MYOMO, INC. The following discussion should be read in conjunction with our condensed consolidated financial statements and the related notes contained elsewhere in this Quarterly Report on Form 10-Q and in our otherSecurities 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", "Cautionary Statement Regarding Forward-Looking Statements" and elsewhere in this Quarterly Report on Form 10-Q. 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 brace used for the purpose of supporting a patient's
weak or deformed arm to enable and improve functional activities of daily
living, ("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 restore
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. 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 submits a
pre-authorization request to the patient's insurer. If we receive a
pre-authorization, we proceed to cast the patient's arm, then fabricate the
MyoPro, and deliver it to the patient. This process is what we refer to 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 in the United States , Canada , Europe , Chile , and Australia . The
MyoPro product line has been approved by the Veterans Administration ("VA")
system for impaired veterans, and over forty VA facilities have already ordered
devices for their patients.
Our myoelectric orthoses have been clinically shown in peer reviewed published
research studies to help restore 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 historical milestones include:
• During 2012, we introduced the MyoPro. The primary business focus shifted
from developing devices that 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.
• On
This has enabled us to sell the MyoPro to individuals in the
(the "EU").
• On
enabled us to sell the MyoPro in
• On
net proceeds of $10.4 million .
• In May 2018 , we announced that the CMS has published a favorablepreliminary decision regarding our application for HCPCS "L" codes. We had
filed this application in
Level II HCPCS codes to describe "microprocessor-controlled, custom
fabricated upper extremity braces."
• In
(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
proceeds of
• In
Security Agreement (collectively, the "Term Loan") with Chicago Venture
Partners, or CVP, which generated gross proceeds of $3.0 million .
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• InJanuary 2020 , we effected a 1 for 30 reverse stock split.
• In
proceeds of approximately
• In
into a convertible note. 544,526 shares were issued to CVP to redeem the
remaining outstanding balance under the note during the year ended December
31, 2020.
• In
provider, enabling 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
Services.
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 and 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 establishment of the JV is
subject to governmental filings and approvals in China .
As of June 30, 2021 , the JV company has not yet been established. Once
established, the JV Agreement contemplates that we and JV will enter into a
ten-year agreement to license our intellectual property and purchase MyoPro
Control System units from us (the "Technology License Agreement"). Under the
Technology License Agreement, we will be entitled to receive an upfront license
fee of $2.5 million . Pursuant to the JV Agreement, 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. Payment of the license fee and transfer of technology requires the
completion of certain milestones by the parties to the JV Agreement, which are
expected to be completed before the end of 2021. In addition, the JV Agreement
contemplates that we and the JV will enter into a trademark license agreement to
license of certain of the Company's trademarks (the "Trademark License
Agreement").
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.
The following table sets forth our revenue, cost of revenue, gross profit and gross margin for each of the periods presented.
Period- Period-
For the Three Months to-Period For the Six Months to-Period
Ended June 30, Change Ended June 30, Change
2021 2020 $ % 2021 2020 $ %
Revenue $ 3,104,294 $ 858,590 $ 2,245,704 262 %
901,566 418,862 482,704 115 % 1,524,718 737,513 787,205 107 % Gross profit
$ 2,202,728 $ 439,728 $ 1,763,000 401 %$ 3,916,065 $ 1,129,222 $ 2,786,843 247 % Gross margin % 71 % 51 % 20 % 72 % 60 % 11 % 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, to the
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 revenues increased by approximately$2,246,000 , or 262% for the three months endedJune 30, 2021 as compared to the same period in 2020. Revenue for the three months endedJune 30, 2021 was driven by a higher average selling price, and a higher number of revenue units. Revenue for the six months endedJune 30, 2021 increased by approximately$3,574,000 , or 191% compared to the same period in 2020 for the reasons stated above. 16 --------------------------------------------------------------------------------
Gross margin
Cost of revenue consists of direct costs for the manufacturing and fabrication and delivery of our products, fixed costs, such for our Quality organization, changes in inventory reserves, warranty costs and royalties associated with licensed technologies. Gross margin was 71% and 72% for the three and six months endedJune 30, 2021 , respectively, compared to 51% and 60% for the three and six months endedJune 30, 2020 , respectively. The increases in gross margin were primarily driven by higher average selling prices and higher sales volumes, which led to greater utilization of fixed costs. Operating expenses The following table sets forth our operating expenses for each of the periods presented. For the Three Months Period-to-Period For the Six Months Period-to-Period Ended June 30, Change Ended June 30, Change 2021 2020 $ % 2021 2020 $ % Research and development$ 600,116 $ 397,811 $
202,305 51 %
24 % Selling, general and administrative 4,202,244 2,890,464 1,311,780 45 % 8,322,047 6,495,432 1,826,615 28 % Total operating expenses$ 4,802,360 $ 3,288,275 $ 1,514,085 46 %$ 9,448,130 $ 7,400,196 $ 2,047,934 28 % Operating expenses for the three and six months endedJune 30, 2020 were impacted by cost reductions, which included headcount reductions, furloughs and reductions in variable spending such as travel, associated with public health restrictions imposed late in the first quarter and into the second quarter of 2020 related to the COVID-19 pandemic.
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, 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 continue to increase on an annual basis, despite the delay
in the launch of our pediatric device, which we refer to as MyoPal, due to the
impact of COVID-19.
R&D expenses increased by approximately $202,300 and $221,300 , or 51% and 24%,
during the three and six months ended June 30, 2021 , respectively, as compared
to the same periods in 2020. The increases were driven primarily 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, clinical studies, 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 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 theSEC , 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 structure for our growing business. Selling, general and administrative expenses ("SG&A") increased by approximately$1,311,800 and$1,826,600 , or 45% and 28%, during the three and six months endedJune 30, 2021 , respectively, as compared to the same periods in 2020. The increases were primarily due to higher payroll costs, particularly in support of our reimbursement efforts and higher advertising costs, consulting, insurance and stock compensation costs, which were partially offset by lower real estate costs resulting from the move of our corporate headquarters in the first quarter of 2021. 17
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Interest (income) expense and other expense, net
The following table sets forth our interest (income) expense and other expense, net for each of the periods presented.
For the Three Months Period-to-Period For the Six Months Period-to-Period
Ended June 30, Change Ended June 30, Change
2021 2020 $ % 2021 2020 $ %
Change in fair value of
derivative
liabilities $ - $ (39,717 ) $ 39,717 (100 )% $ - $ (121,818 ) $ 121,818 (100 )%
Interest (income) expense and
other
expense, net 6,018 88,915 (82,897 ) N/M 6,137 224,124 (217,987 ) N/M
Non-cash interest expense,
debt discount - 40,025 (40,025 ) N/M - 206,668 (206,668 ) N/M
Loss on extinguishment of
debt - 348,079 (348,079 ) N/M - 507,281 (507,281 ) N/M
Total interest (income)
expense and other
expense (income) $ 6,018 $ 437,302 $ (431,284 ) N/M $ 6,137 $ 816,255 $ (810,118 ) N/M
During 2020, the Term Loan was extinguished and the derivative liabilities were written off resulting in no related expenses in 2021
Income tax expense
Income tax expense recorded during the three and six months endedJune 30, 2021 represents the provision for income taxes for our wholly-owned subsidiary,Myomo Europe GmbH , which was established onJanuary 30, 2020 . The increase in income tax expense relates to increased income from becoming the contracting party with customers inEurope 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 fair value revaluation of our derivative liabilities and other unusual items.
Adjusted EBITDA is not in accordance with, or an alternative to, measures prepared in accordance withU.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 withU.S. GAAP. In particular:
• Adjusted EBITDA does not reflect the amounts we paid in taxes or other
components of our tax provision;
• Adjusted EBITDA does not include interest expense;
• Adjusted EBITDA does not include other income (expense);
• Adjusted EBITDA does not include depreciation expense from fixed assets;
• Adjusted EBITDA does not include the impact of stock-based compensation;
• Adjusted EBITDA does not include loss on extinguishment of debt; and
• Adjusted EBITDA does not include the change in value of our derivative
liabilities.
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
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--------------------------------------------------------------------------------The following table provides a reconciliation of net loss to Adjusted EBITDA for each of the periods indicated:
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2021 2020 2021 2020
GAAP net loss $ (2,621,315 ) $ (3,286,934 ) $ (5,582,109 ) $ (7,088,927 )
Adjustments to reconcile to Adjusted
EBITDA:
Interest (income) expense and other expense, net 6,018 88,915 6,137 224,124 Non-cash interest expense, debt discount - 40,025 - 206,668 Loss on extinguishment of debt - 348,079 - 507,281 Depreciation expense 35,016 26,633 58,329 53,021 Stock-based compensation 363,312 106,281 529,283 229,490 Change in fair value of derivative liabilities - (39,717 ) - (121,818 ) Income tax expense 15,665 1,085 43,907 1,698 Adjusted EBITDA$ (2,201,304 ) $ (2,715,633 ) $ (4,944,453 ) $ (5,988,463 )
Liquidity and Capital Resources
Liquidity
We measure our liquidity in a number of ways, including the following:
June 30 ,December 31, 2021 2020
Cash and cash equivalents
$ 13,412,635 $ 11,576,270 We had working capital and stockholders' equity of approximately$13.4 million and$13.8 million , respectively, atJune 30, 2021 . We used approximately$5.5 million in cash for operating activities during the six months endedJune 30, 2021 . We have historically funded our operations through financing activities, including raising equity and debt capital. InFebruary 2020 , we completed a follow-on offering of our common stock, generating net proceeds of approximately$13.5 million . The purpose of this offering was to provide sufficient capital to allow us to execute on our strategy to achieve cash flow breakeven. This funding, in addition to funding of$5.0 million received under our ATM facility during 2020 and$7.3 million received from the exercise of warrants during the first quarter of 2021 is helping us to sustain our operations. Based upon our expected cash flows, we believe that our available cash will fund our operations for at least the next twelve months from the issuance date of this Quarterly Report on Form 10-Q. Our operating plans are primarily focused on scaling up our operations, increasing the proportion of patients covered by commercial health insurance companies which reimburse for the MyoPro 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 if not achieved, 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 2021 due to the inability to control the COVID-19 pandemic through vaccinations, 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. We believe that we have access to capital resources through possible public or private equity offerings, including usage of our At Market Sales Facility, or ATM, exercises of outstanding warrants, debt financings, and through payment of the technology license fee associated with our JV inChina , 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 six months endedJune 30, 2021 , approximately 999,400 shares were issued for the exercise of warrants, which generated proceeds of$7.3 million . Further, additional debt financing may require us to pledge certain assets and enter into covenants that could restrict certain business activities or our ability to incur further indebtedness and may contain other terms that are not favorable to our stockholders or us. Cash Flows Six Months Ended June 30, 2021 2020 Net cash used in operating activities$ (5,509,515 ) $ (6,110,798 ) Net cash used in investing activities (247,644 ) (7,878 ) Net cash provided by financing activities 7,289,483
12,386,663
Net (decrease) increase in cash, cash equivalents and restricted
cash before foreign exchange effect$ 1,532,324 $ 6,267,987 19
-------------------------------------------------------------------------------- Operating Activities. The net cash used in operating activities for the six months endedJune 30, 2021 was primarily used to fund a net loss of approximately$5.6 million , adjusted for non-cash expenses in the aggregate amount of approximately$0.7 million , and by approximately$0.6 million of cash used by net changes in the levels of operating assets and liabilities, primarily related to increases in accounts receivable, inventory, and prepaids and other current assets. The net cash used in operating activities for the six months endedJune 30, 2020 was primarily used to fund a net loss of approximately$7.1 million , adjusted for non-cash expenses in the aggregate amount of approximately$1.1 million , and by approximately$0.1 million of cash used by net changes in the levels of operating assets and liabilities, primarily related to increases in accounts receivable and inventory.
Investing Activities. During the six months ended
Financing Activities. During the six months endedJune 30, 2021 , cash provided by financing activities of approximately$7.3 million was primarily due to proceeds received from the exercise of warrants. Cash provided by financing activities of approximately$12.4 million during the six months endedJune 30, 2020 was primarily due to$13.5 million of net proceeds from our underwritten public offering inFebruary 2020 and approximately$0.2 million received from the exercise of warrants, partially offset by a payment of 50% of the outstanding balance of our term loan of approximately$1.7 million and payment of a prepayment penalty on our Term Loan of approximately$0.3 million .
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements and did not have any such
arrangements in the three and six months ended
Critical Accounting Policies and Estimates
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted inthe 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 asset, the fair value of our derivative liabilities and reserves for slow moving inventory. Other
There have been no material changes to our critical accounting policies from
those described in our audited financial statements included in our Annual
Report on Form 10-K for the year ended
Recent Accounting Standards
Information regarding new accounting standards is included in Note 2 - Summary of Significant Accounting Policies to our unaudited condensed consolidated financial statements contained in Item 1 of this Quarterly Report on Form 10-Q.
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