortization   105    165 
Stock-based compensation   227    71 
Non-cash lease expense   27    - 
Changes in operating assets and liabilities:          
(Increase) decrease in accounts receivable   (28)   62 
Decrease in other current asset   -    1,124 
Decrease (increase) in inventories   192    (1)
Increase in prepaid expenses and other assets   (164)   (87)
Decrease in operating lease liabilities   (23)   - 
Increase in accrued interest expense   20    20 
Decrease in accounts payable and accrued expenses   (396)   (352)
Net cash used in operating activities   (1,668)   (1,135)
           
Cash Flows From Financing Activities:          
Proceeds from registered direct offering of common stock, net   1,298    428 
Proceeds from related party promissory note   300    - 
Proceeds from note payable PPP loan   310      
Proceeds from issuance of common stock in private placement   1,030    1,850 
Net cash provided by financing activities   2,938    2,278 
           
Net increase in cash   1,270    1,143 
Cash at beginning of period   64    15 
Cash at end of period  $1,334   $1,158 
           
Supplemental schedule of non-cash investing and financing activities:          
Conversion of related party promissory note payable into shares of common stock   825    250 
Reclassification of deferred offering costs to additional paid in capital   95    16 
           

 

See accompanying notes to condensed consolidated financial statements

 

3

 

 

MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY

CONDENSED Consolidated StatementS of Changes in Stockholders’ Equity

(in thousands, except share amounts)

 

   Six Months Ended June 30, 2020 
   Common Stock   Additional
paid-in
   Accumulated   Total
stockholders’
 
   Shares   Amount   capital   deficit   equity 
Balance at December 31, 2019   9,176,908   $9   $40,496   $(39,325)  $1,180 
Proceeds from sale of common stock, net   964,102    1    1,202    -    1,203 
Proceeds from private placement of common stock   851,240    1    1,029    -    1,030 
Issuance of common stock upon exchange of related party promissory note payable   681,818    1    824    -    825 
Stock-based compensation expense   -    -    18    -    18 
Issuance of restricted common stock   172,727    -    209    -    209 
Net loss        -         (1,637)   (1,637)
Balance at June 30, 2020   11,846,795   $12   $43,778   $(40,962)  $2,828 

  

   Six Months Ended June 30, 2019 
   Common Stock   Additional
paid-in
   Accumulated   Total
stockholders’
 
   Shares   Amount   capital   deficit   equity 
Balance at December 31, 2018   7,481,723   $     8   $37,880   $(35,067)  $2,821 
Proceeds from sale of common stock   111,129    -    211    -    211 
Proceeds from private placement of common stock   1,267,123    1    1,849    -    1,850 
Issuance of common stock upon exchange of related party promissory note payable   171,233    -    250    -    250 
Stock-based compensation expense   -    -    71    -    71 
Issuance of restricted common stock   139,450    -    201    -    201 
Net loss   -    -    -    (2,150)   (2,150)
Balance at June 30, 2019   9,170,658   $9   $40,462   $(37,217)  $3,254 

 

   Three Months Ended June 30, 2020 
   Common Stock   Additional
paid-in
   Accumulated   Total
stockholders’
 
   Shares   Amount   capital   deficit   equity 
Balance at March 31, 2020   11,030,100   $11   $42,794   $(40,191)  $2,614 
Proceeds from sale of common stock, net   816,695    1    974    -    975 
Stock-based compensation expense   -    -    10    -    10 
Net loss        -        (771)   (771)
Balance at June 30, 2020   11,846,795   $12   $43,778   $(40,962)  $2,828 

 

   Three Months Ended June 30, 2019 
   Common Stock   Additional
paid-in
   Accumulated   Total
stockholders’
 
   Shares   Amount   capital   deficit   equity 
Balance at March 31, 2019   9,170,658   $9   $40,434   $(36,042)  $4,401 
Stock-based compensation expense   -    -    28    -    28 
Net loss   -    -    -    (1,175)   (1,175)
Balance at June 30, 2019   9,170,658   $9   $40,462   $(37,217)  $3,254 

 

See accompanying notes to condensed consolidated financial statements

 

4

 

 

MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited; amounts in thousands, except share and per share amounts, unless otherwise indicated)

 

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

 

Nature of Operations

 

MYOS RENS Technology Inc. (the “Company” or “MYOS”) is focused on the discovery, development and commercialization of advanced nutrition 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 condensed consolidated financial statements, the terms “the Company”, “MYOS”, “our”, or “we”, refers to MYOS RENS Technology Inc. and its subsidiary, unless the context indicates otherwise. On February 25, 2011, the Company entered into an agreement to acquire the intellectual property for Fortetropin®, our proprietary active ingredient from Peak Wellness, Inc. The Company’s activities are subject to significant risks and uncertainties.

 

Our commercial focus is to leverage our clinical data to develop multiple products to target the large, but currently underserved, markets focused on muscle health. The sales channels through which we sell our products are evolving. The first product we introduced was MYO-T12, a proprietary formula containing Fortetropin® and other ingredients which was sold in the sports nutrition market. 

 

In May 2016, we launched Physician Muscle Health Formula®, a proprietary formulation containing Fortetropin® and sold the product directly to physicians to distribute to their patients who are focused on wellness. The Company relaunched the product as part of its longevity marketing strategy in December 2019. In March 2017 we launched Qurr®, a Fortetropin®-powered product line that is available on our direct-to-consumer platform. We recorded $10 and $32 in net revenues for the six months ended June 30, 2020 and June 30, 2019, respectively, for our longevity product lines.

 

In March 2018, we launched Yolked®, a Fortetropin®-powered product which is NSF Certified for Sports, and developed and marketed to collegiate and professional athletes who want to increase their muscle size and performance with an all-natural advanced nutrition product. The Company recorded $104 and $121 of net revenues for the six months ended June 30, 2020 and June 30, 2019, respectively, for our Yolked® product line.

 

In June 2018, we launched our Fortetropin® based pet product Myos Canine Muscle Formula® (“MCMF”). Two veterinarian hospitals had previously performed some informal observational studies with older dogs experiencing muscle atrophy and saw positive results after taking our pet product. We believe that the positive feedback received from the veterinarian community, together with the positive results from our Kansas State University study, will enable us to grow our pet business product line. The Company recorded $477 and $150 of net revenues for the six months ended June 30, 2020 and June 30, 2019, respectively, for our MCMF product line.

 

In November 2019, we launched our white label business, working with manufacturers to create new brands and products using Fortetropin® as the foundation. We recorded $28 of net revenues for the six months ended June 30, 2020.

 

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.

 

5

 

 

MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited; amounts in thousands, except share and per share amounts, unless otherwise indicated)

 

Merger with MedAvail, Inc.

 

Merger Agreement

 

On June 30, 2020, MYOS and MedAvail, Inc., a privately-held Delaware corporation (“MedAvail”), entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), by and among MYOS, MedAvail, and Matrix Merger Sub, Inc., a newly-created wholly-owned subsidiary of MYOS (“Merger Sub”), pursuant to which, subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into MedAvail, with MedAvail being the surviving corporation and a wholly-owned subsidiary of MYOS (the “Merger”). The Boards of Directors of MYOS and MedAvail have both approved the Merger and have recommended approval of the Merger by their respective shareholders. MedAvail is a private, in-clinic telemedicine-enabled pharmacy organization based in Ontario, Canada that has developed and commercialized a proprietary robotic dispensing platform and home delivery operation focused on the Medicare Advantage market in the United States.

 

At the effective time of the Merger (the “Effective Time”): (a) each share of MedAvail’s common stock and each share of MedAvail’s preferred stock outstanding immediately prior to the Effective Time, excluding any dissenting shares, will be automatically converted solely into the right to receive a number of shares of MYOS common stock (“MYOS Common Stock”) calculated according to the exchange ratio described below; (b) each outstanding MedAvail stock option that has not been exercised prior to the Effective Time will be assumed by MYOS; and (c) each outstanding warrant to acquire MedAvail capital stock that has not been exercised prior to the Effective Time will be assumed by MYOS. Under the exchange ratio formula in the Merger Agreement, as of immediately after the Merger, the former MedAvail security holders are expected to own approximately 96.5% of the aggregate number of fully-diluted shares of MYOS Common Stock outstanding following the consummation of the Merger (the “Post-Closing Shares”), and the stockholders of MYOS immediately prior to the Merger are expected to own approximately 3.5% of the Post-Closing Shares, subject to the adjustments set forth in the Merger Agreement. The exchange ratio will be fixed prior to the closing of the Merger to reflect MYOS’s and MedAvail’s respective capitalizations as of immediately prior to the Effective Time. The Merger is intended to qualify for federal income tax purposes as a tax-free reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended.

 

Immediately following the Merger, the name of the post-merger combined company (the “Post-Merger Combined Company”) is expected to be changed from “MYOS RENS Technology Inc.” to “MedAvail Holdings, Inc.” The Merger Agreement provides that the Board of Directors of the Post-Merger Combined Company will consist of members who are currently directors of MedAvail. The executive officers of the Post-Merger Combined Company will be designated by MedAvail, with MedAvail’s Chief Executive Officer, Ed Kilroy, expected to be the Post-Merger Combined Company’s Chief Executive Officer and MedAvail’s Chief Financial Officer, Ryan Ferguson, expected to be the Post-Merger Combined Company’s Chief Financial Officer.

 

The Merger Agreement contains certain customary termination rights, including, among others, (a) the right of either MYOS or MedAvail to terminate the Merger Agreement if the other party’s stockholders fail to adopt and approve the Merger Agreement, (b) the right of either party to terminate the Merger Agreement if the other party’s board of directors changes or withdraws its recommendation in favor of the transactions, (c) the right of either party to terminate the Merger Agreement if the Merger has not occurred by the six month anniversary of the date of the Merger Agreement, (d) the right of either party to terminate the Merger Agreement due to a material breach by the other party of any of its representations, warranties or covenants which would result in the closing conditions not being satisfied, subject to certain conditions, and (e) the right of either party to terminate the Merger Agreement if a court of competent jurisdiction or other governmental body issues a final and non-appealable order, decree or ruling, or has taken any other action, having the effect of permanently restraining, enjoining or otherwise prohibiting the Merger and related transactions. Upon the termination of the Merger Agreement by MYOS or MedAvail, a termination fee of (i) $500,000 may be payable by MYOS to MedAvail, or (ii) $750,000 may be payable by MedAvail to MYOS.

 

6

 

 

MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited; amounts in thousands, except share and per share amounts, unless otherwise indicated)

 

Assignment and Assumption Agreement and Subscription and Stock Purchase Agreement

 

The Merger Agreement provides that, prior to the consummation of the Merger, MYOS will transfer and assign all of its assets and liabilities into MYOS Corp., a newly-created, wholly-owned subsidiary of MYOS, pursuant to an Assignment and Assumption Agreement (the “Assignment and Assumption Agreement”) and a related Subscription and Stock Purchase Agreement (the “Subscription and Stock Purchase Agreement”). The shares of MYOS Corp., immediately after the closing of the Merger, will be spun-out from the Post-Merger Combined Company through a dividend of the stock of MYOS Corp. to the pre-Merger MYOS shareholders, resulting in MYOS Corp., a private company, continuing the current business operations of MYOS. MedAvail will pay MYOS Corp. $2 million in cash upon the closing of the Merger and issue a promissory note for an additional $3 million, payable in installments within one year of the closing of the Merger.

 

Amendment to Rights Agreement

 

On June 30, 2020 MYOS entered into the Second Amendment to Rights Agreement (the “Amendment”) with Transhare, as rights agent, which amends the Rights Agreement, dated as of February 14, 2017, previously entered into between MYOS and Island Stock Transfer as rights agent, as amended on February 14, 2020, with Transhare as the successor rights agent (the “Rights Agreement”). The Amendment amends the Rights Agreement to provide, among other things, that (i) neither the approval, execution, delivery or performance or, if approved by the board of directors of MYOS, amendment, modification or waiver of the Merger Agreement or the Voting Agreement or the consummation of the Merger or any other transaction contemplated by the Merger Agreement or the Voting Agreement, nor the public announcement of any of the foregoing will (a) cause any person to (1) become an Acquiring Person (as defined in the Rights Agreement) or be deemed to have become an Acquiring Person or (2) be deemed to have acquired Beneficial Ownership (as defined in the Rights Agreement) of any securities of MYOS or (b) result in the occurrence or deemed occurrence of a Distribution Date (as defined in the Rights Agreement), consolidation or merger or other event or occurrence resulting in a triggering of rights of holders of Rights (as defined in the Rights Agreement), or of obligations of MYOS under the Rights Agreement, and (ii) the Rights will expire in their entirety, and the Rights Agreement will terminate upon the earliest of (a) immediately prior to the Effective Time, (b) the Close of Business (as defined in the Rights Agreement) on February 21, 2021, (c) the time at which all Rights are redeemed, (d) the time at which all Rights are exchanged and (e) the closing of any merger or other acquisition involving MYOS at which time the Rights are terminated. 

 

Basis of Presentation

 

The accompanying condensed consolidated balance sheet as of December 31, 2019 has been derived from our audited consolidated financial statements, and the unaudited interim condensed consolidated financial statements as of June 30, 2020 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, 2019 filed with the SEC on March 24, 2020. 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 results of any interim period are not necessarily indicative of the results for the full year.

 

7

 

 

MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(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 and the realization of assets and satisfaction of liabilities in the normal course of business. The condensed consolidated financial statements do not include any adjustment that might become necessary should the Company be unable to continue as a going concern.

 

The Company has suffered recurring losses from operations and incurred a net loss of $1,637 for the six months ended June 30, 2020. The accumulated deficit as of June 30, 2020 was $40,962. The Company has not yet achieved profitability and expects to continue to incur cash outflows   from operations. It is expected that its operating expenses will continue to increase and, as a result, the Company will eventually need to generate significant product revenues to achieve profitability. These conditions indicate that there is substantial doubt about the Company’s ability to continue as a going concern within one year after the condensed consolidated financial statement issuance date.

 

As of June 30, 2020, the Company had cash of $1,334 and working capital of $2,226 (current assets of $3,028 less current liabilities of $802). For the six months ended June 30, 2020 and 2019, our net loss was $1,637 and $2,150, respectively. For the six months ended June 30, 2020 and 2019, net cash used in operating activities was $1,668 and $1,135, respectively.

 

As of the filing date of this quarterly report on Form 10-Q (the “Report”), 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.

 

Accordingly, we are evaluating various alternatives, including reducing operating expenses, securing additional financing through debt or equity securities to fund future business activities and other strategic alternatives. The Company entered into the Merger Agreement on June 30, 2020 and expects the Merger to close before the end of the year. 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 condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. 

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Since the date of the Annual Report on Form 10-K for the year ended December 31, 2019, there have been no material changes to the Company’s significant accounting policies, except as disclosed in this note. 

 

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, 2020 and December 31, 2019, the Company had no cash equivalents. The Company maintains its bank accounts with high credit quality financial institutions and has never experienced any losses related to these bank accounts. The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its financial institutions. As part of our ongoing liquidity assessments management evaluates our cash and cash equivalents. 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 June 30, 2020, total cash in the Company’s bank accounts was $1,334, which exceeded the FDIC coverage limit of $250. There were no accounts that exceeded the FDIC limit at December 31, 2019.

 

8

 

 

MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited; amounts in thousands, except share and per share amounts, unless otherwise indicated)

 

Concentrations of Credit Risk, Customers and Suppliers

 

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. Accounts receivable is non-interest bearing. Credit is issued to customers without collateral. If an account becomes delinquent, management will review if a write off is appropriate. Expense recognized as a result of an allowance for doubtful accounts is classified under general and administrative expenses in the condensed consolidated statements of operations. 

 

For the three and six months ended June 30, 2020 and 2019, the Company did not have any revenue, accounts receivable or supplier concentrations.

 

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 in accordance with SEC guidance. As of June 30, 2020 and December 31, 2019, deferred offering costs of $0 and $95, respectively, were included as a noncurrent asset on the accompanying condensed consolidated balance sheets related to a July 2018 sales agreement.

 

Intangible Assets

 

The Company’s intangible assets consist primarily of intellectual property pertaining to Fortetropin®, including its formula, trademarks, trade secrets, patent application and domain names which were determined to have a fair value of $2,000 as of December 31, 2011. 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.

 

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 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. 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 six months ended June 30, 2020 and 2019. Intangible assets at June 30, 2020 and December 31, 2019 consisted of the following:

 

   June 30,   December 31, 
   2020   2019 
Intangibles with finite lives:        
Intellectual property  $2,101   $2,101 
Website - qurr.com   380    380 
Less: accumulated amortization – intellectual property   (1,310)   (1,205)
Less: accumulated amortization - website   (380)   (380)
Total intangible assets, net  $791   $896 

 

Amortization expense related to intangible assets for the six months ended June 30, 2020 and 2019 was $105 and $165, respectively, and $53 and $103 for the three months ended June 30, 2020 and 2019, respectively.

 

9

 

 

MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(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 revenues.

 

Disaggregation of Net Revenues

 

Our net revenues by product type are presented below for the three months ended June 30, 2020 and 2019.

 

   Three months ended 
Product Type  June 30,
2020
   June 30,
2019
 
Myos Canine Muscle Formula® (1)  $261   $89 
Yolked® (2)   53    53 
Longevity (includes Qurr® (3) and Physician Muscle Health Formula (4) brands)   4    12 
White Label (5)   11    - 
Total Net Revenues  $329   $154 

 

Our net revenues by product type are presented below for the six months ended June 30, 2020 and 2019.

 

   Six months ended 
Product Type  June 30,
2020
   June 30,
2019
 
Myos Canine Muscle Formula® (1)  $477   $150 
Yolked® (2)   104    121 
Longevity (includes Qurr® (3) and Physician Muscle Health Formula (4) brands)   10    32 
White Label (5)   28    - 
Total Net Revenues  $619   $303 

 

(1) Launched in June 2018
(2) Launched in March 2018
(3) Launched in March 2017
(4) Launched in May 2016; relaunched in December 2019
(5) Launched in December 2019

 

10

 

  

MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited; amounts in thousands, except share and per share amounts, unless otherwise indicated)

 

Contract Assets and Liabilities

 

The Company did not have any contract assets and contract liabilities from contracts with customers as of June 30, 2020 or December 31, 2019. Contract liabilities represent payments received from customers for which the Company had not yet satisfied its performance obligation under the contract. For the three and six months ended June 30, 2020 and 2019 there was no revenue recognized from performance obligations satisfied (or partially satisfied) in previous periods. 

 

Advertising, Marketing and Promotions

 

The Company charges the costs of advertising to sales and marketing expenses as incurred. Advertising and marketing costs were $248 and $467 for the six months ended June 30, 2020 and 2019, respectively, and $70 and $131 for the three months ended June 30, 2020 and 2019, respectively. Advertising costs consisted primarily of marketing costs for our Yolked® and Myos Canine Muscle Formula® products.

 

Shipping and Handling Costs

 

The Company records costs for the shipping and handling of products to its customers in cost of revenues. These expenses were $16 and $16 for the six months ended June 30, 2020 and 2019, respectively and $7 and $10 for the three months ended June 30, 2020 and 2019, respectively.

 

Research and Development

 

Research and development expenses consist primarily of 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 $27 and $89 for the six months ended June 30, 2020 and 2019, respectively and $5 and $80 for the three months ended June 30, 2020 and 2019, respectively.

 

11

 

 

MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(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 six months ended June 30, 2020 and 2019, 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 June 30, 2020 excluded from the diluted net loss per share computation because their inclusion would be anti-dilutive were 1,034,740, which includes warrants to purchase an aggregate of 375,000 shares of common stock and options to purchase an aggregate of 659,740 shares of common stock and rights under the Rights Agreement.

 

The aggregate number of potentially dilutive common stock equivalents outstanding at June 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.

 

Income Taxes

 

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. Under Accounting Standards Codification Topic 740 (“ASC 740”), Income Taxes, the effects of new legislation are recognized upon enactment. Accordingly, the CARES Act is effective beginning in the quarter ended March 31, 2020. While the Company is currently evaluating how provisions in the CARES Act will impact its condensed consolidated financial statements, it does not currently believe that such provisions will have a material impact on the Company’s condensed consolidated financial statements.  

 

NOTE 3 – RECENTLY ISSUED ACCOUNTING STANDARDS

 

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. The amendments in ASU 2019-12 simplify the accounting for income taxes by removing certain exceptions to the general principles in ASC 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 will be effective for the Company’s fiscal year beginning after December 15, 2020, with early adoption permitted. The transition requirements are dependent upon each amendment within this update and will be applied either prospectively or retrospectively. The Company does not expect this ASU to have a material impact on its condensed consolidated financial statements.

 

12

 

 

MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited; amounts in thousands, except share and per share amounts, unless otherwise indicated)

 

NOTE 4 – INVENTORIES, NET

 

Inventories, net at June 30, 2020 and December 31, 2019 consisted of the following:

 

   June 30,
2020
   December 31,
2019
 
Raw materials  $1,117   $1,264 
Work in process   1    15 
Finished goods   419    450 
    1,537    1,729 
Less: inventory reserves   (63)   (63)
Inventories, net  $1,474   $1,666 

 

NOTE 5 – FIXED ASSETS, NET

 

Fixed assets, net at June 30, 2020 and December 31, 2019 consisted of the following:

 

   June 30,
2020
   December 31,
2019
 
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 and amortization   (342)   (333)
Net book value of fixed assets  $88   $97 

 

Depreciation expense was $9 and $13 for the six months ended June 30, 2020 and 2019, respectively, and $4 and $6 for the three months ended June 30, 2020 and 2019, 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, 2020 and December 31, 2019 consisted of the following:

 

   June 30,
2020
   December 31,
2019
 
Prepaid consulting fees  $57   $9 

Prepaid legal fees

   50    - 
Prepaid Nasdaq fees   22    - 
Prepaid marketing expenses   40    6 
Prepaid other expenses   18    8 
Total prepaid expenses and other current assets  $187   $23 

 

13

 

 

MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(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, 2020 and December 31, 2019 consisted of the following:

 

   June 30,
2020
   December 31,
2019
 
Board compensation  $-   $209 
Other   3    21 
Total accrued expenses and other current liabilities  $3   $230 

 

NOTE 8 – RELATED PARTY PROMISSORY NOTE PAYABLE

 

On August 30, 2018, the Company issued 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 original Note were payable on March 31, 2020. On March 31, 2020, the Company modified its Note to extend the maturity to March 31, 2021. The Company may prepay, in whole or in part, at any time, the principal, interest and other amounts owed under the Note, without penalty.

 

In January 2020, the Lender advanced an additional $300 to the Company for general working capital purposes.

 

On March 2, 2020, the Company entered into securities purchase agreements for a private placement with a group of accredited investors, including four members of the Company’s board of directors. In connection with the closing of the private placement on March 5, 2020, the Company issued 851,240 shares of common stock for aggregate cash proceeds of $1,030 and $825 of the principal amount of the Note was exchanged for 681,818 shares of common stock. 

 

As of June 30, 2020, the total amounts outstanding under the Note was $580 of principal and $74 of accrued interest.

  

Note 9 – NOTE PAYABLE – PAYCHECK PROTECTION PROGRAM

 

On April 22, 2020, the Company received loan proceeds in the amount of $310 under the Paycheck Protection Program (“PPP”). The PPP, established as part of the CARES Act, provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable after eight weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period.

 

The unforgiven portion of the PPP loan is payable over two years at an interest rate of 1% per annum, with a deferral of payments for the first six months. The Company intends to use the proceeds for purposes consistent with the PPP. While the Company currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the loan in whole, there can be no assurance that it will not take actions that could cause the Company to be ineligible for forgiveness of the loan, in whole or in part. As of June 30, 2020, no amount of the PPP loan had been forgiven.

 

14

 

 

MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited; amounts in thousands, except share and per share amounts, unless otherwise indicated)

 

Note 10 – Stockholders’ Equity

 

Authorized Capital

 

As of June 30, 2020, the Company was authorized to issue 15,000,000 shares of common stock, $0.001 par value, and 500,000 shares of preferred stock, $0.001 par value. The holders of the Company’s common stock are entitled to one vote per share.

 

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 the Company at a fixed price as determined by the board of directors, after certain defined events.

 

On February 14, 2020, the Company amended the Rights Agreement to, among other things extend the expiration date to February 14, 2021. In connection with the Merger Agreement, the Company amended the Rights Agreement on June 30, 2020 (see Note 1.)

 

As of June 30, 2020, 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.

 

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, 2020, the Company received aggregate net proceeds of $2,233 from these offerings:

 

       Net 
Date  Shares   Proceeds 
March 5, 2020   851,240(1)  $1,030 
January 1, 2020 through June 30, 2020 at-the-market offerings   964,102(2)   1,203 

 

(1) Shares issued pursuant to a private placement with accredited investors for $1.21 per share.
(2)  Shares of common stock sold at various prices in at-the-market offerings from $1.18 to $1.55 per share.

 

See Note 8 for a description of the issuance of common stock on March 5, 2020 in connection with the exchange of a portion of the related party promissory notes payable.

 

15

 

 

MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited; amounts in thousands, except share and per share amounts, unless otherwise indicated)

 

At-the-Market Offering

 

On January 23, 2020, the Company sold 7,322 shares of common stock for $1.50 per share for gross proceeds of $11 in an at-the-market offering.

 

On February 3, 2020, the Company sold 140,085 shares of common stock for $1.55 per share for gross proceeds of $217 in an at-the-market offering.

 

On May 12, 2020, the Company sold 81,695 shares of common stock for $1.18 per share for gross proceeds of $97 in an at-the-market offering.

 

On May 26, 2020, the Company sold 735,000 shares of common stock for $1.38 per share for gross proceeds of $976 in an at-the-market offering.

 

As of the filing date of this Report, a total of 1,075,231 shares were sold under this program for aggregate gross proceeds of $1,512 since the sales agreement began in July 2018.

 

NOTE 11 – STOCK-BASED COMPENSATION

 

Equity Incentive Plan

 

The Company increased the number of shares available for issuance under its 2012 Equity Incentive Plan (as amended, the “Plan”) from 850,000 to 1,200,000 in December 2019, which was approved by the Company’s shareholders in December 2019. The plan provides for the issuance of up to 1,200,000 shares. 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, 2020, the remaining shares of common stock available for future issuances of awards was increased due to forfeitures to 560,260.

 

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-Based Compensation

 

Stock-based compensation consists of expenses related to the issuance of stock options and restricted stock. Stock-based compensation expenses were $9 and $28 for the three months ended June 30, 2020 and 2019, respectively, and $18 and $71 for the six months ended June 30, 2020 and 2019, respectively.

 

On March 31, 2020, the Company issued 172,727 shares of its common stock with a fair value of $209 to members of its board of directors in connection with 2019 services. These restricted shares vested immediately upon issuance.

 

16

 

 

MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(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, of up to the statutory maximum allowed by law (subject to catch-up contributions) in the form of voluntary payroll deductions. As of April 1, 2020 the Company decided to not match 401(k) contributions until the Company becomes profitable. The Company’s aggregate matching contributions were $11 and $18 for the six months ended June 30, 2020 and 2019, respectively, and $0 and $15 for the three months ended June 30, 2020 and 2019, respectively.

 

Note 13 – OPERATING LEASES

  

The Company has operating leases for its executive office (approximately 5,225 square feet of space) and office equipment. The remaining terms on these leases range from 3 to 4 years. The Company does not have any financing leases. The components of lease expense of $33 and $38 for the six months ended June 30, 2020 and June 30, 2019, respectively, were recorded in the condensed consolidated statements of operations. The components of lease expense of $18 and $22 for the three months ended June 30, 2020 and June 30, 2019, respectively, were recorded in the condensed consolidated statements of operations.

 

There were no material operating and financing leases that the Company had entered into that were yet to commence as of June 30, 2020. Components of the Company’s right-of-use assets and liabilities calculations are as follows:

 

Cash paid for rent included in the measurement of operating lease liabilities cash flows  $32 
Right-of-use asset obtained in exchange for new operating lease liability   236 
Weighted-average remaining lease term - operating leases, in years   2.55 
Weighted-average discount rate - operating leases   11.7%

 

Future minimum lease payments for operating leases in excess of one year are as follows:  

 

For the year ending December 31,  Amount 
2020  $38 
2021   77 
2022   79 
2023   3 
Total future minimum lease payments   197 
Imputed interest   (28)
Total  $169 

 

17

 

 

MYOS RENS TECHNOLOGY INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited; amounts in thousands, except share and per share amounts, unless otherwise indicated)

 

Note 14 – Related Party Transactions

 

See Notes 8 and 10 for additional information relating to the Note issued to the Company’s chief executive officer as well as details associated with the issuance of common stock to certain related parties in connection with securities purchase agreements.

 

Note 15 – legal PROCEEDINGS

 

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.

 

On July 13, 2020, the Company entered into a settlement agreement (the “Settlement Agreement”) with the Purchaser, Mr. Ren and Mr. Mannello to settle all claims in connection with all pending litigation matters between the parties (the “Claims”). Pursuant to the Settlement Agreement, the parties agreed to file the appropriate documentation in the Nevada and New York courts to dismiss the Claims within five days of the execution of the Settlement Agreement. In addition, the Purchaser and Mr. Ren agreed to: (i) vote all of their shares of common stock of the Company in favor of the transactions contemplated by the Merger Agreement and (ii) waive and forfeit any right to receive any ownership interest in the private company (which will include the assets and liabilities for the Company’s existing muscle health business) to be spun-out from the Company in connection with the Merger. The Purchaser also agreed that, simultaneous with the closing of the Merger, it will deliver its warrant to purchase 375,000 shares of common stock to the Company for cancellation or, if the warrant cannot be located, execute documents necessary to ensure that the warrant is cancelled. The Settlement Agreement further provides that Mr. Ren will resign as the Company’s Global Chairman and as a member of the Company’s board of directors upon the execution of the Settlement Agreement. The Settlement Agreement also includes mutual releases by the parties against each other for any claims or actions (including the Claims) through the date of the Settlement Agreement. 

 

Note 16 – SUBSEQUENT EVENT

 

On July 13, 2020, the Company entered into the Settlement Agreement to settle all claims in connection with all pending litigation matters between the parties. The litigation was dismissed on July 23, 2020. (See Note 15)

 

18

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our interim condensed consolidated financial statements and related notes thereto included elsewhere in this Report and the consolidated financial statements and related notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2019.

 

Certain statements in this section contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this report and not clearly historical in nature are forward-looking, and the words “may,” “will,” “expect,” anticipate,” “continue,” “estimate,” “project,” “intend,” “predict,” “forecast,” “potential,” “believe,” “plan,” “might,” “could,” “should,” “would,” “seek” and similar expressions are intended to identify forward-looking statements regarding events, conditions, and financial trends that may affect future plans of operations, business strategy, operating results, and financial position generally are intended to identify forward-looking statements. Any statements in this report that are not historical facts are forward-looking statements. Actual results may differ materially from those projected or implied in any forward-looking statements. Such statements involve risks and uncertainties, including but not limited to those relating to product and customer demand, market acceptance of our products, the ability to create new products, the ability to achieve a sustainable profitable business, the effect of economic conditions, the ability to protect our intellectual property rights, competition from other providers and products, risks in product development, our ability to raise capital to fund continuing operations, and other factors discussed from time to time in our filings with the Securities and Exchange Commission. The Company undertakes no obligation to update or revise any forward-looking statement for events or circumstances after the date on which such statement is made except as required by law. Dollar amounts in this section are in thousands, unless otherwise indicated.

 

Overview

 

We were incorporated in the State of Nevada on April 11, 2007. On March 17, 2016, we merged with our wholly-owned subsidiary and changed our name from MYOS Corporation to MYOS RENS Technology Inc. Prior to February 2011, we did not have any operations and did not generate any revenues. In February 2011, we acquired our proprietary active ingredient called Fortetropin®, the first clinically demonstrated natural myostatin reducing agent. Since February 2011, our principal business activities have been focused on deepening our scientific understanding relating to the activity of Fortetropin®, and to leverage this knowledge to strengthen and build our intellectual property estate; developing sales and marketing strategies aimed at expanding our commercial presence; evaluating the value of Fortetropin® in therapeutic markets, including the treatment of sarcopenia, cachexia, anorexia, obesity and muscular disorders; and, conducting research and development focused on the discovery, development and commercialization of other products and technologies aimed at maintaining or improving the health and performance of muscle tissue. Since our inception in April 2007, we have recognized cumulative revenues of approximately $10.4 million.  

 

Plan of Operation

 

We are focused on the discovery, development and commercialization of advanced nutrition products, functional foods, and other technologies aimed at maintaining or improving the health and performance of muscle tissue. Our initial core ingredient is Fortetropin®, a natural and proprietary bioactive composition derived from fertilized egg yolk that has been shown in clinical trials to increase lean muscle mass, size and strength. Our plan of action is to: (i) create a sales platform through marketing products containing our proprietary ingredient Fortetropin® in established, growing, and new markets and strategic selection of partnerships and collaborations to maximize near-term and future revenues, (ii) deepen our scientific understanding of the activity of Fortetropin® as a natural product to improve muscle health and performance, and to leverage this knowledge to strengthen and build our intellectual property estate, (iii) conduct research and development activities to evaluate the impact of Fortetropin® on muscle health and wellness in humans as well as domestic pets. (iv) identify other products and technologies which may broaden our portfolio and define a business development strategy to protect, enhance and accelerate the growth of our products, (v) reduce the cost of manufacturing through process improvement, and (vi) identify contract manufacturing organizations that can fully meet our future growth requirements and (vii) develop a differentiated and advantaged consumer positioning, brand name and iconography.

 

19

 

 

Product Strategy 

 

Our strategy is to understand the complex genetic and molecular pathways regulating muscle mass and function. Understanding the impact of complex regulatory pathways which act to build and maintain healthy lean muscle is central to our research and development activities. We are developing nutritional products that target specific mechanisms to promote muscle health in ways that cannot be met by other food products.

 

We will seek to gain market share for our core branded products in the 1) sports and fitness nutrition, 2) rehabilitation and restorative health and 3) domestic pet muscle health verticals by (i) formulating and developing new and complementary product lines, (ii) expanding U.S. distribution by increasing the channels of sale, (iii) expanding distribution geography beyond the U.S. and (iv) seeking strategic relationships with other distributors.

 

Marketing, Sales and Distribution

 

Our commercial focus is to leverage our clinical data to develop multiple products to target the large, but currently underserved, markets focused on muscle health. The sales channels which we sell our products are evolving.

 

In May 2016, we launched Physician Muscle Health Formula®, a proprietary formulation containing Fortetropin® and sold the product directly to physicians to distribute to their patients who are focused on wellness. The Company relaunched the product as part of its longevity marketing strategy in December 2019. In March 2017 we launched Qurr®, a Fortetropin®-powered product line that is available on our direct-to-consumer platform. We recorded $10 and $32 in net revenues for the six months ended June 30, 2020 and June 30, 2019, respectively, for our longevity product lines.

 

In March 2018, we launched Yolked®, a Fortetropin®-powered product which is NSF Certified for Sports, and developed and marketed to collegiate and professional athletes who want to increase their muscle size and performance with an all-natural advanced nutrition product. The Company recorded $104 and $121 of net revenues for the six months ended June 30, 2020 and June 30, 2019, respectively, for our Yolked® product line.

 

In June 2018, we launched our Fortetropin® based pet product Myos Canine Muscle Formula® (“MCMF”). Two veterinarian hospitals had previously performed some informal observational studies with older dogs experiencing muscle atrophy and saw positive results after taking our pet product. We believe that the positive feedback received from the veterinarian community, together with the positive results from our Kansas State University study, will enable us to grow our pet business product line. The Company recorded $477 and $150 of net revenues for the six months ended June 30, 2020 and June 30, 2019, respectively, for our MCMF product line.

 

In November 2019, we launched our white label business, working with manufacturers to create new brands and products using Fortetropin® as the foundation. We recorded $28 of net revenues for the six months ended June 30, 2020.

 

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 the Company, 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 rehabilitation and restorative health and to pursue international sales opportunities.

 

The Company currently relies on one third-party manufacturer to produce Fortetropin®. This manufacturer purchases all the necessary raw materials from suppliers and coordinates any additional production steps with third-parties. We have multiple vendors for blending, packaging and labeling our products. The Company is pursuing other alternatives in order to build a more robust supply chain going forward.

 

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Research and Development

 

As an advanced nutrition company, we are dedicated to basic and clinical research that supports our existing and future product portfolio. We are focused on the following areas of research:

 

Basic Research

 

  Biochemical characterization of Fortetropin®, including proteomic and lipidomic approaches;
     
  Identification and isolation of proteins, peptides, and lipids in Fortetropin® responsible for pro-myogenic activity.

 

Canine Clinical Research

 

  Effect of Fortetropin® to reverse disuse atrophy in dogs after an orthopedic surgery procedure to repair the cranial cruciate ligament (CCL);
     
  Effect of Fortetropin® on quality of life and activity in geriatric dogs;
     
  Effect of Fortetropin® on serum myostatin levels in healthy dogs.

 

Human Clinical Research

 

  Effect of Fortetropin® on skeletal muscle protein fractional synthetic rate in older men and women;
     
  Effect of Fortetropin® on muscle function and recovery after orthopedic procedures.

 

Our research program is actively evaluating the many active proteins, lipids and peptides in Fortetropin®. We believe our research programs will establish a basis for the continued prosecution of patent applications in order to further protect and augment our intellectual property assets. We are dedicated to protecting our innovative technology.

 

We expect our investment in research and development to continue in the future. 

 

Clinical and Basic Research Programs

 

As an emerging company focused on the discovery, development and commercialization of advanced nutrition products that improve muscle health and performance, we are dedicated to basic and clinical research that supports our existing and future product portfolio. Our research program is actively evaluating the many active proteins, lipids and peptides in Fortetropin®, specifically as a natural, reversible, temporary modulator of the regulatory protein myostatin, and to leverage this knowledge to strengthen and build our intellectual property. We are dedicated to protecting our innovative technology and believe that our research programs will establish a basis for the continued prosecution of patent applications in order to protect and augment the Company’s intellectual property estate. We expect our investment in research and development to continue to grow in the future. 

 

We invest in research and development activities externally through academic and industry collaborations aimed at enhancing our products, optimizing manufacturing and broadening the product portfolio. We have developed the following collaborations with various academic centers:

 

  In February 2019, we entered into an agreement with the College of Veterinary Medicine at Kansas State University (the “College”) to study the impact of Fortetropin® on quality of life and activity in geriatric dogs.  The principal investigator for this study is Kenneth R. Harkin DVM, DACVIM (SAIM), Professor and Section Head at the College. In this study geriatric dogs were assigned to two groups where they consumed either Fortetropin® or a placebo. The quality of life evaluation at baseline, midpoint and end of study was based on questionnaires filled by the dog owners. The level activity at baseline, midpoint and end of study was based on data recorded on the Vetrax collars worn by the dogs. The study, titled, “Fortetropin inhibits disuse muscle atrophy in dogs after tibial plateau leveling osteotomy,” was published in April 2020 in the peer-reviewed, open-access scientific journal, PLOS ONE (Public Library of Science), reporting results from the randomized, double-blind, placebo-controlled study involving 100 dogs conducted by researchers at the College.

 

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  In March 2018, we entered into a research agreement with Rutgers University, The State University of New Jersey, to work with Rutgers researchers in a program focused on discovering compounds and products for improving muscle health and performance.

 

  In December 2017, we entered into an agreement with the University of California, Berkeley’s Department of Nutritional Sciences & Toxicology.  The research project will study the effects of Fortetropin® on increasing the fractional rate of skeletal muscle protein synthesis in men and women between 60 and 75 years old. The Principal Investigator for this clinical study is William J. Evans, PhD, Adjunct Professor of Human Nutrition at the Department of Nutritional Sciences & Toxicology at the University of California, Berkeley. Professor Evans, a leading authority in muscle health research, is coordinating the activities of a multi-disciplinary team of scientists and physicians. In this randomized, double-blind, placebo-controlled clinical study, 20 subjects, men and women 60 – 75 years of age, will consume either Fortetropin® or a placebo for 21 days along with daily doses of a heavy water tracer.  After 21 days, a micro-biopsy was collected from each subject to determine the fractional rate of muscle protein synthesis. In July 2018, we agreed to pay for additional costs incurred in connection with the study. This clinical study was completed in June 2019 and the results showed that among subjects who received Fortetropin, the average FSR of several muscle protein gene ontologies was significantly higher compared to the placebo group.  The proportion of proteins with an increased FSR in the Fortetropin group relative to the placebo group was found to be statistically significant. The overall magnitude of increase was 15%.

 

 

In April 2017, we entered into an agreement with the College of Veterinary Medicine at Kansas State University to study the impact of Fortetropin® on reducing muscle atrophy in dogs after Tibial-Plateau-Leveling Osteotomy (“TPLO”) surgery to repair the cranial cruciate ligament (CCL). In August 2018, we agreed to pay for additional costs incurred in connection with the study. The study was completed and Kenneth R. Harkin DVM, DACVIM (SAIM), Professor and Section Head, College of Veterinary Medicine, Kansas State University and the principal investigator of the study presented the results titled, “The Impact of Fortetropin® Supplementation on Dogs Recovering from TPLO surgery” at the VMX Conference in Orlando in January 2019.

 

The randomized, double-blind, placebo-controlled study evaluated the impact of Fortetropin® on attenuating muscle atrophy following a common surgical procedure known as TPLO in 100 dogs at Kansas State University.  TPLO is performed by veterinary surgeons to repair ruptures of the cranial cruciate ligament (CCL), a canine ligament that is analogous to the anterior cruciate ligament (ACL) in humans.  In the weeks that follow TPLO surgery, the immobilized operated limb frequently shows significant muscle loss due to muscle disuse atrophy.  The objective of the study was to determine whether Fortetropin® could reduce this muscle atrophy with respect to a macronutrient-matched placebo. The study showed that: i) Fortetropin® prevented the loss of muscle mass in these dogs as measured by the thigh circumference in their affected and unaffected limbs; ii) Fortetropin® supplemented dogs had a significant improvement in percentage of weight supported by the affected limb (more rapid return to normal stance force distribution) than the placebo group; and iii) Fortetropin® prevented a rise in serum myostatin levels in dogs. We believe the results of this study are not only relevant to our veterinary business, which was established in 2018, but are also relevant to our human muscle nutrition business, with a particular focus on recovery and rehabilitation.

 

  In May 2015, we initiated a dose response clinical study led by Jacob Wilson, Ph.D., CSCS*D, Professor of Health Sciences and Human Performance at the University of Tampa, to examine the effects of Fortetropin® supplementation on plasma myostatin levels at various dosing levels in young adult males and females. This study is intended to help us better define the dose response curve, the minimal effective dose and effects of Fortetropin® on serum myostatin. In this double blind placebo controlled clinical study, 80 male and female subjects ranging in ages between 18 and 22 were randomized into four groups such that no significant differences in serum myostatin concentration existed between groups.

 

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Following assignment to one of the four groups, blood samples were collected to establish baseline values. Subjects were subsequently supplemented with three different doses of Fortetropin® (2.0g, 4.0g and 6.6g) and a matching placebo for one week. Following one week of supplementation, blood samples were collected and serum myostatin levels were assayed. Results demonstrated that Fortetropin® reduces serum myostatin levels at daily doses of 4.0g and 6.6g. This research, which continues to build upon our current understanding of Fortetropin®, may result in the formulation of new products. An abstract of this study was presented at 2016 International Conference on Frailty & Sarcopenia Research in Philadelphia, PA.  

 

  In August 2014, we entered into a research agreement with Human Metabolome Technologies America, Inc., (“HMT”), to apply their proprietary, state-of-the-art capillary electrophoresis-mass spectrometry (CE-MS) technologies to characterize the metabolomic profiles of plasma samples obtained from healthy male subjects who used either Fortetropin® or placebo with the goal of identifying metabolites with pro-myogenic activity in the plasma samples of subjects who took Fortetropin® as well as examining the effect on glucose and fat metabolism. HMT used a metabolite database of over 290 lipids and over 900 metabolites to identify potential plasma biomarkers related to muscle growth. The study was completed during the fourth quarter of 2014. Initial data from this study indicated that subjects who received Fortetropin® displayed differential metabolomic profiles relative to subjects who received placebo. The early indications of plasma biomarkers may guide future study design for Fortetropin® clinical trials by identifying clinically-relevant endpoints. The results from this study were presented at the Sarcopenia, Cachexia and Wasting Disorders Conference (Berlin, Germany) in December 2016.

   

  In May 2014, we entered into an agreement with the University of Tampa to study the effects of Fortetropin® supplementation in conjunction with modest resistance training in 18-21 year old males. The study was a double-blind, placebo-controlled trial which examined the effects of Fortetropin® on skeletal muscle growth, lean body mass, strength, and power in recreationally trained males. Forty-five subjects were divided into placebo, 6.6g and 19.8g dosing arms of Fortetropin® daily for a period of 12 weeks. Results demonstrated a statistically significant increase in both muscle thickness and lean body mass in subjects taking Fortetropin® but not in subjects taking placebo. The clinical study also analyzed blood myostatin levels via high-sensitivity enzyme-linked immunosorbent assay (“ELISA”) based analysis. Results demonstrated statistically significant reduction in serum myostatin levels in both groups that consumed Fortetropin® but not in the group that consumed the placebo. The lipid serum safety protocol demonstrated that daily use of Fortetropin® at recommended and three times the recommended dose had no adverse lipid effect and did not adversely affect cholesterol, HDL or triglyceride levels. Data from the study was presented at the American College of Nutrition’s 55th annual conference. A separate mechanism of action study at the University of Tampa demonstrated that in addition to reducing serum myostatin levels, Fortetropin® showed activity in mTOR and Ubiquitin pathways, two other crucial signaling pathways in the growth and maintenance of healthy muscle. Specifically, the preclinical data showed that Fortetropin® up-regulates the mTOR regulatory pathway. The mTOR pathway is responsible for production of a protein kinase related to cell growth and proliferation that increases skeletal muscle mass. Up-regulation of the mTOR pathway is important in preventing muscle atrophy. The preclinical study also demonstrated that Fortetropin® acts to reduce the synthesis of proteins in the Ubiquitin Proteasome Pathway, a highly selective, tightly regulated system that serves to activate muscle breakdown. Over-expression of the Ubiquitin Proteasome Pathway is responsible for muscle degradation. We believe that Fortetropin® has the ability to regulate production in the Ubiquitin Proteasome Pathway, which may have significant implications for preventing age-related muscle loss.

 

The foregoing programs are an integral part of our business strategy. We believe that they will provide a clear scientific rationale for Fortetropin® as an advanced nutritional product and support its use in different medical and health applications in the future.

 

We intend to pursue additional clinical studies and medical research to support differentiated and advantaged marketing claims, to build and enhance our competitive insulation through an aggressive intellectual property strategy, to develop product improvements and new products in consumer preferred dosage forms, to enhance overall marketing, and to pursue best in class personnel.

 

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Results of Operations

 

Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019

 

   Three Months Ended
June 30,
   Change 
   2020   2019   Dollars   % 
                 
Net revenues  $329   $154   $175    114%
Cost of revenues   172    81    91    112%
Gross profit   157    73    84    116%
                     
Operating expenses:                    
Selling, marketing and research   227    337    (110)   -33%
Personnel and benefits   365    470    (105)   -23%
General and administrative   329    432    (103)   -24%
Total operating expenses   921    1,239    (318)   -26%
                     
Operating loss   (764)   (1,166)   402    -35%
                     
Interest expense   (7)   (9)   2    -23%
                     
Net loss  $(771)  $(1,175)  $404    -34%

 

Net revenues

 

Net revenues for the three months ended June 30, 2020 increased by $175 or 114% to $329 compared to net revenues of $154 for the three months ended June 30, 2019. This increase is primarily due to an increase of $173 for Myos Canine Muscle Formula and an increase of $2 for our older products.

 

Cost of revenues

 

Cost of revenues for the three months ended June 30, 2020 increased by $91 or 112% to $172 compared to cost of revenues of $81 for the three months ended June 30, 2019. The increase is primarily due to costs related to an increase in our product sales.

 

Gross profit

 

Gross profit increased $84 or 116% to $157 for the three months ended June 30, 2020 compared to $73 for the three months ended June 30, 2019.

 

Operating expenses

 

Operating expenses for the three months ended June 30, 2020 decreased by $318 or 26% to $921, compared to operating expenses of $1,239 for the three months ended June 30, 2019. The decrease is primarily due to a 33% decrease in selling, marketing and research expenses of $110, a 24% decrease in general and administrative of $103, and a 23% decrease in personnel and benefits of $105 due to certain personnel changes. 

 

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Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

 

   Six Months Ended
June 30,
   Change 
   2020   2019   Dollars   % 
                 
Net revenues  $619   $303   $316    104%
Cost of revenues   330    142    188    132%
Gross profit   289    161    128    79%
                     
Operating expenses:                    
Selling, marketing and research   429    612    (183)   -30%
Personnel and benefits   833    890    (57)   -6%
General and administrative   644    788    (144)   -18%
Total operating expenses   1,906    2,290    (384)   -17%
                     
Operating loss   (1,617)   (2,129)   512    -24%
                     
Interest expense   (20)   (21)   1    -4%
                     
Net loss  $(1,637)  $(2,150)  $513    -24%

 

Net revenues

 

Net revenues for the six months ended June 30, 2020 increased by $316 or 104% to $619 compared to net revenues of $303 for the six months ended June 30, 2019. This increase is primarily due to an increase of $328 for Myos Canine Muscle Formula offset by a net decrease of $12 for our older products.

 

Cost of revenues

 

Cost of revenues for the six months ended June 30, 2020 increased by $188 or 132% to $330 compared to cost of revenues of $142 for the six months ended June 30, 2019. The increase is primarily due to costs related to an increase in our product sales.

 

Gross profit

 

Gross profit increased $128 or 79% to $289 for the six months ended June 30, 2020 compared to $161 for the six months ended June 30, 2019.

 

Operating expenses

 

Operating expenses for the six months ended June 30, 2020 decreased by $384 or 17% to $1,906, compared to operating expenses of $2,290 for the six months ended June 30, 2019. The decrease is primarily due to a 30% decrease in selling, marketing and research expenses of $183, an 18% decrease in general and administrative of $144, and a 6% decrease in personnel and benefits of $57 due to some personnel changes.

 

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Liquidity and Capital Resources 

 

As of the filing date of this report, 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 reducing operating expenses, securing additional financing through debt or equity securities to fund future business activities.

 

The Company entered into the Merger Agreement on June 30, 2020 with MedAvail and it expects the Merger to close before the end of the year. The Merger Agreement provides that, prior to the consummation of the Merger, MYOS will transfer and assign all of its assets and liabilities into MYOS Corp., a newly-created, wholly-owned subsidiary of MYOS. The shares of MYOS Corp., immediately after the closing of the Merger, will be spun-out from the Post-Merger Combined Company through a dividend of the stock of MYOS Corp. to the pre-Merger MYOS shareholders, resulting in MYOS Corp., a private company, continuing the current business operations of MYOS. MedAvail will pay MYOS Corp. $2 million in cash upon the closing of the Merger and issue a promissory note for an additional $3 million, payable in instalments within one year of the closing of the Merger.

 

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.

 

Working capital at June 30, 2020 and December 31, 2019 is summarized as follows:

  

   June 30,   December 31,   Increase 
   2020   2019   (Decrease) 
Current Assets:            
Cash  $1,334   $64   $1,270 
Accounts receivable, net   33    5    28 
Inventories, net   1,474    1,666    (192)
Prepaid expenses and other assets   187    23    164 
Total current assets  $3,028   $1,758   $1,270 
Current liabilities:               
Accounts payable  $108   $277   $(169)
Accrued expenses and other current liabilities   40    276    (236)
Notes payable and accrued interest   654    1,159    (505)
Total current liabilities  $802   $1,712   $(910)

 

Working capital increased by $2,180 to $2,226 at June 30, 2020 compared to $46 at December 31, 2019. 

 

Significant changes in working capital components were as follows:

 

  Cash increased by $1,270 primarily due to net proceeds provided by financing activities of $2,938 during the six months ended June 30, 2020 offset by funds used in operating activities of $1,668.
     
  Notes payable and other current liabilities decreased by $505 primarily due to a conversion of principal of $825 offset by $300 of proceeds received on the promissory note payable and $20 of accrued interest.

 

At June 30, 2020, we had cash of $1,334 and total assets of $4,072.

 

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Summarized cash flows for the six months ended June 30, 2020 and 2019 are as follows:

 

   Six Months Ended
June 30,
     
   2020   2019   Change 
Net cash used in operating activities  $(1,668)  $(1,135)  $(533)
Net cash provided by financing activities   2,938    2,278    660 
Net increase in cash  $1,270   $1,143   $127 

 

Net cash used in operating activities represents net loss adjusted for certain non-cash items and changes in operating assets and liabilities.

 

Net cash used in operating activities for the six months ended June 30, 2020 was $1,668, an increase of $533 compared to $1,135 used in operating activities for the six months ended June 30, 2019.

 

Net cash provided by financing activities for the six months ended June 30, 2020 was $2,938, an increase of $660 compared to $2,278 for the six months ended June 30, 2019.

 

For additional information about the changes in operating assets and liabilities, refer to the above discussion on working capital.

 

On March 2, 2020, the Company entered into securities purchase agreements for a private placement with a group of accredited investors, including four members of the Company’s board of directors. In connection with the closing of the private placement on March 5, 2020, the Company issued 851,240 shares of common stock for aggregate cash proceeds of $1,030, and $825 of the principal amount of the Note was exchanged for 681,818 shares of common stock. The Company intends to use the net proceeds from the private placement primarily for working capital, research and development, strategic initiatives and other general corporate purposes.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. 

 

Recently Issued Accounting Standards

 

For a description of recently issued accounting standards, see Note 2 – Summary of Significant Accounting Policies in Part 1, Item 1 of this Report.

 

Critical Accounting Policies

 

For a description of our critical accounting policies, see Note 2 – Summary of Significant Accounting Policies in Part 1, Item 1 of this Report.

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

We are a smaller reporting company, and therefore, we are not required to provide information required by this Item of Form 10-Q.

 

Item 4. Controls and Procedures 

 

Evaluation of Disclosure Controls and Procedures

 

Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that is designed to provide reasonable assurance that information we are required to disclose in the reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedure include, without limitations, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

In accordance with Exchange Act Rules 13a-15 and 15d-15, an evaluation was completed by our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2020. Based on that evaluation, management concluded that due to a material weakness in our internal control over financial reporting, our disclosure controls and procedures were not effective. We are implementing remedial measures designed to address the material weakness.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

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, 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 the second quarter of 2019.

 

On July 13, 2020, the Company entered into a settlement agreement (the “Settlement Agreement”) with the Purchaser,  Mr. Ren and Mr. Mannello to settle all claims in connection with all pending litigation matters between the parties (the “Claims”). Pursuant to the Settlement Agreement, the parties agreed to file the appropriate documentation in the Nevada and New York courts to dismiss the Claims within five days of the execution of the Settlement Agreement. In addition, the Purchaser and Mr. Ren agreed to: (i) vote all of their shares of common stock of the Company in favor of the transactions contemplated by the Merger Agreement and (ii) waive and forfeit any right to receive any ownership interest in the private company (which will include the assets and liabilities for the Company’s existing muscle health business) to be spun-out from the Company in connection with the Merger. The Purchaser also agreed that, simultaneous with the closing of the Merger, it will deliver its warrant to purchase 375,000 shares of common stock to the Company for cancellation or, if the warrant cannot be located, execute documents necessary to ensure that the warrant is cancelled. The Settlement Agreement further provides that Mr. Ren will resign as the Company’s Global Chairman and as a member of the Company’s board of directors upon the execution of the Settlement Agreement. The Settlement Agreement also includes mutual releases by the parties against each other for any claims or actions (including the Claims) through the date of the Settlement Agreement. The litigation was dismissed on July 23, 2020.

 

Item 1A. Risk Factors.

 

Factors that could cause our actual results to differ materially from those in this report are any of the risks described in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on March 24, 2020. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.

 

As of the date of this report, except as set forth below, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC, except we may disclose changes to such factors or disclose additional factors from time to time in our future SEC filings.

 

The COVID-19 pandemic has adversely affected our business and operations and may have a material adverse effect on our business and operations in the future.

 

The recent outbreak of COVID-19 has been declared by the World Health Organization to be a “pandemic,” and has spread across the globe to many countries, including the United States, and is impacting worldwide economic activity. The current COVID-19 pandemic has disrupted or prevented us, our suppliers and other business partners from conducting business activities as usual and may prevent us from conducting our business as usual for an additional period of time, the duration of which is uncertain. In addition, we, our suppliers and other business partners may also experience significant impairments of business activities due to operational shutdowns or suspensions that may be requested or mandated by national or local governmental authorities or self-imposed by us, our suppliers or other business partners.

 

While it is not possible at this time to estimate the future impact that COVID-19 could have on our business, customers, suppliers or other business partners, the continued spread of COVID-19, the measures taken in the United States by federal and local governments, actions taken to protect employees, and the impact of the pandemic on various business activities could adversely affect our results of operations and financial condition.

 

The Company was deemed to be an essential business in the State of New Jersey and we made changes to accommodate the orders to practice social distancing. All employees are currently working remotely.

 

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The inability to maintain adequate supplies of finished goods in our inventory or at our fulfillment centers in a timely manner, including as a result of COVID-19, could limit our ability to manufacture and sell our products and have a material adverse effect on our business, financial condition and results of operations.

 

The capital markets have experienced significant volatility due to the ongoing spread of COVID-19. As a result the price of our shares may be negatively impacted and affect our ability to raise additional capital.

  

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

None.

 

Item 5. Other Information.

 

None.

 

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Item 6. Exhibits.

 

No.   Description
10.1   Agreement and Plan of Merger and Reorganization, dated June 30, 2020, by and among MYOS RENS Technology, Inc., MedAvail, Inc., and Matrix Merger Sub, Inc. (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K, filed with the SEC on June 30, 2020)
     
10.2   Form of Assignment and Assumption Agreement, to be entered into by and between MYOS RENS Technology, Inc., and MYOS Corp. (incorporated by reference to Exhibit 2.2 of the Company’s Current Report on Form 8-K, filed with the SEC on June 30, 2020)
     
10.3   Second Amendment to Rights Agreement, dated June 30, 2020, by and between MYOS RENS Technology, Inc., and Transhare (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K, filed with the SEC on June 30, 2020)
     
10.4   Form of MedAvail, Inc. Voting Agreement, dated June 30, 2020,  by and between MedAvail, Inc., and each of the parties named therein (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed with the SEC on June 30, 2020)
     
10.5   Form of MYOS RENS Technology, Inc. Voting Agreement, dated June 30, 2020, by and between MYOS RENS Technology, Inc., and each of the parties named therein (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K, filed with the SEC on June 30, 2020)
     
10.6  

Form of MedAvail, Inc. Lock-Up Agreement, by and between MedAvail, Inc., and each of the parties named therein (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K, filed with the SEC on June 24, 2020)

     
31.1   Certification of Principal Executive Officer and Principal Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1*   Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
     
101.SCH   XBRL Taxonomy Extension Schema Document
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB   XBRL Taxonomy Extension Labels Linkbase Document
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

* Furnished herewith

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  MYOS RENS TECHNOLOGY INC.
     
Date: August 4, 2020 By: /s/ Joseph Mannello
    Name: Joseph Mannello
    Title:   Chief Executive Officer

 

 

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