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, 2022March 31, 2023
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) |
4720 East Cotton Gin Loop, Suite 220, Phoenix, Arizona | | | | 85040 |
(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 8, 2022,May 5, 2023, there were 80,045,69680,523,932 shares of the registrant’s common stock outstanding.
MedAvail Holdings, Inc.
Form 10-Q
For the Three and Nine Months Ended September 30, 2022March 31, 2023
TABLE OF CONTENTS
| | | | | | | | |
| | Page |
| | |
PART I | | |
Item 1. | Financial Statements (Unaudited) | |
| Condensed Consolidated Balance Sheets | |
| Condensed Consolidated Statements of Operations and Comprehensive Loss | |
| Condensed Consolidated Statements of Shareholders'Stockholders' Equity | |
| Condensed Consolidated Statements of Cash Flows | |
| Notes to Condensed Consolidated 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 within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, 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:
•the impact of our decision to exit our pharmacy services business and related asset sales and reductions in force;
•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; and
•the impact of general market and macroeconomic conditions, the effect of inflationary pressure, including inflationany impact of adverse developments affecting the financial services industry, such as those based on liquidity constraints or concerns 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 andoperate. These forward-looking statements are 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.10-Q and in our Annual Report on Form 10-K filed
with the Securities and Exchange Commission, or SEC. 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 thethis 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 Balance Sheets
(Unaudited)
(in thousands, except share amounts)thousands)
| | | | | | | | | | | |
| September 30, | | December 31, |
| 2022 | | 2021 |
| | | |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 27,196 | | | $ | 19,689 | |
Restricted cash | 676 | | | 400 | |
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 | 6,401 | | | 3,916 | |
Prepaid expenses and other current assets | 2,863 | | | 2,191 | |
Total current assets | 39,398 | | | 27,385 | |
Property, plant and equipment, net | 6,370 | | | 5,692 | |
Intangible assets, net | 1,580 | | | 2,300 | |
Right-of-use assets | 2,270 | | | 2,538 | |
Other assets | 233 | | | 228 | |
Total assets | $ | 49,851 | | | $ | 38,143 | |
Liabilities and Stockholders' Equity | | | |
Current liabilities: | | | |
Accounts payable | $ | 2,006 | | | $ | 2,477 | |
Accrued liabilities | 1,383 | | | 1,530 | |
Accrued payroll and benefits | 2,869 | | | 2,733 | |
Deferred revenue | 70 | | | 83 | |
Current portion of lease obligations | 728 | | | 682 | |
Total current liabilities | 7,056 | | | 7,505 | |
Long-term debt, net | 9,751 | | | 9,538 | |
Long-term portion of lease obligations | 1,738 | | | 2,027 | |
| | | |
Total liabilities | 18,545 | | | 19,070 | |
| | | |
Commitments and contingencies | | | |
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) | 80 | | | 33 | |
Warrants | 11,148 | | | 1,373 | |
Additional paid-in-capital | 255,642 | | | 216,685 | |
Accumulated other comprehensive loss | (6,928) | | | (6,928) | |
Accumulated deficit | (228,636) | | | (192,090) | |
Total stockholders' equity | 31,306 | | | 19,073 | |
Total liabilities and stockholders' equity | $ | 49,851 | | | $ | 38,143 | |
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 18,796 | | | $ | 11,444 | |
Restricted cash | 676 | | | 676 | |
Accounts receivable | 207 | | | 404 | |
Inventories | 8,701 | | | 3,994 | |
Prepaid expenses and other current assets | 2,072 | | | 2,569 | |
| | | |
Current assets from discontinued operations | 2,079 | | | 4,842 | |
Total current assets | 32,531 | | | 23,929 | |
Property, plant and equipment, net | 789 | | | 5,261 | |
Intangible assets, net | 425 | | | 451 | |
Right-of-use assets | 773 | | | 624 | |
Other assets | 30 | | | 30 | |
| | | |
Long-term assets from discontinued operations | 1,166 | | | 2,837 | |
Total assets | $ | 35,714 | | | $ | 33,132 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
MEDAVAIL HOLDINGS, INC.
Condensed Consolidated Statements of Operations and Comprehensive LossBalance Sheets (Continued)
(Unaudited)
(in thousands, except share and per-shareper share amounts)
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Liabilities and Stockholders' Equity | | | |
Current liabilities: | | | |
Accounts payable | $ | 898 | | | $ | 818 | |
Accrued liabilities | 592 | | | 552 | |
Accrued payroll and benefits | 1,240 | | | 1,379 | |
Deferred revenue | 275 | | | 152 | |
Current portion of lease obligations | 244 | | | 246 | |
| | | |
Current liabilities from discontinued operations | 1,885 | | | 2,794 | |
Total current liabilities | 5,134 | | | 5,941 | |
Warrant liabilities | 23,378 | | | — | |
Long-term debt, net | 1,428 | | | 4,798 | |
Long-term portion of lease obligations | 590 | | | 441 | |
Long-term liabilities from discontinued operations | 1,015 | | | 1,128 | |
Total liabilities | 31,545 | | | 12,308 | |
Commitments and contingencies (Note 10) | | | |
Stockholders' equity: | | | |
Common shares ($0.001 par value, 300,000,000 shares authorized, 80,480,641 and 80,169,719 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively) | 81 | | | 81 | |
Warrants | 11,205 | | | 11,148 | |
Additional paid-in-capital | 256,847 | | | 256,229 | |
Accumulated other comprehensive loss | (6,928) | | | (6,928) | |
Accumulated deficit | (257,036) | | | (239,706) | |
Total stockholders' equity | 4,169 | | | 20,824 | |
Total liabilities and stockholders' equity | $ | 35,714 | | | $ | 33,132 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 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: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
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 | |
| | | | | | | |
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 financial statements.
MEDAVAIL HOLDINGS, INC.
Condensed Consolidated Statements of Shareholders' EquityOperations and Comprehensive Loss
(Unaudited)
(in thousands, except per share and per-share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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. | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2023 | | 2022 |
Revenue: | | | | | | | |
Hardware and subscription revenue | | | | | $ | 304 | | | $ | 165 | |
Service revenue | | | | | 316 | | | 100 | |
Total revenue | | | | | 620 | | | 265 | |
Cost of products sold and services: | | | | | | | |
Hardware cost of products sold | | | | | 245 | | | 81 | |
Service costs | | | | | 118 | | | 50 | |
Total cost of products sold and services | | | | | 363 | | | 131 | |
Other operating expenses: | | | | | | | |
| | | | | | | |
General and administrative | | | | | 4,960 | | | 5,190 | |
Selling and marketing | | | | | 132 | | | 100 | |
Research and development | | | | | 176 | | | 258 | |
Total operating expense | | | | | 5,268 | | | 5,548 | |
Operating loss | | | | | (5,011) | | | (5,414) | |
| | | | | | | |
Loss on issuance of warrants | | | | | (10,424) | | | — | |
Gain from change in fair value of warrant liabilities | | | | | 3,045 | | | — | |
Interest income | | | | | 1 | | | 1 | |
Interest expense | | | | | (169) | | | (251) | |
| | | | | | | |
| | | | | | | |
Net loss and comprehensive loss from continued operations | | | | | (12,558) | | | (5,664) | |
Discontinued operations: | | | | | | | |
Loss from discontinued operations | | | | | (4,772) | | | (7,358) | |
| | | | | | | |
| | | | | | | |
Net loss | | | | | $ | (17,330) | | | $ | (13,022) | |
| | | | | | | |
Basic and diluted net loss per share: | | | | | | | |
Loss from continued operations | | | | | $ | (0.16) | | | $ | (0.17) | |
Loss from discontinued operations | | | | | $ | (0.06) | | | $ | (0.22) | |
Weighted average shares outstanding - basic and diluted | | | | | 80,270,494 | | 32,921,969 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
MEDAVAIL HOLDINGS, INC.
Condensed Consolidated Statements of Cash FlowsStockholders' Equity
(Unaudited)
(in thousands)thousands, except share amounts)
| | | | | | | | | | | |
| 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 | |
| | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Shares | | | | Warrants | | Additional Paid-in-Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total Stockholders' Equity | | | | | |
| Shares | | Amount | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2022 | 80,169,719 | | | $ | 81 | | | | | | $ | 11,148 | | | $ | 256,229 | | | $ | (239,706) | | | $ | (6,928) | | | $ | 20,824 | | | | | | |
Net loss | — | | | — | | | | | | — | | | — | | | (17,330) | | | — | | | (17,330) | | | | | | |
Shares issued for vested RSUs | 310,922 | | | — | | | | | | — | | | — | | | — | | | — | | | — | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Warrants issued | — | | | — | | | | | | 57 | | | — | | | — | | | — | | | 57 | | | | | | |
Share-based compensation | — | | | — | | | | | | — | | | 618 | | | — | | | — | | | 618 | | | | | | |
Balance at March 31, 2023 | 80,480,641 | | | $ | 81 | | | | | | $ | 11,205 | | | $ | 256,847 | | | $ | (257,036) | | | $ | (6,928) | | | $ | 4,169 | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2021 | 32,902,048 | | $ | 33 | | | | | | $ | 1,373 | | | $ | 216,685 | | | $ | (192,090) | | | $ | (6,928) | | | $ | 19,073 | | | | | | |
Net loss | — | | — | | | | | | — | | | — | | | (13,022) | | | — | | | (13,022) | | | | | | |
Shares issued for vested restricted stock units | 6,874 | | — | | | | | | — | | | — | | | — | | | — | | | — | | | | | | |
Share-based compensation | — | | — | | | | | | — | | | 564 | | | — | | | — | | | 564 | | | | | | |
Balance at March 31, 2022 | 32,908,922 | | $ | 33 | | | | | | $ | 1,373 | | | $ | 217,249 | | | $ | (205,112) | | | $ | (6,928) | | | $ | 6,615 | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
MEDAVAIL HOLDINGS, INC.
Condensed Consolidated StatementStatements of Cash Flows
(Unaudited)
(in thousands)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2022 | | 2021 |
Supplemental cash flow information: | | | |
Cash paid for interest | $ | 603 | | | $ | 125 | |
Supplemental noncash investing and financing activities: | | | |
Inventory transferred to property, plant and equipment | $ | 869 | | | $ | 1,075 | |
Property, plant and equipment transferred to intangible assets | $ | — | | | $ | 46 | |
Purchase of property, plant and equipment in accounts payable | $ | 21 | | | $ | 56 | |
Purchase of intangible assets in accounts payable | $ | — | | | $ | 398 | |
Fair value of warrants issued upon closing of private placement | $ | 9,775 | | | $ | — | |
| | | |
Lease liabilities arising from obtaining right of use assets: | | | |
Operating leases | $ | 206 | | | $ | 2,177 | |
Finance leases | $ | 73 | | | $ | 97 | |
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
Cash flows from operating activities: | | | |
Net loss | $ | (17,330) | | | $ | (13,022) | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | |
Depreciation of property, plant, and equipment | 671 | | | 286 | |
Amortization of intangible and leased assets | 213 | | | 312 | |
Loss on disposal of net assets from discontinued operations | 818 | | | 30 | |
Loss on issuance of warrants | 10,424 | | | — | |
Gain from change in fair value of warrants | (3,045) | | | — | |
| | | |
Term loan discount amortization and interest accretion on debt | 67 | | | 70 | |
Share-based compensation expense | 618 | | | 564 | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | (103) | | | (589) | |
Inventory | 2,887 | | | (1,601) | |
Prepaid expenses and other current assets | 518 | | | (914) | |
Accounts payable | (472) | | | 935 | |
Accrued liabilities | 504 | | | 125 | |
Accrued payroll and benefits | (946) | | | 645 | |
Deferred revenue | 123 | | | 24 | |
Operating lease liability due to cash payments | (157) | | | (129) | |
Net cash used in operating activities | (5,210) | | | (13,264) | |
Cash flows from investing activities: | | | |
Purchase of property, plant and equipment | (17) | | | (343) | |
Payment of security deposits | — | | | (5) | |
Purchase of intangible assets and other assets | — | | | (504) | |
Net cash used in investing activities | (17) | | | (852) | |
Cash flows from financing activities: | | | |
Proceeds from issuance of warrants in private placement | 15,999 | | | — | |
Payment of debt issuance costs | (380) | | | — | |
Repayment of debt | (3,000) | | | — | |
Payments on finance lease obligations | (40) | | | (23) | |
Net cash provided by (used in) financing activities | 12,579 | | | (23) | |
Net increase (decrease) in cash, cash equivalents and restricted cash | 7,352 | | | (14,139) | |
Cash, cash equivalents and restricted cash at beginning of period | 12,120 | | | 20,089 | |
Cash, cash equivalents and restricted cash at end of period | $ | 19,472 | | | $ | 5,950 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
MEDAVAIL HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows (Continued)
(Unaudited)
(in thousands)
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
Supplemental cash flow information: | | | |
Cash paid for interest | $ | 178 | | | $ | 184 | |
Supplemental noncash investing and financing activities: | | | |
Inventory transferred to property, plant and equipment | $ | — | | | $ | 429 | |
MedCenter equipment from discontinued operations transferred to inventory for continuing operations (See Note 7) | $ | 4,651 | | | $ | — | |
Purchase of property, plant and equipment in accounts payable | $ | — | | | $ | 122 | |
Purchase of intangible assets in accounts payable | $ | — | | | $ | 326 | |
| | | |
Lease liabilities arising from obtaining right of use assets: | | | |
Operating leases | $ | — | | | $ | 205 | |
Finance leases | $ | 231 | | | $ | 73 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
MEDAVAIL HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1 - NATURE OF OPERATIONS
MedAvail Holdings, Inc., or MedAvail, or the Company, a Delaware corporation, formerly known as MYOS RENS Technology, is a pharmacy technology and services company that has developed and commercialized an innovative self-service pharmacy, mobile application, and kiosk. 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 facilitatesalso has the ability to facilitate live pharmacist counseling via two-way audio-video communication with the ability to dispense prescription medicines under pharmacist control.
Exit of Pharmacy Services and SpotRx
On January 19, 2023, the Company announced a plan to exit the pharmacy services business to focus on its pharmacy technology business. In connection with its decision to exit the pharmacy services business, the Company initiated a reduction in force, in which employees of the pharmacy services business, representing at that time approximately 75% of the Company’s full-time employees, were terminated, effective January 18, 2023. The Company also operatesinitiated the reduction in force to preserve capital and use its limited resources to pursue the pharmacy technology business.
On January 20, 2023, the Company entered into an Asset Purchase and Sale Agreement, as amended, with German Dobson CVS, L.L.C., Garfield Beach CVS, L.L.C., Longs Drug Stores California, L.L.C., Woodward Detroit CVS, L.L.C. and Holiday CVS, L.L.C., or CVS, pursuant to which the Company agreed to sell to CVS certain assets, including pharmacy records, and inventory from SpotRx orpharmacies located in Tucson and Phoenix, Arizona; Buena Park, Laguna Hills and San Fernando, California; Southfield, Michigan; and in Orlando and Tampa, Florida. The transaction closed on February 9, 2023, for a final purchase price of $2.9 million (subject to $0.1 million in fees and a $0.2 million indemnification holdback). Upon closing, the Pharmacy, a full-service retail pharmacy utilizingrecords and inventory purchased by CVS were transferred from the SpotRx pharmacies to nearby CVS pharmacy locations.
For the year ended December 31, 2022, the pharmacy services business comprised approximately 97% of the Company’s automatedtotal revenues. As of December 31, 2022, inventory from SpotRx pharmacies comprised approximately $3.0 million, or 9%, of total consolidated assets. Pharmacy service business assets that were not sold to CVS have been or are expected to be primarily reabsorbed or settled, or to a lesser extent, sold or abandoned. As of March 31, 2023, the Company substantially completed its exit from the pharmacy technology.services business.
The accounting requirements for reporting the pharmacy services business as a discontinued operation were met during the three months ended March 31, 2023. Accordingly, the condensed consolidated financial statements and notes to the consolidated condensed financial statements reflect the results of the pharmacy service business as a discontinued operation for the periods presented. See to Note 13 for additional information.
NOTE 2 - GOING CONCERNLIQUIDITY
The condensed consolidated financial statements for the three months ended March 31, 2023 and the year ended December 31, 2022, were prepared on the basis of a going concern which contemplates that the Company will be able to realize assets and discharge liabilities in the normal course of business.
On March 9, 2023, the Company entered into a Securities Purchase Agreement, or private placement (the “Offering”), of securities with certain institutional investors, or the Investors. Upon close of the transaction the Company received gross proceeds from the Offering of approximately $16.0 million, before deducting offering expenses. The Company intends to use the net proceeds from this offering to fund one-time costs associated with restructuring, repay outstanding debt, and finance its growth initiatives related to its MedCenter technology business. Pursuant to the offering, the Company agreed to issue pre-funded warrants to purchase up to an aggregate of 49,813,198 shares of common stock at an exercise price of $0.001 per share, or Pre-Funded Warrants, and agreed to issue Series A warrants to purchase up to an aggregate of 49,813,198 shares of common stock at an exercise price of $0.38544 per share, or Series A Warrants, to be issued following stockholder approval of the issuance of the Series A Warrants.
As of March 31, 2023, the Company had $19.5 million in cash and cash equivalents, including restricted cash, and an accumulated deficit of $257.0 million. Furthermore, net cash used in operating activities for the three months ended March 31, 2023 and 2022 was $5.2 million and $13.3 million, respectively. Since inception through March 31, 2023, the Company has continually incurred losses from its operations, which have been financed primarily by net cash proceeds from sales of common stock and warrants in private placements, sales of redeemable preferred stock and debt.
Relevant accounting standards require that management make a determination as to whether or not substantial doubt exists as to the Company'sCompany’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. Since inceptionAs of December 31, 2021, and through September 30, 2022, the Company 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 was $37.3 million and $28.2 million, respectively. As of September 30, 2022, the Company had $27.2 million in cash and cash equivalents and an accumulated deficit of $228.6 million.
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 isidentified substantial doubt as to the Company’s ability to continue as a going concern. The Company added liquidity resources in 2021 through a senior secured term loan facility with Silicon Valley Bank as described in Note 8, pursuant to whichDuring the Company borrowed $10.0 million in aggregate initial term loans. Additionally, as referenced above,first quarter of 2023, the Company raised $40.0 million and $10.0 millioncapital in gross proceeds through a private placement that closed in April 2022 and July 2022, respectively. There can be no assurancereduced operating costs by exiting its pharmacy services business. As a result, after considering the Company's ongoing cash requirements to fund operations, management determined that the steps management is taking will be successful. IfCompany has sufficient financial resources to continue operations through the Company is unable to raise additional capital in sufficient amounts or on acceptable terms, the Company may have to significantly reduce operations or delay, scale back or discontinue developmentdate of this report and expansion plans. The condensed consolidated financial statements do not include any adjustments that might resultone year from the outcomedate of this uncertainty. Thethe financial statement issuance date, with no substantial doubt as to the Company’s ultimate success will largely depend on continued development and deployment of MedCenter kiosks and SpotRx pharmacy operations and the ability to raise significant additional funding.continue as a going concern.
NOTE 3 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements as of September 30, 2022March 31, 2023, and for the three and nine months ended September 30,March 31, 2023 and 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, 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 financial statements do not include all of the information and footnotes required by GAAP for audited financial statements. The condensed consolidated balance sheet as of December 31, 20212022 was derived from the Company's audited consolidated financial statements but does not include all disclosures required by GAAP for audited financial statements.
The preparation of financial statements in accordance with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. Actual results could differ from those estimates. The Company's critical accounting policies are those that are both most important to its financial condition and results of operations and require the most difficult, subjective or complex judgments on the part of management in their application, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company is not aware of any events or circumstances which would require update to its estimates or judgements as disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.
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, 20212022 included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021,2022, which was filed with the Securities and Exchange Commission, or SEC on March 29, 2022, or the 2021 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 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 the 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, 2022 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 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 be material to the Company’s financial statements.April 14, 2023.
Principles of consolidation
The unaudited condensed consolidated 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
DuringAs noted in Note 2, as of March 31, 2023, the fourth quarter of 2021, management reclassified certain operating expenses to reflectCompany substantially completed its exit from 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 onservices business. As a result, the Company has reported the operating results of its pharmacy services business in the loss subtotal withinfrom discontinued operations line in the condensed consolidated statements of operations for all periods presented. In addition, related assets and comprehensive loss. The effectliabilities were reported as assets of the reclassifications withindiscontinued operations and liabilities of discontinued operations in the condensed consolidated statementbalance sheets for all periods presented. Unless otherwise noted, the discussion within these notes to the consolidated financial statements relates to continuing operations comprised of operations and comprehensive lossthe pharmacy technology business. See Note 13 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 | | | $ | — | |
additional information on discontinued operations.
| | | | | | | | | | | | | | | | | |
| 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 4 - RECENT ACCOUNTING PRONOUNCEMENTS
Recently Issued Accounting Standards Not Yet Adopted
Fair Value 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 ImprovementsEquity Securities Subject 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. ASU No. 2016-13 will be effective beginning in the first quarter of the Company's fiscal year 2023. The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements and related disclosures.Contractual Sale Restrictions
In June 2022, the FASB issued ASU No. 2022-03, “Fair Value Measurement (Topic 820):”- Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”, (“or ASU 2022-03”).2022-03. The amendments in this update clarify the guidance in Topic 820. ASU 2022-03 becomes effective for 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 No. 2022-03 will be effective beginning in the first quarter of the Company's fiscal year 2024. The Company has not yet completed its evaluation of the impact of this new guidance on its consolidated financial statements.
Recently Adopted Accounting Standards
There was no other recently issued and effective authoritative guidance that is expected to have a material impact on the Company’s condensed consolidated financial statements through the reporting date.
Recently Adopted Accounting Standards
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”, or ASU 2016-13, supplemented by ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses”, or 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, and for fiscal years beginning after December 15, 2022 for all other public business entities and private companies, with early adoption permitted. Effective January 1, 2023, the Company adopted ASU No. 2016-13. The impact of adoption of ASU 2016-13 was not material to its consolidated financial statements.
NOTE 5 - 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 from the date of issuancethey were outstanding up to the exercise date.when they were exercised. After these warrants wereare 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 |
39,208 | | November 18, 2020 | | May 10, 2021 |
19,310 | | November 18, 2020 | | Outstanding |
During the three and nine months ended September 30,March 31, 2023 and 2022, and 2021, there was no dilutive effect from stock options, restricted stock units, or RSUs, or other warrants due to the Company’s net loss position. As of September 30,March 31, 2023 and 2022, and 2021, there were 4.580.2 million and 2.94.4 million shares of common stock, respectively, of option awardsunderlying outstanding options, RSUs and other warrants 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 6 - FAIR VALUE MEASUREMENTS
Fair value measurements are categorized in one of the following three levels based on the lowest level input that is significant to the fair value measurement in its entirety:
Level 1 - Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than quoted prices in active markets for identical assets or liabilities include:
a.quoted prices for similar assets or liabilities in active markets;
b.quoted prices for identical or similar assets or liabilities in inactive markets;
c.inputs other than quoted prices that are observable for the asset or liability;
d.inputs that are derived principally from or corroborated by observable market data by correlation or other means.
If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3- Inputs to the valuation methodology are unobservable (i.e., supported by little or no market activity) and significant to the fair value measure.
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 |
(in thousands) | December 31, 2021 | | Level 1 | | Level 2 | | Level 3 |
Assets: | | | | | | | |
Cash and cash equivalents | $ | 19,689 | | | $ | 19,689 | | | $ | — | | | $ | — | |
Restricted cash | 400 | | | 400 | | | — | | | — | |
Total assets | $ | 20,089 | | | $ | 20,089 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Hierarchy |
(in thousands) | March 31, 2023 | | Level 1 | | Level 2 | | Level 3 |
Liabilities: | | | | | | | |
Warrants liabilities | $ | 23,378 | | | $ | — | | | $ | — | | | $ | 23,378 | |
Total liabilities | $ | 23,378 | | | $ | — | | | $ | — | | | $ | 23,378 | |
As of December 31, 2022, there were no assets and liabilities accounted for at fair value on a reoccurring basis.
The carrying amount of the Company's term loan approximates fair value based upon market interest rates available to usthe Company for debt of similar risk and maturities. Refer toSee Note 8, Debt, for further information.information regarding the Company’s term loan. The carrying amount of cash and cash equivalents and restricted cash approximates fair value. See Note 12, for further details regarding the Company's Warrants and fair value measurement of Warrant liabilities.
NOTE 7 - BALANCE SHEET AND OTHER INFORMATION
Restricted cash
The Company considers cash to be restricted when withdrawal or general use is legally restricted. During the nine months ended September 30, 2022, the Company recovered the $0.1 million restricted cash balance outstanding at December 31,In 2021 that was held as a guarantee for certain purchasing cards. During the same period, pursuant to a Loan and Security Agreement with Silicon Valley Bank dated June 7, 2021 (see Note 8), the Company issued letters of credit to secure certain operating leases, and the Company is required to maintain a $0.7 million balance with the bank to secure the outstanding letters of credit, of which $0.3 million was issued in February 2022.credit. Due to the nature of the deposit, the balance is classified as restricted cash. Restricted cash is included in the balance for cash and cash equivalents and restricted cash presented in the statements of cash flows.
Accounts Receivable
Accounts receivable are primarily comprised of trade receivables presented net of allowance for doubtful accounts when estimatable and present. The Company maintains an allowance for doubtful accounts based on its assessment of the collectability of amounts owed by customers. The allowance consists of known specific troubled accounts as well as an amount based on overall estimated potential uncollectible accounts receivable based on historical experience. As of March 31, 2023, and December 31, 2022, based upon its historical collections experience, the Company had no credit risks balances which would require to be reserved as an allowance for doubtful accounts.
Inventory
The following table presents detail of inventory balances:
| | | September 30, | | December 31, | | March 31, | | December 31, |
(in thousands) | (in thousands) | 2022 | | 2021 | (in thousands) | 2023 | | 2022 |
Inventory: | Inventory: | | | | Inventory: | | | |
MedCenter hardware | MedCenter hardware | $ | 2,464 | | | $ | 1,201 | | MedCenter hardware | $ | 8,011 | | | $ | 3,331 | |
Pharmaceuticals | 3,275 | | | 2,150 | | |
Spare parts | Spare parts | 662 | | | 565 | | Spare parts | 690 | | | 663 | |
Total inventory | Total inventory | $ | 6,401 | | | $ | 3,916 | | Total inventory | $ | 8,701 | | | $ | 3,994 | |
Pharmaceutical inventory wasMedCenter hardware recognized in pharmacy and hardware cost of products sold at $9.3 million and $5.0 million during the three months ended September 30, 2022 and 2021, respectively, and $26.4 million and $12.2 million during the nine months ended September 30, 2022 and 2021, respectively. MedCenter hardware was recognized in pharmacy and hardware cost of products sold at $0.01$0.2 million and $0.1 million during the three months ended September 30,March 31, 2023 and 2022, respectively. See Property, plant, and 2021, respectively, and $0.2 million and $0.5 million during the nine months ended September 30, 2022 and 2021, respectively.equipment below for additional details.
Prepaid expenses and 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 | |
| | | | | | | | | | | |
| March 31, | | December 31, |
(in thousands) | 2023 | | 2022 |
Prepaid expenses and other current assets: | | | |
Prepaid MedCenter inventory | $ | 1,146 | | | $ | 1,359 | |
Prepaid insurance | 690 | | | 921 | |
Other | 236 | | | 289 | |
Total prepaid expenses and other current assets | $ | 2,072 | | | $ | 2,569 | |
Property, plant and equipment net
The following table presentstables present property, plant and equipment balances:
| | | Estimated useful lives | | September 30, | | December 31, | | Estimated useful lives | | March 31, | | December 31, |
(in thousands) | (in thousands) | | 2022 | | 2021 | (in thousands) | | 2023 | | 2022 |
Property, plant and equipment: | Property, plant and equipment: | | | | | | Property, plant and equipment: | | | | | |
MedCenter equipment | MedCenter equipment | 8 years | | $ | 7,525 | | | $ | 5,875 | | MedCenter equipment | 8 years | | $ | 1,531 | | | $ | 7,983 | |
IT equipment | IT equipment | 1 - 3 years | | 2,390 | | | 2,361 | | IT equipment | 1 - 3 years | | 2,002 | | | 1,908 | |
Leasehold improvements | Leasehold improvements | lesser of useful life or term of lease | | 980 | | | 880 | | Leasehold improvements | lesser of useful life or term of lease | | 316 | | | 316 | |
General plant and equipment | General plant and equipment | 5 - 8 years | | 619 | | | 603 | | General plant and equipment | 5 - 8 years | | 373 | | | 373 | |
Office furniture and equipment | Office furniture and equipment | 5 - 8 years | | 538 | | | 394 | | Office furniture and equipment | 5 - 8 years | | 332 | | | 217 | |
Vehicles | Vehicles | 5 years | | 54 | | | 54 | | Vehicles | 5 years | | 38 | | | 36 | |
Construction-in-process | Construction-in-process | | 481 | | | 1,021 | | Construction-in-process | | 5 | | | 5 | |
Total historical cost | Total historical cost | | 12,587 | | | 11,188 | | Total historical cost | | 4,597 | | | 10,838 | |
Accumulated depreciation | Accumulated depreciation | | (6,217) | | | (5,496) | | Accumulated depreciation | | (3,808) | | | (5,577) | |
Total property, plant and equipment, net | Total property, plant and equipment, net | | $ | 6,370 | | | $ | 5,692 | | Total property, plant and equipment, net | | $ | 789 | | | $ | 5,261 | |
Depreciation expense of property and equipment was $0.3$0.7 million and $0.3 million for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively, and $0.9 million and $0.9 million for the nine months ended September 30, 2022 and 2021, respectively. Depreciation expense included in pharmacy and hardware cost of products sold was $0.03 million$9.0 thousand and $0.05 million$26.0 thousand for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively, and $0.1 million and $0.1 million forrespectively. During the ninethree months ended September 30, 2022,March 31, 2023, as part of its strategic realignment, the Company decommissioned MedCenters operating under its discontinued retail pharmacy services business, and 2021, respectively.
reclassified out of property, plant, and equipment, and into inventory, for sale to customers, MedCenters with a net book value of $4.8 million, consisting of $6.7 million of gross book value partially offset by $1.9 million of accumulated depreciation.Intangible assets net
The following table presents intangible asset balances:
| | | September 30, | | December 31, | | March 31, | | December 31, |
(in thousands) | (in thousands) | 2022 | | 2021 | (in thousands) | 2023 | | 2022 |
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 | 5,321 | | | 4,475 | | Software | 2,200 | | | 2,200 | |
Website and mobile application | Website and mobile application | 583 | | | 583 | | Website and mobile application | 534 | | | 534 | |
Total intangible assets | Total intangible assets | 9,761 | | | 8,915 | | Total intangible assets | 6,591 | | | 6,591 | |
Accumulated amortization: | Accumulated amortization: | | | | Accumulated amortization: | | | |
Intellectual property | Intellectual property | (3,857) | | | (3,857) | | Intellectual property | (3,857) | | | (3,857) | |
Software | Software | (3,741) | | | (2,175) | | Software | (1,775) | | | (1,749) | |
Website and mobile application | Website and mobile application | (583) | | | (583) | | Website and mobile application | (534) | | | (534) | |
Total accumulated amortization | Total accumulated amortization | (8,181) | | | (6,615) | | Total accumulated amortization | (6,166) | | | (6,140) | |
Total intangible assets, net | Total intangible assets, net | $ | 1,580 | | | $ | 2,300 | | Total intangible assets, net | $ | 425 | | | $ | 451 | |
No intangible assets were purchased for the three months ended September 30, 2022. The Company purchased $0.7 million of intangible assets for the three months ended September 30, 2021, and $0.9 million and $1.9 million for the nine months ended September 30, 2022 and 2021, respectively.
Amortization expense of intangible assets was $1.3 million$26.0 thousand and $0.1 million$2.0 thousand for the three months ended September 30,March 31, 2023 and 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.
The Company’s management team is evaluating its existing systems and software.If management were to determine that certain systems or software were to be replaced in order to achieve greater efficiencies, cost savings, or both, the estimated remaining useful life of some IT equipment and intangible assets may be reduced, resulting in higher depreciation and amortization expense, respectively.
Lessee leases
Balance sheet amounts for lease assets and leases liabilities are as follows:
| | | | | | | | | | | |
| September 30, | | December 31, |
(in thousands) | 2022 | | 2021 |
Assets: | | | |
Operating | $ | 2,110 | | $ | 2,376 |
Finance | 160 | | 162 |
Total assets | $ | 2,270 | | $ | 2,538 |
Liabilities: | | | |
Operating: | | | |
Current | $ | 632 | | | $ | 599 | |
Long-term | 1,673 | | | 1,947 | |
Finance: | | | |
Current | 96 | | | 83 | |
Long-term | 65 | | | 80 | |
Total liabilities | $ | 2,466 | | | $ | 2,709 | |
| | | | | | | | | | | |
| March 31, | | December 31, |
(in thousands) | 2023 | | 2022 |
Assets: | | | |
Operating | $ | 559 | | $ | 620 |
Finance | 214 | | 4 |
Total assets | $ | 773 | | $ | 624 |
Liabilities: | | | |
Operating: | | | |
Current | $ | 207 | | | $ | 241 | |
Long-term | 413 | | | 441 | |
Finance: | | | |
Current | 37 | | | 5 | |
Long-term | 177 | | | — | |
Total liabilities | $ | 834 | | | $ | 687 | |
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, | | March 31, | | December 31, |
(in thousands) | 2022 | | 2021 | |
| | | 2023 | | 2022 |
Finance leases: | | Finance leases: | | | |
Weighted-average remaining lease term (years) | | Weighted-average remaining lease term (years) | 4.7 | | 0.5 |
Weighted-average discount rate | | Weighted-average discount rate | 11.4 | % | | 6.0 | % |
Operating leases: | Operating leases: | | Operating leases: | |
Weighted-average remaining lease term (years) | Weighted-average remaining lease term (years) | 3.8 | | 4.2 | Weighted-average remaining lease term (years) | 3.5 | | 3.6 |
Weighted-average discount rate | Weighted-average discount rate | 6.9 | % | | 6.9 | % | Weighted-average discount rate | 6.2 | % | | 7.3 | % |
Finance leases: | | |
Weighted-average remaining lease term (years) | 1.8 | | 1.5 | |
Weighted-average discount rate | 8.6 | % | | 8.8 | % | |
Maturities of operating leases liabilities as of September 30, 2022, are as follows, in thousands:follows:
| | Remaining period in 2022 | $ | 202 | | |
2023 | 755 | | |
(in thousands) | | (in thousands) | |
Remaining period in 2023 | | Remaining period in 2023 | $ | 211 | |
2024 | 2024 | 617 | | 2024 | 148 | |
2025 | 2025 | 534 | | 2025 | 152 | |
2026 | 2026 | 468 | | 2026 | 157 | |
2027 | 2027 | 64 | | 2027 | 37 | |
Thereafter | — | | |
| Total lease payments | Total lease payments | 2,640 | | Total lease payments | 705 | |
Less: present value discount | Less: present value discount | (335) | | Less: present value discount | (85) | |
Total leases | Total leases | $ | 2,305 | | Total leases | $ | 620 | |
Maturities of finance lease liabilities as of September 30, 2022, are as follows, in thousands:follows:
| (in thousands) | | (in thousands) | |
Remaining period in 2023 | | Remaining period in 2023 | $ | 47 | |
2024 | | 2024 | 58 | |
2025 | | 2025 | 58 | |
2026 | | 2026 | 58 | |
2027 | | 2027 | 58 | |
| | Remaining period in 2022 | $ | 30 | | |
2023 | 91 | | |
2024 | 49 | | |
2025 | 4 | | |
| Thereafter | — | | |
Total finance lease payments | Total finance lease payments | 174 | | Total finance lease payments | 279 | |
Less: imputed interest | Less: imputed interest | (13) | | Less: imputed interest | (65) | |
Total leases | Total leases | $ | 161 | | Total leases | $ | 214 | |
Operating lease expenses were $0.2expense was $0.1 million and $0.3 million for each of the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively, and $0.7 million and $0.7 million for the nine months ended September 30, 2022 and 2021, respectively.
NOTE 8 - DEBT
The following table presents debt balances:
| | | September 30, | | December 31, | | March 31, | | December 31, |
(in thousands) | (in thousands) | 2022 | | 2021 | (in thousands) | 2023 | | 2022 |
Term loan | Term loan | 10,162 | | | 10,070 | | Term loan | $ | 2,002 | | | $ | 5,182 | |
Term loan issuance costs, net | Term loan issuance costs, net | (411) | | | (532) | | Term loan issuance costs, net | (574) | | | (384) | |
| Total long-term debt, net | $ | 9,751 | | | $ | 9,538 | | |
Total debt, net | | Total debt, net | 1,428 | | | 4,798 | |
Less short term debt | | Less short term debt | — | | | — | |
Long-term debt, net | | Long-term debt, net | $ | 1,428 | | | $ | 4,798 | |
Term loan
The termTerm loan bears interest at a floating rate equal to the greater of 7.25% or the Prime Rate plus 4.0% (10.25%(12.0% at September 30, 2022)March 31, 2023).
First Amendment, Consent and Default Waiver to Loan and Security Agreement
On February 10, 2023, the Company entered into the First Amendment, Consent and Default Waiver to Loan and Security Agreement or the Loan Amendment and Consent, with each of Silicon Valley Bank, a California corporation, and an authorized foreign bank under the Bank Act (Canada), and SVB Innovation Credit Fund VIII, L.P., a Delaware limited partnership, or together SVB. Among other matters, the Loan Amendment and Consent provides SVB’s consent to the sale of certain assets related to the Company’s pharmacy services business pursuant to the previously announced Asset Purchase Agreement. The term loan matures on April 1, 2026. Principal repayment will commence on May 1, 2024 in equal monthly installmentsLoan Amendment and Consent also provides that upon the closing of the outstanding loan balance throughasset sale, the maturity date.Company would pay SVB $3.4 million, which includes $0.4 million of the Final Payment (as defined in the Loan Amendment and Consent) and prepayment of $3.0 million of Term Loan Advances (as defined in the Loan Amendment and Consent), with SVB waiving the prepayment premium due on all Term Loan Advances prepaid by the Company prior to February 10, 2023. The Loan Amendment and Consent also includes SVB's waiver of any legal action or enforcement of rights and remedies with respect to certain specified defaults arising prior to February 10, 2023.
On February 10, 2023, in connection with the Loan Amendment and Consent, the Company issued warrants, or the SVB Warrants, to SVB for the purchase of up to an aggregate of 200,366 shares of common stock at a per share exercise price of $0.3274, with an expiration date of February 10, 2035. The number of shares and the exercise price are subject to adjustment as set forth in the SVB Warrants. See Note 12.
SVB Letter Agreement
On March 10, 2023, SVB, based in Santa Clara, California, was closed by the California Department of Financial Protection and Innovation, which appointed the FDIC as receiver. On March 10, 2023, the Federal Deposit Insurance Corporation (the “FDIC”) took control of SVB and created the National Bank of Santa Clara to hold the deposits of SVB after SVB was unable to continue their operations.
On March 13, 2023, the Company was informed by SVB that the Company was still bound by the terms, conditions, and covenants of the Company’s Loan and Security Agreement with SVB, or the Loan Agreement, and the Loan Amendment and Consent. On March 29, 2023, the
Company entered into a Letter Agreement, or Letter Agreement, with each of (a) Silicon Valley Bank, a Division of First-Citizens Bank & Trust Company (successor by purchase to the Federal Deposit Insurance Corporation as receiver for Silicon Valley Bridge Bank, N.A. (as successor to Silicon Valley Bank)), or SVB Successor, in its capacity as administrative agent and collateral agent, (b) SVB Successor, as a lender, and (c) SVB Innovation Credit Fund VIII, L.P., or SVB Capital, as a lender, and obtained a waiver for any event of default occurring prior to March 29, 2023, to include the year ended December 31, 2022. The Letter Agreement also amends the Loan Agreement to provide that the Company is only required to maintain on deposit at SVB Successor or its affiliates, at least 50% of the aggregate dollar value of all of the Company accounts at all financial institutions.
As of March 31, 2023, the Company had approximately $9.8 million on deposit with SVB Successor and $9.7 million on deposit with another financial institution and was in compliance with all required covenants of the Loan Agreement. The Company continues to monitor the circumstances surrounding SVB and does not anticipate such circumstances will have a material impact on the Company's financial condition, operations, or on the Loan Agreement with SVB Successor. As of the date of filing this Quarterly Report on Form 10-Q, the Company has full access to and control over all of its cash, and cash equivalents across all financial institutions.
NOTE 9 - INCOME TAXES
The Company incurred $0.02 million and zero ofminimal income tax expense for the ninethree months ended September 30,March 31, 2023 and 2022, due to ongoing losses and 2021, respectively. Theminimum state income taxes for the periods ended September 30, 2022, are primarily attributed to certain state taxes. The Company continues to be in a loss position as of September 30, 2022.tax obligations. 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,March 31, 2023 and December 31, 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 August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022, which, among 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 expect them to be material.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
LegalLitigation
Following MYOS Rens Technology Inc.’s, or MYOS’sThe Company is and, MedAvail, Inc.’s, or MAI's, announcementfrom time to time may in the future become, involved in legal proceedings, claims and litigation in the ordinary course of business. The Company has become subject to certain demands, and claims from former employees relating to the reduction in force the Company implemented in connection with the restructuring of the executioncompany and the disposition of its pharmacy services business. The Company intends to vigorously defend itself against such pending and threatened actions. The Company cannot determine a reasonable estimate 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 Courtmaximum possible loss or range of loss for pending or threatened matters given that they are at various stages of the Statelitigation process and each case is subject to the inherent uncertainties of New York, Countylitigation. In management’s opinion, based on currently available information, any potential loss resulting from the resolution of New York, captioned Faasse v. MYOS RENS Technology Inc., et. al., Index No.: 654644/2020 (NY Supreme Ct., NY Cnty., September 23, 2020),these matters is not expected to have a material adverse effect on the Company’s results of operations, financial position, 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 comprised 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 were without merit, and believe that the Form S-4 Registration Statement disclosed all material information concerning the Merger and no supplemental disclosure was 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. MYOS and MAI specifically deny all allegations in the Litigation and/or that any additional disclosure was or is required, and none of the Litigation remains currently pending.cash flows.
NOTE 11 - 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, | |
| 2022 | | 2021 | | 2022 | | 2021 | | | |
Share-based compensation | $ | 565 | | | $ | 365 | | | $ | 1,741 | | | $ | 948 | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | |
| 2023 | | 2022 | | | | | | | |
Share-based compensation | $ | 618 | | | $ | 564 | | | | | | | | |
The share-based compensation expense for the three and nine months ended September 30, 2022 and included $0.02 million and $0.1 million, respectively, from employee stock purchase plan expense.
The expenseExpense remaining to be recognized for unvested option awards from the 2012, 2018, 2020 and 20202022 plans and the 2022 inducement plan as of September 30, 2022March 31, 2023, was $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$1.8 million, which will be recognized on a weighted average basis over the next 2.32.6 years. Expense remaining to be recognized for unvested RSU awards as of March 31, 2023, was $1.6 million, which will be recognized on a weighted average basis over the next 1.9 years.
The following table presents the Company's outstanding option awards activity during the nine three months ended September 30, 2022:March 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(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 | 2,848,903 | | | $ | 2.78 | | | | | $ | 1.44 | | | | | $ | 104 | |
Granted | 2,758,040 | | | 1.35 | | | | | 0.98 | | | | | — | |
Exercised/released | — | | | — | | | | | — | | | | | — | |
Expired | (117,730) | | | 1.99 | | | | | 1.08 | | | | | 5 | |
Forfeited | (952,488) | | | 2.52 | | | | | 1.42 | | | | | 111 | |
Outstanding, end of period | 4,536,725 | | | $ | 1.93 | | | | | $ | 1.15 | | | 8.33 | | $ | — | |
Vested and exercisable, end of the period | 1,777,907 | | | 2.28 | | | | | 1.16 | | | 6.79 | | — | |
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 | 4,309,018 | | | 1.94 | | | | | 1.15 | | | 8.29 | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands, except for share and per share amounts) | Number of Awards | | Weighted Average Exercise Price | | Weighted Average Fair Value | Weighted Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value |
Outstanding, beginning of period | 4,399,741 | | | $ | 1.88 | | | $ | 1.14 | | | | $ | — | |
Granted | — | | | — | | | — | | | | — | |
Exercised/Released | — | | | — | | | — | | | | — | |
Expired | — | | | — | | | — | | | | — | |
Forfeited | (66,302) | | | 1.37 | | | 0.83 | | | | — | |
Outstanding, end of period | 4,333,439 | | | $ | 1.89 | | | $ | 1.15 | | 8.05 | | $ | — | |
Vested and exercisable, end of the period | 2,079,894 | | | 2.23 | | | 1.22 | | 7.03 | | — | |
Vested and unvested exercisable, end of the period | 2,079,894 | | | 2.23 | | | 1.22 | | 7.03 | | — | |
Vested and expected to vest, end of the period | 4,180,949 | | | 1.91 | | | 1.15 | | 8.02 | | — | |
The following table presents the Company'spresent outstanding restricted stock unitRSU awards activity during the ninethree months ended September 30, 2022:March 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(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 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of Awards | | Weighted Average Exercise Price | | Weighted Average Grant Date Fair Value | | Weighted Average Remaining Contractual Life (Years) |
Unvested outstanding, beginning of period | 2,376,554 | | | $ | — | | | $ | 1.31 | | | |
Granted | — | | | $ | — | | | $ | — | | | |
Exercised/Released | — | | | $ | — | | | $ | — | | | |
Cancelled/Forfeited | (763,380) | | | $ | — | | | $ | 0.87 | | | |
Expired | — | | | $ | — | | | $ | — | | | |
Unvested outstanding, end of period | 1,613,174 | | | $ | — | | | $ | 1.40 | | | 14.14 |
Vested, outstanding shares | — | | | $ | — | | | $ | — | | | |
AnAs of March 31, 2023 and December 31, 2022, there was an aggregate of 2.82.7 million and 3.42.3 million shares of common stock, wasrespectively, available for grant under the 2020 Plan asPlan. As of September 30, 2022March 31, 2023 and December 31, 2021, respectively.2022, there was an aggregate of 1.1 million and 0.2 million shares of common stock, respectively, available for grant under the 2022 Inducement plan.
In April 2022, the Company adopted the MedAvail Holdings, Inc. 2022 Inducement
NOTE 12 - WARRANTS
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 ninetwelve months ended September 30,December 31, 2022, 18.8 million warrants were issued fromat the first closing of the Private Placementa private placement in April 2022 with a fair value of $7.5 million.$9.2 million, a 5 years term and an exercise price per share of $1.25. An additional 4.7 million warrants were issued from theat a second closing of the Private Placementprivate placement in July 2022 with a fair value of $2.3 million. $4.5 million, a 5 years term and an exercise price per share of $1.25.
No warrants were exercised or expired during the ninethree months ended September 30,March 31, 2023, or twelve months ended December 31, 2022. These warrants met the equity classification requirements and therefore are classified in our stockholders' equity.
SVB warrants
During the three months ended March 31, 2023, as part of the First Amendment to the Loan and Security Agreement with Silicon Valley Bank (see Note 8), the Company issued 200,366 common stock warrants to the lenders. Upon grant date, the fair value of the warrants was $57 thousand, measured using the Black Scholes Option Pricing model. There were 24.2 million related partywas no material change in fair value of these warrants outstanding as of September 30, 2022.through March 31, 2023.
The terms forSVB Warrants met equity classification requirements under ASC 815 - Derivative and Hedging, specifically due to the warrants issued fromhaving a limit on the Private Placement were as follows:number of shares the entity will be required to deliver upon exercise and the warrants not including cash-settled top-off or make-
| | | | | | | | | | | | | | | | | | | | | | | | |
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 | | | |
whole provisions, as well as, other conditions. As such, the SVB warrants met the equity classification requirements and are classified in the Company's shareholder' equity.
NOTE 12 - REVENUE AND SEGMENT REPORTING
Operating segments areThe key input assumptions utilized in the individual operations that the chief operating decision maker, or CODM, who is the 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 two reportable segments:
Retail Pharmacy Services Segment
Retail Pharmacy Services segment revenue consists of products sold directly to consumers at the point of sale. MedAvail recognizes retail pharmacy 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 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 installationvaluation 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.SVB Warrants were as follows:
| | | | | | | | | | | | | | |
| Grant date | | March 31, 2023 | |
Market price | $0.32 | | $0.29 | |
Exercise price | $0.32 | | $0.32 | |
Term (Years) | 12 | | 11.7 | |
Volatility | 85% | | 85% | |
Risk Free Rate | 3.68% | | 3.60% | |
| | | | |
Liability warrants
The following tables present revenuetable presents liability warrants:
| | | | | | | | | | | |
| March 31, | | December 31, |
(in thousands) | 2023 | | 2022 |
Pre-Funded Warrants | 14,295 | | | — | |
Series A Warrants | 9,083 | | | — | |
| 23,378 | | | — | |
Private placement
On March 9, 2023, the Company entered into a Securities Purchase Agreement for a private placement of securities with certain institutional investors, or the Investors. Pursuant to the terms of the Offering, the Company agreed to issue Pre-Funded Warrants upon closing at a price of $0.3212 per underlying share, and Pre-Funded Warrants are exercisable into shares of common stock at an exercise price of $0.001 per share. The number of Pre-Funded Warrants exercisable is limited by the Nasdaq 19.99% cap based on the shares of Common Stock outstanding; until the Company's stockholders approve issuing Common Stock in excess of the Nasdaq 19.99% cap at the Company's annual shareholder meeting to be held June 14, 2023. Additionally, the Company provided the Investors with Series A Warrants with an exercise price of $0.385440 per share, that are not exercisable until the stockholders approve the Company to issue Common Stock in excess of the Nasdaq 19.99% cap.
The Pre-Funded Warrants and Series A Warrants do not meet the equity classification requirements under ASC 815 - Derivative and Hedging, specifically the Company did not have a sufficient amount of Common Stock available to be issued to settle the warrants upon grant and through March 31, 2023, due to the Nasdaq 19.99% cap that limits the Company's ability to issue Common Stock to settle the Series A Warrants and Pre-funded Warrants. Consequently, the Pre-Funded Warrants and Series A Warrants were classified as liabilities.
The Pre-Funded Warrant shares are exercisable for an aggregate of up to 49,813,198 shares of common stock, and the Series A Warrants will be exercisable for an aggregate of up to 49,813,198 shares of common stock. Upon close of the transaction on March 13, 2023, the Company received gross proceeds from the Offering of approximately $16.0 million, before deducting Offering expenses. The Company intends to use the net proceeds from the Offering to fund costs associated with restructuring, repay outstanding debt, and finance its growth initiatives related to its MedCenter technology business.
Upon grant, the fair value of products soldthe Pre-Funded Warrants and services by segment (in thousands):Series A Warrants was $15.9 million and $10.5 million, respectively. The Company recorded the $10.4 million difference between the Offering proceeds and grant date fair value as a loss on issuance of warrants in the statement of operations and comprehensive loss. The fair values of the awards were measured using the Black Scholes Option Pricing model as of the grant date.
The key input assumptions utilized in the valuation of the Pre-funded Warrants were as follows:
| | | | | | | | | | | | | | |
| Grant date | | March 31, 2023 | |
Market price | $0.32 | | $0.29 | |
Exercise price | $0.001 | | $0.001 | |
Term (Years) | 12 | | 11.7 | |
Volatility | 85% | | 85% | |
Risk Free Rate | 3.70% | | 3.67% | |
| | | | |
| | | | | | | | | | | | | | | | | |
| 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) | |
| | | | | |
| | | | | |
The key input assumptions utilized in the valuation of the Series A Warrants were as follows:
| | | | | | | | | | | | | | |
| Grant date | | March 31, 2023 | |
Market price | $0.32 | | $0.29 | |
Exercise price | $0.39 | | $0.39 | |
Term (Years) | 5 | | 4.9 | |
Volatility | 85% | | 85% | |
Risk Free Rate | 3.68% | | 3.60% | |
| | | | |
The fair values of the Pre-Funded Warrants and Series A Warrants decreased $1.6 million and $1.4 million, respectively, during the three months ended March 31, 2023; which is included in the gain from change in fair value of warrants on the statement of operations and comprehensive loss.
NOTE 13 - DISCONTINUED OPERATIONS
As discussed in Note 1 – Nature of Operations – the exit of our pharmacy services business was substantially completed as of March 31, 2023. The pharmacy services business was previously a reportable segment and the exit represents a strategic shift in the Company going forward. Accordingly, with the sale or disposition of its retail pharmacy assets and exit of the pharmacy services business, this transaction meets the accounting requirements for reporting as discontinued operations under ASC 205-20-50 for all periods presented.
The following table summarizes the major income and expense line items from discontinued operations as reported in the condensed consolidated statements of operations and comprehensive loss:
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
(in thousands) | | | | | 2023 | | 2022 |
Revenue: | | | | | | | |
Pharmacy revenue | | | | | $ | 3,834 | | | $ | 8,849 | |
Total revenue | | | | | 3,834 | | | 8,849 | |
Cost of products sold and services: | | | | | | | |
Pharmacy cost of products sold | | | | | 3,581 | | | 8,481 | |
Total cost of products sold and services | | | | | 3,581 | | | 8,481 | |
Operating expense: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Pharmacy operations | | | | | 1,726 | | | 3,720 | |
General and administrative | | | | | 570 | | | 1,563 | |
Selling and marketing | | | | | 845 | | | 2,205 | |
Research and development | | | | | — | | | 235 | |
| | | | | | | |
Total operating expense | | | | | 3,141 | | | 7,723 | |
Operating loss | | | | | (2,888) | | | (7,355) | |
Loss from sale and disposition of net assets, and reorganization expenses, net | | | | | (1,885) | | | — | |
| | | | | | | |
Interest expense | | | | | 1 | | | (3) | |
| | | | | | | |
| | | | | | | |
Loss from discontinued operations | | | | | $ | (4,772) | | | $ | (7,358) | |
Cash provided by operating activities by the pharmacy services business totaled $3.5 million and $0.1 million for the three months ended March 31, 2023 and March 31, 2022, respectively. Cash used in investing activities from the pharmacy services business totaled totaled $0.02 million and $0.35 million for the three months ended March 31, 2023 and March 31, 2022, respectively. Cash used in financing activities from the pharmacy services business totaled totaled $0.03 million and $0.02 million for the three months ended March 31, 2023 and March 31, 2022, respectively. Depreciation and amortization expense of the pharmacy services business totaled totaled $0.75 million and $0.48 million for the three months ended March 31, 2023 and March 31, 2022, respectively. The condensed consolidated statements of cash flows included $0.8 million loss on disposal of net assets from discontinued operations, which comprised of losses related to net realizable value adjustments to right of use assets related to leases and prepaid assets, and abandonment of certain property, plant, and equipment related to our discontinued operations.
| | | | | | | | | | | | | | | | | |
| 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) | |
| | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | |
| 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 presentssummarizes the major classes of assets and liabilities by segment (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Retail Pharmacy Services | | Pharmacy Technology | | Corporate | | Total |
September 30, 2022 | | | | | | | |
Assets | $ | 15,939 | | | $ | 7,953 | | | $ | 25,959 | | | $ | 49,851 | |
Liabilities | $ | 5,841 | | | $ | 2,689 | | | $ | 10,015 | | | $ | 18,545 | |
December 31, 2021 | | | | | | | |
Assets | $ | 13,641 | | | $ | 5,222 | | | $ | 19,280 | | | $ | 38,143 | |
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, basedof the retail pharmacy business as reported on the physical location of the assets (in thousands):condensed consolidated balance sheets:
| | | | | | | | | | | |
| September 30, | | December 31, |
| 2022 | | 2021 |
Long-lived assets: | | | |
United States | $ | 8,286 | | | $ | 7,675 | |
Canada | 354 | | | 555 | |
Total long-lived assets | $ | 8,640 | | | $ | 8,230 | |
| | | | | | | | | | | |
(in thousands) | March 31, 2023 | | December 31, 2022 |
Carrying amounts of major classed of assets included as part of discontinued operations: | | | |
Accounts receivable, net | $ | 2,065 | | | $ | 1,804 | |
Prepaid expenses and other current assets | 14 | | | 95 | |
Inventories | — | | | 2,943 | |
Total current assets from discontinued operations | $ | 2,079 | | | $ | 4,842 | |
| | | |
Intangible assets, net | $ | — | | | $ | 14 | |
Property plant and equipment, net | — | | | 1,194 | |
Right-of-use assets | 998 | | | 1,461 | |
Other assets | 168 | | | 168 | |
Total long-term assets from discontinued operations | $ | 1,166 | | | $ | 2,837 | |
| | | |
Total long-term assets from discontinued operations | | | |
Accounts payable | $ | 290 | | | $ | 857 | |
Accrued liabilities | 1,105 | | | 642 | |
Accrued payroll and benefits | 28 | | | 834 | |
Current portion of lease obligations | 462 | | | 461 | |
Total current liabilities from discontinued operations | $ | 1,885 | | | $ | 2,794 | |
| | | |
Long-term portion of lease obligations | $ | 1,015 | | | $ | 1,128 | |
Total long-term liabilities from discontinued operations | $ | 1,015 | | | $ | 1,128 | |
| | | |
| | | |
NOTE 13 –14 - SUBSEQUENT EVENTS
Reduction in Force
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 notifyingOn April 27, 2023, 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 inclusioncompleted an additional reduction in Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”). The deficiency letter will not resultforce, in the immediate delistingwhich approximately 27% of the Company’s common stock from Nasdaq.
full-time employees at that time, were terminated, effective April 28, 2023. The Company has an initial periodnotified the employees of 180 calendar days, or until May 1, 2023, to regain compliancetheir termination on April 27, 2023. The reduction in force is in connection with the Bid Price Rule. If theCompany’s continued efforts to streamline operations and achieve cost savings while focusing on its pharmacy technology business. The Company ismay incur additional expenses not in compliancecurrently contemplated due to events associated 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.
reduction in force. 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 assurancechanges that the Company will be ableexpects to regain complianceincur in connection with the Bid Price Rule or will otherwise bereduction in compliance with other Nasdaq Listing Rules. If we do not regain compliance with the Bid Price Ruleforce are estimates and are not eligible for an additional compliance period, our common stocksubject to a number of assumptions, and actual results 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.”differ materially.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSManagement's Discussion and Analysis of Financial Condition and Results of Operations
You should read theThe following discussion should be read in conjunction with our audited historical condensed consolidated financial statements for the year ended December 31, 2021,2022 which are included in the Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 29, 2022,April 14, 2023, and our unaudited condensed consolidated financial statements and accompanying footnotes for the three and nine months ended September 30, 2022March 31, 2023, included elsewhere inPart I, Item 1., of this Quarterly Report on Form 10-Q.
This Management'squarterly Report on Form 10-Q, including "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains statements that are forward-looking.forward-looking regarding future events and our future results subject to the safe harbor created under the Private Securities Litigation Reform Act of 1995 and other safe harbors under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Words such as “anticipate”, “estimate”, “expect”, “project”, “plan”, “intend”, “believe”, “may”, “might”, “will”, “should”, “can have”, “likely” and similar expressions are used to identify forward-looking statements.
All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expect. 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 orabove and elsewhere in this Quarterly Report on Form 10-Q. See Part II, Item 1A. "Risk Factors" of this Quarterly Report on Form 10-Q, and Part I, Item 1A. "Risk Factors" of the 2021our Annual Report on Form 10-K for the year ended December 31, 2021.2022. 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, weand 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 remote prescription drug dispensing to occur directly to a patient while still providing real-time supervision by a pharmacist. Although
Currently, our technology platform has broad application, we are currently focused on serving high-value Medicare members inprimary and only commercialization channel is 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. Second, as a direct ‘sell-to’ model, commercialization channel,whereby we sell or lease the MedCenter hardware technology and subscriptions forprovide recurring, one-time, or on demand services related to the associated softwareMedCenter directly to large healthcare providers and retailers for use within their own pharmacy operations. We deploy the MedCenter solution currently to locations to include, but not limited to, urgent care and emergency medical facility locations, in clinic locations of large healthcare providers, and University campuses.
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.MedCenter. Supporting our MedCenter kiosks and Remote Dispensing System areis our back-end MedPlatform® Enterprise Software, or the MedPlatform Enterprise Software, which controls dispensing and MedCenter monitoring, and supporting Pharmacy Management System software, which allowssoftware.
Our kiosks come in one model: the M4 MedCenter. The M4 MedCenter is designed to fit in waiting rooms, hallways, and lobbies.
Discontinued Operations
On January 19, 2023, we announced our plan to exit the retail pharmacy services business, or the “Pharmacy Services Business”, to focus on our Pharmacy Technology services. In connection with our exit from the Pharmacy Services Business, we hired a broker and negotiated the sale of certain related pharmacy assets. Our operations following the exit from the Pharmacy Services Business consist solely of our Pharmacy Technology services. On April 6, 2023, we announced that we had completed the transactions contemplated by the Asset Purchase Agreement, including the disposition of the specific assets therein, on February 10, 2023. As of March 31, 2023, we have substantially completed our exit from the Pharmacy Services Business.
Prior to Discontinued Operations, during the three months ended March 31, 2023, we had two reportable segments: retail pharmacy services and pharmacy technology services. As a result of the retail pharmacy services business exit, the Company met the requirements of ASC 205-20, to report the results of the retail pharmacy services business as a discontinued operation. Accordingly, the operating results for the retail pharmacy services business have therefore been reclassified as a discontinued operation within these condensed consolidated financial statements. As such, unless otherwise noted, the discussion of our supporting teamoperating results, Results of pharmacistsOperations, and kiosk administrators.
Traditional retail pharmacies are built around a physical store front. In orderLiquidity relate to dispense medication, these stores must have a pharmacist onsitecontinuing operations comprised of only our pharmacy technology business for all hours of operation. Many 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, many 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.periods presented.
Components of Operating Results for the NineThree Months Ended September 30, 2022March 31, 2023
We have never been profitable and wehave incurred operating losses each year since inception. Our net losses were $36.5$17.3 million and $31.2$13.0 million for the ninethree months ended September 30,March 31, 2023 and 2022, and 2021, respectively. As of September 30, 2022,March 31, 2023, we had an accumulated deficit of $228.6$257.0 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.operations
We expect to incur significant additional expenses and operating losses for the foreseeable future as we initiate and continue theour technology development, deploymentredeployment of our MedCenter technologyMedCenters and adding personnelright size expenses 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 withinand focus on our operating segments.Med Center technologies. 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.operations.
As of September 30, 2022,March 31, 2023, we had cash and cash equivalents of $27.2$18.8 million. We will continue to require additional capital to continue our pharmacy technology development and commercialization activities and build out our pharmacy operations to serve our growing customer base. Accordingly, in November 2020,In April and July 2022, and July 2022,March 2023, we completed the sale of additional equity through private placement fundings,financings, where we raised $83.9 million, $40.0 million and $10.0$16.0 million in gross proceeds, respectively. Additionally, in June 2021 we entered intoadded to our liquidity resources through a senior secured term loan and borrowedwith Silicon Valley Bank, or SBV, of $10.0 million, of which we have repaid $8.0 million. We expect to raise additional capital to continue funding operations.As of March 31, 2023, we have an outstanding principal balance of $2.0 million under the term loan. The amount and timing of 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.
Results of Operations for the Three Months Ended March 31, 2023
Pharmacy technology revenue
Hardware revenue
We have two reportable segments: Retail Pharmacy Servicesdevelop 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 commercializescommercialize the MedCenter for direct sale or subscription lease 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, 2022
Revenue – Retail Pharmacy and Hardware and Service
Retail pharmacy and hardware revenue
Retail pharmacy revenue from the Retail Pharmacy Services segment is 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 and home delivery of medications to patient residences. Hardware sales from the pharmacy technology segment are derived from either the sales or subscription leases of the MedCenter to customers.
Service revenue
Service revenue from the Pharmacy Technology Segment is derived from installationrecurring subscription revenue from software licensing, platform and supportsoftware hosting, and software and hardware maintenance; and one-time or on demand service revenue from initial installations, and professional services such as training, pharmacy set-up, and consulting services.
Revenue
| | | Three Months Ended September 30, | | 2022 vs. 2021 | | Three Months Ended March 31, | | 2023 vs. 2022 |
| | 2022 | | 2021 | | Amount Change | | % Change | | 2023 | | 2022 | | 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 | % | |
| | | (in thousands) |
Hardware and subscription revenue: | | Hardware and subscription revenue: | |
| Hardware revenue | | Hardware revenue | $ | 256 | | | $ | 56 | | | $ | 200 | | | 357 | % |
Subscription revenue | | Subscription revenue | 48 | | | 109 | | | (61) | | | (56) | % |
Total hardware and subscription revenue | | Total hardware and subscription revenue | 304 | | | 165 | | | 139 | | | 84 | % |
Service revenue: | Service revenue: | | | | | | | | Service revenue: | | | | | | | |
| Software | Software | 94 | | | 51 | | | 43 | | | 84 | % | Software | 94 | | | 48 | | | 46 | | | 96 | % |
Maintenance and support | Maintenance and support | 48 | | | 44 | | | 4 | | | 9 | % | Maintenance and support | 56 | | | 32 | | | 24 | | | 75 | % |
Installation | Installation | — | | | 11 | | | (11) | | | (100) | % | Installation | 67 | | | 6 | | | 61 | | | 1017 | % |
Professional services and other | Professional services and other | 53 | | | 27 | | | 26 | | | 96 | % | Professional services and other | 99 | | | 14 | | | 85 | | | 607 | % |
Total service revenue | Total service revenue | 195 | | | 133 | | | 62 | | | 47 | % | Total service revenue | 316 | | | 100 | | | 216 | | | 216 | % |
Total revenue | Total revenue | $ | 11,461 | | | $ | 5,792 | | | $ | 5,669 | | | 98 | % | Total revenue | $ | 620 | | | $ | 265 | | | $ | 355 | | | 134 | % |
During the three months ended September 30, 2022, retail pharmacyMarch 31, 2023, hardware and hardwaresubscription revenue increased by $5.6 million to $11.3 million compared to that of the same period in 2021. The $5.6 million increase was due to a $5.7 million increase from volume growth in prescription revenue at existing sites and additional sites launched primarily in Florida in Q4 2021 and continuing into 2022.
During the three months ended September 30, 2022, service revenue increased by $0.1 million to $0.2 million compared to that of the same period in 2021.
Cost of Products Sold and Services
Retail pharmacy and hardware cost of products sold
Cost of products sold consists primarily of prescription medications, other over-the-counter health products; and costs associated with MedCenters sold to third-party customers.
Service costs
Service costs consists primarily of costs incurred to install and maintain MedCenters at third-party customer locations.
Costs of Products and Services
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | 2022 vs. 2021 |
| 2022 | | 2021 | | Amount Change | | % Change |
Retail pharmacy and hardware cost of products sold: | (in thousands) |
Prescription drugs | $ | 9,313 | | | $ | 4,969 | | | $ | 4,344 | | | 87 | % |
Shipping | 735 | | | 396 | | | 339 | | | 86 | % |
Hardware | 13 | | | 129 | | | (116) | | | (90) | % |
Depreciation | 52 | | | 45 | | | 7 | | | 16 | % |
Total retail pharmacy and hardware cost of products sold | 10,113 | | | 5,539 | | | 4,574 | | | 83 | % |
Service costs: | | | | | | | |
Professional services | 10 | | | 16 | | | (6) | | | (38) | % |
Maintenance and support services | 46 | | | 46 | | | — | | | — | % |
Installation services | — | | | 5 | | | (5) | | | (100) | % |
Total service costs | 56 | | | 67 | | | (11) | | | (16) | % |
Total cost of products sold and services | $ | 10,169 | | | $ | 5,606 | | | $ | 4,563 | | | 81 | % |
During the three months ended September 30, 2022, retail pharmacy and hardware cost of products sold increased $4.6 million to $10.1 million compared to the same period in 2021. The increase was primarily due to costs associated with volume growth in prescription sales at existing
sites and additional sites launched primarily in Florida in Q4 2021 and 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 2021.2022. The $0.1 million increase was primarily due to a $0.2 million increase MedCenter sales whereby 3 more MedCenters were sold over the same prior year period, partially offset by $0.1 million decrease in subscription lease revenue.
During the three months ended September 30, 2022,March 31, 2023, service costs were reasonably consistent with the same period in the prior year.
Pharmacy Operations
Pharmacy operations consist of costs incurred to operate retail pharmacies and 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 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 mobile applications and software.
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| Three Months Ended September 30, | | 2022 vs. 2021 |
| 2022 | | 2021 | | Amount Change | | % Change |
Pharmacy operations expenses: | (in thousands) |
Wages and salaries | $ | 2,375 | | | $ | 2,794 | | | $ | (419) | | | (15) | % |
Rent, utilities, and other | 569 | | | 570 | | | (1) | | | (0) | % |
| | | | | | | |
Depreciation of property, plant and equipment | 242 | | | 220 | | | 22 | | | 10 | % |
| | | | | | | |
Amortization of intangible assets | 1,089 | | | 90 | | | 999 | | | 1110 | % |
Repairs and maintenance | 117 | | | 76 | | | 41 | | | 54 | % |
Total pharmacy operations expenses | $ | 4,392 | | | $ | 3,750 | | | $ | 642 | | | 17 | % |
During the three months ended September 30, 2022, pharmacy operations expensesrevenue increased by $0.6$0.2 million to $4.4$0.3 million compared to the same period in 2021. Amortization of intangible assets has increased2022 primarily due to deploying internally developedincreased services provided as a result of increased MedCenter sales during the three months ended March 31, 2023, compared to the same prior year period..
As a result of the pharmacy services business exit, the Company met the requirements of ASC 205-20, to report the results of the retail pharmacy services business as a discontinued operation. Accordingly, the revenue results for the pharmacy services business have therefore been reclassified as a discontinued operations within these condensed consolidated financial statements.
Pharmacy technology cost of products sold and services
Hardware costs of products
Hardware cost of products sold consists primarily of costs associated with building and customization of MedCenters sold to third-party customers.
Service costs
Service costs consists primarily of installation, integration, relocation, consumable, and maintenance cost of MedCenters at third-party customer locations, as well as related hosting and software costs.
Costs of Products sold and Services
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | 2023 vs. 2022 |
| 2023 | | 2022 | | Amount Change | | % Change |
| (in thousands) |
Hardware cost of products sold: | | | | | | | |
| | | | | | | |
| | | | | | | |
Hardware | $ | 210 | | | $ | 56 | | | $ | 154 | | | 275 | % |
Depreciation | 35 | | | 25 | | | 10 | | | 40 | % |
Total Hardware cost of products sold | 245 | | | 81 | | | 164 | | | 202 | % |
Service costs: | | | | | | | |
Professional services | 14 | | | — | | | 14 | | | — | % |
Maintenance and support services | 62 | | | 47 | | | 15 | | | 32 | % |
Installation services | 42 | | | 3 | | | 39 | | | 1300 | % |
Total service costs | 118 | | | 50 | | | 68 | | | 136 | % |
Total cost of products sold and services | $ | 363 | | | $ | 131 | | | $ | 232 | | | 177 | % |
During the three months ended March 31, 2023, hardware cost of products sold increased $164.0 thousand to $0.2 million compared to the same period in our pharmacy operations and decreasing the remaining useful life resulting in an increased amortization of $1.0 million.2022. The increase was offset by the decrease in wages and salariesprimarily due to reductionan $154.0 thousand increase in contractor costs.hardware costs associated with the increased number of units sold during the three months ended March 31, 2023, as compared to the same prior year period.
During the three months ended March 31, 2023, service costs increased $68.0 thousand primarily due to increased installation cost related to the sale of more MedCenters in the three months ended March 31, 2023, as compared, to the same prior year period.
As a result of the retail pharmacy services business exit, the Company met the requirements of ASC 205-20, to report the results of the retail pharmacy services business as a discontinued operation. Accordingly, the cost of products sold and services results for the retail pharmacy services business have therefore been reclassified as a discontinued operations within these condensed consolidated financial statements.
General and Administrative
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 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 equity incentive plans whereby awards are granted to certain of our employees. The fair value of thea 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, | | 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, 2022, general and administrative costs increased approximately by $0.8 million to $6.1 million compared to that of the same period in 2021. This increase was primarily due to hiring additional administrative staff, increased share-based compensation, as well as other investments necessary for our growth as a public company.
Selling and Marketing
Selling and marketing expenses consist of personnel costs, marketing and advertising 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, including bonuses, health plans, and severance.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | 2022 vs. 2021 |
| 2022 | | 2021 | | Amount Change | | % Change |
Selling and marketing expenses: | (in thousands) |
Wages and salaries | $ | 1,960 | | | $ | 1,658 | | | $ | 302 | | | 18 | % |
Travel and other employee expenses | 86 | | | 126 | | | (40) | | | (32) | % |
Marketing | 74 | | | 110 | | | (36) | | | (33) | % |
Other selling and marketing expenses | 6 | | | 15 | | | (9) | | | (60) | % |
Total selling and marketing expenses | $ | 2,126 | | | $ | 1,909 | | | $ | 217 | | | 11 | % |
During the three months ended September 30, 2022, selling and marketing costs increased approximately by $0.2 million to $2.1 million compared to that of the same period in 2021. This increase was primarily due to personnel related costs associated with hiring additional Clinic Account Managers (CAMs), which directly support the staff and patients at the growing number of medical clinics where we are deployed.
Research and Development
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.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | 2022 vs. 2021 |
| 2022 | | 2021 | | Amount Change | | % Change |
Research and development expenses: | (in thousands) |
Wages and salaries | $ | 166 | | | $ | 165 | | | $ | 1 | | | 1 | % |
Other expenses | 12 | | | 67 | | | (55) | | | (82) | % |
Total research and development expenses | $ | 178 | | | $ | 232 | | | $ | (54) | | | (23) | % |
During the three months ended September 30, 2022, research and development costs decreased by approximately $0.1 million.
Interest Income and Expense
Interest expense consists of accrued interest on outstanding debt and is payable monthly.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | 2022 vs. 2021 |
| 2022 | | 2021 | | Amount Change | | % Change |
Interest income: | (in thousands) |
Interest income | $ | — | | | $ | 7 | | | $ | (7) | | | (100) | % |
Total interest income | $ | — | | | $ | 7 | | | $ | (7) | | | (100) | % |
Interest expense: | | | | | | | |
Interest expense | $ | (315) | | | $ | (260) | | | $ | (55) | | | 21 | % |
Total interest expense | $ | (315) | | | $ | (260) | | | $ | (55) | | | 21 | % |
During the three months ended September 30, 2022, interest expense increased compared to the same period in 2021 due to the Company entering into a term loan in June 2021. The interest rate on the term loan was 10.25% on September 30, 2022, compared to 7.25% on September 30, 2021. For more detail on outstanding debt and associated maturities, see Note 8 to the unaudited condensed consolidated financial statements presented elsewhere in this Quarterly Report on Form 10-Q.
Results of Operations for the Nine Months Ended September 30, 2022
Revenue – Retail Pharmacy and Hardware and Service
Retail pharmacy and hardware revenue
Retail pharmacy revenue from the Retail Pharmacy Services segment is 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 revenue
Service revenue from the Pharmacy Technology Segment is derived from installation and support services.
Revenue
| | | | | | | | | | | | | | | | | | | | | | | |
| 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, 2022, retail pharmacy and hardware revenue increased by $17.0 million to $31.2 million compared to that of the same period in 2021. The $17.0 million increase was due to a $17.3 million increase from volume growth in prescription revenue at existing sites and additional sites launched primarily in Florida in Q4 2021 and continuing into 2022, offset by the decrease in hardware revenue from the same period in 2021.
During the nine months ended September 30, 2022, service revenue decreased by $0.1 million to $0.5 million compared to the same period in 2021.
Cost of Products Sold and Services
Retail pharmacy and hardware cost of products sold
Cost of products sold consists primarily of prescription medications, other over-the-counter health products; and costs associated with MedCenters sold to third-party customers.
Service costs
Service costs consist primarily of costs incurred to install and maintain MedCenters at third-party customer locations.
Costs of Products and Services
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | 2022 vs. 2021 |
| 2022 | | 2021 | | Amount Change | | % Change |
Retail pharmacy and hardware cost of products sold: | (in thousands) |
Prescription drugs | $ | 26,402 | | | $ | 12,154 | | | $ | 14,248 | | | 117 | % |
Shipping | 2,059 | | | 976 | | | 1,083 | | | 111 | % |
Hardware | 245 | | | 482 | | | (237) | | | (49) | % |
Depreciation | 121 | | | 132 | | | (11) | | | (8) | % |
Total retail pharmacy and hardware cost of products sold | 28,827 | | | 13,744 | | | 15,083 | | | 110 | % |
Service costs: | | | | | | | |
Professional services | 33 | | | 301 | | | (268) | | | (89) | % |
Maintenance and support services | 139 | | | 105 | | | 34 | | | 32 | % |
Installation services | 49 | | | 20 | | | 29 | | | 145 | % |
Total service costs | 221 | | | 426 | | | (205) | | | (48) | % |
Total cost of products sold and services | $ | 29,048 | | | $ | 14,170 | | | $ | 14,878 | | | 105 | % |
During the nine months ended September 30, 2022, retail pharmacy and hardware cost of products sold increased by $15.1 million to $28.8 million compared to that of the same period in 2021. The increase was primarily due to costs associated with volume growth in prescription sales at existing sites and additional sites launched primarily in Florida in Q4 2021 and continuing into 2022. Shipping costs, related to our home delivery service via third-party courier, increased by $1.1 million compared to that of the same period in 2021.
Pharmacy Operations
Pharmacy operations consist of costs incurred to operate retail pharmacies and 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 supply 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 mobile applications and software.
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| 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, 2022, pharmacy operations expenses increased by $2.5 million to $12.0 million compared to that of the same period in 2021. This increase was primarily due to adding our Orlando central pharmacy location in Q4 2021 and continued growth of our other pharmacies. Additionally, volume growth continued to ramp up at existing pharmacy locations, thus increasing pharmacy personnel and supplies, 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 and decreasing the remaining useful life resulting in an increased amortization of $1.0 million
General and Administrative
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 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 SEC, Nasdaq, additional insurance, investor relations and other administrative expenses and professional services.
We have an 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 areis adjusted over the term of the awards to reflect their probability of vesting. All fully vested awards are expensed.
| | | Nine Months Ended September 30, | | 2022 vs. 2021 | | Three Months Ended March 31, | | 2023 vs. 2022 |
| | 2022 | | 2021 | | Amount Change | | % Change | | 2023 | | 2022 | | 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 | $ | 9,699 | | | $ | 8,044 | | | $ | 1,655 | | | 21 | % | Wages and salaries | $ | 2,543 | | | $ | 2,957 | | | $ | (414) | | | (14) | % |
Professional services | Professional services | 2,087 | | | 2,714 | | | (627) | | | (23) | % | Professional services | 919 | | | 591 | | | 328 | | | 55 | % |
Share-based compensation | Share-based compensation | 1,741 | | | 948 | | | 793 | | | 84 | % | Share-based compensation | 618 | | | 569 | | | 49 | | | 9 | % |
Insurance | Insurance | 1,509 | | | 1,357 | | | 152 | | | 11 | % | Insurance | 239 | | | 440 | | | (201) | | | (46) | % |
Software licenses and support | Software licenses and support | 1,132 | | | 785 | | | 347 | | | 44 | % | Software licenses and support | 185 | | | 13 | | | 172 | | | 1323 | % |
Rent, utilities, and other | Rent, utilities, and other | 1,944 | | | 1,895 | | | 49 | | | 3 | % | Rent, utilities, and other | 379 | | | 482 | | | (103) | | | (21) | % |
| Office and IT supplies | Office and IT supplies | 286 | | | 270 | | | 16 | | | 6 | % | Office and IT supplies | 39 | | | 40 | | | (1) | | | (3) | % |
Travel and other employee expenses | Travel and other employee expenses | 212 | | | 566 | | | (354) | | | (63) | % | Travel and other employee expenses | 13 | | | 65 | | | (52) | | | (80) | % |
Depreciation of property, plant and equipment | Depreciation of property, plant and equipment | 119 | | | 154 | | | (35) | | | (23) | % | Depreciation of property, plant and equipment | 25 | | | 33 | | | (8) | | | (24) | % |
Total general and administrative expenses | Total general and administrative expenses | $ | 18,729 | | | $ | 16,733 | | | $ | 1,996 | | | 12 | % | Total general and administrative expenses | $ | 4,960 | | | $ | 5,190 | | | $ | (230) | | | (4) | % |
During the ninethree months ended September 30, 2022,March 31, 2023, general and administrative costs increaseddecreased approximately by $2.0$0.2 million to $18.7$5.0 million compared to that of the same period in 2021. This increase was primarily due to hiring additional administrative staff, increased share-based compensation, as well as other investments necessary for our growth as a public company. Professional services decreased approximately by $0.6 million to $2.1 million compared to that of the same period in 2021.2022. This decrease was primarily due to the reduction in wages and salaries of fees$0.4 million resulting from data warehousing, legala reduced headcount and audit costs.
lower insurance costs of $0.2 million, partially offset by a $0.3 million increase in professional services costs related to our private placement funding and consultant support services within our finance department due to employee turnover.Selling and Marketing
Selling and marketing expenses consist of personnel costs, marketing and advertising 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-clinicin clinic customer account managers, and contractors including bonuses, health plans, and severance.
| | | Nine Months Ended September 30, | | 2022 vs. 2021 | | Three Months Ended March 31, | | 2023 vs. 2022 |
| | 2022 | | 2021 | | Amount Change | | % Change | | 2023 | | 2022 | | 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 | $ | 6,167 | | | $ | 4,411 | | | $ | 1,756 | | | 40 | % | Wages and salaries | $ | 112 | | | $ | 59 | | | $ | 53 | | | 90 | % |
Travel and other employee expenses | Travel and other employee expenses | 286 | | | 242 | | | 44 | | | 18 | % | Travel and other employee expenses | — | | | 41 | | | (41) | | | (100) | % |
Marketing | Marketing | 260 | | | 378 | | | (118) | | | (31) | % | Marketing | 20 | | | — | | | 20 | | | 100 | % |
Other selling and marketing expenses | 25 | | | 25 | | | 0 | | | 0 | % | |
| Total selling and marketing expenses | Total selling and marketing expenses | $ | 6,738 | | | $ | 5,056 | | | $ | 1,682 | | | 33 | % | Total selling and marketing expenses | $ | 132 | | | $ | 100 | | | $ | 32 | | | 32 | % |
During the ninethree months ended September 30, 2022,March 31, 2023, selling and marketing costs increased approximately by $1.7$0.03 million to $6.7$0.1 million compared to that of the same period in 2021.2022. This increase was primarily due to personnel related costs associated with hiring additional Clinic Account Managers (CAMs) which directly support the staffa $0.1 million increase in salaries and patients at the growing number of medical clinics where we are deployed.wages partially offset by a $0.04 million decrease in travel and other employee expenses.
Research and Development
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.
| | | Nine Months Ended September 30, | | 2022 vs. 2021 | | Three Months Ended March 31, | | 2023 vs. 2022 |
| | 2022 | | 2021 | | Amount Change | | % Change | | 2023 | | 2022 | | 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 | $ | 534 | | | $ | 498 | | | $ | 36 | | | 7 | % | Wages and salaries | $ | 171 | | | $ | 191 | | | $ | (20) | | | (10) | % |
Other expenses | Other expenses | 418 | | | 103 | | | 315 | | | 306 | % | Other expenses | 5 | | | 67 | | | (62) | | | (93) | % |
Total research and development expenses | Total research and development expenses | $ | 952 | | | $ | 601 | | | $ | 351 | | | 58 | % | Total research and development expenses | $ | 176 | | | $ | 258 | | | $ | (82) | | | (32) | % |
During the ninethree months ended September 30, 2022,March 31, 2023, research and development costs increased bydecreased approximately $0.4$0.1 million. This increasedecrease was primarily due to ongoingthe completion of prior period product improvement activities, including efforts to integrate our MedPlatform® Enterprises Software with the EPIC pharmacy management system for material and subcontractor costs reflected in other expenses.activities.
Interest Income and Expense
Interest expense consists of accrued interest on outstanding debt and is payable monthly.
| | | Nine Months Ended September 30, | | 2022 vs. 2021 | | Three Months Ended March 31, | | 2023 vs. 2022 |
| | 2022 | | 2021 | | Amount Change | | % Change | | 2023 | | 2022 | | Amount Change | | % Change |
Interest income: | (in thousands) | |
Interest income | $ | 1 | | | $ | 74 | | | $ | (73) | | | (99) | % | |
Total interest income | $ | 1 | | | $ | 74 | | | $ | (73) | | | (99) | % | |
| | | (in thousands) |
Interest expense: | Interest expense: | | | | | | | | Interest expense: | |
Interest expense | Interest expense | $ | (845) | | | $ | (328) | | | $ | (517) | | | 158 | % | Interest expense | $ | 169 | | | $ | 251 | | | $ | (82) | | | (33) | % |
Total interest expense | Total interest expense | $ | (845) | | | $ | (328) | | | $ | (517) | | | 158 | % | Total interest expense | $ | 169 | | | $ | 251 | | | $ | (82) | | | (33) | % |
During the ninethree months ended September 30, 2022,March 31, 2023, interest expense increaseddecreased $0.1 million compared to the same period in 20212022, due to a decrease in outstanding debt during the Company entering into a term loan in June 2021. The interest rate on the term loan was 10.25% on September 30, 2022,3 months ended March 31, 2023, as compared to 7.25% on September 30, 2021. For more detail onthe same period in the prior year. Total outstanding debt and associated maturities, see Note 8principal was $2.0 million as of March 31, 2023, as compared to the unaudited condensed consolidated financial statements presented elsewhere in this Quarterly Report on Form 10-Q.
$10.0 million as of March 31, 2022.
Liquidity and Capital Resources
Sources of Liquidity
Since inception through September 30, 2022,March 31, 2023, our operations have been financed primarily by net cash proceeds from the sale of stock and warrants from private placements, the sale of redeemable preferred stock and debt. As of September 30, 2022,March 31, 2023, we had $27.2$18.8 million in cash and cash equivalents and an accumulated deficit of $228.6$257.0 million. We added
On March 10, 2023, SVB, based in Santa Clara, California, was closed by the California Department of Financial Protection and Innovation, which appointed the FDIC as receiver. On March 10, 2023, the Federal Deposit Insurance Corporation (the “FDIC”) took control of SVB and created the National Bank of Santa Clara to our liquidity resourceshold the deposits of SVB after SVB was unable to continue their operations. SVB’s deposits are insured by the FDIC in 2021 throughamount up to $250 thousand for any depositor and any deposit in excess of this insured amount could be lost. On March 12, 2023, the U.S. Treasury, Federal Reserve, and FDIC announced that SVB depositors will have access to all deposited funds starting March 13, 2023.
On March 9, 2023, we closed a senior secured term loan facility with Silicon Valley Bankprivate placement, or the Loan Agreement,“Offering”, of securities with certain institutional investors pursuant to the terms of a definitive securities purchase agreement. The Offering consists of pre-funded warrants to purchase common stock (the “Pre-Funded Warrants”) issued upon closing at a price of $0.3212 per underlying share and are exercisable into shares of common stock at an exercise price of $0.01 per share, as well as, Series A warrants to purchase common stock an exercise price of $0.385440 per share (the “Series A Warrants”) to be issued following stockholder approval of the Offering. The issuance of the Series A Warrants (including the underlying shares of common stock) and the portion of the Pre-Funded Warrants in excess of 19.99% of the shares of Common Stock outstanding prior to the Offering are subject to approval by the stockholders of MedAvail.
The Pre-Funded Warrant shares are exercisable for an aggregate of up to 49,813,198 shares of common stock, and the Series A Warrants would be exercisable for an aggregate of up to 49,813,198 shares of common stock. Upon close of the transaction MedAvail received gross proceeds from the Offering of approximately $16 million, before deducting offering expenses. The Company intends to use the net proceeds from this offering to fund one-time costs associated with restructuring, repay outstanding debt, and finance MedAvail’s growth initiatives related to its MedCenter technology business.
On February 10, 2022 and March 29, 2023, the Company entered into the First Loan Amendment and Consent, and Letter Agreement, respectively, which provides waivers of any legal action or enforcement of rights and remedies with respect to the specified defaults enumerated therein, on and prior to February 10, 2023 and March 29, 2023. As of the date of this report, we borrowed $10.0 millionare in aggregate initial term loans. compliance with all covenants under the terms of our Loan Agreement.
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 shares. 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.
In June, 2021 we added to our liquidity resources through a senior secured term loan facility with SVB, or the Loan Agreement, pursuant to which we borrowed $10.0 million in aggregate initial term loans. In December 2022, and February 2023, the Company made discretionary principal payments to reduce our senior secured term loan by $5.0 million and $3.0 million, respectively. In conjunction with the $3.0 million principal payment an additional $0.4 million was paid related to required final payments. For more detail on outstanding debt and associated maturities, see Part I, Item I,. Note 8 in this report of our unaudited condensed consolidated financial statements of this Quarterly Report on Form 10-Q and Note 13 and Note 21 in our Annual Financial Statements presented in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC, on April 14, 2023.
As of March 31, 2023, we had approximately $9.8 million on deposit with SVB and $9.7 million on deposit with another financial institution. We do not anticipate a material impact on our financial condition, operations or Loan and Security Agreement with SVB. We continue to monitor the circumstances surrounding SVB. As of the date of this filing we have full access to and control over all our cash and, cash equivalents across all financial institutions.
Management is alsocontinuously 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 relatedIn continued efforts to theaddress negative impacts offrom the COVID-19 pandemiceconomy, and the 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 our supply chain, raisemanagement is looking to others financial strategies such a stock splits and warrant exercise, should market conditions allow. Given our recent private placement and reduction in operating cost due to the disposition of our retail pharmacy services business, management believes there is no substantial doubt about our ability to continue as a going concern within 12 months from the date of issuance of the financial statements. Our plans to address 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 a timely manner or on favorable terms, if at all.
Furthermore, if we issue equity securities to raise additional funds, our existing stockholders may experience dilution, and the new equity securities may have rights, preferences and privileges senior to those of our existing stockholders. Failure to raise capital, however, 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:flows for the three months ended March 31, 2023 and 2022:
| | | Nine Months Ended September 30, | | 2022 vs. 2021 | | Three Months Ended March 31, | | 2022 vs. 2020 |
(In thousands) | (In thousands) | 2022 | | 2021 | | Amount Change | | % Change | (In thousands) | 2023 | | 2022 | | Amount Change | | % Change |
Cash used in operating activities | Cash used in operating activities | $ | (37,283) | | | $ | (28,174) | | | $ | (9,109) | | | 32 | % | Cash used in operating activities | $ | (5,210) | | | $ | (13,264) | | | $ | 8,054 | | | (61) | % |
Cash used in investing activities | Cash used in investing activities | (1,897) | | | (2,269) | | | 372 | | | (16) | % | Cash used in investing activities | (17) | | | (852) | | | 835 | | | (98) | % |
Cash provided by financing activities | 46,963 | | | 8,722 | | | 38,241 | | | 438 | % | |
Cash provided by (used in) financing activities | | Cash provided by (used in) financing activities | 12,579 | | | (23) | | | 12,602 | | | (54791) | % |
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) | % | Net increase (decrease) in cash and cash equivalents, and restricted cash | $ | 7,352 | | | $ | (14,139) | | | $ | 21,491 | | | (152) | % |
Operating Activities
During the ninethree months ended September 30, 2022,March 31, 2023, cash used in operating activities increased by $9.1decreased $8.1 million to $37.3$5.2 million compared to that of the same period in 2021.2022. The increasedecrease in cash used in operating activities was primarily due to an increaseexiting the retail pharmacy business in inventory, accounts receivable,January 2023, with reduced operating expenses from wages and salaries, and costs attributableactivities during the three months ended March 31, 2023, as compared to the launch and growth of our retail pharmacy operationssame period in Arizona, California, Michigan, and Florida, and operating as a public company.the prior year.
Investing Activities
During the ninethree months ended September 30, 2022,March 31, 2023, cash used in investing activities decreased by $0.4$0.8 million to $1.9$0.02 million compared to that of the same period in 2021.2022. The decrease during the three months ended March 31, 2023 was primarily due to aan decrease in investment in property, plant and equipment and intangible software assets associatedas compared to the same prior year period.
Financing Activities
During the three months ended March 31, 2023, cash provided by financing activities increased $12.6 million to compared to the same period in 2022. The increase is primarily due to the $16.0 million of funds received pursuant the Offering of securities with investments in Retail Pharmacy Services Segment.certain institutional investors. This increase of funds was partially offset by a $3.0 million payment on our senior secured term loan with SVB during the three months ended March 31, 2023.
Financing Activities
Cash Flows Related to Discontinued Operations
During
As a result of the nineretail pharmacy services business exit, the Company met the requirements of ASC 205-20 to report the results of the retail pharmacy services business as a discontinued operation. Accordingly, the cash flows from discontinued operations are as noted below and within these condensed consolidated financial statements.
Cash provided by operating activities by the pharmacy services business totaled $3.5 million and $0.1 million for the three months ended September 30,March 31, 2023 and March 31, 2022, cash provided byrespectively. Cash used in investing activities from the pharmacy services business totaled $0.02 million and $0.35 million for the three months ended March 31, 2023 and March 31, 2022, respectively. Cash used in financing activities increased by $38.2from the pharmacy services business totaled $0.03 million to $47.0and $0.02 million compared to thatfor the three months ended March 31, 2023 and March 31, 2022, respectively. Depreciation and amortization expense of the same period in 2021. The increase was primarily due to issuance of common sharespharmacy services business totaled $0.75 million and warrants through a private placement in April 2022 and July 2022, with no similar activity during$0.48 million for the ninethree months ended September 30, 2021, offset by $10.0 million from debt proceeds during the nine months ended September 30, 2021, with no similar activity in the current period.March 31, 2023 and March 31, 2022, respectively.
Critical Accounting Estimates
There were no significant changes
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on our consolidated financial statements and, therefore, we consider these to be our critical accounting estimates. Accordingly, we evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions and conditions. Please refer to Note 4 in the nine months ended September 30, 2022, from those previously disclosedour consolidated financial statements included in Item 8 of our Annual Report on Form 10-K for information about our significant accounting policies, and Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021,2022, filed with the SEC on April 14, 2023.
Critical estimates in applying the Company’s accounting policies
Derivative Warrant Liabilities
The Pre-Funded Warrants and Series A Warrants do not meet the equity classification requirements under ASC 815 - Derivative and Hedging, specifically the Company did not have a sufficient amount of Common Stock available to be issued to settle the warrants upon grant and through March 29, 2022.31, 2023, due to the Nasdaq 19.99% cap that limits the Company's ability to issue Common Stock to settle the Series A Warrants and Pre-funded Warrants. Consequently, the Pre-Funded Warrants and Series A Warrants were classified as liabilities and therefore measured at fair value. The Company uses the Black-Scholes pricing model to estimate fair value of these warrants at issuance and at each exercise and period end date. The key assumptions used in the model are the expected future volatility in the price of the Company’s shares, exercise price of the warrants, risk free rates relative to the expected life of the warrants, and the expected life of the warrants. The impact of changes in key assumptions as described see Part I, Item I, Note 12 in this report of our unaudited condensed consolidated financial statements of this Quarterly Report on Form 10-Q.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see Part II, Item 8, Note 5 of our Annual Report on Form 10-K for the year ended December 31, 2021,2022, filed with the SEC on March 29, 2022,April 14, 2023, and Note 4: "Recent Accounting Pronouncements" in the notes to our unaudited condensed consolidated 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 our disclosure controls and procedures, (asas 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 March 31, 2023, the end of the period covered by this report. Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of the end of such period,March 31, 2023, our disclosure controls and procedures were not effective because of the material weakness in our internal control over financial reporting described below.
In connection with the preparation of our Annual Report on Form 10-K for the year ended December 31, 2022, our management identified the following material weakness in our internal control over financial reporting that caused management to conclude that, as of December 31, 2022, our disclosure controls and procedures were not effective:
•Our initial supporting documentation for certain technical accounting matters did not adequately address the appropriate accounting guidance, which was indicative of a lack of controls relating to our financial reporting process, including the evaluation and analysis of accounting treatment for complex, non-standard transactions.
The material weakness identified in connection with the preparation of our Annual Report on Form 10-K had not been fully remediated as of March 31, 2023.Notwithstanding the material weakness in our internal control over financial reporting as of March 31, 2023, management has concluded that the condensed consolidated financial statements included in this report present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.
Remediation of Material Weakness
We recognize the importance of the control environment. Consequently, we are effective.designing and implementing remediation measures to address the material weakness and enhance our internal control over financial reporting. Management is taking the following actions, which we believe will remediate the material weakness:
•We are designing and implementing additional controls relating to (i) the preparation of initial supporting documentation for certain technical accounting matters in order to adequately address the appropriate accounting guidance, including the evaluation and analysis of accounting treatment for complex, non-standard transactions, and (ii) the engagement of external consultants to provide support and assistance in our evaluation of complex, non-standard transactions.
Changes in Internal Control Over Financial Reporting
There have nothas been any changesno change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2022March 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.The material weakness associated with our financial reporting discussed above did not result in the initiation of remediation activities until after March 31, 2023.
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
The information set forth under the heading “Legal” in Note 10, Commitments and Contingencies, in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference.
Item 1A. Risk Factors
Except as set forth below, there have been no material changes fromto the risk factors disclosed in Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021,2022, or the “20212022 Annual Report",Report, filed with the Securities and Exchange Commission on March 29, 2022.April 14, 2023. The risk factors described in our 20212022 Annual Report, as well as other information set forth in this Quarterly Report on Form 10-Q, could materially adversely affect our business, 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 20212022 Annual Report. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business and the trading price of our securities, particularly in light of the fast-changing nature of the COVID-19 pandemic, containment measures and the related impacts to economic and operating conditions.securities.
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.
WeOn October 31, 2022, we received a deficiency letter from Nasdaq notifying us that for the lastprior 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 havehad 180 calendar days starting on October 31, 2022, or until May 1, 2023, to regain compliance with the Bid Price Rule. On May 2, 2023, Nasdaq informed us of its decision to extend the period for us to regain compliance with the Bid Price Rule by an additional 180 calendar days, or until October 30, 2023. If, at any time before May 1,October 30, 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 continued listing requirements for market value of publicly held shares and all other initial listing standards for Nasdaq. If we meet these requirements, Nasdaq may grant us an additional 180 calendar daysWe intend to regain compliance with the Bid Price Rule and we 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 implementby implementing a reverse stock split but thereof our common stock at a ratio in the range of not less than 1-for-30 and no greater than 1-for-80, with such ratio to be determined in the discretion of our board of directors or a duly authorized committee thereof. Our stockholders will vote on a proposal to approve the reverse stock split at our annual meeting of stockholders scheduled for June 14, 2023. There is no guarantee that athe reverse stock split wouldwill be approved by theour stockholders or that a reverse stock split wouldwill allow us to regain compliance with the Bid Price Rule, and such an actiona reverse stock split could result in an adverse effect on or negatively impact the price of our 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 Nasdaq staff, such appeal would be successful. There can be no assurance that we will maintain compliance with the other requirements for listing our common stock on Nasdaq.
Delisting could adversely affect our ability to raise additional capital through the public or private sale of equity securities, which wouldand could significantly affect the ability of investors to trade our securities, andwhich would negatively affect the value and liquidity of our common stock.
We and our stockholders could be 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 enter into supply, manufacturing, licensing, and collaboration agreements and continue our business as currently conducted;
•we could be in a material breach under agreements we have with third parties, such as the Loan and Security Agreement between us and Silicon Valley Bank;
•the price of our common stock will likely decrease;
•stockholders may be unable to sell or purchase our common stock when they wish to do so;
•the potential 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 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 would likely limit the level of trading activity in the secondary market for our common stock; and
•we would likely lose the active trading market for our common stock, as it may only be traded on one of the over-the-counterover-the counter markets, if at all.
As of the date of this Quarterly Report on Form 10-Q, except for the risk factor described above with respect to the deficiency in connection with the Bid Price Rule, there have been no material changes to the risk factors disclosed in the 2021 Annual Report filed with the Securities and Exchange Commission on March 29, 2022. We may disclose additional changes to such factors or disclose additional factors from time to time in our future filings with the Securities and Exchange Commission.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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.None.
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 | | 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 | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 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 | | 10.1 | | March 14, 2023 |
4.2 | | | | 8-K | | 10.2 | | March 14, 2023 |
4.3 | | | | 8-K | | 10.3 | | March 14, 2023 |
4.4 | | | | 8-K | | 10.4 | | March 14, 2023 |
4.5 | | | | 8-K | | 10.2 | | February 16, 2023 |
4.6 | | | | 8-K | | 10.3 | | February 16, 2023 |
10.1# | | | | 8-K | | 10.1 | | February 10, 2023 |
10.2# | | | | 8-K | | 10.2 | | February 10, 2023 |
10.3 | | First Amendment, Consent and Default Waiver to Loan and Security Agreement dated February 10, 2023, by and among MedAvail Holdings, Inc., MedAvail Pharmacy, Inc., MedAvail, Inc., MedAvail Technologies (US) Inc., MedAvail Technologies, Inc., Silicon Valley Bank, and SVB Innovation Credit Fund VIII, L.P. | | 8-K | | 10.1 | | February 16, 2023 |
10.4 | | | | 8-K | | 10.1 | | April 3, 2023 |
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 10, 2022May 18, 2023 | By: | /s/ Mark Doerr |
| | Mark Doerr |
| | President and Chief Executive Officer and (Principal Executive OfficerOfficer) |
| | |
| By: | /s/ Ramona Seabaugh |
| | Ramona Seabaugh |
| | Chief Financial Officer and (Principal Financial Officerand Accounting Officer) |