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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2023

The accompanying unaudited condensed consolidated financial statements and notes are representations of the Company’s management, who are responsible for their integrity and objectivity. These statements have been prepared in accordance with United States generally accepted accounting principles ("U.S. GAAP") for interim financial information pursuant to Regulation S-X. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for annual financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) that are considered necessary for a fair presentation of the condensed consolidated financial statements of the Company as of September 30, 2023 and for the three and nine months ended September 30, 2023. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the operating results for the fiscal year ending December 31, 2023, or any other period. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and related disclosures of the Company as of December 31, 2022 and 2021 and for the years then ended, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Basis of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary Myomo Europe GmbH. All significant intercompany balances and transactions are eliminated.

Reclassifications

Certain prior year amounts have been reclassified to conform to current year's presentation, which management does not consider to be material.

Comprehensive Loss

Comprehensive loss includes all changes in equity during a period, except those resulting from investments by stockholders and distributions to stockholders. The Company's comprehensive loss includes changes in foreign currency translation adjustments and unrealized gains or losses on short-term investments. There was a reclassification which management does not consider to be material out of accumulated other comprehensive income (loss) to other (income) expense related to realized gains or losses on short-term investments in the three and nine months ended September 30, 2023.

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 these estimates. The Company’s significant estimates include the allowance for doubtful accounts, deferred tax valuation allowances, valuation of stock-based compensation, warranty obligations and reserves for slow-moving inventory.

Cash, Cash Equivalents and Short-term Investments

The Company considers all short-term highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company’s short-term investments are classified and accounted for as available-for-sale. Cash equivalents are recorded at cost plus accrued interest, which is considered adjusted cost, and approximates fair value. Marketable debt securities are included in cash equivalents and short-term investments based on the maturity date of the security.

The Company considers investments with maturities greater than three months, but less than one year, to be short-term investments. Investments are reported at fair value with realized gains or losses reported in other income (expense), net and unrealized gains and losses reported as other comprehensive (loss) income until realized, at which time they are reclassified to other (income) expense.

The Company reviews its investments to identify and evaluate investments that have an indication of possible impairment. Factors considered in determining whether a loss is temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, and the Company's intent and ability to hold the investment for a period of time

sufficient to allow for any anticipated recovery in market value. Expected credit losses are declines in fair value that are not expected to recover and are charged to other income (expense), net.

Cash, cash equivalents, and short-term investments measured on a fair value basis consist of the following:


	September 30, 2023		December 31, 2022
Cash and cash equivalents
Cash		986,937		995,310
Money market funds		5,178,048		4,350,657
Commercial paper		746,762		—
	$	6,911,747	$	5,345,967
Short-term investments
US government agency debt securities	$	2,225,765	$	—
Commercial paper		1,982,848		—
	$	4,208,613	$	—

As of September 30, 2023, unrealized loss on short-term investments included in other comprehensive (loss) income was not material.

Accounts Receivable and Allowance for Doubtful Accounts

The Company reports accounts receivable at invoiced amounts less an allowance for doubtful accounts. The Company evaluates its accounts receivable on a continuous basis, and if necessary, establishes an allowance for doubtful accounts based on a number of factors, including current credit conditions and customer payment history. The Company does not require collateral or accrue interest on accounts receivable and credit terms are generally 30 days. At September 30, 2023, and December 31, 2022, the Company recorded an allowance for doubtful accounts which was immaterial to the condensed consolidated financial statements.

Joint Venture

On March 28, 2022, the Company invested cash consideration of $199,000 for a 19.9% ownership stake in Jiangxi Myomo Medical Assistive Appliance Co., Ltd. (the “JV Company”), a company headquartered in China that is majority-owned by Beijing Ryzur Medical Investment Co., Ltd. (“Ryzur Medical”). The JV Company will manufacture and sell the Company’s current and future products in greater China, including Hong Kong, Macau and Taiwan. The Company accounts for its investment in the JV Company under the equity method because the Company exerts significant influence over its management. The investment is included in total assets on the condensed consolidated balance sheet. There was no impairment charge for the three and nine months ended September 30, 2023, associated with this equity investment. The Company records its share of the JV Company’s earnings in its condensed consolidated statement of operations in other (income) expense. The Company recorded a loss on equity investment of approximately $70,100 and $99,800 for the three and nine months ended September 30, 2023, respectively. The Company recorded a loss on equity investment of approximately $16,700 and $49,900 for the three and nine months ended September 30, 2022, respectively.

Revenue Recognition

Revenues under ASC 606 and related amendments (Topic 606) are required to 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.

The Company recognizes revenue after applying the following five steps:

Identification of the contract, or contracts, with a customer

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

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

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

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 the Company expects to be entitled to in exchange for those services.

Product Revenue

Increasingly, the Company derives its revenue from direct billing. The Company also derives revenue from the sale of its products to O&P providers in the United States and internationally, the Veterans Administration (“VA”) and distributors in Europe and Australia. Under direct billing, the Company recognizes revenue when all of the following criteria are met:

(i)

The 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. As an example, the Company will record revenue if it is notified that insurance intends to pay and a payment amount is provided.

(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 the Company has demonstrated sufficient payment history, the Company recognizes revenue when it receives 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 the Company expects to receive in exchange for the device. Once we are notified of pending payment, revenue is adjusted to the payment amount. This may occur in a period subsequent to when revenue was originally recorded. These insurers represented 69% and 41% of direct billing channel revenue during the three months ended September 30, 2023 and September 30, 2022, respectively. These insurers represented 61% and 43% of direct billing channel revenue during nine months ended September 30, 2023 and September 30, 2022, respectively.

Depending on the timing of product deliveries to customers, which is when cost of revenue must be recorded, and when the Company meets the criteria to record revenue, there may be fluctuations in gross margin. During the three months ended September 30, 2023 and 2022, the Company recognized revenue of approximately $1,324,300 and $1,266,500, respectively, and during the nine months ended September 30, 2023 and 2022, the Company recognized revenue of approximately $2,305,500 and $1,382,400, respectively, from O&P providers or third-party payers for which costs related to the completion of the Company’s performance obligations were recorded in a different period.

For revenues derived from O&P providers, the VA and rehabilitation hospitals, the Company recognizes revenue when control passes to the customer in an amount that reflects the consideration the Company expects 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.

The Company has elected to record taxes collected from customers on a net basis and does not include tax amounts in revenue or cost of revenue.

License Revenue

If a license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes 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.

On January 21, 2021, the Company entered into definitive agreements with Ryzur Medical to form a joint venture to manufacture and sell our current and future products in greater China, including Hong Kong, Macau and Taiwan (the “JV Agreements”). Under the JV Agreements, the Company is entitled to receive an upfront license fee of $2.7 million, of which $1.0 million was paid and recognized during the nine months ended September 30, 2022, and the remaining $1.7 million license fee was paid and recognized during the nine months ended September 30, 2023.

Contract Balances

The timing of revenue recognition may differ from the timing of payment by customers. The Company records a receivable when revenue is recognized prior to payment and there is an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, the Company records deferred revenue until the performance obligations are satisfied. The Company had approximately $30,700 and $21,200 of deferred revenue as of September 30, 2023 and December 31, 2022, respectively.

Disaggregated Revenue from Contracts with Customers

The following table presents revenue by major source:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
Direct to patient	$	3,501,958	$	3,123,183	$	9,245,345	$	8,077,721
Clinical/Medical providers		1,527,565		845,018	$	3,474,510	$	2,435,981
License revenue		50,000		—		1,764,920		1,000,000
Total revenue from contracts with customers	$	5,079,523	$	3,968,201	$	14,484,775	$	11,513,702

Geographic Data

The Company generated 78% of its total revenue from the United States, 19% from Germany and 3% from other international locations for the three months ended September 30, 2023. The Company generated 86% of its total and product revenue from the United States, 14% from Germany, and immaterial amounts from other international locations for the three months ended September 30, 2022.

During the nine months ended September 30, 2023, the Company generated 72% of its total revenues from the United States, 14% from Germany, 13% from China and 1% from other international locations. Excluding license revenue during the nine months ended September 30, 2023, the Company generated 82% of its product revenues from the United States, 16% from Germany and 2% from other international locations. During the nine months ended September 30, 2022, the Company generated 78% of its total revenues from the United States, 13% from Germany, 9% from China and an immaterial amount from other international locations. Excluding license revenue during the nine months ended September 30, 2022, the Company generated 85% of its product revenues from the United States, 14% from Germany and 1% from other international locations.

Cost of Revenue

In conjunction with the adoption of ASC 606, there are certain cases in which the Company will expense costs when incurred as required by ASC 340-40-25. In certain cases, the Company ships the MyoPro device to O&P providers, or provides the device directly to patients, pending reimbursement from third-party payers, after which revenue is recognized. For the three and nine months ended September 30, 2023, the Company recorded cost of goods sold of approximately $32,800 and $76,900, respectively, without corresponding revenue. For the three and nine months ended September 30, 2022, the Company recorded cost of goods sold of $282,500 and $509,600 without corresponding revenue, respectively. Direct billing fees paid to O&P providers for services they provide in conjunction with patient evaluations are expensed as incurred as required by ASC 340-40-25, as a cost of obtaining a contract. These costs are recorded as sales and marketing expense. Internal costs incurred and fees paid to O&P providers to measure, fit and deliver the device to patients are expensed to cost of revenue.

Advertising

The Company charges the costs of advertising to operating expenses as incurred. Advertising expense amounted to approximately $822,500 and $1,048,200 for the three months ended September 30, 2023 and 2022, respectively, and approximately $2,360,400 and $3,037,800 during the nine months ended September 30, 2023 and 2022, respectively.

Foreign Currency Translation

The functional currency of the Company’s foreign subsidiary, Myomo Europe GmbH, is the Euro. Net foreign currency gains and losses from translation of the Euro to U.S. dollars are recorded in accumulated other comprehensive income (loss) in the condensed consolidated balance sheets and other comprehensive loss (income) in the condensed consolidated statements of operations. During the three and nine months ended September 30, 2023 net foreign currency losses were approximately $47,100 and $50,500, respectively. The Company recorded a net foreign currency loss of approximately $1,600 and a gain of approximately $49,200, for the three and nine months ended September 30, 2022, respectively. Transaction foreign exchange gains and losses are included in net loss. The balance sheet is translated using the spot rate on the day of reporting and the condensed consolidated statement of operations is translated monthly using the average exchange rate for the month.

Net Loss per Share

Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding, plus potentially dilutive common shares. Restricted stock, restricted stock units, stock options and warrants are excluded from the diluted net loss per share calculation when their impact is antidilutive. The Company reported a net loss for the three and nine months ended September 30, 2023 and 2022, and as a result, all potentially dilutive common shares are considered antidilutive for these periods.

Potential common shares issuable consist of the following at:


	September 30,
	2023		2022
Stock options		24,982		30,780
Restricted stock units		1,621,935		489,520
Other warrants		668,250		691,554
Total		2,315,167		1,211,854

Due to their nominal exercise price of $0.0001 per share, a total of 8,750,926 pre-funded warrants are considered common stock equivalents and are included in weighted average shares outstanding in the accompanying condensed consolidated statement of operations as of the closing dates of the Company's public equity offerings in January 2023 and August 2023, respectively .

Recently Adopted Accounting Standards

In September 2022, the Financial Accounting Standards Board (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. The Company has adopted this new standard, which did not have a material impact on its financial position and results of operations.

In October 2023, the FASB issued ASU 2023-06, "Disclosure Improvements, Codification Amendments in Response to the SEC's 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. The Company currently complies 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 its financial position and results of operations.

Subsequent Events

The Company evaluates whether there have been subsequent events through the date the financial statements were issued and determines whether subsequent events exist that would require recognition in the financial statements or disclosure in the notes to the financial statements.