10-Q 1 medavail-20230630.htm 10-Q medavail-20230630
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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)
Delaware90-0772394
(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)
(877) 830-0826
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 per shareMDVLThe 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 filerAccelerated filer
Non-accelerated filerSmaller 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 August 8, 2023, there were 1,613,911 shares of the registrant’s common stock outstanding.






MedAvail Holdings, Inc.
Form 10-Q
For the Three and Six Months Ended June 30, 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 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 Risk36
Item 4.Controls and Procedures36
PART II
Item 1.Legal Proceedings37
Item 1A.Risk Factors37
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds38
Item 3.Defaults Upon Senior Securities38
Item 4.Mine Safety Disclosures38
Item 5.Other Information38
Item 6.Exhibits39
Signatures40


2


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 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;
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 any 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. 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 and in our Annual Report on Form 10-K filed
3


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 this 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.

4


PART I
Item 1. Financial Statements
MEDAVAIL HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands)


June 30, 2023December 31, 2022
Assets
Current assets:
Cash and cash equivalents$14,359 $11,444 
Restricted cash676 676 
Accounts receivable292 404 
Inventories10,065 8,817 
Prepaid expenses and other current assets711 2,569 
Current assets from discontinued operations946 4,842 
Total current assets27,049 28,752 
Property, plant and equipment, net732 438 
Intangible assets, net657 451 
Right-of-use assets701 624 
Other assets40 30 
Long-term assets from discontinued operations729 2,837 
Total assets$29,908 $33,132 


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5


MEDAVAIL HOLDINGS, INC.
Condensed Consolidated Balance Sheets (Continued)
(Unaudited)
(in thousands, except share and per share amounts)

June 30, 2023December 31, 2022
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable$796 $818 
Accrued liabilities462 552 
Accrued payroll and benefits832 1,379 
Deferred revenue346 152 
Current portion of lease obligations208 246 
Current liabilities from discontinued operations1,512 2,794 
Total current liabilities4,156 5,941 
Long-term debt, net1,506 4,798 
Long-term portion of lease obligations
550 441 
Long-term liabilities from discontinued operations651 1,128 
Total liabilities6,863 12,308 
Commitments and contingencies (Note 10)
Stockholders' equity:
Common shares ($0.001 par value, 300,000,000 shares authorized, 1,613,870 and 1,603,394 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively) (1)
2 2 
Warrants
35,480 11,148 
Additional paid-in-capital257,318 256,308 
Accumulated other comprehensive loss(6,928)(6,928)
Accumulated deficit(262,827)(239,706)
Total stockholders' equity23,045 20,824 
Total liabilities and stockholders' equity$29,908 $33,132 
(1) Amounts have been adjusted to reflect the one-for-fifty reverse stock split effected July 31, 2023. See Note 1 and Note 14 for additional details.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6


MEDAVAIL HOLDINGS, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(in thousands, except share and per share amounts)


Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Revenue:
Hardware and subscription revenue$127 $289 $431 $454 
Service revenue278 254 594 354 
Total revenue405 543 1,025 808 
Cost of products sold and services:
Hardware cost of products sold131 221 376 301 
Service costs96 115 214 166 
Total cost of products sold and services227 336 590 467 
Other operating expenses:
General and administrative4,365 5,053 9,325 10,488 
Selling and marketing122 55 254 155 
Research and development145 219 321 477 
Total operating expense4,632 5,327 9,900 11,120 
Operating loss(4,454)(5,120)(9,465)(10,779)
Loss on issuance of warrants  (10,424) 
(Loss) gain from change in fair value of warrant liabilities(896) 2,149  
Interest income  1 1 
Interest expense(146)(273)(315)(524)
Loss before income taxes(5,496)(5,393)(18,054)(11,302)
Income tax expense (24) (24)
Net loss and comprehensive loss from continued operations(5,496)(5,417)(18,054)(11,326)
Discontinued operations:
Loss from discontinued operations(295)(6,301)(5,067)(13,414)
Net loss$(5,791)$(11,718)$(23,121)$(24,740)
Basic and diluted net loss per share: (1)
Loss from continued operations$(3.06)$(3.91)$(10.61)$(11.05)
Loss from discontinued operations$(0.16)$(4.54)$(2.98)$(13.09)
Weighted average shares outstanding - basic and diluted (1)
1,798,2451,387,1341,702,3601,024,800
(1) Amounts have been adjusted to reflect the one-for-fifty reverse stock split effected July 31, 2023. See Note 1 and Note 14 for additional details.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7


MEDAVAIL HOLDINGS, INC.
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
(in thousands, except share amounts)

Common Shares (1)
Warrants
Additional Paid-in-Capital (1)
Accumulated DeficitAccumulated Other Comprehensive LossTotal Stockholders' Equity
SharesAmount
Balance at March 31, 20231,609,613 $2 $11,205 $256,926 $(257,036)$(6,928)$4,169 
Net loss— — — — (5,791)— (5,791)
Issuance of common warrant shares through private placement — — 24,275 — — — 24,275 
Shares issued for vested RSUs3,483 — — — — — — 
Issuance of common shares under employee stock purchase plan774 — — 11 — — 11 
Share-based compensation— — — 381 — — 381 
Balance at June 30, 20231,613,870 $2 $35,480 $257,318 $(262,827)$(6,928)$23,045 
Balance at December 31, 2022
1,603,394 $2 $11,148 $256,308 $(239,706)$(6,928)$20,824 
Net loss— — — — (23,121)— (23,121)
Issuance of common warrant shares through private placement — — 24,332 — — — 24,332 
Shares issued for vested RSUs9,702 — — — — — — 
Issuance of common shares under employee stock purchase plan774 — — 11 — — 11 
Share-based compensation— — — 999 — — 999 
Balance at June 30, 20231,613,870 $2 $35,480 $257,318 $(262,827)$(6,928)$23,045 
Balance at March 31, 2022658,178$ $1,373 $217,282 $(205,112)$(6,928)$6,615 
Net loss— — — (11,718)— (11,718)
Issuance of common shares 752,9411 — 37,200 — — 37,201 
Issuance of warrants — 7,503 (7,503)— —  
Issuance of common shares under employee stock purchase plan1,080— — 77 — — 77 
Share-based compensation— — 612 — — 612 
Balance at June 30, 20221,412,199$1 $8,876 $247,668 $(216,830)$(6,928)$32,787 
Balance at December 31, 2021658,041$ $1,373 $216,718 $(192,090)$(6,928)$19,073 
Net loss— — — (24,740)— (24,740)
Issuance of common shares752,9411 — 37,200 — — 37,201 
Issuance of warrants— 7,503 (7,503)— — — 
Issuance of common warrant shares through private placement 137— — — — — — 
Issuance of common shares under employee stock purchase plan1,080— — 77 — — 77 
Share-based compensation— — 1,176 — — 1,176 
Balance at June 30, 20221,412,199$1 $8,876 $247,668 $(216,830)$(6,928)$32,787 
(1) Amounts have been adjusted to reflect the one-for-fifty reverse stock split effected July 31, 2023. See Note 1 and Note 14 for additional details.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.



8


MEDAVAIL HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Six Months Ended June 30,
20232022
Cash flows from operating activities:
Net loss$(23,121)$(24,740)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of property, plant, and equipment729 573 
Amortization of intangible assets68 295 
Amortization of leased assets518 384 
Loss on disposal of net assets from discontinued operations319  
Loss on issuance of warrants10,424  
Gain from change in fair value of warrants(2,149) 
Credit losses on accounts receivable91 59 
Term loan discount amortization and interest accretion on debt146 141 
Share-based compensation expense999 1,176 
Changes in operating assets and liabilities:
Accounts receivable880 (946)
Inventory1,585 (2,380)
Prepaid expenses and other current assets1,952 (1,185)
Accounts payable(868)700 
Accrued liabilities223 166 
Accrued payroll and benefits(1,300)314 
Deferred revenue194 8 
Operating lease liability due to cash payments(279)(279)
Net cash used in operating activities(9,589)(25,714)
Cash flows from investing activities:
Purchase of property, plant and equipment (634)
Return (payment) of security deposits51 (5)
Purchase of intangible assets and other assets(109)(1,087)
Net cash used in investing activities(58)(1,726)
Cash flows from financing activities:
Proceeds from issuance of warrants in private placement15,999 37,201 
Issuance of common shares upon exercise of employee stock purchase plan11 77 
Payment of debt issuance costs(380) 
Repayment of debt(3,000) 
Payments on finance lease obligations
(68)(49)
Net cash provided by financing activities12,562 37,229 
Net increase in cash, cash equivalents and restricted cash2,915 9,789 
Cash, cash equivalents and restricted cash at beginning of period12,120 20,089 
Cash, cash equivalents and restricted cash at end of period$15,035 $29,878 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
9


MEDAVAIL HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows (Continued)
(Unaudited)
(in thousands)
Six Months Ended June 30,
20232022
Supplemental cash flow information:
Cash paid for interest$242 $376 
Supplemental noncash investing and financing activities:
Inventory transferred to property, plant and equipment$ $676 
Purchase of property, plant and equipment in accounts payable$ $62 
Purchases of intangible assets in accounts payable$151 $ 
Fair value of warrant issued upon closing of private placement$ $7,503 
Reclassification of warrants from liability to equity classified$24,332 $ 
Lease liabilities arising from obtaining right of use assets:
Operating leases$ $206 
Finance leases$230 $73 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
10




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, 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 also 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 initiated 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 pharmacies 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 assets purchased by CVS were transferred from the SpotRx pharmacies to nearby CVS pharmacy locations.

Prior to the change in reporting for discontinued operations, the pharmacy services business comprised approximately 97% of the Company’s total revenues for the year ended December 31, 2022, and inventory from SpotRx pharmacies comprised approximately $3.0 million, or 9%, of total consolidated assets as of December 31, 2022. Pharmacy service business assets that were not sold to CVS have been or are expected to be primarily reabsorbed, settled, sold or abandoned. As of March 31, 2023, the Company had substantially completed its exit from the pharmacy 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 condensed consolidated financial statements reflect the results of the pharmacy service business as a discontinued operation for the periods presented. See Note 13 for additional information.

Reverse Stock Split
On June 14, 2023, the stockholders of the Company approved resolutions to amend the Company’s Amended and Restated Certificate of Incorporation to effect a reverse stock split of the Company’s outstanding common stock, par value $0.001 per share, at a specific ratio within a range of 1-for-30 to 1-for-80, with the specific ratio to be determined by the Board of Directors in its sole discretion without further stockholder approval (the “Reverse Stock Split”). On July 14, 2023, the Board of Directors approved a Reverse Stock Split ratio of 1-for-50, such that every 50 shares of the Company’s common stock was combined into one share of common stock, effective at 5:00 p.m. Eastern Time on July 31, 2023. Except as otherwise noted, all references to common stock, preferred stock, restricted stock units, stock options, and warrants and all per share information throughout this Quarterly Report on Form 10-Q have been retroactively adjusted to reflect the Reverse Stock Split.

NOTE 2 - LIQUIDITY
The condensed consolidated financial statements for the three and six months ended June 30, 2023 and as of 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 with certain institutional investors, or the Investors, for the private placement of securities. 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
11



associated with restructuring, repay outstanding debt, and finance its growth initiatives related to its MedCenter technology business. Pursuant to the offering, on March 13, 2023, the Company issued 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 on June 16, 2023, the Company issued 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. See Note 13.

As of June 30, 2023, the Company had $15.0 million in cash and cash equivalents and restricted cash, and an accumulated deficit of $262.8 million. Furthermore, net cash used in operating activities for the six months ended June 30, 2023 and 2022 was $9.6 million and $25.7 million, respectively. Since inception through June 30, 2023, the Company has continually incurred losses from its operations, which have been financed primarily from 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’s ability to continue as a going concern. If substantial doubt does exist, management should determine if there are plans in place which alleviate that doubt. As of December 31, 2021, and through the nine months ended September 30, 2022, the Company had identified substantial doubt as to the Company’s ability to continue as a going concern. As of December 31, 2022, there was no substantial doubt as to the Company's ability to continue as a going concern. During the first quarter of 2023, the Company raised capital in a private placement and reduced 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 Company has sufficient financial resources to continue operations for one year from the date of issuance of these financial statements, with no substantial doubt as to the Company’s ability to continue as a going concern.

NOTE 3 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements as of June 30, 2023, and for the three and six months ended June 30, 2023 and 2022 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, 2022 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, 2022 included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission, or SEC, on April 14, 2023 and retrospectively revised and recast for discontinued operation presentation in the Company's Current Report on Form 8-K filed with the SEC on June 29, 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.

As noted in Note 1, the Company substantially completed its exit from the pharmacy services business as of March 31, 2023. As a result, the Company has reported the operating results of its pharmacy services business in the loss from discontinued operations line in the condensed consolidated statements of operations for all periods presented. In addition, related assets and liabilities were reported as assets of discontinued operations and liabilities of discontinued operations in the condensed consolidated balance sheets for all periods presented. Unless otherwise noted, the discussion within these notes to the condensed consolidated financial statements relates to continuing operations comprised of the pharmacy technology business. See Note 13 for additional information on discontinued operations.

12



NOTE 4 - RECENT ACCOUNTING PRONOUNCEMENTS
Recently Issued Accounting Standards Not Yet Adopted

Fair Value Measurement of Equity Securities Subject to 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. 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.

There was no other recently issued and effective authoritative guidance that is expected to have a material impact on the Company’s 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 - LOSS PER SHARE
Basic 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 loss per share is computed by dividing net income or loss available to common stockholders by the weighted-average number of common shares plus the effect of dilutive potential common shares outstanding during the period.
The following table presents warrants included in weighted average shares outstanding due to their insignificant exercise price, during the period they were outstanding. After these warrants are exercised, the related issued and outstanding common shares are included in weighted average shares outstanding:

SharesIssuance DateExercise Date
386November 18, 2020Outstanding
996,264March 9, 2023Outstanding
During the three and six months ended June 30, 2023 and 2022, there was no dilutive effect from stock options, restricted stock units, or other warrants due to the Company’s net loss position. As of June 30, 2023 and 2022, there were 1.6 million and 94 thousand shares of dilutive common stock, respectively, from underlying outstanding options, RSUs and issued warrants that were not included in the diluted shares calculation because their inclusion would have been antidilutive.

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;
13



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.
As of June 30, 2023 and December 31, 2022, there were no assets and liabilities accounted for at fair value on a reoccurring basis. However,on March 9, 2023, the Company entered into a Securities Purchase Agreement, or 2023 Purchase Agreement, with certain investors. Pursuant to the 2023 Purchase Agreement, the Company agreed to issue Pre-Funded Warrants and Series A Warrants. Consequently, the Company initially identified these warrants as liabilities and measured them at fair value on March 13, 2023, and subsequently remeasured the fair value of these warrant liabilities through June 14, 2023. The Company utilized the Black Scholes valuation methodology to determine the fair value of these warrants. The fair value of these warrants was classified as Level 3 with key Level 3 inputs of exercise price, term, and volatility. Any related loss or gain on the change in fair value of these warrant liabilities was recorded in the "Loss on issuance of warrants" and "(Loss) gain in change in fair value of warrant liabilities" line items within the condensed consolidated statements of operations and comprehensive loss. On June 14, 2023, the Company evaluated these warrant liabilities for equity criteria classification and consequently reclassified these warrant liabilities to equity. See Note 12, for further details regarding the Company's Pre-Funded and Series-A Warrants, the fair value measurement of these Warrants and subsequent equity classification.
The following table presents the changes in the fair value of the Pre-Funded and Series A Warrants during the six months ended June 30, 2023:
(in thousands)Pre-Funded Warrant
Liability
Series-A Warrant
Liability
Loss on Issuance of WarrantsGain from Change in Fair Value of Warrant Liabilities
Measurement at March 13, 2023$15,940 $10,484 $(10,424)$— 
Change in fair value$(996)$(1,153)— 2,149 
Measurement at June 14, 2023$14,944 $9,331 
The Company's carrying amount of cash and cash equivalents and restricted cash approximates fair value.

NOTE 7 - BALANCE SHEET AND OTHER INFORMATION
Restricted Cash
The Company considers cash to be restricted when withdrawal or general use is legally restricted. In 2021 pursuant to a Loan and Security Agreement with Silicon Valley Bank (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. Due to the nature of the deposit, the balance is classified as restricted cash. Restricted cash is included in cash and cash equivalents presented in the condensed consolidated statements of cash flows.
Accounts Receivable
Accounts receivable are primarily comprised of trade receivables presented net of allowance for doubtful accounts when estimable 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 June 30, 2023 and December 31, 2022, based upon its historical collections experience, the Company had no credit risk balances that required the Company to reserve an allowance for doubtful accounts.

Inventories

The following table presents detail of inventory balances:
14



June 30,December 31,
(in thousands)20232022
Inventory:
MedCenter hardware$7,924 $8,154 
Spare parts2,141 663 
Total inventory$10,065 $8,817 
MedCenter hardware recognized in hardware cost of products sold was $103 thousand and $176 thousand during the three months ended June 30, 2023 and 2022, respectively, and $314 thousand and $232 thousand during the six months ended June 30, 2023 and 2022, respectively.

Prepaid Expenses and Other Current Assets

The following table presents prepaid expenses and other current assets balances:
June 30,December 31,
(in thousands)20232022
Prepaid expenses and other current assets:
Prepaid MedCenter inventory$ $1,359 
Prepaid insurance467 921 
Other244 289 
Total prepaid expenses and other current assets$711 $2,569 
Property, Plant and Equipment
The following tables present property, plant and equipment balances:
Estimated useful livesJune 30,December 31,
(in thousands)20232022
Property, plant and equipment:
MedCenter equipment
8 years
$1,530 $1,357 
IT equipment
1 - 3 years
2,002 1,908 
Leasehold improvementslesser of useful life or term of lease316 316 
General plant and equipment
5 - 8 years
376 373 
Office furniture and equipment
5 - 8 years
332 217 
Vehicles
5 years
36 36 
Construction-in-process5 5 
Total historical cost4,597 4,212 
Accumulated depreciation(3,865)(3,774)
Total property, plant and equipment, net$732 $438 
Depreciation expense of property and equipment was $57 thousand and $57 thousand for the three months ended June 30, 2023 and 2022, respectively, and $90 thousand and $117 thousand for the six months ended June 30, 2023 and 2022, respectively. Depreciation expense included in hardware cost of products sold was $2 thousand and $26 thousand for the three months ended June 30, 2023 and 2022, respectively, and $11 thousand and $52 thousand for the six months ended June 30, 2023 and 2022, respectively.

15



Intangible Assets

The following table presents intangible asset balances:
June 30,December 31,
(in thousands)20232022
Gross intangible assets:
Intellectual property$3,857 $3,857 
Software2,337 2,200 
Website and mobile application534 534 
Other123  
Total intangible assets6,851 6,591 
Accumulated amortization:
Intellectual property(3,857)(3,857)
Software(1,801)(1,749)
Website and mobile application(534)(534)
Other(2) 
Total accumulated amortization(6,194)(6,140)
Total intangible assets, net$657 $451 

Amortization expense of intangible assets was $28 thousand and $20 thousand for the three months ended June 30, 2023 and 2022, respectively, and $54 thousand and $22 thousand for the six months ended June 30, 2023 and 2022, respectively, and are included in hardware cost of products sold and general and administrative operating expenses.

Lessee Leases

Balance sheet amounts for lease assets and leases liabilities are as follows:
June 30,December 31,
(in thousands)20232022
Lease Assets:
Operating$499$620
Finance2024
Total lease assets$701$624
Lease liabilities:
Operating:
Current$173 $241 
Long-term382 441 
Finance:
Current35 5 
Long-term168  
Total lease liabilities$758 $687 
16



The following table summarizes the weighted-average remaining lease term and weighted-average discount rate related to the Company’s leases as follows:
June 30,December 31,
20232022
Finance leases:
Weighted-average remaining lease term (years)4.50.5
Weighted-average discount rate11.5 %6.0 %
Operating leases:
Weighted-average remaining lease term (years)3.43.6
Weighted-average discount rate6.1 %7.3 %
Maturities of operating leases liabilities are as follows:
(in thousands)
Remaining period in 2023$135 
2024148 
2025152 
2026157 
202737 
Total operating lease payments629 
Less: present value discount(74)
Total operating leases$555 

Maturities of finance lease liabilities are as follows:
(in thousands)
Remaining period in 2023$29 
202458 
202558 
202658 
202758 
Total finance lease payments261 
Less: imputed interest(58)
Total finance leases$203 

Operating lease expense was $25 thousand and $126 thousand for the three months ended June 30, 2023 and 2022, respectively, and $154 thousand and $256 thousand for the six months ended June 30, 2023 and 2022, respectively.

NOTE 8 - DEBT
The following table presents debt balances:
June 30,December 31,
(in thousands)20232022
Term loan$2,002 $5,182 
Term loan issuance costs, net(496)(384)
Long-term debt, net$1,506 $4,798 
17



Maturities of debt liabilities are as follows:
(in thousands)
Remaining period in 2023$ 
2024668 
20251,000 
2026334 
Total debt$2,002 

Term Loan
The Term loan bears interest at a floating rate equal to the greater of 7.25% or the Prime Rate plus 4.0% (12.25% at June 30, 2023). The term loan matures on April 1, 2026. The remaining principal repayment will commence on May 1, 2024 in equal monthly installments of the outstanding Loan balance through the maturity date.

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 Loan Amendment and Consent also provides that upon the closing of the asset sale, the 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 4 thousand shares of common stock at a per share exercise price of $16.37, with an expiration date of February 10, 2035. Pursuant to the terms of the SVB Warrants, the number of shares and the exercise price were adjusted as of June 16, 2023. 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 June 30, 2023, the Company had approximately $9.7 million on deposit with SVB Successor and $5.3 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.

18



NOTE 9 - INCOME TAXES
The Company incurred minimal income tax expense for the three months ended June 30, 2023 and 2022, due to ongoing losses and minimum state income 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 June 30, 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 future.

NOTE 10 - COMMITMENTS AND CONTINGENCIES
Litigation
The Company is and, from 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 company 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 maximum possible loss or range of loss for pending or threatened matters given that they are at various stages of the litigation process and each case is subject to the inherent uncertainties of litigation. In management’s opinion, based on currently available information, any potential loss resulting from the resolution of these matters is not expected to have a material adverse effect on the Company’s results of operations, financial position, or cash flows.

NOTE 11 - SHARE-BASED COMPENSATION
Share-based Compensation
The following table presents the Company's expense related to share-based compensation, in thousands:
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Share-based compensation $381 $612 $999 $1,176 
Expense remaining to be recognized for unvested option awards from the 2012, 2018, 2020 and 2022 plans as of June 30, 2023, was $1.5 million, which will be recognized on a weighted average basis over the next 2.0 years. Expense remaining to be recognized for unvested RSU awards as of June 30, 2023, was $0.9 million, which will be recognized on a weighted average basis over the next 1.5 years.

The following table presents the Company's outstanding option awards activity during the six months ended June 30, 2023:
(in thousands, except for share and per share amounts)Number of AwardsWeighted Average Exercise PriceWeighted Average Fair ValueWeighted Average Remaining Contractual Life (Years)Aggregate Intrinsic Value
Outstanding, at December 31, 202287,995 $94.64 $57.26 $ 
Granted43,637 15.25 11.66 1 
Exercised/Released    
Expired(62)622.69 372.66  
Forfeited(28,362)95.49 53.27  
Outstanding, end of period, at June 30, 2023103,208 $60.66 $39.03 9.11$ 
Vested and exercisable, at June 30, 2023 37,186 107.53 66.14 8.18 
Vested and unvested exercisable, at June 30, 202337,186 107.53 66.14 8.18 
Vested and expected to vest, at June 30, 2023100,542 61.91 39.79 9.09 
The following table present outstanding RSU awards activity during the six months ended June 30, 2023:

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Number of AwardsWeighted Average Exercise PriceWeighted Average Grant Date Fair ValueWeighted Average Remaining Contractual Life (Years)
Unvested outstanding, at December 31, 202247,531 $ $65.30 — 
Granted $ $ — 
Exercised/Released(9,702)$15.84 $77.02 — 
Cancelled/Forfeited(18,983)$ $62.67 — 
Expired $ $ — 
Unvested outstanding, at June 30, 202318,846 $ $61.99 14.29
Vested outstanding shares at June 30, 2023 $ $ — 

As of June 30, 2023 and December 31, 2022, there was an aggregate of 93 thousand and 46 thousand shares of common stock, respectively, available for grant under the 2020 Plan. As of June 30, 2023 and December 31, 2022, there was an aggregate of 22 thousand and 4 thousand shares of common stock, respectively, available for grant under the 2022 Inducement plan.

NOTE 12 - WARRANTS
The Company effected the Reverse Stock Split on July 31, 2023, pursuant to which every 50 shares of the Company’s common stock was combined into one share. The number of underlying shares and the exercise price of each of the Company’s warrants were proportionately adjusted to give effect to the Reverse Stock Split. The Reverse Stock Split had no effect on the accounting for the Company’s warrants.

2022 Warrants
On March 30, 2022, the Company entered into a Securities Purchase Agreement with certain investors. Pursuant to the Securities Purchase Agreement, the Company agreed to issue and sell in a private placement, or the 2022 Private Placement, up to 942 thousand shares of the Company’s common stock and warrants, or the 2022 Warrants, to purchase up to 470 thousand shares of common stock. The securities were sold at two closings at a price per share of $50.13.

At the first closing on April 4, 2022, the Company sold 75.2 thousand shares of common stock and 2022 Warrants to purchase up to 376 thousand shares of common stock, for gross proceeds of $40.0 million before deducting placement agent commissions and other offering expenses. The 2022 Warrants issued on April 4, 2022 had a fair value of $9.2 million, a 5 year term and a per share exercise price of $62.50. A second and final closing occurred on July 1, 2022, at which the Company sold an additional 188 thousand shares of common stock and 2022 Warrants to purchase up to 94.0 thousand shares of common stock, for gross proceeds of $10.0 million before deducting placement agent commissions and other offering expenses. The 2022 Warrants issued on July 1, 2022 had a fair value of $4.5 million, a 5 year term and a per share exercise price of $62.50.

None of the 2022 Warrants have been exercised or expired as of June 30, 2023 and December 31, 2022. The 2022 Warrants meet equity classification requirements and therefore are classified in our stockholders’ equity.

2023 SVB Warrants
On February 10, 2023, as part of the First Amendment to the Loan and Security Agreement with Silicon Valley Bank ("SVB") (see Note 8), the Company issued warrants, or SVB Warrants, to purchase up to an aggregate of 4 thousand shares of common stock at a per share exercise price of $16.37, with an expiration date of February 10, 2035. The number of shares and the exercise price were subject to adjustment, or the Special Adjustment for Warrant Shares, upon the occurrence of the last closing of the Company’s next equity financing, as set forth in the SVB Warrants.

On March 9, 2023, the Company entered into the 2023 Purchase Agreement, with certain institutional investors, pursuant to which the Company sold securities in a private placement at two closings that constituted the Company’s next equity financing within the meaning of the SVB Warrants. The first closing occurred on March 13, 2023 and the second closing occurred on June 16, 2023. On June 16, 2023, pursuant the Special Adjustment for Warrant Shares, the number of shares of common stock underlying the SVB Warrants increased to 5.4 thousand and the per share exercise price decreased to $10.25.

Upon the grant date, February 10, 2023, the fair value of the SVB Warrants was approximately $57 thousand measured using the Black-Scholes option pricing model. The SVB Warrants met equity classification requirement under ASC 815 - Derivative and Hedging, specifically
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due to the warrants having a limit on the number of shares the Company is required to deliver upon exercise and the warrant not including cash-settled top-off or make-whole provisions, as well as, other conditions. As such, the SVB Warrants met the equity classification requirements and are classified in the Company's stockholders' equity. None of the SVB Warrants have been exercised or expired as of June 30, 2023.

The key input assumptions utilized in the valuation of the SVB Warrants were as follows:
Grant date
Market price$16.00
Exercise price$16.37
Term (Years)12
Volatility85%
Risk Free Rate3.68%

2023 Pre-Funded and Series A Warrants
As noted above, on March 9, 2023, the Company entered into the 2023 Purchase Agreement with certain investors. Pursuant to the 2023 Purchase Agreement, the Company agreed to issue Pre-Funded Warrants and Series A Warrants. On March 13, 2023, at the first closing of the offering, the Company sold at a price of $16.06 per underlying share, Pre-Funded Warrants to purchase up to 996.3 thousand shares of common stock at an exercise price of $0.05 per share for total gross proceeds 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. The number of Pre-Funded Warrants exercisable by investors was limited to 19.99% of the Company’s common stock outstanding immediately prior to the offering pursuant to a listing rule of The Nasdaq Stock Market, which required that the Company obtain stockholder approval of the issuance of shares above this 19.99% cap. The Pre-Funded Warrants were classified as a liability at issuance due to the need for the Company to obtain stockholder approval to settle the instruments in shares.

On March 9, 2023, the Company also agreed to issue Series A Warrants to purchase up to 996.3 thousand shares of common stock with an exercise price of $19.27 per share, which was conditional upon the Company obtaining stockholder approval of the issuance. The Series A Warrants were also classified as a liability as the Company had an irrevocable obligation to obtain stockholder approval of the issuance of the Series A Warrant, and as such did not have sufficient shares to settle the obligation and consequently failed the equity classification requirements pending shareholder approval.

On June 14, 2023, at its annual stockholders’ meeting, the Company obtained the requisite stockholder approval for removal of the exercise cap on the Pre-Funded Warrants and for issuance of the Series A Warrants. The Company issued the Series A Warrants on June 16, 2023.

Upon grant, March 13, 2023, the fair value of the Pre-Funded Warrants and 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. Subsequent to its grant date fair value measurement, and through June 14, 2023, the Company remeasured the warrants at fair value and recognized a gain from change in fair value of warrants on the statement of operations and comprehensive loss. As of June 14, 2023, the fair value of Pre-Funded Warrants and Series A Warrants was $14.9 million and $9.3 million, respectively. For the three and six months ended June 30, 2023, the Company recognized a loss of $0.9 million and gain of $2.1 million in fair value remeasurement of the Pre-Funded Warrants and Series A Warrants, respectively.

Subsequent to the remeasurement of the Pre-Funded Warrants and Series A Warrants, the Company reassessed the liability classification of these warrants due to the Company obtaining on June 14, 2023, stockholder approval for removal of the exercise cap on the Pre-Funded Warrants and for issuance of the Series A Warrants. The Company determined that the Pre-Funded Warrants and Series A Warrants met the equity classification requirements, and the warrants were re-classified from liability to equity as of June 14, 2023.

The fair values of the Pre-Funded Warrants and Series A Warrants were measured using the Black-Scholes option pricing model. As of the grant date and June 14, 2023, the key input assumptions utilized in the valuation of the Pre-funded Warrants were as follows:
Grant dateJune 14, 2023
Market price$16.00$15.00
Exercise price$0.05$0.05
Term (Years)*IDFIDF
Volatility85%82%
Risk Free Rate3.70%3.90%
*Warrant is outstanding until fully exercised; as such, the term was measured as indefinite.

The key input assumptions utilized in the valuation of the Series A Warrants were as follows:
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Grant dateJune 14, 2023
Market price$16.00$15.00
Exercise price$19.27$19.27
Term (Years)54.7
Volatility85%82%
Risk Free Rate3.68%4.10%


NOTE 13 - DISCONTINUED OPERATIONS
As discussed in Note 1 – Nature of Operations – the exit from our pharmacy services business was substantially completed as of March 31, 2023. The pharmacy services business previously was 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 from 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 June 30,Six Months Ended June 30,
(in thousands)2023202220232022
Revenue:
Pharmacy revenue$ $10,641 $3,834 $19,490 
Total revenue 10,641 3,834 19,490 
Cost of products sold and services:
Pharmacy cost of products sold 9,931 3,581 18,412 
Total cost of products sold and services 9,931 3,581 18,412 
Operating expense:
Pharmacy operations157 3,450 1,883 7,170 
General and administrative141 1,242 711 2,560 
Selling and marketing 2,253 845 4,457 
Research and development 63  299 
Total operating expense298 7,008 3,439 14,486 
Operating loss(298)(6,298)(3,186)(13,408)
Loss from sale and disposition of net assets, and reorganization expenses, net  (1,885) 
Interest expense3 (3)4 (6)
Loss from discontinued operations$(295)$(6,301)$(5,067)$(13,414)

Cash used by operating activities by the pharmacy services business totaled $987 thousand and $14.4 million for the six months ended June 30, 2023 and June 30, 2022, respectively. Cash provided by (used in) investing activities from the pharmacy services business totaled $212 thousand and $(428) thousand for the six months ended June 30, 2023 and June 30, 2022, respectively. Cash used in financing activities from the pharmacy services business totaled $47 thousand and $41 thousand for the six months ended June 30, 2023 and June 30, 2022, respectively. Depreciation and amortization expense of the pharmacy services business totaled $895 thousand and $673 thousand for the six months ended June 30, 2023 and June 30, 2022, respectively. The condensed consolidated statements of cash flows included $319 thousand 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.
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The following table summarizes the major classes of assets and liabilities of the retail pharmacy business as reported on the condensed consolidated balance sheets:
(in thousands)June 30, 2023December 31, 2022
Carrying amounts of major classed of assets included as part of discontinued operations:
Accounts receivable, net$946 $1,805 
Prepaid expenses and other current assets 94 
Inventories 2,943 
Total current assets from discontinued operations$946 $4,842 
Intangible assets, net$ $14 
Property plant and equipment, net 1,194 
Right-of-use assets622 1,461 
Other assets107 168 
Total long-term assets from discontinued operations$729 $2,837 
Total long-term assets from discontinued operations
Accounts payable$162 $857 
Accrued liabilities954 641 
Accrued payroll and benefits81 834 
Current portion of lease obligations315 462 
Total current liabilities from discontinued operations$1,512 $2,794 
Long-term portion of lease obligations$651 $1,128 
Total long-term liabilities from discontinued operations$651 $1,128 


NOTE 14 - STOCKHOLDERS' EQUITY
Reverse Stock Split
On June 14, 2023, the stockholders of the Company approved a one-for-fifty reverse stock split of its outstanding shares of common stock. The reverse stock split became effective at 5:00 p.m. Eastern Time on July 31, 2023 (the “Effective Time”). At the Effective Time, every fifty issued and outstanding shares of the Company’s common stock were converted into one share of the Company’s common stock.

The reverse split affected all the stockholders uniformly and did not affect any stockholder’s percentage ownership interests in the Company or proportionate voting power. Each common stockholder held the same percentage of the outstanding common stock immediately following the reverse split as that stockholder did immediately before the reverse split, except for minor adjustments as a result of the treatment of fractional shares.

No fractional shares were issued in connection with the reverse stock split. Stockholders who otherwise would be entitled to receive fractional shares of common stock will be entitled to receive their pro rata portion of the net proceeds obtained from the aggregation and sale by the exchange agent of the fractional shares resulting from the reverse stock split (reduced by any customary brokerage fees, commissions and other expenses). As a result, the number of common shares outstanding was reduced from 80,693,517 immediately before the Effective Time to 1,613,870.

There was no change in the number of authorized shares of the Company's common stock or preferred stock, or to the par value per share of common stock due to the reverse stock split. All per share amounts and common shares outstanding for all periods presented in the unaudited consolidated financial statements have been adjusted retroactively to reflect the Company's one-for-fifty reverse stock split.

After giving effect to the reverse stock split, the total number of shares of all classes of capital stock that the Company was authorized to issue was 310,000,000 shares, 300,000,000 shares of Common Stock, having a par value of $0.001, and 10,000,000 shares of Preferred Stock, having a par value of $0.001.

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NOTE 15 - SUBSEQUENT EVENTS
Reverse Stock Split
On June 14, 2023, the stockholders of the Company approved resolutions to amend the Company’s Amended and Restated Certificate of Incorporation to effect a reverse stock split of the Company’s outstanding common stock, par value of $0.001 per share, at a specific ratio within a range of 1-for-30 to 1-for-80, with the specific ratio to be fixed within this range to be determined by the Board of Directors in its sole discretion without further loss per share approval. On July 14, 2023, the Board of Directors approved a ratio of 1-for-50, such that every 50 shares of the Company’s common stock were combined into one share of its common stock at 5:00 p.m. Eastern Time on July 31, 2023.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our audited historical condensed consolidated financial statements for the year ended December 31, 2022, which are included in the Annual Report on Form 10-K, filed with the Securities and Exchange Commission on April 14, 2023 and retrospectively revised and recast for discontinued operations presentation in the Company's Current Report on Form 8-K filed with the SEC on June 29, 2023, and our unaudited condensed consolidated financial statements and accompanying footnotes for the three months and six months ended June 30, 2023, included in Part I, Item 1., of this Quarterly Report on Form 10-Q.

This quarterly Report on Form 10-Q, including "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains statements that are 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 above 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 our Annual Report on Form 10-K for the year ended December 31, 2022, as noted above. 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 pharmacy technology services company, and 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.
Currently, our primary and only commercialization channel is the direct ‘sell-to’ model, whereby we sell or lease the MedCenter hardware technology and provide recurring, one-time, or on demand services related to the MedCenter 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. Supporting our MedCenter kiosks and Remote Dispensing System is our back-end MedPlatform® Enterprise Software, or the MedPlatform Enterprise Software, which controls dispensing and MedCenter monitoring, and supporting Pharmacy Management System software.
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 had substantially completed our exit from the Pharmacy Services Business.
Prior to Discontinued Operations, 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 operating results, Results of Operations, and Liquidity relate to continuing operations comprised of only our pharmacy technology business for all periods presented.
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Components of Operating Results for the Six Months Ended June 30, 2023

We have never been profitable and have incurred operating losses each year since inception. Our net losses and comprehensive losses from continued operations were $18.1 million and $11.3 million for the six months ended June 30, 2023 and 2022, respectively. Our net losses, inclusive of discontinued operations, totaled $23.1 million and $24.7 million for the six months ended June 30, 2023 and 2022, respectively. As of June 30, 2023, we had an accumulated deficit of $262.8 million. Substantially all of our operating losses resulted from expenses incurred in connection general and administrative costs associated with our operations

We expect to incur additional expenses and operating losses as we continue our technology development, redeployment of our MedCenters and right size expenses necessary to operate as a public company. We expect that our operating losses will decrease and turn positive as we execute our growth strategies and focus on our 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.

As of June 30, 2023, we had cash and cash equivalents of $14.4 million. We will continue to require additional capital to continue our pharmacy technology development and commercialization activities to serve our growing customer base. In April and July 2022, and March 2023, we completed the sale of additional equity through private placement financings, where we raised $40.0 million and $16.0 million in gross proceeds, respectively. Additionally, in June 2021 we added to our liquidity resources through a senior secured term loan with Silicon Valley Bank, or SBV, of $10.0 million, of which we have repaid $8.0 million. As of June 30, 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 June 30, 2023
Revenue
Hardware and Subscription Revenue
We develop and commercialize 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. Hardware and subscription revenue is derived from either sales or subscription leases of the MedCenter to customers.

Service Revenue

Service revenue is derived from recurring subscription revenue from software licensing, platform and software hosting, and software and hardware maintenance; one"-time or on demand service revenue from initial installations, and professional services such as training, pharmacy set-up, and consulting services.

Three Months Ended June 30,2023 vs. 2022
20232022Amount Change% Change
(in thousands)
Hardware and subscription revenue:
Hardware revenue$116 $180 $(64)(36)%
Subscription revenue11 109 (98)(90)%
Total hardware and subscription revenue127 289 (162)(56)%
Service revenue:
Software141 141 86 55 64 %
Maintenance and support69 47 22 47 %
Installation85 71 14 20 %
Professional services and other(17)50 (67)(134)%
Total service revenue278 254 24 %
Total revenue$405 $543 $(138)(25)%
During the three months ended June 30, 2023, hardware and subscription revenue decreased $162 thousand to $127 thousand compared to the same period in 2022. The $162 thousand decrease was comprised of a $64 thousand decrease primarily due to a decrease in MedCenter sales
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whereby one less MedCenter was sold over the same prior year period, and a $98 thousand decrease in subscription lease revenue primarily resulting from a decrease in revenue contracts.
During the three months ended June 30, 2023, service revenue remained flat compared to the same period in 2022.

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.

Three Months Ended June 30,2023 vs. 2022
20232022Amount Change% Change
(in thousands)
Hardware cost of products sold:
Hardware$103 $176 $(73)(41)%
Depreciation28 45 (17)(38)%
Total Hardware cost of products sold131 221 (90)(41)%
Service costs:
Professional services22 (15)(68)%
Maintenance and support services39 48 (9)(19)%
Installation services50 45 11 %
Total service costs96 115 (19)(17)%
Total cost of products sold and services$227 $336 $(109)(32)%
During the three months ended June 30, 2023, hardware cost of products sold decreased $90 thousand to $131 thousand compared to the same period in 2022. The decrease was primarily due to a $73 thousand decrease in hardware costs associated with the decreased number of units sold during the three months ended June 30, 2023 as compared to the same prior year period.
During the three months ended June 30, 2023, service costs were relatively flat as compared to the same prior year period.
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 expenses as a result of being a public company, including expenses related to compliance with the rules and regulations of the Securities and Exchange Commission, or SEC, Nasdaq, additional insurance, investor relations and other administrative expenses and professional services.
We have a stock option 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 is adjusted over the term of the awards to reflect their probability of vesting. All fully vested awards are expensed.
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Three Months Ended June 30,2023 vs. 2022
20232022Amount Change% Change
General and administrative expenses:(in thousands)
Wages and salaries$1,994 $2,539 $(545)(21)%
Professional services675 598 77 13 %
Share-based compensation381 612 (231)(38)%
Insurance291 433 (142)(33)%
Software licenses and support201 252 (51)(20)%
Rent, utilities, and other699 494 205 41 %
Office and IT supplies59 43 16 37 %
Travel and other employee expenses10 50 (40)(80)%
Depreciation of property, plant and equipment55 32 23 72 %
Total general and administrative expenses$4,365 $5,053 $(688)(14)%
During the three months ended June 30, 2023, general and administrative expenses decreased approximately $688 thousand to $4.4 million compared to the same period in 2022. This decrease was primarily due to reduction in wages and salaries of $545 thousand and share-based compensation of $231 thousand resulting from a reduced headcount due to a reduction in force and lower insurance costs of $142 thousand due to a decrease in director and officer insurance premiums, partially offset by a $205 thousand increase in rent, utilities and other primarily due to increased transportation costs related to MedCenter returns.
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, and contractors including bonuses, health plans, and severance.
Three Months Ended June 30,2023 vs. 2022
20232022Amount Change% Change
Selling and marketing expenses:(in thousands)
Wages and salaries$112 $26 $86 331 %
Travel and other employee expenses— 17 (17)(100)%
Marketing10 12 (2)(17)%
Total selling and marketing expenses$122 $55 $67 122 %
During the three months ended June 30, 2023, selling and marketing expenses increased approximately $67 thousand to $122 thousand compared to the same period in 2022. This increase was primarily due to a $86 thousand increase in salaries and wages resulting from additional increase in headcount related to the sales team, in addition to, one time severance expense paid during the quarter related to the a reduction in force, partially offset by a $17 thousand 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.
Three Months Ended June 30,2023 vs. 2022
20232022Amount Change% Change
Research and development expenses:(in thousands)
Wages and salaries$143 $178 $(35)(20)%
Other expenses41 (39)(95)%
Total research and development expenses$145 $219 $(74)(34)%
During the three months ended June 30, 2023, research and development expenses decreased approximately $74 thousand. This decrease was primarily due to a decrease in headcount as a result of outsourcing research and development costs in order to reduce expenses.
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Interest Expense
Interest expense consists of accrued interest on outstanding debt and is payable monthly.
Three Months Ended June 30,2023 vs. 2022
20232022Amount Change% Change
(in thousands)
Interest expense:
Interest expense$146 $273 $(127)(47)%
Total interest expense$146 $273 $(127)(47)%
During the three months ended June 30, 2023, interest expense decreased $127 thousand compared to the same period in 2022, due to a decrease in outstanding debt during the three months ended June 30, 2023, as compared to the same period in the prior year. Total outstanding debt principal was $2.0 million as of June 30, 2023, as compared to $10.1 million as of June 30, 2022.
Results of Operations for the Six Months Ended June 30, 2023
Revenue
Hardware and Subscription Revenue
We develop and commercialize 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. Hardware revenue is derived from either sales or subscription leases of the MedCenter to customers.

Service Revenue

Service revenue is derived from recurring subscription revenue from software licensing, platform and software 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.

Six Months Ended June 30,2023 vs. 2022
20232022Amount Change% Change
(in thousands)
Hardware and subscription revenue:
Hardware revenue$372 $236 $136 58