MYOMO, INC. (MYO) FY 2024 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 or delivering to a patient with Medicare Part B, the patient’s medical records are collected and reviewed to make sure the device is appropriate for their condition and a prescription is always obtained from a physician. Once these documents are obtained, if the patient has Medicare Advantage or other commercial insurance, a pre-authorization request is submitted to the patient’s insurer. If we receive a pre-authorization, we proceed to measure the patient’s arm a process we call shape capture. In many cases, shape capture is done using a remote measurement kit supplied to the patient. If the patient is covered by Medicare Part B, no pre-authorization is required and we can move directly to taking measurements of the patient's arm. We then use those measurements to 3D print orthotic parts, which are used to fabricate the MyoPro, and then deliver it to the patient. Since we are directly providing the device to the patient and then billing insurance ourselves, we refer to this process as direct billing. We also call on hospitals and O&P practices in the United States, Europe and Australia that provide our products to their patients as well as generate indirect sales. The MyoPro product line has been approved by the VA system for impaired veterans, and over 130 VA facilities have ordered devices for their patients.

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

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

Other milestones in our history include:

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

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

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

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

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

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

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

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

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

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

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

Recent Developments

Equity Offerings

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

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Results of Operations

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

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

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

Revenues

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

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

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

Cost of Revenue and Gross margin

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

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

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

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Operating expenses

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

Research and development

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

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

Selling, clinical and marketing

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

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

General and administrative

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

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

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Other expense (income)

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

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

Income tax expense

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

Adjusted EBITDA

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

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

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

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Adjusted EBITDA does not include interest income, net;

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

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

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

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

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

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

Liquidity and Capital Resources

Liquidity

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

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

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

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

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

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

Cash Flows

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

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

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

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

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

Critical Accounting Estimates

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

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

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

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The discount rate on leases

Timing and Amount of Revenue Recognition

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

Discount Rate on Leases

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

Recent Accounting Standards

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

impact on our financial position and results of operations.

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

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