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Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2021

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 GAAP for interim financial information pursuant to Regulation S-X. Accordingly, they do not include all of the information and disclosures required by 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 March 31, 2021 and for the three months ended March 31, 2021. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the operating results for the fiscal year ending December 31, 2021, 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, 2020 and 2019 and for the years then ended, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Basis of Consolidation

The 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.

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. There were no reclassifications out of accumulated other comprehensive loss in the periods ended March 31, 2021 and 2020.

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 and warranty obligations.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents consist principally of deposit accounts and money market accounts at March 31, 2021 and December 31, 2020.

Cash and cash equivalents are reported in the condensed consolidated balance sheets that sum to the total of the same amounts shown in the condensed consolidated statements of cash flows.

Accounts Payable and Other Accrued Expenses

Accounts Payable and Other Accrued Expenses:

	March 31, 2021		December 31, 2020
Trade payables	$	714,028	$	180,499
Accrued compensation and benefits		2,419,343		1,843,402
Accrued professional services		140,811		92,399
Deferred payroll taxes under CARES Act		113,423		118,060
Warranty reserve		119,661		119,713
Other		385,209		494,831
	$	3,892,475	$	2,848,904

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.

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 VA and rehabilitation hospitals. 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 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 the reflects the consideration the Company expects to receive in exchange for the device. During the fourth quarter of 2020, the Company made such a determination for certain insurers. These insurers represented approximately 36% of direct billing channel revenue during the three months ended March 31, 2021.

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 March 31, 2021 and 2020, the Company recognized revenue of approximately $1,131,400 and $389,500, 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 prior 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. In certain cases, the Company ships its products to O&P providers pending reimbursement from non-government, third party payers. As a result of this arrangement, elements of the revenue recognition criteria have not been met upon shipment. In this instance, the Company recognizes revenue when the amount is estimable and the Company determines it is probable that payment will be received. In many cases, the Company is not able to recognize revenue in these situations until payment is received, as then all of the revenue recognition criteria have been met.

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.

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 $1,500 and $4,000 deferred revenue as of March 31, 2021 and December 31, 2020.

Disaggregated Revenue from Contracts with Customers

The following table presents revenue by major source:

	For the Three Months Ended March 31,
	2021		2020
Clinical/Medical providers	$	634,559	$	387,888
Direct to patient		1,701,930		620,257
Total revenue from contracts with customer	$	2,336,489	$	1,008,145

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. Under ASC 340-40-25, this inventory is expensed to cost of revenue as of the date of shipment. Under 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 cast, fit and deliver the device to patients are expensed to cost of revenue upon delivery to the patient.

Foreign Currency Transactions

Foreign Currency Translation

The functional currency of the Company’s foreign subsidiary, Myomo Europe GmbH, is the Euro during the three months ended March 31, 2021. Net foreign currency gains and losses during the three months ended March 31, 2021 were immaterial and included in accumulated other comprehensive loss in the condensed consolidated balance sheet. Transaction foreign exchange gains and losses are included in net loss. Foreign exchange translation gains and losses from the functional currency, the Euro, to U.S. dollars are captured in other comprehensive loss. During the three months ended March 31, 2020, the functional currency of Myomo Europe GmbH was the U.S dollar. Net foreign currency gains and losses during the three months ended March 31, 2020 were immaterial and included in interest (income) expense and other expense, net, in the condensed consolidated statement of operations. The balance sheet is translated using the spot rate on the day of reporting and the income statement is translated monthly using the average 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. Convertible debt, preferred stock, 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 months ended March 31, 2021 and 2020, and as a result, all potentially dilutive common shares are considered antidilutive for these periods.

Potential common shares issuable consist of the following at:

	March 31,
	2021		2020
Options		24,137		20,928
Warrants		1,709,714		2,549,453
Restricted stock units		273,321		16,022
Restricted stock		30		560
Total		2,007,202		2,586,963

Recent Accounting Standards

In December 2019, the FASB issued ASU 2019-12 “Income Taxes (Topic 740) -- Simplifying the Accounting for Income Taxes. This ASU modifies certain provisions of ASC 740 to simplify the accounting for income taxes. The amendments in ASU 2019-12 are effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The Company adopted the new standard on January 1, 2021, and there was no impact on the Company’s consolidated financial statements.

Subsequent Events

The Company evaluated subsequent events through the date the financial statements were issued and determined that there have been no subsequent events that would require recognition in the financial statements or disclosure in the notes to the financial statements.