UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
For
the quarterly period ended
or
For the transition period from________ to_________.
Commission
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| Title of Each Class | Trading Symbol(s) | Name of Each Exchanged on Which Registered | ||
| The
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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
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| ☒ | Smaller reporting company | |||
| Emerging growth company |
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an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
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As of November 11, 2022, shares of the registrant’s common stock, $0.0001 par value, were issued and outstanding.
Motus GI Holdings, Inc. and Subsidiaries
TABLE OF CONTENTS
| i |
PART I — FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Motus GI Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)
| September 30, | December 31, | |||||||
| 2022 | 2021(*) | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Fixed assets, net | ||||||||
| Right-of-use assets | ||||||||
| Other non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Shareholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Operating lease liabilities - current | ||||||||
| Other current liabilities | ||||||||
| Current portion of long-term debt, net of unamortized debt discount of $ | ||||||||
| Total current liabilities | ||||||||
| Contingent royalty obligation | ||||||||
| Operating lease liabilities - non-current | ||||||||
| Convertible note, net of unamortized debt discount of $ | ||||||||
| Long-term debt, net of unamortized debt discount of $ | ||||||||
| Total liabilities | ||||||||
| Commitments and contingent liabilities (Note 9) | ||||||||
| Shareholders’ equity | ||||||||
| Common stock $ par value; shares authorized; and shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
| (*) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 1 |
Motus GI Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Loss
(unaudited, in thousands, except share and per share amounts)
| Three Months Ended September 30, | Nine months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Cost of revenue - sales | ||||||||||||||||
| Cost of revenue - impairment of inventory | ||||||||||||||||
| Research and development | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total costs and expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain (loss) on change in estimated fair value of contingent royalty obligation | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss on extinguishment of debt | ( | ) | ( | ) | ||||||||||||
| Finance expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income | ||||||||||||||||
| Foreign currency gain (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Deemed dividends from warrant issuance | ( | ) | ||||||||||||||
| Net loss attributable to common shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted loss per common share: | ||||||||||||||||
| Net loss attributable to common shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of common shares outstanding, basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 2 |
Motus GI Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Shareholders’ Equity
(unaudited, in thousands, except share and per share amounts)
| Common Stock | Additional paid-in | Accumulated | Total shareholders’ | |||||||||||||||||
| Shares | Amount | capital | deficit | equity | ||||||||||||||||
| Balance at January 1, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Issuance of common shares pursuant to at-the-market registered offering, net of issuance costs of $ | ||||||||||||||||||||
| Issuance of common shares upon vesting of restricted stock units | ||||||||||||||||||||
| Issuance of common stock for board of directors’ compensation | ||||||||||||||||||||
| Share-based compensation | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Issuance of common shares pursuant to at-the-market registered offering, net of issuance costs of $ | ||||||||||||||||||||
| Issuance of common shares upon vesting of restricted stock units | ||||||||||||||||||||
| Share-based compensation | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Issuance of common shares pursuant to at-the-market registered offering, net of issuance costs of $ | ||||||||||||||||||||
| Issuance of common shares upon vesting of restricted stock units | ||||||||||||||||||||
| Fractional shares settled in cash pursuant to reverse stock split | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Share-based compensation | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Common Stock | Additional paid-in | Accumulated | Total shareholders’ | |||||||||||||||||
| Shares | Amount | capital | deficit | equity | ||||||||||||||||
| Balance at January 1, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Issuance of common shares upon vesting of restricted stock units | ||||||||||||||||||||
| Issuance of common shares upon exercise of warrants, net of financing costs of $ | ||||||||||||||||||||
| Issuance of common stock for board of directors’ compensation | ||||||||||||||||||||
| Share based compensation | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Issuance of common shares, net of issuance costs of $ | ||||||||||||||||||||
| Issuance of common shares upon vesting of restricted stock units | ||||||||||||||||||||
| Issuance of common stock for board of directors’ compensation | ||||||||||||||||||||
| Issuance of common stock to consultants | ||||||||||||||||||||
| Share based compensation | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Issuance of warrants associated with convertible note and long-term debt | - | |||||||||||||||||||
| Share based compensation | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 3 |
Motus GI Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(unaudited, in thousands)
| For the Nine months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of debt issuance costs | ||||||||
| Loss on change in estimated fair value of contingent royalty obligation | ||||||||
| Share based compensation | ||||||||
| Issuance of common stock for board of directors’ compensation | ||||||||
| Issuance of common stock for consultants | ||||||||
| Loss on extinguishment of debt | ||||||||
| Impairment of inventory | ||||||||
| Impairment of fixed assets | ||||||||
| Amortization on operating lease right-of-use asset | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ||||||||
| Operating lease liabilities - current and non-current | ( | ) | ( | ) | ||||
| Other current liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of fixed assets | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of common shares | ||||||||
| Fractional shares paid in cash pursuant to reverse stock split | ( | ) | ||||||
| Proceeds from exercise and purchase of warrants | ||||||||
| Borrowings under convertible note and long-term debt | ||||||||
| Repayment of term debt | ( | ) | ||||||
| Payment of debt issuance costs | ( | ) | ||||||
| Equity financing fees | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | ( | ) | ||||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | ||||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
| CASH PAID FOR: | ||||||||
| Interest | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Common stock issued to settle accrued expenses for board of directors’ compensation | $ | $ | ||||||
| Common stock issued for prepaid board of directors’ compensation | $ | $ | ||||||
| Reclassification of inventory to fixed assets | $ | $ | ||||||
| Reclassification of prepaid expenses to fixed assets | $ | $ | ||||||
| Purchase of fixed assets in accounts payable and accrued expenses | $ | $ | ||||||
| Financing costs included in accounts payable and accrued expenses | $ | $ | ||||||
| Warrants issued related to convertible note and long-term debt recorded as debt discount | $ | $ | ||||||
| Accrued end of loan payment recorded as debt discount | $ | $ | ||||||
| Operating lease liabilities arising from obtaining right-of-use assets | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 4 |
Motus GI Holdings, Inc. and Subsidiaries
Notes to the Interim Condensed Consolidated Financial Statements
(unaudited, in thousands, except share and per share amounts)
Note 1 – Description of Business
Motus GI Holdings, Inc. (the “Company”) was incorporated in Delaware, U.S.A. in September 2016. The Company and its subsidiaries, Motus GI Technologies, Ltd. and Motus GI, LLC, are collectively referred to as “Motus GI” or the “Company”.
The Company has developed the Pure-Vu System, a medical device that has been cleared by the U.S. Food and Drug Administration (the “FDA”) to help facilitate the cleansing of a poorly prepared gastrointestinal tract during colonoscopy and to help facilitate upper gastrointestinal (“GI”) endoscopy procedures. The Pure-Vu System has received a CE Mark in the EU for use in colonoscopy. The Pure-Vu System integrates with standard and slim colonoscopes, as well as gastroscopes, to improve visualization during colonoscopy and upper GI procedures while preserving established procedural workflow and techniques. Through irrigation and evacuation of debris, the Pure-Vu System is designed to provide better-quality exams. The Company received 510(k) clearance in February 2022 from the FDA for its Pure-Vu EVS System and recently commenced commercialization of this product.
Note 2 – Basis of Presentation and Going Concern
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the 2021 10-K filed with the SEC on March 29, 2022. The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, the instructions for Form 10-Q and the rules and regulations of the SEC. Accordingly, since they are interim statements, the accompanying condensed consolidated financial statements do not include all of the information and notes required by GAAP for annual financial statements, but reflect all adjustments consisting of normal, recurring adjustments, that are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. Interim results are not necessarily indicative of the results that may be expected for any future periods. The December 31, 2021 balance sheet information was derived from the audited financial statements as of that date.
To date, the Company has generated minimal revenues, experienced negative operating cash flows and has incurred substantial operating losses from its activities. Management expects the Company to continue to generate substantial operating losses and to continue to fund its operations primarily through utilization of its current financial resources, future product sales, and through the issuance of debt or equity. Rising inflation and financial market volatility may adversely impact the Company’s ability to enter into, modify, and negotiate favorable terms and conditions relative to equity and debt financing initiatives. The uncertain financial markets, potential disruptions in supply chains, and changing priorities could also affect the Company’s ability to enter into key agreements. COVID-19 and government measures taken in response have also had an impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as certain medical services and supplies, have spiked, while demand for other goods and services have fallen. The future progression of the outbreak and its longer-term effects on the Company’s business and operations continue to evolve and are still uncertain. The Company and its third-party contract manufacturers, contract research organizations, and clinical sites may also face disruptions in procuring items that are essential to the Company’s research and development activities, including, for example, medical and laboratory supplies, in each case, that are sourced from abroad or for which there are shortages because of ongoing efforts related to the outbreak in certain parts of the world. These disruptions may negatively impact the Company’s sales, its results of operations, financial condition, and liquidity in 2022 and into 2023.
The
Company has financed its operations primarily through sales of equity-related securities. In March 2021, we entered into an Equity Distribution
Agreement (the “Equity Distribution Agreement”) with Oppenheimer & Co. Inc. (“Oppenheimer”), under which
we may offer and sell from time to time common shares having an aggregate offering price of up to $
| 5 |
Net
cash used in operating activities for the nine months ended September 30, 2022 was $
Such conditions raise substantial doubts about the Company’s ability to continue as a going concern. These condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets, carrying amounts or the amount and classification of liabilities that may be required should the Company be unable to continue as a going concern.
Note 3 – Summary of Significant Accounting Policies
Significant Accounting Policies
The significant accounting policies used in preparation of these condensed consolidated financial statements for the nine months ended September 30, 2022 are consistent with those discussed in Note 3 to the consolidated financial statements in the Company’s 2021 Annual Report on Form 10-K. There have been no material changes to the Company’s significant accounting policies during the nine months ended September 30, 2022.
Reverse Stock Split
On July 25, 2022, the Company effected a reverse stock split of its issued and outstanding common stock, par value $0.0001 per share, at a ratio of 1-for-20. Shares of common stock underlying outstanding stock options and other equity instruments convertible into common stock were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased in accordance with the terms of the agreements governing such securities.
Accordingly, all share and per share amounts for all periods presented in the accompanying condensed consolidated financial statements and notes thereto have been retroactively adjusted, where applicable, to reflect the reverse stock split.
Basis of presentation and principles of consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP and include the accounts of the Company and its wholly owned subsidiaries, Motus Ltd., an Israel corporation, which has operations in Tirat Carmel, Israel, and Motus Inc., a Delaware corporation, which has operations in the U.S. All inter-company accounts and transactions have been eliminated in consolidation.
Use of estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Basic loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the year. Diluted loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the year, plus the number of common shares that would have been outstanding if all potentially dilutive ordinary shares had been issued, using the treasury stock method, in accordance with ASC 260-10 “Earnings per Share”. Potentially dilutive common shares were excluded from the calculation of diluted loss per share for all periods presented due to their anti-dilutive effect due to losses in each period.
Net
loss attributable to common stockholders consists of net income or loss, as adjusted for actual and deemed preferred stock dividends
declared, amortized or accumulated. The Company recorded a deemed dividend for the issuance of warrants during the three and nine months
ended September 30, 2021 of $
| 6 |
Income taxes
The Company provides for income taxes using the asset and liability approach. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. As of September 30, 2022 and December 31, 2021, the Company had a full valuation allowance against its deferred tax assets.
For the three and nine months ended September 30, 2022 and 2021, the Company recorded zero income tax expense. No tax benefit has been recorded in relation to the pre-tax loss for the three and nine months ended September 30, 2022 and 2021, due to a full valuation allowance to offset any deferred tax asset related to net operating loss carry forwards attributable to the losses.
New Accounting Pronouncements- Recently Adopted
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modification or Exchanges of Freestanding Equity-Classified Written Call Options, which clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options due to a lack of explicit guidance in the FASB Codification. ASU 2021-04 provides guidance on modifications or exchanges of freestanding equity-classified written call options that are not within the scope of another Topic. Entities should treat a modification of the terms or conditions, or an exchange of a freestanding equity-classified written call option that remains equity-classified after modification or exchange, as an exchange of the original instrument for a new instrument. ASU 2021-04 provides further guidance on measuring the effect of such modifications or exchanges, and also provides guidance on the recognition of such modifications or exchanges on the basis of the substance of the transaction, in the same manner as if cash had been paid as consideration. ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021. The Company adopted this ASU on January 1, 2022, prospectively to modifications that occurred after the date of initial application. The adoption of this ASU did not result in a material impact to the condensed consolidated financial statements and disclosures.
Accounting Pronouncements- Not Yet Adopted
In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This guidance simplifies the accounting for convertible instruments primarily by eliminating the existing cash conversion and beneficial conversion models within Subtopic 470-20, which will result in fewer embedded conversion options being accounted for separately from the debt host. The guidance also amends and simplifies the calculation of earnings per share relating to convertible instruments. This guidance is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, using either a full or modified retrospective approach. The Company is currently evaluating the impact of the provisions of this guidance on our consolidated financial statements.
In September 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses” to improve information on credit losses for financial assets and net investment in leases that are not accounted for at fair value through net income. ASU 2016-13 replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. In April 2019 and May 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments” and ASU No. 2019-05, “Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief” which provided additional implementation guidance on the previously issued ASU. In November 2019, the FASB issued ASU 2019-10, “Financial Instruments - Credit Loss (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842),” which defers the effective date for the Company to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company will continue to evaluate the effect of adopting ASU 2016-13 on the Company’s financial statements and disclosures.
| 7 |
Note 4 –Fair Value Measurements
Liabilities measured and recorded at fair value on a recurring basis consisted of the following at September 30, 2022 and December 31, 2021:
| September 30, 2022 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Fair Value | |||||||||||||
| Liabilities | ||||||||||||||||
| Contingent royalty obligation | $ | $ | $ | $ | ||||||||||||
| December 31, 2021 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Fair Value | |||||||||||||
| Liabilities | ||||||||||||||||
| Contingent royalty obligation | $ | $ | $ | $ | ||||||||||||
Financial instruments with carrying values approximating fair value include cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses, and certain other current liabilities, due to their short-term nature.
In estimating the fair value of the Company’s contingent royalty obligation (see Note 9), the Company used the discounted cash flow method as of September 30, 2022 and December 31, 2021. Based on the fair value hierarchy, the Company classified contingent royalty obligation within Level 3 because valuation inputs are based on projected revenues discounted to a present value.
Changes in the fair value of recurring fair value measurements using significant unobservable inputs (Level 3), which solely consisted of a contingent royalty obligation, during the nine months ended September 30, 2022 was as follows:
Fair Value Measurements of Contingent Royalty Obligation (Level 3) | ||||
| Balance at December 31, 2021 | $ | |||
| Change in estimated fair value of contingent royalty obligation | ||||
| Balance at September 30, 2022 | $ | |||
The
contingent royalty obligation is re-measured at each balance sheet date using several assumptions, including the following: 1) estimated
sales growth, 2) length of product cycle, 3) patent life, 4) discount rate (
In
accordance with ASC-820-10-50-2(g), the Company performed a sensitivity analysis of the liability, which was classified as a Level 3
financial instrument.
Note 5 – Inventory
Inventory
is stated at lower of cost or net realizable value using the weighted average cost method and is evaluated at least annually for impairment.
Write-downs for potentially obsolete or excess inventory are made based on management’s analysis of inventory levels, historical
obsolescence and future sales forecasts. For the three and nine months ended, September 30, 2022, an inventory impairment of $
| 8 |
Inventory at September 30, 2022 and December 31, 2021 consisted of the following:
September 30, 2022 | December 31, 2021 | |||||||
| Raw materials | $ | $ | ||||||
| Work-in-process | ||||||||
| Finished goods | ||||||||
| Inventory reserve | ( | ) | ( | ) | ||||
| Inventory, net | $ | $ | ||||||
Note 6 – Fixed assets, net
Fixed assets, summarized by major category, consist of the following for the years ended:
September 30, 2022 | December 31, 2021 | |||||||
| Office equipment | $ | $ | ||||||
| Computers and software | ||||||||
| Machinery | ||||||||
| Lab and medical equipment | ||||||||
| Leasehold improvements | ||||||||
| Total | ||||||||
| Less: accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Fixed assets, net | $ | $ | ||||||
Depreciation
and amortization expense for the three and nine months ended September 30, 2022 was $
Note 7 – Leases
The
Company leases an office in Fort Lauderdale, Florida under an operating lease.
The
Company leases an office in Israel under an operating lease.
The Company leases vehicles under operating leases that expire at various dates through 2024.
Many
of these leases provide for payment by the Company, as the lessee, of taxes, insurance premiums, costs of maintenance and other costs
which are expenses as incurred.
The components of lease cost and supplemental balance sheet information for the Company’s lease portfolio were as follows:
Three Months ended September 30, | Nine Months ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Lease Cost | ||||||||||||||||
| Operating lease cost, net of related party license fee | $ | $ | $ | $ | ||||||||||||
| Variable lease cost | ||||||||||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||
| 9 |
As of September 30, | As of December 31, | |||||||
| 2022 | 2021 | |||||||
| Assets | ||||||||
| Operating lease, right-of-use-asset | $ | $ | ||||||
| Liabilities | ||||||||
| Current | ||||||||
| Operating lease liabilities | $ | $ | ||||||
| Non-current | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Total lease liabilities | $ | $ | ||||||
| Other information: | ||||||||
| Weighted average remaining lease term - operating leases | ||||||||
| Weighted-average discount rate - operating leases | % | % | ||||||
The
Company records operating lease payments to lease expense using the straight-line method. The Company’s lease expense was $
Note 8 – Convertible Note and Long-Term Debt
On
July 16, 2021 (the “Effective Date”), the Company entered into a loan facility (the “Kreos Loan Agreement”) with
Kreos Capital VI (Expert Fund) LP (the “Lender”). Under the Kreos Loan Agreement, the Lender will provide the Company with
access to term loans in an aggregate principal amount of up to $
The
Convertible Note and Tranche B were funded on the Effective Date. As of December 31, 2021,
the Company drew down the full $
The
Convertible Note requires forty-eight monthly interest only payments at
| 10 |
In
connection with the Kreos Loan Agreement, the Company also issued to the Lender a warrant (“Warrant”), dated July 16, 2021,
to purchase up to
The
Company treated Tranche A, Tranche B and Tranche C, and the Warrant as three separate freestanding financial instruments with the proceeds
received in connection with the transaction allocated amongst the instruments based on relative fair value. The proceeds received in
connection with the transaction allocated amongst the instruments based on relative fair value resulted in $
For the nine months ended September 30, 2022, interest expense for the Loan was as follows:
| Contractual interest expense | $ | |||
| Amortization of debt issuance costs | ||||
| Total interest expense | $ |
For the three months ended September 30, 2022, interest expense for the Loan was as follows:
| Contractual interest expense | $ | |||
| Amortization of debt issuance costs | ||||
| Total interest expense | $ |
Future principal payments under the Convertible Note as of September 30, 2022 are as follows:
| Years Ending December 31, | Amount | |||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Total future principal payments | ||||
| Less unamortized debt issuance costs | ( | ) | ||
| Total balance | $ | |||
| 11 |
Future principal payments under the Long-term Debt as of September 30, 2022 are as follows:
| Years Ending December 31, | Amount | |||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Total future principal payments | ||||
| End of loan payments | ||||
| Less unamortized debt issuance costs | ( | ) | ||
| Total term-debt balance | $ | |||
| Less current portion of long-term debt | ( | ) | ||
| Total long-term debt | $ | |||
Note 9 – Commitments and Contingencies
Royalties to the IIA
The
Company has received grants from the Government of the State of Israel through the Israeli National Authority for Technical Innovation
(the “IIA”) for the financing of a portion of its research and development expenditures. The total amount that was received
and recorded between the periods ending December 31, 2011 through 2016 was $
Repayment of the grants is contingent upon the successful completion of the Company’s R&D programs and generating sales. The Company has no obligation to repay these grants if the R&D program fails, is unsuccessful, or aborted, or if no sales are generated. The Company has recorded an immaterial expense for the three and nine months ended September 30, 2022 and 2021, and an immaterial liability as of September 30, 2022 and December 31, 2021.
Royalty Payment Rights on Royalty Payment Rights Certificates
The
Company filed a Certificate of Designation of Preferences, Rights and Limitations (the “Certificate of Designation”), establishing
the rights and preferences of the holders of the Series A Convertible Preferred Stock, including certain directors and officers of the
Company (the “Royalty Payment Rights”). As set forth in the Certificate of Designation,
| ● | |
| ● |
In
addition, in connection with completion of the 2017 Private Placement, the Company issued the placement agent royalty payment rights
certificates (the “Placement Agent Royalty Payment Rights Certificates”) which grants the placement agent, and its designees,
the right to receive, in the aggregate,
| 12 |
The Royalty Payment Rights Certificate obligation and Placement Agent Royalty Payment Rights Certificate obligation (the “Contingent Royalty Obligation”) was recorded as a liability at fair value as “Contingent royalty obligation” in the consolidated balance sheets as of September 30, 2022 and December 31, 2021 (see Contingent Royalty Obligation below). The fair value at inception was allocated to the royalty rights and the residual value was allocated to the preferred shares and recorded as equity.
The Company amended its Certificate of Designation to modify the Royalty Payment Rights when the Company consummated its Initial Public Offering (“IPO”) on February 16, 2018, at which time the Company converted the Series A Convertible Preferred Stock into shares of the Company’s common stock and issued the Royalty Payment Rights Certificates. Pursuant to the terms of the Royalty Payment Rights Certificates, if and when the Company generates sales of the current and potential future versions of the Pure-Vu System, including disposables, parts, and services, or if the Company receives any proceeds from the licensing of the current and potential future versions of the Pure-Vu System, then the Company will pay to the holders of the Royalty Payment Rights Certificates a royalty (the “Royalty Amount”) equal to, in the aggregate, in royalty payments in any calendar year for all products:
| ● | |
| ● |
| * | Notwithstanding
the foregoing, with respect to Net Sales based Royalty Amounts, (a) no Net Sales based Royalty Amount shall begin to accrue or become
payable until the Company has first generated, in the aggregate, since its inception, Net Sales equal to $ |
| ** | Notwithstanding
the foregoing, with respect to Licensing Proceeds based Royalty Amounts, (a) no Licensing Proceeds based Royalty Amount shall begin
to accrue or become payable until the Company has first generated, in the aggregate, since its inception, Licensing Proceeds equal
to $ |
The Royalty Amount will be payable up to the later of (i) the latest expiration date of the Company’s patents issued as of December 22, 2016, or (ii) the latest expiration date of any pending patents as of December 22, 2016 that have since been issued or may be issued in the future (which is currently March 2037). Following the expiration of all such patents, the holders of the Royalty Payment Rights Certificates and the holders of the Placement Agent Royalty Payment Rights Certificates will no longer be entitled to any further royalties for any period following the latest to occur of such patent expiration.
On February 16, 2018, the date of the closing of the IPO, (1) the amendment to the Certificate of Designation became effective, (2) all outstanding shares of Series A Convertible Preferred Stock were converted into shares of the Company’s common stock pursuant to a mandatory conversion, and (3) the Royalty Payment Rights Certificates were issued to the former holders of the Series A Convertible Preferred Stock.
Contingent Royalty Obligation
The
Contingent Royalty Obligation was recorded as a non-current liability at fair value in the condensed consolidated balance sheets at September
30, 2022 and December 31, 2021 in the amount of $
| 13 |
Manufacturing Component Purchase Obligations
The
Company utilizes two outsourcing partners to manufacture its workstation and disposable portions of the Pure-Vu System, and to perform
final assembly and testing of finished products. These outsourcing partners acquire components and build product based on demand information
supplied by the Company. As of September 30, 2022, the Company expects to pay $
Other Commitments and Contingencies
The
Company has a severance contingency for severance payments to its CEO, COO, and CFO in the aggregate of $
Note 10 – Related Party Transactions
Shared Space Agreement
In
January 2020, the Company entered into a license agreement (the “Shared Space Agreement”) with Orchestra BioMed, Inc. (OBIO),
formerly a greater than holder of the Company’s common stock and entity in which David Hochman, the Chairman of the Company’s
board of directors, serves as the Chairman of the board of directors and Chief Executive Officer, and Darren Sherman, a member of the
Company’s board of directors, serves as a director and as President and Chief Operating Officer. Pursuant to the Shared Space Agreement,
the Company granted a license to OBIO for the use of portions of the office space not being used by the Company in the Company’s
leased facility in Fort Lauderdale, Florida (the “Premises”), and a proportionate share of common areas of such Premises,
which previously covered approximately 35% of the Premises and was to expand incrementally to approximately 60 to 70% of the Premises
by September 2024. In May 2022, the Company entered into an amendment to the Shared Space Agreement. Pursuant to the amendment, the area
covered by the Shared Space Agreement was expanded to 95% of the premises and the aggregate license fees will generally range from approximately
$
Three Months ended September 30, | Nine Months ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
For the nine and three months ended September 30, 2022, the Company recorded $ and $, respectively, for share-based compensation expense related to stock options. For the three and nine months ended September 30, 2021, the Company recorded $ and $, respectively, for share-based compensation expense related to stock options.
As of September 30, 2022, unamortized share- based compensation for stock options was $, with a weighted-average recognition period of years.
For the three and nine months ended September 30, 2022, the Company recorded $ and $, respectively, for share-based compensation expense related to warrants. For the three and nine months ended September 30, 2021, the Company recorded $ and $, respectively, for share-based compensation expense related to warrants.
| 14 |
For the three and nine months ended September 30, 2022, the Company recorded $ and $, respectively, for share-based compensation expense related to restricted stock units. For the three and nine months ended September 30, 2021, the Company recorded $ and $, respectively, for share-based compensation expense related to restricted stock units.
As
of September 30, 2022, unamortized stock compensation for restricted stock units was $
Stock option and warrant activity
A summary of the Company’s stock option and warrant activity is as follows:
Shares Underlying Options | Weighted Average Exercise Price | Shares Underlying Warrants | Weighted Average Exercise Price | |||||||||||||
| Outstanding at December 31, 2021 | $ | $ | ||||||||||||||
| Granted | $ | $ | ||||||||||||||
| Expired | ( | ) | $ | ( | ) | $ | ||||||||||
| Cancelled | $ | ( | ) | $ | ||||||||||||
| Forfeited | ( | ) | $ | $ | ||||||||||||
| Outstanding at September 30, 2022 | $ | $ | ||||||||||||||
| Exercisable at September 30, 2022 | $ | $ | ||||||||||||||
Restricted Stock Units
| Number of Shares | Weighted Average Grant Date Fair Value | |||||||
| Nonvested at December 31, 2021 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Nonvested at September 30, 2022 | $ | |||||||
As of December 31, 2021, there were vested and unissued restricted stock units. These restricted stock units were issued as common stock during the nine months ended September 30, 2022.
Issuance of Common Stock
On
January 5, 2022, non-employee members of the Board of Directors were granted an aggregate of shares of fully-vested common stock
with a fair value of $ per share of common stock, as compensation, in lieu of $
Issuance of Warrants to Purchase Common Stock
In
February 2020, the Company entered into a services agreement whereby it agreed to issue warrants to purchase
| 15 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes and the other financial information included elsewhere in this Quarterly Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Quarterly Report, particularly those under “Risk Factors.”
All share amounts presented in this Item 2 give effect to the 1-for-20 reverse stock split of our outstanding shares of common stock, par value $0.0001 per share (“common stock”), that occurred on July 25, 2022.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “can,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “seek,” “estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,” “intend,” “target,” “potential” and other similar words and expressions of the future.
There are a number of important factors that could cause the actual results to differ materially from those expressed in any forward-looking statement made by us. These factors include, but are not limited to:
| ● | our limited operating history; | |
| ● | our history of operating losses in each year since inception and expectation that we will continue to incur operating losses for the foreseeable future; | |
| ● | our current and future capital requirements to support our development and commercialization efforts for the Pure-Vu System and our ability to satisfy our capital needs; | |
| ● | our ability to remain compliant with the requirements of The Nasdaq Capital Market for continued listing; | |
| ● | our dependence on the Pure-Vu System, our sole product; | |
| ● | our ability to commercialize the Pure-Vu System; | |
| ● | our Pure-Vu System and the procedure to cleanse the colon in preparation for colonoscopy are not currently separately reimbursable through private or governmental third-party payors; | |
| ● | our ability to obtain approval or certification from regulatory or other competent entities in different jurisdictions for the Pure-Vu System; | |
| ● | our dependence on third-parties to manufacture the Pure-Vu System; | |
| ● | our ability to maintain or protect the validity of our patents and other intellectual property; | |
| ● | our ability to retain key executives and medical and science personnel; | |
| ● | our ability to internally develop new inventions and intellectual property; | |
| ● | interpretations of current laws and the passages of future laws; | |
| ● | acceptance of our business model by investors; |
| 16 |
| ● | the accuracy of our estimates regarding expenses and capital requirements | |
| ● | our ability to adequately support growth | |
| ● | our ability to project the hospital medical device environment considering the impact of COVID-19, which continues to evolve; and | |
| ● | our ability to predict the financial impact of inflation on costs such as labor, freight and materials |
The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipated in our forward-looking statements. Please see “Part II—Item 1A—Risk Factors” for additional risks which could adversely impact our business and financial performance.
All forward-looking statements are expressly qualified in their entirety by this cautionary notice. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this report or the date of the document incorporated by reference into this report. We have no obligation, and expressly disclaim any obligation, to update, revise or correct any of the forward-looking statements, whether as a result of new information, future events or otherwise. We have expressed our expectations, beliefs and projections in good faith and we believe they have a reasonable basis. However, we cannot assure you that our expectations, beliefs or projections will result or be achieved or accomplished.
Overview
We have developed the Pure-Vu System, a medical device that has been cleared by the U.S. Food and Drug Administration (the “FDA”) to help facilitate the cleansing of a poorly prepared gastrointestinal tract during colonoscopy and to help facilitate upper gastrointestinal (“GI”) endoscopy procedures. The Pure-Vu System is also CE marked in the European Economic Area (EEA) for use in colonoscopy. The Pure-Vu System integrates with standard and slim colonoscopes, as well as gastroscopes, to improve visualization during colonoscopy and upper GI procedures while preserving established procedural workflow and techniques. Through irrigation and evacuation of debris, the Pure-Vu System is designed to provide better-quality exams. Challenges exist for inpatient colonoscopy and endoscopy, particularly for patients who are elderly, with comorbidities, or active bleeds, where the ability to visualize, diagnose and treat is often compromised due to debris, including fecal matter, blood, or blood clots. We believe this is especially true in high acuity patients, like GI bleeding where the existence of blood and blood clots can impair a physician’s view and removing them can be critical in allowing a physician the ability to identify and treat the source of bleeding on a timely basis. We believe use of the Pure-Vu System may lead to positive outcomes and lower costs for hospitals by safely and quickly improving visualization of the colon and upper GI tract, potentially enabling effective diagnosis and treatment without delay. In multiple clinical studies to date, involving the treatment of challenging inpatient and outpatient cases, the Pure-Vu System has consistently helped achieve adequate bowel cleanliness rates greater than 95% following a reduced prep regimen. We also believe that the technology may be useful in the future as a tool to help reduce user dependency on conventional pre-procedural bowel prep regimens. Based on our review and analysis of 2019 market data and 2021 projections for the U.S. and Europe, as obtained from iData Research Inc., we believe that during 2021 approximately 1.5 million inpatient colonoscopy procedures were performed in the U.S. and approximately 4.8 million worldwide. Upper GI bleeds occurred in the U.S. at a rate of approximately 400,000 cases per year in 2019, according to iData Research Inc. The Pure-Vu System has been assigned an ICD-10 code in the US. The system does not currently have unique codes with any private or governmental third-party payors in any other country or for any other use; however, we intend to pursue reimbursement activities in the future, particularly in the outpatient colonoscopy market. We received 510(k) clearance in February 2022 from the FDA for our Pure-Vu EVS System and recently commenced commercialization of this product.
Recent Developments
On October 24, 2022, the Company announced that three abstracts featuring positive clinical data from the feasibility and efficacy study of the Pure-Vu EVS conducted by the Minneapolis VA Health Care System were presented in poster sessions at the ACG’s 2022 Annual Scientific Meeting. The posters presented the results of using the Pure-Vu EVS System on inpatient colonoscopies performed at an ICU bedside, and also featured a case study utilizing the Pure-Vu EVS System during inpatient colonoscopies for patients with a left ventricular assist device.
| 17 |
On October 6, 2022, the Company announced that it has been granted a new patent for methods embodied by its Pure-Vu® System by the USPTO. The new patent covers methods for clearing of fecal matter comprised of particles of various sizes and compositions from the wall of a colon or other body lumen for diagnostic inspection. These methods are further adapted for application in patients who have undergone a restricted scope of preparation to reduce and/or remediate the particle structure of colon contents, or no preparation prior to a colonoscopy.
On September 29, 2022, the Company announced that it has officially been recognized as a sole source provider and small business by the Veterans Health Administration (VHA). The VHA is the largest integrated health care system in the U.S., and provides care to over nine million veterans. The special designation will provide the Company with direct access to the VHA’s procurement arm, thereby streamlining the purchasing and contracting process.
Financial Operations Overview
We have generated limited revenues to date from the sale of products. We have never been profitable and have incurred significant net losses each year since our inception, including a loss of $14.9 million for the nine months ended September 30, 2022, and we expect to continue to incur net operating losses for the foreseeable future. As of September 30, 2022, we had $13.3 million in cash and cash equivalents and an accumulated deficit of $137.7 million. We expect our expenses to increase in connection with our ongoing activities to commercialize and market the Pure-Vu System, including additional expenditures in sales and marketing personnel, clinical affairs and manufacturing. Accordingly, we will need additional financing to support our continuing operations. We will seek to fund our operations through public or private equity or debt financings or other sources, which may include collaborations with third parties and evaluating other strategic alternative transactions. The sale of equity and convertible debt securities may result in dilution to our shareholders and certain of those securities may have rights senior to those of our common shares. If we raise additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these securities or other debt could contain covenants that would restrict our operations. Any other third party funding arrangement could require us to relinquish valuable rights. The source, timing and availability of any future financing will depend principally upon market conditions, and, more specifically, on the progress of our product and clinical development programs as well as commercial activities. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We will need to generate significant revenues to achieve profitability, and we may never do so. Additionally, the effects of inflation on costs such as labor, freight and materials as well as the ongoing volatility in the financial markets may negatively affect the financial performance and the liquidity of the business. Furthermore, the potential impact of COVID-19 on the operation of our business, related to possible travel advisories and restrictions and production delays, are highly uncertain and cannot be predicted.
We expect to continue to incur significant expenses and increasing operating losses for at least the next several years as we continue to expand our commercial launch. We expect our expenses will increase in connection with our ongoing activities, as we:
| ● | continue to expand commercialization; | |
| ● | scale manufacturing with our contracted partners for both the workstation and disposable portions of the Pure-Vu System; | |
| ● | develop future generations of the Pure-Vu System to improve user interface, optimize handling and reduce the cost structure; | |
| ● | raise sufficient funds to effectuate our business plan, including commercialization activities and reimbursement efforts related to our Pure-Vu System and our research and development activities, including clinical and regulatory development, and the continued development and enhancement of our Pure-Vu System; and | |
| ● | operate as a public company. |
| 18 |
Critical Accounting Policies and Estimates
Our accounting policies are essential to understanding and interpreting the financial results reported on the condensed consolidated financial statements. The significant accounting policies used in the preparation of our condensed consolidated financial statements are summarized in Note 3 to the consolidated financial statements and notes thereto found in our Annual Report on Form 10-K for the year ended December 31, 2021. Certain of those policies are considered to be particularly important to the presentation of our financial results because they require us to make difficult, complex or subjective judgments, often as a result of matters that are inherently uncertain.
During the nine months ended September 30, 2022, there were no material changes to matters discussed under the heading “Critical Accounting Policies and Significant Judgement and Estimates” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Results of Operations
Comparison of Three Months Ended September 30, 2022 and 2021
Revenue
Revenue totaled $278.0 thousand for the three months ended September 30, 2022, compared to $141.0 thousand for the three months ended September 30, 2021. The $137.0 thousand increase was attributed to sales of the new EVS product recently launched.
Cost of Revenue
Cost of revenue for the three months ended September 30, 2022 totaled $83.0 thousand, compared to $251.0 thousand for the three months ended September 30, 2021. The decrease of $168.0 thousand was primarily attributed to a decrease of inventory impairment of $186.0 thousand partially offset by an increase of $18.0 thousand for the cost of our system disposable evaluation and commercial units.
Research and Development
Research and development expenses include cash and non-cash expenses relating to the advancement of our development and clinical programs for the Pure-Vu System. We have research and development capabilities in electrical and mechanical engineering with laboratories in our facility in Israel for development and prototyping, and electronics design and testing. We also use consultants and third-party design houses to complement our internal capabilities.
Research and development expenses for the three months ended September 30, 2022 totaled $1.6 million, compared to $1.2 million for the three months ended September 30, 2021. The increase of $0.4 million was primarily attributable to increases of $0.2 million in clinical trial and related costs and $0.2 million in salaries and other personnel related costs.
Sales and Marketing
Sales and marketing expenses include cash and non-cash expenses primarily related to our sales and marketing personnel and infrastructure supporting the commercialization of the second generation Pure-Vu System.
Sales and marketing expenses for the three months ended September 30, 2022 totaled $1.3 million, compared to $0.7 million for the three months ended September 30, 2021. The increase of $0.6 million was primarily attributable to increases of $0.5 million in salaries and other personnel related costs and $0.1 million other sales and marketing costs.
General and Administrative
General and administrative expenses consist primarily of costs associated with our overall operations and being a public company. These costs include personnel, legal and financial professional services, insurance, investor relations, compliance related fees, and expenses associated with obtaining and maintaining patents.
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General and administrative expenses for the three months ended September 30, 2022 totaled $2.0 million, compared to $2.3 million for the three months ended September 30, 2021. The $0.3 million decrease is primarily attributed to a decrease of $0.3 million in stock compensation.
Other Income and Expenses
Other expense, net for the three months ended September 30, 2022 totaled $0.3 million compared to other expense of $0.5 million for the three months ended September 30, 2021. The decrease of $0.2 million in other expense net, was primarily attributable to a decrease of $0.2 million in debt extinguishment expense.
Comparison of Nine months Ended September 30, 2022 and 2021
Revenue
Revenue totaled $483.0 thousand for the nine months ended September 30, 2022, compared to $292.0 thousand for the nine months ended September 30, 2021. The increase of $191.0 thousand is primarily attributed to sales of the new EVS product recently launched.
Cost of Revenue
Cost of revenue for the nine months ended September 30, 2022 totaled $325.0 thousand, compared to $321.0 thousand for the nine months ended September 30, 2021. The increase of $4.0 thousand was primarily attributed to a net decrease of $27.0 thousand in inventory impairment and an increase of $31.0 thousand to the cost of our system disposable evaluation and commercial units.
Research and Development
Research and development expenses for the nine months ended September 30, 2022 totaled $4.3 million, compared to $4.0 million for the nine months ended September 30, 2021. The increase of $0.3 million was primarily attributable to an increase of $0.4 million in salaries and personnel costs, $0.3 million in clinical studies, partially offset by a decrease of $0.3 million in material costs and $0.2 million in stock compensation.
Sales and Marketing
Sales and marketing expenses for the nine months ended September 30, 2022 totaled $3.6 million, compared to $2.2 million for the nine months ended September 30, 2021. The increase of $1.4 million was primarily attributable to increases of $1.3 million in salaries and other personnel related cost to support our commercialization efforts of the Pure-Vu System, $0.2 million in demonstration product and $0.1 million in other sales and marketing costs offset by decreases of $0.2 million professional services and $0.1 million in share-based compensation and other sales and marketing costs.
General and Administrative
General and administrative expenses for the nine months ended September 30, 2022 totaled $6.2 million, compared to $7.1 million for the nine months ended September 30, 2021. The decrease of $0.9 million was primarily attributable to decreases of $1.0 million in share-based compensation, $0.1 million in professional services and $0.1 million in investor and public relation fees, offset with a $0.2 million increase in salaries and other personnel related costs and $0.1 million in travel costs and other general and administrative costs.
Other Income and Expenses
Other expense, net for the nine months ended September 30, 2022 totaled $1.1 million compared to $0.8 million for the nine months ended September 30, 2021. The increase of $0.3 million in other expense, was primarily attributable to an increase of $0.5 million in finance expense offset with a decrease of $0.1 million in loss on change in the fair value of contingent royalty and a $0.2 million decrease in loss of debt extinguishment.
| 20 |
Liquidity and Capital Resources
To date, we have generated minimal revenues, experienced negative operating cash flows and have incurred substantial operating losses from our activities. We expect operating costs will increase significantly as we incur costs associated with commercialization activities related to the Pure-Vu System. We expect to continue to fund our operations primarily through utilization of our current financial resources, future product sales, the issuance of debt or equity, as well as through other strategic alternative transactions. As of September 30, 2022, our accumulated deficit was $137.7 million. Such conditions raise substantial doubts about our ability to continue as a going concern.
In March 2021, we entered into an Equity Distribution Agreement (the “Equity Distribution Agreement”) with Oppenheimer & Co. Inc. (“Oppenheimer”), under which we may offer and sell from time to time common shares having an aggregate offering price of up to $25.0 million. During the three and nine months ended September 30, 2022, we sold approximately 258 thousand and 565 thousand shares of our common stock under this agreement, resulting in net cash proceeds of $1.3 million and $4.4 million, after deducting issuance costs of $55.0 thousand and $0.2 million, respectively. From October 1, 2022 to November 14, 2022, the Company issued and sold approximately 1.6 million common shares of our common stock under this agreement, resulting in net cash proceeds of approximately $5.5 million, after deducting issuance costs $171.0 thousand.
Rising inflation and financial market volatility may adversely impact our ability to enter into, modify, and negotiate favorable terms and conditions relative to equity and debt financing initiatives. The uncertain financial markets, potential disruptions in supply chains, and changing priorities could also affect our ability to enter into key agreements. COVID-19 and government measures taken in response have also had an impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as certain medical services and supplies, have spiked, while demand for other goods and services have fallen. The future progression of the outbreak and its longer-term effects on our business and operations continue to evolve and are still uncertain. We and our third-party contract manufacturers, contract research organizations, and clinical sites may also face disruptions in procuring items that are essential to our research and development activities, including, for example, medical and laboratory supplies, in each case, that are sourced from abroad or for which there are shortages because of ongoing efforts related to the outbreak in certain parts of the world. These disruptions may negatively impact our sales, results of operations, financial condition, and liquidity in 2022 and into 2023.
As of September 30, 2022, we had total current assets of $15.5 million and total current liabilities of $5.5 million resulting in working capital of $10.0 million. Net cash used in operating activities for the nine months ended September 30, 2022 was $13.4 million, which includes a net loss of $14.9 million, offset by non-cash expenses principally related to share-based compensation expense of $1.4 million, depreciation and amortization of $0.4 million, amortization of debt issuance costs of $0.2 million, issuance of common stock for board of directors’ compensation of $0.2 million, amortization of operating lease right-of-use asset of $0.3 million and inventory impairment of $0.2 million, offset by changes in net working capital items principally related to the increase in prepaid expenses and other current assets of $0.2 million, amortization of operating lease liability of $0.3 million and an increase in inventory of $0.8 million.
Net cash used in investing activities for the nine months ended September 30, 2022 totaled $0.2 million related to the purchase of fixed assets.
Net cash provided by financing activities for the nine months ended September 30, 2022 totaled $4.4 million related to proceeds from issuance of common shares pursuant to at-the-market issuance registered offerings of $4.5 million, offset by financing fees related to the “at-the-market” offerings of $0.1 million.
As of September 30, 2022, we had cash and cash equivalents of $13.3 million. We will need to raise significant additional capital to continue to fund operations. We may seek to sell common or preferred equity, convertible debt securities or seek other debt financing. In addition, we may seek to raise cash through collaborative agreements or from government grants, as well as evaluate other strategic alternative transactions. The sale of equity and convertible debt securities may result in dilution to our shareholders and certain of those securities may have rights senior to those of our common shares. If we raise additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these securities or other debt could contain covenants that would restrict our operations. Any other third-party funding arrangement could require us to relinquish valuable rights. The source, timing and availability of any future financing will depend principally upon market conditions, and, more specifically, on the progress of our product and clinical development programs as well as commercial activities. Funding may not be available when needed, at all, or on terms acceptable to us. Lack of necessary funds may require us, among other things, to delay, scale back or eliminate expenses including those associated with our planned product development, clinical trial and commercial efforts.
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Shelf Registration Statement
On March 16, 2021, we filed a shelf registration statement (File No. 333-254343) with the Securities and Exchange Commission (the “2021 Shelf Registration Statement”), which was declared effective on March 26, 2021, that allows us to offer, issue and sell up to a maximum aggregate offering price of $100.0 million of any combination of our common stock, preferred stock, warrants, debt securities, subscription rights and/or units from time to time, together or separately, in one or more offerings. As of September 30, 2022, we have not sold any securities under the 2021 Shelf Registration Statement, except as described below.
The 2021 Shelf Registration Statement includes a prospectus registering an at-the-market offering program pursuant to an Equity Distribution Agreement (the “Equity Distribution Agreement”) with Oppenheimer & Co. Inc. (“Oppenheimer”), entered into in March 2021, under which Oppenheimer may offer and sell from time to time shares of our common stock having an aggregate offering price of up to $25.0 million, subject to the provisions of General Instruction I.B.6 of Form S-3, which provides that we may not sell securities in a public primary offering with a value exceeding one-third of our public float in any twelve-month period (approximately $8.8 million beginning effective as of March 29, 2022, the date of filing of our most recent Annual Report on Form 10-K) unless our public float is at least $75 million. If our public float meets or exceeds $75.0 million at any time, we will no longer be subject to the restrictions set forth in General Instruction I.B.6 of Form S-3, at least until the filing of our next Section 10(a)(3) update as required under the Securities Act.
In March 2021, we entered into an Equity Distribution Agreement (the “Equity Distribution Agreement”) with Oppenheimer & Co. Inc. (“Oppenheimer”), under which we may offer and sell from time to time common shares having an aggregate offering price of up to $25.0 million. During the three and nine months ended September 30, 2022, we sold approximately 258 thousand and 565 thousand shares of our common stock under this agreement, resulting in net cash proceeds of $1.3 million and $4.4 million, after deducting issuance costs of $55.0 thousand and $0.2 million, respectively.
Our ability to issue securities is subject to market conditions and other factors including, in the case of our debt securities, our credit ratings.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules, such as relationships with unconsolidated entities or financial partnerships, which are often referred to as structured finance or special purpose entities, established for the purpose of facilitating financing transactions that are not required to be reflected on our balance sheets.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2022.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K, for the year ended December 31, 2021 may not be the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results.
There were no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission on March 29, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered Sales of Equity Securities
None.
Securities Act Exemptions
We deemed the offers, sales and issuances of the securities described above to be exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance on Section 4(a)(2) of the Securities Act, including Regulation D and Rule 506 promulgated thereunder, relative to transactions by an issuer not involving a public offering.
All certificates representing the securities issued in the transactions described above included appropriate legends setting forth that the securities had not been offered or sold pursuant to a registration statement and describing the applicable restrictions on transfer of the securities.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits.
| Exhibit | Incorporated by Reference | Filed | ||||||||||
| Number | Exhibit Description | Form | File No. | Exhibit | Filing Date | Herewith | ||||||
| 3.1 | Bylaws, as amended | X | ||||||||||
| 4.1 | Form of November 2018 Consultant Warrant | 10-Q | 001-38389 | 4.4 | 11/14/2018 | |||||||
| 31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a). | X | ||||||||||
| 31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a). | X | ||||||||||
| 32.1** | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350). | X | ||||||||||
| 101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). | X | ||||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | X | ||||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | X | ||||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | X | ||||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | X | ||||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | X | ||||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibits 101). | X | ||||||||||
| ** | Furnished, not filed. |
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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.
Motus GI Holdings, Inc. (Registrant) | ||
| Date: November 14, 2022 | By: | /s/ Timothy P. Moran |
| Name: | Timothy P. Moran | |
| Title: | Chief Executive Officer and Director | |
| (Principal Executive Officer) | ||
| Date: November 14, 2022 | By: | /s/ Andrew Taylor |
| Name: | Andrew Taylor | |
| Title: | Chief Financial Officer | |
| (Principal Financial Officer and Chief Accounting Officer) | ||
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