MYOMO, INC. (MYO) FY 2022 MD&A

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.