MYOMO, INC. (MYO)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our financial statements and the related notes contained elsewhere in this Annual Report on Form 10-K and in our other Securities and Exchange Commission filings. The following discussion may contain predictions, estimates, and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under “Risk Factors” and elsewhere in this Annual Report on Form 10-K. These risks could cause our actual results to differ materially from any future performance suggested below.

Overview

We are a wearable medical robotics company, specializing in myoelectric braces, or orthotics, for people with neuromuscular disorders. We develop and market the MyoPro product line, which is a myoelectric-controlled upper limb brace, or orthosis. The orthosis is a rigid brace used for the purpose of supporting a patient’s weak or deformed arm to enable and improve functional activities of daily living, or ADLs, in the home and community. It is custom constructed by a trained professional during a custom fabrication process for each individual user to meet their specific needs. Our products are designed to help regain function in individuals with neuromuscular conditions due to brachial plexus injury, stroke, traumatic brain injury, spinal cord injury and other neurological disorders.

We utilize digital ads on various platforms as well as television ads to reach patients who are potential candidates for our product. Once the prospective patient contacts us or is referred to us, either our trained clinical staff or a trained O&P provider will evaluate the patient for their suitability as a candidate. Initial evaluations by our trained clinical staff are conducted using telehealth techniques, followed by an in-person clinical evaluation of the candidate. Prior to obtaining authorizations from commercial insurance companies or delivering to a patient with Medicare Part B, the patient’s medical records are collected and reviewed to make sure the device is appropriate for their condition and a prescription is always obtained from a physician. Once these documents are obtained, if the patient has Medicare Advantage or other commercial insurance, a pre-authorization request is submitted to the patient’s insurer. If we receive a pre-authorization, we proceed to measure the patient’s arm a process we call shape capture. In many cases, shape capture is done using a remote measurement kit supplied to the patient. If the patient is covered by Medicare Part B, no pre-authorization is required and we can move directly to taking measurements of the patient's arm. We then use those measurements to 3D print orthotic parts, which are used to fabricate the MyoPro, and then deliver it to the patient. Since we are directly providing the device to the patient and then billing insurance ourselves, we refer to this process as direct billing. We also call on hospitals and O&P practices in the United States, Europe and Australia that provide our products to their patients as well as generate indirect sales. The MyoPro product line has been approved by the VA system for impaired veterans, and over 130 VA facilities have ordered devices for their patients.

Our myoelectric orthoses have been clinically shown in peer reviewed published research studies to help regain the ability to complete functional tasks by supporting the affected joint and enabling individuals to self-initiate and control movement of their partially paralyzed limbs by using their own muscle signals.

Our technology was originally developed at MIT in collaboration with medical experts affiliated with Harvard Medical School. Myomo was incorporated in 2004.

Other milestones in our history include:

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In 2012, we introduced the MyoPro, the primary business focus shifted during this time period, from devices which were designed for rehabilitation therapy and sold to hospitals, to providing an assistive device through O&P providers to patients who are otherwise impaired for use at home, work, and in the community that facilitates activities of daily living or ADLs.

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During 2015, we extended our basic MyoPro for the elbow with the introduction of the MyoPro Motion W, a multi-articulated non-powered wrist and the MyoPro Motion G, which includes a powered grasp. The MyoPro Motion W allows the user to use their sound arm to adjust the device and then, for instance, open a refrigerator door, carry a shopping bag, hold a cell phone, or stabilize themselves to avoid a fall and potential injury. The MyoPro Motion G model allows users with severely weakened or clenched hands, such as seen in certain stroke survivors, to open and close their hands and perform a large number of ADLs.

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On June 9, 2017, we completed our initial public offering, or IPO, and a private offering concurrent with the IPO, generating net proceeds of $6.9 million in the aggregate.

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On July 31, 2017, we met the criteria to apply the CE mark for the MyoPro under the EU MDD. The EU MDR repealed and replaced the EU MDD on May 26, 2021, and we therefore worked with our EU-Authorized Representative to ensure all EU MDR requirements were met, which enabled us to establish a new declaration of conformity under the EU MDR to allow continued to CE mark application. This has enabled us to sell the MyoPro to individuals in the EU.

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In November 2018, we announced that the CMS had published two new codes (L8701, L8702) that describe our products, pursuant to our application for HCPCS codes which become effective in early 2019. At that time, our products were classified as durable medical equipment rental at that time.

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In 2019 we transitioned our business to become a direct provider of the MyoPro to patients and bill insurance companies directly.

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In January 2021, we entered into a joint venture with Beijing Ryzur Medical Investment Co., Ltd. (“Ryzur Medical”), a medical device manufacturer based in Beijing, China to manufacture and sell our current and future products in greater China, including Hong Kong, Macau and Taiwan. Under the agreement with Ryzur Medical, we own 19.9% of the joint venture company, Jiangxi Myomo Medical Assistive Appliance Co. Ltd. (the "JV Company"), which is obligated to purchase $10.75 million of MyoPro control system units over the next 10 years, subject to receipt of regulatory approvals necessary to permit sales of the product in the greater China territory.

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In July 2021, we announced that we became accredited as a Medicare provider.

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In January 2022, we introduced the MyoPro 2+ and began in-house fabrication of the device.

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On November 1, 2023, CMS issued a final rule that resulted in a change in the benefit category associated with products billed under the HCPCS codes for our products from durable medical equipment rental to a brace, which would permit reimbursement of MyoPro sales on a lump sum basis. The rule became effective on January 1, 2024.

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On February 29, 2024, CMS published final payment determinations for the HCPCS codes describing our products which are L8701, for the MyoPro Motion W, and L8702, for the MyoPro Motion G, which became effective on April 1, 2024. These fees were subsequently updated to approximately $34,300 for the Motion W and approximately $67,500 for the Motion G, effective January 1, 2025. These fees are subject to annual inflationary adjustments.

Recent Developments

Equity Offerings

On December 6, 2024, we completed a public offering, selling 3,450,000 shares at $5.00 per share, generating net proceeds after fees and expenses of approximately $15.8 million. Net proceeds from the offering are expected to be used to grow revenues in our direct billing channel through additional advertising spending and the addition of clinical, reimbursement and manufacturing headcount to support expected increasing demand, to increase R&D spending in order to accelerate the completion of sustaining and new product development activities, to fund systems and headcount to support growth in the O&P channel, to fund associated working capital requirements and general corporate purposes. On January 19, 2024 we completed a registered direct equity offering, selling 1,354,218 shares of common stock and 224,730 pre-funded warrants at $3.80 per share, or $3,7999 per pre-funded warrant, generating net proceeds after fees and expenses of approximately $5.4 million. On August 29, 2023, we completed a public equity offering, selling 5,413,334 shares of common stock and 1,920,000 pre-funded warrants at $0.60 per share, or at $0.5999 per pre-funded warrant, generating net proceeds after fees and expenses of approximately $3.9 million. In January 2023, we completed a public equity offering, whereby we sold 13,169,074 shares of common stock and 6,830,926 pre-funded warrants at $0.325 per share, or $0.3249 per pre-funded warrant. Each pre-funded warrant in the above offerings entitles the holder to one share of common stock upon exercise at a nominal exercise price of $0.0001 per share. See section titled “Liquidity” for further discussion.

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Results of Operations

We have been growing revenues while incurring net losses and negative cash flows from operations since inception and anticipate this to continue for most of 2025. Our financial performance in 2024 reflected our ability to be reimbursed by Medicare for providing the MyoPro to their beneficiaries. Our plan for 2025 is to invest in increasing demand and adding capacity to support our direct billing channel, while making investments to increase revenues in the U.S. O&P channel.

Comparison of the year ended December 31, 2024 to the year ended December 31, 2023

The following table sets forth our revenue, gross profit and gross margin for each of the years presented.

Revenues

We derive revenue primarily from providing devices directly to patients and billing insurance companies directly. We also sell our products to O&P providers in the United States. Europe and Australia, to the VA and to rehabilitation hospitals. Though we increasingly provide devices directly to patients, we sometimes utilize the clinical services of O&P providers for which they are paid a fee.

We expect that our revenues will continue to grow, primarily as a result of investments to grow our direct billing channel and through expected higher revenue from O&P practices both inside and outside of the United States.

Product revenue in 2024 increased by approximately $15.1 million, or 86%, compared to 2023. The product revenue increase was driven primarily by higher direct billing revenues due to a higher average selling price, or ASP, as well as a higher number of revenue units as we were able to serve Medicare Part B beneficiaries in volume in 2024. Including the license revenue received from our joint venture partner in China in 2023, total revenue increased 69%. Revenues generated through the direct billing channel were approximately $25.3 million, or 78% of product revenue in 2024, compared to approximately $12.3 million, or 71%, of product revenue in 2023.

Cost of Revenue and Gross margin

Cost of revenue consists of direct costs for the manufacturing, casting/printing of orthotic parts, fabrication and fitting of our products, inventory reserves, warranty costs and overhead costs allocated to cost to revenue.

Gross margin increased to 71.2% in 2024 compared to 68.5% in 2023. The increase in gross margin was driven primarily by the increase in ASP discussed above and greater absorption of fixed costs into inventory. Excluding the license fees in 2023, gross margin on product sales was 65.3% for the year ended December 31, 2023. The increase in gross margin on product sales, was driven by the aforementioned factors.

We expect our gross margin to vary depending on the mix of channel revenues and timing of reimbursements from certain third-party payers, which impacts revenue recognition.

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Operating expenses

The following table sets forth our operating expenses for each of the years presented.

Research and development

R&D expenses consist of costs for our engineering and research personnel, including salaries, benefits, incentive and stock-based compensation, product development costs, clinical studies and the cost of certain third-party contractors and travel expense. R&D costs are expensed as they are incurred. We intend to accelerate our R&D efforts in 2025 and expect R&D costs to increase on an annual basis.

R&D expenses increased by approximately $2.1 million or 81% in 2024 compared to 2023. The increase during 2024 was driven primarily by higher payroll costs due to higher engineering headcount in 2024 as a result of a larger number of new product development and sustaining engineering projects.

Selling, clinical and marketing

Selling expenses consist of costs for our field clinical staff, clinical training organization, and marketing personnel, including salaries, benefits, stock-based compensation and sales commissions, costs of digital advertising, marketing and promotional events, corporate communications, product marketing and travel expenses. Variable compensation for personnel engaged in sales and marketing activities is generally earned and recorded as expense when the product is delivered. We expect sales and marketing expenses to increase in 2025 as we increase our advertising spending and clinical capacity to grow revenues in our direct billing channel.

Selling, clinical, and marketing expenses increased by approximately $3.2 million or 35% in 2024 compared to 2023. The increase during 2024 was driven primarily by higher advertising spending as well as an increases in clinical and customer service headcount in support of our direct billing channel.

General and administrative

General and administrative expenses consist primarily of costs for administrative, reimbursement, and finance personnel, including salaries, benefits, incentive and stock-based compensation, professional fees associated with legal matters, consulting expenses, costs for pursuing insurance reimbursements for our products and costs required to comply with the regulatory requirements of the SEC and Medicare accreditation, as well as costs associated with accounting systems, insurance premiums and other corporate expenses. We expect that general and administrative expenses will increase in 2025 as a result of increasing our reimbursement capacity in order to grow revenue in the direct billing channel.

General and administrative expenses increased by approximately $2.6 million or 27% in 2024 compared to 2023. The increase was primarily due to an increase in headcount in the human resource and reimbursement functions, as well as a higher bonus.

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Other expense (income)

The following table sets forth our interest and other expense (income) for each of the years presented.

Interest income decreased primarily due to lower average investment balances in 2024. Loss on equity investment represents our share of the losses incurred by the JV Company, which began limited operations in 2023. Our investment in the JV Company was written off during the year ended December 31, 2023.

Income tax expense

Income tax expense recorded during the years ended December 31, 2024 and 2023 represents the provision for income taxes for our wholly-owned subsidiary, Myomo Europe GmbH. The increase in income tax expense relates to increased income from Myomo Europe GmbH in 2024 compared to 2023.

Adjusted EBITDA

We believe that the presentation of Adjusted EBITDA, a non-GAAP financial measure, provides investors with additional information about our financial results. Adjusted EBITDA is an important supplemental measure used by our board of directors and management to evaluate our operating performance from period-to-period on a consistent basis and as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations.

We define Adjusted EBITDA as earnings before interest and other income (expense), taxes, depreciation and amortization, adjusted for stock-based compensation and the loss on equity investment in the JV Company.

Adjusted EBITDA is not in accordance with, or an alternative to, measures prepared in accordance with U.S. GAAP. In addition, this non-GAAP measure is not based on any comprehensive set of accounting rules or principles. As a non-GAAP measure, Adjusted EBITDA has limitations in that it does not reflect all of the amounts associated with our results of operations as determined in accordance with U.S. GAAP. In particular:

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Adjusted EBITDA does not include interest income, net;

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Adjusted EBITDA does not reflect the amounts we paid in taxes or other components of our tax provision;

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Adjusted EBITDA does not include depreciation expense from fixed assets, or amortization of leasehold improvements;

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Adjusted EBITDA does not include the impact of stock-based compensation; and

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Adjusted EBITDA does not include the loss on equity investment in the JV Company.

Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures including net income (loss) and our financial results presented in accordance with U.S. GAAP.

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The following table provides a reconciliation of net loss to Adjusted EBITDA for each of the years indicated:

Liquidity and Capital Resources

Liquidity

We measure our liquidity in a number of ways, including the following:

We had working capital and stockholders’ equity of approximately $22.6 million and $24.7 million respectively, as of December 31, 2024. We used $3.3 million in cash for operating activities during the year ended December 31, 2024. In the fourth quarter of 2024, the Company generated positive cash flow from operations of $3.4 million, as well as positive free cash flow of $2.5 million.

We have historically funded our operations through financing activities, including raising equity and debt capital. In December 2024, we completed a public equity offering, pursuant to which we sold 3,450,000 shares at $5.00 per share, generating net proceeds after fees and expenses of approximately $15.8 million. In January 2024, we completed a registered direct equity offering, pursuant to which we sold 1,354,218 shares of common stock and 224,730 pre-funded warrants at $3.80 per share, or $3.7999 per pre-funded warrant, generating net proceeds after fees and expenses of approximately $5.4 million. In August 2023, we completed a public equity offering pursuant to which we sold 5,413,334 shares of common stock and 1,920,000 pre-funded warrants at $0.60 per share or at $0.5999 per warrant, generating proceeds after fees and expenses of approximately $3.9 million. In January 2023, we completed an equity offering under which we sold 13,169,074 shares of common stock and 6,830,926 pre-funded warrants at $0.325 per share, generating proceeds after fees and expenses of approximately $5.7 million. In July 2024, we entered into a Loan and Security Agreement with Silicon Valley Bank, a division of First-Citizens Bank & Trust Company, which provides us the ability to borrow up to $4.0 million against eligible accounts receivable. The line of credit remains undrawn as of the issuance date of these financial statements. Availability under the line of credit is approximately $1.0 million based on eligible accounts receivable as of December 31, 2024. We amended the Loan and Security Agreement in February 2025 to provide for, among other changes, a $3 million term loan facility, which is available to be drawn at any time until February 28, 2026. Considering our cash balance and availability under our debt arrangements as of December 31, 2024 and our operating plans discussed below, we believe there will be sufficient cash to fund our operations and capital expenditures for the next 12 months from the date of this report.

Our operating plans are primarily focused on growing revenues in our direct billing channel in 2025, while we work concurrently on growing revenues in the O&P channel. This involves increasing our advertising spending and adding headcount to increase our clinical, reimbursement and manufacturing capacity in order to serve a higher volume of patients in 2025. These investments are expected to result in negative cash flows for at least the first three quarters of 2025.

Our business is dependent upon reimbursement of our products by insurance companies and government-controlled health care plans such as Medicare and Medicaid in the United States and by statutory health insurance plans in Germany, which could prevent our revenues from growing to the level necessary to return to ash flow breakeven on a

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sustaining basis. We believe that we have access to capital resources, if necessary, through potential public or private equity offerings, debt financings, or other means. If we are unable to obtain adequate funds on reasonable terms, we may be required to significantly curtail or discontinue operations or obtain funds by entering into financing agreements on unattractive terms. We may also explore strategic alternatives for the purpose of maximizing stockholder value. There can be no assurance we will be successful in implementing our plans to sustain our operations and continue to conduct our business.

Cash Flows

Operating Activities. The net cash used in operating activities for the year ended December 31, 2024 was primarily used to fund a net loss net approximately $6.2 million, adjusted for non-cash expenses in the aggregate amount of approximately $1.6 million of which approximately $0.9 million is related to non-cash adjustments related to stock-based compensation, and approximately $1.3 million of cash generated from changes in operating assets and liabilities, primarily related to an increase in accounts payable and accrued expenses and receipt of a tenant improvement allowance for our new headquarters facility in Burlington, MA., partially offset by increases in inventory and accounts receivable.

The net cash used in operating activities for the year ended December 31, 2023 was primarily used to fund a net loss net approximately $8.1 million, adjusted for non-cash expenses in the aggregate amount of approximately $1.7 million of which approximately $1.1 million is related to non-cash adjustments related to stock-based compensation, and approximately $0.3 million of cash generated from changes in operating assets and liabilities, primarily related to an increase in accounts payable and accrued expenses, offset by increases in inventory and accounts receivable.

Investing Activities. During the year ended December 31, 2024 our cash provided by investing activities of $0.3 million was primarily due to a greater amount of maturities compared to purchases of short-term investments, offset by purchases of furniture and fixtures related to the move to our new headquarters facility in December 2024 and demo units for O&P practices as we look to increase revenue from this channel in 2025. Cash used in investing activities in 2023 was primarily for our purchases of short-term investments and purchases of equipment.

Financing Activities. During the year ended December 31, 2024 cash provided by financing activities of approximately $20.9 million was due to net proceeds received from our equity offerings in January and December 2024.

During the year ended December 31, 2023 cash provided by financing activities of approximately $9.7 million was due to net proceeds received from the sale of common stock and pre-funded warrants, net of offering costs.

Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. These estimates and assumptions are reviewed on an on-going basis and updated as appropriate. Materially different results can occur if circumstances change and

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additional information becomes known. Actual results may differ from these estimates. Refer to Note 2 - Summary of Significant Accounting Policies. Our most critical accounting estimates include

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The timing and amount of revenue recognition based on assertions and estimates of payments from certain insurance payers

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The discount rate on leases

Timing and Amount of Revenue Recognition

The timing and amount of revenue recognized is determined based on certain estimates. For revenue derived from patients with Medicare Part B, we determined we had sufficient payment history in order to recognize revenue upon delivery of the device to the patient based on the published fees by CMS. With respect to patients with Medicare Advantage or other commercial insurance, except for a small number of payers, we do not have contracts to establish pricing or provide evidence of an arrangement. As a result, we rely on a history of payments after receiving an insurance authorization, delivery of the device and submission of a claim as evidence of an arrangement. Payment history is also used to estimate how much we expect to be paid upon delivery of our device and submission of an insurance claim, which determines how much revenue we recognize. For other Medicare Advantage and other commercial insurance payers, we have determined that we do not have sufficient collection history with the payer to assert evidence of an arrangement and collectibility. For these payers, revenue is recognized at payment, which is when we can determine how much we will be paid for the device.

Discount Rate on Leases

We estimate the discount rate applied to the lease payments under a lease. The discount rate is based on the interest rate on our line of credit or other inputs in the absence of a debt facility. The discount rate impacts the valuation of the lease asset and liability, as well as the periodic amortization of right of use assets in the statement of operations.

Recent Accounting Standards

In October 2023, the FASB issued ASU 2023-06, “Disclosure Improvements, Codification Amendments in Response to the SECs Disclosure Update and Simplification Initiative”, that adds 14 of the 27 identified disclosure or presentation requirements to the Codification, each amendment in the ASU will only become effective if the SEC removes the related disclosure or presentatioTn from its existing regulations by June 30, 2027. We currently comply with these disclosure requirements as applicable under Regulation S-X or Regulation S-K and will adopt these new standards depending on timing of when they become effective, which is not expected to have a material

impact on our financial position and results of operations.

In November 2023, the FASB issued ASU 2023-07 “Segmented Reporting - Improvements to Reportable Segment Disclosures”. ASU 2023-07 focuses on the requirements to disclose its significant segment expense categories and amounts for each reportable segment. ASU 2023-07 became effective with the calendar year 2024 year-end financial statements. We have adopted these new standards, which did not have a material impact on our financial position and results of operations.

In December 2023, the FASB issued ASU 2023-09, “Accounting standards update, Income Taxes (Topic 740: Improvements to Income Tax Disclosures”. ASU 2023-09 focuses on income tax disclosures around effective tax rates and cash income taxes paid. This amendment in the ASU will become effective for public companies as of December, 15 2024 and effective to all other companies one year later. We will adopt these standards when they become effective, which did not have a material impact on our financial position and results of operations.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our financial statements and the related notes contained elsewhere in this Annual Report on Form 10-K and in our other Securities and Exchange Commission filings. The following discussion may contain predictions, estimates, and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under “Risk Factors” and elsewhere in this Annual Report on Form 10-K. These risks could cause our actual results to differ materially from any future performance suggested below.

Overview

We are a wearable medical robotics company, specializing in myoelectric braces, or orthotics, for people with neuromuscular disorders. We develop and market the MyoPro product line, which is a myoelectric-controlled upper limb brace, or orthosis. The orthosis is a rigid brace used for the purpose of supporting a patient’s weak or deformed arm to enable and improve functional activities of daily living, or ADLs, in the home and community. It is custom constructed by a trained professional during a custom fabrication process for each individual user to meet their specific needs. Our products are designed to help regain function in individuals with neuromuscular conditions due to brachial plexus injury, stroke, traumatic brain injury, spinal cord injury and other neurological disorders.

We utilize digital ads on various platforms as well as television ads to reach patients who are potential candidates for our product. Once the prospective patient contacts us or is referred to us, either our trained clinical staff or a trained O&P provider will evaluate the patient for their suitability as a candidate. Initial evaluations by our trained clinical staff are conducted using telehealth techniques, followed by an in-person clinical evaluation of the candidate. Prior to obtaining authorizations from commercial insurance companies, the patient’s medical records are collected and reviewed to make sure the device is appropriate for their condition and a prescription is always obtained from a physician. Once these documents are obtained, a pre-authorization request is submitted to the patient’s insurer. If we receive a pre-authorization, we proceed to measure the patient’s arm. Beginning in 2022, this is being done in some cases using a remote measurement kit supplied to the patient. We then use those measurements to 3D print orthotic parts, which are used to fabricate the MyoPro, and then deliver it to the patient. Since we are directly providing the device to the patient and then billing insurance ourselves, we refer to this process as direct billing. We also call on hospitals and O&P practices in the United States, Europe and Australia that provide our products to their patients as well as generate indirect sales. The MyoPro product line has been approved by the VA system for impaired veterans, and over 70 VA facilities have ordered devices for their patients.

Our myoelectric orthoses have been clinically shown in peer reviewed published research studies to help regain the ability to complete functional tasks by supporting the affected joint and enabling individuals to self-initiate and control movement of their partially paralyzed limbs by using their own muscle signals.

Our technology was originally developed at MIT in collaboration with medical experts affiliated with Harvard Medical School. Myomo was incorporated in 2004.

Other milestones in our history include:

•
In 2012, we introduced the MyoPro, the primary business focus shifted during this time period, from devices which were designed for rehabilitation therapy and sold to hospitals, to providing an assistive device through O&P providers to patients who are otherwise impaired for use at home, work, and in the community that facilitates activities of daily living or ADLs.

•
During 2015, we extended our basic MyoPro for the elbow with the introduction of the MyoPro Motion W, a multi-articulated non-powered wrist and the MyoPro Motion G, which includes a powered grasp. The MyoPro Motion W allows the user to use their sound arm to adjust the device and then, for instance, open a refrigerator door, carry a shopping bag, hold a cell phone, or stabilize themselves to avoid a fall and potential injury. The MyoPro Motion G model allows users with severely weakened or clenched hands, such as seen in certain stroke survivors, to open and close their hands and perform a large number of ADLs.

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On June 9, 2017, we completed our initial public offering, or IPO, and a private offering concurrent with the IPO, generating net proceeds of $6.9 million in the aggregate.

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•
On July 31, 2017, we met the criteria to apply the CE mark for the MyoPro under the EU MDD. The EU MDR repealed and replaced the EU MDD on May 26, 2021, and we therefore worked with our EU-Authorized Representative to ensure all EU MDR requirements were met, which enabled us to establish a new declaration of conformity under the EU MDR to allow continued to CE mark application. This has enabled us to sell the MyoPro to individuals in the EU.

•
In November 2018, we announced that the CMS had published two new codes (L8701, L8702) that describe our products, pursuant to our application for HCPCS codes which become effective in early 2019. The assignment of unique L-Codes, if followed by appropriate payment terms (which are still pending), may offer greater access to the MyoPro for Medicare beneficiaries.

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In 2019 we transitioned our business to become a direct provider of the MyoPro to patients and bill insurance companies directly.

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In July 2021, we announced that we became accredited as a Medicare provider.

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In January 2022, we introduced the MyoPro 2+ and began in-house fabrication of the device.

Recent Developments

China Joint Venture

On January 21, 2021, we entered into a definitive agreement with Beijing Ryzur Medical Investment Co., Ltd. (“Ryzur Medical”), a medical device manufacturer based in Beijing, to form a joint venture (the “JV”) to manufacture and sell our current and future products in greater China, including Hong Kong, Macau and Taiwan (the “JV Agreement”).

Majority ownership in the JV, named Jiangxi Myomo Medical Assistive Appliance Co., Ltd. (the “JV Company”), is held by Ryzur Medical and Wuxi Chinaleaf Medical Investment and Management Fund, a private fund that invests in growth opportunities in new technologies. We own a minimum 19.9% stake in the JV. Ryzur Medical and its partners have committed to invest a minimum of $8 million and up to $20 million in the JV over five years.

The JV Company was established on August 12, 2021. On December 29, 2021, we entered into an amendment to the JV Agreement, as well as a Technology License Agreement and a Trademark License Agreement (collectively, the “Agreements”). Under the Agreements, we and the JV Company have entered into a ten-year agreement to license our intellectual property, including recently issued patents in China and Hong Kong, and purchase MyoPro Control System units from us. Under the Agreements, we were entitled to receive an upfront license fee of $2.7 million, which has been paid as of December 31, 2023. Pursuant to the Agreements, the JV Company has agreed to an escalating purchase commitment for a minimum of $10.75 million in MyoPro Control System Units during the next ten years, subject to receipt of regulatory approvals necessary to permit sales of the product in the greater China territory.

Equity Offerings

On January 19, 2024 we completed a registered direct equity offering, selling 1,354,218 shares of common stock and 224,730 pre-funded warrants at $3.80 per share, or $3,7999 per pre-funded warrant, generating net proceeds after fees and expenses of approximately $5.4 million. Net proceeds from the offering are expected to be used to hire more than 50 people through the second quarter of 2024 in order to increase our clinical, reimbursement and manufacturing capacity to serve Medicare Part B beneficiaries. On August 29, 2023, we completed a public equity offering, selling 5,413,334 shares of common stock and 1,920,000 pre-funded warrants at $0.60 per share, or at $0.5999 per pre-funded warrant, generating net proceeds after fees and expenses of approximately $3.9 million. In January 2023, we completed a public equity offering, whereby we sold 13,169,074 shares of common stock and 6,830,926 pre-funded warrants at $0.325 per share, or $0.3249 per pre-funded warrant. Each pre-funded warrant in the above offerings entitles the holder to one share of common stock upon exercise at a nominal exercise price of $0.0001 per share. See section titled “Liquidity” for further discussion.

CMS Status

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On November 1, 2023, CMS issued a final rule that results in a change in the benefit category associated with products billed under the HCPCS codes for our products from durable medical equipment rental to a brace, which would permit reimbursement of MyoPro sales on a lump sum basis. The rule became effective on January 1, 2024. On February 29, 2024, CMS published final average payment determinations for the HCPCS codes describing our products of approximately $33,500 for L8701, the MyoPro Motion W, and approximately $65,900 for L8702, the MyoPro Motion G, which are effective April 1, 2024.

Beginning March 2023, we began submitting claims to the Medicare program via CMS' - durable medical equipment administrative contractors, referred to as the DME MACs. A total of 40 claims have been submitted, and 21 claims have been paid, either as a rental fee or a purchase across all of the DME MACs as of the filing date of this Annual Report on Form 10-K. The remaining patients' claims are under review as part of the process of individual consideration. We cannot provide any assurance as to whether additional claims for reimbursement for our products will be approved and paid by CMS or by a DME MAC nor can we provide any assurance as to the timing of any such future payments.

Results of Operations

We have been growing revenues while incurring net losses and negative cash flows from operations since inception and anticipate this to continue at least through the third quarter of 2024. We believe it is achievable to be cash flow breakeven on a quarterly basis by the fourth quarter of 2024 assuming the final fees published by CMS are not significantly different than the preliminary fees published, that we are able to hire 50 additional employees by the end of the second quarter of 2024 in order to increase our clinical, reimbursement and manufacturing capacity to serve an expected increase in volume from Medicare Part B beneficiaries and there are no unexpected supply chain disruptions.

Comparison of the year ended December 31, 2023 to the year ended December 31, 2022

The following table sets forth our revenue, gross profit and gross margin for each of the years presented.

Revenues

We derive revenue primarily from providing devices directly to patients and billing insurance companies directly. We also sell our products to O&P providers in the United States. Europe and Australia, to the VA and to rehabilitation hospitals. Though we increasingly provide devices directly to patients, we sometimes utilize the clinical services of O&P providers for which they are paid a fee.

We expect that our revenues will continue to grow, primarily as a result of our expected ability to serve Medicare Part B beneficiaries and through expected higher revenue from O&P practices outside of the United States.

Product revenue in 2023 increased by approximately $2.9 million, or 20%, compared to 2022. The revenue increase was driven primarily by a higher average selling price, as well as a higher number of revenue units. Including the license revenue received from our joint venture partner in China, total revenue increased 24% compared to 2022. Revenues generated through the direct billing channel were approximately $12.3 million, or 71% of product revenue in 2023, compared to approximately $10.7 million, or 74%, of product revenue in 2022.

Gross margin

Cost of revenue consists of direct costs for the manufacturing, casting/printing of orthotic parts, fabrication and fitting of our products, inventory reserves, warranty costs and royalties associated with licensed technologies.

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Gross margin increased to 68.5% for the year ended December 31, 2023, as compared to 65.9% in the comparable period of 2022. The increase in gross margin was driven primarily by the increase in license revenue as well as a higher average selling price. Excluding the license fees, gross margin was 65.3% and 63.6% for the years ended December 31, 2023 and 2022, respectively. The increase in gross margin on product sales, was driven by a higher average selling price, as well as higher revenues in 2023.

We expect our gross margin to vary depending on the mix of channel revenues and timing of reimbursements from certain third-party payers, which impacts revenue recognition.

Operating expenses

The following table sets forth our operating expenses for each of the years presented.

Research and development

Research and development (“R&D”) expenses consist of costs for our R&D personnel, including salaries, benefits, bonuses and stock-based compensation, product development costs, clinical studies and the cost of certain third-party contractors and travel expense. R&D costs are expensed as they are incurred. We intend to enhance our existing products in 2024 and expect R&D costs to increase on an annual basis.

R&D expenses increased by approximately $0.2 million or 6% in 2023 compared to 2022. The increase during 2023 was driven primarily by outside engineering costs incurred in the second half of 2023 in order to accelerate completion of certain product development projects.

Selling, general and administrative

Selling expenses consist of costs for our field clinical staff, clinical training organization, and marketing personnel, including salaries, benefits, bonuses, stock-based compensation and sales commissions, costs of digital advertising, marketing and promotional events, corporate communications, product marketing and travel expenses. Variable compensation for personnel engaged in sales and marketing activities is generally earned and recorded as expense when the product is delivered. We expect sales and marketing expenses to increase in 2024 as we increase our clinical capacity to serve Medicare Part B beneficiaries.

General and administrative expenses consist primarily of costs for administrative, reimbursement, and finance personnel, including salaries, benefits, bonuses and stock-based compensation, professional fees associated with legal matters, consulting expenses, costs for pursuing insurance reimbursements for our products and costs required to comply with the regulatory requirements of the SEC and Medicare accreditation, as well as costs associated with accounting systems, insurance premiums and other corporate expenses. We expect that general and administrative expenses will increase in 2024 as a result of increasing our reimbursement capacity in order to serve Medicare Part B beneficiaries.

Selling, general and administrative expenses increased by approximately $0.3 million or 2% in 2023 compared to 2022. The increase was primarily due stock compensation expense, and professional fees, partially offset by a decrease in wages as well as lower advertising costs in 2023.

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Other expense (income)

The following table sets forth our interest and other expense (income) for each of the years presented.

Interest income increased due to higher interest rates and a higher average investment balances in 2023. Loss on equity investment represents our share of the losses incurred by the JV Company, which began limited operations in 2023.

Income tax expense

Income tax expense recorded during the years ended December 31, 2023 and 2022 represents the provision for income taxes for our wholly-owned subsidiary, Myomo Europe GmbH. The increase in income tax expense relates to increased income from Myomo Europe GmbH in 2023 compared to 2022.

Adjusted EBITDA

We believe that the presentation of Adjusted EBITDA, a non-GAAP financial measure, provides investors with additional information about our financial results. Adjusted EBITDA is an important supplemental measure used by our board of directors and management to evaluate our operating performance from period-to-period on a consistent basis and as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations.

We define Adjusted EBITDA as earnings before interest and other income (expense), taxes, depreciation and amortization, adjusted for stock-based compensation and the loss on equity investment in the JV Company.

Adjusted EBITDA is not in accordance with, or an alternative to, measures prepared in accordance with U.S. GAAP. In addition, this non-GAAP measure is not based on any comprehensive set of accounting rules or principles. As a non-GAAP measure, Adjusted EBITDA has limitations in that it does not reflect all of the amounts associated with our results of operations as determined in accordance with U.S. GAAP. In particular:

•
Adjusted EBITDA does not include interest income, net;

•
Adjusted EBITDA does not reflect the amounts we paid in taxes or other components of our tax provision;

•
Adjusted EBITDA does not include depreciation expense from fixed assets, or amortization of leased assets;

•
Adjusted EBITDA does not include the impact of stock-based compensation; and

•
Adjusted EBITDA does not include the loss on equity investment in the JV Company.

Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures including net income (loss) and our financial results presented in accordance with U.S. GAAP.

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The following table provides a reconciliation of net loss to Adjusted EBITDA for each of the years indicated:

Liquidity and Capital Resources

Liquidity

We measure our liquidity in a number of ways, including the following:

We had working capital and stockholders’ equity of approximately $8.2 million and $9.0 million respectively, as of December 31, 2023. We used $6.2 million in cash for operating activities during the year ended December 31, 2023.

We have historically funded our operations through financing activities, including raising equity and debt capital. In January 2024, we completed a registered direct equity offering, pursuant to which we sold 1,354,218 shares of common stock and 224,730 pre-funded warrants at $3.80 per share, or $3.7999 per pre-funded warrant, generating net proceeds after fees and expenses of approximately $5.4 million. In August 2023, we completed a public equity offering pursuant to which we sold 5,413,334 shares of common stock and 1,920,000 pre-funded warrants at $0.60 per share or at $0.5999 per warrant, generating proceeds after fees and expenses of approximately $3.9 million. In January 2023, we completed an equity offering under which we sold 13,169,074 shares of common stock and 6,830,926 pre-funded warrants at $0.325 per share, generating proceeds after fees and expenses of approximately $5.7 million. During the fourth quarter of 2022, we sold 692,914 shares of common stock under a Common Stock Purchase Agreement with Keystone Capital Partners, LLC at a weighted average sales price of $0.683 per share, generating proceeds after fees and expenses of approximately $0.4 million. Considering our cash balance as of December 31, 2023, the net proceeds from the equity offering in January 2024 and managements plans to grow our clinical, reimbursement and manufacturing capacity to serve Medicare Part B beneficiaries in 2024, management believes there will be sufficient cash to fund our operations and capital expenditures for the next 12 months from the date of this report.

Our operating plans are primarily focused on increasing our clinical, reimbursement and manufacturing capacity in order to serve a higher volume of Medicare Part B patients in 2024. Based on the final fees published for our products by CMS, we believe that if we are able to hire at least 50 to 60 additional employees during the first half of 2024 as we have planned to increase our clinical, reimbursement and manufacturing capacity, and our supply chain is able to meet our volume requirements without disruption, we believe we can achieve cash flow breakeven on a quarterly basis by the fourth quarter of 2024.

Our business is dependent upon reimbursement of our products by insurance companies and government-controlled health care plans such as Medicare and Medicaid in the United States and by Statutory Health Insurance plans in Germany, which could prevent our revenues from growing to the level necessary to achieve cash flow breakeven. We believe that we have access to capital resources, if necessary, through potential public or private equity offerings, exercises of outstanding warrants, debt financings, or other means. If we are unable to obtain adequate funds on reasonable terms, we may be required to significantly curtail or discontinue operations or obtain funds by entering into financing agreements on unattractive terms. We may also explore strategic alternatives for the purpose of maximizing

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stockholder value. There can be no assurance we will be successful in implementing our plans to sustain our operations and continue to conduct our business.

Cash Flows

Operating Activities. The net cash used in operating activities for the year ended December 31, 2023 was primarily used to fund a net loss net approximately $8.1 million, adjusted for non-cash expenses in the aggregate amount of approximately $1.7 million of which approximately $1.1 million is related to non-cash adjustments related to stock-based compensation, and approximately $0.34 million of cash generated from changes in operating assets and liabilities, primarily related to an increase in accounts payable and accrued expenses, offset by increases in inventory and accounts receivable.

Net cash used in operating activities for the year ended December 31, 2022 was primarily used to fund a net loss net approximately $10.7 million, adjusted for non-cash expenses in the aggregate amount of approximately $1.9 million of which approximately $1.2 million of non-cash adjustments related to stock-based compensation, and approximately $1.4 million of cash used from changes in operating assets and liabilities, primarily related to a decrease in accounts payable and accrued expenses and an increase in inventory.

Investing Activities. During the year ended December 31, 2023 our cash used in investing activities of $2.0 million was primarily due to our investment in short-term investments and purchases of equipment. Cash used in investing activities in 2022 was primarily for our investment in a joint venture with Ryzur Medical and purchases of equipment.

Financing Activities. During the year ended December 31, 2023 cash provided by financing activities of approximately $9.7 million was due to net proceeds received from the sale of common stock and pre-funded warrants, net of offering costs.

During the year ended December 31, 2022 cash provided by financing activities of approximately $0.4 million was due to net proceeds received from stock issued under our equity line of credit.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements in the years ended December 31, 2023 and December 31, 2022.

Critical Accounting Policies and Estimates

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America require management to make estimates and assumptions that affect certain reported amounts and disclosures. These estimates and assumptions are reviewed on an on-going basis and updated as appropriate. Actual results could differ from those estimates. Our significant estimates include the valuation of our deferred tax valuation allowances, valuation of stock-based compensation, warranty obligations, the discount rate on leases and inventory reserves.

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Cash Equivalents and Short-Term Investments

We consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents consist principally of deposit accounts and money market accounts at December 31, 2023 and 2022.

The Company considers all investments with an original maturity of greater than three months to be short-term investments. Short-term investments primarily consists of commercial paper and U.S. Treasury Bills and are carried on the consolidated balance sheets at fair value. Short-term investments as of December 31,2023 consists of U.S. Treasury Bills, which are classified as held-maturity, and Certificates of Deposit totaling approximately $1,994,700 as of December 31, 2023, there were no Short-term investments as of December 31, 2022. The Company determines the appropriate balance sheet classification of its investments at the time of purchases and evaluates the classification at the date of purchase. Unrealized gains and losses on short-term investments are recorded to accumulated other comprehensive income on the consolidated balance sheets and other gain (loss) on the consolidated statements of comprehensive loss. Once unrealized gains and losses become realized, they are reclassified from other comprehensive gains and losses to cost of goods sold.

Accounts Receivable

We carry accounts receivable at invoiced amounts less credit losses. We evaluate our accounts receivable on a continuous basis, and if necessary, establish an allowance for credit losses based on a number of factors, including current credit conditions and customer payment history. We do not require collateral or accrue interest on accounts receivable and credit terms are generally 30 days.

Joint Venture

On March 28, 2022, we invested cash consideration of $199,000 for a 19.9% ownership stake in the JV Company. The JV Company, once fully operational will manufacture and sell our current and future products in greater China, including Hong Kong, and Taiwan. We account for our investment in the JV Company under the equity method because we exert significant influence over its management. The investment is included in total assets on the consolidated balance sheet, which was fully written off to loss on equity investment in other income (expense), net as of December 31, 2023. In addition, we have receivables from the JV Company. So long as the JV Company generates losses and we have assets from the JV Company, we will continue to record losses and reduce the carrying value of these assets on balance sheet. If cash is received from the JV Company, the difference between the amount paid and the carrying value of the asset will be recorded as an offset to loss on equity investment in the Statement of Operations.

Inventories

Inventories are recorded at the lower of average cost or net realizable value. Cost is determined using average cost, which approximates the first-in, first out (FIFO) method. We reduce the carrying value of inventory for those items that are potentially excess, obsolete or slow-moving based on changes in customer demand, technology developments or other economic factors.

Research and Development Costs

We expense research and development costs as incurred. Research and development costs primarily consist of salaries and benefits, facility and overhead costs, and outsourced research activities.

Revenue Recognition

Accounting for revenues under ASC 606 and all the related amendments (Topic 606) requires revenue be recognized either at a “point in time” or “over time,” depending on the facts and circumstances of the arrangement and are evaluated using a five-step model. Generally, we recognize revenue at a point in time.

We recognize revenue after applying the following five steps:

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1)
Identification of the contract, or contracts, with a customer;

2)
Identification of the performance obligations in the contract, including whether they are distinct within the context of the contract;

3)
Determination of the transaction price, including the constraint on variable consideration;

4)
Allocation of the transaction price to the performance obligations in the contract; and

5)
Recognition of revenue when, or as, performance obligations are satisfied.

Revenue is recognized when control of these services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services.

Product Revenue

Increasingly, we derive our revenue from direct billing, and we also derive revenue from the sale of our products to O&P providers in the United States and internationally and the VA. Under direct billing, we recognize revenue when all of the following criteria are met:

(i)
Our product has been delivered to the patient, including completion of initial instruction on its use.

(ii)
Collection is deemed probable and it has been determined that a significant reversal of the revenue to be recognized is not deemed probable when the uncertainty associated with the variable consideration is resolved.

(iii)
The amount to be collected is estimable using the “expected value” estimation techniques, or the “most likely amount” as defined in ASC 606.

For revenue derived from certain insurance companies where we have demonstrated sufficient payment history, we recognize revenue when we receive a pre-authorization from the insurance company and control passes to the patient upon delivery of the device in an amount that reflects the consideration we expect to receive in exchange for the device. These insurers represented approximately 66% and 44% of the direct billing channel revenue in 2023 and 2022, respectively. Depending on the timing of product deliveries to customers, which is when cost of revenue must be recorded, and when we meet the criteria to record revenue, there may be fluctuations in gross margin.

For revenues derived from O&P providers, the VA and rehabilitation hospitals, we recognize revenue when control passes to the customer in an amount that reflects the consideration we expect to receive in exchange for those services. Revenues may be recognized upon shipment or upon delivery, depending on the terms of the arrangement, provided that persuasive evidence of an arrangement exists, there are no uncertainties regarding customer acceptance and collectability is deemed probable. In cases where we are the direct provider and we do not have sufficient collection history with the payer, we are not able to recognize revenue until payment is received, as then all of the revenue recognition criteria have been met.

We have elected to record taxes collected from customers on a net basis and do not include tax amounts in revenue or cost of revenue.

License Revenue

If a license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenue allocated to the license when the license is transferred to the customer, the customer is able to use and benefit from the license, and collectability is deemed probable.

Under the JV Agreements, we were entitled to receive an upfront license fee of $2.7 million, which was paid in full as of December 31, 2023. We are entitled to guaranteed minimum payments for purchases of MyoPro Control Units for a period of 10 years from the effective date of the Technology License Agreement. We will recognize revenue on these amounts when invoiced and collectability is assured.

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Leases

We account for leases under Accounting Standards Codification (“ASC”) Topic 842, “Leases”. We assess whether a contract is or contains a lease at inception of the contract and recognize right-of-use assets and corresponding lease liabilities at the lease commencement date, except for short-term leases, which are under one year, and leases of low value. For these leases, we recognize the lease payments as an operating expense on a straight-line basis over the term of the lease.

Income Taxes

We account for income taxes under ASC 740, “Income Taxes under ASC 740”, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities and net operating loss and credit carryforwards using enacted tax rates in effect for the year in which the differences are expected to impact taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

ASC 740 requires that the tax effects of changes in tax laws or rates be recognized in the financial statements in the period in which the law is enacted.

ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

Tax benefits claimed or expected to be claimed on a tax return are recorded in our financial statements. A tax benefit from an uncertain tax position is only recognized if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. We believe there are no uncertain tax positions that could have a material impact on our financial condition, results of operations or cash flows.

Stock-Based Compensation

We account for stock awards to employees and non-employees by measuring the cost of services received in exchange for the award of equity instruments based upon the fair value of the award on the date of grant. The fair value of that award is then ratably recognized as expense over the period during which the recipient is required to provide services in exchange for that award.

Net Loss per Share

Basic loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding, plus potentially dilutive common shares. Convertible debt, preferred stock, restricted stock units, stock options and warrants are excluded from the diluted net loss per share calculation when their impact is antidilutive. We reported a net loss for the years ended December 31, 2023 and 2022, and as a result, all potentially dilutive common shares are considered antidilutive for these years.

Recent Accounting Standards

In September 2022, the FASB issued ASU 2022-04, “Liabilities - Supplier Finance Programs” (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, that requires entities that use supplier finance programs in connection with the purchase of goods and services to disclose the key terms of the programs and information about obligations outstanding at the end of the reporting period, including a roll-forward of those obligations. The guidance does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. The new standard’s requirements to disclose the key terms of the programs and information about obligations outstanding are effective for fiscal years, including interim periods, beginning after December 15, 2022, except for the requirement to disclose a roll-forward of obligations outstanding will be effective for fiscal years

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beginning after December 15, 2023. Early adoption is permitted. We do not believe the effect of this new standard, will have a material impact on our financial position and results of operations.

In October 2023, the FASB issued ASU 2023-06, “Disclosure Improvements, Codification Amendments in Response to the SECs Disclosure Update and Simplification Initiative”, that adds 14 of the 27 identified disclosure or presentation requirements to the Codification, each amendment in the ASU will only become effective if the SEC removes the related disclosure or presentation from its existing regulations by June 30, 2027. We currently comply with these disclosure requirements as applicable under Regulation S-X or Regulation S-K and will adopt these new standards depending on timing of when they become effective, which is not expected to have a material

impact on our financial position and results of operations.

In December 2023, the FASB issued ASU 2023-09, “Accounting standards update, Income Taxes (Topic 740: Improvements to Income Tax Disclosures”. ASU 2023-09 focuses on income tax disclosures around effective tax rates and cash income taxes paid. This amendment in the ASU will become effective for public companies as of December, 15 2024 and effective to all other companies one year later. We will adopt these new standards when they become effective, which is not expected to have a material impact on its financial position and results of operations.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our financial statements and the related notes contained elsewhere in this Annual Report on Form 10-K and in our other Securities and Exchange Commission filings. The following discussion may contain predictions, estimates, and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under “Risk Factors” and elsewhere in this Annual Report on Form 10-K. These risks could cause our actual results to differ materially from any future performance suggested below.

Overview

We are a wearable medical robotics company, specializing in myoelectric braces, or orthotics, for people with neuromuscular disorders. We develop and market the MyoPro product line, which is a myoelectric-controlled upper limb brace, or orthosis. The orthosis is a rigid brace used for the purpose of supporting a patient’s weak or deformed arm to enable and improve functional activities of daily living, or ADLs, in the home and community. It is custom constructed by a trained professional during a custom fabrication process for each individual user to meet their specific needs. Our products are designed to help regain function in individuals with neuromuscular conditions due to brachial plexus injury, stroke, traumatic brain injury, spinal cord injury and other neurological disorders.

We utilize digital ads on various platforms as well as television ads to reach patients who are potential candidates for our product. Once the prospective patient contacts us or is referred to us, either our trained clinical staff or a trained O&P provider will evaluate the patient for their suitability as a candidate. Initial evaluations by our trained clinical staff are conducted using telehealth techniques, followed by an in-person clinical evaluation of the candidate. Prior to obtaining authorizations from commercial insurance companies, the patient’s medical records are collected and reviewed to make sure the device is appropriate for their condition and a prescription is always obtained from a physician. Once these documents are obtained, a pre-authorization request is submitted to the patient’s insurer. If we receive a pre-authorization, we proceed to measure the patient’s arm. Beginning in 2022, this is being done in some cases using a remote measurement kit supplied to the patient. We then use those measurements to 3D print orthotic parts, which are used to fabricate the MyoPro, and then deliver it to the patient. Since we are directly providing the device to the patient and then billing insurance ourselves, we refer to this process as direct billing. We also call on hospitals and O&P practices in the U.S., Europe and Australia that provide our products to their patients as well as generate indirect sales. The MyoPro product line has been approved by the VA system for impaired veterans, and over 70 VA facilities have ordered devices for their patients

Our myoelectric orthoses have been clinically shown in peer reviewed published research studies to help regain the ability to complete functional tasks by supporting the affected joint and enabling individuals to self-initiate and control movement of their partially paralyzed limbs by using their own muscle signals.

Our technology was originally developed at MIT in collaboration with medical experts affiliated with Harvard Medical School. Myomo was incorporated in 2004 and completed licensing of its technology from MIT in 2006.

Other milestones our history include:

•
In 2012, we introduced the MyoPro, the primary business focus shifted during this time period, from devices which were designed for rehabilitation therapy and sold to hospitals, to providing an assistive device through O&P providers to patients who are otherwise impaired for use at home, work, and in the community that facilitates ADLs.

•
During 2015, we extended our basic MyoPro for the elbow with the introduction of the MyoPro Motion W, a multi-articulated non-powered wrist and the MyoPro Motion G, which includes a powered grasp. The MyoPro Motion W allows the user to use their sound arm to adjust the device and then, for instance, open a refrigerator door, carry a shopping bag, hold a cell phone, or stabilize themselves to avoid a fall and potential injury. The MyoPro Motion G model allows users with severely weakened or clenched hands, such as seen in certain stroke survivors, to open and close their hands and perform a large number of ADLs.

•
On June 9, 2017, we completed our initial public offering (“IPO”) and a private offering concurrent with the IPO, generating net proceeds of $6.9 million in the aggregate.

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•
On July 31, 2017, we met the criteria to apply the CE Mark for the MyoPro. This has enabled us to sell the MyoPro to individuals in the European Union (the “EU”).

•
In November 2018, we announced that the CMS had published two new codes (L8701, L8702) pursuant to our application for HCPCS codes which become effective in early 2019. The assignment of unique L-Codes, if followed by appropriate payment terms (which are still pending), would offer greater access to the MyoPro for Medicare beneficiaries.

•
In 2019 we transitioned our business to become a direct provider of the MyoPro to patients and bill insurance companies directly.

•
In July 2021, we announced that we became accredited as a Medicare provider.

•
In January 2022, we introduced the MyoPro 2+ and began in-house fabrication of the device.

Recent Developments

China Joint Venture

On January 21, 2021, we entered into a definitive agreement with Beijing Ryzur Medical Investment Co., Ltd. (“Ryzur Medical”), a medical device manufacturer based in Beijing, to form a joint venture (the “JV”) to manufacture and sell our current and future products in greater China, including Hong Kong, Macau and Taiwan (the “JV Agreement”).

Majority ownership in the JV, named Jiangxi Myomo Medical Assistive Appliance Co., Ltd. (the “JV Company”), is held by Ryzur Medical and Wuxi Chinaleaf Medical Investment and Management Fund, a private fund that invests in growth opportunities in new technologies. We own a minimum 19.9% stake in the JV. Ryzur Medical and its partners have committed to invest a minimum of $8 million and up to $20 million in the JV over five years.

The JV Company was established on August 12, 2021. On December 29, 2021, we entered into an amendment to the JV Agreement, as well as a Technology License Agreement and a Trademark License Agreement (collectively, the “Agreements”). Under the Agreements, we and the JV Company have entered into a ten-year agreement to license our intellectual property, including recently issued patents in China and Hong Kong, and purchase MyoPro Control System units from us. Under the Agreements, we are entitled to receive an upfront license fee of $2.7 million, of which $1.0 million has been paid concurrent with the beginning of limited operations as of December 31, 2022. The JV Company has advised us that effects of COVID-19 in China are delaying the banking and government approvals necessary to pay the remainder of the license fee. We cannot be certain as to if or when the remaining license fee will be paid. If uncured, failure to pay us the required fees contemplated by the Agreements may entitle us to terminate such Agreements and withdraw from the joint venture. Pursuant to the Agreements, the JV Company has agreed to an escalating purchase commitment for a minimum of $10.75 million in MyoPro Control System Units during the next ten years, subject to receipt of regulatory approvals necessary to permit sales of the product in the greater China territory.

Equity Line of Credit

On August 2, 2022, the Company entered into a Common Stock Purchase Agreement ("Purchase Agreement") with Keystone Capital Partners ("Keystone"), establishing an equity line facility. On October 28, 2022, we filed a Definitive Proxy Statement for notice of a special Shareholders Meeting to be held on December 7, 2022 to vote on a proposal to permit us to sell additional shares of common stock under the Purchase Agreement, in excess of an exchange cap contained therein. We were unable to achieve a quorum for the meeting, and as a result, withdrew the proposal. See "Liquidity" for further discussion.

Equity Offering

In January 2023, we completed a public offering of our common stock, whereby we sold 13,169,074 shares of common stock and 6,830,926 pre-funded warrants at $0.325 per share. Each pre-funded warrant entitles the holder to one share of common stock upon exercise at a nominal exercise price of $0.0001 per share. Net proceeds from the transaction were approximately $5.7 million, and will be used to fund operations while we continue to work with CMS to obtain coverage and reimbursement for our products. See "Liquidity" for further discussion.

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Results of Operations

We have been growing revenues while incurring net losses and negative cash flows from operations since inception and anticipate this to continue in 2023 as we focus our efforts on patients with insurance payers who have reimbursed for the MyoPro in the past, grow our operations in Germany and invest in the enhancement of our MyoPro products.

Comparison of the year ended December 31, 2022 to the year ended December 31, 2021

The following table sets forth our revenue, gross profit and gross margin for each of the years presented.

Revenues

We derive revenue primarily from providing devices directly to patients and billing insurance companies directly. We also sell our products to O&P providers in the U.S. Europe and Australia, to the VA and to rehabilitation hospitals. Though we increasingly provide devices directly to patients, we sometimes utilize the clinical services of O&P providers for which they are paid a fee.

We expect that our revenues will continue to grow, primarily as a result of our increased patient pipeline entering 2023 and through higher revenue from O&P practices outside of the United States.

Product revenue in 2022 increased by approximately $0.7 million, or 5% compared to 2021. The revenue increase was driven primarily by a higher average selling price, offset by a lower number of revenue units . Including the license revenue received from our joint venture partner in China, total revenue increased 12% compared to 2021. Revenues generated through the direct billing channel were approximately $10.7 million, or 74% of product revenue in 2022, compared to approximately $10.7 million, or 77% of product revenue in 2021.

Gross margin

Cost of revenue consists of direct costs for the manufacturing, casting/printing of orthotic parts, fabrication and fitting of our products, inventory reserves, warranty costs, royalties associated with licensed technologies and instruction.

Gross margin decreased to 65.9% for the year ended December 31, 2022, as compared to 74.4% in the comparable period of 2021. The decrease in gross margin was driven primarily by higher component costs and other costs in the current inflationary environment, unabsorbed fixed costs and an increase in the warranty reserve.

We expect our gross margins to vary depending on the mix of channel revenues and timing of reimbursements from certain third-party payers, which impacts revenue recognition.

Operating expenses

The following table sets forth our operating expenses for each of the years presented.

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Research and development

Research and development (“R&D”) expenses consist of costs for our R&D personnel, including salaries, benefits, bonuses and stock-based compensation, product development costs, clinical studies and the cost of certain third-party contractors and travel expense. R&D costs are expensed as they are incurred. We intend to enhance our existing products in 2023 and expect R&D costs to increase on an annual basis.

R&D expenses decreased by approximately $0.1 million or 3% in 2022 compared to 2021. The decrease during 2022 was driven primarily by lower prototype and other product development expenses related to the introduction of the MyoPro2+ in January 2022.

Selling, general and administrative

Selling expenses consist of costs for our field clinical staff, clinical training organization, and marketing personnel, including salaries, benefits, bonuses, stock-based compensation and sales commissions, costs of digital advertising, marketing and promotional events, corporate communications, product marketing and travel expenses. Variable compensation for personnel engaged in sales and marketing activities is generally earned and recorded as expense when the product is delivered. We expect sales and marketing expenses to be roughly flat or decrease slightly in 2023 as a result of a reduction in force in January 2023 and efforts to reduce advertising spend while maintaining our existing lead generating capability.

General and administrative expenses consist primarily of costs for administrative, reimbursement, and finance personnel, including salaries, benefits, bonuses and stock-based compensation, professional fees associated with legal matters, consulting expenses, costs for pursuing insurance reimbursements for our products and costs required to comply with the regulatory requirements of the SEC and Medicare accreditation, as well as costs associated with accounting systems, insurance premiums and other corporate expenses. We expect that general and administrative expenses will increase slightly in 2023 as a result of increased incentive compensation expense, offset by the effect of the reduction in force in January 2023.

Selling, general and administrative expenses increased by approximately $0.4 million or 2% in 2022 compared to 2021. The increase was primarily due to higher advertising and insurance costs, offset by lower payroll costs related to lower bonus compensation in 2022.

Other expense (income)

The following table sets forth our interest and other expense (income) for each of the years presented.

Interest income increased due to higher interest rates in 2022. Loss on equity investment represents our share of the losses incurred by the JV Company, which began limited operations in 2022.

Income tax expense

Income tax expense recorded during the years ended December 31, 2022 and 2021 represents the provision for income taxes for our wholly-owned subsidiary, Myomo Europe GmbH. The decrease in income tax expense relates to decreased income from Myomo Europe GmbH in 2022 compared to 2021.

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Adjusted EBITDA

We believe that the presentation of Adjusted EBITDA, a non-GAAP financial measure, provides investors with additional information about our financial results. Adjusted EBITDA is an important supplemental measure used by our board of directors and management to evaluate our operating performance from period-to-period on a consistent basis and as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations.

We define Adjusted EBITDA as earnings before interest and other income (expense), taxes, depreciation and amortization adjusted for, stock-based compensation and the loss on equity investment in the JV Company.

Adjusted EBITDA is not in accordance with, or an alternative to, measures prepared in accordance with U.S. GAAP. In addition, this non-GAAP measure is not based on any comprehensive set of accounting rules or principles. As a non-GAAP measure, Adjusted EBITDA has limitations in that it does not reflect all of the amounts associated with our results of operations as determined in accordance with U.S. GAAP. In particular:

•
Adjusted EBITDA does not include interest income;

•
Adjusted EBITDA does not reflect the amounts we paid in taxes or other components of our tax provision;

•
Adjusted EBITDA does not include depreciation expense from fixed assets, or amortization of leased assets;

•
Adjusted EBITDA does not include the impact of stock-based compensation; and

•
Adjusted EBITDA does not include the loss on equity investment in the JV Company.

Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures including net income (loss) and our financial results presented in accordance with U.S. GAAP.

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The following table provides a reconciliation of net loss to Adjusted EBITDA for each of the years indicated:

Liquidity and Capital Resources

Liquidity

We measure our liquidity in a number of ways, including the following:

We had working capital and stockholders’ equity of approximately $5.6 million and $6.4 million respectively, as of December 31, 2022. We used $10.2 million in cash for operating activities during the year ended December 31, 2022.

We have historically funded our operations through financing activities, including raising equity and debt capital. In January 2023, we completed an equity offering under which we sold 13,169,074 shares of common stock and 6,830,926 pre-funded warrants at $0.325 per share, generating proceeds after fees and expenses of approximately $5.7 million. During the fourth quarter of 2022, we sold 692,914 shares of common stock under the Purchase Agreement with Keystone at a weighted average sales price of $0.683 per share, generating proceeds after fees and expenses of approximately $0.4 million. During 2021, $12.1 million was received from the exercise of warrants, including $4.8 million in net proceeds in October 2021 from a transaction to induce the exercise of warrants issued in conjunction with our equity offering in February 2020 at a reduced exercise price of $5.00 per share. These financing activities, in addition to funding of $1.1 million received from sales of common stock under our ATM Facility, with Alliance Global Partners during the year ended December 31, 2021 are helping us to sustain our operations. Considering our cash balance as of December 31, 2022 and net proceeds from the equity offering in January 2023 as well as our cash used from operations during the year ended December 31, 2022, management believes there is substantial doubt regarding our ability to continue as a going concern for the next 12 months from the date of this report.

Our operating plans are primarily focused on growing our revenues and limiting operating expenses through focusing our clinical and reimbursement efforts on patients with insurers that have previously reimbursed for the MyoPro. We believe the growth in our patient pipeline during 2022 provides us an opportunity to achieve increased revenue in 2023 compared to 2022. We intend to stop activities directed at increasing the number of payers that will reimburse for our products until CMS either begins to reimburse for the MyoPro or states its intention to do so. As a result, we have undertaken cost reduction activities, including the reduction of approximately 12% of our workforce in January 2023. This and other cost reduction efforts are expected to reduce our operating expenses by approximately $2.0 million in 2023. With respect to CMS, we expect to meet with the medical directors of the DME MAC's during the first quarter of 2023 to discuss coverage and reimbursement, and begin submitting claims on behalf of Medicare Part B beneficiaries as soon as practical thereafter.

Our business is dependent upon reimbursement of our products by insurance companies and government-controlled health care plans such as Medicare and Medicaid in the United States and by Statutory Health Insurance plans in Germany, which could prevent our revenues from growing to the level necessary to achieve cash flow breakeven. If public health restrictions on travel and patient interaction are broadly reinstated in 2023 due to new variants of COVID-19 and increasing infections in the U.S., that will have an adverse effect on our business. We believe that we have access to capital resources through payment of the technology license fee associated with our JV in China, potential public or private equity offerings, exercises of outstanding warrants, additional debt financings, or other

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means; however, we may be unable to raise sufficient additional capital when we need it or raise capital on favorable terms. As part of our equity offering in January 2023, we agreed to not sell any shares of our common stock to Keystone under the Purchase Agreement or under our ATM facility for a period of one year from the closing of the offering. We have remaining capacity under our Purchase Agreement with Keystone of approximately 1.0 million shares and approximately $0.3 million under our ATM facility. However, we are subject to the limitations imposed by General Instruction I.B.6 of Form S-3, which limits the amount of securities that we may issue under our registration statement on Form S-3 to one-third of our public float in any 12-month period. Further, the amount of stock that we may sell to Keystone under the Purchase Agreement is limited to a total of 1,349,334 shares of common stock, pursuant to an exchange cap imposed by the rules of the NYSE American, unless we obtain approval from our stockholders to lift such cap. As of December 31, 2022 1,008,458 million shares remain available under the exchange cap. Should we consider debt financing, such a transaction may require us to pledge certain assets and enter into covenants that could restrict certain business activities or our ability to incur further indebtedness and may contain other terms that are not favorable to our stockholders or us.

If we are unable to obtain adequate funds on reasonable terms, we may be required to significantly curtail or discontinue operations or obtain funds by entering into financing agreements on unattractive terms. We may also explore strategic alternatives for the purpose of maximizing stockholder value. There can be no assurance we will be successful in implementing our plans to sustain our operations and continue to conduct our business.

Cash Flows

Operating Activities. The net cash used in operating activities for the year ended December 31, 2022 was primarily used to fund a net loss net approximately $10.7 million, adjusted for non-cash expenses in the aggregate amount of approximately $1.9 million of which approximately $1.1 million of non-cash adjustments related to stock-based compensation, and approximately $1.4 million of cash used from changes in operating assets and liabilities, primarily related to an increase in inventory and decreases in accounts payable and accrued expenses and operating lease liabilities.

The net cash used in operating activities for the year ended December 31, 2021 was primarily used to fund a net loss net approximately $10.4 million, adjusted for non-cash expenses in the aggregate amount of approximately $1.4 million of which approximately $1.1 million of non-cash adjustments related to stock-based compensation, and approximately $0.6 million of cash used from changes in operating assets and liabilities, primarily related to an increase in accounts payable and accrued expenses, offset by increases in inventory and accounts receivable.

Investing Activities. During the year ended December 31, 2022 our cash used in investing activities of $0.3 million was primarily due to our investment in a joint venture with Ryzur Medical and purchases of equipment. Cash used in investing activities in 2021 was primarily for leasehold improvements to our new headquarters facility in Boston.

Financing Activities. During the year ended December 31, 2022 cash provided by financing activities of approximately $0.4 million was due to net proceeds received from stock issued under our equity line of credit.

During the year ended December 31, 2021 cash provided by financing activities of approximately $13.2 million was primarily due to approximately $12.1 million of net proceeds received from the exercise of warrants and net proceeds of approximately $1.1 million from the issuance of shares through our ATM facility.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements in the years ended December 31, 2022 and December 31, 2021.

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Critical Accounting Policies and Estimates

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America require management to make estimates and assumptions that affect certain reported amounts and disclosures. These estimates and assumptions are reviewed on an on-going basis and updated as appropriate. Actual results could differ from those estimates. Our significant estimates include the valuation of our deferred tax valuation allowances, valuation of stock-based compensation, warranty obligations, the discount rate on leases and inventory reserves.

Accounts Receivable

We carry accounts receivable at invoiced amounts less an allowance for doubtful accounts. We evaluate our accounts receivable on a continuous basis, and if necessary, establish an allowance for doubtful accounts based on a number of factors, including current credit conditions and customer payment history. We do not require collateral or accrue interest on accounts receivable and credit terms are generally 30 days.

Joint Venture

On March 28, 2022, we invested cash consideration of $199,000 for a 19.9% ownership stake in the JV Company. The JV Company, once fully operational will manufacture and sell our current and future products in greater China, including Hong Kong, Macau and Taiwan. We account for our investment in the JV Company under the equity method because we exert significant influence over its management. The investment is included in total assets on the consolidated balance sheet. There was no impairment charge for the year ended December 31, 2022 associated with this equity investment. We record our share of the JV Company’s earnings in our consolidated statement of operations in other expense (income).

Inventories

Inventories are recorded at the lower of average cost or net realizable value. Cost is determined using average cost, which approximates the first-in, first out (FIFO) method. We reduce the carrying value of inventory for those items that are potentially excess, obsolete or slow-moving based on changes in customer demand, technology developments or other economic factors.

Research and Development Costs

We expense research and development costs as incurred. Research and development costs primarily consist of salaries and benefits, facility and overhead costs, and outsourced research activities.

Revenue Recognition

Accounting for revenues under ASC 606 and all the related amendments (Topic 606) requires revenue be recognized either at a “point in time” or “over time,” depending on the facts and circumstances of the arrangement and are evaluated using a five-step model. Generally, we recognize revenue at a point in time.

We recognize revenue after applying the following five steps:

1)
Identification of the contract, or contracts, with a customer,

2)
Identification of the performance obligations in the contract, including whether they are distinct within the context of the contract

3)
Determination of the transaction price, including the constraint on variable consideration

4)
Allocation of the transaction price to the performance obligations in the contract

5)
Recognition of revenue when, or as, performance obligations are satisfied

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Revenue is recognized when control of these services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services.

Product Revenue

Increasingly, we derive our revenue from direct billing. We also derive revenue from the sale of our products to O&P providers in the United States and internationally and the VA. Under direct billing, we recognize revenue when all of the following criteria are met:

(i)
Our product has been delivered to the patient, including completion of initial instruction on its use.

(ii)
Collection is deemed probable and it has been determined that a significant reversal of the revenue to be recognized is not deemed probable when the uncertainty associated with the variable consideration is resolved.

(iii)
The amount to be collected is estimable using the “expected value” estimation techniques, or the “most likely amount” as defined in ASC 606.

For revenue derived from certain insurance companies where we have demonstrated sufficient payment history, we recognize revenue when we receive a pre-authorization from the insurance company and control passes to the patient upon delivery of the device in an amount that reflects the consideration we expect to receive in exchange for the device. These insurers represented approximately 44% and 39% of the direct billing channel revenue in 2022 and 2021, respectively. Depending on the timing of product deliveries to customers, which is when cost of revenue must be recorded, and when we meet the criteria to record revenue, there may be fluctuations in gross margin.

For revenues derived from O&P providers, the VA and rehabilitation hospitals, we recognize revenue when control passes to the customer in an amount that reflects the consideration we expect to receive in exchange for those services. Revenues may be recognized upon shipment or upon delivery, depending on the terms of the arrangement, provided that persuasive evidence of an arrangement exists, there are no uncertainties regarding customer acceptance and collectability is deemed probable. In certain cases, we ship its products to O&P providers pending reimbursement from non-government, third-party payers. As a result of this arrangement, elements of the revenue recognition criteria have not been met upon shipment. In this instance, we recognize revenue when the amount is estimable and we determine it is probable that payment will be received. In many cases, we are not able to recognize revenue in these situations until payment is received, as then all of the revenue recognition criteria have been met.

We have elected to record taxes collected from customers on a net basis and do not include tax amounts in revenue or cost of revenue.

License Revenue

If a license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenue allocated to the license when the license is transferred to the customer, the customer is able to use and benefit from the license, and collectability is deemed probable.

Under the JV Agreements, we are entitled to receive an upfront license fee of $2.7 million, of which $1.0 million has been paid and recognized during the year ended December 31, 2022. We will recognize revenue on the remaining amount due upon payment as the fee has not been paid according the to the contractual terms.

Leases

We account for leases under Accounting Standards Codification (“ASC”) Topic 842, leases. We assess whether a contract is or contains a lease at inception of the contract and recognize right-of-use assets and corresponding lease liabilities at the lease commencement date, except for short-term leases, which are under one year, and leases of low value. For these leases, we recognize the lease payments as an operating expense on a straight-line basis over the term of the lease.

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Income Taxes

We account for income taxes under ASC 740 Income Taxes. Under ASC 740, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities and net operating loss and credit carryforwards using enacted tax rates in effect for the year in which the differences are expected to impact taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

ASC 740 requires that the tax effects of changes in tax laws or rates be recognized in the financial statements in the period in which the law is enacted.

ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

Tax benefits claimed or expected to be claimed on a tax return are recorded in our financial statements. A tax benefit from an uncertain tax position is only recognized if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. We believe there are no uncertain tax positions that could have a material impact on our financial condition, results of operations or cash flows.

Stock-Based Compensation

We account for stock awards to employees and non-employees by measuring the cost of services received in exchange for the award of equity instruments based upon the fair value of the award on the date of grant. The fair value of that award is then ratably recognized as expense over the period during which the recipient is required to provide services in exchange for that award.

Net Loss per Share

Basic loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding, plus potentially dilutive common shares. Convertible debt, preferred stock, restricted stock units, stock options and warrants are excluded from the diluted net loss per share calculation when their impact is antidilutive. We reported a net loss for the years ended December 31, 2022 and 2021, and as a result, all potentially dilutive common shares are considered antidilutive for these years.

Recent Accounting Standards

In September 2022, the FASB issued ASU 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations that requires entities that use supplier finance programs in connection with the purchase of goods and services to disclose the key terms of the programs and information about obligations outstanding at the end of the reporting period, including a rollforward of those obligations. The guidance does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. The new standard’s requirements to disclose the key terms of the programs and information about obligations outstanding are effective for fiscal years, including interim periods, beginning after December 15, 2022, except for the requirement to disclose a rollforward of obligations outstanding will be effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. We are currently evaluating the effect of this new standard, which is not expected to have a material impact on our financial position and results of operations.

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In May 2021, the FASB issued ASU 2021-04 Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force). The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early application is permitted, including in an interim period as of the beginning of the fiscal year that includes that interim period. We adopted the provisions of ASU 2021-04 in the fourth quarter of 2021. The implementation resulted in a deemed dividend of approximately $640,000 on the discounting and repricing of certain warrants.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our financial statements and the related notes contained elsewhere in this Annual Report on Form 10-K and in our other Securities and Exchange Commission filings. The following discussion may contain predictions, estimates, and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under “Risk Factors” and elsewhere in this Annual Report on Form 10-K. These risks could cause our actual results to differ materially from any future performance suggested below.

Overview

We are a wearable medical robotics company, specializing in myoelectric braces, or orthotics, for people with neuromuscular disorders. We develop and market the MyoPro product line, which is a myoelectric-controlled upper limb brace, or orthosis. The orthosis is a rigid brace used for the purpose of supporting a patient’s weak or deformed arm to enable and improve functional activities of daily living, or ADLs, in the home and community. It is custom constructed by a trained professional during a custom fabrication process for each individual user to meet their specific needs. Our products are designed to help regain function in individuals with neuromuscular conditions due to brachial plexus injury, stroke, traumatic brain injury, spinal cord injury and other neurological disorders.

We utilize digital ads on various platforms to reach patients who are potential candidates for our product. Once the prospective patient contacts us or is referred to us, either our trained clinical staff or a trained O&P provider will evaluate the patient for their suitability as a candidate. Initial evaluations by our trained clinical staff are conducted using telehealth techniques, followed by an in-person clinical evaluation of the candidate. Prior to obtaining authorizations from commercial insurance companies, the patient’s medical records are collected and reviewed to make sure the device is appropriate for their condition and a prescription is always obtained from a physician. Once these documents are obtained, our patient advocacy team submit a pre-authorization request to the patient’s insurer. If we receive a pre-authorization, we proceed to measure the patient’s arm. Beginning in 2022, this will be done using a measurement kit supplied to the patient. We then use those measurements to 3D print orthotic parts, which are used to fabricate the MyoPro, and then deliver it to the patient. Since we are directly providing the device to the patient and then billing insurance ourselves, we refer to this process as direct billing. We also call on hospitals and O&P practices that provide our products to their patients as well as generate indirect sales through distributors Europe and Australia. The MyoPro product line has been approved by the Veterans Administration (“VA”) system for impaired veterans, and over sixty VA facilities have already ordered devices for their patients

Our myoelectric orthoses have been clinically shown in peer reviewed published research studies to help regain the ability to complete functional tasks by supporting the affected joint and enabling individuals to self-initiate and control movement of their partially paralyzed limbs by using their own muscle signals.

Our technology was originally developed at MIT in collaboration with medical experts affiliated with Harvard Medical School. Myomo was incorporated in 2004 and completed licensing of its technology from MIT in 2006.

Other milestones our history include:

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Recent Developments

China Joint Venture

On January 21, 2021, we entered into a definitive agreement with Beijing Ryzur Medical Investment Co., Ltd. (“Ryzur Medical”), a medical device manufacturer based in Beijing, to form a joint venture (the “JV”) to manufacture and sell our current and future products in greater China, including Hong Kong, Macau and Taiwan (the “JV Agreement”).

Majority ownership in the JV, to be named Jiangxi Myomo Medical Assistive Appliance Co., Ltd., will be held by Ryzur Medical, with a minority investment from Chinaleaf Capital Management Co., Ltd., a private fund based in Shanghai that invests in growth opportunities in new technologies. We will own a minimum 19.9% stake in the JV. Ryzur Medical and its partners have committed to invest a minimum of $8 million and up to $20 million in the JV over five years.

The JV Company was established on August 12, 2021.  On December 29, 2021, we entered into an amendment to the JV Agreement, as well as a Technology License Agreement and a Trademark License Agreement (collectively, the “Agreements”).  Under the Agreements, we and the JV have entered  into a ten-year agreement to license our intellectual property, including recently issued patents in China and Hong Kong, and purchase MyoPro Control System units from us. Under the Agreements, , we are entitled to receive an upfront license fee of $2.7 million. Pursuant to the Agreements, the JV has agreed to an escalating purchase commitment for a minimum of $10.75 million in MyoPro Control System Units during the next ten years, subject to receipt of regulatory approvals necessary to permit sales of the product in the greater China territory.  Under the terms of the Agreements, payment of the license fee is expected to be completed before the end of the first quarter of 2022.

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Accredited Medicare Provider

In July 2021, we announced that we became accredited as a Medicare provider.  Accreditation was obtained through the successful completion of an audit of our compliance with Medicare accreditation standards.  Accreditation enables us to bill Medicare directly when we deliver our MyoPro powered orthosis.  As of the date of this report, we are awaiting coverage and reimbursement terms from the Centers for Medicare and Medicaid Services.  Until these terms are known, we are not providing the MyoPro to patients covered under Medicare Part B.

Results of Operations

We have been growing revenues while incurring net losses and negative cash flows from operations since inception and anticipate this to continue as we focus our efforts on continuing to expand our sales and marketing efforts to expand into new geographic markets, invest in development of our MyoPro products, and the funding of clinical research studies to support our reimbursement efforts.

Comparison of the year ended December 31, 2021 to the year ended December 31, 2020

The following table sets forth our Revenue, Gross Margin and Gross Margin% for each of the years presented.

Revenues

We derive revenue primarily from providing devices directly to patients and billing insurance companies directly. We also sell our products to O&P providers in the U.S. and Europe, to the VA, to rehabilitation hospitals, and through distributors in Europe and Australia. Though we increasingly provide devices directly to patients, we sometimes utilize the clinical services of O&P providers for which they are paid a fee.

We expect that our revenues will continue to grow, primarily as a result of our increased direct-to-patient marketing efforts, while continuing our selling and marketing efforts through O&P channel providers, both domestically and internationally.

Total revenue in 2021 increased by approximately $6.3 million, or 83% compared to 2020. The revenue increase was driven by both a higher number of revenue units and a higher average selling price. Revenues generated in 2021 through the direct billing channel, increased to approximately $10.7 million, or 77% of revenue in 2021, compared to approximately $5.3 million, or 70% of revenue in 2020. The increase in direct billing revenues, as well as a higher volume of Motion G products sold, were the drivers for our higher average selling price in 2021.

Gross margin

Cost of revenue consists of direct costs for the manufacturing, casting/printing of orthotic parts, fabrication and fitting of our products, inventory reserves, warranty costs, royalties associated with licensed technologies and instruction.

Gross margin increased to 74% for the year ended December 31, 2021, as compared to 66% in the comparable period of 2020. The increase in gross margin was driven primarily by higher average selling prices, more revenue units, and the impact of a full year of operation in 2021 compared to 2020, which was impacted by COVID-19 lockdowns, offset by increased warranty reserves.

We expect our gross margins to vary depending on the mix of channel revenues and timing of reimbursements from certain third party payers, which impacts revenue recognition.

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Operating expenses

The following table sets forth our operating expenses for each of the years presented.

Research and development

Research and development (“R&D”) expenses consist of costs for our R&D personnel, including salaries, benefits, bonuses and stock-based compensation, product development costs, clinical studies and the cost of certain third-party contractors and travel expense. R&D costs are expensed as they are incurred. We intend to continue to develop additional products and enhance our existing products and expect R&D costs to increase on an annual basis.

R&D expenses increased by approximately $0.9 million or 53% in 2021 compared to 2020. The increase during 2021 was driven by higher payroll and stock based compensation costs.

Selling, general and administrative

Selling expenses consist of costs for our field clinical staff, clinical training organization, and marketing personnel, including salaries, benefits, bonuses, stock-based compensation and sales commissions, costs of digital advertising, marketing and promotional events, corporate communications, product marketing and travel expenses. Variable compensation for personnel engaged in sales and marketing activities is generally earned and recorded as expense when the product is delivered. We expect sales and marketing expenses to increase as we expand our sales and marketing efforts.

General and administrative expenses consist primarily of costs for administrative, reimbursement, and finance personnel, including salaries, benefits, bonuses and stock-based compensation, professional fees associated with legal matters, consulting expenses, costs for pursuing insurance reimbursements for our products and costs required to comply with the regulatory requirements of the SEC and Medicare accreditation, as well as costs associated with accounting systems, insurance premiums and other corporate expenses. We expect that general and administrative expenses will increase as we pursue an increased number of insurance reimbursements and seek expanded payer coverage for our products and add administrative and accounting support for our growing business.

Selling, general and administrative expenses increased by approximately $4.2 million or 30% in 2021 compared to 2020. The increases were primarily due to higher payroll costs, particularly in support of increased clinical and reimbursement staff and higher advertising, consulting, insurance and stock compensation costs, which were partially offset by lower real estate costs resulting from the move to our new corporate headquarters in the first quarter of 2021.

Other expense (income)

The following table sets forth our interest and other expense (income) for each of the years presented.

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During 2020, the Term Loan was extinguished and derivative liabilities were written off resulting in no related expenses in 2021

Income tax expense

Income tax expense recorded during the year ended December 31, 2021 represents the provision for income taxes for our wholly-owned subsidiary, Myomo Europe GmbH, which was established on January 30, 2020. The increase in income tax expense relates to increased income from Myomo Europe GmbH becoming the contracting party with customers in Europe during 2021.

Adjusted EBITDA

We believe that the presentation of Adjusted EBITDA, a non-GAAP financial measure, provides investors with additional information about our financial results. Adjusted EBITDA is an important supplemental measure used by our board of directors and management to evaluate our operating performance from period-to-period on a consistent basis and as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations.

We define Adjusted EBITDA as earnings before interest and other income (expense), taxes, depreciation and amortization adjusted for, stock based-compensation and the impact of the change in fair value of our derivative liabilities.

Adjusted EBITDA is not in accordance with, or an alternative to, measures prepared in accordance with U.S. GAAP. In addition, this non-GAAP measure is not based on any comprehensive set of accounting rules or principles. As a non-GAAP measure, Adjusted EBITDA has limitations in that it does not reflect all of the amounts associated with our results of operations as determined in accordance with U.S. GAAP. In particular:

Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures including net income (loss) and our financial results presented in accordance with U.S. GAAP.

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The following table provides a reconciliation of net loss to Adjusted EBITDA for each of the years indicated:

Liquidity and Capital Resources

Liquidity

We measure our liquidity in a number of ways, including the following:

We had working capital and stockholders’ equity of approximately $14.9 million and $15.4 million respectively, as of December 31, 2021. We have historically funded our operations through financing activities, including raising equity and debt capital.  During 2021, $12.1 million was received from the exercise of warrants, including $4.8 million in net proceeds in October 2021 from a transaction to induce the exercise of warrants issued in conjunction with our equity offering in February 2020 at a reduced exercise price of $5.00 per share.  This funding, in addition to funding of $1.1 million received from sales of common stock under our At-Market Sales Facility, or ATM facility, with Alliance Global Partners during the year ended December 31, 2021 is helping us to sustain our operations.  Based upon our expected cash flows, we believe that our existing cash will fund our operations for at least the next twelve months from the issuance date of this Annual Report on Form 10-K.

Our operating plans are primarily focused on scaling up our operations, increasing the proportion of patients covered by commercial health insurance which reimburse for the MyoPro, executing on our plans to bring our pediatric product to market as public health conditions allow and continued work with CMS and their administrative contractors regarding reimbursement of our products. Our success is dependent upon reimbursement of our products by insurance companies and government-controlled health care plans such as Medicare and Medicaid, which could prevent our revenues from growing to the level necessary to achieve cash flow breakeven.  If public health restrictions on travel and patient interaction are broadly reinstated in 2022 due to new variants of COVID-19 and increasing infections in the U.S., that will have an adverse effect on our business, and it is likely that we will need to raise additional capital to sustain our operations through 2023. We believe that we have access to capital resources through payment of the technology license fee associated with our JV in China, possible public or private equity offerings, including usage of our ATM facility exercises of outstanding warrants, additional debt financings, or other means; however, we may be unable to raise sufficient additional capital when we need it or raise capital on favorable terms.   During the year ended December 31, 2021, we sold 107,500 shares of common stock under the ATM facility, at a weighted average sales price of approximately $12.02 per share, generating net proceeds after sales commissions and other expenses of approximately $1.1 million. We may offer and sell shares from time to time under the ATM facility up to $15.0 million in the aggregate. We have remaining capacity under our ATM facility of approximately $13.7 million. However, due to our public float, the amount of securities we may sell from time to time under the registration statement which registered the ATM facility may be subject to the limitations imposed by General Instruction I.B.6 of Form S-3. Further, additional debt financing may require us to pledge certain assets and enter into covenants that could restrict certain business activities or our ability to incur further indebtedness and may contain other terms that are not favorable to our stockholders or us.

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On May 12, 2020 (the “Issuance Date”), we entered an amendment to our Term Loan with CVP to provide for the conversion of outstanding amounts into shares of common stock in satisfaction of our repayment obligations (as amended, the convertible instrument is referred to herein as the “Note”) in which we, at our option, may pay monthly redemptions in either cash or shares of common stock.  If we elected to repay CVP in common stock, we were required to do so within three trading days of receipt of a redemption notice.  If we made a redemption payment to CVP in shares of common stock, the number of shares issued was based on the redemption amount divided by the product of (x) 91%, and (y) the lowest daily volume weighted average price over the ten preceding trading days. The Note also included a restriction that prevented CVP from owning more than 9.99% of our common stock at any one time. In addition, the amendment included a restructuring fee of $105,000, which was added to the outstanding balance of the Note on the Issuance Date. During the year ended December 31, 2020, we issued 544,526 shares of common stock to CVP to repay the Note in full, by issuing freely tradable shares to CVP in reliance of an exemption from registration of Note contained in Section 4(a)(2) of the Securities Act and an exemption from the issuance of registered shares to CVP under the Section 3(a)(9) of the Securities Act.

Cash Flows

Operating Activities. The net cash used in operating activities for the year ended December 31, 2021 was primarily used to fund a net loss net approximately $10.4 million, adjusted for non-cash expenses in the aggregate amount of approximately $1.4 million of which approximately $1.1 million of non-cash adjustments related to stock-based compensation, and approximately $0.6 million of cash used from changes in operating assets and liabilities, primarily related to an increase in accounts payable and accrued expenses, offset by increases in inventory and accounts receivable.

The net cash used in operating activities for the year ended December 31, 2020 was primarily used to fund a net loss net of non-cash items of approximately $9.9 million, including non-cash expenses in the aggregate amount of approximately $1.7 million of which approximately $0.6 million of non-cash adjustments related to stock-based compensation, and $0.7 million for loss on extinguishment of debt, and approximately $0.9 million of cash generated from changes in operating assets and liabilities, primarily related to an increase in accounts payable and accrued expenses and a decrease in prepaid expenses and other current assets, offset by increases in inventory and accounts receivable.

Investing Activities. During the year ended December 31, 2021 our cash used in investing activities of $0.3 million was primarily for leasehold improvements to our new headquarters facility in Boston. Cash used in investing activities in 2020 was primarily for the purchase of equipment.

Financing Activities. During the year ended December 31, 2021 cash provided by financing activities of approximately $13.2 million was primarily due to approximately $12.1 million of net proceeds received from the exercise of warrants and net proceeds of approximately $1.1 million from the issuance of shares through our ATM.

Cash provided by financing activities during the year ended December 31, 2020 of approximately $16.8 million was primality due to $13.5 million in net proceeds from our follow-om equity offering in February 2020 and $5.1 million of proceeds from sales of common stock under our ATM facility, partially offset by $2.0 million used for the repayment of debt and associated prepayment penalties

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements in the years ended December 31, 2021 and December 31, 2020.

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Critical Accounting Policies and Estimates

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America require management to make estimates and assumptions that affect certain reported amounts and disclosures. These estimates and assumptions are reviewed on an on-going basis and updated as appropriate. Actual results could differ from those estimates. Our significant estimates include the allowance for doubtful accounts, the valuation of our deferred tax valuation allowances, warranty obligations, the fair value of our derivative liabilities and reserves for slow moving inventory.

Accounts Receivable

We carry accounts receivable at invoiced amounts less an allowance for doubtful accounts. We evaluate our accounts receivable on a continuous basis, and if necessary, establish an allowance for doubtful accounts based on a number of factors, including current credit conditions and customer payment history. We do not require collateral or accrue interest on accounts receivable and credit terms are generally 30 days.

Inventories

Inventories are recorded at the lower of average cost or net realizable value. Cost is determined using average cost, which approximates the first-in, first out (FIFO) method. We reduce the carrying value of inventory for those items that are potentially excess, obsolete or slow-moving based on changes in customer demand, technology developments or other economic factors.

Research and Development Costs

We expense research and development costs as incurred. Research and development costs primarily consist of salaries and benefits, facility and overhead costs, and outsourced research activities.

Revenue Recognition

Accounting for revenues under ASC 606 and all the related amendments (Topic 606) requires revenue be recognized either at a “point in time” or “over time,” depending on the facts and circumstances of the arrangement and are evaluated using a five-step model. Generally, we recognize revenue at a point in time.

We recognize revenue after applying the following five steps:

Revenue is recognized when control of these services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services.

Increasingly, we are deriving revenue from direct billing. We also derive revenue primarily from the sale of our products to O&P providers in the U.S. and internationally, the VA and distributors in Europe and Australia. Under direct billing, we recognize revenue when we meet all of the following criteria:

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For revenue derived from certain insurance companies where we have demonstrated sufficient payment history, we recognize revenue when we receive a pre-authorization from the insurance company and control passes to the patient upon delivery of the device in an amount that reflects the consideration we expect to receive in exchange for the device. These insurers represented approximately 39% and 40% of the direct billing channel revenue in 2021 and 2020, respectively.

For revenues derived from O&P providers, the VA and distributors, we recognize revenue when control passes to the customer in an amount that reflects the consideration we expect to receive in exchange for those services, which may be recognized upon shipment or upon delivery, depending on the terms of the arrangement, provided that persuasive evidence of an arrangement exists, there are no uncertainties regarding customer acceptance and collectability is deemed probable. In certain cases, we ship our products to O&P providers pending reimbursement from third party payers. As a result of this arrangement, elements of the revenue recognition criteria have not been met upon shipment. In this instance, we recognize revenue when payment has been received, as all of the revenue recognition criteria has been met.

We have elected to record taxes collected from customers on a net basis and do not include tax amounts in revenue or cost of revenue.

Leases

We account for leases under Accounting Standards Codification (“ASC”) Topic 842, leases. We assess whether a contract is or contains a lease at inception of the contract and recognize right-of-use assets and corresponding lease liabilities at the lease commencement date, except for short-term leases, which are under one year, and leases of low value. For these leases, we recognize the lease payments as an operating expense on a straight-line basis over the term of the lease.

Income Taxes

We account for income taxes under ASC 740 Income Taxes. Under ASC 740, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities and net operating loss and credit carryforwards using enacted tax rates in effect for the year in which the differences are expected to impact taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

ASC 740 requires that the tax effects of changes in tax laws or rates be recognized in the financial statements in the period in which the law is enacted.

ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

Tax benefits claimed or expected to be claimed on a tax return are recorded in our financial statements. A tax benefit from an uncertain tax position is only recognized if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. We believe there are no uncertain tax positions that could have a material impact on our financial condition, results of operations or cash flows.

Stock-Based Compensation

We account for stock awards to employees and non-employees by measuring the cost of services received in exchange for the award of equity instruments based upon the fair value of the award on the date of grant. The fair value of that award is then ratably recognized as expense over the period during which the recipient is required to provide services in exchange for that award.

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Net Loss per Share

Basic loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding, plus potentially dilutive common shares. Convertible debt, preferred stock, restricted stock units, stock options and warrants are excluded from the diluted net loss per share calculation when their impact is antidilutive. We reported a net loss for the years ended December 31, 2021 and 2020, and as a result, all potentially dilutive common shares are considered antidilutive for these years.

Recent Accounting Standards

In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12 “Income Taxes (Topic 740) -- Simplifying the Accounting for Income Taxes. This ASU modifies certain provisions of ASC 740 to simplify the accounting for income taxes. The amendments in ASU 2019-12 are effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods therein. We adopted ASU 2019-12 in the first quarter of 2021. The guidance did not have a material impact on our consolidated financial statements.

In May 2021, the FASB issued ASU 2021-04 Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force). The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early application is permitted, including in an interim period as of the beginning of the fiscal year that includes that interim period. We adopted the provisions of ASU 2021-04 in the fourth quarter of 2021. The implementation resulted in a deemed dividend of approximately $640,000 on the discounting and repricing of certain warrants.