UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20212022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to_____
Commission File Number 001-36533
MEDAVAIL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | | | | |
Delaware | | | | 90-0772394 |
(State or other jurisdiction of incorporation or organization) | | | | (I.R.S. Employer Identification Number) |
6665 Millcreek Dr. Unit 1, Mississauga ON Canada4720 East Cotton Gin Loop, Suite 220, Phoenix, Arizona | | | | L5N 5M485040 |
(Address of principal executive offices) | | | | (Zip Code) |
+1 (905) 812-0023
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, par value $0.001 per share | | MDVL | | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 5, 2021,8, 2022, there were 32,848,15480,045,696 shares of the registrant’s common stock outstanding.
MedAvail Holdings, Inc.
Form 10-Q
For the Three and Nine Months Ended September 30, 20212022
TABLE OF CONTENTS
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| | Page |
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PART I | | |
Item 1. | Financial Statements | |
| Consolidated Condensed Balance Sheets | |
| Consolidated Condensed Statements of Operations and Comprehensive Loss (Unaudited) | |
| Condensed Consolidated Condensed Statements of Shareholders' Equity (Deficit)Balance Sheets | |
| Condensed Consolidated Statements of Operations and Comprehensive Loss | 6 |
| Condensed Consolidated Statements of Shareholders' Equity | 7 |
| Condensed Consolidated Statements of Cash Flows | |
| Notes to Condensed Consolidated Condensed Financial Statements | |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | |
Item 4. | Controls and Procedures | |
| | |
PART II | | |
Item 1. | Legal Proceedings | |
Item 1A. | Risk Factors | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 3. | Defaults Upon Senior Securities | |
Item 4. | Mine Safety Disclosures | |
Item 5. | Other Information | |
Item 6. | Exhibits | |
| | |
Signatures | | |
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business, operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology.
These forward-looking statements include, but are not limited to, statements about:
•our plans to modify our current products, or develop new products;
•the expected growth of our business and organization;
•our expectations regarding the size of our sales organization and expansion of our sales and marketing efforts;
•our ability to retain and recruit key personnel, including the continued development of a sales and marketing infrastructure;
•our ability to obtain and maintain intellectual property protection for our products;
•our ability to expand our business into new geographic markets;
•our compliance with extensive Nasdaq requirements and government laws, rules and regulations both in the United States and internationally;
•our estimates of expenses, ongoing losses, future revenue, capital requirements and our need for, or ability to obtain, additional financing;
•our ability to identify and develop new and planned products and/or acquire new products;
•the expectations regarding the impact of the COVID-19 pandemic on our business;
•existing regulations and regulatory developments in the United States, Canada and other jurisdictions;
•the impact of laws and regulations;
•our financial performance;
•the period over which we estimate our existing cash, cash equivalents and available-for-sale investments will be sufficient to fund our future operating expenses and capital expenditure requirements;
•our anticipated use of our existing resources;
•developments and projections relating to our competitors or our industry.industry; and
•the impact of general market and macroeconomic conditions, including inflation and events including the outbreak of war in Ukraine,
on our business.
We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to accurately predict or control and that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. These forward-looking statements are based on management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate and management’s beliefs and assumptions and are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be inaccurate. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Potential investors are urged to consider these factors carefully in evaluating the forward-looking statements. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. We assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or to changes in our expectations.
You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed with the SEC as exhibits to the Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.
PART I
Item 1. Financial Statements
MEDAVAIL HOLDINGS, INC.
Condensed Consolidated Condensed Balance Sheets
(Unaudited)
(US Dollars in thousands, except share amounts)
| | | September 30, | | December 31, | | September 30, | | December 31, |
| | 2021 | | 2020 | | 2022 | | 2021 |
| Assets | Assets | | Assets | |
Current assets: | Current assets: | | Current assets: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 35,875 | | | $ | 57,936 | | Cash and cash equivalents | $ | 27,196 | | | $ | 19,689 | |
Restricted cash | Restricted cash | 400 | | | 60 | | Restricted cash | 676 | | | 400 | |
Accounts receivable (net of allowance for doubtful accounts of $27 thousand for September 30, 2021, $40 thousand for December 31, 2020) | 1,075 | | | 1,520 | | |
Accounts receivable (net of allowance for doubtful accounts of $186 thousand for September 30, 2022, $66 thousand for December 31, 2021) | | Accounts receivable (net of allowance for doubtful accounts of $186 thousand for September 30, 2022, $66 thousand for December 31, 2021) | 2,262 | | | 1,189 | |
Inventories | Inventories | 4,253 | | | 2,817 | | Inventories | 6,401 | | | 3,916 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | 762 | | | 1,534 | | Prepaid expenses and other current assets | 2,863 | | | 2,191 | |
Total current assets | Total current assets | 42,365 | | | 63,867 | | Total current assets | 39,398 | | | 27,385 | |
Property, plant and equipment, net | Property, plant and equipment, net | 4,632 | | | 3,795 | | Property, plant and equipment, net | 6,370 | | | 5,692 | |
Intangible assets, net | | Intangible assets, net | 1,580 | | | 2,300 | |
Right-of-use assets | Right-of-use assets | 2,902 | | | 1,239 | | Right-of-use assets | 2,270 | | | 2,538 | |
Other assets | Other assets | 248 | | | 203 | | Other assets | 233 | | | 228 | |
Intangible assets | 1,950 | | | 227 | | |
Total assets | Total assets | $ | 52,097 | | | $ | 69,331 | | Total assets | $ | 49,851 | | | $ | 38,143 | |
Liabilities and Stockholders' Equity | Liabilities and Stockholders' Equity | | | | Liabilities and Stockholders' Equity | | | |
Current liabilities: | Current liabilities: | | Current liabilities: | |
Accounts payable and accrued liabilities | $ | 7,075 | | | $ | 4,512 | | |
Short-term debt | 1,000 | | | 2,161 | | |
Contract liability | 317 | | | 275 | | |
Accounts payable | | Accounts payable | $ | 2,006 | | | $ | 2,477 | |
Accrued liabilities | | Accrued liabilities | 1,383 | | | 1,530 | |
Accrued payroll and benefits | | Accrued payroll and benefits | 2,869 | | | 2,733 | |
Deferred revenue | | Deferred revenue | 70 | | | 83 | |
Current portion of lease obligations | Current portion of lease obligations | 742 | | | 665 | | Current portion of lease obligations | 728 | | | 682 | |
Total current liabilities | Total current liabilities | 9,134 | | | 7,613 | | Total current liabilities | 7,056 | | | 7,505 | |
Long-term debt, net | Long-term debt, net | 9,466 | | | — | | Long-term debt, net | 9,751 | | | 9,538 | |
Long-term portion of lease obligations | Long-term portion of lease obligations | 2,279 | | | 651 | | Long-term portion of lease obligations | 1,738 | | | 2,027 | |
| Total liabilities | Total liabilities | 20,879 | | | 8,264 | | Total liabilities | 18,545 | | | 19,070 | |
| Commitments and contingencies | Commitments and contingencies | 0 | | 0 | Commitments and contingencies | | | |
Stockholders' deficit: | | |
Common shares ($0.001 par value, 100,000,000 shares authorized, 32,754,925 and 31,816,020 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively) | 33 | | | 32 | | |
Stockholders' equity: | | Stockholders' equity: | |
Common shares ($0.001 par value, 300,000,000 shares authorized, 80,045,696 and 32,902,048 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively) | | Common shares ($0.001 par value, 300,000,000 shares authorized, 80,045,696 and 32,902,048 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively) | 80 | | | 33 | |
Warrants | Warrants | 1,373 | | | 2,614 | | Warrants | 11,148 | | | 1,373 | |
Additional paid-in-capital | Additional paid-in-capital | 216,204 | | | 213,624 | | Additional paid-in-capital | 255,642 | | | 216,685 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (6,928) | | | (6,928) | | Accumulated other comprehensive loss | (6,928) | | | (6,928) | |
Accumulated deficit | Accumulated deficit | (179,464) | | | (148,275) | | Accumulated deficit | (228,636) | | | (192,090) | |
Total stockholders' equity | Total stockholders' equity | 31,218 | | | 61,067 | | Total stockholders' equity | 31,306 | | | 19,073 | |
Total liabilities and stockholders' equity | Total liabilities and stockholders' equity | $ | 52,097 | | | $ | 69,331 | | Total liabilities and stockholders' equity | $ | 49,851 | | | $ | 38,143 | |
The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.
MEDAVAIL HOLDINGS, INC.
Consolidated Condensed Statements of Operations and Comprehensive Loss
(Unaudited)
(US Dollars in thousands, except share and per-share amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Sales: | | | | | | | |
Pharmacy and hardware sales | $ | 5,659 | | | $ | 3,926 | | | $ | 14,165 | | | $ | 7,587 | |
Service sales | 133 | | | 3,219 | | | 684 | | | 3,281 | |
Total sales | 5,792 | | | 7,145 | | | 14,849 | | | 10,868 | |
Cost of sales: | | | | | | | |
Pharmacy and hardware cost of sales | 5,539 | | | 2,132 | | | 13,744 | | | 5,343 | |
Service cost of sales | 67 | | | 30 | | | 426 | | | 116 | |
Total cost of sales | 5,606 | | | 2,162 | | | 14,170 | | | 5,459 | |
Gross profit | 186 | | | 4,983 | | | 679 | | | 5,409 | |
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Pharmacy operations | 2,395 | | | 1,450 | | | 6,619 | | | 3,655 | |
General and administrative | 6,805 | | | 3,464 | | | 19,941 | | | 10,544 | |
Selling and marketing | 1,779 | | | 624 | | | 4,657 | | | 1,897 | |
Research and development | 232 | | | 154 | | | 601 | | | 532 | |
Merger expenses | — | | | 1,324 | | | — | | | 2,607 | |
Operating loss | (11,025) | | | (2,033) | | | (31,139) | | | (13,826) | |
Other gain (loss), net | 7 | | | — | | | 206 | | | 8 | |
Interest income | 7 | | | — | | | 74 | | | 15 | |
Interest expense | (260) | | | (455) | | | (328) | | | (911) | |
Loss before income taxes | (11,271) | | | (2,488) | | | (31,187) | | | (14,714) | |
Income tax expense | (2) | | | — | | | (2) | | | — | |
Net loss | $ | (11,273) | | | $ | (2,488) | | | $ | (31,189) | | | $ | (14,714) | |
Other comprehensive income (loss): | | | | | | | |
Foreign currency translation adjustment | $ | — | | | $ | — | | | $ | — | | | $ | (2) | |
Total comprehensive loss | $ | (11,273) | | | $ | (2,488) | | | $ | (31,189) | | | $ | (14,716) | |
Net loss per share - basic and diluted | $ | (0.34) | | | $ | (1.22) | | | $ | (0.96) | | | $ | (7.60) | |
Weighted average shares outstanding - basic and diluted | 32,750,831 | | 2,045,686 | | 32,580,199 | | 1,936,015 |
The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.
MEDAVAIL HOLDINGS, INC.
Condensed Consolidated Condensed Statements of Shareholders' Equity (Deficit)Operations and Comprehensive Loss
(Unaudited)
(US Dollars in thousands, except per share and per-share amounts)
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| Common Shares | | Preferred Shares (1) | | Warrants | | Additional Paid-in-Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total Stockholders' Equity (Deficit) |
| Shares | Amount | | Shares | Amount | | | | | |
Balance at June 30, 2021 | 32,583,734 | | $ | 33 | | | — | | $ | — | | | $ | 1,485 | | | $ | 215,700 | | | $ | (168,191) | | | $ | (6,928) | | | $ | 42,099 | |
Net loss | — | | — | | | — | | — | | | — | | | — | | | (11,273) | | | — | | | (11,273) | |
Shares issued for options exercises | — | | — | | | — | | — | | | — | | | — | | | — | | | — | | | — | |
Exercise of warrants | 171,191 | | — | | | — | | — | | | (112) | | | 139 | | | — | | | — | | | 27 | |
Share-based compensation | — | | — | | | — | | — | | | — | | | 365 | | | — | | | — | | | 365 | |
Balance at September 30, 2021 | 32,754,925 | | $ | 33 | | | — | | $ | — | | | $ | 1,373 | | | $ | 216,204 | | | $ | (179,464) | | | $ | (6,928) | | | $ | 31,218 | |
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Balance at December 31, 2020 | 31,816,020 | | 32 | | | — | | — | | | 2,614 | | | 213,624 | | | (148,275) | | | (6,928) | | | 61,067 | |
Net loss | — | | — | | | — | | — | | | — | | | — | | | (31,189) | | | — | | | (31,189) | |
Shares issued for options exercises | 144,101 | | — | | | — | | — | | | — | | | 241 | | | — | | | — | | | 241 | |
Exercise of warrants | 794,804 | | 1 | | | — | | — | | | (1,241) | | | 1,391 | | | — | | | — | | | 151 | |
Share-based compensation | — | | — | | | — | | — | | | — | | | 948 | | | — | | | — | | | 948 | |
Balance at September 30, 2021 | 32,754,925 | | $ | 33 | | | — | | $ | — | | | $ | 1,373 | | | $ | 216,204 | | | $ | (179,464) | | | $ | (6,928) | | | $ | 31,218 | |
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Balance at June 30, 2020 | 1,523,995 | $ | 8 | | | 10,603,217 | $ | 94,272 | | | $ | 1,315 | | | $ | 31,019 | | | $ | (133,456) | | | $ | (6,952) | | | $ | (13,794) | |
Net loss | — | — | | | — | — | | | — | | | — | | | (2,488) | | | — | | | (2,488) | |
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Shares issued for options exercises | 12,532 | — | | | — | — | | | — | | | 19 | | | — | | | — | | | 19 | |
Share-based compensation | — | — | | | — | — | | | — | | | 65 | | | — | | | — | | | 65 | |
Warrants issued | — | — | | | — | — | | | 5 | | | — | | | — | | | — | | | 5 | |
Cumulative translation adjustment | — | — | | | — | — | | | — | | | — | | | — | | | — | | | — | |
Balance at September 30, 2020 | 1,536,527 | $ | 8 | | | 10,603,217 | $ | 94,272 | | | $ | 1,320 | | | $ | 31,103 | | | $ | (135,944) | | | $ | (6,952) | | | $ | (16,193) | |
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Balance at December 31, 2019 | 1,504,251 | 8 | | | 10,500,440 | 93,484 | | | 698 | | | 30,829 | | | (121,230) | | | (6,950) | | | (3,161) | |
Net loss | — | — | | | — | — | | | — | | | — | | | (14,714) | | | — | | | (14,714) | |
Issuance of preferred shares | — | — | | | 102,777 | 788 | | | — | | | — | | | — | | | — | | | 788 | |
Shares issued for options exercises | 32,276 | — | | | — | — | | | — | | | 50 | | | — | | | — | | | 50 | |
Share-based compensation | — | — | | | — | — | | | — | | | 235 | | | — | | | — | | | 235 | |
Warrants issued | — | — | | | — | — | | | 622 | | | (11) | | | — | | | — | | | 611 | |
Cumulative translation adjustment | — | — | | | — | — | | | — | | | — | | | — | | | (2) | | | (2) | |
Balance at September 30, 2020 | 1,536,527 | $ | 8 | | | 10,603,217 | $ | 94,272 | | | $ | 1,320 | | | $ | 31,103 | | | $ | (135,944) | | | $ | (6,952) | | | $ | (16,193) | |
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(1) $0.001 par value, 10,000,000 shares authorized at September 30, 2021 and December 31, 2020. $0.001 par value, 16,638,421 shares authorized at September 30, 2020. | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Revenue: | | | | | | | |
Pharmacy and hardware revenue | $ | 11,266 | | | $ | 5,659 | | | $ | 31,210 | | | $ | 14,165 | |
Service revenue | 195 | | | 133 | | | 549 | | | 684 | |
Total revenue | 11,461 | | | 5,792 | | | 31,759 | | | 14,849 | |
Cost of products sold and services: | | | | | | | |
Pharmacy and hardware cost of products sold | 10,113 | | | 5,539 | | | 28,827 | | | 13,744 | |
Service costs | 56 | | | 67 | | | 221 | | | 426 | |
Total cost of products sold and services | 10,169 | | | 5,606 | | | 29,048 | | | 14,170 | |
Operating expense: | | | | | | | |
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Pharmacy operations | 4,392 | | | 3,750 | | | 11,970 | | | 9,428 | |
General and administrative | 6,087 | | | 5,320 | | | 18,729 | | | 16,733 | |
Selling and marketing | 2,126 | | | 1,909 | | | 6,738 | | | 5,056 | |
Research and development | 178 | | | 232 | | | 952 | | | 601 | |
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Total operating expense | 12,783 | | | 11,211 | | | 38,389 | | | 31,818 | |
Operating loss | (11,491) | | | (11,025) | | | (35,678) | | | (31,139) | |
Other gain (loss), net | — | | | 7 | | | — | | | 206 | |
Interest income | — | | | 7 | | | 1 | | | 74 | |
Interest expense | (315) | | | (260) | | | (845) | | | (328) | |
Loss before income taxes | (11,806) | | | (11,271) | | | (36,522) | | | (31,187) | |
Income tax expense | — | | | (2) | | | (24) | | | (2) | |
Net loss and comprehensive loss | $ | (11,806) | | | $ | (11,273) | | | $ | (36,546) | | | $ | (31,189) | |
Net loss per share - basic and diluted | $ | (0.15) | | | $ | (0.34) | | | $ | (0.60) | | | $ | (0.96) | |
Weighted average shares outstanding - basic and diluted | 80,045,995 | | 32,750,831 | | 60,947,511 | | 32,580,199 |
The accompanying notes are an integral part of these unaudited condensed consolidated condensed financial statements.
MEDAVAIL HOLDINGS, INC.
Condensed Consolidated Condensed StatementStatements of Cash FlowsShareholders' Equity
(Unaudited)
(US Dollars in thousands)thousands, except per share amounts)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2021 | | 2020 |
Cash flows from operating activities: | | | |
Net loss | $ | (31,189) | | | $ | (14,714) | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | |
Depreciation of property, plant, and equipment | 928 | | | 721 | |
Amortization of intangible and leased assets, and debt discount | 877 | | | 525 | |
Bad debt and other non cash receivables adjustments | 47 | | | 39 | |
Interest accretion on debt and finance leases | — | | | 834 | |
Unrealized foreign currency gain | — | | | (2) | |
Other loss | — | | | 67 | |
Share-based compensation expense | 948 | | | 235 | |
Warrant expense | — | | | 174 | |
PPP loan forgiveness gain | (161) | | | — | |
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Changes in operating assets and liabilities: | | | |
Change in accounts receivable | 398 | | | (243) | |
Change in inventory | (2,511) | | | (243) | |
Change in prepaid expenses and other current assets | 772 | | | (117) | |
Change in accounts payable, accrued expenses and other liabilities | 2,180 | | | 2,427 | |
Change in contract liability | 42 | | | (4,694) | |
Change in operating lease liability due to cash payments | (505) | | | (336) | |
Net cash used in operating activities | (28,174) | | | (15,327) | |
Cash flows from investing activities: | | | |
Purchase of property, plant and equipment | (680) | | | (419) | |
Payment of security deposits | (45) | | | (114) | |
Purchase of intangible assets and other assets | (1,544) | | | (82) | |
Net cash used in investing activities | (2,269) | | | (615) | |
Cash flows from financing activities: | | | |
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Issuance of common shares upon exercise of options and warrants | 392 | | | 39 | |
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Issuance of preferred shares | — | | | 788 | |
| | | |
Proceeds from debt | 10,000 | | | 8,498 | |
Payment of debt issuance costs | (624) | | | (69) | |
Repayment of debt | (1,000) | | | — | |
Payments on finance lease obligations | (46) | | | (16) | |
| | | |
Net cash provided by financing activities | 8,722 | | | 9,240 | |
Net decrease in cash, cash equivalents and restricted cash | (21,721) | | | (6,702) | |
Cash, cash equivalents and restricted cash at beginning of period | 57,996 | | | 8,849 | |
Cash, cash equivalents and restricted cash at end of period | $ | 36,275 | | | $ | 2,147 | |
| | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Shares | | Preferred Shares (1) | Warrants | | Additional Paid-in-Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total Stockholders' Equity |
| Shares | | Amount | | Shares | Amount | | | | | |
Balance at June 30, 2022 | 70,609,972 | | | $ | 71 | | | — | | $ | — | | | $ | 8,876 | | | $ | 247,598 | | | $ | (216,830) | | | $ | (6,928) | | | $ | 32,787 | |
Net loss | — | | | — | | | — | | — | | | — | | | — | | | (11,806) | | | — | | | (11,806) | |
Issuance of common shares | 9,411,765 | | | 9 | | | — | | — | | | — | | | 9,751 | | | — | | | — | | | 9,760 | |
Issuance of warrants | — | | | — | | | — | | — | | | 2,272 | | | (2,272) | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | |
Shares issued for vested restricted stock units | 23,959 | | | — | | | — | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | |
Share-based compensation | — | | | — | | | — | | — | | | — | | | 565 | | | — | | | — | | | 565 | |
Balance at September 30, 2022 | 80,045,696 | | | $ | 80 | | | — | | $ | — | | | $ | 11,148 | | | $ | 255,642 | | | $ | (228,636) | | | $ | (6,928) | | | $ | 31,306 | |
| | | | | | | | | | | | | | | | |
Balance at December 31, 2021 | 32,902,048 | | | $ | 33 | | | — | | — | | | $ | 1,373 | | | $ | 216,685 | | | $ | (192,090) | | | $ | (6,928) | | | $ | 19,073 | |
Net loss | — | | | — | | | — | | — | | | — | | | — | | | (36,546) | | | — | | | (36,546) | |
Issuance of common shares | 47,058,820 | | | 47 | | | — | | — | | | — | | | 46,914 | | | — | | | — | | | 46,961 | |
Issuance of warrants | — | | | — | | | — | | — | | | 9,775 | | | (9,775) | | | — | | | — | | | — | |
Shares issued for vested restricted stock units | 30,833 | | | — | | | — | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | |
Issuance of common shares under employee stock purchase plan | 53,995 | | | — | | | — | | — | | | — | | | 77 | | | — | | | — | | | 77 | |
Share-based compensation | — | | | — | | | — | | — | | | — | | | 1,741 | | | — | | | — | | | 1,741 | |
Balance at September 30, 2022 | 80,045,696 | | | $ | 80 | | | — | | $ | — | | | $ | 11,148 | | | $ | 255,642 | | | $ | (228,636) | | | $ | (6,928) | | | $ | 31,306 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Balance at June 30, 2021 | 32,583,734 | | $ | 33 | | | — | $ | — | | | $ | 1,485 | | | $ | 215,700 | | | $ | (168,191) | | | $ | (6,928) | | | $ | 42,099 | |
Net loss | — | | — | | | — | — | | | — | | | — | | | (11,273) | | | — | | | (11,273) | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Exercise of warrants | 171,191 | | — | | | — | — | | | (112) | | | 139 | | | — | | | — | | | 27 | |
Share-based compensation | — | | — | | | — | — | | | — | | | 365 | | | — | | | — | | | 365 | |
| | | | | | | | | | | | | | | | |
Balance at September 30, 2021 | 32,754,925 | | $ | 33 | | | — | $ | — | | | $ | 1,373 | | | $ | 216,204 | | | $ | (179,464) | | | $ | (6,928) | | | $ | 31,218 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Balance at December 31, 2020 | 31,816,020 | | 32 | | | — | — | | | 2,614 | | | 213,624 | | | (148,275) | | | (6,928) | | | 61,067 | |
Net loss | — | | — | | | — | — | | | — | | | — | | | (31,189) | | | — | | | (31,189) | |
Exercise of options | 144,101 | | — | | | — | — | | | — | | | 241 | | | — | | | — | | | 241 | |
Exercise of warrants | 794,804 | | 1 | | | — | — | | | (1,241) | | | 1,391 | | | — | | | — | | | 151 | |
Share-based compensation | — | | — | | | — | — | | | — | | | 948 | | | — | | | — | | | 948 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Balance at September 30, 2021 | 32,754,925 | | $ | 33 | | | — | $ | — | | | $ | 1,373 | | | $ | 216,204 | | | $ | (179,464) | | | $ | (6,928) | | | $ | 31,218 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
(1) $0.001 par value, 10,000,000 shares authorized for all periods presented.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
MEDAVAIL HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands) | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2022 | | 2021 |
Cash flows from operating activities: | | | |
Net loss | $ | (36,546) | | | $ | (31,189) | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | |
Depreciation of property, plant, and equipment | 891 | | | 928 | |
Amortization of intangible and leased assets | 2,141 | | | 877 | |
Bad debt and other non-cash receivables adjustments | 120 | | | 47 | |
Term loan discount amortization and interest accretion on debt | 213 | | | — | |
Impairment of lease asset | (27) | | | — | |
Share-based compensation expense | 1,741 | | | 948 | |
| | | |
PPP loan forgiveness gain | — | | | (161) | |
| | | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | (1,193) | | | 398 | |
Inventory | (3,354) | | | (2,511) | |
Prepaid expenses and other current assets | (672) | | | 772 | |
Accounts payable, accrued expenses and other liabilities | (137) | | | 2,180 | |
Deferred revenue | (13) | | | 42 | |
Operating lease liability due to cash payments | (447) | | | (505) | |
Net cash used in operating activities | (37,283) | | | (28,174) | |
Cash flows from investing activities: | | | |
Purchase of property, plant and equipment | (804) | | | (680) | |
Payment of security deposits | (5) | | | (45) | |
Purchase of intangible and other assets | (1,088) | | | (1,544) | |
Net cash used in investing activities | (1,897) | | | (2,269) | |
Cash flows from financing activities: | | | |
Proceeds from issuance of common shares, net | 46,961 | | | — | |
Proceeds from issuance of common shares upon exercise of options and warrants | — | | | 392 | |
| | | |
Proceeds from issuance of common shares upon exercise of employee stock purchase plan | 77 | | | — | |
Proceeds from debt | — | | | 10,000 | |
Payment of debt issuance costs | — | | | (624) | |
Repayment of debt | — | | | (1,000) | |
Payments on finance lease obligations | (75) | | | (46) | |
| | | |
Net cash provided by financing activities | 46,963 | | | 8,722 | |
Net increase (decrease) in cash, cash equivalents and restricted cash | 7,783 | | | (21,721) | |
Cash, cash equivalents and restricted cash at beginning of period | 20,089 | | | 57,996 | |
Cash, cash equivalents and restricted cash at end of period | $ | 27,872 | | | $ | 36,275 | |
| | | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
MEDAVAIL HOLDINGS, INC.
Condensed Consolidated Condensed Statement of Cash Flows
(Unaudited)
(US Dollars in thousands)
| | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Supplemental cash flow information: | | Supplemental cash flow information: | | | |
Cash paid for interest | | Cash paid for interest | $ | 603 | | | $ | 125 | |
Supplemental noncash investing and financing activities: | Supplemental noncash investing and financing activities: | | | | Supplemental noncash investing and financing activities: | |
Inventory transferred to property, plant and equipment | Inventory transferred to property, plant and equipment | $ | 1,075 | | | $ | 1,182 | | Inventory transferred to property, plant and equipment | $ | 869 | | | $ | 1,075 | |
Property, plant and equipment transferred to intangible assets | Property, plant and equipment transferred to intangible assets | $ | 46 | | | $ | — | | Property, plant and equipment transferred to intangible assets | $ | — | | | $ | 46 | |
Purchase of property, plant and equipment in accounts payable | Purchase of property, plant and equipment in accounts payable | $ | 56 | | | $ | 62 | | Purchase of property, plant and equipment in accounts payable | $ | 21 | | | $ | 56 | |
Purchase of intangible assets in accounts payable | Purchase of intangible assets in accounts payable | $ | 398 | | | $ | 36 | | Purchase of intangible assets in accounts payable | $ | — | | | $ | 398 | |
Conversion of other liability amount into warrants | $ | — | | | $ | 448 | | |
Fair value of warrants issued upon closing of private placement | | Fair value of warrants issued upon closing of private placement | $ | 9,775 | | | $ | — | |
| Lease liabilities arising from obtaining right of use assets: | Lease liabilities arising from obtaining right of use assets: | | Lease liabilities arising from obtaining right of use assets: | |
Operating leases | Operating leases | $ | 2,177 | | | $ | 590 | | Operating leases | $ | 206 | | | $ | 2,177 | |
Finance leases | Finance leases | $ | 97 | | | $ | 164 | | Finance leases | $ | 73 | | | $ | 97 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
MEDAVAIL HOLDINGS, INC.
Notes to Condensed Consolidated Condensed Financial Statements
(Unaudited)
NOTE 1 - NATURE OF OPERATIONS
MedAvail Holdings, Inc., a Delaware corporation, or , MedAvail, or the Company, a Delaware corporation formerly known as MYOS RENS Technology, is a telehealth-enabled pharmacy technology and services company that has developed and commercialized an innovative self-service pharmacy, mobile application, kiosk and drive-thru solution. MedAvail'skiosk. The Company’s principal technology and product is the MedCenter, a pharmacist controlled, customer-interactive, prescription dispensing system akin to a “pharmacy in a box” or prescription-dispensing ATM. The MedCenter facilitates live pharmacist counsellingcounseling via two-way audio-video communication with the ability to dispense prescription medicines under pharmacist control. MedAvailThe Company also operates SpotRx, or the Pharmacy, which is a full-service retail pharmacy utilizing the Company’s MedCenterautomated pharmacy technology. MedAvail also sells the MedCenter technology, which includes the MedCenter hardware, software, and related support services to customers such as healthcare providers and retailers for use within their own pharmacy operations.
NOTE 2 - GOING CONCERN
Relevant accounting standards require that management make a determination as to whether or not substantial doubt exists as to ourthe Company's ability to continue as a going concern. If substantial doubt does exist, then management should determine if there are plans in place which alleviate that doubt. ForSince inception through September 30, 2022, the currentCompany has continually incurred losses from operations which have been financed primarily by net cash proceeds from the sale of stock from private placements, the sale of redeemable preferred stock and debt. Net cash used in operating activities for nine months ended September 30, 2022 and 2021 the Company has a net loss of $31.2was $37.3 million and negative cash flows from operations of $28.2 million. The Company's accumulated deficit asmillion, respectively. As of September 30, 2021 is $179.52022, the Company had $27.2 million in cash and cash equivalents and an accumulated deficit of $228.6 million. Management has
In April 2022, the Company completed a private placement, pursuant to which the Company received $40.0 million in gross proceeds, with an additional $10.0 million in gross proceeds received upon the second close that occurred on July 1, 2022, before deducting placement agent commissions and other offering expenses totaling $3.0 million. Additionally, the private placement included warrants, some of which may be callable at the Company’s option beginning on each of the 12 month and 24 month anniversaries of the warrant issuance dates and subject to the satisfaction of certain pricing conditions relating to the trading of the Company’s shares. See Note 11 for further information regarding the private placement warrants.
Due to the Company’s significant and ongoing cash requirements to fund operations, management determined that there is not substantial doubt as to the Company’s ability to continue as a going concern. Our current cash on hand combinedThe Company added liquidity resources in 2021 through a senior secured term loan facility with our current borrowing capacity is expectedSilicon Valley Bank as described in Note 8, pursuant to provide liquidity forwhich the Company to support operationsborrowed $10.0 million in aggregate initial term loans. Additionally, as referenced above, the Company raised $40.0 million and growth for at least$10.0 million in gross proceeds through a private placement that closed in April 2022 and July 2022, respectively. There can be no assurance that the next 12 months fromsteps management is taking will be successful. If the date of issuance of these unaudited interim consolidated condensed financial statements. However, we may haveCompany is unable to raise additional capital in sufficient amounts or on acceptable terms, the Company may have to continue to fund our operations.significantly reduce operations or delay, scale back or discontinue development and expansion plans. The amount and timingcondensed consolidated financial statements do not include any adjustments that might result from the outcome of our future funding requirementsthis uncertainty. The Company’s ultimate success will largely depend on many factors, includingcontinued development and deployment of MedCenter kiosks and SpotRx pharmacy operations and the pace and results of our growth strategy and capital market conditions. Failureability to raise capital as and when needed, on favorable terms or at all, would have a negative impact on our financial condition and our ability to develop our product candidates.significant additional funding.
NOTE 23 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated condensed financial statements as of September 30, 20212022 and for the three and nine months ended September 30, 2022 and 2021 have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") for unaudited interim financial information.information and in accordance with the rules of the Securities and Exchange Commission ("SEC") applicable to interim reports of companies filing as a smaller reporting company. Accordingly, the unaudited interim condensed consolidated condensed financial statements do not include all of the information and footnotes required by GAAP for audited financial statements. The condensed consolidated condensed balance sheet as of December 31, 20202021 was derived from the Company's audited consolidated financial statements but does not include all disclosures required by GAAP for audited financial statements. In the opinion of the Company's management, the interim information includes all adjustments, which include normal recurring adjustments, necessary for a fair statement of the results for the interim periods. The footnote disclosures related to the interim financial information included herein are also unaudited. Such financial information should be read in conjunction with the consolidated financial statements and related notes thereto for the year ended December 31, 20202021 included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020,2021, which was filed with the Securities and Exchange Commission, or SEC on March 31, 2021,29, 2022, or the 20202021 Form 10-K.
The preparation of financial statements in accordance with US GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. Actual results could differ from those estimates. Estimates are used in accounting for,
among other things, revenue recognition, contract loss accruals, excess, slow-moving and obsolete inventories, product warranty accruals, loss accruals on service agreements, share-based compensation expense, allowance for doubtful accounts, depreciation and amortization and in-process research and development intangible assets, and impairment of long-lived assets and contingencies. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the condensed consolidated condensed financial statements in the period they are deemed to be necessary.
Risks and uncertainties relating to COVID-19
The Company bases its estimates on the information available at the time, its experiences and various other assumptions believed to be reasonable under the circumstances including estimates of the impact of COVID-19. The extent to which COVID-19 impacts the Company’s business and financial results will depend on numerous evolving factors, including but not limited to, the severity and duration of COVID-19, the extent to which it will impact ourthe Company's clinic customers, employees, suppliers, vendors, and business partners. The Company assessed certain accounting matters that require consideration of estimates and assumptions in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of September 30, 20212022 and through the date of this report. The accounting matters assessed included, but were not limited to, the Company’s recoverability of, intangible and other long-lived assets including operating lease right-of-use assets. The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in
material impacts to the Company’s condensed consolidated condensed financial statements in future reporting periods. Adjustments may be made in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. Actual results could differ from these estimates and any such differences may differ.be material to the Company’s financial statements.
Principles of consolidation
The unaudited condensed consolidated condensed financial statements include the accounts of all entities controlled by MedAvail Holdings, Inc., which are referred to as subsidiaries. The Company's subsidiaries include MedAvail Technologies, Inc., MedAvail Technologies (US), Inc., MedAvail Pharmacy, Inc., and MedAvail, Inc. The Company has no interests in variable interest entities of which the Company is the primary beneficiary. All intercompany balances and transactions have been eliminated.
Reclassifications
During the fourth quarter of 2021, management reclassified certain operating expenses to reflect the costs attributable to pharmacy operations. Specifically, certain costs were reclassified from general and administrative expenses, to pharmacy operations expenses and selling and marketing expenses. This reclassification had no impact on the operating loss subtotal within the consolidated statements of operations and comprehensive loss. The effect of the reclassifications within the condensed consolidated statement of operations and comprehensive loss for 2021 are as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2021 | | |
| Current presentation | | As previously reported | | Change |
Pharmacy operations | $ | 3,750 | | | $ | 2,395 | | | $ | 1,355 | |
General and administrative | 5,320 | | | 6,805 | | | (1,485) | |
Selling and marketing | 1,909 | | | 1,779 | | | 130 | |
| $ | 10,979 | | | $ | 10,979 | | | $ | — | |
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2021 | | |
| Current presentation | | As previously reported | | Change |
Pharmacy operations | $ | 9,428 | | | $ | 6,619 | | | $ | 2,809 | |
General and administrative | 16,733 | | | 19,941 | | | (3,208) | |
Selling and marketing | 5,056 | | | 4,657 | | | 399 | |
| $ | 31,217 | | | $ | 31,217 | | | $ | — | |
NOTE 34 - RECENT ACCOUNTING PRONOUNCEMENTS
Measurement of Credit Losses on Financial Statements
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326)”- Measurement of Credit Losses on Financial Instruments”, (“ASU 2016-13”), supplemented by ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses”, (“ASU 2018-19”). The new standard requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. ASU 2016-13 became effective for Public Business Entities who are SEC filers for fiscal years beginning after December 15, 2019, other than smaller reporting companies, all other public business entities and private companies, with early adoption permitted. This ASU No. 2016-13 will be effective beginning in the first quarter of ourthe Company's fiscal year 2023. The Company is currently evaluating the impact that this new guidance will have on its consolidated condensed financial statements and related disclosures.
Recently Adopted Accounting Standards
Simplifying the Accounting for Income Taxes
In December 2019,June 2022, the FASB issued ASU No. 2019-12, “Income Taxes2022-03, “Fair Value Measurement (Topic 740): Simplifying820)”- Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”, (“ASU 2022-03”). The amendments in this update clarify the Accountingguidance in Topic 820. ASU 2022-03 becomes effective for Income Taxes” (“Public Business Entities who are SEC filers for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted. ASU 2019-12”). This guidance removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. This guidance also clarifies and simplifies other areas of ASC 740. This ASU wasNo. 2022-03 will be effective beginning in the first quarter of ourthe Company's fiscal year 2021. Certain amendments in this update must be applied on a prospective basis, certain amendments must be applied on a retrospective basis, and certain amendments must be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings/(deficit) in the period2024. The Company has not yet completed its evaluation of adoption. MedAvail assessed the impact of thethis new accounting standardguidance on its consolidated condensed financial statements to facilitate its required adoption of the new standard on January 1, 2021. The adoption of ASU 2019-12 did not result in a material change to our consolidated condensed financial statements.
Debt with Conversion and Other Options
In August 2020, the FASB issued ASU No. 2020-06, “Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40):Recently Adopted Accounting For Convertible Instruments and Contracts in an Entity's Own Equity” (“ASU 2020-06”). The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted net income per share calculation in certain areas. MedAvail assessed the impact of the new accounting standard on its consolidated condensed financial statements to facilitate its early adoption of the new standard on January 1, 2021. The adoption of ASU 2020-06 did not result in a material change to our consolidated condensed financial statements.Standards
There werewas no recently issued and effective authoritative guidance that is expected to have a material impact on the Company’s condensed consolidated condensed financial statements through the reporting date.
NOTE 45 - EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net income or loss available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings (loss) per share is computed by dividing net income or loss available to common stockholders by the weighted-average number of common shares plus the effect of dilutive potential common shares outstanding during the period.
The following table presents warrants included in weighted average shares outstanding due to their insignificant exercise price, during the period they were outstanding upfrom the date of issuance to when they were exercised.the exercise date. After these warrants were exercised the related issued and outstanding common shares are included in weighted average shares outstanding:
| | | | | | | | | | | | | | |
Shares | | Issuance Date | | Exercise Date |
118,228 | | May 9, 2018 | | May 10, 2021 |
309,698 | | February 11, 2020 | | May 10, 2021 |
84,911 | | June 29, 2020 | | May 10, 2021 |
58,51839,208 | | November 18, 2020 | | May 10, 2021 |
19,310 | | November 18, 2020 | | Outstanding |
During the three and nine months ended September 30, 20212022 and 2020,2021, there was no dilutive effect from stock options or other warrants due to the Company’s net loss position. Weighted average shares for historical periods have been adjusted for the effect of the 1.26 for 1 split on November 17, 2020. The following table sets forth the computation of basic and diluted earnings per share.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, | | |
(In thousands, except share and per share amounts) | 2021 | | 2020 | | 2021 | | 2020 | | | | |
Net loss - basic and diluted | $ | (11,273) | | | $ | (2,488) | | | $ | (31,189) | | | $ | (14,714) | | | | | |
Weighted average shares - basic and diluted | 32,750,831 | | 2,045,686 | | 32,580,199 | | 1,936,015 | | | | |
Net loss per share - basic and diluted | $ | (0.34) | | | $ | (1.22) | | | $ | (0.96) | | | $ | (7.60) | | | | | |
As of September 30, 20212022 and 2020,2021, there were 2.94.5 million and 2.22.9 million, respectively, of option awards outstanding that were not included in the diluted shares calculation because their inclusion would have been antidilutive. As of September 30, 2022 and December 31, 2021, there were 24.3 million and 0.7 million, respectively, of unexercised warrants that were not included in the diluted shares calculation.
NOTE 56 - FAIR VALUE MEASUREMENTS
Assets and liabilities measured at fair value on a recurring basis were as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Hierarchy |
(in thousands) | September 30, 2022 | | Level 1 | | Level 2 | | Level 3 |
Assets: | | | | | | | |
Cash and cash equivalents | $ | 27,196 | | | $ | 27,196 | | | $ | — | | | $ | — | |
Restricted cash | 676 | | | 676 | | | — | | | — | |
Total assets | $ | 27,872 | | | $ | 27,872 | | | $ | — | | | $ | — | |
| | | Fair Value Hierarchy | | Fair Value Hierarchy |
(In thousands) | September 30, 2021 | | Level 1 | | Level 2 | | Level 3 | |
(in thousands) | | (in thousands) | December 31, 2021 | | Level 1 | | Level 2 | | Level 3 |
Assets: | Assets: | | | | | | | | Assets: | | | | | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 35,875 | | | $ | 35,875 | | | $ | — | | | $ | — | | Cash and cash equivalents | $ | 19,689 | | | $ | 19,689 | | | $ | — | | | $ | — | |
Restricted cash | Restricted cash | 400 | | | 400 | | | — | | | — | | Restricted cash | 400 | | | 400 | | | — | | | — | |
Total assets | Total assets | $ | 36,275 | | | $ | 36,275 | | | $ | — | | | $ | — | | Total assets | $ | 20,089 | | | $ | 20,089 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Hierarchy |
(In thousands) | December 31, 2020 | | Level 1 | | Level 2 | | Level 3 |
Assets: | | | | | | | |
Cash and cash equivalents | $ | 57,936 | | | $ | 57,936 | | | $ | — | | | $ | — | |
Restricted cash | 60 | | | 60 | | | — | | | — | |
Total assets | $ | 57,996 | | | $ | 57,996 | | | $ | — | | | $ | — | |
The carrying amount of the Company’s short-term notes and PPP loan approximates fair value due to their short-term nature and the loans carry a current market rate, a Level 2 input. The carrying amount of the Company's term loan approximates fair value based upon market interest rates available to us for debt of similar risk and maturities, a Level 2 input.maturities. Refer to Note 7,8, Debt, for further information.
NOTE 67 - BALANCE SHEET AND OTHER INFORMATION
Restricted cash
MedAvail
The Company considers cash to be restricted when withdrawal or general use is legally restricted. During the threenine months ended September 30, 2021, MedAvail2022, the Company recovered the prior $0.06$0.1 million restricted cash balance outstanding at December 31, 2021, that was held as a guarantee for certain purchasing cards. During the
same period, pursuant to a Loan and Security Agreement with SiliconeSilicon Valley Bank (Seedated June 7, 2021 (see Note 7)8), MedAvailthe Company issued letters of credit to secure certain operating leases, and MedAvailthe Company is required to maintain a $0.40$0.7 million balance with the bank to secure the outstanding letters of credit.credit, of which $0.3 million was issued in February 2022. Due to the nature of the deposit, the balance is classified as restricted cash. Restricted cash is included in the balance for cash, cash equivalents and restricted cash presented in the statements of cash flows.
Inventories
Inventory
The following table presents detail of inventory balances:
| | | | | | | | | | | |
| September 30, | | December 31, |
(In thousands) | 2021 | | 2020 |
Inventories: | | | |
MedCenter hardware | $ | 1,739 | | | $ | 1,655 | |
Pharmacy | 1,985 | | | 837 | |
Spare parts | 529 | | | 325 | |
Total inventories | $ | 4,253 | | | $ | 2,817 | |
| | | | | | | | | | | |
| September 30, | | December 31, |
(in thousands) | 2022 | | 2021 |
Inventory: | | | |
MedCenter hardware | $ | 2,464 | | | $ | 1,201 | |
Pharmaceuticals | 3,275 | | | 2,150 | |
Spare parts | 662 | | | 565 | |
Total inventory | $ | 6,401 | | | $ | 3,916 | |
PharmacyPharmaceutical inventory was recognized in pharmacy and hardware cost of salesproducts sold at $5.0$9.3 million an $1.9and $5.0 million during the three months ended September 30, 20212022 and 2020,2021, respectively, and $12.2$26.4 million and $4.8$12.2 million during the nine months ended September 30, 20212022 and 2020,2021, respectively. MedCenter hardware was recognized in pharmacy and hardware cost of salesproducts sold at $0.13$0.01 million and $0.04$0.1 million during the three months ended September 30, 20212022 and 2020,2021, respectively, and $0.48$0.2 million and $0.14$0.5 million during the nine months ended September 30, 2022 and 2021, respectively.
Prepaid expenses and 2020, respectively.other current assets
The following table presents prepaid expenses and other current assets balances:
| | | | | | | | | | | |
| September 30, | | December 31, |
(in thousands) | 2022 | | 2021 |
Prepaid expenses and other current assets: | | | |
Prepaid MedCenter inventory | $ | 2,204 | | | $ | 1,050 | |
Prepaid insurance | 292 | | | 509 | |
Other | 367 | | | 632 | |
Total prepaid expenses and other current assets | $ | 2,863 | | | $ | 2,191 | |
Property, plant and equipment, net
The following tables presenttable presents property, plant and equipment balances:
| | | Estimated useful lives | | September 30, | | December 31, | | Estimated useful lives | | September 30, | | December 31, |
(In thousands) | | 2021 | | 2020 | |
(in thousands) | | (in thousands) | Estimated useful lives | | 2022 | | 2021 |
Property, plant and equipment: | Property, plant and equipment: | | | | | | Property, plant and equipment: | | | | |
MedCenter equipment | MedCenter equipment | 5 years | | $ | 5,268 | | | $ | 4,622 | | MedCenter equipment | 8 years | | $ | 7,525 | | | $ | 5,875 | |
IT equipment | IT equipment | 1 - 3 years | | 2,269 | | | 1,999 | | IT equipment | 1 - 3 years | | 2,390 | | | 2,361 | |
Leasehold improvements | Leasehold improvements | lesser of useful life or term of lease | | 866 | | | 799 | | Leasehold improvements | lesser of useful life or term of lease | | 980 | | | 880 | |
General plant and equipment | General plant and equipment | 5 - 8 years | | 567 | | | 353 | | General plant and equipment | 5 - 8 years | | 619 | | | 603 | |
Office furniture and equipment | Office furniture and equipment | 5 - 8 years | | 369 | | | 329 | | Office furniture and equipment | 5 - 8 years | | 538 | | | 394 | |
Vehicles | Vehicles | 5 years | | 54 | | | 54 | | Vehicles | 5 years | | 54 | | | 54 | |
Construction-in-process | Construction-in-process | | 534 | | | 90 | | Construction-in-process | | 481 | | | 1,021 | |
Total historical cost | Total historical cost | | 9,927 | | | 8,246 | | Total historical cost | | 12,587 | | | 11,188 | |
Accumulated depreciation | Accumulated depreciation | | (5,295) | | | (4,451) | | Accumulated depreciation | | (6,217) | | | (5,496) | |
Total property, plant and equipment, net | Total property, plant and equipment, net | | $ | 4,632 | | | $ | 3,795 | | Total property, plant and equipment, net | | $ | 6,370 | | | $ | 5,692 | |
Depreciation expense of property and equipment was $0.3 million and $0.3 million for the three months ended September 30, 20212022 and 2020,2021, respectively, and $0.9 million and $0.7$0.9 million for the nine months ended September 30, 20212022 and 2020,2021, respectively. Depreciation expense included in pharmacy and hardware cost of salesproducts sold was $0.04$0.03 million and $0.05 million for the three months ended September 30, 20212022 and 2020,2021, respectively, and $0.13$0.1 million and $0.15$0.1 million for the nine months ended September 30, 20212022, and 2020,2021, respectively.
Intangible assets, net
The following table presents intangible asset balances:
| | | September 30, | | December 31, | | September 30, | | December 31, |
(In thousands) | 2021 | | 2020 | |
(in thousands) | | (in thousands) | 2022 | | 2021 |
Gross intangible assets: | Gross intangible assets: | | | | Gross intangible assets: | | | |
Intellectual property | Intellectual property | $ | 3,857 | | | $ | 3,857 | | Intellectual property | $ | 3,857 | | | $ | 3,857 | |
Software | Software | 3,731 | | | 1,815 | | Software | 5,321 | | | 4,475 | |
Website and mobile application | Website and mobile application | 583 | | | 583 | | Website and mobile application | 583 | | | 583 | |
Total intangible assets | Total intangible assets | 8,171 | | | 6,255 | | Total intangible assets | 9,761 | | | 8,915 | |
Accumulated amortization: | Accumulated amortization: | | | | Accumulated amortization: | | | |
Intellectual property | Intellectual property | (3,857) | | | (3,857) | | Intellectual property | (3,857) | | | (3,857) | |
Software | Software | (1,781) | | | (1,588) | | Software | (3,741) | | | (2,175) | |
Website and mobile application | Website and mobile application | (583) | | | (583) | | Website and mobile application | (583) | | | (583) | |
Total accumulated amortization | Total accumulated amortization | (6,221) | | | (6,028) | | Total accumulated amortization | (8,181) | | | (6,615) | |
Total intangible assets, net | Total intangible assets, net | $ | 1,950 | | | $ | 227 | | Total intangible assets, net | $ | 1,580 | | | $ | 2,300 | |
Amortization expenseNo intangible assets were purchased for the three months ended September 30, 2022. The Company purchased $0.7 million of intangible assets was $0.09 million and $0.01 million for the three months ended September 30, 2021, and 2020, respectively, and $0.19$0.9 million and $0.07$1.9 million for the nine months ended September 30, 2022 and 2021, respectively.
Amortization expense of intangible assets was $1.3 million and 2020,$0.1 million for the three months ended September 30, 2022 and 2021, respectively, and $1.6 million and $0.2 million for the nine months ended September 30, 2022 and 2021, respectively, and are included in operating expenses.
Software includes internal useThe Company’s management team is evaluating its existing systems and software.If management were to determine that certain systems or software costs that are accounted forwere to be replaced in accordance with ASC 350. Costs associated with application development are capitalized asorder to achieve greater efficiencies, cost savings, or both, the estimated remaining useful life of some IT equipment and intangible assets. All other costs including planning, training,assets may be reduced, resulting in higher depreciation and conceptual evaluation are expensed.amortization expense, respectively.
Lessee leases
Balance sheet amounts for lease assets and leases liabilities are as follows:
| | | September 30, | | December 31, | | September 30, | | December 31, |
(In thousands) | 2021 | | 2020 | |
(in thousands) | | (in thousands) | 2022 | | 2021 |
Assets: | Assets: | | | | Assets: | | | |
Operating | Operating | $ | 2,720 | | $ | 1,108 | Operating | $ | 2,110 | | $ | 2,376 |
Finance | Finance | 182 | | 131 | Finance | 160 | | 162 |
Total assets | Total assets | $ | 2,902 | | $ | 1,239 | Total assets | $ | 2,270 | | $ | 2,538 |
Liabilities: | Liabilities: | | | | Liabilities: | | | |
Operating: | Operating: | | Operating: | |
Current | Current | $ | 661 | | | $ | 612 | | Current | $ | 632 | | | $ | 599 | |
Long-term | Long-term | 2,178 | | | 572 | | Long-term | 1,673 | | | 1,947 | |
Finance: | Finance: | | Finance: | |
Current | Current | 81 | | | 53 | | Current | 96 | | | 83 | |
Long-term | Long-term | 101 | | | 79 | | Long-term | 65 | | | 80 | |
Total liabilities | Total liabilities | $ | 3,021 | | | $ | 1,316 | | Total liabilities | $ | 2,466 | | | $ | 2,709 | |
The following table summarizes the weighted-average remaining lease term and weighted-average discount rate related to the Company’s leases as follows:
| | | September 30, | | December 31, | | September 30, | | December 31, |
(In thousands) | 2021 | | 2020 | |
(in thousands) | | (in thousands) | 2022 | | 2021 |
Operating leases: | | Operating leases: | |
Weighted-average remaining lease term (years) | | Weighted-average remaining lease term (years) | 3.8 | | 4.2 |
Weighted-average discount rate | | Weighted-average discount rate | 6.9 | % | | 6.9 | % |
Finance leases: | Finance leases: | | | | Finance leases: | |
Weighted-average remaining lease term (years) | Weighted-average remaining lease term (years) | 1.8 | | 2.4 | Weighted-average remaining lease term (years) | 1.8 | | 1.5 |
Weighted-average discount rate | Weighted-average discount rate | 8.7 | % | | 6.0 | % | Weighted-average discount rate | 8.6 | % | | 8.8 | % |
Operating leases: | | |
Weighted-average remaining lease term (years) | 4.1 | | 2.5 | |
Weighted-average discount rate | 6.8 | % | | 6.0 | % | |
Maturities of operating leases liabilities as of September 30, 2022, are as follows, in thousands:
| | Remaining period in 2021 | $ | 176 | | |
2022 | 884 | | |
Remaining period in 2022 | | Remaining period in 2022 | $ | 202 | |
2023 | 2023 | 773 | | 2023 | 755 | |
2024 | 2024 | 562 | | 2024 | 617 | |
2025 | 2025 | 478 | | 2025 | 534 | |
2026 | 2026 | 410 | | 2026 | 468 | |
2027 | | 2027 | 64 | |
Thereafter | Thereafter | 26 | | Thereafter | — | |
Total lease payments | Total lease payments | 3,309 | | Total lease payments | 2,640 | |
Less: present value discount | Less: present value discount | (470) | | Less: present value discount | (335) | |
Total leases | Total leases | $ | 2,839 | | Total leases | $ | 2,305 | |
Maturities of finance lease liabilities as of September 30, 2022, are as follows, in thousands:
| | Remaining period in 2021 | $ | 24 | | |
2022 | 95 | | |
Remaining period in 2022 | | Remaining period in 2022 | $ | 30 | |
2023 | 2023 | 65 | | 2023 | 91 | |
2024 | 2024 | 19 | | 2024 | 49 | |
2025 | 2025 | — | | 2025 | 4 | |
2026 | — | | |
| Thereafter | Thereafter | — | | Thereafter | — | |
Total finance lease payments | Total finance lease payments | 203 | | Total finance lease payments | 174 | |
Less: imputed interest | Less: imputed interest | (21) | | Less: imputed interest | (13) | |
Total leases | Total leases | $ | 182 | | Total leases | $ | 161 | |
Operating lease expense was $0.3expenses were $0.2 million and $0.2$0.3 million for the three months ended September 30, 20212022 and 2020,2021, respectively, and $0.7 million and $0.5$0.7 million for the nine months ended September 30, 20212022 and 2020,2021, respectively.
NOTE 78 - DEBT
The following table presents debt balancesbalances:
| | | | | | | | | | | |
| September 30, | | December 31, |
(in thousands) | 2022 | | 2021 |
Term loan | 10,162 | | | 10,070 | |
Term loan issuance costs, net | (411) | | | (532) | |
| | | |
| | | |
Total long-term debt, net | $ | 9,751 | | | $ | 9,538 | |
Term loan
The term loan bears interest at a floating rate equal to the greater of 7.25% or the Prime Rate plus 4.0% (10.25% at September 30, 2021 and December 31, 2020:
| | | | | | | | | | | |
| September 30, | | December 31, |
(In thousands) | 2021 | | 2020 |
Short-term note due May 2021 | $ | — | | | $ | 1,000 | |
Short-term note due November 2021 | 1,000 | | | 1,000 | |
PPP loan | — | | | 161 | |
Term loan | 10,039 | | | — | |
Term loan issuance costs, net | (573) | | | — | |
Total debt, net | 10,466 | | | 2,161 | |
Less short term debt | (1,000) | | | (2,161) | |
Long-term debt, net | $ | 9,466 | | | $ | — | |
Short-term notes
2022). The notes do not accrue interest and may be repaid early without penalty. On May 14, 2021 the Company repaid $1.0 million on the Short-term note in accordance with the maturity schedule.
PPPterm loan
MedAvail received forgiveness approval of the loan on March 30, 2021 in accordance with the terms of the CARES Act.
Term loan
On June 7, 2021, the Company entered into a Loan and Security Agreement, or the Loan Agreement, with Silicon Valley Bank and SVB Innovation Credit Fund VIII, L.P., pursuant to which we borrowed $10.0 million in aggregate initial term loans, or the Initial Loans. The Company may borrow up to an additional $20.0 million in aggregate term loans (or, together with the Initial Loans, the Loans) on or before April 30, 2022, subject to no material adverse change or event of default (each as defined in the Loan Agreement) having occurred and continuing. The Loans and the Company's obligations under the Loan Agreement are guaranteed by certain of our subsidiaries and are secured by substantially all of the assets of the Company and its subsidiary guarantors.
The Loans mature matures on April 1, 2026. Principal repayment will commence on May 1, 2024 in equal monthly installments of the outstanding Loanloan balance through the maturity date. The Loans bear interest at a floating rate equal to the greater of 7.25% or the Prime Rate plus 4.0% (7.25% at September 30, 2021).
The Company may elect to prepay the Loans, in whole but not in part, at any time. If the Company elects to voluntarily prepay the Loans before the scheduled maturity date, the Company is required to pay the lenders a prepayment premium, equal to 3.0% of the outstanding principal balance if the prepayment occurs on or before June 7, 2022, 2.0% of the outstanding principal balance if the prepayment occurs on or before June 7, 2023, or 1.0% for a prepayment made after June 7, 2023, but before the scheduled maturity date. A prepayment premium is also applicable to a mandatory prepayment of the Loans upon an acceleration of the Loans. Upon a voluntary or mandatory prepayment of the Loans, the Company is also required to pay the lenders’ expenses and all accrued but unpaid interest on the Loans through the prepayment date.
A final payment fee equal to 4.75% of the original principal amount of the Loans advanced will be due at the earlier of the maturity date, acceleration of the Loans, or a voluntary or mandatory prepayment of the Loans. The final payment fee is accreted to the Loan balance over the loan term using the effective interest method.
The Loan Agreement includes customary representations and covenants that, subject to exceptions and qualifications, restrict the Company's ability to do the following things: engage in mergers, acquisitions, and asset sales; transact with affiliates; undergo a change in control; engage in businesses that are not related to existing business; add or change business locations; incur additional indebtedness; incur additional liens; make loans and investments; declare dividends or redeem or repurchase equity interests; and make certain amendments or payments in respect of any subordinated debt. In addition, the Loan Agreement contains customary affirmative covenants, including covenants regarding the payment of taxes and other obligations, maintenance of insurance, maintenance of our bank accounts, protection of our intellectual property, reporting requirements, compliance with applicable laws and regulations, and formation or acquisition of new subsidiaries.
Upon the occurrence and during the continuance of an event of default, the lenders may declare all outstanding principal and accrued and unpaid interest under the Loan Agreement immediately due and payable and may exercise the other rights and remedies provided for under the Loan Agreement and related loan documents. The events of default under the Loan Agreement include, subject to grace periods in certain instances, payment defaults, breaches of covenants or representations and warranties, a material adverse change as defined in the Loan Agreement and with respect to certain governmental approvals, material judgments and attachments, cross defaults with certain other material indebtedness, bankruptcy and insolvency events with respect to the Company and its subsidiaries, and delisting of the Company's shares from NASDAQ.
Loan issuance costs of $0.6 million are included in long term debt and are amortized to interest expense over the loan term using the effective interest method.
NOTE 89 - INCOME TAXES
The Company incurred minimal$0.02 million and zero of income tax expense for the three and nine months ended September 30, 2022, and 2021, respectively, duerespectively. The income taxes for the periods ended September 30, 2022, are primarily attributed to ongoing losses and minimumcertain state income tax obligations.taxes. The Company continues to be in a loss position as of September 30, 2022. The effective income tax rate in each period differed from the federal statutory tax rate of 21% primarily as a result of the ongoing losses.
As of September 30, 2021,2022, the Company recorded a full valuation allowance against all of its net deferred tax assets due to the uncertainty surrounding the Company’s ability to utilize these assets in the foreseeable future.
On March 11, 2021,August 16, 2022, the U.S. federal government enacted the American Rescue PlanInflation Reduction Act of 2021,2022, which, didamong other things, implements a 15% minimum tax on book income of certain large corporations, a 1% excise tax on net stock repurchases and several tax incentives to promote clean energy. The Company has evaluated the impacts of this legislation to the financial statements but does not have a material impact on our benefit for income taxes.expect them to be material.
NOTE 910 - COMMITMENTS AND CONTINGENCIES
Legal
Following MYOS Rens Technology Inc.’s, or MYOS’s and MedAvail, Inc.’s, or MAI's, announcement of the execution of the Merger Agreement on June 30, 2020, MYOS received separate litigation demands from purported MYOS stockholders on September 16, 2020 and October 20, 2020, respectively seeking certain additional disclosures in the Form S-4 Registration Statement filed with the Securities and Exchange Commission on September 2, 2020, collectively, the Demands. Thereafter, on September 23, 2020, a complaint regarding the transactions contemplated within the Merger Agreement was filed in the Supreme Court of the State of New York, County of New York, captioned Faasse v. MYOS RENS Technology Inc., et. al., Index No.: 654644/2020 (NY Supreme Ct., NY Cnty., September 23, 2020), or the New York Complaint. On October 12, 2020, a second complaint regarding the transactions was filed in the District Court of Nevada, Clark County Nevada, captioned Vigil v. Mannello, et. al., Case No. A-20-822848-C, or the Nevada Complaint, and together with the New York Complaint, the Complaints, and collectively with the Demands, the Litigation.
The Demands and the Complaints that comprisecomprised the Litigation generally alleged that the directors of MYOS breached their fiduciary duties by entering into the Merger Agreement, and MYOS and MAI disseminated an incomplete and misleading Form S-4 Registration Statement. The New York Complaint also alleged MedAvail aided and abetted such breach of fiduciary duties.
MYOS and MAI believe that the claims asserted in the Litigation arewere without merit, and believe that the Form S-4 Registration Statement disclosed all material information concerning the Merger and no supplemental disclosure iswas required under applicable law. However, in order to avoid the risk of the Litigation delaying or adversely affecting the Merger and to minimize the costs, risks and uncertainties inherent in litigation, and without admitting any liability or wrongdoing, MYOS determined to voluntarily supplement the Form S-4 Registration Statement as described in the Current Report on Form 8-K on November 2, 2020. Subsequently, the Nevada Complaint and the New York Complaint were voluntarily dismissed. The remainder of the Litigation remains outstanding. MYOS and MAI specifically deny all allegations in the Litigation and/or that any additional disclosure was or is required.required, and none of the Litigation remains currently pending.
NOTE 1011 - EQUITY, SHARE-BASED COMPENSATION AND WARRANTS
On June 14, 2022, the Company’s stockholders approved an Amended and Restated Certificate of Incorporation to increase the number of authorized shares of the Company’s common stock, par value $0.001, from 100 million shares to a new total of 300 million shares. The Restated Certificate was effective upon filing the Restated Certificate with the Secretary of State of the State of Delaware on June 15, 2022.
Private Placement
On March 30, 2022, the Company entered into a Securities Purchase Agreement, or Purchase Agreement, with certain purchasers thereto, or the Investors. Pursuant to the Purchase Agreement, the Company agreed to issue and sell to the Investors in a private placement, or the Private Placement, up to 47.1 million shares, or the Shares, of the Company’s common stock, and to issue warrants, or the Warrants, to purchase up to 23.5 million shares of common stock, or Warrant Shares. The Shares and the Warrants were sold at two closings as further described below, at a price per share of $1.0625.
Each Investor purchasing Shares in the Private Placement was issued a Warrant to purchase that number of Warrant Shares equal to 50% of the number of Shares purchased under the Purchase Agreement by such Investor. The Warrants have a per share exercise price of $1.25 and will be exercisable by the holder at any time on or after the issuance date of the Warrant for a period of five years. If the Warrants were exercised in full immediately after issuance by the Investors, the Company would receive additional gross proceeds of up to $29.4 million. In addition, the Warrant terms provide the Company with a call option to force the Warrant holders to exercise up to two-thirds of the warrant shares subject to each Warrant, with one-third of the Warrant Shares being callable beginning on each of the 12 month and 24 month anniversaries of the Warrant issuance dates, in each case until the expiration of the Warrants, and subject to the satisfaction of certain pricing conditions relating to the trading of the Company’s shares. If the Company were to exercise the contingent call options immediately after issuance, approximately $19.6 million in gross proceeds could be raised.
On April 4, 2022, the first closing of the Private Placement occurred, in which 37.6 million shares of common stock for $40.0 million in gross proceeds, before deducting placement agent commissions and other offering expenses, and Warrants exercisable for up to 18.8 million Warrant Shares were issued by the Company. A second and final closing occurred on July 1, 2022, and the Investors purchased an additional 9.4 million shares of common stock for $10.0 million in additional gross proceeds and Warrants exercisable for up to 4.7 million Warrants Shares.
Shelf Registration and Sales Agreement
On August 12, 2022, the Company filed a shelf registration statement on Form S-3, or the Shelf, with the SEC in relation to the registration and potential future issuance of common stock, preferred stock, debt securities, depositary shares, warrants, subscription rights, purchase contracts, units and/or any combination thereof, in the aggregate amount of up to $150,000,000. The Shelf was declared effective on August 26, 2022. The Company also entered into a sales agreement as of August 12, 2022, or Sales Agreement, with Cowen and Company, LLC, or Cowen, as sales agent, providing for the offering, issuance and sale of up to an aggregate $50,000,000 of the Company’s common stock from time to time at market prices by any method that is deemed to be an “at the market offering” as defined in Rule 415(a)(4) under the Securities Act, including sales made directly on the Nasdaq Capital Market or any other trading market for the Company’s common stock in “at-the-market” offerings, under the Shelf. As of September 30, 2022, the Company has not issued and sold any shares of common stock under the Sales Agreement.
Share-based compensation
The following table presents the Company's expense related to share-based compensation in thousands:(in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, | |
| 2021 | | 2020 | | 2021 | | 2020 | | | |
Share-based compensation | $ | 365 | | | $ | 65 | | | $ | 948 | | | $ | 235 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, | |
| 2022 | | 2021 | | 2022 | | 2021 | | | |
Share-based compensation | $ | 565 | | | $ | 365 | | | $ | 1,741 | | | $ | 948 | | | | |
The share-based compensation expense for the three and nine months ended September 30, 2021, included $0.032022 and included $0.02 million and $0.1 million, respectively, from 2020 ESPPemployee stock purchase plan expense. Expense
The expense remaining to be recognized for unvested option awards from the 2012, 2018, and 2020 plans and the 2022 inducement plan as of September 30, 20212022 was $3.8$2.4 million, which is expected to be recognized on a weighted average basis over the next 2.7 years. The expense remaining to be recognized for unvested restricted stock units was $2.2 million, which will be recognized on a weighted average basis over the next 3.02.3 years.
The following table presents the Company's outstanding option awards activity during the nine months ended September 30, 2021:2022:
| (in thousands, except for share and per share amounts) | (in thousands, except for share and per share amounts) | Number of Awards | | Weighted Average Exercise Price | | Weighted Average Share Price on Date of Exercise | | Weighted Average Fair Value | | Weighted Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value | (in thousands, except for share and per share amounts) | Number of Awards | | Weighted Average Exercise Price | | Weighted Average Share Price on Date of Exercise | | Weighted Average Fair Value | | Weighted Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value |
Outstanding, beginning of period | Outstanding, beginning of period | 2,439,020 | | | $ | 1.59 | | | | | $ | 0.77 | | | | | $ | 32,791 | | Outstanding, beginning of period | 2,848,903 | | | $ | 2.78 | | | | | $ | 1.44 | | | | | $ | 104 | |
Granted | Granted | 670,850 | | | 8.14 | | | 4.44 | | | — | | Granted | 2,758,040 | | | 1.35 | | | 0.98 | | | — | |
Exercised/Released | (144,101) | | | 1.67 | | | $ | 14.66 | | | 0.83 | | | 1,872 | | |
Cancelled/Forfeited | (1,909) | | | 1.65 | | | 0.83 | | | 24 | | |
Exercised/released | | Exercised/released | — | | | — | | | — | | | — | |
Expired | | Expired | (117,730) | | | 1.99 | | | 1.08 | | | 5 | |
Forfeited | | Forfeited | (952,488) | | | 2.52 | | | 1.42 | | | 111 | |
Outstanding, end of period | Outstanding, end of period | 2,963,860 | | | $ | 3.05 | | | | | $ | 1.59 | | | 7.99 | | $ | 3,173 | | Outstanding, end of period | 4,536,725 | | | $ | 1.93 | | | | | $ | 1.15 | | | 8.33 | | $ | — | |
Vested and exercisable, end of the period | Vested and exercisable, end of the period | 1,854,062 | | | 1.88 | | | 0.91 | | | 7.34 | | 2,438 | | Vested and exercisable, end of the period | 1,777,907 | | | 2.28 | | | 1.16 | | | 6.79 | | — | |
Vested and unvested exercisable, end of the period | Vested and unvested exercisable, end of the period | 1,854,062 | | | 1.88 | | | 0.91 | | | 7.34 | | 2,348 | | Vested and unvested exercisable, end of the period | 1,777,907 | | | 2.28 | | | 1.16 | | | 6.79 | | — | |
Vested and expected to vest, end of the period | Vested and expected to vest, end of the period | 2,865,212 | | | 2.98 | | | 1.55 | | | 7.95 | | 3,122 | | Vested and expected to vest, end of the period | 4,309,018 | | | 1.94 | | | 1.15 | | | 8.29 | | — | |
During
The following table presents the Company's outstanding restricted stock unit activity during the nine months ended September 30, 2021, the Company granted approximately 285,899 restricted stock units or RSUs to employees with a weighted average fair value of $6.50 per RSU and total aggregate intrinsic value of $1.9 million. None of the RSUs were vested as of September 30, 2021, and expense remaining to be recognized for unvested awards of $1.4 million will be recognized on a weighted average basis over the next 2.7 years.2022:
As of September 30, 2021 and December 31, 2020, there was an | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands, except for share and per share amounts) | Number of Awards | | Weighted Average Exercise Price | | Weighted Average Share Price on Date of Exercise | | Weighted Average Fair Value | | Weighted Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value |
Outstanding, beginning of period | 802,740 | | | $ | — | | | | | $ | 2.78 | | | | | $ | 1,124 | |
Granted | 1,601,824 | | | — | | | | | 1.41 | | | | | 2,252 | |
Exercised/released | (46,009) | | | — | | | $ | 1.17 | | | 6.32 | | | | | 54 | |
Expired | — | | | — | | | | | — | | | | | — | |
Forfeited | (585,973) | | | — | | | | | 2.05 | | | | | 791 | |
Outstanding, end of period | 1,772,582 | | | $ | — | | | | | $ | 1.69 | | | 4.93 | | $ | 1,376 | |
Vested and exercisable, end of the period | — | | | — | | | | | — | | | | | — | |
Vested and unvested exercisable, end of the period | — | | | — | | | | | — | | | | | — | |
Vested and expected to vest, end of the period | 1,628,975 | | | — | | | | | 1.69 | | | 4.92 | | 1,264 | |
An aggregate of 4.22.8 million and 5.03.4 million shares of common stock respectively,was available for grant under the 2020 Plan as of September 30, 2022 and December 31, 2021, respectively.
In April 2022, the Company adopted the MedAvail Holdings, Inc. 2022 Inducement Equity Incentive Plan or the Inducement Plan. The Inducement Plan reserved 1,500,000 shares of the Company’s common stock for issuance pursuant to equity awards granted under the Inducement Plan. On April 8, 2022, the Company issued inducement awards to employees that included options to purchase 426,500 shares of Company common stock, and 426,500 restricted stock units. The inducement stock options have an exercise price of $1.96, and 25% of the shares vest on the one year anniversary of the date that employment commenced, and an additional one forty-eighth (1/48th) of the shares vest monthly thereafter. The inducement restricted stock units vest at one-third (1/3rd) of the shares on the first, second and third yearly anniversaries of March 1, 2022.
Warrants
During the nine months ended September 30, 2021 no2022, 18.8 million warrants were issued.
Duringissued from the nine months ended September 30, 2021,first closing of the Private Placement in April 2022 with a fair value of $7.5 million. 4.7 million warrants were exercised in exchange for issuing 794,804 sharesissued from the second closing of the Company’s common stockPrivate Placement in July 2022 with total cash proceedsa fair value of $151 thousand.
Warrants$2.3 million. No warrants were exercised during the nine months ended September 30, 2021, included 565,496 held by related parties (investors), with 626,3392022. There were 24.2 million related party warrants outstanding as of September 30, 2021.2022.
The terms for the warrants issued from the Private Placement were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
September 30, 2022 | | |
Issue Date | | Reason for issuance | | | | Term (years) | | Exercise Price (USD) | | |
April 4, 2022 | | Private Placement | | | | 5 | | $ | 1.25 | | | |
July 1, 2022 | | Private Placement | | | | 5 | | $ | 1.25 | | | |
NOTE 1112 - REVENUE AND SEGMENT REPORTING
Operating segments are the individual operations that the chief operating decision maker, ("CODM"),or CODM, who is ourthe Company's chief executive officer, reviews for purposes of assessing performance and making resource allocation decisions. The CODM currently receives the monthly management report which includes information to assess performance. The retail pharmacy services and pharmacy technology operating segments both engage in different business activities from which they earn revenues and incur expenses.
The Company has the following 2two reportable segments:
Retail Pharmacy Services Segment
Retail pharmacy servicesPharmacy Services segment revenue consists of products sold directly to consumers at the point of sale. MedAvail recognizes retail pharmacy sales revenue, net of taxes and expected returns, at the time it sells merchandise or dispenses prescription drugs to the customer. The Company estimates revenue based on expected reimbursements from third-party payers (e.g., pharmacy benefit managers, insurance companies and governmental agencies) for dispensing prescription drugs. The estimates are based on all available information including historical experience and are updated to actual reimbursement amounts.
Pharmacy Technology Segment
The pharmacy technology segmentPharmacy Technology Segment consists of sales and subscriptions of MedPlatform systems to customers. These agreements include providing the MedCenter prescription dispensing kiosk, software, and maintenance services. This generally includes either an initial lump sum payment upon installation of the MedCenter with monthly payments for software and services following, or monthly payments for the MedCenter along with monthly payments for software and maintenance services for subscription agreements.
In September 2020, the Company and a significant customer agreed that MedAvail had no further obligation to the customer and therefore would have no additional deliverables related to the contract liability balance, of which $4.7 million was outstanding as of December 31, 2019. As such, the Company recognized $4.7 million of revenue related to this contract during 2020. The contract revenue recognized consisted of $1.5 million of hardware sales revenue and $3.2 million of software integration for contract obligations for software programming and hardware development that were in progress but not completed.
The following table presents salestables present revenue and costs of salesproducts sold and services by segment in thousands:
| | | | | | | | | | | | | | | | | |
| Retail Pharmacy Services | | Pharmacy Technology | | Total |
Three Months Ended September 30, 2021 | | | | | |
Sales: | | | | | |
Pharmacy and hardware sales: | | | | | |
Retail pharmacy sales | $ | 5,445 | | | $ | — | | | $ | 5,445 | |
Hardware | — | | | 106 | | | 106 | |
Subscription sales | — | | | 108 | | | 108 | |
Total pharmacy and hardware sales | 5,445 | | | 214 | | | 5,659 | |
Service sales: | | | | | |
Software integration | — | | | — | | | — | |
Software | — | | | 51 | | | 51 | |
Maintenance and support | — | | | 44 | | | 44 | |
Installation | — | | | 11 | | | 11 | |
Professional services and other | — | | | 27 | | | 27 | |
Total service sales | — | | | 133 | | | 133 | |
Total sales | 5,445 | | | 347 | | | 5,792 | |
| | | | | |
| | | | | |
Cost of sales | 5,366 | | | 240 | | | 5,606 | |
Gross profit | $ | 79 | | | $ | 107 | | | $ | 186 | |
(in thousands):
| | | | | | | | | | | | | | | | | |
| Retail Pharmacy Services | | Pharmacy Technology(1) | | Total |
Three Months Ended September 30, 2020 | | | | | |
Sales: | | | | | |
Pharmacy and hardware sales: | | | | | |
Retail pharmacy sales | $ | 2,186 | | | $ | — | | | $ | 2,186 | |
Hardware | — | | | 1,625 | | | 1,625 | |
Subscription sales | — | | | 115 | | | 115 | |
Total pharmacy and hardware sales | 2,186 | | | 1,740 | | | 3,926 | |
Service sales: | | | | | |
Software integration | — | | | 3,168 | | | 3,168 | |
Software | — | | | 15 | | | 15 | |
Maintenance and support | — | | | 17 | | | 17 | |
Installation | — | | | — | | | — | |
Professional services and other | — | | | 19 | | | 19 | |
Total service sales | — | | | 3,219 | | | 3,219 | |
Total sales | 2,186 | | | 4,959 | | | 7,145 | |
Cost of sales | 2,042 | | | 120 | | | 2,162 | |
Gross profit | $ | 144 | | | $ | 4,839 | | | $ | 4,983 | |
(1) Includes $1.5 million of hardware sales and $3.2 million of software integration sales associated with a non-recurring commercial agreement.
| | | | | | | | | | | | | | | | | |
| Retail Pharmacy Services | | Pharmacy Technology | | Total |
Nine Months Ended September 30, 2021 | | | | | |
Sales: | | | | | |
Pharmacy and hardware sales: | | | | | |
Retail pharmacy sales | $ | 13,357 | | | $ | — | | | $ | 13,357 | |
Hardware | — | | | 470 | | | 470 | |
Subscription sales | — | | | 338 | | | 338 | |
Total pharmacy and hardware sales | 13,357 | | | 808 | | | 14,165 | |
Service sales: | | | | | |
Software integration | — | | | — | | | — | |
Software | — | | | 125 | | | 125 | |
Maintenance and support | — | | | 115 | | | 115 | |
Installation | — | | | 39 | | | 39 | |
Professional services and other | — | | | 405 | | | 405 | |
Total service sales | — | | | 684 | | | 684 | |
Total sales | 13,357 | | | 1,492 | | | 14,849 | |
| | | | | |
| | | | | |
Cost of sales | 13,130 | | | 1,040 | | | 14,170 | |
Gross profit | $ | 227 | | | $ | 452 | | | $ | 679 | |
| | | | | | | | | | | | | | | | | |
| Retail Pharmacy Services | | Pharmacy Technology | | Total |
Three Months Ended September 30, 2022 | | | | | |
Revenue: | | | | | |
Pharmacy and hardware revenue: | | | | | |
Retail pharmacy revenue | $ | 11,162 | | | $ | — | | | $ | 11,162 | |
Hardware | — | | | — | | | — | |
Subscription | — | | | 104 | | | 104 | |
Total pharmacy and hardware revenue | 11,162 | | | 104 | | | 11,266 | |
Service revenue: | | | | | |
| | | | | |
Software | — | | | 94 | | | 94 | |
Maintenance and support | — | | | 48 | | | 48 | |
Installation | — | | | — | | | — | |
Professional services and other | — | | | 53 | | | 53 | |
Total service revenue | — | | | 195 | | | 195 | |
Total revenue | 11,162 | | | 299 | | | 11,461 | |
Cost of products sold and services | 10,047 | | | 122 | | | 10,169 | |
Segment gross profit | $ | 1,115 | | | $ | 177 | | | 1,292 | |
Operating expense: | | | | | |
Pharmacy operations | | | | | 4,392 | |
General and administrative | | | | | 6,087 | |
Selling and marketing | | | | | 2,126 | |
Research and development | | | | | 178 | |
Total operating expense | | | | | 12,783 | |
Operating loss | | | | | $ | (11,491) | |
| | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | |
| Retail Pharmacy Services | | Pharmacy Technology(1) | | Total |
Nine Months Ended September 30, 2020 | | | | | |
Sales: | | | | | |
Pharmacy and hardware sales: | | | | | |
Retail pharmacy sales | $ | 5,196 | | | $ | — | | | $ | 5,196 | |
Hardware | — | | | 2,048 | | | 2,048 | |
Subscription sales | — | | | 343 | | | 343 | |
Total pharmacy and hardware sales | 5,196 | | | 2,391 | | | 7,587 | |
Service sales: | | | | | |
Software integration | — | | | 3,168 | | | 3,168 | |
Software | — | | | 25 | | | 25 | |
Maintenance and support | — | | | 40 | | | 40 | |
Installation | — | | | 28 | | | 28 | |
Professional services and other | — | | | 20 | | | 20 | |
Total service sales | — | | | 3,281 | | | 3,281 | |
Total sales | 5,196 | | | 5,672 | | | 10,868 | |
| | | | | |
| | | | | |
Cost of sales | 5,059 | | | 400 | | | 5,459 | |
Gross profit | $ | 137 | | | $ | 5,272 | | | $ | 5,409 | |
| | | | | | | | | | | | | | | | | |
| Retail Pharmacy Services | | Pharmacy Technology | | Total |
Three Months Ended September 30, 2021 | | | | | |
Revenue: | | | | | |
Pharmacy and hardware revenue: | | | | | |
Retail pharmacy revenue | $ | 5,445 | | | $ | — | | | $ | 5,445 | |
Hardware | — | | | 106 | | | 106 | |
Subscription | — | | | 108 | | | 108 | |
Total pharmacy and hardware revenue | 5,445 | | | 214 | | | 5,659 | |
Service revenue: | | | | | |
| | | | | |
Software | — | | | 51 | | | 51 | |
Maintenance and support | — | | | 44 | | | 44 | |
Installation | — | | | 11 | | | 11 | |
Professional services and other | — | | | 27 | | | 27 | |
Total service revenue | — | | | 133 | | | 133 | |
Total revenue | 5,445 | | | 347 | | | 5,792 | |
Cost of products sold and services | 5,366 | | | 240 | | | 5,606 | |
Segment gross profit | $ | 79 | | | $ | 107 | | | 186 | |
Operating expense: | | | | | |
Pharmacy operations | | | | | 3,750 | |
General and administrative | | | | | 5,320 | |
Selling and marketing | | | | | 1,909 | |
Research and development | | | | | 232 | |
Total operating expense | | | | | 11,211 | |
Operating loss | | | | | $ | (11,025) | |
| | | | | | | | | | | | | | | | | |
| Retail Pharmacy Services | | Pharmacy Technology | | Total |
Nine Months Ended September 30, 2022 | | | | | |
Revenue: | | | | | |
Pharmacy and hardware revenue: | | | | | |
Retail pharmacy revenue | $ | 30,652 | | | $ | — | | | $ | 30,652 | |
Hardware | — | | | 236 | | | 236 | |
Subscription | — | | | 322 | | | 322 | |
Total pharmacy and hardware revenue | 30,652 | | | 558 | | | 31,210 | |
Service revenue: | | | | | |
| | | | | |
Software | — | | | 228 | | | 228 | |
Maintenance and support | — | | | 127 | | | 127 | |
Installation | — | | | 77 | | | 77 | |
Professional services and other | — | | | 117 | | | 117 | |
Total service revenue | — | | | 549 | | | 549 | |
Total revenue | 30,652 | | | 1,107 | | | 31,759 | |
Cost of products sold and services | 28,460 | | | 588 | | | 29,048 | |
Segment gross profit | $ | 2,192 | | | $ | 519 | | | 2,711 | |
Operating expense: | | | | | |
Pharmacy operations | | | | | 11,970 | |
General and administrative | | | | | 18,729 | |
Selling and marketing | | | | | 6,738 | |
Research and development | | | | | 952 | |
Total operating expense | | | | | 38,389 | |
Operating loss | | | | | $ | (35,678) | |
| | | | | |
| | | | | |
(1)
Includes $1.5 million of hardware sales and $3.2 million of software integration sales associated with a non-recurring commercial agreement.
| | | | | | | | | | | | | | | | | |
| Retail Pharmacy Services | | Pharmacy Technology | | Total |
Nine Months Ended September 30, 2021 | | | | | |
Revenue: | | | | | |
Pharmacy and hardware revenue: | | | | | |
Retail pharmacy revenue | $ | 13,357 | | | $ | — | | | $ | 13,357 | |
Hardware | — | | | 470 | | | 470 | |
Subscription | — | | | 338 | | | 338 | |
Total pharmacy and hardware revenue | 13,357 | | | 808 | | | 14,165 | |
Service revenue: | | | | | |
| | | | | |
Software | — | | | 125 | | | 125 | |
Maintenance and support | — | | | 115 | | | 115 | |
Installation | — | | | 39 | | | 39 | |
Professional services and other | — | | | 405 | | | 405 | |
Total service revenue | — | | | 684 | | | 684 | |
Total revenue | 13,357 | | | 1,492 | | | 14,849 | |
Cost of products sold and services | 13,130 | | | 1,040 | | | 14,170 | |
Segment gross profit | $ | 227 | | | $ | 452 | | | 679 | |
Operating expense: | | | | | |
Pharmacy operations | | | | | 9,428 | |
General and administrative | | | | | 16,733 | |
Selling and marketing | | | | | 5,056 | |
Research and development | | | | | 601 | |
Total operating expense | | | | | 31,818 | |
Operating loss | | | | | $ | (31,139) | |
The following table presents assets and liabilities by segment in thousands:(in thousands):
| | | Retail Pharmacy Services | | Pharmacy Technology | | Corporate | | Total | | Retail Pharmacy Services | | Pharmacy Technology | | Corporate | | Total |
September 30, 2021 | | | | | | | | |
September 30, 2022 | | September 30, 2022 | | | | | | | |
Assets | Assets | $ | 11,867 | | | $ | 4,740 | | | $ | 35,490 | | | $ | 52,097 | | Assets | $ | 15,939 | | | $ | 7,953 | | | $ | 25,959 | | | $ | 49,851 | |
Liabilities | Liabilities | $ | 5,976 | | | $ | 4,108 | | | $ | 10,795 | | | $ | 20,879 | | Liabilities | $ | 5,841 | | | $ | 2,689 | | | $ | 10,015 | | | $ | 18,545 | |
December 31, 2020 | | |
December 31, 2021 | | December 31, 2021 | |
Assets | Assets | $ | 6,012 | | | $ | 5,547 | | | $ | 57,772 | | | $ | 69,331 | | Assets | $ | 13,641 | | | $ | 5,222 | | | $ | 19,280 | | | $ | 38,143 | |
Liabilities | Liabilities | $ | 2,203 | | | $ | 3,422 | | | $ | 2,639 | | | $ | 8,264 | | Liabilities | $ | 5,618 | | | $ | 3,567 | | | $ | 9,885 | | | $ | 19,070 | |
The following table presents long-lived assets, which include property, plant, and equipment and right-of-use-assets by geographic region, based on the physical location of the assets in thousands:(in thousands):
| | | September 30, | | December 31, | | September 30, | | December 31, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Long-lived assets: | Long-lived assets: | | | | Long-lived assets: | | | |
United States | United States | $ | 7,108 | | | $ | 4,533 | | United States | $ | 8,286 | | | $ | 7,675 | |
Canada | Canada | 426 | | | 501 | | Canada | 354 | | | 555 | |
Total long-lived assets | Total long-lived assets | $ | 7,534 | | | $ | 5,034 | | Total long-lived assets | $ | 8,640 | | | $ | 8,230 | |
NOTE 13 – SUBSEQUENT EVENTS
Nasdaq Capital Market Listing Qualifications
The Company received a deficiency letter from the Listing Qualifications Department of the Nasdaq Capital Market (“Nasdaq”) on October 31, 2022 notifying the Company that for the last 30 consecutive business days the bid price for the Company’s common stock had closed below the minimum $1.00 per share requirement for continued inclusion in Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”). The deficiency letter will not result in the immediate delisting of the Company’s common stock from Nasdaq.
The Company has an initial period of 180 calendar days, or until May 1, 2023, to regain compliance with the Bid Price Rule. If the Company is not in compliance with the Bid Price Rule within the first 180 calendar days, the Company may be afforded a second 180 calendar day period to regain compliance. To qualify, the Company would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards required by Nasdaq, except for the minimum bid price requirement.
The Company intends to monitor the closing bid price of its common stock and may, if appropriate, consider available options to regain compliance with the Bid Price Rule, including initiating a reverse stock split. However, there can be no assurance that the Company will be able to regain compliance with the Bid Price Rule or will otherwise be in compliance with other Nasdaq Listing Rules. If we do not regain compliance with the Bid Price Rule and are not eligible for an additional compliance period, our common stock may be delisted. For more information, see “Risk Factors - Our share price does not meet the minimum bid price for continued listing on Nasdaq. Our ability to continue operations or to publicly or privately sell equity securities and the liquidity of our common stock could be adversely affected if we do not regain compliance with the minimum bid price requirement and we are delisted from Nasdaq.”
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our audited historical condensed consolidated condensed financial statements for the year ended December 31, 2020,2021, which are included in the Annual Report on Form 10-K, filed with the SECSecurities and Exchange Commission on March 31, 2021,29, 2022, and our unaudited condensed consolidated condensed financial statements for the three and nine months ended September 30, 20212022 included elsewhere in this Quarterly Report on Form 10-Q. This Management's Discussion and Analysis of Financial Condition and Results of Operations contains statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risks, uncertainties and other factors. Actual results could differ materially because of the factors discussed below or elsewhere in this Quarterly Report on Form 10-Q. See Part II, Item 1A. "Risk Factors" of this Quarterly Report on Form 10-Q, Part II, Item 1A. "Risk Factors" of the Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, and Part I, Item 1A. "Risk Factors" of the 20202021 Form 10-K for the year ended December 31, 2020.2021. Unless otherwise indicated or the context otherwise requires, references herein to “MedAvail,” “MedAvail Holdings,” “we,” “us,” “our,” and the “Company” refers to MedAvail Holdings, Inc. and its subsidiaries.
Overview
We are a technology-enabled retail pharmacy technology and services company, that is transforming full-service pharmacy.we have developed and commercialized an innovative self-service pharmacy, mobile application, and kiosk. Through our full-stack pharmacy technology platform, and personal one-on-one service, we bring pharmacy-dispensing capability to the point of care, resulting in lower costs, higher patient satisfaction, improved medication adherence, and better health outcomes.
We offer a unique, pharmacy technology solution which is anchored around our core technology called the MedAvail MedCenter™, or the MedCenter. The MedCenter enables on-site pharmacy in medical clinics, retail store locations, employer sites with and without onsite clinics, and any other location where onsite prescription dispensing is desired. The MedCenter establishes an audio-visual connection to a live pharmacist enabling prescription drug dispensing to occur directly to a patient while still providing real-time supervision by a pharmacist. Although itsour technology platform has broad application, we are currently focused on serving high-value Medicare members in the United States of America, or U.S.
We currently deploy the MedCenter solution through two distinct commercialization channels. First, we own and operate a full retail pharmacy business in the U.S. under the name SpotRx™, or SpotRx. The SpotRx pharmacy business is structured as a hub-and-spoke model where a central pharmacy supports and operates MedCenter kiosks embedded in medical clinics, usually in close proximity to the central pharmacy. The second commercialization channel isSecond, as a direct ‘sell-to’ model, wherebycommercialization channel, we sell the MedCenter technology and subscriptions for the associated software directly to large healthcare providers and retailers for use within their own pharmacy operations.
The MedCenter kiosk works in tandem with our Remote Dispensing System®, or the Remote Dispensing System, which consists of customer-facing software for remote ordering of medications for pick-up at a MedCenter, or next day home delivery. Supporting itsour MedCenter kiosks and Remote Dispensing System isare our back-end MedPlatform® Enterprise Software, or the MedPlatform Enterprise Software, which controls dispensing and MedCenter monitoring;monitoring, and supporting Pharmacy Management System software, which allows connection to our supporting team of pharmacists and kiosk administrators.
Our kiosks come in two models: the M4 MedCenter and the M5 MedCenter. The M4 MedCenter kiosk is designed to fit in waiting rooms, hallways, and lobbies. The M5 MedCenter is a larger kiosk designed as a full pharmacy replacement with the ability to serve 3-4 customers simultaneously. It can also be configured for drive through dispensing, similar to bank ATM drive through lanes.
Traditional retail pharmacies are built around a physical store front. In order to dispense medication, these stores must have a pharmacist onsite for all hours of operation. MostMany pharmacies have reduced hours of operation based on customer purchasing patterns in order to contain labor cost, which results in further reduced consumer access. Furthermore, retail pharmacy wait times are typically 30 to 60 minutes or more, causing substantial delays for the consumer. During the COVID-19 pandemic, mostmany people are looking to minimize the amount of physical contact that can lead to further disease contraction, especially for those most vulnerable, such as the elderly or those with compromised immune systems. Consequently, some patients are foregoing filling their prescribed medications, leading to declining health, increased healthcare costs and increased morbidity.
Components of Operating Results for the Nine Months Ended September 30, 20212022
We are nothave never been profitable and havewe incurred operating losses in each year since inception. Our net losses were $31.2$36.5 million and $14.7$31.2 million for the nine months ended September 30, 20212022 and 2020,2021, respectively. As of September 30, 2021,2022, we had an accumulated deficit of $179.5$228.6 million. Substantially all of our operating losses resulted from expenses incurred in connection with building out our retail pharmacy services operating footprint and from general and administrative costs associated with our operations.
We expect to incur significant additional expenses and operating losses for the foreseeable future as we initiate and continue the technology development, deployment of our MedCenter technology and adding personnel necessary to operate as a public company with rapidly growing retail pharmacy operations in the United States. In addition, operating as a publicly traded company involves the hiring of additional financial
and other personnel, upgrading our financial information systems and incurring costs associated with operating as a public company. We expect that our operating losses will decrease and turn positive as we execute our growth strategies within our operating segments. If our management
accelerates deployment into new states, operating losses could increase in the near-term, as we grow and scale our operations; we expect operating performance to turn positive once each state reaches sufficient scale in sales volume.
As of September 30, 2021,2022, we had cash and cash equivalents of $35.9$27.2 million. We will continue to require additional capital to continue our technology development and commercialization activities and build out our pharmacy operations to serve our growing customer base. Accordingly, in November 2020, April 2022, and July 2022, we completed the sale of additional equity through a private placement funding,fundings, where we raised $83.9 million.million, $40.0 million, and $10.0 million in gross proceeds, respectively. Additionally, in June 2021 we entered into a term loan and borrowed $10.0 million. Although we believe the proceeds from the private placement, loan proceeds, and borrowing capacity provide sufficient funding to execute our current growth plan, due to market risks (as outlined in the "Risk Factors" section of this Quarterly Report on Form 10-Q), weWe expect a need to raise additional capital to continue to fund ourfunding operations. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our growth strategy and capital market conditions. Failure to raise capital as and when needed, on favorable terms or at all, would have a negative impact on our financial condition and our ability to develop product candidates.
We have two reportable segments: Retail Pharmacy Services and Pharmacy Technology. These reportable segments are generally defined by how we execute our go-to-market strategy to sell products and services.
Overview of Retail Pharmacy Services Segment
The Retail Pharmacy Services operating segment operates as SpotRx, or the Pharmacy, a full-service retail pharmacy utilizing our automated pharmacy technology, primarily servicing Medicare patients in the United States. In operating SpotRx, we employ the pharmacy team, purchase the medications, and deploy our proprietary technology, the MedCenter, directly into the Medicare-focused clinics. This is an end-to-end turnkey solution.
Overview of Pharmacy Technology Segment
MedAvail Technologies develops and commercializes the MedCenter for direct sale or subscription to third-party customers, including some of the world’s largest healthcare providers and systems, as well as large retail chains that provide full retail-pharmacy services using our technology.
Results of Operations for the Three Months Ended September 30, 20212022
SalesRevenue – Retail Pharmacy and Hardware and Service
Retail pharmacy and hardware salesrevenue
Retail pharmacy salesrevenue from the retail pharmacy servicesRetail Pharmacy Services segment areis derived from sales of prescription medications and over-the-counter products to patients. Medications are sold and delivered by various methods including dispensing product directly from the MedCenter, patient pick up at MedAvail’s SpotRx pharmacy locations orand home delivery of medications to patient residences. Hardware sales from the pharmacy technology segment are derived from either the sales or subscription of the MedCenter to customers.
Service salesrevenue
Services salesService revenue from the pharmacy technology segment arePharmacy Technology Segment is derived from installation and support services.
SalesRevenue
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | 2021 vs. 2020 |
| 2021 | | 2020 | | Amount Change | | % Change |
Pharmacy and hardware sales: | (in thousands) |
Retail pharmacy sales | $ | 5,445 | | | $ | 2,186 | | | $ | 3,259 | | | 149 | % |
Hardware | 106 | | | 1,625 | | | (1,519) | | | (93) | % |
Subscription sales | 108 | | | 115 | | | (7) | | | (6) | % |
Total pharmacy and hardware sales | 5,659 | | | 3,926 | | | 1,733 | | | 44 | % |
Service sales: | | | | | | | |
Software integration | — | | | 3,168 | | | (3,168) | | | — | % |
Software | 51 | | | 15 | | | 36 | | | 240 | % |
Maintenance and support | 44 | | | 17 | | | 27 | | | 159 | % |
Installation | 11 | | | — | | | 11 | | | — | % |
Professional services and other | 27 | | | 19 | | | 8 | | | 42 | % |
Total service sales | 133 | | | 3,219 | | | (3,086) | | | (96) | % |
Total sales | $ | 5,792 | | | $ | 7,145 | | | $ | (1,353) | | | (19) | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | 2022 vs. 2021 |
| 2022 | | 2021 | | Amount Change | | % Change |
Pharmacy and hardware revenue: | (in thousands) |
Retail pharmacy revenue | $ | 11,162 | | | $ | 5,445 | | | $ | 5,717 | | | 105 | % |
Hardware | — | | | 106 | | | (106) | | | (100) | % |
Subscription | 104 | | | 108 | | | (4) | | | (4) | % |
Total pharmacy and hardware revenue | 11,266 | | | 5,659 | | | 5,607 | | | 99 | % |
Service revenue: | | | | | | | |
| | | | | | | |
Software | 94 | | | 51 | | | 43 | | | 84 | % |
Maintenance and support | 48 | | | 44 | | | 4 | | | 9 | % |
Installation | — | | | 11 | | | (11) | | | (100) | % |
Professional services and other | 53 | | | 27 | | | 26 | | | 96 | % |
Total service revenue | 195 | | | 133 | | | 62 | | | 47 | % |
Total revenue | $ | 11,461 | | | $ | 5,792 | | | $ | 5,669 | | | 98 | % |
During the three months ended September 30, 2021,2022, retail pharmacy and hardware salesrevenue increased $1.7by $5.6 million to $5.7$11.3 million compared to that of the same period in 2020.2021. The $1.7$5.6 million increase was due to a $3.3$5.7 million increase from volume growth in prescription salesrevenue at existing sites and additional sites launched primarily in the remaining periodFlorida in 2020Q4 2021 and 2021 in Arizona, California and Michigan, offset by the decrease in hardware sales from the third quarter 2020. During the third quarter 2020, MedAvail and a significant customer agreed that we had no further obligation to the customer related to a commercial contract. This revenue is non-recurring and was recorded as $1.5 million of hardware sales and $3.2 million of software integration sales for contract obligations that were in progress but not completed.
continuing into 2022.
During the three months ended September 30, 2021, services sales decreased $3.092022, service revenue increased by $0.1 million to $0.13$0.2 million compared to that of the same period in 2020. The decrease was primarily due to the aforementioned commercial agreement.2021.
Cost of Sales – PharmacyProducts Sold and Hardware and ServiceServices
PharmacyRetail pharmacy and hardware cost of salesproducts sold
Cost of salesproducts sold consists primarily of prescription medications, and other over-the-counter health products; and costs associated with MedCenters sold to third-party customers.
Service cost of salescosts
Cost of salesService costs consists primarily of costs incurred to install and maintain MedCenters at third-party customer locations.
Costs of salesProducts and Services
| | | Three Months Ended September 30, | | 2021 vs. 2020 | | Three Months Ended September 30, | | 2022 vs. 2021 |
| | 2021 | | 2020 | | Amount Change | | % Change | | 2022 | | 2021 | | Amount Change | | % Change |
Retail pharmacy and hardware cost of sales: | (in thousands) | |
Retail pharmacy and hardware cost of products sold: | | Retail pharmacy and hardware cost of products sold: | (in thousands) |
Prescription drugs | Prescription drugs | $ | 4,969 | | | $ | 1,916 | | | $ | 3,053 | | | 159 | % | Prescription drugs | $ | 9,313 | | | $ | 4,969 | | | $ | 4,344 | | | 87 | % |
Shipping | Shipping | 396 | | | 125 | | | 271 | | | 217 | % | Shipping | 735 | | | 396 | | | 339 | | | 86 | % |
Hardware | Hardware | 129 | | | 44 | | | 85 | | | 193 | % | Hardware | 13 | | | 129 | | | (116) | | | (90) | % |
Depreciation | Depreciation | 45 | | | 47 | | | (2) | | | (4) | % | Depreciation | 52 | | | 45 | | | 7 | | | 16 | % |
Total retail pharmacy and hardware cost of sales | 5,539 | | | 2,132 | | | 3,407 | | | 160 | % | |
Service cost of sales: | | | | | | | | |
Total retail pharmacy and hardware cost of products sold | | Total retail pharmacy and hardware cost of products sold | 10,113 | | | 5,539 | | | 4,574 | | | 83 | % |
Service costs: | | Service costs: | | | | | | | |
Professional services | Professional services | 16 | | | — | | | 16 | | | — | % | Professional services | 10 | | | 16 | | | (6) | | | (38) | % |
Maintenance and support services | Maintenance and support services | 46 | | | 30 | | | 16 | | | 53 | % | Maintenance and support services | 46 | | | 46 | | | — | | | — | % |
Installation services | Installation services | 5 | | | — | | | 5 | | | — | % | Installation services | — | | | 5 | | | (5) | | | (100) | % |
Total service cost of sales | 67 | | | 30 | | | 37 | | | 123 | % | |
Total cost of sales | $ | 5,606 | | | $ | 2,162 | | | $ | 3,444 | | | 159 | % | |
Total service costs | | Total service costs | 56 | | | 67 | | | (11) | | | (16) | % |
Total cost of products sold and services | | Total cost of products sold and services | $ | 10,169 | | | $ | 5,606 | | | $ | 4,563 | | | 81 | % |
During the three months ended September 30, 2021,2022, retail pharmacy and hardware cost of salesproducts sold increased $3.4$4.6 million to $5.5$10.1 million compared to the same period in 2020.2021. The increase was primarily due to costs associated with volume growth in prescription sales at existing
sites and additional sites launched primarily in the remaining periodFlorida in 2020Q4 2021 and 2021 in Arizona, California and Michigan.continuing into 2022. Shipping costs, related to our home delivery service via third-party courier, increased $0.3 million compared to the same period in 2020. This increase is due to increased utilization of the service due to higher telehealth clinic visits caused by the Covid-19 pandemic.2021.
During the three months ended September 30, 2021,2022, service cost of salescosts were reasonably consistent with the same period in the prior period.year.
Pharmacy operationsOperations
Pharmacy operations consist of costs incurred to operate retail pharmacies including pharmacy labor costs, and pharmacy license fees.our call center. Wages and salaries consist of compensation costs incurred for all pharmacy operations related employees and contractors including bonuses, health plans, severance, and contractor costs. Facility expenses consist of rent and utilities directly associated with our pharmacy operations.
Other pharmacy operations expenses consist of consulting and professional fees, maintenance fees, supply costs and other costs.
Depreciation of property, plant and equipment includes depreciation on MedCenters, IT equipment, leasehold improvements, general plant and equipment, software, office furniture and equipment and vehicles. Amortization of intangible assets consists of amortization of intellectual property, website and mobile applications and software.
| | | Three Months Ended September 30, | | 2021 vs. 2020 | | Three Months Ended September 30, | | 2022 vs. 2021 |
| | 2021 | | 2020 | | Amount Change | | % Change | | 2022 | | 2021 | | Amount Change | | % Change |
Pharmacy operations expenses: | Pharmacy operations expenses: | (in thousands) | Pharmacy operations expenses: | (in thousands) |
Wages and salaries | Wages and salaries | $ | 1,605 | | | $ | 1,131 | | | $ | 474 | | | 42 | % | Wages and salaries | $ | 2,375 | | | $ | 2,794 | | | $ | (419) | | | (15) | % |
Other pharmacy operations expenses | 476 | | | 54 | | | 422 | | | 781 | % | |
Rent, utilities, and other | | Rent, utilities, and other | 569 | | | 570 | | | (1) | | | (0) | % |
| Depreciation of property, plant and equipment | Depreciation of property, plant and equipment | 220 | | | 252 | | | (32) | | | (13) | % | Depreciation of property, plant and equipment | 242 | | | 220 | | | 22 | | | 10 | % |
| Amortization of intangible assets | Amortization of intangible assets | 94 | | | 13 | | | 81 | | | 623 | % | Amortization of intangible assets | 1,089 | | | 90 | | | 999 | | | 1110 | % |
Repairs and maintenance | | Repairs and maintenance | 117 | | | 76 | | | 41 | | | 54 | % |
Total pharmacy operations expenses | Total pharmacy operations expenses | $ | 2,395 | | | $ | 1,450 | | | $ | 945 | | | 65 | % | Total pharmacy operations expenses | $ | 4,392 | | | $ | 3,750 | | | $ | 642 | | | 17 | % |
During the three months ended September 30, 2021,2022, pharmacy operations expenses increased $0.9by $0.6 million to $2.4$4.4 million compared to the same period in 2020. This increase was primarily due to the opening of three additional central pharmacy locations in the remaining period in 2020, including two in California and one in Michigan. Additionally, volume growth continued to ramp at existing pharmacy locations, thus increasing pharmacy personnel and supplies during the remaining period in 2020 and into 2021, resulting in increased operating costs.2021. Amortization of intangible assets has increased as a result ofdue to deploying internally developed software in our pharmacy operations.
operations and decreasing the remaining useful life resulting in an increased amortization of $1.0 million. The increase was offset by the decrease in wages and salaries due to reduction in contractor costs.General and administrativeAdministrative
General and administrative expenses consist of personnel costs, facility expenses and expenses for outside professional services, including legal, audit and accounting services. Personnel costs consist of salaries, benefits and share-based compensation. Facility expenses consist of rent and other related costs.costs specific to our corporate and technology activities. Corporate insurance, office supplies and technology expenses are also captured within general and administrative expenses. We incurred and expect to incur additional expenses as a result of being a public company, including expenses related to compliance with the rules and regulations of the Securities and Exchange Commission, or SEC, Nasdaq, additional insurance, investor relations and other administrative expenses and professional services.
We have a stock option planequity incentive plans whereby awards are granted to certain of our employees. The fair value of the stock options and restricted stock units granted by us to our employees is recognized as compensation expense on a straight-line basis over the applicable vesting period. We measure the fair value of the stock options using the Black-Scholes option pricing model as of the grant date. Shares issued upon the exercise of stock options and vesting of restricted stock units are new shares. We estimate forfeitures based on historical experience and expense related to awards is adjusted over the term of the awards to reflect their probability of vesting. All fully vested awards are expensed.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | 2021 vs. 2020 |
| 2021 | | 2020 | | Amount Change | | % Change |
General and administrative expenses: | (in thousands) |
Wages and salaries | $ | 4,005 | | | $ | 2,274 | | | $ | 1,731 | | | 76 | % |
Professional services | 549 | | | 247 | | | 302 | | | 122 | % |
Rent and utilities | 484 | | | 362 | | | 122 | | | 34 | % |
Office and IT supplies | 454 | | | 346 | | | 108 | | | 31 | % |
Insurance | 462 | | | 64 | | | 398 | | | 622 | % |
Share-based compensation | 365 | | | 65 | | | 300 | | | 462 | % |
Travel and other employee expenses | 174 | | | 45 | | | 129 | | | 287 | % |
Other general and administrative expenses | 312 | | | 61 | | | 251 | | | 411 | % |
Total general and administrative expenses | $ | 6,805 | | | $ | 3,464 | | | $ | 3,341 | | | 96 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | 2022 vs. 2021 |
| 2022 | | 2021 | | Amount Change | | % Change |
General and administrative expenses: | (in thousands) |
Wages and salaries | $ | 3,098 | | | $ | 2,695 | | | $ | 403 | | | 15 | % |
Professional services | 531 | | | 549 | | | (18) | | | (3) | % |
Share-based compensation | 565 | | | 367 | | | 198 | | | 54 | % |
Insurance | 503 | | | 462 | | | 41 | | | 9 | % |
Software licenses and support | 421 | | | 305 | | | 116 | | | 38 | % |
Rent, utilities, and other | 745 | | | 555 | | | 190 | | | 34 | % |
| | | | | | | |
| | | | | | | |
Office and IT supplies | 88 | | | 126 | | | (38) | | | (30) | % |
Travel and other employee expenses | 87 | | | 184 | | | (97) | | | (53) | % |
Depreciation of property, plant and equipment | 49 | | | 77 | | | (28) | | | (36) | % |
Total general and administrative expenses | $ | 6,087 | | | $ | 5,320 | | | $ | 767 | | | 14 | % |
During the three months ended September 30, 2021,2022, general and administrative costs increased approximately $3.3by $0.8 million to $6.8$6.1 million compared to that of the same period in 2020.2021. This increase was primarily due to hiring additional administrative staff, increased share-based compensation, as well as other investments necessary for our growth and becoming a public company. Additionally, increases in other general expenses, such as director and officer insurance, auditor fees, and legal fees were also partly a consequence of operating as a public company.
Selling and marketingMarketing
Selling and marketing expenses consist of personnel costs, marketing and advertising costs, personnel costs, and marketing related expenses for outside professional services. Wages and salaries consist of compensation costs incurred for all selling and marketing employees and contractorsincluding our in-clinic customer account managers, including bonuses, health plans, severance, and contractor costs.severance.
| | | Three Months Ended September 30, | | 2021 vs. 2020 | | Three Months Ended September 30, | | 2022 vs. 2021 |
| | 2021 | | 2020 | | Amount Change | | % Change | | 2022 | | 2021 | | Amount Change | | % Change |
Selling and marketing expenses: | Selling and marketing expenses: | (in thousands) | Selling and marketing expenses: | (in thousands) |
Wages and salaries | Wages and salaries | $ | 1,538 | | | $ | 523 | | | $ | 1,015 | | | 194 | % | Wages and salaries | $ | 1,960 | | | $ | 1,658 | | | $ | 302 | | | 18 | % |
Travel and other employee expenses | | Travel and other employee expenses | 86 | | | 126 | | | (40) | | | (32) | % |
Marketing | Marketing | 110 | | | 82 | | | 28 | | | 34 | % | Marketing | 74 | | | 110 | | | (36) | | | (33) | % |
Travel and other employee expenses | 117 | | | 15 | | | 102 | | | 680 | % | |
Other selling and marketing expenses | Other selling and marketing expenses | 14 | | | 4 | | | 10 | | | 250 | % | Other selling and marketing expenses | 6 | | | 15 | | | (9) | | | (60) | % |
Total selling and marketing expenses | Total selling and marketing expenses | $ | 1,779 | | | $ | 624 | | | $ | 1,155 | | | 185 | % | Total selling and marketing expenses | $ | 2,126 | | | $ | 1,909 | | | $ | 217 | | | 11 | % |
During the three months ended September 30, 2021,2022, selling and marketing costs increased approximately $1.2by $0.2 million to $1.8$2.1 million compared to that of the same period in 2020.2021. This increase was primarily due to personnel related costs associated with hiring additional Clinic Account Managers (CAMs) and Regional Directors,, which directly support the medical clinic’s staff and patients at the growing number of medical clinics where we are deployed.
Research and developmentDevelopment
Research and development expenses represent costs incurred to develop and innovate our MedCenter platform technology, including development work on hardware, software and supporting information technology infrastructure. Wages and salaries consist of compensation costs incurred for research and development employees and contractors including bonuses, health plans, severance, and contractor costs.
We recognize hardware development costs as they are incurred. When hardware is constructed for use by customers, costs are capitalized after technological feasibility is achieved and expensed before technological feasibility is achieved. Costs of hardware completed but not yet placed in service are capitalized as equipment (a long-lived asset) on the consolidated condensed balance sheets. Costs of hardware completed and placed in service with customers are capitalized as equipment and depreciated over the estimated useful life of the equipment.
Software development costs are accrued and expensed based on ASC 985, which is for software that we intend to sell (in conjunction with related hardware). Any software development costs that are incurred prior to the point where the project has demonstrated technological feasibility are expensed as they are incurred. Once technological feasibility has been established, most development costs are capitalized. Once development is complete and the software is made available for release to customers, capitalization no longer is appropriate because any remaining costs are considered ongoing maintenance and support. These are expensed as they are incurred.
| | | Three Months Ended September 30, | | 2021 vs. 2020 | | Three Months Ended September 30, | | 2022 vs. 2021 |
| | 2021 | | 2020 | | Amount Change | | % Change | | 2022 | | 2021 | | Amount Change | | % Change |
Research and development expenses: | Research and development expenses: | (in thousands) | Research and development expenses: | (in thousands) |
Wages and salaries | Wages and salaries | $ | 165 | | | $ | 136 | | | $ | 29 | | | 21 | % | Wages and salaries | $ | 166 | | | $ | 165 | | | $ | 1 | | | 1 | % |
Materials | 53 | | | 17 | | | 36 | | | 212 | % | |
Other expenses | Other expenses | 14 | | | 1 | | | 13 | | | 1300 | % | Other expenses | 12 | | | 67 | | | (55) | | | (82) | % |
Total research and development expenses | Total research and development expenses | $ | 232 | | | $ | 154 | | | $ | 78 | | | 51 | % | Total research and development expenses | $ | 178 | | | $ | 232 | | | $ | (54) | | | (23) | % |
During the three months ended September 30, 2021,2022, research and development costs increaseddecreased by approximately $0.08$0.1 million. This increase was primarily due to ongoing product improvement activities, including efforts to integrate our MedPlatform® Enterprises Software to the EPIC pharmacy management system.
During the three months ended September 30, 2021, other gain (loss) of $7 thousand was not significant.
Interest incomeIncome and expenseExpense
Interest expense consists of accrued interest on outstanding debt and is payable monthly.
| | | Three Months Ended September 30, | | 2021 vs. 2020 | | Three Months Ended September 30, | | 2022 vs. 2021 |
| | 2021 | | 2020 | | Amount Change | | % Change | | 2022 | | 2021 | | Amount Change | | % Change |
Interest income: | Interest income: | (in thousands) | Interest income: | (in thousands) |
Interest income | Interest income | $ | 7 | | | $ | — | | | $ | 7 | | | 0 | % | Interest income | $ | — | | | $ | 7 | | | $ | (7) | | | (100) | % |
Total interest income | Total interest income | $ | 7 | | | $ | — | | | $ | 7 | | | 0 | % | Total interest income | $ | — | | | $ | 7 | | | $ | (7) | | | (100) | % |
Interest expense: | Interest expense: | | | | | | | | Interest expense: | | | | | | | |
Interest expense | Interest expense | $ | (260) | | | $ | (455) | | | $ | 195 | | | (43) | % | Interest expense | $ | (315) | | | $ | (260) | | | $ | (55) | | | 21 | % |
Total interest expense | Total interest expense | $ | (260) | | | $ | (455) | | | $ | 195 | | | (43) | % | Total interest expense | $ | (315) | | | $ | (260) | | | $ | (55) | | | 21 | % |
During the three months ended September 30, 2021,2022, interest expense decreasedincreased compared to the same period in 20202021 due to a convertible note that was outstanding through the third quarter in 2020 and settled in November 2020. On March 24, 2016, MedAvail and a significant customer and investor enteredCompany entering into a subordinated secured convertible promissory five-year note agreement for $10.0 million orterm loan in June 2021. The interest rate on the Convertible Note. This Convertible Noteterm loan was convertible into common shares at the holder’s request. The Convertible Note, including accrued interest, was repaid in its entirety10.25% on November 17, 2020.September 30, 2022, compared to 7.25% on September 30, 2021. For more detail on outstanding debt and associated maturities, see Note 78 to the unaudited condensed consolidated condensed financial statements presented elsewhere in this Quarterly Report on Form 10-Q.
Results of Operations for the Nine Months Ended September 30, 20212022
SalesRevenue – Retail Pharmacy and Hardware and Service
Retail pharmacy and hardware salesrevenue
Retail pharmacy salesrevenue from the retail pharmacy servicesRetail Pharmacy Services segment areis derived from sales of prescription medications and over-the-counter products to patients. Medications are sold and delivered by various methods including dispensing product directly from the MedCenter, patient pick up at MedAvail’s SpotRx pharmacy locations or home delivery of medications to patient residences. Hardware sales from the pharmacy technology segment are derived from either the sales or subscription of the MedCenter to customers.
Service salesrevenue
Services salesService revenue from the pharmacy technology segment arePharmacy Technology Segment is derived from installation and support services.
SalesRevenue
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | 2021 vs. 2020 |
| 2021 | | 2020 | | Amount Change | | % Change |
Pharmacy and hardware sales: | (in thousands) |
Retail pharmacy sales | $ | 13,357 | | | $ | 5,196 | | | $ | 8,161 | | | 157 | % |
Hardware | 470 | | | 2,048 | | | (1,578) | | | (77) | % |
Subscription sales | 338 | | | 343 | | | (5) | | | (1) | % |
Total pharmacy and hardware sales | 14,165 | | | 7,587 | | | 6,578 | | | 87 | % |
Service sales: | | | | | | | |
Software integration | — | | | 3,168 | | | (3,168) | | | — | % |
Software | 125 | | | 25 | | | 100 | | | 400 | % |
Maintenance and support | 115 | | | 40 | | | 75 | | | 188 | % |
Installation | 39 | | | 28 | | | 11 | | | 39 | % |
Professional services and other | 405 | | | 20 | | | 385 | | | 1925 | % |
Total service sales | 684 | | | 3,281 | | | (2,597) | | | (79) | % |
Total sales | $ | 14,849 | | | $ | 10,868 | | | $ | 3,981 | | | 37 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | 2022 vs. 2021 |
| 2022 | | 2021 | | Amount Change | | % Change |
Pharmacy and hardware revenue: | (in thousands) |
Retail pharmacy revenue | $ | 30,652 | | | $ | 13,357 | | | $ | 17,295 | | | 129 | % |
Hardware | 236 | | | 470 | | | (234) | | | (50) | % |
Subscription | 322 | | | 338 | | | (16) | | | (5) | % |
Total pharmacy and hardware revenue | 31,210 | | | 14,165 | | | 17,045 | | | 120 | % |
Service revenue: | | | | | | | |
| | | | | | | |
Software | 228 | | | 125 | | | 103 | | | 82 | % |
Maintenance and support | 127 | | | 115 | | | 12 | | | 10 | % |
Installation | 77 | | | 39 | | | 38 | | | 97 | % |
Professional services and other | 117 | | | 405 | | | (288) | | | (71) | % |
Total service revenue | 549 | | | 684 | | | (135) | | | (20) | % |
Total revenue | $ | 31,759 | | | $ | 14,849 | | | $ | 16,910 | | | 114 | % |
During the nine months ended September 30, 2021,2022, retail pharmacy and hardware salesrevenue increased $6.6by $17.0 million to $14.2$31.2 million compared to that of the same period in 2020.2021. The $6.6$17.0 million increase was due to a $8.2$17.3 million increase from volume growth in prescription salesrevenue at existing sites and additional sites launched primarily in the remaining periodFlorida in 2020Q4 2021 and 2021 in Arizona, California and Michigan,continuing into 2022, offset by the decrease in hardware sales. Duringrevenue from the third quarter 2020, MedAvail and a significant customer agreed that we had no further obligation to the customer related to a commercial contract. This revenue is non-recurring and was recorded as $1.5 million of hardware sales and $3.2 million of software integration sales for contract obligations that weresame period in progress but not completed.2021.
During the nine months ended September 30, 2021, services sales2022, service revenue decreased $2.6by $0.1 million to $0.7$0.5 million compared to the same period in 2020. The decrease was primarily due to the aforementioned agreement. The increase in software sales was due to the related increase in pharmacy and hardware sales, and professional services associated with contracted software work enabling a large health system customer to fully integrate their back-end pharmacy management system with our MedPlatform® Enterprise Software that was completed during the third quarter 2021.
Cost of Sales – PharmacyProducts Sold and Hardware and ServiceServices
PharmacyRetail pharmacy and hardware cost of salesproducts sold
Cost of sales consistproducts sold consists primarily of prescription medications, and other over-the-counter health products; and costs associated with MedCenters sold to third-party customers.
Service cost of salescosts
Cost of sales consistsService costs consist primarily of costs incurred to install and maintain MedCenters at third-party customer locations.
Costs of salesProducts and Services
| | | Nine Months Ended September 30, | | 2021 vs. 2020 | | Nine Months Ended September 30, | | 2022 vs. 2021 |
| | 2021 | | 2020 | | Amount Change | | % Change | | 2022 | | 2021 | | Amount Change | | % Change |
Retail pharmacy and hardware cost of sales: | (in thousands) | |
Retail pharmacy and hardware cost of products sold: | | Retail pharmacy and hardware cost of products sold: | (in thousands) |
Prescription drugs | Prescription drugs | $ | 12,154 | | | $ | 4,778 | | | $ | 7,376 | | | 154 | % | Prescription drugs | $ | 26,402 | | | $ | 12,154 | | | $ | 14,248 | | | 117 | % |
Shipping | Shipping | 976 | | | 281 | | | 695 | | | 247 | % | Shipping | 2,059 | | | 976 | | | 1,083 | | | 111 | % |
Hardware | Hardware | 482 | | | 137 | | | 345 | | | 252 | % | Hardware | 245 | | | 482 | | | (237) | | | (49) | % |
Depreciation | Depreciation | 132 | | | 147 | | | (15) | | | (10) | % | Depreciation | 121 | | | 132 | | | (11) | | | (8) | % |
Total retail pharmacy and hardware cost of sales | 13,744 | | | 5,343 | | | 8,401 | | | 157 | % | |
Service cost of sales: | | | | | | | | |
Total retail pharmacy and hardware cost of products sold | | Total retail pharmacy and hardware cost of products sold | 28,827 | | | 13,744 | | | 15,083 | | | 110 | % |
Service costs: | | Service costs: | | | | | | | |
Professional services | Professional services | 301 | | | — | | | 301 | | | — | % | Professional services | 33 | | | 301 | | | (268) | | | (89) | % |
Maintenance and support services | Maintenance and support services | 105 | | | 90 | | | 15 | | | 17 | % | Maintenance and support services | 139 | | | 105 | | | 34 | | | 32 | % |
Installation services | Installation services | 20 | | | 26 | | | (6) | | | (23) | % | Installation services | 49 | | | 20 | | | 29 | | | 145 | % |
Total service cost of sales | 426 | | | 116 | | | 310 | | | 267 | % | |
Total cost of sales | $ | 14,170 | | | $ | 5,459 | | | $ | 8,711 | | | 160 | % | |
Total service costs | | Total service costs | 221 | | | 426 | | | (205) | | | (48) | % |
Total cost of products sold and services | | Total cost of products sold and services | $ | 29,048 | | | $ | 14,170 | | | $ | 14,878 | | | 105 | % |
During the nine months ended September 30, 2021,2022, retail pharmacy and hardware cost of salesproducts sold increased $8.4by $15.1 million to $13.7$28.8 million compared to that of the same period in 2020.2021. The increase was primarily due to costs associated with volume growth in prescription sales at existing sites and additional sites launched primarily in the remaining periodFlorida in 2020Q4 2021 and 2021 in Arizona, California and Michigan.continuing into 2022. Shipping costs, related to our home delivery service via third-party courier, increased $0.7by $1.1 million compared to that of the same period in 2020. This increase is due to increased utilization of the service due to higher telehealth clinic visits caused by the Covid-19 pandemic.
During the nine months ended September 30, 2021, service cost of sales increased $0.3 million to $0.4 million compared to the same period in 2020. The increase was due primarily to costs associated with contracted software integration work enabling a large health system customer to fully integrate their backend pharmacy management system with our MedPlatform® Enterprise Software.2021.
Pharmacy operationsOperations
Pharmacy operations consist of costs incurred to operate retail pharmacies including pharmacy labor costs, and pharmacy license fees.our call center. Wages and salaries consist of compensation costs incurred for all pharmacy operations related employees and contractors including bonuses, health plans, severance, and contractor costs. Facility expenses consist of rent and utilities directly associated with our pharmacy operations.
Other pharmacy operations expenses consist of consulting and professional fees, maintenance fees, supply costs,cost and other costs.
Depreciation of property, plant and equipment includes depreciation on MedCenters, IT equipment, leasehold improvements, general plant and equipment, software, office furniture and equipment and vehicles. Amortization of intangible assets consists of amortization of intellectual property, website and mobile applications and software.
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | 2021 vs. 2020 |
| 2021 | | 2020 | | Amount Change | | % Change |
Pharmacy operations expenses: | (in thousands) |
Wages and salaries | $ | 4,788 | | | $ | 2,841 | | | $ | 1,947 | | | 69 | % |
Other pharmacy operations expenses | 997 | | | 130 | | | 867 | | | 667 | % |
Depreciation of property, plant and equipment | 641 | | | 615 | | | 26 | | | 4 | % |
Amortization of intangible assets | 193 | | | 69 | | | 124 | | | 180 | % |
Total pharmacy operations expenses | $ | 6,619 | | | $ | 3,655 | | | $ | 2,964 | | | 81 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | 2022 vs. 2021 |
| 2022 | | 2021 | | Amount Change | | % Change |
Pharmacy operations expenses: | (in thousands) |
Wages and salaries | $ | 7,970 | | | $ | 7,330 | | | $ | 640 | | | 9 | % |
Rent, utilities, and other | 1,602 | | | 1,102 | | | 500 | | | 45 | % |
| | | | | | | |
Depreciation of property, plant and equipment | 694 | | | 641 | | | 53 | | | 8 | % |
| | | | | | | |
Amortization of intangible assets | 1,362 | | | 187 | | | 1,175 | | | 628 | % |
Repairs and maintenance | 342 | | | 168 | | | 174 | | | 104 | % |
Total pharmacy operations expenses | $ | 11,970 | | | $ | 9,428 | | | $ | 2,542 | | | 27 | % |
During the nine months ended September 30, 2021,2022, pharmacy operations expenses increased $3.0by $2.5 million to $6.6$12.0 million compared to that of the same period in 2020.2021. This increase was primarily due to the opening of three additionaladding our Orlando central pharmacy locationslocation in the remaining period in 2020, including two in CaliforniaQ4 2021 and one in Michigan.continued growth of our other pharmacies. Additionally, volume growth continued to ramp up at existing pharmacy locations, thisthus increasing pharmacy personnel and supplies, during the remaining period in 2020 and into 2021, resulting in increased wages, salaries, and operating costs. Amortization of intangible assets has increased as a result of deploying internally developed software in our pharmacy operations.
operations and decreasing the remaining useful life resulting in an increased amortization of $1.0 million
General and administrativeAdministrative
General and administrative expenses consist of personnel costs, facility expenses and expenses for outside professional services, including legal, audit and accounting services. Personnel costs consist of salaries, benefits and share-based compensation. Facility expenses consist of rent and other related costs.costs specific to our corporate and technology activities. Corporate insurance, office supplies and technology expenses are also captured within general and administrative expenses. We incurred and expect to incur additional expenses as a result of becomingbeing a public company, including expenses related to compliance with the rules and regulations of the SEC, Nasdaq, additional insurance, investor relations and other administrative expenses and professional services.
We have a stock optionan equity incentive plan whereby awards are granted to certain of our employees. The fair value of the stock options and restricted stock units granted by us to our employees is recognized as compensation expense on a straight-line basis over the applicable vesting period. We measure the fair value of the stock options using the Black-Scholes option pricing model as of the grant date. Shares issued upon the exercise of stock options and vesting of restricted stock units are new shares. We estimate forfeitures based on historical experience and expense related to awards isare adjusted over the term of the awards to reflect their probability of vesting. All fully vested awards are fully expensed.
| | | Nine Months Ended September 30, | | 2021 vs. 2020 | | Nine Months Ended September 30, | | 2022 vs. 2021 |
| | 2021 | | 2020 | | Amount Change | | % Change | | 2022 | | 2021 | | Amount Change | | % Change |
General and administrative expenses: | General and administrative expenses: | (in thousands) | General and administrative expenses: | (in thousands) |
Wages and salaries | Wages and salaries | $ | 10,965 | | | $ | 6,773 | | | $ | 4,192 | | | 62 | % | Wages and salaries | $ | 9,699 | | | $ | 8,044 | | | $ | 1,655 | | | 21 | % |
Professional services | Professional services | 2,714 | | | 669 | | | 2,045 | | | 306 | % | Professional services | 2,087 | | | 2,714 | | | (627) | | | (23) | % |
Rent and utilities | 1,303 | | | 1,014 | | | 289 | | | 29 | % | |
Share-based compensation | | Share-based compensation | 1,741 | | | 948 | | | 793 | | | 84 | % |
Insurance | | Insurance | 1,509 | | | 1,357 | | | 152 | | | 11 | % |
Software licenses and support | | Software licenses and support | 1,132 | | | 785 | | | 347 | | | 44 | % |
Rent, utilities, and other | | Rent, utilities, and other | 1,944 | | | 1,895 | | | 49 | | | 3 | % |
| Office and IT supplies | Office and IT supplies | 1,147 | | | 920 | | | 227 | | | 25 | % | Office and IT supplies | 286 | | | 270 | | | 16 | | | 6 | % |
Insurance | 1,357 | | | 167 | | | 1,190 | | | 713 | % | |
Share-based compensation | 948 | | | 235 | | | 713 | | | 303 | % | |
Travel and other employee expenses | Travel and other employee expenses | 552 | | | 321 | | | 231 | | | 72 | % | Travel and other employee expenses | 212 | | | 566 | | | (354) | | | (63) | % |
Other general and administrative expenses | 955 | | | 445 | | | 510 | | | 115 | % | |
Depreciation of property, plant and equipment | | Depreciation of property, plant and equipment | 119 | | | 154 | | | (35) | | | (23) | % |
Total general and administrative expenses | Total general and administrative expenses | $ | 19,941 | | | $ | 10,544 | | | $ | 9,397 | | | 89 | % | Total general and administrative expenses | $ | 18,729 | | | $ | 16,733 | | | $ | 1,996 | | | 12 | % |
During the nine months ended September 30, 2021,2022, general and administrative costs increased approximately $9.4by $2.0 million to $19.9$18.7 million compared to that of the same period in 2020.2021. This increase was primarily due to hiring additional administrative staff, increased share-based compensation, as well as other investments necessary for our growth and becomingas a public company. Additionally, increasesProfessional services decreased approximately by $0.6 million to $2.1 million compared to that of the same period in other general expenses, such as director2021. This decrease was primarily due to the reduction of fees from data warehousing, legal and officer insurance, auditor fees, and legal fees were also partly a consequence of operating as a public company.audit costs.
Selling and marketingMarketing
Selling and marketing expenses consist of personnel costs, marketing and advertising costs, personnel costs, and marketing related expenses for outside professional services. Wages and salaries consist of compensation costs incurred for all selling and marketing employees including our in-clinic customer account managers, and contractors including bonuses, health plans, severance, and contractor costs.severance.
| | | Nine Months Ended September 30, | | 2021 vs. 2020 | | Nine Months Ended September 30, | | 2022 vs. 2021 |
| | 2021 | | 2020 | | Amount Change | | % Change | | 2022 | | 2021 | | Amount Change | | % Change |
Selling and marketing expenses: | Selling and marketing expenses: | (in thousands) | Selling and marketing expenses: | (in thousands) |
Wages and salaries | Wages and salaries | $ | 4,032 | | | $ | 1,532 | | | $ | 2,500 | | | 163 | % | Wages and salaries | $ | 6,167 | | | $ | 4,411 | | | $ | 1,756 | | | 40 | % |
Travel and other employee expenses | | Travel and other employee expenses | 286 | | | 242 | | | 44 | | | 18 | % |
Marketing | Marketing | 379 | | | 260 | | | 119 | | | 46 | % | Marketing | 260 | | | 378 | | | (118) | | | (31) | % |
Travel and other employee expenses | 226 | | | 76 | | | 150 | | | 197 | % | |
Other selling and marketing expenses | Other selling and marketing expenses | 20 | | | 29 | | | (9) | | | (31) | % | Other selling and marketing expenses | 25 | | | 25 | | | 0 | | | 0 | % |
Total selling and marketing expenses | Total selling and marketing expenses | $ | 4,657 | | | $ | 1,897 | | | $ | 2,760 | | | 145 | % | Total selling and marketing expenses | $ | 6,738 | | | $ | 5,056 | | | $ | 1,682 | | | 33 | % |
During the nine months ended September 30, 2021,2022, selling and marketing costs increased approximately $2.8by $1.7 million to $4.7$6.7 million compared to that of the same period in 2020.2021. This increase was primarily due to personnel related costs associated with hiring additional Clinic Account Managers (CAMs) and Regional Directors, which directly support the medical clinic’s staff and patients at the growing number of medical clinics where we are deployed.
Research and developmentDevelopment
Research and development expenses represent costs incurred to develop and innovate our MedCenter platform technology, including development work on hardware, software and supporting information technology infrastructure. Wages and salaries consist of compensation costs incurred for research and development employees and contractors including bonuses, health plans, severance, and contractor costs.
We recognize hardware development costs as they are incurred. When hardware is constructed for use by customers, costs are capitalized after technological feasibility is achieved and expensed before technological feasibility is achieved. Costs of hardware completed but not yet placed in service are capitalized as equipment (a long-lived asset) on the consolidated condensed balance sheets. Costs of hardware completed and placed in service with customers are capitalized as equipment and depreciated over the estimated useful life of the equipment.
Software development costs are accrued and expensed based on ASC 985, which is for software that we intend to sell (in conjunction with related hardware). Any software development costs that are incurred prior to the point where the project has demonstrated technological feasibility are expensed as they are incurred. Once technological feasibility has been established, most development costs are capitalized. Once development is complete and the software is made available for release to customers, capitalization no longer is appropriate because any remaining costs are considered ongoing maintenance and support. These are expensed as they are incurred.
| | | Nine Months Ended September 30, | | 2021 vs. 2020 | | Nine Months Ended September 30, | | 2022 vs. 2021 |
| | 2021 | | 2020 | | Amount Change | | % Change | | 2022 | | 2021 | | Amount Change | | % Change |
Research and development expenses: | Research and development expenses: | (in thousands) | Research and development expenses: | (in thousands) |
Wages and salaries | Wages and salaries | $ | 498 | | | $ | 385 | | | $ | 113 | | | 29 | % | Wages and salaries | $ | 534 | | | $ | 498 | | | $ | 36 | | | 7 | % |
Materials | 73 | | | 140 | | | (67) | | | (48) | % | |
Other expenses | Other expenses | 30 | | | 7 | | | 23 | | | 329 | % | Other expenses | 418 | | | 103 | | | 315 | | | 306 | % |
Total research and development expenses | Total research and development expenses | $ | 601 | | | $ | 532 | | | $ | 69 | | | 13 | % | Total research and development expenses | $ | 952 | | | $ | 601 | | | $ | 351 | | | 58 | % |
During the nine months ended September 30, 2021,2022, research and development costs increased by approximately $0.07$0.4 million. This increase was primarily due to ongoing product improvement activities, including efforts to integrate our MedPlatform® Enterprises Software towith the EPIC pharmacy management system; partially offset by a decreasesystem for material and subcontractor costs reflected in materials costs associated with the completion of certain development work related to our M5 MedCenter technology in 2020.
Other gain (loss)
During the nine months ended September 30, 2021, other gain (loss) included a gain of $0.2 million, primarily from PPP loan forgiveness. MedAvail received forgiveness of the loan on March 30, 2021 in accordance with the terms of the CARES Act.expenses.
Interest incomeIncome and expenseExpense
Interest expense consists of accrued interest on outstanding debt and is payable monthly.
| | | Nine Months Ended September 30, | | 2021 vs. 2020 | | Nine Months Ended September 30, | | 2022 vs. 2021 |
| | 2021 | | 2020 | | Amount Change | | % Change | | 2022 | | 2021 | | Amount Change | | % Change |
Interest income: | Interest income: | (in thousands) | Interest income: | (in thousands) |
Interest income | Interest income | $ | 74 | | | $ | 15 | | | $ | 59 | | | 393 | % | Interest income | $ | 1 | | | $ | 74 | | | $ | (73) | | | (99) | % |
Total interest income | Total interest income | $ | 74 | | | $ | 15 | | | $ | 59 | | | 393 | % | Total interest income | $ | 1 | | | $ | 74 | | | $ | (73) | | | (99) | % |
Interest expense: | Interest expense: | | | | | | | | Interest expense: | | | | | | | |
Interest expense | Interest expense | $ | (328) | | | $ | (911) | | | $ | 583 | | | (64) | % | Interest expense | $ | (845) | | | $ | (328) | | | $ | (517) | | | 158 | % |
Total interest expense | Total interest expense | $ | (328) | | | $ | (911) | | | $ | 583 | | | (64) | % | Total interest expense | $ | (845) | | | $ | (328) | | | $ | (517) | | | 158 | % |
During the nine months ended September 30, 2021,2022, interest expense decreasedincreased compared to the same period in 20202021 due to a convertible note that was outstanding through the third quarter in 2020 and settled in November 2020. On March 24, 2016, MedAvail and a significant customer and investor enteredCompany entering into a subordinated secured convertible promissory five-year note agreement for $10.0 million orterm loan in June 2021. The interest rate on the Convertible Note. This Convertible Noteterm loan was convertible into common shares at the option holder’s request. The Convertible Note, including accrued interest, was repaid in its entirety10.25% on November 17, 2020.September 30, 2022, compared to 7.25% on September 30, 2021. For more detail on outstanding debt and associated maturities, see Note 78 to the unaudited condensed consolidated condensed financial statements presented elsewhere in this Quarterly Report on Form 10-Q.
Liquidity and Capital Resources
Sources of Liquidity
Since inception through September 30, 2021,2022, our operations have been financed primarily by net cash proceeds from the sale of stock from private placements, the sale of redeemable preferred stock and debt. As of September 30, 2021,2022, we had $35.9$27.2 million in cash and cash equivalents and an accumulated deficit of $179.5$228.6 million. AlthoughWe added to our liquidity resources in 2021 through a senior secured term loan facility with Silicon Valley Bank or the Loan Agreement, pursuant to which we believeborrowed $10.0 million in aggregate initial term loans. In April 2022, we completed a private placement, pursuant to which we received $40.0 million in gross proceeds before deducting placement agent commissions and other offering expenses. An additional $10.0 million in gross proceeds closed on July 1, 2022.
In connection with the private placement, we issued callable warrants in April 2022 and July 2022. The warrant call option is exercisable by us beginning on each of the 12-month and 24-month anniversaries of the warrant issuance dates and subject to the satisfaction of certain pricing conditions relating to the trading of our cashshares. If the warrants are exercised in full immediately after issuance by the Investors, we would receive additional gross proceeds of up to $29.4 million. If we exercise our call option immediately after issuance, then we could raise approximately $19.6 million in gross proceeds.
Management is also exploring additional sources of financing, the success of which is dependent on market conditions. Management has concluded that the aforementioned conditions, including the ongoing uncertainty related to the negative impacts of the COVID-19 pandemic and cash equivalentsthe economic uncertainties related to the conflict in Ukraine resulting from the military actions of Russia, including on the global economy, interest rate fluctuations, inflationary pressures and borrowing capacity are sufficientour supply chain, raise substantial doubt about our ability to execute our current growth plan forcontinue as a going concern within 12 months from the foreseeable future, duedate of issuance of the financial statements. Our plans to market risks (as outlinedaddress this uncertainty include raising additional funding, as necessary, through public or private equity or debt financings.
However, we may not be able to secure additional financing in the "Risk Factors" section of this Quarterly Reporta timely manner or on Form 10-Q) and opportunities,favorable terms, if at all. Furthermore, if we expect a needissue equity securities to raise additional capitalfunds, our existing stockholders may experience dilution, and the new equity securities may have rights, preferences and privileges senior to continue to fund our operations. The amount and timingthose of our future funding requirements will depend on many factors, including the pace and results of our growth strategy and capital market conditions.existing stockholders. Failure to raise capital as and when needed, on favorable terms or at all, would have a negative impact on our financial condition and our ability to develop our product candidates. Our management actively evaluates matters of liquidity and growth capital needs, including evaluating debt and equity as sources of growth capital with a focus on lower overall weighted average cost of capital and favorable financing terms. Our primary uses of liquidity are operating activities, capital expenditures, and lease payments.
Cash Flows
The following table summarizes our cash flows for the nine months ended September 30, 2021 and 2020:flows:
| | | Nine Months Ended September 30, | | 2021 vs. 2020 | | Nine Months Ended September 30, | | 2022 vs. 2021 |
(In thousands) | (In thousands) | 2021 | | 2020 | | Amount Change | | % Change | (In thousands) | 2022 | | 2021 | | Amount Change | | % Change |
Cash used in operating activities | Cash used in operating activities | $ | (28,174) | | | (15,327) | | | $ | (12,847) | | | 84 | % | Cash used in operating activities | $ | (37,283) | | | $ | (28,174) | | | $ | (9,109) | | | 32 | % |
Cash used in investing activities | Cash used in investing activities | (2,269) | | | (615) | | | (1,654) | | | 269 | % | Cash used in investing activities | (1,897) | | | (2,269) | | | 372 | | | (16) | % |
Cash provided by financing activities | Cash provided by financing activities | 8,722 | | | 9,240 | | | (518) | | | (6) | % | Cash provided by financing activities | 46,963 | | | 8,722 | | | 38,241 | | | 438 | % |
Net decrease in cash and cash equivalents, and restricted cash | $ | (21,721) | | | $ | (6,702) | | | $ | (15,019) | | | 224 | % | |
Net increase (decrease) in cash and cash equivalents, and restricted cash | | Net increase (decrease) in cash and cash equivalents, and restricted cash | $ | 7,783 | | | $ | (21,721) | | | $ | 29,504 | | | (136) | % |
Operating Activities
During the nine months ended September 30, 2021,2022, cash used in operating activities increased $12.8by $9.1 million to $28.2$37.3 million compared to that of the same period in 2020.2021. The increase was primarily due to an increase in inventory, accounts receivable, operating expenses from wages and salaries, and costs attributable to the launch and growth of our retail pharmacy operations in Arizona, California, Michigan, and Florida, and operating as a public company.
Investing Activities
During the nine months ended September 30, 2021,2022, cash used in investing activities increased $1.7decreased by $0.4 million to $2.3$1.9 million compared to that of the same period in 2020.2021. The increasedecrease was primarily due to an increasea decrease in investment in property, plant and equipment and intangible assets associated with investments in retail pharmacy services operations in Arizona, California, Michigan, and Florida.Retail Pharmacy Services Segment.
Financing Activities
During the nine months ended September 30, 2021,2022, cash provided by financing activities decreased $0.5increased by $38.2 million to $8.7$47.0 million compared to that of the same period in 2020. During2021. The increase was primarily due to issuance of common shares and warrants through a private placement in April 2022 and July 2022, with no similar activity during the nine months ended September 30, 2020,2021, offset by $10.0 million from debt proceeds during the nine months ended September 30, 2021, with no similar activity was primarily from the issuance of preferred stock and debt, and in the same period in 2021 the activity was primarily from issuing debt.current period.
Critical Accounting Policies and Estimates
There were no significant changes in our critical accounting policiesestimates in the nine months ended September 30, 2021,2022, from those previously disclosed in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020,2021, filed with the SEC on March 31, 2021.29, 2022.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see Part II, Item 78, Note 5 of our Annual Report on Form 10-K for the year ended December 31, 2020,2021, filed with the SEC on March 31, 2021,29, 2022, and Note 3:4: "Recent Accounting Pronouncements" in the notes to our unaudited condensed consolidated condensed financial statements included elsewhere in this Quarterly Report Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a “smaller reporting company”, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act,Act), as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective.
Changes in Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a15(f)13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 20212022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
PART II
Item 1. Legal Proceedings
Following MYOS Rens Technology Inc.’s, or MYOS’sThe information set forth under the heading “Legal” in Note 10, Commitments and MedAvail, Inc.’s, or MAI's, announcementContingencies, in Part I, Item 1 of the execution of the Merger Agreement on June 30, 2020, MYOS received separate litigation demands from purported MYOS stockholders on September 16, 2020 and October 20, 2020, respectively seeking certain additional disclosures in the Form S-4 Registration Statement filed with the Securities and Exchange Commission on September 2, 2020, collectively, the Demands. Thereafter, on September 23, 2020, a complaint regarding the transactions contemplated within the Merger Agreement was filed in the Supreme Court of the State of New York, County of New York, captioned Faasse v. MYOS RENS Technology Inc., et. al., Index No.: 654644/2020 (NY Supreme Ct., NY Cnty., September 23, 2020), or the New York Complaint. On October 12, 2020, a second complaint regarding the transactions was filed in the District Court of Nevada, Clark County Nevada, captioned Vigil v. Mannello, et. al., Case No. A-20-822848-C, or the Nevada Complaint, and together with the New York Complaint, the Complaints, and collectively with the Demands, the Litigation.
The Demands and the Complaints that comprise the Litigation generally alleged that the directors of MYOS breached their fiduciary duties by entering into the Merger Agreement, and MYOS and MAI disseminated an incomplete and misleading Form S-4 Registration Statement. The New York Complaint also alleged MedAvail aided and abetted such breach of fiduciary duties.
MYOS and MAI believe that the claims asserted in the Litigation are without merit, and believe that the Form S-4 Registration Statement disclosed all material information concerning the Merger and no supplemental disclosure is required under applicable law. However, in order to avoid the risk of the Litigation delaying or adversely affecting the Merger and to minimize the costs, risks and uncertainties inherent in litigation, and without admitting any liability or wrongdoing, MYOS determined to voluntarily supplement the Form S-4 Registration Statement as described in the Currentthis Quarterly Report on Form 8-K on November 2, 2020. Subsequently, the Nevada Complaint and the New York Complaint were voluntarily dismissed. The remainder of the Litigation remains outstanding. MYOS and MAI specifically deny all allegations in the Litigation and/or that any additional disclosure was or10-Q is required.incorporated herein by reference.
Item 1A. Risk Factors
In addition to the other informationExcept as set forth in this Quarterly Report on Form 10-Q, you should carefully considerbelow, there have been no material changes from the risk factors discussed below as well asdisclosed in Part I, Item IA1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020 (the “20202021, or the “2021 Annual Report”)Report", filed with the Securities and in Part II, Item 1A – Risk Factors containedExchange Commission on March 29, 2022. The risk factors described in our Quarterly2021 Annual Report, on Form 10-Q for the quarter ended March 31, 2021 (the “Q1 2021 Quarterly Report”) which could materially affect our business, financial condition or operating results. The risks describedas well as other information set forth in this Quarterly Report on Form 10-Q, incould materially adversely affect our 2020 Annual Reportbusiness, financial condition, results of operations and prospects, and should be carefully considered. The risks and uncertainties that we face, however, are not limited to those described in the Q1 2021 Quarterly Report are not the only risks we face.Annual Report. Additional risks and uncertainties not currentlypresently known to us or that we currently deembelieve to be immaterial also may materiallyalso adversely affect our business financial condition or operating results.
Risks Related to Ownershipand the trading price of our securities, particularly in light of the Company’s Securitiesfast-changing nature of the COVID-19 pandemic, containment measures and the related impacts to economic and operating conditions.
The termsOur share price does not meet the minimum bid price for continued listing on Nasdaq. Our ability to continue operations or to publicly or privately sell equity securities and the liquidity of our credit agreement requirecommon stock could be adversely affected if we do not regain compliance with the minimum bid price requirement and we are delisted from Nasdaq.
We received a deficiency letter from Nasdaq notifying us that for the last 30 consecutive business days the bid price for our common stock had closed below the minimum $1.00 per share requirement for continued inclusion on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have 180 calendar days starting on October 31, 2022 or until May 1, 2023, to regain compliance with the Bid Price Rule. If, at any time before May 1, 2023, the bid price for our common stock closes at $1.00 or more for a minimum of 10 consecutive business days, we will regain compliance with the Bid Price Rule, unless the Nasdaq staff exercises its discretion to extend this 10-day period pursuant to Nasdaq listing rules. We have not regained compliance with Nasdaq Listing Rules as of the filing date of this Quarterly Report on Form 10-Q.
If we do not regain compliance with Nasdaq Listing Rule 5550(a)(2) by May 1, 2023, we may be eligible for additional time to comply. To qualify, we will be required to meet certain operatingcontinued listing requirements for market value of publicly held shares and financial covenantsall other initial listing standards for Nasdaq. If we meet these requirements, Nasdaq may grant us an additional 180 calendar days to regain compliance with the Bid Price Rule, and place restrictionswe may provide written notice to Nasdaq of our intention to cure the deficiency during the additional compliance period. One method to regain compliance in such circumstances would be to implement a reverse stock split, but there is no guarantee that a reverse stock split would be approved by the stockholders or that a reverse stock split would allow us to regain compliance with the Bid Price Rule, and such an action could result in an adverse effect on or negatively impact the price of our operating and financial flexibility. common stock.
If we do not regain compliance with the Bid Price Rule and are not eligible for or are not granted an additional compliance period, our common stock may be delisted. There can be no assurance that, if we receive a delisting notice and appeal the delisting determination by the staff, such appeal would be successful. There can be no assurance that we will maintain compliance with the requirements for listing our common stock on Nasdaq.
Delisting could adversely affect our ability to raise additional capital through debt financing, the termspublic or private sale of any new debtequity securities, which would significantly affect the ability of investors to trade our securities and would negatively affect the value and liquidity of our common stock.
We and our stockholders could further restrictbe materially adversely impacted if our common stock is delisted from Nasdaq. In particular:
•we may lose the confidence of our current or prospective third-party providers and collaboration partners, which could jeopardize our ability to operateenter into supply, manufacturing, licensing, and collaboration agreements and continue our business.business as currently conducted;
We entered into•we could be in a senior secured term loan facilitymaterial breach under agreements we have with third parties, such as the Loan and Security Agreement between us and Silicon Valley Bank,Bank;
•the price of our common stock will likely decrease;
•stockholders may be unable to sell or SVB, on June 7, 2021, or purchase our common stock when they wish to do so;
•the Loan Agreement, pursuant topotential loss of confidence by employees;
•we may lose the interest of institutional investors in our common stock;
•we may have fewer business development opportunities;
•we may lose media and analyst coverage;
•our common stock could be considered a “penny stock,” which we borrowed $10.0 million in aggregate initial term loans, orwould likely limit the Initial Loans. The Company may borrow up to an additional $20.0 million in aggregate term loans (or, together with the Initial Loans, the Loans) on or before April 30, 2022, subject to no material adverse change or eventlevel of default (each as definedtrading activity in the Loan Agreement) having occurredsecondary market for our common stock; and continuing. The Loans are secured by substantially all
•we would likely lose the active trading market for our common stock, as it may only be traded on one of our assets, subject to certain exceptions. The Loan Agreement contains a numberthe over-the-counter markets, if at all.
As of restrictive covenants, and the terms may restrict our current and future operations, particularly our ability to respond to certain changes in our business or industry, or take future actions. See Note 7 to our unaudited interim condensed financial statements included elsewhere indate of this Quarterly Report on Form 10-Q, except for more information. The Loan Agreement includes customary representations and covenants that, subject to exceptions and qualifications, restrict our ability to do the following things: engage in mergers, acquisitions, and asset sales; transactrisk factor described above with affiliates; undergo a change in control; engage in businesses that are not related to our existing business; add or change business locations; incur additional indebtedness; incur additional liens; make loans and investments; declare dividends or redeem or repurchase equity interests; and make certain amendments or payments in respect of any subordinated debt. In addition, the Loan Agreement contains customary affirmative covenants, including covenants regarding the payment of taxes and other obligations, maintenance of insurance, maintenance of our bank accounts, protection of our intellectual property, reporting requirements, compliance with applicable laws and regulations, and formation or acquisition of new subsidiaries. The Loan Agreement also contains customary events of default. If we fail to comply with such covenants, payments or other terms of the Loan Agreement, our lender could declare an event of default, which would give it the right to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable. In addition, our lender would have the right to proceed against the assets we provided as collateral
pursuant to the Loan Agreement. Ifdeficiency in connection with the debt underBid Price Rule, there have been no material changes to the Loan Agreement was accelerated, we may not have sufficient cash or be able to sell sufficient assets to repay this debt, which would harm our business and financial condition.
The Company does not expect to pay any cash dividendsrisk factors disclosed in the foreseeable future
2021 Annual Report filed with the Securities and Exchange Commission on March 29, 2022. We expectmay disclose additional changes to retainsuch factors or disclose additional factors from time to time in our future earnings, if any, to fundfilings with the developmentSecurities and growth of our business. As a result, capital appreciation, if any, of our common stock is expected to be its stockholders’ sole source of gain, if any, for the foreseeable future. In addition, the terms of the Loan Agreement restrict our ability to pay dividends to limited circumstances. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.Exchange Commission.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.On July 1, 2022, the Company sold and issued 9,411,765 Shares and Warrants to purchase 4,705,881 Warrant Shares in a private placement, which was previously disclosed by the Company on its Current Report on Form 8-K filed July 1, 2022.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference |
Exhibit Number | | Description | | Form | | Exhibit | | Filing Date |
3.1 | | | | 8-K | | 3.1 | | November 18, 2020 |
3.2 | | | | 8-K | | 3.2 | | November 18, 2020 |
4.1 | | | | 8-K | | 4.1 | | November 18, 2020 |
4.2 | | | | S-4/A | | 4.9 | | October 9, 2020 |
4.3 | | | | 8-K | | 4.3 | | November 18, 2020 |
| | | | | | | | |
10.1# | | | | 8-K | | 10.15 | | November 18, 2020 |
10.2# | | | | 8-K | | 10.11 | | November 18, 2020 |
10.3# | | | | 8-K | | 10.12 | | November 18, 2020 |
10.4# | | | | 8-K | | 10.13 | | November 18, 2020 |
10.5# | | | | 8-K | | 10.14 | | November 18, 2020 |
10.6 | | | | S-4 | | 10.21 | | September 3, 2020 |
10.7§ | | | | S-4 | | 10.23 | | September 3, 2020 |
10.8§ | | | | S-4 | | 10.24 | | September 3, 2020 |
10.9 | | | | S-4 | | 10.8 | | September 3, 2020 |
10.10#§ | | | | S-4 | | 10.15 | | September 3, 2020 |
10.11#§ | | | | S-4 | | 10.16 | | September 3, 2020 |
10.12#§ | | | | S-4 | | 10.17 | | September 3, 2020 |
10.13#§ | | | | S-4 | | 10.18 | | September 3, 2020 |
10.14#§ | | | | S-4 | | 10.19 | | September 3, 2020 |
10.15 | | | | 8-K | | 10.1 | | June 11, 2021 |
10.16# | | | | 8-K | | 10.1 | | September 20, 2021 |
10.17# | | | | 8-K | | 10.1 | | September 20, 2021 |
31.1* | | | | | | | | |
31.2* | | | | | | | | |
32.1** | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference |
Exhibit Number | | Description | | Form | | Exhibit | | Filing Date |
101* | | Inline XBRL Document Set for the consolidated condensed financial statements and accompanying notes in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q | | | | | | |
104* | | Inline XBRL for the cover page of this Quarterly on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference |
Exhibit Number | | Description | | Form | | Exhibit | | Filing Date |
3.1 | | | | 8-K | | 3.1 | | June 16, 2022 |
3.2 | | | | 8-K | | 3.2 | | November 18, 2020 |
4.1 | | | | 8-K | | 4.1 | | November 18, 2020 |
4.2 | | | | S-4/A | | 4.9 | | October 9, 2020 |
4.3 | | | | 8-K | | 4.3 | | November 18, 2020 |
4.4 | | | | 8-K | | 10.1 | | April 4, 2022 |
4.5 | | | | 8-K | | 10.2 | | April 4, 2022 |
4.6 | | | | 8-K | | 10.3 | | April 4, 2022 |
4.7 | | | | S-3 | | 1.2 | | August 12, 2022 |
10.1# | | | | 8-K | | 10.1 | | April 8, 2022 |
16.1 | | | | 8-K | | 16.1 | | July 11, 2022 |
31.1* | | | | | | | | |
31.2* | | | | | | | | |
32.1** | | | | | | | | |
101* | | Inline XBRL Document Set for the condensed consolidated financial statements and accompanying notes in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q | | | | | | |
104* | | Inline XBRL for the cover page of this Quarterly on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set | | | | | | |
§ Portions of this exhibit have been redacted in compliance with Regulation S-K Item 601(a)(6) and Item 601(b)(10).
# Indicates a management contract or compensatory plan.
* Filed herewith.
** Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
| | | | | | | | |
| MEDAVAIL HOLDINGS, INC. |
| | |
Date: November 9, 202110, 2022 | By: | /s/ Ed KilroyMark Doerr |
| | Ed KilroyMark Doerr |
| | President, Chief Executive Officer, and Principal Executive Officer |
| | |
| By: | /s/ Ramona Seabaugh |
| | Ramona Seabaugh |
| | Chief Financial Officer and Principal Financial Officer |