MYOMO INC

Previous wording

We have relationships with physicians and therapists who generate patient referrals, and 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 Orthotics and Prosthetics (“O&P”) provider will evaluate the patient for their suitability as a candidate. Initial evaluations by our trained clinical staff are often conducted using telehealth techniques, followed by an in-person clinical evaluation of the candidate. Prior to delivering our device to a Medicare patient or 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 commercial insurer. If we receive a pre-authorization, we proceed to measure the patient’s arm, a process we refer to as shape capture. For a Medicare patient, we will commence shape capture once we are in possession of all relevant medical records and have assessed that the patient meets our inclusion criteria. Beginning in 2022, arm measurements are being done in some cases using a digital 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 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 Veterans Administration (“VA”) for impaired veterans, and nearly 130 VA facilities have ordered devices for their patients.

Current wording

We have relationships with physicians and therapists who generate patient referrals, and 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 Orthotics and Prosthetics (“O&P”) provider will evaluate the patient for their suitability as a candidate. Initial evaluations by our trained clinical staff are often conducted using telehealth techniques, followed by an in-person clinical evaluation of the candidate. Prior to delivering our device to a Medicare patient or 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 commercial insurer. If we receive a pre-authorization, we proceed to measure the patient’s arm, a process we refer to as shape capture. For a Medicare patient, we will commence shape capture once we are in possession of all relevant medical records and have assessed that the patient meets our inclusion criteria. Arm measurements are being done in many cases using a digital 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 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 Veterans Administration (“VA”) for impaired veterans, and nearly 130 VA facilities have ordered devices for their patients.

Previous wording

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 became effective on April 1, 2024. We are being paid by CMS at approximately 80% of the published fees, with the remaining 20% from either the patient directly or their secondary insurance, if any.

Current wording

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 became effective on April 1, 2024. We are being paid by CMS at approximately 80% of the published fees, with the remaining 20% from either the patient directly or their supplemental insurance, if any.

Previous wording

Beginning January 1, 2024, we began deliveries to Medicare Part B patients for lump sum reimbursement under the brace benefit category. During the three and six months ended June 30, 2024, revenues from Medicare Part B beneficiaries represented 47% and 35% of product revenues, respectively.

Current wording

Beginning January 1, 2024, we began deliveries to Medicare Part B patients for lump sum reimbursement under the brace benefit category. During the three and nine months ended September 30, 2024, revenues from Medicare Part B beneficiaries represented 55% and 44% of product revenues, respectively.

Previous wording

We derive revenue primarily from providing devices directly to patients and billing insurance companies or Medicare 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.

Current wording

We derive revenue primarily from providing devices directly to patients and billing insurance companies or Medicare 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.

Previous wording

Total revenue increased by approximately $1,562,000 and $1,869,900, or 26% and 20%, for the three and six months ended June 30, 2024, as compared to the same periods in 2023. Product revenue increased by approximately $3,277,100 and $3,584,800, or 77% and 47%, for the three and six months ended June 30, 2024 as compared to the same periods in 2023. Higher product revenues in the three months ended June 30, 2024 were due to a higher number of revenue units, driven by deliveries to Medicare Part B patients and a higher average selling price as a result of the recently published fees for the MyoPro by CMS.

Current wording

Total revenue increased by approximately $4,128,100 and $5,998,000, or 81% and 41%, for the three and nine months ended September 30, 2024, as compared to the same periods in 2023. Product revenue increased by approximately $4,178,100 and $7,762,900, or 83% and 61%, for the three and nine months ended September 30, 2024 as compared to the same periods in 2023. Higher product revenues in the three and nine months ended September 30, 2024 were due to a higher number of revenue units, driven by deliveries to Medicare Part B patients and a higher average selling price as a result of the recently published fees for the MyoPro by CMS and successfully obtaining reimbursements from CMS and the respective patient's supplemental insurance, as applicable.

Previous wording

Gross margin was 70.8% and 67.6% for the three and six months ended June 30, 2024 respectively, compared to 71.8% and 70.1% for the three and six months ended June 30, 2023, respectively. Gross margin for product revenue was 70.8% and 67.6% for the three and six months ended June 30, 2024 respectively, compared to 60.5% and 63.4% for the three and six months ended June 30,2023, respectively. The increase in gross margin from product revenue were primarily due to a higher average selling price, fixed cost absorption, and a prior year inventory write-down, offset by an increased manufacturing overhead as we are adding capacity in support of planned revenue growth in 2024 and higher material costs.

Current wording

Gross margin was 75.4% and 71.1% for the three and nine months ended September 30, 2024 respectively, compared to 68.7% and 69.6% for the three and nine months ended September 30, 2023, respectively. Gross margin on product revenue was the same as overall gross margin for the three and nine months ended September 30, 2024, respectively. Gross margin on product revenue was 68.4% and 65.4% for the three and nine months ended September 30,2023, respectively. The increases in gross margin during the three and nine months ended September 30, 2024 were due primarily due to a higher average selling price, fixed cost absorption and a write-down of inventory in the prior year, partially offset by an increased manufacturing overhead as we are adding capacity in support of planned revenue growth in 2024 and higher material costs.

Previous wording

R&D expenses increased by approximately $443,000 and $922,200, or 79% and 89%, during the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023. The increases were primarily due to higher costs for payroll as we are adding headcount in order to accelerate our sustaining engineering and product development efforts as a result of coverage by Medicare, partially offset by lower stock-based compensation expense.

Current wording

R&D expenses increased by approximately $531,600 and $1,453,800, or 74% and 83%, during the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023. The increases were primarily due to higher costs for payroll as we are adding headcount in order to accelerate our sustaining engineering and product development efforts as a result of coverage by Medicare.

Previous wording

Selling, clinical, and marketing (“SC&M”) 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 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 in the period in which the measurable work is performed. We expect SC&M expenses to increase in 2024 as we plan to add clinical capacity in support of serving Medicare Part B patients.

Current wording

Selling, clinical, and marketing (“SC&M”) expenses consist of costs for our field clinical staff, O&P channel managers, clinical training organization, and marketing personnel, including salaries, benefits, bonuses, stock-based compensation and sales commissions, costs of 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 in the period in which the measurable work is performed. We expect SC&M expenses to increase in 2024 as we plan to add clinical capacity in support of serving Medicare Part B patients.

Previous wording

SC&M expenses increased by approximately $505,200 and $836,500 or 22% and 19%, during the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023. The increases were primarily due to higher payroll costs due to increased headcount in our clinical functions to support higher expected sales volume in 2024, higher travel costs and the effect on payroll costs from a headcount decrease in the first quarter of 2023.

Current wording

SC&M expenses increased by approximately $1,014,100 and $1,850,600 or 42% and 28%, during the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023. The increases were primarily due to higher payroll costs due to increased headcount in our clinical functions to support higher expected sales volume in 2024, higher advertising and travel costs and the effect on payroll costs from a headcount decrease in the first quarter of 2023.

Previous wording

G&A increased by approximately $108,300 and $507,000, or 4% and 10%, during the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023. The increases were primarily due to increased payroll costs due to increased headcount in our clinical, reimbursement and human resource functions as part of our plan to increase our reimbursement capacity in 2024 in order to serve Medicare Part B patients, and the effect on payroll costs from a headcount decrease in the first quarter of 2023, as well as an increase in legal fees, offset by lower stock based compensation expense.

Current wording

G&A increased by approximately $844,200 and $1,351,200, or 35% and 18%, during the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023. The increases were primarily due to increased payroll costs due to increased headcount in our clinical, reimbursement and human resource functions as part of our plan to increase our reimbursement capacity in 2024 in order to serve Medicare Part B patients, and the effect on payroll costs from a headcount decrease in the first quarter of 2023, as well as increases in legal fees and other outside services.

Previous wording

Income tax expense recorded during the three and six months ended June 30, 2024 and 2023 represents the provision for income taxes for our wholly-owned subsidiary, Myomo Europe GmbH. Income tax expense increased in the three and six months ended June 30, 2024 as a result of higher taxable income compared to the same periods in 2023.

Current wording

Income tax expense recorded during the three and nine months ended September 30, 2024 and 2023 represents the provision for income taxes for our wholly-owned subsidiary, Myomo Europe GmbH. Income tax expense increased in the three and nine months ended September 30, 2024 as a result of higher taxable income compared to the same periods in 2023.

Previous wording

As of June 30, 2024, we had working capital of approximately $8.7 million and stockholders’ equity of approximately $9.7 million. We used approximately $5.2 million in cash for operating activities during the six months ended June 30, 2024. Our historical losses and cash used in operations are indicators of substantial doubt regarding our ability to continue as a going concern. Considering our cash, cash equivalents, and short-term investment balances as of June 30, 2024 and our plans to grow our revenues in 2024 by serving Medicare Part B beneficiaries, we believe there is sufficient cash, cash equivalents, and short-term investments to fund our operations and capital expenditures for the next 12 months from the date of this report.

Current wording

As of September 30, 2024, we had working capital of approximately $7.8 million and stockholders’ equity of approximately $9.3 million. We used approximately $6.7 million in cash for operating activities during the nine months ended September 30, 2024. Our historical losses and cash used in operations are indicators of substantial doubt regarding our ability to continue as a going concern. Considering our balance of cash and cash equivalents, as of September 30, 2024 and our plans to grow our revenues by serving Medicare Part B beneficiaries and availability under our line of credit, we believe there is sufficient cash and cash equivalents to fund our operations and capital expenditures for the next 12 months from the date of this report.

Previous wording

We have historically funded our operations through financing activities, including raising equity and debt capital. On July 11, 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. 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 to purchase common stock 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 to purchase common stock 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 to purchase common stock at $0.325 per share, or at $0.3249 per pre-funded warrant, generating proceeds after fees and expenses of approximately $5.7 million.

Current wording

We have historically funded our operations through financing activities, including raising equity and debt capital. On July 11, 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 is undrawn as of the issuance date of this Quarterly Report on Form 10-Q and availability under the line was approximately $0.9 million as of September 30, 2024. 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 to purchase common stock 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 to purchase common stock 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 to purchase common stock at $0.325 per share, or at $0.3249 per pre-funded warrant, generating proceeds after fees and expenses of approximately $5.7 million.

Previous wording

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 usage of our line of credit, 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 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.

Current wording

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 operating cash flow breakeven. We believe that we have access to capital resources, if necessary, through usage of our line of credit, 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 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.

Previous wording

Our operating plans are primarily focused on increasing our clinical, reimbursement and manufacturing capacity and increasing our advertising spending in the second half of 2024, in order to educate patients and clinicians regarding the MyoPro and to serve a higher volume of patients in 2025 and beyond. We believe that based on the final fees published by the CMS for our products, which became effective on April 1, 2024, if our supply chain is able to meet our volume requirements without disruption, and we are able to compensate for the additional advertising spending, we believe we can achieve cash flow breakeven on a quarterly basis by the fourth quarter of 2024. Based on our latitude as to the timing and amount of certain expenses, our current cash position and operating plans, we believe that the substantial doubt is alleviated as of the issuance date of these financial statements.

Current wording

Our operating plans are primarily focused on growing revenues in our direct billing channel by serving an increasing number of Medicare patients and training O&P providers in the United States to provide the MyoPro to their patients, which is expected to result in further revenue growth in 2025 and beyond. Based on the final fees published by CMS for our products, which became effective on April 1, 2024, if our supply chain is able to meet our volume requirements without disruption, we are able to compensate for additional advertising spending in the second half of 2024 above our original plan, expected payments are received and there is no increase in days sales outstanding in the fourth quarter, we believe we can achieve operating cash flow breakeven on a quarterly basis in the fourth quarter of 2024. In addition, we believe that we have access to capital resources through the use of our line of credit, possible public or private equity offerings, exercises of outstanding warrants, or other means. Based on our latitude as to the timing and amount of certain expenses, our current cash position, availability under our line of credit and operating plans, we believe that the substantial doubt is alleviated as of the issuance date of these financial statements.

Previous wording

Operating Activities. The net cash used in operating activities for the six months ended June 30, 2024 was primarily used to fund a net loss of approximately $5.0 million, adjusted for non-cash expenses in the aggregate amount of approximately $0.4 million and by approximately $0.6 million of cash used by net changes in the levels of operating assets and liabilities, primarily related to an increase in inventory and prepaid expenses and other current assets, offset by an increase in accounts payable and accrued expenses.

Current wording

Operating Activities. The net cash used in operating activities for the nine months ended September 30, 2024 was primarily used to fund a net loss of approximately $5.9 million, adjusted for non-cash expenses in the aggregate amount of approximately $0.8 million and by approximately $1.8 million of cash used by net changes in the levels of operating assets and liabilities, primarily related to an increase in accounts receivable, inventory and prepaid expenses and other current assets, offset by an increase in accounts payable and accrued expenses.

Previous wording

The net cash used in operating activities for the six months ended June 30, 2023 was primarily used to fund a net loss of approximately $3.7 million, adjusted for non-cash expenses in the aggregate amount of approximately $0.8 million and by approximately $0.8 million of cash generated by net changes in the levels of operating assets and liabilities, primarily related to an increase in accounts payable and accrued expenses and a decrease in accounts receivable, offset by an increase in prepared expenses and other current assets.

Current wording

The net cash used in operating activities for the nine months ended September 30, 2023 was primarily used to fund a net loss of approximately $5.7 million, adjusted for non-cash expenses in the aggregate amount of approximately $1.3 million and by approximately $0.6 million of cash generated by net changes in the levels of operating assets and liabilities, primarily related to an increase in accounts payable and accrued expenses, partially offset by an increases in accounts receivable and prepaid expenses and other current assets.

Previous wording

Investing Activities. During the six months ended June 30, 2024, and 2023, our cash used in investing activities of $1.2 million and $3.0 million respectively, was primarily related to our purchase, net of maturities, of short-term investments and purchases of equipment.

Current wording

Investing Activities. During the nine months ended September 30, 2024, and 2023, cash provided by investing activities was $1.6 million and used in investing activities was $4.3 million respectively. These amounts were impacted by the net difference between maturities and purchases of short term investments, in addition to purchases of equipment.

Previous wording

Financing Activities. There was $5.4 million and $5.8 million in cash generated from financing activities during the six months ended June 30, 2024 and 2023, respectively, due entirely to the net proceeds from our equity offerings in January 2024 and January 2023.

Current wording

Financing Activities. There was $5.4 million and $9.7 million in cash generated from financing activities during the nine months ended September 30, 2024 and 2023, respectively, due entirely to the net proceeds from our equity offerings in January 2024, January 2023 and August 2023.