UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
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: 001-38389
Motus GI Holdings, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
1301 East Broward Boulevard, 3rd Floor
Ft. Lauderdale, FL
(Address of principal executive offices)
81-4042793
(I.R.S. Employer
Identification No.)
33301
(Zip code)
(954) 541-8000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $0.0001 per share
Name of Each Exchange on Which Registered
NASDAQ Capital Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Securities registered pursuant to Section 12(g) of the Act: None
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 and posted 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 and post 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 emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange
Act.:
Large accelerated filer
Non-accelerated filer
☐
☒
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☒
☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $0.0001 par value per share
Trading Symbol(s)
MOTS
Name of Each Exchanged on Which Registered
The Nasdaq Capital Market
As of June 30, 2021, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the Common Stock held by non-
affiliates of the registrant was approximately $47,000,000 based on the closing price of the registrant’s Common Stock on June 30, 2021.
The number of shares outstanding of the registrant’s Common Stock, par value of $0.0001 per share, as of March 21, 2022 was 54,867,257.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Motus GI Holdings, Inc.
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 2021
Business
PART I
Item 1
Item 1A Risk Factors
Item 1B Unresolved Staff Comments
Item 2
Item 3
Item 4
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Reserved
Management’s Discussion and Analysis of Financial Condition and Results of Operations
PART II
Item 5
Item 6
Item 7
Item 7A Quantitative and Qualitative Disclosures About Market Risk
Item 8
Item 9
Item 9A Controls and Procedures
Item 9B Other Information
Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
PART III
Item 10
Item 11
Item 12
Item 13
Item 14
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART IV
Item 15
Item 16
Exhibits, Financial Statement Schedules
Form 10-K Summary
EXHIBIT INDEX
SIGNATURES
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PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report on Form 10-K 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 ability to obtain approval from regulatory agents in different jurisdictions for 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;
● the accuracy of our estimates regarding expenses and capital requirements
● our ability to adequately support growth; and
● our ability to project in the short term the hospital medical device environment considering the global pandemic and strains on hospital systems
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 I—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.
1
ITEM 1.
BUSINESS
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 recently received 510(k) clearance from the FDA for our Pure-Vu EVS System and expect to
commence commercialization by the end of Q1 2022. We do not expect to generate significant revenue from product sales until the COVID-19 pandemic has fully subsided and
we further expand our commercialization efforts, which is subject to significant uncertainty.
2
Market Overview
Colonoscopies are one of the most frequently performed medical procedures with over 20 million colonoscopies performed in the United States each year and more than 54
million worldwide, per 2019 iData Research Inc. Based on our review and analysis of this market data as well as 2021 projections for the U.S. and Europe, as obtained from
iData Research Inc., we estimate that during 2022 approximately 1.5 million inpatient colonoscopy procedures in a hospital setting will be performed in the U.S. Hospital based
colonoscopies are typically performed to help diagnose and treat lower gastrointestinal (GI) bleeding, irritable bowel syndrome (IBS), inflammatory bowel disease (IBD),
anemia or infection. A majority of total colonoscopies in the U.S. and worldwide are performed as outpatient procedures at an ambulatory endoscopy center and/or hospital
outpatient departments, with the bulk of procedures performed to detect and prevent colorectal cancer (CRC). According to the CDC (2018), approximately 31% of eligible
patients are still not current with their CRC screening in the U.S. Over the past few decades, CRC has been demonstrated to be one of the most preventable cancers if detected
early through the use of colonoscopy screening.
Despite the pervasiveness and effectiveness of colonoscopy, a key ongoing clinical challenge of the procedure is that patients are required to undergo a potent pre-procedure
bowel preparation regimen to try to ensure that the colon is fully cleansed to enable clear visualization of the tissue. Successful bowel preparation is one of the most important
factors in delivering a thorough, high quality exam and is well documented to have a direct impact on the adenoma detection rate (ADR), the rate of detecting pre-cancer
anomalies in the colon tissue, which in turn predicts a decrease in CRC risk. An inadequately prepared colon can impact the diagnostic accuracy of the procedure and can lead
to procedures having to be repeated earlier than the medical guidelines advise or can lead to failed procedures especially in the inpatient setting. Rescheduling the procedure is
inconvenient to the patient (and many patients fail to come for their follow-up), creates inefficiencies in the provider’s workflow, and increases the length of hospital stay, each
of which results in increased healthcare costs. The preparation regimen typically requires patients to be on a liquid diet for over 24 hours, drink up to four liters of a purgative,
spend up to 12 hours prior to the exam periodically going to the bathroom to empty their bowels, and disrupting their daily activities, which could include missing work or
other activities. The regimens can be highly disruptive and uncomfortable for many patients. In fact, approximately 57% of patients cite not wanting to take the bowel
preparation as the number one deterrent for the procedure, as noted by Harewood et al., American Journal of Gastroenterology (2002). Further, it is estimated by HRA
Healthcare Research & Analytics (2015) that approximately 23% of outpatients present with inadequately prepped colons, resulting in a number of colonoscopies that yield
poor diagnostic accuracy or failed colonoscopies that must be repeated. For inpatients, this figure jumps to approximately 51% according to a recently published study by the
Cleveland Clinic. It has also been reported that patients requiring frequent colonoscopies, such as CRC survivors and other surveillance patients, account for approximately
21% of the outpatient colonoscopies performed annually in the U.S., per Lieberman D.A. et.al., American Society for Gastrointestinal Endoscopy (2005).
Inpatient Opportunity: improving efficiencies and shortening time to complete a successful colonoscopy
Inpatient colonoscopy is usually performed to diagnose the source of various gastrointestinal conditions such as lower GI bleeding or bowel pain. For an inpatient hospital stay,
the Centers for Medicare and Medicaid Services, or CMS, uses a prospective payment system, or PPS, based upon the MS-DRG payment groupings, to pay for hospital
services with the goal of encouraging providers to minimize their costs. The DRG assignment is influenced by a combination of factors such as a patient’s sex, diagnosis at the
time of discharge and procedures performed. Based on patient specific information, all hospital expenses for their care during an inpatient stay are packaged and assigned to
one of over 700 MS-DRGs (“Medicare Severity – Diagnostics Related Groups”). According to Decision Driver Analytics, a reimbursement consulting agency, when a
colonoscopy is performed as the primary procedure (no other procedures or complicating diagnosis), MSDRGs 395, 394 or 393 would apply which pay between $3,861
(without complications or major comorbidities) and $9,421 (with major complications and comorbidities), which are average figures subject to adjustment. The National
Inpatient Sample (“NIS”) and other literature sources note that the cost for a standard hospital bed averages $2,298 and the cost for an intensive care unit (“ICU”) bed averages
$6,546 per day in the U.S, so reducing the length of stay can save the hospital significant expense.
An inpatient colonoscopy is generally more problematic than an outpatient procedure due primarily to poorer quality bowel prep, which can lead to lower rates of successful
completion of the procedure and a higher frequency of repeat procedures. Inpatients are difficult to prep as exemplified by inadequate bowel prep rates. Published studies have
found that the inpatient population experiences rates of insufficiently prepped colons at the time of colonoscopy as high as 55%. This has been shown to lead directly to
significantly longer hospital stays and other additional costs due to the need for repeated preps, repeated colonoscopies, and additional diagnostic procedures. This is
exemplified in a recently published study by the Cleveland Clinic that showed an inadequate preparation rate of 51% in the study population of 8,819 inpatients. The study
noted that the 51% of the study population that were inadequately prepped stayed one day extra in the hospital compared to patients with adequate preparation. Another study,
from Northwestern University Hospital System, showed an average hospital stay extension of two days and cost increase of as much as $8,000 per patient as a result of
challenges associated with bowel preparation. We believe the Pure-Vu System may improve outcomes and lower costs for hospitals by potentially reducing the time to a
successful colonoscopy, minimizing delayed and incomplete procedures, and improving the quality of an exam.
3
Our Pure-Vu Solution
Our system consists of a workstation controller and a single-use, disposable sleeve that fits over most standard and slim colonoscopes. Together with the colonoscope, the Pure-
Vu System performs rapid, effective, and efficient intra-procedural cleaning without compromising procedural workflow and techniques. The over-sleeve has an umbilical
section that connects the disposable over-sleeve to the workstation. The over-sleeve is treated with a hydrophilic lubricious coating that reduces friction and allows for smooth
advancement through the colon. The workstation, through a series of peristaltic pumps activated by foot pedals, delivers an irrigation medium of air and water that creates a
pulsed vortex inside the colon to break up fecal matter while simultaneously evacuating the colon content into waste receptacles already used in a standard colonoscopy
procedure. The proprietary smart sense suction (evacuation) system in the device has sensors built in that can detect the formation of a blockage and automatically clear it
allowing the physician to remove significant debris from the patient. The Pure-Vu System has been clinically demonstrated to be capable of cleaning poorly prepared colons in
minutes. We are building an extensive intellectual property portfolio designed to protect key aspects of the system, including the pulsed vortex irrigation and auto-purge
functions.
In June 2019, the 510(k) premarket notification for the second-generation (“Gen 2”) of the Pure-Vu System was reviewed and cleared by the FDA. We received the initial CE
Certificate of Conformity, allowing us to affix the CE Mark to the Gen 2 Pure-Vu System in March 2020. We received a supplement to the initial CE Certificate of Conformity
for all the latest upgrades in January 2021.
On February 14, 2022 we announced the 510(k) clearance by the FDA of our Pure-Vu EVS System. The new Pure-Vu EVS is designed to offer usability advancements over the
currently marketed device, including enhanced physician navigation and control, on-demand bedside loading, expanded cleansing capacity, and a smaller workstation footprint.
All upgrades are tied to the market development work the Company has done over the last year. The commercial launch of the Pure-Vu EVS in the first quarter of 2022 is
anticipated to accelerate speed of adoption in the U.S. and global markets over time. In addition, the advancements made by the Pure-Vu EVS are expected to support future
innovation and indication expansion of the Pure-Vu platform.
We have also implemented an improved manufacturing cost structure that we believe better positions the Company to broaden commercial utilization, increase margins, and
establish distribution relationships in more cost sensitive global markets over time.
4
Pre-Clinical and Clinical Data & Safety
The Pure-Vu System has been studied in multiple clinical studies in patients receiving a reduced prep regime as well as a study focused on the inpatient population. The Pure-
Vu System was used in two multi-center clinical studies in the EU and Israel, and also a single center study in the US. The first study involved 49 patients and was completed in
the second quarter of 2016. The second study was completed in June 2017 and involved 46 patients. Patients in these studies had a restricted diet for 18-24 hours and received a
split dose of 20mg of over-the-counter Dulcolax® (bisocodyl). Patients did not take any liquid purgative traditionally prescribed for bowel preparation. The clinical data
showing performance of the Pure-Vu System in these studies using the BBPS, is shown below. The clinical results from the 2016 study were presented at the United European
Gastroenterology Week (“UEGW”) in October 2016 and the second study was published in the peer review journal Endoscopy in 2018. The clinical results from the 2017 study
were presented at the UEGW in October 2017, showing similar results, as shown below. This study has recently been published in Endoscopy, one of the top peer reviewed
journals in the EU.
The third clinical study in the outpatient setting was presented at the American College of Gastroenterology (“ACG”) Annual Meeting in October 2018. This study was
performed in the United States and showed that the Pure-Vu System demonstrated safe and effective colonic cleaning in the per protocol analysis of 46 patients receiving a
reduced prep regimen. The study was initially designed to compare two different minimal bowel preparation regimens. Initially patients were randomized to receive one of two
minimal bowel preparations: three doses of 17 gr. MiraLAX each mixed in 8.5 oz. of clear liquids or two doses of 7.5 oz. magnesium citrate (MgC) each taken with 19.5 oz. of
clear liquid. A study amendment early on replaced the MiraLAX arm, due to obvious inferior Boston Bowel Preparation Scale (“BBPS”), a validated assessment instrument,
scoring from the outset. The replacement arm consisted of two doses of 5 oz. MgC taken with 16 oz. of clear liquid. All patients were allowed to eat a low residue diet on the
day prior and were asked to avoid seeds and nuts for five days prior to their procedure. Study objectives evaluated for each study arm included: (1) improvement of colon
cleansing from presentation baseline to completion of the procedure (as assessed by the BBPS) through the use of the Pure-Vu System, (2) time required to reach the cecum, (3)
total procedure time, and (4) safety. No significant differences were found between the three groups with regard to demographics or indication for colonoscopy. No serious
adverse events related to the device were reported. The use of the Pure-Vu System enabled successful intraprocedural cleansing of the colon and ensured successful completion
of all colonoscopies performed (100% success rate). Although there were only 46 patients in the study, there was a highly significant difference in the study population (p value
<0.0001) between the baseline preparation and that seen post cleansing with the Pure-Vu System. The use of the Pure-Vu System added some time to the procedure, but the
total procedure time was approximately 25 minutes in this study.
REDUCE Study
The Reduce study (“Reliable Endoscopic Diagnosis Utilizing Cleansing Enhancement”), was first presented at Digestive Disease Week (DDW) conference in May of 2019 and
a full manuscript, titled “A multi-center, prospective, inpatient feasibility study to evaluate the use of an intra-colonoscopy cleansing device to optimize colon preparation in
hospitalized patients: the REDUCE study”, was published in the peer review journal BMC Gastroenterology in Q2 of 2021. The REDUCE study was a multi-center inpatient
prospective trial designed to evaluate Pure-Vu System’s ability to consistently and reliably improve bowel preparation to facilitate a successful colonoscopy in a timely manner
in patients who were indicated for a diagnostic colonoscopy. The study enrolled 95 hospitalized patients on schedule regardless of their level of pre-procedural bowel
preparation. The primary endpoint for the study was improvement of bowel preparation from baseline to post procedure as assessed by the Boston Bowel Preparation Scale
(“BBPS”), which assesses the cleanliness of the each of the three segments of the colon on a 0 to 3 scale and requires a minimum score of 2 or better per segment to be
considered adequately prepped.
For inpatients that received the Pure-Vu System, adequate bowel preparation improved from a baseline of 38% to 96% in segments evaluated. The analysis from the REDUCE
study showed statistically significant improvement in every segment of the colon after Pure-Vu System use. The per segment BBPS improved from an average baseline of 1.74,
1.74 and 1.5 to 2.89, 2.91 and 2.86 respectively with a statistically significant p value of .001 for all three segments of the colon. The primary indication for patients enrolled in
the study (68%) was a GI bleed. Acute GI bleeds can lead to hemodynamic instability and is a critical population to treat in an urgent fashion. Physicians were able to achieve a
successful clinical outcome in 97% of patients in the study.
The chart below shows the outcome of the primary endpoint using the BBPS both pre and post use of the Pure-Vu System in a side-by-side fashion. It can be seen from the data
that the high cleansing level achieved with the Pure-Vu System is consistent across the various studies:
5
Cost Effectiveness Analysis and Independent Studies
In Q2 of 2021, we announced the publication of a sponsored Pure-Vu System® Cost Effectiveness Analysis in the Journal of Cost Effectiveness and Resource Allocation,
which is titled, “Colonoscopy in poorly prepped colons. A cost effectiveness analysis comparing standard of care to a new cleansing technology.” This study suggests that,
assuming a national average compliance rate for colonoscopy in the U.S. at 60%, as reported by the American Cancer Society in 2017, the use of Pure Vu has the potential to
provide the US healthcare system lifetime savings of $833-$922 per patient depending on the insurer when compared to the standard of care. Sponsorship of analysis and
development of the manuscript was provided by us.
On October 26, 2021, we announced the presentation of results from an independent single-center study of the Pure-Vu System as an adjunct to colon cleansing in patients with
inadequate bowel preparation (IBP) in a poster presentation at the 2021 American College of Gastroenterology (ACG) Annual Scientific Meeting.
In the independent study, the Pure-Vu System was used in 40 patients (14 inpatient procedures (35%) and 26 outpatient procedures (65%)) with IBP to complete the
colonoscopy. The indication for colonoscopy was either diagnostic or colorectal cancer (CRC) screening/surveillance. Pure-Vu was used as an adjunct to IBP to allow
completion of procedure in 37 patients. In patients with IBP, the mean BBPS score improved from 3.1 (range: 0-6) to 8.5 (range 5-9) after intra-procedural cleansing. Three
patients had active lower gastrointestinal bleeding (LGIB), and the Pure-Vu System was used without bowel preparation to promptly detect the etiology and possibly treat.
When used in emergency colonoscopy without bowel preparation, procedures could be completed in all three patients detecting and treating diverticular and post-polypectomy
bleeding in one patient each and diagnosing severe right sided ischemic colitis in another. The study authors concluded the utility of the Pure-Vu System without prior bowel
preparation in LGIB needs further study. Use of Pure-Vu System did not interfere with the performance of endoscopic interventions including biopsy, cold/hot snare
polypectomy, or EMR. Besides minor mucosal trauma in two cases, no major complications were observed with the Pure-Vu System.
Current Clinical Studies
Our current clinical research efforts are focused on critical patient populations such as acute lower GI bleeds, where time to a successful colonoscopy can be clinically
impactful. We are working with a major hospital system on a study that is focused on rapid examination of significant lower GI bleed patients. In this study the patients will not
ingest any purgative based preparation and only receive two tap water enemas prior to the procedure. We are planning to incorporate the new Pure-Vu EVS platform into this
clinical study. We are also evaluating additional studies focused on critical populations in both the inpatient and outpatient markets. As an example, studying the ability of the
Pure-Vu System to impact outpatients that have a history of poor preparation that cannot get a quality exam and have to come back on a shortened surveillance interval may be
of interest. Our strategy currently includes designing a large, multi-center trial that may provide clinical data to pursue reimbursement applications.
On June 16, 2021, we announced the enrollment of the first patients in the European Union (EU) study of the Pure-Vu System, which is evaluating the clinical outcomes in
patients with a history of poor bowel preparation using a low volume preparation with limited diet restrictions and the Pure-Vu System. On September 8, 2021, we announced
the enrollment of patients at GastroZentrum Lippe, a private endoscopy clinic in Germany, the second site for this EU study of the Pure-Vu System. We believe Germany is
currently the largest colonoscopy market in Europe, with approximately 1.7 million procedures expected to have been completed in 2021, according to iData Research.
The EU study has now completed full enrollment of patients who have had a history of poor bowel preparation and were scheduled for either screening, diagnostic, or
surveillance colonoscopy across two sites, including the Radboud University Medical Center (Netherlands) and GastroZentrum Lippe (Germany). The patients underwent a low
volume bowel preparation, with just 2x150ml picoprep. The patients were also allowed to eat a low fiber diet for two days prior to the colonoscopy as opposed to the typical
clear liquid diet the day before a colonoscopy. The patients then received intra-procedural bowel cleansing with the Pure-Vu System. The primary endpoint for the study is
improvement of the bowel preparation from baseline to post procedure as assessed by the Boston Bowel Preparation Scale (BBPS), which assesses the cleanliness of each of
the three segments of the colon on a zero to three scale and requires a minimum score of two or better per segment to be considered adequately prepped. The study will also
look at key clinical endpoints related to the quality of the examination including detection of critical pathology in the colon. This study is expected to be completed by the end
of Q2 2022.
Intellectual Property
Our IP position comprises a portfolio covering highly innovative technologies rooted in systems and methods for cleaning body cavities with or without the use of an
endoscope. Currently we have fourteen granted or allowed patents in the U.S., seventeen patents in Asia (Japan, China and Hong Kong), and nine patents in the EU, with patent
protection until at least 2039. In addition, we have 23 pending patent applications in various regions of the world with a focus on the U.S., EU and Japan. We have registered
trademarks for Motus GI and for the Pure-Vu System in the U.S., EU and other international jurisdictions. We also have a pending trademark application in the U.S. to MICRO-
PREP.
Our portfolio of patents and patent applications focuses on cleaning body cavities in a safe and efficient manner, insertion, movement and steering of an endoscopic device
within the body cavity in a predetermined direction; coordinated positioning of an endoscope with a suction device and cleaning systems with automatic self-purging features.
Coverage includes critical aspects of our system that we believe are key to cleaning the colon or other body cavities effectively and efficiently. These aspects include cleansing
jet methodologies, sensing and control of evacuation to avoid clogging, designs for easy attachment to endoscopes and cleaning segments under water.
Our commercial success depends in part on our ability to obtain and maintain patent and other proprietary protection for Pure-Vu and to operate without infringing the
proprietary right of others and to prevent others from infringing our proprietary rights. We strive to protect our intellectual property through a combination of patents and
trademarks, as well as through confidentiality provisions in our contracts. With respect to the Pure-Vu System, we endeavor to obtain and maintain patent protection in the
United States and internationally on identified and potentially patentable aspects of the system. We cannot be sure that the patents will be granted with respect to any patent
applications we may own or license in the future, nor can we be sure that our existing patents or any patents we may own or license in the future will be useful in protecting our
technology.
6
In addition to patents, we rely on trade secrets and know-how to develop and maintain our competitive position. For example, significant aspects of our proprietary technology
platform are based on unpatented trade secrets and know-how. Trade secrets and know-how can be difficult to protect. We seek to protect our proprietary technology and
processes, in part, by confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors and commercial
partners. These agreements are designed to protect our proprietary information and, in the case of the invention assignment agreements, to grant us ownership of technologies
that are developed through a relationship with a third party. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical
security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems,
agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be
independently discovered by competitors. To the extent that our contractors use intellectual property owned by others in their work for us, disputes may arise as to the rights in
related or resulting know-how and inventions.
We also plan to continue to seek trademark protection in the United States and outside of the United States where available and when appropriate. We intend to use these
registered marks in connection with our research and development as well as our product candidates.
Competition
We do not believe that there are currently any direct competitors in the market, nor any known competing medical device under development, using similar technology to our
technology. Currently the major colonoscope manufacturers (i.e., Olympus Corp, Pentax Medical, Fujifilm Medical) as well as some smaller equipment manufacturers (i.e.,
Medivators, Erbe) sell a lesser powered irrigation pump that can pump fluid through the auxiliary water jet or working channel of a colonoscope. Potentially competitive is an
intra-procedural device under development by Medjet Ltd. MedJet’s device goes through the working channel of a scope, is used mostly for spot cleaning a small amount of
debris and does not have the capability to fully clean the colon of large amounts of fecal matter. The MedJet product also requires the physician to remove it from the working
channel during the procedure if they need to remove significant debris, polyps or take a biopsy, impacting the workflow of the procedure. There is also a device under
development by a company named OTTek Ltd. The device is called the FIOT (Flow in Over Tube). The tube is noted as being able to create a channel between the endoscope
and the inside of the over tube to facilitate the removal of debris. The competitive products mentioned are not currently separately reimbursed by private or government payors.
There are over ten different preparation regimens used prior to colonoscopy today. Some are prescription medications and others are over-the-counter. Typically, the over-the-
counter regimens are not indicated for colonoscopy prep but for issues of motility, such as constipation, but are still widely prescribed by physicians for colonoscopy prep.
Depending on the insurance a patient has, the prescription prep may be covered in part but many of them require the patient to pay out-of-pocket.
The medical device and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. We have indirect competitors in a number
of sectors, many of which have substantially greater name recognition, commercial infrastructures and financial, technical and personnel resources than Motus GI. Currently,
the colonoscopy market is dominated by Olympus Corp, who controls a majority of the market, with Pentax Medical and FujiFilm Medical taking most of the rest of the U.S.
colonoscope market. Boston Scientific, Medtronic GI Solutions, Conmed Corporation, Steris, Ambu A/S, and other smaller players sell ancillary devices and accessories into
the marketplace as well. These established competitors may invest heavily to quickly discover and develop novel devices that could make our Pure-Vu System obsolete or
uneconomical. These include but are not limited to capsule endoscopy, virtual colonoscopy using CT scans, etc. These technologies may require the same level of prep as
conventional colonoscopies and if a polyp or abnormality is detected, the patient may still need to undergo a colonoscopy. Other screening tests for colon cancer specifically
include fecal occult blood tests and DNA stool tests such as the Cologuard test from Exact Sciences. However, Cologuard is not a replacement for diagnostic colonoscopies or
surveillance colonoscopies in high-risk individuals and has a lower specificity than standard colonoscopies. While none of these testing alternatives may ever fully replace the
colonoscopy, over time, they may take market share away from conventional colonoscopies for specific purposes and may lower the potential market opportunity for us.
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Any new product that competes with an approved product may need to demonstrate compelling advantages in efficacy, cost, convenience, tolerability and safety to be
commercially successful. Other competitive factors, including new competitive entrants, could force us to lower prices or could result in reduced sales. In addition, new
products developed by others could emerge as competitors to the Pure-Vu System. If we are not able to compete effectively against our current and future competitors, our
business will not grow and our financial condition and operations will suffer.
Research and Development
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.
We have received, and may receive in the future, grants from the Government of the State of Israel through the Israeli National Authority for Technological Innovation (the
“IIA”) (formerly known as the Office of the Chief Scientist of the Ministry of Economy and Industry (the “OCS”)), for the financing of a portion of our research and
development expenditures pursuant to the Israeli Law for the Encouragement of Research, Development and Technological Innovation in Industry 5744-1984 (the “Research
Law”), and the regulations previously promulgated thereunder, as well as the IIA’s rules and benefit tracks which apply to companies receiving IIA funding (collectively,
including the Research Law, the “IIA Regulations”).
As of December 31, 2021, we had received grants from the IIA in the aggregate amount of $1.3 million and had a contingent obligation to the IIA up to an aggregate amount of
approximately $1.4 million (assuming no increase, per the IIA Regulations, as described below). As of December 31, 2021, we paid a minimal amount to the IIA. We may
apply for additional IIA grants in the future. However, as the funds available for IIA grants out of the annual budget of the State of Israel are subject to the pre-approval of the
IIA and have been reduced in the past and may be further reduced in the future, we cannot predict whether we will be entitled to – or approved for – any future grants, or the
amounts of any such grants (if approved).
In exchange for these grants, we are required to pay royalties to the IIA of 4% (which may be increased under certain circumstances) from our revenues generated (in any
fashion) from know-how developed using IIA grants(and any derivatives of such IIA funded know-how), up to an aggregate of 100% (which may be increased under certain
circumstances) of the U.S. dollar-linked value of the grant, plus interest at the rate of 12-month LIBOR.
The IIA Regulations also require that products developed with IIA grants be manufactured in Israel at a rate (scope) which will not be less than the rate of manufacturing and
added value in Israel that were set forth in the relevant grant applications submitted to the IIA. Furthermore, the IIA Regulations require that the know-how resulting from
research and development according to an IIA-approved plan, not being the product developed within the framework of such approved plan, and any right deriving therefrom
may not be transferred outside of Israel (including by way of certain licenses), unless prior approval is received from the IIA. We received a general approval for such transfer.
The transfer outside of Israel of manufacturing which is connected with the IIA-funded knowhow at a greater scope than the scope set forth in the general approval will result in
a higher royalty repayment rate and may further result in increased royalties (up to three times the aggregate amount of the IIA grants plus interest thereon). In addition, the
transfer outside of Israel of IIA-funded knowhow may trigger additional payments to the IIA (up to six times the aggregate amount of the IIA grants plus interest thereon). Even
following the full repayment of any IIA grants, we must nevertheless continue to comply with the requirements of the IIA Regulations. The foregoing restrictions and
requirements for payment may impair our ability to transfer or sell our technology assets outside of Israel or to outsource or transfer development or manufacturing activities
with respect to any IIA-funded know-how outside of Israel.
Furthermore, companies that receive IIA funding are generally required to ensure that all rights in the IIA-backed product are retained by them. This means that, generally, all
know-how which is derived from the research and development conducted pursuant to an IIA approved plan, and every right derived from it, must be owned by the recipient of
the IIA funding from the date such know-how is generated. Companies that receive IIA funding are further subject to reporting requirements and other technical requirements,
which are intended to allow the IIA to ensure that the IIA Regulations are being complied with.
If we fail to comply with any of the conditions and restrictions imposed by the IIA Regulations, or by the specific terms under which we received the grants, we may be
required to refund any grants previously received together with interest and penalties, and, in certain circumstances, may be subject to criminal charges.
For additional information, see “Part I—Item 1A—Risk Factors—Risks Related to Our Operations in Israel.”
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Manufacturing and Supply
We have established relationships with research facilities, contract manufacturing organizations, or CMOs, and our collaborators to manufacture and supply our product for our
initial U.S. market launch targeting early adopter hospitals and for our broader commercialization. Currently, the workstation and loading fixture component of our Pure-Vu
System is manufactured by Sanmina Corporation at their facilities in Israel. We may enter into formal supply agreements for the manufacture of the workstation component and
loading fixture of our Pure-Vu System with Sanmina Corporation as we continue to establish higher volume capabilities and our commercialization efforts grow. The
disposable portion of our Gen 2 Pure-Vu System is manufactured by Polyzen, Inc., at their facilities in North Carolina, U.S., pursuant to a supply agreement we entered into
with Polyzen, Inc. in September 2017. The disposable portion of the Pure-Vu EVS is manufactured by Sterling Industries in their Michigan, U.S. facility. We entered into a
supply agreement with Sterling Industries in Q2 of 2021. Both Polyzen and Sterling Industries use Medacys in Shenzhen, China as key sub-supplier for the injection molded
parts in the Pure Vu disposables. These manufacturing suppliers have extensive experience in medical devices and in dealing with regulatory bodies and other competent
entities. These suppliers have ISO 13485 certified quality systems. We have an agreement in place with a third party logistics provider in the U.S. who is ISO 13485 certified
and specializes in medical devices and equipment. They provide warehousing, shipping and back office support to meet our commercial needs.
For additional information, see “Part I—Item 1—Business—Research and Development” above, and “Part I—Item 1A—Risk Factors—Risks Related to Our Operations in
Israel.”
U.S. Market Entry Strategy
Our initial launch strategy in the United States is focused on the acute care hospital market. Our focus is on building clinical champions amongst key Gastroenterologists, and
other GI and nursing floor leadership and staff. Additionally, we articulate the clinical and economic value of the Pure-Vu System technology to key members of hospital
administration. After a pre-defined product evaluation period, we seek to work within the Value Analysis Committee approval process, currently utilized within most U.S.
hospitals and integrated delivery networks (IDNs). Following successful implementation at the flagship location within an IDN, we then seek to gain further expansion of the
Pure-Vu System within sister hospital locations. We support our customers with robust training on the effective use of our Pure-Vu System technology through our training and
in-servicing programs.
In addition to working with a third-party logistics provider specializing in medical devices to provide front and back office support to successfully fulfill customer orders, our
commercial organization has implemented a robust customer relationship management tool to track account progress and help provide accurate forecasting for operations. We
anticipate the sales cycle to be in the range of six to nine months. Timing of hospital capital budget availability may impact this anticipated cycle. Our primary focus is on
gaining system placements in the acute care hospital market, driving utilization of our Pure-Vu System disposable sleeve, growing top line revenues and appropriately scaling
the commercial organization.
Market Expansion Opportunities
While our time, effort and attention is primarily focused on driving adoption in the U.S. hospital market, we have identified several follow-on market expansion opportunities
that are currently being evaluated, including the upper GI endoscopy and targeted outpatient markets, as described below.
Upper GI Endoscopy Market
On April 30, 2021, we announced that we received 510(k) clearance from the FDA for a version of the Pure-Vu System that is compatible with gastroscopes used during upper
gastrointestinal (GI) endoscopy procedures to remove blood, blood clots and debris in order to provide a clear field-of-view for the endoscopist. The device is designed to
integrate with therapeutic gastroscopes to enable safe and rapid cleansing during the procedure, while preserving established procedural workflow and techniques.
Upper GI bleeds occurred at a rate of approximately 400,000 cases per year in 2019 in the United States, according to iData Research Inc. The mortality rate of this condition
can reach up to approximately 10%, as noted in Thad Wilkins, MD, et al., American Family Physician (2012). Removing adherent blood clots from the field of view is a
significant need in allowing the physician the ability to find and treat the bleed. We believe the Pure-Vu System has the potential to be adapted and used during upper GI
endoscopy procedures to remove clots and debris to provide a clear field of view for the endoscopist. This additional indication for the use of the Pure-Vu System would require
a 510(k) clearance by the FDA.
The Company is currently conducting a controlled series of Upper GI initial pilot procedures in the US market, which is intended to inform the development of a Pure-Vu EVS
version of the Upper GI solution for eventual submission to FDA for marketing approval in the US.
High Medical Need Outpatient Market
Our targeted Outpatient market focused on those patients at risk for inadequate prep presents a large potential commercial market opportunity for the Pure-Vu System. 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., and estimates from HRA Healthcare Research
& Analytics - Market Research, May 2015, we believe there are ~4.7M targeted outpatient colonoscopies performed in the U.S. each year and ~11.7M worldwide. These
colonoscopy patients can often times have an inadequate preparation, which may lead to repeat procedures earlier than the medical guidelines suggest. We believe use of the
Pure-Vu System has the potential to reduce the need for such repeat procedures if used for patients at risk for inadequate prep in the outpatient colonoscopy market. We may
seek to obtain reimbursement coverage for this market through exploration of programs with both private and public payers focused on new technology platforms.
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Additionally, if we choose to explore either market, we may be able to leverage our existing hospital and physician relationships developed through our inpatient colonoscopy
sales force to facilitate such expansion.
In March 2021, we presented a request for an ICD-10 code at a Center for Medicare and Medicaid Services (“CMS”) meeting, which is part of our broader strategy to obtain
reimbursement for certain inpatient and outpatient procedures where the Pure-Vu System can help facilitate visualization of inadequately prepared colons in high medical need
patients. On August 2, 2021, CMS granted the Pure-Vu System a permanent ICD-10 code which commenced on October 1, 2021. This activity is part of our broader strategy to
continue to seek to obtain reimbursement in the future for certain outpatient procedures where we believe the Pure-Vu System can help facilitate visualization of inadequately
prepared colons in high medical need patients.
Strategic Partnerships
We intend to explore potential strategic relationships to accelerate and scale our US commercialization effort, and to initiate sales in the EU, Japan, China and other markets in
the future.
Employees
As of December 31, 2021, we had 30 full time employees. All of our employees are engaged in administration, finance, clinical, research and development, engineering,
regulatory or sales and marketing functions. We believe our relations with our employees are good. We anticipate that the number of full time employees will grow as we scale
our commercial capabilities. In addition, we utilize and will continue to utilize consultants, clinical research organizations and third parties to perform our pre-clinical studies,
clinical studies, manufacturing and regulatory functions.
Under Israeli law, we and our employees in Israel are subject to Israeli protective labor provisions governing certain matters such as the length of the workday, minimum wages
for employees, annual leave, sick pay, determination of severance pay and advance notice of termination of employment, as well as the procedures for hiring and dismissing
employees and equal opportunity and anti-discrimination laws. While none of our employees in Israel is party to any collective bargaining agreements, expansion orders issued
by the Israeli Ministry of Economy and Industry may make certain industry-wide collective bargaining agreements applicable to us. These agreements affect matters such as the
length of the workday and week, recuperation pay, travel expenses and pension rights. We have never experienced labor-related work stoppages and believe that our good and
positive relationships with our employees are a significant part of our operations.
Israeli law generally requires the payment of severance pay by employers upon the retirement, death or dismissal of an employee. We fund our ongoing Israeli severance
obligations by making monthly payments to the employees’ respective insurance policies. All of our current employees in Israel have agreed, as part of their employment
agreements, that, upon termination of their employment, they will be entitled to receive only the amounts accrued in the insurance policies with respect to severance pay.
Furthermore, Israeli employees and employers are required to pay predetermined sums to the National Insurance Institute, which is similar to the U.S. Social Security
Administration. These amounts also include payments for national health insurance.
Regulatory Matters
Government Regulation
Our business is subject to extensive federal, state, local and foreign laws and regulations, including those relating to the protection of the environment, health and safety. Some
of the pertinent laws have not been definitively interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of subjective interpretations. In
addition, these laws and their interpretations are subject to change, or new laws may be enacted.
Both federal and state governmental agencies continue to subject the healthcare industry to intense regulatory scrutiny, including heightened civil and criminal enforcement
efforts. We believe that we have structured our business operations and relationships with our customers to comply with all applicable legal requirements. However, it is
possible that governmental entities or other third parties could interpret these laws differently and assert otherwise. We discuss below the statutes and regulations that are most
relevant to our business.
U.S. Food and Drug Administration regulation of medical devices.
The FDCA and FDA regulations establish a comprehensive system for the regulation of medical devices intended for human use. Our products include medical devices that are
subject to these, as well as other federal, state, local and foreign, laws and regulations. The FDA is responsible for enforcing the laws and regulations governing medical
devices in the United States.
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The FDA classifies medical devices into one of three classes (Class I, Class II, or Class III) depending on their level of risk and the types of controls that are necessary to ensure
device safety and effectiveness. The class assignment is a factor in determining the type of premarketing submission or application, if any, that will be required before
marketing in the United States.
● Class I devices present a low risk and are not life-sustaining or life-supporting. The majority of Class I devices are subject only to “general controls” (e.g., prohibition
against adulteration and misbranding, registration and listing, good manufacturing practices, labeling, and adverse event reporting. General controls are baseline
requirements that apply to all classes of medical devices.)
● Class II devices present a moderate risk and are devices for which general controls alone are not sufficient to provide a reasonable assurance of safety and
effectiveness. Devices in Class II are subject to both general controls and “special controls” (e.g., special labeling, compliance with performance standards, and post
market surveillance. Unless exempted, Class II devices typically require FDA clearance before marketing, through the premarket notification (510(k)) process.)
● Class III devices present the highest risk. These devices generally are life-sustaining, life-supporting, or for a use that is of substantial importance in preventing
impairment of human health or present a potential unreasonable risk of illness or injury. Class III devices are devices for which general controls, by themselves, are
insufficient and for which there is insufficient information to determine that application of special controls would provide a reasonable assurance of safety and
effectiveness. Class III devices are subject to general controls and typically require FDA approval of a premarket approval (“PMA”) application before marketing.
Unless it is exempt from premarket review requirements, a medical device must receive marketing authorization from the FDA prior to being commercially marketed,
distributed or sold in the United States. The most common pathways for obtaining marketing authorization are 510(k) clearance and PMA.
510(k) pathway
The 510(k) review process compares a new device to a legally marketed device. Through the 510(k) process, the FDA determines whether a new medical device is
“substantially equivalent” to a legally marketed device (i.e., predicate device) that is not subject to PMA requirements. “Substantial equivalence” means that the proposed
device has the same intended use as the predicate device, and the same or similar technological characteristics, or if there are differences in technological characteristics, the
differences do not raise different questions of safety and effectiveness as compared to the predicate, and the information submitted in the 510(k) demonstrates that the proposed
device is as safe and effective as the predicate device.
To obtain 510(k) clearance, a company must submit a 510(k) application containing sufficient information and data to demonstrate that its proposed device is substantially
equivalent to a legally marketed predicate device. These data generally include non-clinical performance testing (e.g., software validation, animal testing electrical safety
testing), but may also include clinical data. Typically, it takes three to twelve months for the FDA to complete its review of a 510(k) submission; however, it can take
significantly longer and clearance is never assured. During its review of a 510(k), the FDA may request additional information, including clinical data, which may significantly
prolong the review process. After completing its review of a 510(k), the FDA may issue an order, in the form of a letter, that finds the device to be either (i) substantially
equivalent and states that the device can be marketed in the United States, or (ii) not substantially equivalent and states that device cannot be marketed in the United States.
Depending upon the reasons for the not substantially equivalent finding, the device may need to be approved through the PMA pathway (discussed below) prior to
commercialization.
After a device receives 510(k) clearance, any modification that could significantly affect the safety or effectiveness of the device, or that would constitute a major change in its
intended use, including significant modifications to any of our products or procedures, requires submission and clearance of a new 510(k) or approval of a PMA. The FDA
relies on each manufacturer to make and document this determination initially, but the FDA can review any such decision and can disagree with a manufacturer’s
determination. Modifications meeting certain conditions may be candidates for a streamlined FDA review known as Special 510(k) review, which the FDA intends to process
within 30 days of receipt. If a device modification requires the submission of a 510(k), but the modification does not affect the intended use of the device or alter the
fundamental technology of the device, then summary information that results from the design control process associated with the cleared device can serve as the basis for
clearing the application. A Special 510(k) allows a manufacturer to declare conformance to design controls without providing new data. When a modification involves a change
in material, the nature of the “new” material will determine whether a traditional or Special 510(k) is necessary. An Abbreviated 510(k) is another type of 510(k) that is
intended to streamline the review of data through the reliance on one or more FDA-recognized consensus standards, special controls established by regulation, or FDA
guidance documents. In most cases, an Abbreviated 510(k) includes one or more declarations of conformity to an FDA-recognized consensus standard. We may also make
minor product enhancements that we believe do not require new 510(k) clearances. If the FDA disagrees with our determination regarding whether a new 510(k) clearance was
required for these modifications, we may need to cease marketing and/or recall the modified device. The FDA may also subject us to other enforcement actions, including, but
not limited to, issuing a warning letter or untitled letter to us, seizing our products, imposing civil penalties, or initiating criminal prosecution.
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Premarket approval pathway
Unlike the comparative standard of the 510(k) pathway, the PMA approval process requires an independent demonstration of the safety and effectiveness of a device. PMA is
the most stringent type of device marketing application required by the FDA. PMA approval is based on a determination by the FDA that the PMA contains sufficient valid
scientific evidence to ensure that the device is safe and effective for its intended use(s). A PMA application generally includes extensive information about the device including
the results of clinical testing conducted on the device and a detailed description of the manufacturing process.
After a PMA application is accepted for review, the FDA begins an in-depth review of the submitted information. FDA regulations provide 180 days to review the PMA and
make a determination; however, in reality, the review time is normally longer (e.g., 1-3 years). During this review period, the FDA may request additional information or
clarification of information already provided. Also during the review period, an advisory panel of experts from outside the FDA may be convened to review and evaluate the
data supporting the application and provide recommendations to the FDA as to whether the data provide a reasonable assurance that the device is safe and effective for its
intended use. In addition, the FDA generally will conduct a preapproval inspection of the manufacturing facility to ensure compliance with QSR, which imposes comprehensive
development, testing, control, documentation and other quality assurance requirements for the design and manufacturing of a medical device.
Based on its review, the FDA may (i) issue an order approving the PMA, (ii) issue a letter stating the PMA is “approvable” (e.g., minor additional information is needed), (iii)
issue a letter stating the PMA is “not approvable,” or (iv) issue an order denying PMA. A company may not market a device subject to PMA review until the FDA issues an
order approving the PMA. As part of a PMA approval, the FDA may impose post-approval conditions intended to ensure the continued safety and effectiveness of the device
including, among other things, restrictions on labeling, promotion, sale and distribution, and requiring the collection of additional clinical data. Failure to comply with the
conditions of approval can result in materially adverse enforcement action, including withdrawal of the approval.
Most modifications to a PMA approved device, including changes to the design, labeling, or manufacturing process, require prior approval before being implemented. Prior
approval is obtained through submission of a PMA supplement. The type of information required to support a PMA supplement and the FDA’s time for review of a PMA
supplement vary depending on the nature of the modification.
Clinical trials
Clinical trials of medical devices in the United States are governed by the FDA’s Investigational Device Exemption (“IDE”) regulation. This regulation places significant
responsibility on the sponsor of the clinical study including, but not limited to, choosing qualified investigators, monitoring the trial, submitting required reports, maintaining
required records, and assuring investigators obtain informed consent, comply with the study protocol, control the disposition of the investigational device, submit required
reports, etc.
Clinical trials of significant risk devices (e.g., implants, devices used in supporting or sustaining human life, devices of substantial importance in diagnosing, curing, mitigating
or treating disease or otherwise preventing impairment of human health) require FDA and Institutional Review Board (“IRB”) approval prior to starting the trial. FDA approval
is obtained through submission of an IDE application. Clinical trials of non-significant risk (“NSR”), devices (i.e., devices that do not meet the regulatory definition of a
significant risk device) only require IRB approval before starting. The clinical trial sponsor is responsible for making the initial determination of whether a clinical study is
significant risk or NSR; however, a reviewing IRB and/or FDA may review this decision and disagree with the determination.
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An IDE application must be supported by appropriate data, such as performance data, animal and laboratory testing results, showing that it is safe to evaluate the device in
humans and that the clinical study protocol is scientifically sound. There is no assurance that submission of an IDE will result in the ability to commence clinical trials.
Additionally, after a trial begins, the FDA may place it on hold or terminate it if, among other reasons, it concludes that the clinical subjects are exposed to an unacceptable
health risk.
As noted above, the FDA may require a company to collect clinical data on a device in the post-market setting.
The collection of such data may be required as a condition of PMA approval. The FDA also has the authority to order, via a letter, a post-market surveillance study for certain
devices at any time after they have been cleared or approved.
Similar requirements may be applicable in other countries and jurisdictions, including in the European Economic Area or EEA (which includes the 27 EU Member States as
well as Iceland, Liechtenstein and Norway) and in the United Kingdom.
Pervasive and continuing FDA regulation
After a device is placed on the market, regardless of its classification or premarket pathway, numerous additional FDA requirements generally apply. These include, but are not
limited to:
● Establishment registration and device listing requirements;
● Quality System Regulation (“QSR”), which governs the methods used in, and the facilities and controls used for, the design, manufacture, packaging, labeling, storage,
installation, and servicing of finished devices;
● Labeling requirements, which mandate the inclusion of certain content in device labels and labeling, and generally require the label and package of medical devices to
include a unique device identifier (“UDI”), and which also prohibit the promotion of products for uncleared or unapproved, i.e., “off-label,” uses;
● Medical Device Reporting (“MDR”) regulation, which requires that manufacturers and importers report to the FDA if their device may have caused or contributed to a
death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur; and
● Reports of Corrections and Removals regulation, which requires that manufacturers and importers report to the FDA recalls (i.e., corrections or removals) if
undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health; manufacturers and importers must
keep records of recalls that they determine to be not reportable.
The FDA enforces these requirements by inspection and market surveillance. Failure to comply with applicable regulatory requirements can result in enforcement action by the
FDA, which may include, but is not limited to, the following sanctions:
● Untitled letters or warning letters;
● Fines, injunctions and civil penalties;
● Recall or seizure of our products;
● Operating restrictions, partial suspension or total shutdown of production;
● Refusing our request for 510(k) clearance or premarket approval of new products;
● Withdrawing 510(k) clearance or premarket approvals that are already granted; and
● Criminal prosecution.
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We are subject to either announced or unannounced device inspections by the FDA, as well as other regulatory agencies overseeing the implementation of and compliance with
applicable state public health regulations. These inspections may include our suppliers’ facilities.
International
International sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. In order to market our products in other
countries, we must obtain regulatory approvals or certifications and comply with extensive safety and quality regulations in those countries. The time required to obtain
approval or certification to market our products in a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ.
Medical device manufacturers intending to market medical devices in the European Economic Area (the “EEA”), are required to affix the CE Mark to their medical devices,
often after the intervention of a Notified Body and the issuing of a CE Certificate of Conformity. Many other countries, such as Australia, India, New Zealand, Pakistan and Sri
Lanka, accept CE Certificates of Conformity or FDA clearance or approval, although others, such as Brazil, Canada and Japan require separate regulatory filings.
The EU Medical Devices Regulation (Regulation 2017/745 of the European Parliament and of the Council of April 5, 2017 on medical devices), or “EU MDR”, sets out the
basic regulatory framework currently applicable to medical devices in the EEA. The EU MDR became applicable on May 26, 2021, repealing the prior Council Directive
93/42/EEC, or the “EU MDD”, which had been regulating medical devices in the EEA for the past over 20 years. This represented a major change in the regulatory landscape
of medical devices in the EEA. The EU MDR sets out certain transitional provisions that allow for medical devices covered by the repealed EU MDD (called “legacy devices”)
to still be marketed in the EEA for a certain period of time.
In the EEA, medical devices are currently required to comply with the General Safety and Performance Requirements (or “GSPR”) in Annex I of the EU MDR (for legacy
devices, this corresponds to the Essential Requirements of Annex I of the EU MDD). Compliance with GSPR is a prerequisite for us to be able to affix the CE Mark to our
medical devices, without which they cannot be commercialized in the EEA. To demonstrate compliance with the GSPR and obtain the right to affix the CE Mark, we must
undergo a conformity assessment procedure, which varies according to the type of medical device and its classification. In the EEA medical devices are classified into four
different risk classes: Class I (which is further divided into (i) devices that are placed on the market in sterile condition, (ii) have a measuring function, (iii) are reusable surgical
instruments, and (iv) all others), IIa, IIb and III.
Apart from low risk medical devices (Class I if they have no measuring function, are not sterile, and are not reusable surgical instruments), where the manufacturer can issue an
EU Declaration of Conformity based on a self-assessment of the conformity of the devices with the GSPR, a conformity assessment procedure requires the intervention of a
Notified Body, which is an organization accredited by the competent authority of an EEA Member State to conduct conformity assessments. The Notified Body would typically
audit and examine the products’ technical documentation and the quality management system for the manufacture, design and final inspection of our medical devices before
issuing a CE Certificate of Conformity. After receiving the CE Certificate of Conformity from the Notified Body upon successful completion of the conformity assessment, we
can draw up an EU Declaration of Conformity which allows us to affix the CE Mark to our products.
Under the EU MDR, confirmation of conformity with relevant GSPR under the normal conditions of intended use of the device, and the evaluation of the undesirable side-
effects and of the acceptability of the benefit-risk-ratio, shall be based on clinical data providing sufficient clinical evidence, including where applicable post-market data.
Manufacturers are required to specify and justify the level of clinical evidence necessary to demonstrate conformity with the relevant GSPR. This level of clinical evidence
must be appropriate in view of the characteristics of the device and its intended purpose.
Besides its involvement in the initial conformity assessment procedure, the Notified Body is required to carry out an annual audit (surveillance audit) and is also required to
randomly perform unannounced audits at least once every five years. The quality management system and technical documentation of manufacturers will be required to be
recertified periodically, as CE Certificates of Conformity issued by a Notified Body remain valid only for the period indicated in them, in no case exceeding five years.
The conduct of clinical studies in the EEA is governed by detailed regulatory obligations. These include the requirement of prior authorization by the Competent Authorities of
the country in which the study takes place and the requirement to obtain a positive opinion from the relevant competent Ethics Committee. The conduct of clinical studies
(called “clinical investigations” under the EU MDR) is now mandatory for implantable devices and Class III medical devices (with certain exemptions).
The EU MDR also provides various requirements relating to post-market surveillance and vigilance, including the obligation for manufacturers to implement a post-market
surveillance system, in a manner that is proportionate to the risk class and appropriate for the type of device. Once a device is on the EEA market, manufacturers must comply
with certain vigilance requirements, such as the reporting serious incidents and field safety corrective actions (even those occurring outside the EEA) to the relevant competent
authorities.
Further, the advertising and promotion of our products in the EEA is subject to the EU MDR, to the national laws of individual EEA Member States, Directive 2006/114/EC
concerning misleading and comparative advertising, and Directive 2005/29/EC on unfair commercial practices, as well as other EEA Member State laws and industry codes
governing the advertising and promotion of medical devices. These laws may limit or restrict the advertising and promotion of our products to the general public and may
impose limitations on our promotional activities with healthcare professionals.
The EU MDR, when compared with the EU MDD, imposes increased compliance obligations for us to access and then remain on the EEA market. Our current CE Certificate
of Conformity is valid until May 27, 2024 in accordance with Article 120 of the EU MDR. This means that, if we want to keep selling our product in the EEA without
interruption, we need to obtain a new CE Certificate of Conformity under the EU MDR before such expiry date. There are currently a relatively small number of Notified
Bodies that have been accredited to conduct conformity assessments under the EU MDR. This may significantly delay our conformity assessment procedures in the future.
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Brexit
The UK withdrew from the EU on January 31, 2020 (the withdrawal is commonly referred to as “Brexit”). Brexit has created significant uncertainty concerning the future
relationship between the UK and the EU. On December 24, 2020, the EU and UK reached an agreement in principle on the framework for their future relationship, the “EU-UK
Trade and Cooperation Agreement”. The Agreement primarily focuses on ensuring free trade between the EU and the UK in relation to goods, but does not specifically address
medical devices. After the UK’s withdrawal from the EU, Great Britain (England, Scotland and Wales) is treated by the EU as a third country. Northern Ireland continues, with
regard to EU regulations, to follow the EU regulatory rules. In light of the fact that the CE marking process is set out in EU law, which no longer applies in the UK, the UK has
devised a new route to market culminating in a UK Conformity Assessed (UKCA) mark to replace the CE Mark. The route to market and the UKCA marking requirements are
based on the requirements of the EU MDD. Northern Ireland continues to be covered by the regulations governing CE Marks. As part of the Agreement, the EU and the UK
have agreed to continue to recognize declarations of conformity based on a self-assessment in the other territory.
Since January 1, 2021, the Medical Devices (EU Exit) Regulations 2020 introduced a number of changes to how medical devices are placed on the Great Britain’s market. The
CE marking will continue to be recognized in Great Britain until June 30, 2023, and certificates issued by Notified Bodies designated in the EEA will continue to be valid for
the Great Britain market until June 30, 2023. From July 1, 2023, manufacturers must obtain the UKCA mark to place a medical device on the Great Britain market.
Manufacturers must register their devices with the MHRA via the Device Online Registration System, subject to grace periods depending on the device classification.
Manufacturers are required to designate an Authorized Representative in the UK. A UK designated Notified Body will also be required for placing our devices on the market in
the UK.
Other Regulatory Matters
Manufacturing, sales, promotion and other activities following product approval are also subject to regulation by numerous regulatory authorities in addition to the FDA,
including, in the United States, the Centers for Medicare & Medicaid Services (“CMS”), other divisions of the Department of Health and Human Services, the Department of
Justice, the Consumer Product Safety Commission, the Federal Trade Commission, the Occupational Safety & Health Administration, the Environmental Protection Agency,
and state and local governments. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and
requirements apply. Manufacturing, sales, promotion and other activities are also potentially subject to federal and state consumer protection and unfair competition laws.
The distribution of medical device products is subject to additional requirements and regulations, including extensive record-keeping, licensing, storage and security
requirements intended to prevent the unauthorized sale of medical device products.
Third-Party Payor Coverage and Reimbursement
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 in any country. Significant uncertainty exists as to whether coverage and separate reimbursement of the Pure-Vu System will develop; but we sought new
technology payments from Medicare under the hospital Inpatient and Outpatient Prospective Payment Systems and were denied in 2021. We intend to seek separate
reimbursement for future versions of the system through private or governmental third-party payors in the future. In both the United States and foreign markets, our ability to
commercialize the Pure-Vu System successfully, and to attract commercialization partners for the Pure-Vu System, depends in part on the availability of adequate coverage and
reimbursement from third-party payors, including, in the United States, governmental payors such as the Medicare and Medicaid programs, managed care organizations, and
private health insurers. Medicare is a federally funded program managed by the CMS, through local contractors that administer coverage and reimbursement for certain
healthcare items and services furnished to the elderly and disabled. Medicaid is an insurance program for certain categories of patients whose income and assets fall below state
defined levels and who are otherwise uninsured, and it is both federally and state funded and managed by each state. The federal government sets general guidelines for
Medicaid and each state creates specific regulations or other guidelines that govern its individual program. Each payor, whether governmental or private, has its own process
and standards for determining whether it will cover and reimburse a procedure or particular product. Private payors often rely on the lead of the governmental payors in
rendering coverage and reimbursement determinations. Therefore, achieving favorable Medicare coverage and reimbursement is usually a significant gating issue for successful
introduction of a new product. The competitive position of the Pure-Vu System will depend, in part, upon the extent of coverage and adequate reimbursement for such product
and for the procedures in which such product is used. Prices at which we or our customers seek reimbursement for the Pure-Vu System can be subject to challenge, reduction or
denial by the government and other payors.
In the event we do receive approval for third-party or government reimbursement for our product, the marketability of such product may suffer if the government and
commercial third-party payors fail to provide adequate coverage and reimbursement. An emphasis on cost containment measures in the United States has increased and we
expect it will continue. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one
or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
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State and federal healthcare reform measures may be adopted in the future, any of which may result in additional reductions in Medicare and other healthcare funding and
otherwise affect the prices we may obtain for any of our product candidates for which we may obtain regulatory approval or the frequency with which any such product
candidate is prescribed or used.
In addition, in some foreign countries, the proposed pricing for a medical device must be approved before it may be lawfully marketed. The requirements governing medical
device pricing vary widely from country to country. For example, the EEA provides options for its Member States to restrict the range of medical devices for which their
national health insurance systems provide reimbursement and to control the prices of medical devices. In some countries, we may be required to conduct a clinical study or
other studies that compare the cost-effectiveness of any of our medical devices to other available therapies in order to obtain or maintain reimbursement or pricing approval.
Other EEA countries allow companies to fix their own prices for medical devices, but monitor and control company profits. The downward pressure on health care costs has
become very intense. As a result, increasingly high barriers are being erected to the entry of new devices. In addition, in some countries, cross-border imports from low-priced
markets exert a commercial pressure on pricing within a country.
In recent years, a number of EEA countries have introduced so-called health technology assessments (HTA). HTA measures the added value of a new health technology, in our
case a medical device, compared to existing ones. HTA’s assessment include cost implications for the patient and its impact on the organization of healthcare systems in the
administration of treatment. An EU Regulation on HTA entered into force in January 2022 and will be applied three years later (January 2025). It offers the possibility for EEA
countries’ HTA bodies to conduct Joint Clinical Assessments of new high-risk medical devices.
Historically, products launched in the European Union do not follow price structures of the United States and generally tend to be priced significantly lower. Publication of
discounts by third-party payors or authorities may lead to further pressure on the prices or reimbursement levels within the country of publication and other countries. If pricing
is set at unsatisfactory levels or if reimbursement of our medical devices is unavailable or limited in scope or amount, our revenues from sales by us or our strategic partners
and the potential profitability of any of our medical devices in those countries would be negatively affected.
Other Healthcare Laws and Compliance Requirements
Healthcare providers, physicians, and third party payors will play a primary role in the recommendation and use of any products for which we obtain marketing approval. Our
arrangements with third party payors, healthcare providers and physicians will expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that
may constrain the business or financial arrangements and relationships through which we market, sell and distribute any device for which we obtain marketing approval. In the
United States, restrictions under applicable federal and state healthcare laws and regulations include, but are not limited to, the following:
● The federal Anti-Kickback Statute (“AKS”) makes it illegal for any person, including a device manufacturer (or a party acting on its behalf), to knowingly and
willfully solicit, receive, offer or pay any remuneration, directly or indirectly, in cash or in kind, that is intended to induce or reward, or in return for, the purchase,
lease, recommendation, order, or arranging for the purchase, lease, or order, of any health care product or service for which payment may be made under a federal
healthcare program, such as Medicare or Medicaid. Remuneration has been broadly defined to include anything of value, including cash, improper discounts, and free
or reduced-price items and services. Violations of this law are punishable by up to ten years in prison, criminal fines, administrative civil money penalties and
exclusion from participation in federal healthcare programs. In addition, a person or entity does not need to have actual knowledge of the statute or specific intent to
violate it. There are a number of statutory exceptions and regulatory safe harbors protecting from prosecution some common activities like discounts, or engaging
health care professionals as speakers or consultants; however, those exceptions and safe harbors are drawn narrowly, and there is no exception or safe harbor for many
common business activities like educational grants or reimbursement support programs.
● The federal civil False Claims Act imposes liability, including through civil whistleblower or qui tam actions, against individuals or entities (including manufacturers)
for, among other things, knowingly presenting, or causing to be presented, false or fraudulent claims for payment of government funds, knowingly making, using, or
causing to be made or used a false statement or record material to an obligation to pay money to the government, or knowingly concealing or knowingly and
improperly avoiding, decreasing or concealing an obligation to pay money to the federal government. Penalties for a False Claims Act violation include three times the
actual damages sustained by the government, plus significant mandatory penalties per false claim or statement for violations for each separate false claim, and the
potential for exclusion from participation in federal healthcare programs. Conduct that violates the False Claims Act also may implicate various federal criminal
statutes. The government may deem manufacturers to have “caused” the submission of false or fraudulent claims by, for example, providing inaccurate billing or
coding- information to customers or promoting a product off-label. Claims which include items or services resulting from a violation of the federal Anti-Kickback
Statute also are deemed false or fraudulent claims for purposes of the False Claims Act. Our marketing and activities relating to the reporting of wholesaler or
estimated retail prices for our products and other information affecting federal, state and third-party reimbursement for our products, and the sale and marketing of our
product and any future product candidates, are subject to scrutiny under this law.
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● The Health Insurance Portability and Accountability Act of 1996, and its implementing regulations (collectively, “HIPAA”) imposes criminal liability for knowingly
and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payers; knowingly and willfully
embezzling or stealing from a healthcare benefit program; willfully obstructing a criminal investigation of a healthcare offense; and knowingly and willfully falsifying,
concealing, or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare
benefits, items or services. HIPAA also imposes certain obligations, including contractual terms and technical safeguards, with respect to safeguarding the privacy,
security and transmission of individually identifiable health information.
● The federal Physician Payments Sunshine Act and its implementing regulations, which requires that certain manufacturers of devices and medical supplies for which
payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report information related to certain payments
or other transfers of value made or distributed to physicians and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, physicians
and teaching hospitals and to report annually certain ownership and investment interests held by physicians and their immediate family members, and payments or
other “transfers of value” to such physician owners. Beginning in 2022, applicable manufacturers are also required to report information regarding payments and
transfers of value provided to physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, and certified nurse-midwives.
● Analogous state and foreign fraud and abuse laws and regulations, such as anti-kickback and false claims laws, which may apply to sales and marketing arrangements
and claims involving healthcare items or services reimbursed by any third party payor, including commercial insurers, and state and local laws that require
manufacturers to report information related to payments and other transfers of value to health care providers and state and local laws that require manufacturers to
implement compliance programs or marketing codes. State laws governing the privacy and security of health information in certain circumstances, many of which
differ from each other in significant ways and often are not preempted by federal laws, thus complicating compliance efforts. Such laws are generally broad and are
enforced by various state agencies and private actions.
Interactions between medical devices manufacturers and physicians are also governed by strict laws, regulations, industry self-regulation codes of conduct and physicians’
codes of professional conduct developed at both EEA level and in the individual EEA Member States. The provision of benefits or advantages to physicians to induce or
encourage the recommendation, endorsement, purchase, supply, order or use of medical devices is generally prohibited in the EEA. Breach of these laws could result in
substantial fines and imprisonment. Payments made to physicians in certain EEA Member States also must be publicly disclosed. Moreover, agreements with physicians must
often be the subject of prior notification and approval by the physician’s employer, their competent professional organization, and/or the competent authorities of the individual
EEA Member States. Failure to comply with these requirements could result in reputational risk, public reprimands, administrative penalties, fines or imprisonment.
In addition, we may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA imposes certain
requirements relating to the privacy, security and transmission of individually identifiable health information, which are applicable to “business associates”—certain persons or
entities that create, receive, maintain or transmit protected health information in connection with providing a specified service or performing a function on behalf of a covered
entity.
Further, the legislative and regulatory landscape for privacy and data security continues to evolve, and there has been an increasing amount of focus on privacy and data
security issues with the potential to affect our business. Congress and state legislatures also have been considering and enacting new legislation relating to privacy and data
protection. For example, in California, the California Consumer Privacy Act (“CCPA”) created new transparency requirements and granted California residents several new
rights with regard their personal information. In addition, in November 2020, California voters approved the California Privacy Rights Act (“CPRA”) ballot initiative which
introduced significant amendments to the CCPA and established and funded a dedicated California privacy regulator, the California Privacy Protection Agency (“CPPA”). The
amendments introduced by the CPRA go into effect on January 1, 2023, and new implementing regulations are expected to be introduced by the CPPA. Failure to comply with
the CCPA may result in, among other things, significant civil penalties and injunctive relief, or potential statutory or actual damages. In addition, California residents have the
right to bring a private right of action in connection with certain types of incidents. These claims may result in significant liability and potential damages. We implemented
processes to manage compliance with the CCPA and continue to assess the impact of the CPRA, and other state legislation, on our business as additional information and
guidance becomes available.
The Federal Trade Commission (“FTC”) also sets expectations for failing to take appropriate steps to keep consumers’ personal information secure, or failing to provide a level
of security commensurate to promises made to individual about the security of their personal information (such as in a privacy notice) may constitute unfair or deceptive acts or
practices in violation of Section 5(a) of the Federal Trade Commission Act (“FTC Act”). The FTC expects a company’s data security measures to be reasonable and appropriate
in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce
vulnerabilities. Individually identifiable health information is considered sensitive data that merits stronger safeguards. With respect to privacy, the FTC also sets expectations
that companies honor the privacy promises made to individuals about how the company handles consumers’ personal information; any failure to honor promises, such as the
statements made in a privacy policy or on a website, may also constitute unfair or deceptive acts or practices in violation of the FTC Act. While we do not intend to engage in
unfair or deceptive acts or practices, the FTC has the power to enforce promises as it interprets them, and events that we cannot fully control, such as data breaches, may be
result in FTC enforcement. Enforcement by the FTC under the FTC Act can result in civil penalties or enforcement actions.
EEA Member States and other jurisdictions where we operate have adopted data protection laws and regulations, which impose significant compliance obligations. For
example, the General Data Protection Regulation (or “GDPR”) imposes strict obligations and restrictions on the ability to collect, analyze and transfer personal data, especially
in the case of sensitive personal data (such as health data from clinical investigations) and safety reporting. The GDPR also imposes strict rules on the transfer of personal data
out of the EEA, including to the U.S., and fines and penalties for failure to comply with the requirements of the GDPR and the related national data protection laws of the EEA
countries, which can go to up to €20 million or up to 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher. The obligations under the
GDPR may therefore be onerous and adversely affect our business, financial condition, results of operations and prospects.
Switzerland has adopted similar restrictions. These obligations and restrictions concern, in particular, the consent of the individuals to whom the personal data relate, the
information provided to the individuals, the transfer of personal data out of the EEA or Switzerland, security breach notifications, security and confidentiality of the personal
data, as well as substantial potential fines for breaches of the data protection obligations.
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Data protection authorities from the different EU Member States may interpret the GDPR and applicable related national laws differently and impose requirements additional to
those provided in the GDPR. In addition, guidance on implementation and compliance practices may be updated or otherwise revised, which adds to the complexity of
processing personal data in the EU. When processing personal data of subjects in the EU, we must comply with the applicable data protection laws. In particular, when we rely
on third party service providers processing personal data of subjects in the EU, we must enter into suitable agreements with these providers and receive sufficient assurances
that the providers meet the requirements of the applicable data protection laws, particularly the GDPR which imposes specific and relevant obligations.
Although there are legal mechanisms to allow for the transfer of personal data from the EEA to the US, decisions of the European Court of Justice have increased uncertainty
around compliance with EU privacy law requirements. As a result of the decision in the Schrems case (Case C-362/14 Maximillian Schrems v. Data Protection Commissioner),
it was no longer possible to rely on the safe harbor certification as a legal basis for the transfer of personal data from the EU to entities in the US. On February 29, 2016, the
European Commission announced an agreement with the United States Department of Commerce (DOC) to replace the invalidated Safe Harbor framework with a new EU-US
“Privacy Shield.” However, on July 16, 2020, the European Court of Justice ruled in a case known as the “Schrems II”, the EU-US Privacy Shield to be an invalid data transfer
mechanism, confirmed that the Standard Contractual Clauses remain valid, and left unaddressed some issues regarding supplementary measures that may need to be taken to
support transfers. As a result, organizations are no longer able to use the Privacy Shield framework to transfer personal data. The CJEU’s decision in Schrems II left some open
questions about whether the European Commission’s Standard Contractual Clauses can lawfully be used for personal data transfers from the EEA to the U.S. or other third
countries that are not the subject of an adequacy decision of the European Commission.
While the CJEU upheld the adequacy of the Standard Contractual Clauses in principle in Schrems II, it made clear that reliance on those Clauses alone may not necessarily be
sufficient in all circumstances. Use of the Standard Contractual Clauses must now be assessed on a case-by-case basis taking into account the legal regime applicable in the
destination country, in particular regarding applicable surveillance laws and relevant rights of individuals with respect to the transferred data.
The decision in Schrems II also affects transfers from the UK to the U.S. Furthermore, following the UK’s exit from the EU, the UK became a third country to the EEA in
terms of personal data transfers. The EC has adopted an Adequacy Decision concerning the level of personal data protection. However, personal data transfers from the EEA to
the UK may nevertheless be at a greater risk than before because an Adequacy Decision may be suspended.
Following the Schrems II decision, the Swiss Federal Data Protection and Information Commissioner, or the FDPIC, also announced that the Swiss-U.S. Privacy Shield does
not provide adequate safeguards for the purposes of personal data transfers from Switzerland to the U.S. While the FDPIC does not have authority to invalidate the Swiss-U.S.
Privacy Shield regime, the FDPIC’s announcement casts doubt on the viability of the Swiss-U.S. Privacy Shield as a future compliance mechanism for Swiss-U.S. data
transfers.
Compliance with data transfer obligations involves documenting detailed analyses of data access and protection laws in the countries in which data importers are located, which
can be costly and time-consuming. Data importers must also expend resources in analyzing their ability to comply with transfer obligations, including implementing new
safeguards and controls to further protect personal data. If we or our vendors fail to comply with applicable data privacy laws, or if the legal mechanisms we or our vendors rely
upon to allow for the transfer of personal data from the EEA, the UK, or Switzerland to the US (or other countries not considered by the European Commission to provide an
adequate level of data protection) are not considered adequate, we could be subject to government enforcement actions and significant penalties against us, and our business
could be adversely impacted if our ability to transfer personal data outside of the EEA, UK, or Switzerland is restricted, which could adversely impact our operating results.
The landscape of laws regulating personal data is constantly evolving, and compliance with these laws requires a flexible privacy framework and substantial resources, and
compliance efforts will likely be an increasing and substantial cost in the future.
Current and future legislation
In the United States and foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could
prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any product candidates for
which we obtain marketing approval. We expect that current laws, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous
coverage criteria and in additional downward pressure on the price that we, or any collaborators, may receive for any approved products.
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For example, in March 2010, the Patient Protection and Affordable Care Act (the “Affordable Care Act”) was enacted. The Affordable Care Act has substantially changed the
way healthcare is financed by both governmental and private insurers and has significantly affected the health care industry. Certain provisions of the Affordable Care Act have
been subject to judicial challenges as well as efforts modify them or to alter their interpretation and implementation. For example, the Tax Cuts and Jobs Act (TCJA) enacted on
December 22, 2017, included a provision that eliminated the tax-based shared responsibility payment for individuals who fail to maintain minimum essential coverage under
Section 5000A of the Internal Revenue Code of 1986, commonly referred to as the “individual mandate,” effective January 1, 2019. Additional legislative changes, regulatory
changes, and judicial challenges related to the Affordable Care Act remain possible, but the nature and extent of such potential changes or challenges are uncertain at this time.
The implications of the Affordable Care Act, and efforts to modify or invalidate the Affordable Care Act or its implementing regulations, or portions thereof, and the
uncertainty surrounding any other modification related to the Affordable Care Act or any other health care reform measure for our business and financial condition, if any, are
not yet clear. We will continue to evaluate the effect that the Affordable Care Act as well as its possible modification or invalidation, in whole or in part, and any other health
care reform measure has on our business.
In the EEA and as mentioned above, the EU MDR imposes increased compliance obligations for us to access and then remain on the EEA market. It introduced substantial
changes to the obligations applicable to medical device manufacturers and Notified Bodies in the EEA. As a result, there are less Notified Bodies available to conduct
conformity assessments under the EU MDR, which has significantly increased the time needed for companies to access the EEA market. Moreover, as the EU MDR only
started to apply from May 2021, a number of guidance documents is still not available to guide manufacturers and Notified Bodies. The EU Regulation on health technology
assessments (HTA) that entered into force in January 2022 and that will be applied three years later (January 2025) may also impact in the future the pricing and reimbursement
of our product.
Additional laws and regulations governing international operations
If we further expand our operations outside of the United States, we must dedicate additional resources to comply with numerous laws and regulations in each jurisdiction in
which we plan to operate. The Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering, authorizing payment or offering of
anything of value, directly or indirectly, to any foreign official, political party or candidate, or to any employee of a public international organization, for the purpose of
influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose
securities are listed in the United States to comply with certain accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all
transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls.
Compliance with the FCPA is expensive and resource-intensive, particularly in countries in which corruption is a recognized problem. In addition, the FCPA presents particular
challenges in the medical device and pharmaceutical industries, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees
are considered foreign officials. Certain payments to hospitals in connection with clinical trials and other work have been deemed to be improper payments to government
officials and have led to FCPA enforcement actions. In recent years, there has been a trend of increasing government investigations and litigations against companies operating
in our industry, both in the United States and around the world. We may become involved in government investigations that arise in the ordinary course of our business.
Various laws, regulations and executive orders also restrict the use and dissemination outside of the United States, or the sharing with certain non-U.S. nationals, of information
classified for national security purposes, as well as certain products and technical data relating to those products. If we expand our presence outside of the United States, it will
require us to dedicate additional resources to comply with these laws, and these laws may preclude us from developing, manufacturing, or selling certain products and product
candidates outside of the United States, which could limit our growth potential and increase our development costs.
The failure to comply with laws governing international business practices may result in substantial civil and criminal penalties and suspension or debarment from government
contracting. The Securities and Exchange Commission, or SEC, also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s
accounting provisions.
Our business activities outside of the U.S. are also subject to anti-bribery or anti-corruption laws, regulations, industry self-regulation codes of conduct and physicians’ codes of
professional conduct or rules of other countries in which we operate, including the U.K. Bribery Act of 2010.
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Post-Marketing Regulations
Following clearance or approval of a new product, a company and the product are subject to continuing regulation by the FDA and other foreign, federal and state regulatory
authorities, including, among other things, monitoring and recordkeeping activities, reporting to applicable regulatory authorities of adverse experiences with the product,
providing the regulatory authorities with updated safety and efficacy information, product sampling and distribution requirements, and complying with promotion and
advertising requirements, which include, among others, standards for direct-to-consumer advertising, restrictions on promoting for uses or in patient populations not described
in the product’s approved labeling (known as “off-label use”), limitations on industry-sponsored scientific and educational activities, and requirements for promotional
activities involving the internet. Although physicians may prescribe legally available products for off-label uses, manufacturers may not market or promote such off-label uses.
Modifications or enhancements to the products or labeling or changes of site of manufacture are often subject to the approval of the FDA and other regulators or subject of
review by a Notified Body in the EU, which may or may not be received or may result in a lengthy review process.
Implications of Being an Emerging Growth Company
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and, for as long as we continue to be an “emerging
growth company,” we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth
companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as
amended, (the “Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the
requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could
be an “emerging growth company” for up to five years from the date of our initial public offering in February 2018, or until the earliest of (i) the last day of the first fiscal year
in which our annual gross revenues exceed $1.07 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would
occur if the market value of our Common Stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal
quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period. We intend to take advantage of these
reporting exemptions described above until we are no longer an “emerging growth company.” Under the JOBS Act, “emerging growth companies” can also delay adopting new
or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or
revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not “emerging growth
companies.”
Corporate and Available Information
We are a Delaware corporation formed in September 2016 under the name Eight-Ten Merger Corp. In November 2016, we changed our name to Motus GI Holdings, Inc. We
are the parent company of Motus GI Medical Technologies Ltd., an Israeli corporation, and Motus GI, LLC (formerly Motus GI, Inc.), a Delaware limited liability company.
Motus GI, Inc. was converted from a Corporation into a Limited Liability Company effective January 1, 2021.
Our principal executive offices are located at 1301 East Broward Boulevard, 3rd Floor, Ft. Lauderdale, FL 33301. Our phone number is (954) 541-8000 and our web address is
www.motusgi.com. Our website and the information contained on, or that can be accessed through, our website will not be deemed to be incorporated by reference into this
Annual Report on Form 10-K or any other report we file with or furnish to the SEC.
We make available free of charge on or through the Investor Relations link on our website, www.motusgi.com, access to press releases and investor presentations, as well as all
materials that we file electronically with the SEC, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to
those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after electronically filing such materials with, or
furnishing them to, the SEC. During the period covered by this Form 10-K, we made all such materials available through our website as soon as reasonably practicable after
filing such materials with the SEC. The SEC maintains an Internet website, www.sec.gov, that contains reports, proxy and information statements and other information that we
file electronically with the SEC.
“Motus GI,” “Pure-Vu,” and our other registered or common law trademarks, service marks or trade names appearing herein are the property of Motus GI Holdings, Inc. Some
trademarks referred to in this report are referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will
not assert, to the fullest extent under applicable law, their rights thereto. We do not intend the use or display of other companies’ trademarks and trade names to imply a
relationship with, or endorsement or sponsorship of us by, any other companies.
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ITEM 1A. RISK FACTORS
An investment in our Common Stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all other
information in this Annual Report on Form 10-K and our other reports filed with the Securities and Exchange Commission. The risks set forth below are not the only ones
facing us. Additional risks and uncertainties may exist that could adversely impact our business, operations and financial conditions. If any one or more of the following risks
actually materialize, our business, financial condition, reputation, operations and/or future prospects suffer. In such event, the value of our Common Stock could decline, and
you could lose all or a substantial portion of the money that you pay for our Common Stock.
SUMMARY
The following summarizes key risks and uncertainties that could materially adversely affect us. You should read this summary together with the more detailed
description of each risk factor contained below.
Risks relating to our financial position and need for capital , including risks relating to:
● the sustainability of our operations and ability to continue as a going concern.
● the recurring losses from operations since inception and possibility of never becoming profitable.
● our indebtedness to Kreos Capital VI (Expert Fund) LP and related restrictions under the Loan Agreement.
● the need for substantial additional capital to fund our operations, and if we fail to obtain such financing, we may not be able to complete the development and
commercialization of any of our product candidates.
● the potential dilutive impact of issuing additional equity securities in connection with necessary capital raises.
● our ability to use net operating loss carryforward and other tax attributes may be limited.
Risks related to government regulation and third-party reimbursement, including risks related to:
● the impact of costly and complex current and future regulation.
● our ability to successfully obtain or maintain the necessary government approvals or third party certifications to market our Pure-Vu System both domestically and
throughout the EEA.
● the need to obtain new 510(k) clearance or a new CE Certificate of Conformity in the event of new modifications which may require us to cease marketing or initiate
recalls pending approval.
● the potential for product malfunctions causing death or serious injury, subjecting us to enforcement actions.
● the potential for recalls of our Pure-Vu System or the discovery of a serious safety issue with the product.
● our Pure-Vu System is not currently separately reimbursable through private or government third-party payors.
● the difficulty and increased costs of marketing approval and commercialization of our products due to recent and future legislation.
● the potential liability if we fail to comply with fraud and abuse laws.
● the potential liability and commercialization consequences if we engage in inappropriate promotion of our Pure-Vu System.
● the potential for civil and/or criminal sanctions related to potential non-compliance with anti-corruption laws.
● the laws and regulations governing international business operations and potential for adverse impacts on our business.
Risks related to our business operations, including risks related to:
● having only one product, and the lack of assurance that we will develop any additional products.
● being a medical technology company with a limited operating history.
● potential non-acceptance of the Pure-Vu System by physicians and patients.
● our ability to successfully commercialize our Pure-Vu System.
● our limited sales and marketing organization and related difficulties for commercializing our Pure-Vu System.
● the impact of any potential adverse side effects caused by our Pure-Vu System.
● the impact of any security breaches, computer malware, computer hacking and other security incidents.
● the breadth of data privacy laws and regulations.
● the difficulties associated with achieving commercialization.
● the difficulties related to training medical professionals on the safe and appropriate use of our products.
● competition in the marketplace.
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● the potential for technological obsolescence.
● the potential reputational damage and unforeseen costs if defects were identified in our products.
● our ability to penetrate international markets.
● our dependence on third party manufacturers to manufacture our Pure-Vu System.
● the impact of Israeli regulations on outsourcing and development for our Pure-Vu System.
Risks related to our intellectual property rights, including risks related to:
● our ability to properly safeguard our intellectual property rights.
● the impact of potential intellectual property disputes.
● the impact of employment and confidentiality disputes.
General risks, including risks related to:
● the difficulties related to predicting and managing growth.
● our ability to attract and retain key personnel.
● the impact of product liability lawsuits.
● the uncertainties related to exchange rate fluctuations.
● the costs related to acquisition and investment activities.
● the outbreaks of communicable diseases, including COVID-19, which may materially affect our business, financial condition and results of operation.
Risks related to our capital stock, including risks related to:
● significant fluctuations in our quarterly operating results.
● the unpredictability of the trading market.
● a decrease in stock price related to a large sell-off.
● our ability to remain compliant with the requirements of The Nasdaq Capital Market for continued listing, including regaining compliance with the $1 minimum bid
requirement.
● the potential adverse effect on the liquidity of our Common Stock if we implement a reverse stock split.
● the frequency, nature and content of equity analyst report.
● the volatility of our share price.
● royalty payments due under the terms of the Royalty Payments Rights Certificates.
● reduced disclosure requirements as an “emerging growth company.”
● costs and management time devoted to operations after we are no longer an “emerging growth company.”
● our ability to manage internal controls to prevent fraud or errors.
● our failure to maintain internal control over financial reporting.
● our expectations that we will not pay dividends in the foreseeable future.
● the likelihood that upon dissolution, stockholder will lose some or all portions of their investment.
● the dilutive effect of additional issuances of preferred stock.
● our choice of forum in the state of Delaware may discourage stockholder suits against us.
Risks related to our operations in Israel, including risks related to:
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the impact of Israel’s political, economic and military instability on our research and development facilities and suppliers in the region.
royalty and other payments to the Israeli government as required by certain research and development grant terms.
the difficulties associated with enforcing a foreign court’s judgment and serving process in a foreign jurisdiction.
the impact of potential patent litigation.
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Risks Related to Our Financial Position and Need for Capital
There is substantial doubt about our ability to continue as a going concern, which will affect our ability to obtain future financing and may require us to curtail our
operations.
Our financial statements as of December 31, 2021 were prepared under the assumption that we will continue as a going concern. The independent registered public accounting
firm that audited our 2021 financial statements, in their report, included an explanatory paragraph referring to our recurring losses since inception and expressing management’s
assessment and conclusion that there is substantial doubt in our ability to continue as a going concern. Our financial statements do not include any adjustments that might result
from the outcome of this uncertainty. Our ability to continue as a going concern depends on our ability to obtain additional equity or debt financing, attain further operating
efficiencies, reduce expenditures, and, ultimately, to generate revenue. We cannot assure you, however, that we will be able to achieve any of the foregoing. See Note 2 to our
Consolidated Financial Statements for further details.
We have incurred substantial operating losses in each year since our inception and expect to continue to incur substantial losses for the foreseeable future. We may never
become profitable or, if achieved, be able to sustain profitability.
We expect to incur substantial expenses without corresponding revenues unless and until we expand our commercialization efforts. To date, as part of our initial U.S. market
launch targeting early adopter hospitals, we have generated limited revenue from our Pure-Vu System, but we do not expect to generate significant revenue from product sales
until we expand our commercialization efforts for the Pure-Vu System, which is subject to significant uncertainty. We expect to incur significant marketing expenses in the
United States, Europe and elsewhere, and there can be no assurance that we will generate significant revenues or ever achieve profitability. Our net loss for the years ended
December 31, 2021 and December 31, 2020 was approximately $19.0 million and $19.3 million, respectively. As of December 31, 2021, we had an accumulated deficit of
approximately $122.8 million.
Our indebtedness to Kreos Capital VI (Expert Fund) LP may limit our flexibility in operating our business and adversely affect our financial health and competitive
position. Our obligations to Kreos Capital VI (Expert Fund) LP are secured by substantially all of our assets. If we default on these obligations, Kreos Capital VI (Expert
Fund) LP could foreclose on our assets, which could have a materially adverse effect on our business.
In July 2021, we entered into an Agreement for the Provision of a Loan Facility with Kreos Capital VI (Expert Fund) LP (the “Loan Agreement”). All obligations under the
Loan Agreement are secured by a first priority security interest on substantially all of our personal property assets, including our material intellectual property and equity
interests in our subsidiaries. As a result, if we default on any of our obligations under the Loan Agreement, Kreos Capital VI (Expert Fund) LP could foreclose on its security
interest and liquidate some or all of the collateral, which would harm our business, financial condition and results of operations and could require us to reduce or cease
operations.
In order to service this indebtedness and any additional indebtedness we may incur in the future, we will need to generate cash from our operating activities. Our ability to
generate cash is subject, in part, to our ability to successfully execute our business strategy, as well as general economic, financial, competitive, regulatory and other factors
beyond our control. If we are unable to generate sufficient cash to repay our debt obligations when they become due and payable, either when they mature, or in the event of a
default, we may not be able to obtain additional debt or equity financing on favorable terms, if at all, which may negatively impact our business operations and financial
condition.
The Loan Agreement restricts our ability, among other things, in each case subject to certain exceptions, to:
● sell, transfer or otherwise dispose of any of our business assets or property;
● enter into transactions resulting in significant changes to the voting control of our stock;
● consolidate or merge with other entities or acquire other entities;
● incur additional indebtedness or create encumbrances on our assets;
● pay dividends, or make distributions on and, in certain cases, repurchase our capital stock;
● enter into certain transactions with our affiliates;
● repay subordinated indebtedness; or
● make certain investments.
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In addition, we are required under the Loan Agreement to comply with various undertakings. The undertakings and restrictions and obligations in the Loan Agreement, as well
as any future financing agreements that we may enter into, may restrict our ability to finance our operations, engage in business activities or expand or fully pursue our business
strategies. Our ability to comply with these undertakings may be affected by events beyond our control, and we may not be able to meet those undertakings.
If we breach any of the undertakings or default on any of our obligations under the Loan Agreement all of the outstanding indebtedness under the Loan Agreement could
become immediately due and payable, and/or Kreos Capital VI (Expert Fund) LP could foreclose on its security interest and liquidate some or all of the collateral, which would
harm our business, financial condition and results of operations and could require us to reduce or cease operations.
If our indebtedness under the Loan Agreement were to be accelerated, there can be no assurance that our assets would be sufficient to repay in full that indebtedness. In
addition, upon any distribution of assets pursuant to any liquidation, insolvency, dissolution, reorganization or similar proceeding, Kreos Capital VI (Expert Fund) LP will be
entitled to receive payment in full from the proceeds of the collateral which secures our indebtedness before the holders of other indebtedness or holders of our Common Stock
receive any distribution with respect thereto.
Our cash and cash equivalents will only fund our operations for a limited time and we will need to raise additional capital in order to support our development and
commercialization efforts.
We are currently operating at a loss and expect our operating costs will increase significantly as we incur costs associated with commercialization activities related to our Pure-
Vu System. The independent registered public accounting firm that audited our 2021 financial statements, in their report, included an explanatory paragraph referring to our
recurring losses since inception and expressing management’s assessment and conclusion that there is substantial doubt in our ability to continue as a going concern. At
December 31, 2021, we had cash and cash equivalents of approximately $22.6 million.
We will need to raise additional capital or generate substantial revenue in order to support our development and commercialization efforts.
If our available cash balances are insufficient to satisfy our liquidity requirements, including due to risks described herein, we may seek to raise additional capital through
equity offerings, debt financings, collaborations or licensing arrangements. We will need to raise additional capital, and we may also consider raising additional capital in the
future to expand our business, to pursue strategic investments, to take advantage of financing opportunities, or for other reasons, including to:
● fund development and efforts of any future products;
● acquire, license or invest in technologies;
● acquire or invest in complementary businesses or assets; and
● finance capital expenditures and general and administrative expenses.
Our present and future funding requirements will depend on many factors, including:
● our revenue growth rate and ability to generate cash flows from operating activities;
● our sales and marketing and research and development activities;
● costs of and potential delays in product development;
● changes in regulatory oversight applicable to our products; and
● costs related to international expansion.
Except for our Loan Agreement with Kreos Capital VI (Expert Fund) LP and our Equity Distribution Agreement (as defined below) with Oppenheimer & Co. Inc.
(“Oppenheimer”), we have no arrangements or credit facilities in place as a source of funds, and there can be no assurance that we will be able to raise sufficient additional
capital on acceptable terms, or at all, and if we are not successful in raising additional capital, we may not be able to continue as a going concern. We may seek additional
capital through a combination of private and public equity offerings (which, in limited circumstances, may require the prior written consent of Oppenheimer pursuant to our
Equity Distribution Agreement), debt financings (which, except for limited circumstances, would require the prior written consent of Kreos Capital VI (Expert Fund) LP
pursuant to our Loan Agreement), and strategic collaborations. Debt financing, if obtained, may involve agreements that include covenants limiting or restricting our ability to
take specific actions, such as incurring additional debt, that could increase our expenses and require that our assets secure such debt. Equity financing, if obtained, could result
in dilution to our then existing stockholders and/or require such stockholders to waive certain rights and preferences. If such financing is not available on satisfactory terms, or
is not available at all, we may be required to delay, scale back or eliminate the development of business opportunities and our operations and financial condition may be
materially adversely affected. We can provide no assurances that any additional sources of financing will be available to us on favorable terms, if at all. In addition, if we are
unable to secure sufficient capital to fund our operations, we might have to enter into strategic collaborations that could require us to share commercial rights to the Pure-Vu
System with third parties in ways that we currently do not intend or on terms that may not be favorable to us. If we choose to pursue additional indications and/or geographies
for the Pure-Vu System or otherwise expand more rapidly than we presently anticipate, we may also need to raise additional capital sooner than expected.
Future capital raises may dilute our existing stockholders’ ownership and/or have other adverse effects on our operations.
If we raise additional capital by issuing equity securities, our existing stockholders’ percentage ownership will be reduced and these stockholders may experience substantial
dilution. If we raise additional funds by issuing debt securities, these debt securities would have rights senior to those of our Common Stock and the terms of the debt securities
issued could impose significant restrictions on our operations, including liens on our assets. If we raise additional funds through collaborations and licensing arrangements, we
may be required to relinquish some rights to our technologies or products, or to grant licenses on terms that are not favorable to us.
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Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
Effective on December 1, 2016, Motus GI Medical Technologies LTD, and the holders of all issued and outstanding shares of capital stock of Motus GI Medical Technologies
LTD (the “LTD Stockholders”), entered into a share exchange agreement (the “Share Exchange Agreement”) with us. Pursuant to the terms of the Share Exchange Agreement,
as a condition of and contemporaneously with the initial closing (the “Initial Closing”) of the 2017 Private Placement, the LTD Stockholders sold to us, and we acquired, all of
the issued and outstanding shares of capital stock of Motus GI Medical Technologies LTD (the “Share Exchange Transaction”) and Motus GI Medical Technologies LTD
became our direct wholly-owned subsidiary. As a result of the Share Exchange Transaction, our ability to utilize our federal net operating loss carryforwards and federal tax
credits may be limited under Sections 382 of the Internal Revenue Code of 1986, as amended (the “Code”). The limitations apply if an “ownership change,” as defined by Code
Section 382, occurs. Generally, an ownership change occurs if the percentage of the value of the stock that is owned by one or more direct or indirect “five percent
shareholders” increases by more than 50 percentage points over their lowest ownership percentage at any time during the applicable testing period (typically three years). In
addition, future changes in our stock ownership, which may be outside of our control, may trigger an “ownership change” and, consequently, Code Section 382 limitations. As a
result, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards and other tax attributes to offset United States federal taxable income
may be subject to limitations, which could potentially result in increased future tax liability to us.
Risks Related to Government Regulation and Third-Party Reimbursement
We are subject to complex and costly regulation.
Our product, and any products we may develop in the future, are subject to regulation by the FDA and other national, supranational, federal and state governmental authorities.
It can be costly and time-consuming to obtain regulatory clearance, approval, or certification to market a new or modified medical device or other product. Clearance and/or
approval might not be granted on a timely basis, if at all. Regulations are subject to change as a result of legislative, administrative or judicial action, which may further
increase our costs or reduce sales. Unless an exception applies, the FDA requires that the manufacturer of a new medical device or a new indication for use of, or other
significant change in, an existing medical device obtain either FDA 510(k) pre-market clearance or pre-market approval before that product can be marketed or sold in the
United States. Modifications or enhancements to a product that could significantly affect its safety or effectiveness, or that would constitute a major change in the intended use
of the device, technology, materials, labeling, packaging, or manufacturing process may also require a new 510(k) clearance or possibly premarket approval. The FDA has
indicated that it intends to continue to enhance its pre-market requirements for medical devices. Although we cannot predict with certainty the future impact of these initiatives,
it appears that the time and cost to get medical devices to market could increase significantly.
In addition, we are subject to regulations that govern manufacturing practices, product labeling and advertising, and adverse-event reporting that apply after we have obtained
clearance or approval to sell a product, and we also must take into account newly emerging risks associated with medical devices such as cybersecurity vulnerabilities. Our
failure to maintain clearance for our Pure-Vu System, to obtain clearance or approval for new or modified products, or to adhere to regulations for manufacturing, labeling,
advertising or adverse event reporting could adversely affect our results of operations and financial condition. Further, if we determine a product manufactured or marketed by
us does not meet our specifications, published standards or regulatory requirements, we may seek to correct the product or withdraw the product from the market, which could
have an adverse effect on our business. Many of our facilities and procedures, and those of our suppliers are subject to ongoing oversight, including periodic inspection by
governmental authorities. Compliance with production, safety, quality control and quality assurance regulations can be costly and time-consuming.
The sales and marketing of medical devices is under increased scrutiny by the FDA and other enforcement bodies, as well as by the competent authorities in foreign
jurisdictions, such as EEA Member States. If our sales and marketing activities fail to comply with FDA or foreign regulations or guidelines, or other applicable laws, we may
be subject to warnings or enforcement actions from the FDA, or other enforcement bodies and foreign competent authorities.
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We may be unable to obtain or maintain governmental approvals or certifications to market our Pure-Vu System outside the United States and the European Economic
Area countries.
To be able to market and sell our Pure-Vu System in other countries, we must obtain regulatory approvals or certifications and comply with the regulations of those countries.
These regulations, including the requirements for approvals or certifications and the time required for regulatory review, vary from country to country. Many non-European
markets, including major markets in South America and Asia Pacific, have allowed for expedited regulatory review and approval based on an existing CE Certificate of
Conformity. The first-generation and second-generation of our Pure-Vu System have received CE Certificate of Conformity, allowing us to affix the CE Mark and market it in
the EEA. We intend to target countries with a regulatory approval process with similar requirements to the EEA. However, obtaining and maintaining foreign regulatory
approvals or certifications is complex and expensive and subject to delays, and management cannot be certain that we will receive and be able to maintain regulatory approvals
or certifications in any foreign country in which we plan to market our Pure-Vu System or in the time frame in which we expect.
Modifications to our product may require new 510(k) clearance or may require us to cease marketing or recall the modified products until approvals are obtained.
After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use,
will require a new clearance or possibly premarket approval. Changes that do not rise to this level of significance, including certain manufacturing changes, may be made
without FDA clearance upon documentation in the manufacturer’s files of the determination of the significance of the change. The FDA requires each manufacturer to make
this determination initially, but the FDA can review any such decision and can disagree with the manufacturer’s determination. If the FDA disagrees with any determination
that we may make in the future and requires us to seek new 510(k) clearance for modifications to any previously approved or cleared products for which we have concluded
that new approvals are unnecessary, we may be required to cease marketing or distribution of our products or to recall the modified product until we obtain approval, and we
may be subject to significant regulatory fines or penalties. In the future we may seek to expand the indication for which the Pure-Vu System is cleared or approved to allow us
to actively promote the product and a less-prep regimen to patients. This would require us to perform one or more clinical trials to facilitate the approval of such expanded
labeling, however, if such trials are unsuccessful or the FDA denies our expanded labeling, our revenues may be adversely affected.
In the EEA, we will be required to inform the Notified Body that carried out the conformity assessment of the medical devices we market or sell in the EEA of any planned
changes to our quality management system or changes to our devices which could affect compliance with the GSPR set forth in the EU MDR, the safety and performance of the
device or its conditions prescribed for use. The Notified Body will assess the changes and, if the assessment is favorable, issue a supplement to the CE Certificate of
Conformity. The Notified Body may also determine that the planned changes require a new conformity assessment. For devices covered by CE Certificates of Conformity
issued under the EU MDD (“legacy devices”), no significant changes in design or intended purpose are allowed after the date of application of the EU MDR ( May 25, 2021).
Any proposed changes to our products may oblige us to undertake future clinical and technical procedures and provide information in addition to that provided to support the
initial conformity assessment.
If our product malfunctions, or causes or contributes to a death or a serious injury, we will be subject to medical device reporting regulations, which can result in
voluntary corrective actions or agency enforcement actions.
Under the FDA medical device reporting regulations, medical device manufacturers are required to report to the FDA information that a device has or may have caused or
contributed to a death or serious injury or has malfunctioned in a way that would likely cause or contribute to death or serious injury if the malfunction of the device or one of
our similar devices were to recur. If we fail to report these events to the FDA within the required timeframes, or at all, the FDA could take enforcement action against us. Any
such adverse event involving our product also could result in future voluntary corrective actions, such as recalls or customer notifications, or agency action, such as inspection
or enforcement action. Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the dedication of our time and capital,
distract management from operating our business, and may harm our reputation and financial results. Similar strict regulatory requirements concerning safety reporting and
post-market surveillance obligations apply in the EEA.
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Our Pure-Vu System may in the future be subject to product recalls. A recall of our products, either voluntarily or at the direction of the FDA or another governmental
authority, including a third-country authority, or the discovery of serious safety issues with our products, could have a significant adverse impact on us.
The FDA and similar foreign governmental authorities have the authority to require the recall of commercialized products in the event of material deficiencies or defects in
design or manufacture. In the case of the FDA, the authority to require a recall must be based on an FDA finding that there is reasonable probability that the device would cause
serious injury or death. In addition, foreign governmental bodies have the authority to require the recall of our products in the event of material deficiencies or defects in design
or manufacture. Manufacturers may, under their own initiative, recall a product if any material deficiency in a device is found. The FDA requires that certain classifications of
recalls be reported to the FDA within ten working days after the recall is initiated. A government-mandated or voluntary recall by us or a distributor could occur as a result of
an unacceptable risk to health, component failures, malfunctions, manufacturing errors, design or labeling defects or other deficiencies and issues. A recall of our products
would divert managerial and financial resources and have an adverse effect on our reputation, results of operations and financial condition, which could impair our ability to
produce our product in a cost-effective and timely manner in order to meet our customers’ demands. We may also be subject to liability claims, be required to bear other costs,
or take other actions that may have a negative impact on our future sales and our ability to generate profits. Companies are required to maintain certain records of recalls, even
if they are not reportable to the FDA or another third-country competent authority. We may initiate voluntary recalls that we determine do not require notification of the FDA or
another third-country competent authority. If the FDA disagrees with our determinations, they could require us to report those actions as recalls. A future recall announcement
could harm our reputation with customers and negatively affect our sales. In addition, the FDA could take enforcement action for failing to report the recalls.
We are also required to follow detailed recordkeeping requirements for all firm-initiated medical device corrections and removals. In addition, in October 2014, the FDA issued
guidance intended to assist the FDA and industry in distinguishing medical device recalls from product enhancements. Per the guidance, if any change or group of changes to a
device addresses a violation of the Federal Food, Drug and Cosmetic Act (the “FDCA”), that change would generally constitute a medical device recall and require submission
of a recall report to the FDA. Similar strict regulatory requirements concerning medical device recall and related reporting obligations apply in the EEA.
Our Pure-Vu System is not currently separately reimbursable through private or governmental third-party payors, which could limit market acceptance.
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 in any country. We sought new technology payments from Medicare under the hospital Inpatient and Outpatient Prospective Payment Systems and were denied in
2021. We intend to seek separate reimbursement through private or governmental third-party payors for future versions of the system, however coverage and reimbursement
may not be available for any product that we commercialize and, even if available, the level of reimbursement may not be satisfactory. The commercialization of our Pure-Vu
System depends on prospective patients’ ability to cover the costs of the procedure, and/or physician/hospital willingness to subsidize all or some of the costs of the procedure.
We believe that a substantial portion of individuals who are candidates for the use of the Pure-Vu System worldwide do not have the financial means to cover its cost.
Moreover, healthcare providers may be reluctant to make the initial investment in the system. A general regional or worldwide economic downturn could negatively impact
demand for our Pure-Vu System. In the event that medically eligible patients deem the costs of our procedure to be prohibitively high or consider alternative treatment options
to be more affordable, or healthcare providers deem the cost of the system to be too high, our business, results of operations and financial condition would be negatively
impacted.
Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the
prices we may obtain.
There have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of our
product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any product candidates for which we obtain marketing approval. We
expect that current laws, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional
downward pressure on the price that we, or any collaborators, may receive for any approved products.
For example, in March 2010, the Affordable Care Act was enacted. The Affordable Care Act has substantially changed the way healthcare is financed by both governmental
and private insurers and has significantly affected the health care industry. Certain provisions of the Affordable Care Act have been subject to judicial challenges as well as
efforts to modify or invalidate them or to alter their interpretation and implementation. For example, the Tax Cuts and Jobs Act (TCJA) enacted on December 22, 2017,
included a provision that eliminated the tax-based shared responsibility payment for individuals who fail to maintain minimum essential coverage under Section 5000A of the
Internal Revenue Code of 1986, commonly referred to as the “individual mandate,” effective January 1, 2019. Additional legislative changes, regulatory changes, and judicial
challenges related to the Affordable Care Act remain possible, but the nature and extent of such potential changes or challenges are uncertain at this time. The implications of
the Affordable Care Act, and efforts to modify or invalidate the Affordable Care Act or its implementing regulations, or portions thereof, and the uncertainty surrounding any
other modification related to the Affordable Care Act or any other health care reform measure for our business and financial condition, if any, are not yet clear. It is possible that
the Affordable Care Act as well as its possible modification or invalidation, in whole or in part or another health care reform measure could negatively impact our business.
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If we or our sales personnel or distributors do not comply with fraud and abuse laws, including anti-kickback laws for any products approved in the U.S., or with similar
foreign laws where we market our products, we could face significant liability.
There are numerous federal and state laws pertaining to healthcare fraud and abuse, including anti-kickback laws, false claims, and physician transparency laws. Our
relationships with physicians and surgeons, hospitals and our independent distributors are subject to scrutiny under these laws. Violations of these laws are punishable by
criminal and civil sanctions, including significant fines, damages and monetary penalties and in some instances, imprisonment and exclusion from participation in federal and
state healthcare programs, including the Medicare, Medicaid and Veterans Administration health programs. For a fuller discussion of the applicable anti-kickback, fraud and
abuse, transparency and other healthcare laws and regulations applicable to our business, see Item 1 “Description of Business - Other Healthcare Laws and Compliance
Requirements”.
Many foreign countries have enacted similar laws addressing fraud and abuse in the healthcare sector. The shifting commercial compliance environment and the need to build
and maintain robust and expandable systems to comply with different compliance requirements in multiple jurisdictions increases the possibility that a healthcare company may
run afoul of one or more of the requirements.
We may become liable for significant damages or be restricted from selling our products if we engage in inappropriate promotion of our Pure-Vu System.
Our promotional materials and training methods for our Pure-Vu System must comply with FDA and other foreign applicable laws and regulations, including the prohibition of
the promotion of the “off-label” use of our Pure-Vu System, including by using our Pure-Vu System in a way not approved by the FDA or not consistent with the intended
purpose for which Pure-Vu System is CE marked in the EEA. The Pure-Vu System is currently indicated to connect to standard colonoscopes to facilitate intra-procedural
cleaning of a poorly prepared colon by irrigating or cleaning the colon and evacuating the irrigated fluid, feces and other bodily fluids and matter. We do not currently promote
a particular prep regimen as this is left up to the discretion of the physician since our current indication does not reference any preparation protocol. Healthcare providers may
use our products off-label, as the FDA or the competent authorities in the EEA Member States do not restrict or regulate a physician’s choice of treatment within the practice of
medicine. However, if the FDA or a competent authority in an EEA Member State determines that our promotional materials, training or marketing efforts constitute promotion
of an off-label use, it could request that we modify our training or promotional materials or marketing efforts or subject us to regulatory or enforcement actions, including the
issuance of an untitled letter, a warning letter, injunction, seizure, civil fine and criminal penalties. It is also possible that other federal, state or foreign enforcement authorities
might take action if they consider our promotional or training materials to constitute promotion of an unapproved use, which could result in significant fines or penalties.
Although we do not intend to engage in any activities that may be considered off-label promotion of our products, the FDA or another regulatory agency could disagree and
conclude that we have engaged, directly or indirectly, in off-label promotion. In addition, the off-label use of our products may increase the risk of product liability claims.
Product liability claims are expensive to defend and could result in substantial damage awards against us and harm our reputation.
The failure to comply with anti-corruption laws could materially adversely affect our business and result in civil and/or criminal sanctions.
The U.S. Foreign Corrupt Practices Act (FCPA) and similar anti-corruption laws in other jurisdictions generally prohibit companies and their intermediaries from making
improper payments to government officials for the purpose of obtaining or retaining business. Because of the predominance of government-administered healthcare systems in
many jurisdictions around the world, many of our customer relationships outside of the U.S. are with governmental entities and are therefore potentially subject to such laws.
Global enforcement of anti-corruption laws has increased in recent years, including investigations and enforcement proceedings leading to assessment of significant fines and
penalties against companies and individuals. Our international operations create a risk of unauthorized payments or offers of payments by one of our employees, consultants,
sales agents, or distributors. We maintain policies and programs to implement safeguards to educate our employees and agents on these legal requirements, and to prevent and
prohibit improper practices. However, existing safeguards and any future improvements may not always be effective, and our employees, consultants, sales agents or
distributors may engage in conduct for which we could be held responsible. In addition, regulators could seek to hold us liable for conduct committed by companies in which
we invest or that we acquire. Any alleged or actual violations of these regulations may subject us to government scrutiny, criminal or civil sanctions and other liabilities,
including exclusion from government contracting, and could disrupt our business, adversely affect our reputation and result in a material adverse effect on our business, results
of operations, financial condition and cash flows.
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Laws and regulations governing international business operations could adversely impact our business.
The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), and the Bureau of Industry and Security at the U.S. Department of Commerce (BIS),
administer certain laws and regulations that restrict U.S. persons and, in some instances, non-U.S. persons, in conducting activities, transacting business with or making
investments in certain countries, governments, entities and individuals subject to U.S. economic sanctions. Our international operations subject us to these laws and regulations,
which are complex, restrict our business dealings with certain countries, governments, entities, and individuals, and are constantly changing. Further restrictions may be
enacted, amended, enforced or interpreted in a manner that materially impacts our operations. Violations of these regulations are punishable by civil penalties, including fines,
denial of export privileges, injunctions, asset seizures, debarment from government contracts and revocations or restrictions of licenses, as well as criminal fines and
imprisonment. We have established policies and procedures designed to assist with our compliance with such laws and regulations. However, there can be no assurance that our
policies and procedures will prevent us from violating these regulations in every transaction in which we may engage, and such a violation could adversely affect our
reputation, business, financial condition, results of operations and cash flows.
Risks Related to Our Business Operations
Our Pure-Vu System is currently our sole product and we are completely dependent on the successful marketing and sale of this product. There is no assurance that we will
be able to develop any additional products.
Our Pure-Vu System is currently our sole product and we are completely dependent on the success of this product. We may fail to successfully commercialize our product.
Successfully commercializing medical devices such as ours is a complex and uncertain process, dependent on the efforts of management, distributors, outside consultants,
physicians and general economic conditions, among other factors. Any factors that adversely impact the commercialization of our Pure-Vu System, including, but not limited
to, competition or acceptance in the marketplace, will have a negative impact on our business, results of operations and financial condition. We cannot assure you that we will
be successful in developing or commercializing any potential enhancements to our Pure-Vu System or any other products. Our inability to successfully commercialize our Pure-
Vu System and/or successfully develop and commercialize additional products or any enhancements to our Pure-Vu System which we may develop would have a material
adverse effect on our business, results of operations and financial condition.
We are a medical technology company with a limited operating history.
We are a medical technology company with a limited operating history. We received clearance from the FDA, and a Certificate of Conformity which allows us to affix the CE
Mark in the EEA, for our first generation and second generation Pure-Vu System and began commercialization in fourth quarter of 2019, with the first commercial placements
of our second generation Pure-Vu System as part of our initial U.S. market launch targeting early adopter hospitals. We expect that sales of our Pure-Vu System will account for
substantially all of our revenue for the foreseeable future. However, we have limited experience in selling our products and we may be unable to successfully commercialize our
Pure-Vu System for a number of reasons, including:
● market acceptance of our Pure-Vu System by physicians and patients will largely depend on our ability to demonstrate its relative safety, efficacy, cost-effectiveness
and ease of use;
● our inexperience in marketing, selling and distributing our products;
● we may not have adequate financial or other resources to successfully commercialize our Pure-Vu System;
● we may not be able to manufacture our Pure-Vu System in commercial quantities or at an acceptable cost;
● the uncertainties associated with establishing and qualifying a manufacturing facility;
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● patients will not generally receive separate reimbursement from third-party payors for the use of our Pure-Vu System for colon cleansing, which may reduce
widespread use of our Pure-Vu System;
● the introduction and market acceptance of competing products and technologies;
● rapid technological change may make our Pure-Vu System obsolete; and
● our inability to project in the short term the hospital medical device environment considering the global pandemic and strains on hospital systems.
Potential investors should carefully consider the risks and uncertainties that a company with a limited operating history will face. In particular, potential investors should
consider that we cannot assure you that we will be able to:
● successfully execute our current business plan for the commercialization of our Pure-Vu System, or that our business plan is sound;
● successfully contract for and establish a commercial supply of our product;
● achieve market acceptance of our Pure-Vu System; and
● attract and retain an experienced management and advisory team.
If we cannot successfully execute any one of the foregoing, our business may not succeed and your investment will be adversely affected.
The Pure-Vu System may not be accepted by physicians and patients.
Our Pure-Vu System for use during colonoscopy screenings to clean the colon through irrigation and evacuation of bowel contents is a new technology and may be perceived as
more invasive than current colonoscopy screening procedures, and patients may be unwilling to undergo the procedure. Moreover, patients may be unwilling to depart from the
current standard of care. In addition, physicians tend to be slow to change their medical treatment practices because of perceived liability risks arising from the use of new
products. Physicians may not recommend or prescribe our Pure-Vu System until there is long-term clinical evidence to convince them to alter their existing treatment methods,
there are recommendations from prominent physicians that our Pure-Vu System is safe and efficient and separate reimbursement or insurance coverage is available. We cannot
predict when, if ever, physicians and patients may adopt the use of our Pure-Vu System. If our Pure-Vu System does not achieve an adequate level of acceptance by patients,
physicians and healthcare payors, we may not generate significant product revenue and we may not become profitable.
If we are not able to successfully commercialize our Pure-Vu System, the revenue that we generate from its sales, if any, may be limited.
The commercial success of our Pure-Vu System will depend upon its acceptance by the medical community, including physicians, patients and health care payors. The degree
of market acceptance of our Pure-Vu System will depend on a number of factors, including:
● demonstration of clinical safety and efficacy;
● relative convenience, burden and ease of administration;
● the prevalence and severity of any adverse effects;
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● the willingness of physicians to prescribe the Pure-Vu System and of the target patient population to try new procedures;
● efficacy of our Pure-Vu System compared to competing procedures;
● the introduction of any new products and procedures that may in the future become available for colonoscopy preparation may be approved;
● pricing and cost-effectiveness;
● the inclusion or omission of our Pure-Vu System in applicable treatment guidelines;
● the effectiveness of our or any future collaborators’ sales and marketing strategies;
● limitations or warnings contained in FDA or Notified Body-approved labeling;
● our ability to obtain and maintain sufficient third-party coverage or reimbursement from government health care programs, including Medicare and Medicaid, private
health insurers and other third-party payors; and
● the willingness of patients to pay out-of-pocket in the absence of third-party coverage or separate reimbursement.
If our Pure-Vu System does not achieve an adequate level of acceptance by physicians, health care payors and patients, we may not generate sufficient revenue and we may not
be able to achieve or sustain profitability. Our efforts to educate the medical community and third-party payors on the benefits of our Pure-Vu System may require significant
resources and may never be successful.
We currently have a limited sales and marketing organization. If we are unable to secure a sales and marketing partner and/or establish satisfactory sales and marketing
capabilities, we may not successfully commercialize our Pure-Vu System.
At present, we have limited sales or marketing personnel. In order to commercialize devices that are approved for commercial sales, we must either collaborate with third
parties that have such commercial infrastructure and/or continue to develop our own sales and marketing infrastructure. If we are not successful entering into appropriate
collaboration arrangements, recruiting sales and marketing personnel or in building a sales and marketing infrastructure, we will have difficulty successfully commercializing
our Pure-Vu System, which would adversely affect our business, operating results and financial condition.
We may not be able to enter into collaboration agreements on terms acceptable to us or at all. In addition, even if we enter into such relationships, we may have limited or no
control over the sales, marketing and distribution activities of these third parties. Our future revenues may depend heavily on the success of the efforts of these third parties. If
we elect to establish a sales and marketing infrastructure we may not realize a positive return on this investment. In addition, we will have to compete with established and
well-funded medical device companies to recruit, hire, train and retain sales and marketing personnel. Factors that may inhibit our efforts to commercialize our Pure-Vu System
without strategic partners or licensees include:
● our inability to recruit and retain adequate numbers of effective sales and marketing personnel;
● the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to use our Pure-Vu System;
● the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive
product lines; and
● unforeseen costs and expenses associated with creating an independent sales and marketing organization.
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Our Pure-Vu System may cause adverse side effects that prevent its widespread adoption or that may necessitate its withdrawal from the market.
Our Pure-Vu System is currently believed to have the same side effects as a standard colonoscopy, such as inducing trauma to the colon’s mucosa or, in rare cases, perforation
of the colon. With more extensive use, the Pure-Vu System may be found to cause additional undesirable and unintended side effects or show a higher rate of side effects than a
standard colonoscopy that may prevent or limit its commercial adoption and use. Even upon receiving clearance from the FDA, CE Certificates of Conformity by a Notified
Body in the EEA and approvals from other regulatory authorities, our products may later exhibit adverse side effects that prevent widespread use or necessitate withdrawal
from the market. The manifestation of such side effects could cause our business to suffer.
We rely on the proper function, availability and security of our information technology systems to operate our business and a cyber-attack or other breach or disruption of
these systems could have a material adverse effect on our business and results of operations.
We rely on information technology systems to process, transmit and store electronic information in our day-to-day operations. The form and function of such systems may
change over time as our business needs change. The nature of our business involves the receipt and storage of personal and financial information regarding our customers. We
use our information technology systems to manage or support a variety of business processes and activities, including sales, shipping, billing, customer service, procurement
and supply chain, manufacturing and accounts payable. In addition, we use enterprise information technology systems to record, process, and summarize transactions and other
financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting, legal, and tax requirements. Our information
technology systems may be susceptible to damage, disruptions or shutdowns due to computer viruses, attacks by computer hackers, failures during the process of upgrading or
replacing software, databases or components thereof, power outages, hardware failures, telecommunication failures, user errors or catastrophic events. Any failure by us to
maintain or protect our information technology systems and data integrity, including from cyber-attacks, intrusions, disruptions or shutdowns, could result in the unauthorized
access to customer data, theft of intellectual property or other misappropriation of assets or the loss of key data and information, or otherwise compromise our confidential or
proprietary information and disrupt our operations. If our information technology systems are breached or suffer severe damage, disruption or shutdown and we are unable to
effectively resolve the issues in a timely manner, our business and operating results may be materially and adversely affected. With the ever-changing threat landscape, and
while we have implemented security measures to protect our information technology systems and infrastructure, there can be no assurance that such measures will prevent
service interruptions or security breaches that could adversely affect our business.
If our efforts to maintain the privacy and security of our customer, employee, supplier or Company information are not successful, we could incur substantial additional
costs and become subject to litigation, enforcement actions and reputational damage.
Our business, like that of most medical device companies, involves the receipt, storage and transmission of customer information and payment and reimbursement information,
our employees, our suppliers and our Company. Our information systems are vulnerable to an increasing threat of continually evolving cybersecurity risks. Unauthorized
parties may attempt to gain access to our systems or information through fraud or other means of deceiving our employees, business acquisitions, or third-party service
providers. Hardware, software or applications we develop or obtain from third parties may contain defects in design or manufacture or other problems that could unexpectedly
compromise information and device security. Hardware or software applications developed by our business acquisitions may face risks associated with defects and
vulnerabilities in their systems, or difficulties with the integration of the acquisitions into our information systems. The methods used to obtain unauthorized access, disable or
degrade service or sabotage systems are also constantly changing and evolving, and may be difficult to anticipate or detect for long periods of time. The ever-evolving threats
mean we must continually evaluate and adapt our systems and processes, and our efforts may not be adequate to safeguard against all data security breaches, misuse of data or
sabotage of our systems. Any future significant compromise or breach of our data security, whether external or internal, or misuse of customer, employee, supplier or Company
data, could result in additional significant costs, lost sales, fines, lawsuits and damage to our reputation. In addition, as the regulatory environment related to information
security, data collection and use, and privacy becomes increasingly rigorous, with new and constantly changing requirements applicable to our business, compliance with those
requirements could also result in additional costs. Further, many of our employees are working remotely in response to the COVID-19 pandemic and related government
actions, which could expose us to greater risks related to cybersecurity and our information systems.
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If we do not convince gastroenterologists that our products are attractive alternatives to the currently marketed medical devices and suitable for use in addressing bowel
preparation or cleansing, we will not be commercially successful.
If we are not successful in convincing gastroenterologists of the merits of our products or educating them on the use of our products, they may not use our products and we will
be unable to fully commercialize our products or reach profitability. Gastroenterologists may be hesitant to change their medical treatment practices for the following reasons,
among others:
● lack of experience with our products and concerns regarding potential side effects;
● lack of clinical data currently available to support the safety and effectiveness of our products;
● lack or perceived lack of evidence supporting additional patient benefits;
● perceived liability risks generally associated with the use of new products and procedures; and
● the time commitment that may be required for training.
In addition, we believe recommendations and support of our products by influential gastroenterologists are important for market acceptance and adoption. If we do not receive
support from such gastroenterologists or long term data does not show the benefits of using our products, gastroenterologists may not use our products. In such circumstances,
we may not be able to grow our revenues or achieve profitability.
If we are unable to train gastroenterologists and their clinical staff on the safe and appropriate use of our products, we may be unable to achieve revenue growth or
profitability.
An important part of our sales process includes the ability to train gastroenterologists and their clinical staff on the safe and appropriate use of our products. We have very
limited experience in training and retaining qualified independent gastroenterologists to perform the colon cleansing procedure using our Pure-Vu System. If we are unable to
attract gastroenterologists to our training programs, it may lead to a higher rate of injury, negative publicity and an increased risk of product liability, which would adversely
affect our growth or profitability.
There is a learning process involved in gastroenterologists and their clinical staff becoming proficient in the use of our products. It is critical to the success of our
commercialization efforts to train a sufficient number of gastroenterologists and to provide them with adequate instruction in the use of our Pure-Vu System. This training
process may take longer than expected and may therefore affect our ability to increase sales. Following completion of training, we expect to rely on the trained
gastroenterologists to advocate the benefits of our products in the broader marketplace. Convincing gastroenterologists to dedicate the time and energy necessary for adequate
training is challenging, and we cannot assure you we will be successful in these efforts. If gastroenterologists and their clinical staff are not properly trained, they may misuse or
ineffectively use our products. Such uses may result in unsatisfactory patient outcomes, patient injury, negative publicity or lawsuits against us, any of which would have a
material adverse effect on our business, results of operations and financial condition.
We may face competition from other medical device companies in the future and our operating results will suffer if we fail to compete effectively.
The medical device industries are intensely competitive and subject to rapidly evolving technology and intense research and development efforts. We have competitors in a
number of jurisdictions that have substantially greater name recognition, commercial infrastructures and financial, technical and personnel resources than we have. Established
competitors may invest heavily to quickly discover and develop novel devices or procedures that could make our Pure-Vu System obsolete or uneconomical. Any new product
that competes with a cleared medical device may need to demonstrate compelling advantages in efficacy, cost, convenience, tolerability and safety to be commercially
successful. Other competitive factors could force us to lower prices or could result in reduced sales, including increased use of alternatives to colonoscopies such as capsule
endoscopy systems, virtual colonoscopies using a CT scan, and other similar screening tests for colon cancer. While none of these testing alternatives may ever fully replace the
colonoscopy, over time, they may take market share away from conventional colonoscopies for specific purposes and may lower the potential market opportunity for us. In
addition, new devices developed by others could emerge as competitors to our Pure-Vu System. If we are not able to compete effectively against our current and future
competitors, our business will not grow and our financial condition and operations will suffer.
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Our products face the risk of technological obsolescence, which, if realized, could have a material adverse effect on our business.
The medical device industry is characterized by rapid and significant technological change. There can be no assurance that third parties will not succeed in developing or
marketing technologies and products that are more effective than ours or that would render our technology and products obsolete or noncompetitive. Additionally, new, less
invasive surgical procedures and medications could be developed that replace or reduce the importance of current procedures that use or could use our products. Accordingly,
our success will depend in part upon our ability to respond quickly to medical and technological changes through the development of new products. Product development
involves a high degree of risk, and we cannot assure you that our new product development efforts will result in any commercially successful products.
If defects are discovered in our products, we may incur additional unforeseen costs, hospitals may not purchase our products and our reputation may suffer.
Our products incorporate mechanical parts, any of which can contain errors or failures, especially when first introduced. In addition, new products or enhancements may
contain undetected errors or performance problems that, despite testing, are discovered only after commercial shipment. Because our products are designed to be used to
perform medical procedures, we expect that our customers will have an increased sensitivity to such defects. We cannot provide any assurances that our products will not
experience component aging, errors or performance problems in the future. If we experience flaws or performance problems, any of the following could occur:
● delays in product shipments;
● loss of revenue;
● delay in market acceptance;
● diversion of our resources;
● damage to our reputation;
● product recalls;
● regulatory actions;
● increased service or warranty costs; or
● product liability claims.
Our future growth depends, in part, on our ability to penetrate foreign markets, where we would be subject to additional regulatory burdens and other risks and
uncertainties.
Our future profitability will depend, in part, on our ability to commercialize our Pure-Vu System in foreign markets for which we intend to rely on collaborations with third
parties. If we commercialize our Pure-Vu System in foreign markets, we would be subject to additional risks and uncertainties, including:
● our customers’ ability to obtain reimbursement for our Pure-Vu System in foreign markets;
● our inability to directly control commercial activities because we are relying on third parties;
● the burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements;
● different medical practices and customs in foreign countries affecting acceptance in the marketplace;
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● import or export licensing requirements;
● longer accounts receivable collection times;
● longer lead times for shipping;
● language barriers for technical training;
● reduced protection of intellectual property rights in some foreign countries;
● foreign currency exchange rate fluctuations; and
● the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute.
Foreign sales of our Pure-Vu System could also be adversely affected by the imposition of governmental controls, political and economic instability, trade restrictions and
changes in tariffs, any of which may adversely affect our results of operations.
We are, and will be, completely dependent on third parties to manufacture our Pure-Vu System, and our commercialization of our Pure-Vu System could be halted, delayed
or made less profitable if those third parties fail to obtain or maintain manufacturing approval from the FDA or comparable foreign regulatory authorities, fail to provide
us with sufficient quantities of our Pure-Vu System device components or fail to do so at acceptable quality levels or prices.
We do not currently have, nor do we plan to acquire, the capability or infrastructure to manufacture our Pure-Vu System, as well as the other related device components for high
volume commercial purposes. We do have capability to produce limited units for use in our clinical studies, if required. As a result, we are obligated to rely on contract
manufacturers for the commercial supply of our product. We currently rely on several manufacturing partners to manufacture and produce the components of our Pure-Vu
System, and the loss of the services of these manufacturers or an adverse change in the manufacturer’s business or our relationship could have a material adverse effect on our
business. Our primary reliance on these manufacturers for all or substantially all of our manufacturing needs involves several risks, including the potential inability to obtain an
adequate supply of components and limited control over pricing, quality and timely delivery of the components. In addition, replacing these manufacturers may be difficult and
could result in an inability or delay in obtaining the components for our Pure-Vu System. As a result, if such a disruption were to occur we may be unable to fulfill customer
orders or orders for trials, and our operating results may fluctuate from period to period, particularly if a disruption occurs near the end of a fiscal period. However, we
anticipate engaging additional manufacturers for the production of the components of our Pure-Vu System as we expand our commercialization efforts.
The facilities used by our contract manufacturers to manufacture the Pure-Vu System must be compliant with FDA Quality System Regulation requirements and registered with
the FDA. We do not control the manufacturing process of, and are completely dependent on, our contract manufacturing partners for compliance with current Good
Manufacturing Practices (“cGMPs”) for manufacture of medical devices, as issued in the Quality System Regulation (21 CFR Part 820). These cGMPs regulations cover all
aspects of the manufacturing, testing, quality control and record keeping relating to the Pure-Vu System. If our contract manufacturers cannot successfully manufacture
products that conform to our specifications and the strict regulatory requirements of the FDA or others, they will not be able to secure and/or maintain regulatory approval for
their manufacturing facilities. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our products or if it withdraws
any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to maintain regulatory approval for or
market the Pure-Vu System.
Our contract manufacturers are subject to ongoing periodic unannounced inspections by the FDA and corresponding state and foreign agencies for compliance with cGMPs and
similar regulatory requirements. We will not have control over our contract manufacturers’ compliance with these regulations and standards. Failure by any of our contract
manufacturers to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure to market the Pure-Vu
System, delays, suspensions or withdrawals of approvals, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect our business. In
addition, we will not have control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. Failure by our
contract manufacturers to comply with or maintain any of these standards could adversely affect our ability to maintain regulatory approval for or market our Pure-Vu System.
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If, for any reason, these third parties are unable or unwilling to perform, we may not be able to terminate our agreements with them, and we may not be able to locate
alternative manufacturers or enter into favorable agreements with them and we cannot be certain that any such third parties will have the manufacturing capacity to meet future
requirements. If these manufacturers, or any alternate manufacturers, experience any significant difficulties in their respective manufacturing processes for our product or
should cease doing business with us, we could experience significant interruptions in supply or may not be able to create or maintain a commercial supply. Were we to
encounter manufacturing issues, our ability to produce sufficient commercial supply might be negatively affected. Our inability to coordinate the efforts of our third party
manufacturing partners or the lack of capacity available at our third party manufacturing partners, could impair our ability to supply our Pure-Vu System at required levels. If
we face these or other difficulties with our manufacturing partners we could experience significant interruptions in the supply of our products if we decided to transfer the
manufacture to one or more alternative manufacturers in an effort to deal with the difficulties.
Any manufacturing problem or the loss of a contract manufacturer could be disruptive to our operations and result in lost sales. Any reliance on suppliers may involve several
risks, including a potential inability to obtain critical components and reduced control over production costs, delivery schedules, reliability and quality. Any unanticipated
disruption to a future contract manufacturer caused by problems at suppliers could delay shipment of our Pure-Vu System, increase our cost of goods sold and result in lost
sales.
The manufacture of our Pure-Vu System, and the technology developed thereunder, is subject to certain Israeli government regulations which may impair our ability to
outsource or transfer development or manufacturing activities with respect to any product or technology outside of Israel.
We have received, and may receive in the future, grants from the Government of the State of Israel through the IIA for the financing of a portion of our research and
development expenditures pursuant to the IIA Regulations.
The IIA Regulations also require that products developed with IIA grants be manufactured in Israel at a rate (scope) which will not be less than the rate of manufacturing and
added value in Israel that were set forth in the relevant grant applications submitted to the IIA. Furthermore, the IIA Regulations require that the know how resulting from
research and development according to an IIA-approved plan, not being the product developed within the framework of such approved plan, and any right deriving therefrom
may not be transferred outside of Israel (including by way of certain licenses), unless prior approval is received from the IIA. We received a general approval for such transfer.
The transfer outside of Israel of manufacturing which is connected with the IIA-funded knowhow at a greater scope than the scope set forth in the general approval will result in
a higher royalty repayment rate and may further result in increased royalties (up to three times the aggregate amount of the IIA grants plus interest thereon). In addition, the
transfer outside of Israel of IIA-funded knowhow may trigger additional payments to the IIA (up to six times the aggregate amount of the IIA grants plus interest thereon). Even
following the full repayment of any IIA grants, we must nevertheless continue to comply with the requirements of the IIA Regulations. The foregoing restrictions and
requirements for payment may impair our ability to transfer or sell our technology assets outside of Israel or to outsource or transfer development or manufacturing activities
with respect to any IIA-funded know how outside of Israel.
Furthermore, companies that receive IIA funding are, generally required to ensure that all rights in the IIA-backed product are retained by them. This means that, generally, all
knowhow which is derived from the research and development conducted pursuant to an IIA approved plan, and every right derived from it, must be owned by the recipient of
the IIA funding from the date such knowhow is generated. Companies that receive IIA funding are further subject to reporting requirements and other technical requirements,
which are intended to allow the IIA to ensure that the IIA Regulations are being complied with.
If we fail to comply with any of the conditions and restrictions imposed by the IIA Regulations, or by the specific terms under which we received the grants, we may be
required to refund any grants previously received together with interest and penalties, and, in certain circumstances, may be subject to criminal charges.
For additional information, see “Part I—Item 1A—Risk Factors—Risks Related to Our Operations in Israel.”
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Risks Relating to Our Intellectual Property Rights
We may be unable to protect our intellectual property rights or may infringe on the intellectual property rights of others.
We rely on a combination of patents, trademarks, copyrights, trade secrets and nondisclosure agreements to protect our proprietary intellectual property. Our efforts to protect
our intellectual property and proprietary rights may not be sufficient. We cannot be sure that our pending patent applications will result in the issuance of patents to us, that
patents issued to or licensed by us in the past or in the future will not be challenged or circumvented by competitors or that these patents will remain valid or sufficiently broad
to preclude our competitors from introducing technologies similar to those covered by our patents and patent applications. In addition, our ability to enforce and protect our
intellectual property rights may be limited in certain countries outside the United States, which could make it easier for competitors to capture market position in such countries
by utilizing technologies that are similar to those developed or licensed by us.
Competitors also may harm our sales by designing products that mirror the capabilities of our products or technology without infringing our intellectual property rights. If we
do not obtain sufficient protection for our intellectual property, or if we are unable to effectively enforce our intellectual property rights, our competitiveness could be impaired,
which would limit our growth and future revenue.
We may in the future be a party to patent litigation and administrative proceedings that could be costly and could interfere with our ability to sell our Pure-Vu System.
Litigation related to infringement and other intellectual property claims, with or without merit, is unpredictable, can be expensive and time consuming and can divert
management’s attention from our core business. If we lose this kind of litigation, a court could require us to pay substantial damages, and prohibit us from using technologies
essential to our Pure-Vu System, any of which would have a material adverse effect on our business, results of operations and financial condition. If relevant patents are upheld
as valid and enforceable and we are found to infringe, we could be prevented from selling our Pure-Vu System unless we can obtain a license to use technology or ideas
covered by such patents or are able to redesign our Pure-Vu System to avoid infringement. We do not know whether any necessary licenses would be available to us on
satisfactory terms, if at all, or whether we could redesign our Pure-Vu System or processes to avoid infringement.
Competing products may also appear in other countries in which our patent coverage might not exist or be as strong. If we lose a foreign patent lawsuit, we could be prevented
from marketing our Pure-Vu System in one or more foreign countries.
We may be subject to claims that we have wrongfully hired an employee from a competitor or that we or our employees have wrongfully used or disclosed alleged
confidential information or trade secrets of their former employers.
As is commonplace in our industry, we employ and plan to employ individuals who were previously employed at other medical device companies, including our competitors or
potential competitors. Although no claims against us are currently pending, we may be subject in the future to claims that our employees or prospective employees are subject
to a continuing obligation to their former employers (such as non-competition or non-solicitation obligations) or claims that our employees or we have inadvertently or
otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are
successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.
General Company-Related Risks
We will need to grow the size of our organization, and we may experience difficulties in managing this growth.
As of December 31, 2021, we had 30 full time employees. As our marketing and commercialization plans and strategies develop, we will need to expand the size of our
employee and consultant base for managerial, operational, sales, marketing, financial and other resources. Future growth would impose significant added responsibilities on
members of management, including the need to identify, recruit, maintain, motivate and integrate additional employees. In addition, our management may have to divert a
disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. Our future financial
performance and our ability to commercialize the Pure-Vu System and any other future product candidates and our ability to compete effectively will depend, in part, on our
ability to effectively manage our future growth.
Our success will depend in part on our ability to manage our operations as we advance our products through clinical studies and to expand our development, regulatory and
commercial capabilities or contract with third parties to provide these capabilities for us. Failure to achieve any of these goals could have a material adverse effect on our
business, financial condition or results of operations.
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If we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy. In addition, the loss of
the services of certain key employees would adversely impact our business prospects.
We depend on key members of our management team. The loss of the services of Tim Moran, our Chief Executive Officer, Mark Pomeranz, our President and Chief Operating
Officer, Andrew Taylor, our Chief Financial Officer or any member of our senior management team, could harm our ability to execute our commercial strategy for our Pure-Vu
System and the strategic objectives for our company. We entered into employment agreements with our Chief Executive Officer, President and Chief Operating Officer, and
Chief Financial Officer, but these agreements are terminable by the employees on short or no notice at any time without or with limited penalty. In addition, we do not maintain,
and have no current intention of obtaining, “key man” life insurance on any member of our management team.
Recruiting and retaining qualified scientific and commercial personnel, including sales and marketing executives and field personnel, is also critical to our success. We may not
be able to attract and retain these personnel on acceptable terms given the competition among numerous medical device and pharmaceutical companies for similar personnel
and based on our company profile. We also experience competition for the hiring of scientific personnel from universities and research institutions. If we fail to recruit and then
retain these personnel, we may not be able to effectively execute our commercial strategy for the Pure-Vu System.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of the Pure-Vu System.
We are, and may be in the future, subject to product liability claims and lawsuits, including potential class actions, alleging that our products have resulted or could result in an
unsafe condition or injury. Any product liability claim brought against us, with or without merit, could be costly to defend and could result in settlement payments and
adjustments not covered by or in excess of insurance. In addition, we may not be able to obtain insurance on terms acceptable to us or at all because insurance varies in cost and
can be difficult to obtain. Our failure to successfully defend against product liability claims or maintain adequate insurance coverage could have an adverse effect on our results
of operations and financial condition.
Exchange rate fluctuations between the U.S. dollar and the Israeli New Shekel (the “NIS”) and inflation may negatively affect our earnings and we may not be able to
hedge our currency exchange risks successfully.
The U.S. dollar is our functional and reporting currency. However, a portion of our operating expenses, including personnel and facilities related expenses, are incurred in NIS.
As a result, we are exposed to the risks that the NIS may appreciate relative to the U.S. dollar, or, if the NIS instead devalues relative to the U.S. dollar, that the inflation rate in
Israel may exceed such rate of devaluation of the NIS, or that the timing of such devaluation may lag behind inflation in Israel. In any such event, the dollar cost of our
operations in Israel would increase and our dollar-denominated results of operations would be adversely affected. Given our general lack of currency hedging arrangements to
protect us from fluctuations in the exchange rates of the NIS and other foreign currencies in relation to the U.S. dollar (and/or from inflation of such foreign currencies), we
may be exposed to material adverse effects from such movements. We cannot predict any future trends in the rate of inflation in Israel or the rate of devaluation (if any) of the
NIS against the U.S. dollar.
We may acquire other businesses or form joint ventures or make investments in other companies or technologies that could negatively affect our operating results, dilute
our stockholders’ ownership, increase our debt or cause us to incur significant expense.
We may pursue acquisitions of businesses and assets. We also may pursue strategic alliances and joint ventures that leverage our intellectual property and industry experience to
expand our offerings or distribution. We have no history of acquiring other companies or with forming strategic partnerships. We may not be able to find suitable partners or
acquisition candidates, and we may not be able to complete such transactions on favorable terms, if at all. If we make any acquisitions, we may not be able to integrate these
acquisitions successfully into our existing business, and we could assume unknown or contingent liabilities. Any future acquisitions also could result in the issuance of equity
securities, incurrence of debt, contingent liabilities or future write-offs of intangible assets or goodwill, any of which could have a material adverse effect on our financial
condition, results of operations, and cash flows. Integration of an acquired company also may disrupt ongoing operations and require management resources that we would
otherwise focus on developing our existing business. We may experience losses related to investments in other companies, which could have a material negative effect on our
results of operations and financial condition. We may not realize the anticipated benefits of any acquisition, technology license, strategic alliance, or joint venture.
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To finance any acquisitions or joint ventures, we may choose to issue shares of our Common Stock as consideration, which would dilute the ownership of our stockholders.
Additional funds may not be available on terms that are favorable to us, or at all. If the price of our Common Stock is low or volatile, we may not be able to acquire other
companies or fund a joint venture project using our stock as consideration.
Global or regional pandemics, including outbreaks of communicable diseases, may materially and adversely affect our business, financial condition, revenues, and results
of operations.
We may face risks related to health epidemics or outbreaks of communicable diseases. For example, the recent outbreak around the world of the highly transmissible and
pathogenic coronavirus COVID-19. The outbreak of such communicable diseases could result in a widespread health crisis that could adversely affect general commercial
activity and the economies and financial markets of many countries.
The continued impact resulting from the COVID-19 outbreak where we and our business partners have operations, or the perception that such an outbreak could occur, and the
measures taken by our business partners, including restrictions with respect to business or hospital procedures, restrictions with respect to our access to our business partners,
and/or restrictions imposed by the regulatory bodies or governments of countries or regions affected, could adversely affect our business, financial condition, revenues, and
results of operations.
For example, the COVID-19 outbreak, or other similar outbreaks, could have an adverse effect on the overall productivity of our workforce and we may be required to take
extraordinary measures to ensure the safety of our employees and those of our business partners. These measures could require that our employees refrain from traveling to
their normal workplace for extended periods of time, which we have already experienced in certain locations as a result of the COVID-19 outbreak, which in turn could result
in a decrease in our commercial activities, or result in higher costs or other inefficiencies.
Any serious disruption with our suppliers or customers due to such outbreaks could impair our ability to meet and/or generate demand for our product, which may negatively
impact our revenue, financial condition and commercial operations. Such outbreaks could also result in delays in or the suspension of our business partners manufacturing
operations, which we have already experienced as a result of the COVID-19 outbreak, including the loss of our contract manufacturing relationship with RMS Company, the
contract manufacturer who manufactured the loading fixture for our Pure-Vu System, our research and product development activities, which we have begun to scale back as a
result of the impact of COVID-19 on our business, our regulatory work streams, our clinical studies, which we have already experienced as a result of the COVID-19 outbreak,
including that we will no longer pursue the RESCUE study, and other important commercial functions.
Additionally, our business may be harmed if, in connection with an outbreak, our customers seek to limit or prevent access by our sales and clinical support teams to their
facilities, which we have already experienced in certain locations as a result of the COVID-19 outbreak, or if our customers postpone elective procedures while their resources
are diverted to addressing such an outbreak, or if capital spending by hospitals is curtailed or delayed in connection with such an outbreak, which we have already experienced
as a result of the COVID-19 outbreak. An outbreak may also result in restrictions on domestic and international travel, which could have a negative impact on our customer
engagement efforts, including through the cancellation or postponement of third-party conferences, trade shows and similar events, each of which we have already experienced
as a result of the COVID-19 outbreak.
In addition to the risks identified above, we may face the risk of a resurgence of an outbreak, including a resurgence of the ongoing COVID-19 outbreak, in locations where we
and our business partners have operations that were initially showing signs of improvement from such outbreak. Such resurgence may result in the recurrence of each of the
risks and restrictions identified above, as well as new or unforeseen risks or restrictions imposed by our business partners, including with respect to our business partners
operations or procedures and/or our access to such business partners, or imposed by the regulatory bodies and/or governments of countries or regions affected, all of which
could adversely affect our business, financial condition, revenues, and results of operations.
Further, in our operations as a public company, prolonged government disruptions, global pandemics and other natural disasters or geopolitical actions could affect our ability
to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.
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Risks Related to our Capital Stock
Our quarterly operating results may be subject to significant fluctuations.
To date, as part of our initial U.S. market launch targeting early adopter hospitals, we have generated limited revenue from our Pure-Vu System, but we do not expect to
generate significant revenue from product sales until we expand our commercialization efforts for the Pure-Vu System, which is subject to significant uncertainty, and
accordingly we may experience significant fluctuations in our quarterly operating results in the future. The rate of market acceptance of our Pure-Vu System could contribute to
this quarterly variability. Our limited operating history complicates our ability to project quarterly revenue and any future revenue generated from sales of our Pure-Vu System
may fluctuate from time to time. In addition, our expense levels are based, in part, on expectation of future revenue levels. A shortfall in expected revenue, if any, could,
therefore, result in a disproportionate decrease in our net income. As a result, our quarterly operating results may be subject to significant fluctuations.
An active trading market for our Common Stock may not be sustained.
Prior to the closing of our IPO on February 16, 2018, there had been no public market for our Common Stock. Although our Common Stock is listed on the NASDAQ Capital
Market, the market for our shares has demonstrated varying levels of trading activity. Furthermore, the current level of trading may not be sustained in the future. The lack of an
active market for our Common Stock may impair investors’ ability to sell their shares at the time they wish to sell them or at a price that they consider reasonable, may reduce
the fair market value of their shares and may impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire additional
intellectual property assets by using our shares as consideration.
A sale of a substantial number of shares of our Common Stock in the public market could cause the market price of our Common Stock to drop significantly, even if our
business is doing well.
Our stock price could decline as a result of sales of a large number of shares of our Common Stock or the perception that these sales could occur. These sales, or the possibility
that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
In addition, in the future, we may issue additional shares of Common Stock or other equity or debt securities convertible into Common Stock in connection with a financing,
acquisition, litigation settlement, employee arrangements or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and could cause our
stock price to decline.
If we fail to comply with the continued minimum closing bid requirements of the Nasdaq Capital Market LLC (“Nasdaq”) by August 22, 2022 or other requirements for
continued listing, including stockholder equity requirements, our Common Stock may be delisted and the price of our Common Stock and our ability to access the capital
markets could be negatively impacted.
Our Common Stock is listed for trading on Nasdaq. We must satisfy Nasdaq’s continued listing requirements, including, among other things, the $1.00 Minimum Bid Price
requirement set forth in Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Requirement”). If a company’s Common Stock trades for 30 consecutive business days below the Bid
Price Requirement, Nasdaq will send a deficiency notice, advising that such company has been afforded a “compliance period” of 180 calendar days to regain compliance with
the applicable requirements. Thereafter, if such company does not regain compliance with the Bid Price Requirement prior to the expiration of the initial period, such company
may be eligible for an additional 180 calendar day compliance period, provided (i) it meets the continued listing requirement for market value of publicly held shares and all
other applicable requirements for initial listing on Nasdaq, including stockholder equity requirements (except for the Bid Price Requirement), which we may be unable to
satisfy, and (ii) it provides written notice to Nasdaq of its intention to cure this deficiency during the second compliance period by effecting a reverse stock split, if necessary. In
the event the company does not regain compliance with the Bid Price Requirement prior to the expiration of the initial period, and if it appears to the Staff of the Listing
Qualifications Department of The Nasdaq Stock Market LLC (the “Staff”) that the company will not be able to cure the deficiency, or if the company is not otherwise eligible,
the Staff will provide the company with written notification that its securities are subject to delisting from Nasdaq. At that time, the company may appeal the delisting
determination to a hearings panel.
On August 24, 2021, the Staff notified us that we did not comply with the Bid Price Requirement, and we had 180 calendar days, or until February 21, 2022, to regain
compliance. On February 11, 2022, under Nasdaq Listing Rule 5810(c)(3)(A)(ii), we provided written notice to Nasdaq of our intention to cure the deficiency, including by
effecting a reverse stock split if necessary. On February 22, 2022, we were provided an additional 180 calendar day compliance period, or until August 22, 2022, to regain
compliance with the bid price requirement. The closing bid price of our securities must be at least $1.00 per share for a minimum of ten consecutive business days to regain
compliance. We intend to monitor the closing bid price of our Common Stock and may, if appropriate, consider available options to regain compliance with the Bid Price
Requirement. If we seek to implement a reverse stock split in order to remain listed on Nasdaq, the announcement or implementation of such a reverse stock split could
negatively affect the price of our Common Stock. However, there can be no assurance that we will regain compliance with the Bid Price Requirement prior to August 22, 2022.
If we are unable to regain compliance with the Bid Price Requirement by August 22, 2022, or if we fail to meet any of the other continued listing requirements, including
stockholder equity requirements, our securities may be delisted from Nasdaq, which could reduce the liquidity of our Common Stock materially and result in a corresponding
material reduction in the price of our Common Stock. In addition, delisting could harm our ability to raise capital through alternative financing sources on terms acceptable to
us, or at all, and may result in the potential loss of confidence by investors, employees and business development opportunities. Such a delisting likely would impair your
ability to sell or purchase our Common Stock when you wish to do so. Further, if we were to be delisted from Nasdaq, our Common Stock may no longer be recognized as a
“covered security” and we would be subject to regulation in each state in which we offer our securities. Thus, delisting from Nasdaq could adversely affect our ability to raise
additional financing through the public or private sale of equity securities, would significantly impact the ability of investors to trade our securities and would negatively impact
the value and liquidity of our Common Stock.
If we implement a reverse stock split the liquidity of our Common Stock may be adversely effected.
We will likely be required to seek approval from our stockholders to effect a reverse stock split of the issued and outstanding shares of our Common Stock in order to regain
compliance with the Nasdaq Bid Price Requirement. However, there can be no assurance that the reverse stock split would be approved by our stockholders. Further, there can
be no assurance that the market price per new share of our Common Stock after the reverse stock split will remain unchanged or increase in proportion to the reduction in the
number of old shares of our Common Stock outstanding before the reverse stock split. The liquidity of the shares of our Common Stock may be affected adversely by any
reverse stock split given the reduced number of shares of our Common Stock that will be outstanding following the reverse stock split, especially if the market price of our
Common Stock does not increase as a result of the reverse stock split. In addition, the reverse stock split may increase the number of shareholders who own odd lots (less than
100 shares) of our Common Stock, creating the potential for such shareholders to experience an increase in the cost of selling their shares and greater difficulty effecting such
sales.
Following any reverse stock split, the resulting market price of our Common Stock may not attract new investors and may not satisfy the investing requirements of those
investors. Although we believe that a higher market price of our Common Stock may help generate greater or broader investor interest, there can be no assurance that the
reverse stock split will result in a share price that will attract new investors, including institutional investors. In addition, there can be no assurance that the market price of our
Common Stock will satisfy the investing requirements of those investors. As a result, the trading liquidity of our Common Stock may not necessarily improve.
If equity research analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our Common Stock, the price of
our Common Stock could decline.
The trading market for our Common Stock relies in part on the research and reports that equity research analysts publish about us and our business. We do not control these
analysts. The price of our Common Stock could decline if one or more equity analysts downgrade our Common Stock or if analysts issue other unfavorable commentary or
cease publishing reports about us or our business.
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Our share price may be volatile, which could subject us to securities class action litigation and our stockholders could incur substantial losses.
The market price for our Common Stock may be volatile and subject to wide fluctuations in response to factors including the following:
● actual or anticipated fluctuations in our quarterly or annual operating results;
● actual or anticipated changes in our growth rate relative to our competitors;
● failure to meet or exceed financial estimates and projections of the investment community or that we provide to the public;
● issuance of new or updated research or reports by securities analysts;
● share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; additions or departures of key management or other personnel;
● disputes or other developments related to proprietary rights, including patents, litigation matters, and our ability to obtain patent protection for our technologies;
● announcement or expectation of additional debt or equity financing efforts;
● sales of our Common Stock by us, our insiders or our other stockholders; and
● general economic, market or political conditions in the United States or elsewhere.
In particular, the market prices of early commercial-stage companies like ours have been highly volatile due to factors, including, but not limited to:
● any delay or failure to conduct a clinical trial for our product or receive approval from the FDA and other regulatory agents;
● developments or disputes concerning our product’s intellectual property rights;
● our or our competitors’ technological innovations;
● fluctuations in the valuation of companies perceived by investors to be comparable to us;
● announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures, capital commitments, new technologies or patents;
● failure to complete significant transactions or collaborate with vendors in manufacturing our product; and
● proposals for legislation that would place restrictions on the price of medical therapies.
These and other market and industry factors may cause the market price and demand for our Common Stock to fluctuate substantially, regardless of our actual operating
performance, which may limit or prevent investors from readily selling their shares of Common Stock and may otherwise negatively affect the liquidity of our Common Stock.
In addition, the stock market in general, and NASDAQ Capital Markets and emerging growth companies in particular, have experienced extreme price and volume fluctuations
that have often been unrelated or disproportionate to the operating performance of these companies. In the past, when the market price of a stock has been volatile, holders of
that stock have instituted securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur
substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management.
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Pursuant to the terms of our outstanding Royalty Payment Rights Certificates and our outstanding Placement Agent Royalty Payment Rights Certificates, we may be
obligated to pay significant royalties.
Pursuant to the terms of the Royalty Payment Rights Certificates (as defined in “Part III—Item 13—Certain Relationships and Related Transactions, and Director Independence
— Royalty Payment Rights Certificates - Related Party Participation”) which were issued in connection with the conversion of all of our outstanding shares of Series A
Convertible Preferred Stock upon the consummation of our IPO, we may be required to make certain royalty payments. After we generate sales of the current and potential
future versions of the Pure-Vu System, including disposables, parts, and services, in excess of $20 million since our inception, then we will be required to pay to the holders of
our Royalty Payment Rights Certificates a royalty equal to (i) three percent (3%) of our net sales, if any, in any calendar year, subject to a royalty cap amount per calendar year
of $30 million. Additionally, after we receive any proceeds from the licensing of the current and potential future versions of the Pure-Vu System in excess of $3.5 million since
our inception, then we will be required to pay to the holders of the Royalty Payment Rights Certificates a royalty equal to 5% of our licensing proceeds, if any, in any calendar
year, subject to a royalty cap amount per calendar year of $30 million. The royalties will be payable up to the later of (i) the latest expiration date for our current patents (which
is currently May 2036), or (ii) the latest expiration date of any pending patents as of the date of the initial closing of the 2017 Private Placement that may be issued in the future.
Pursuant to the terms of our Placement Agent Royalty Payment Rights Certificates issued in connection with the 2017 Private Placement, we will be required to pay the holders
of the Placement Agent Royalty Payment Rights Certificates, in the aggregate, 10% of the amount of payments paid to the holders of the Royalty Payment Rights Certificates.
We are an “emerging growth company,” and will be able take advantage of reduced disclosure requirements applicable to “emerging growth companies,” which could
make our Common Stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act and, for as long as we continue to be an “emerging growth company,” we intend to take advantage of
certain exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, not being
required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our
periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of
any golden parachute payments not previously approved. We could be an “emerging growth company” for up to five years from the date of our initial public offering in
February 2018, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (ii) the date that we become a “large
accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our Common Stock that is held by non-affiliates exceeds $700
million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt
during the preceding three year period.
We intend to take advantage of these reporting exemptions described above until we are no longer an “emerging growth company.” Under the JOBS Act, “emerging growth
companies” can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail
ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public
companies that are not “emerging growth companies.”
We cannot predict if investors will find our Common Stock less attractive if we choose to rely on these exemptions. If some investors find our Common Stock less attractive as
a result of any choices to reduce future disclosure, there may be a less active trading market for our Common Stock and our stock price may be more volatile.
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We will incur significantly increased costs and devote substantial management time as a result of operating as a public company particularly after we are no longer an
“emerging growth company.”
As a newly public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. For example, we are required to comply
with certain of the requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended, as well as rules and regulations
subsequently implemented by the SEC, including the establishment and maintenance of effective disclosure and financial controls and changes in corporate governance
practices. We expect that compliance with these requirements will increase our legal and financial compliance costs and will make some activities more time consuming and
costly. In addition, we expect that our management and other personnel will need to divert attention from operational and other business matters to devote substantial time to
these public company requirements. In particular, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the
requirements of Section 404 of the Sarbanes-Oxley Act. In addition, after we no longer qualify as an “emerging growth company,” as defined under the JOBS ACT we expect
to incur additional management time and cost to comply with the more stringent reporting requirements applicable to companies that are deemed accelerated filers or large
accelerated filers, including complying with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. We have not yet completed the process of compiling
the system and processing documentation needed to comply with such requirements. We may not be able to complete our evaluation, testing and any required remediation in a
timely fashion. In that regard, we currently do not have an internal audit function, and we will need to hire or contract for additional accounting and financial staff with
appropriate public company experience and technical accounting knowledge.
We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of such costs.
There may be limitations on the effectiveness of our internal controls, and a failure of our control systems to prevent error or fraud may materially harm our company.
Proper systems of internal controls over financial accounting and disclosure controls and procedures are critical to the operation of a public company. As we have a limited
operating history, we only have 4 employees, and 2 contractors in our finance and accounting functions, which may result in a lack of segregation of duties and are at the very
early stages of establishing, and we may be unable to effectively establish such systems, especially in light of the fact that we expect to operate as a publicly reporting company.
This would leave us without the ability to reliably assimilate and compile financial information about our company and significantly impair our ability to prevent error and
detect fraud, all of which would have a negative impact on our company from many perspectives.
Moreover, we do not expect that disclosure controls or internal control over financial reporting, even if established, will prevent all error and all fraud. A control system, no
matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control
system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Failure of our control systems
to prevent error or fraud could materially adversely impact us.
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If we fail to maintain proper and effective internal control over financial reporting, our ability to produce accurate and timely financial statements could be impaired,
investors may lose confidence in our financial reporting and the trading price of our Common Stock may decline. In addition, because of our status as an emerging growth
company, our independent registered public accountants are not required to provide an attestation report as to our internal control over financial reporting for the
foreseeable future.
We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by our management on, among other things, the effectiveness of our internal control
over financial reporting. This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting. We will
also be required to disclose changes made in our internal control and procedures on a quarterly basis.
A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a
material misstatement of annual or interim financial statements will not be prevented or detected and corrected on a timely basis.
We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more
material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective.
We are an “emerging growth company” as defined in the JOBS Act. For as long as we remain an emerging growth company, we are permitted and intend to take advantage of
the exemptions contained in the JOBS Act, including that our independent registered public accounting firm will not be required to formally attest to the effectiveness of our
internal control over financial reporting pursuant to Section 404 of the Sarbanes Oxley Act. We will remain an “emerging growth company” for up to five years from the date of
our initial public offering in February 2018, although if the market value of our Common Stock that is held by non-affiliates exceeds $700 million as of any June 30th before
that time, we would cease to be an “emerging growth company” as of the following December 31st. At such time, our independent registered public accounting firm may issue
a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. In the past, we have identified material
weaknesses in our controls which we subsequently remediated. We cannot assure investors that we will not have other material weaknesses in our internal control over financial
reporting in the future.
If we identify material weaknesses in our internal control over financial reporting in the future or if we are unable to successfully remediate the identified material weaknesses
or, if we are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or, if applicable,
our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal controls, we could lose investor confidence in the
accuracy and completeness of our financial reports, which would cause the price of our Common Stock to decline, and we may be subject to investigation or sanctions by the
SEC, or other regulatory authorities, which could require additional financial and management resources.
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We do not currently intend to pay dividends on our Common Stock in the foreseeable future, and consequently, any gains from an investment in our Common Stock will
likely depend on appreciation in the price of our Common Stock.
We have never declared or paid cash dividends on our Common Stock and do not anticipate paying any cash dividends to holders of our Common Stock in the foreseeable
future. Consequently, investors must rely on sales of their Common Stock after price appreciation, which may never occur, as the only way to realize any future gains on their
investments. There is no guarantee that shares of our Common Stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares.
Upon dissolution of our company, our stockholders may not recoup all or any portion of their investment.
In the event of a liquidation, dissolution or winding-up of our company, whether voluntary or involuntary, the proceeds and/or assets of our company remaining after giving
effect to such transaction, and the payment of all of our debts and liabilities and distributions required to be made to holders of any outstanding preferred stock will then be
distributed to the stockholders of our Common Stock on a pro rata basis. There can be no assurance that we will have available assets to pay to the holders of our Common
Stock, or any amounts, upon such a liquidation, dissolution or winding-up of our company.
Our certificate of incorporation, as amended, allows for our board to create new series of preferred stock without further approval by our stockholders, which could
adversely affect the rights of the holders of our Common Stock.
Our board of directors has the authority to fix and determine the relative rights and preferences of preferred stock. Our board of directors has the authority to issue up to 10
million shares of our preferred stock without further stockholder approval. As a result, our board of directors could authorize the issuance of a series of preferred stock that
would grant to holders the preferred right to our assets upon liquidation and the right to receive dividend payments before dividends are distributed to the holders of our
Common Stock. In addition, our board of directors could authorize the issuance of a series of preferred stock that has greater voting power than our Common Stock or that is
convertible into our Common Stock, which could decrease the relative voting power of our Common Stock or result in dilution to our existing stockholders.
Our certificate of incorporation, as amended, designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and
proceedings that may be initiated by our stockholders, which could discourage lawsuits against us, and our directors and officers.
Our certificate of incorporation, as amended, provides that unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware
will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim of breach of a fiduciary duty; (iii) any
action asserting a claim against us, or any of our officers or directors, arising pursuant to, or a claim against us, or any of our officers or directors, with respect to the
interpretation or application of any provision of the Delaware General Corporation Law, our certificate of incorporation, as amended, or our bylaws; or (iv) any action asserting
a claim governed by the internal affairs doctrine. However, if the Court of Chancery of the State of Delaware dismisses any such action for lack of subject matter jurisdiction,
the action may be brought in another state court sitting in the State of Delaware.
45
Risks Related to Our Operations in Israel
Our research and development facilities and some of our suppliers are located in Israel and, therefore, our business, financial condition and results of operation may be
adversely affected by political, economic and military instability in Israel.
Our research and development facilities are located in northern Israel. In addition, most of our employees are residents of Israel. Accordingly, political, economic and military
conditions in Israel may directly affect our business. Since the State of Israel was established in 1948, the State of Israel and its economy has experienced significant growth
and expansion, coupled with an increase in the standard of living, and has developed one of the most advanced high-tech industries in the world. However, it continues to face
many geo-political and other challenges that may affect companies located in Israel, such as ours. For example, a number of armed conflicts have occurred between Israel and
its Arab neighbors. Although Israel has entered into peace agreements with Egypt and Jordan, comprehensive agreements with the Palestinian Authority, and other agreements
with neighboring Arab countries regarding public normalization of relations, there continues to be unrest and terrorist activity in Israel with varying levels of severity, as well as
ongoing hostilities and armed conflicts between Israel and the Palestinian Authority, and other groups in the West Bank and Gaza Strip, recent unrest was due to the United
States’ relocation of its embassy from Tel Aviv to Jerusalem. The effects of these hostilities and violence on the Israeli economy and our operations are unclear, and we cannot
predict the effect on us of a further increase in these hostilities or any future armed conflict, political instability or violence in the region. We could be harmed by any major
hostilities involving Israel, the interruption or curtailment of trade between Israel and its trading partners, boycotts or a significant downturn in the economic or financial
condition of Israel. The impact of Israel’s relations with its Arab neighbors in general, or on our operations in the region in particular, remains uncertain. The establishment of
new fundamentalist Islamic regimes or governments more hostile to Israel could have serious consequences for the stability in the region, place additional political, economic
and military confines upon Israel, materially adversely affect our operations and limit our ability to sell our products to countries in the region.
Additionally, several countries, principally in the Middle East, still restrict doing business with Israel and Israeli companies, and additional countries and groups have imposed
or may impose restrictions on doing business with Israel and Israeli companies if hostilities in Israel or political instability in the region continues or increases. These
restrictions may limit our ability to sell our products to companies in these countries. Furthermore, the Boycott, Divestment and Sanctions Movement, a global campaign
attempting to increase economic and political pressure on Israel to comply with the stated goals of the movement, may gain increased traction and result in a boycott of Israeli
products and services. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners, or significant downturn in the
economic or financial condition of Israel, could adversely affect our business, results of operations and financial condition.
Our commercial insurance policy does not cover losses associated with armed conflicts and terrorist attacks. Although the Israeli government in the past covered the
reinstatement value of certain damages that were caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained, or if
maintained, will be sufficient to compensate us fully for damages incurred. Any losses or damages incurred by us could have a material adverse effect on our business.
Our operations could also be disrupted by the obligations of some of our employees to perform military service. Some of our employees in Israel may be called upon to perform
up to 54 days in each three year period (and in the case of military officers, up to 84 days in each three year period) of military reserve duty until they reach the age of 40 (and
in some cases, depending on their specific military profession and rank up to 45 or even 49 years of age) and, in certain emergency circumstances, may be called to immediate
and unlimited active duty. In response to increases in terrorist activity, there have been periods of significant call-ups of military reservists and it is possible that there will be
similar large-scale military reserve duty call-ups in the future. Our operations could be disrupted by the absence of a significant number of employees related to military
service, which could materially adversely affect our business and results of operations.
Pursuant to the terms of the Israeli government grants we received for research and development expenditures, we are obligated to pay certain royalties on our revenues to
the Israeli government. The terms of the grants require us to satisfy specified conditions and to make additional payments in addition to repayment of the grants upon
certain events.
We have received, and may receive in the future, grants from the IIA for the financing of a portion of our research and development expenditures pursuant to the IIA
Regulations.
As of December 31, 2021, we had received grants from the IIA in the aggregate amount of $1.3 million, and had a contingent obligation to the IIA up to an aggregate amount of
approximately $1.4 million (assuming no increase, per the IIA Regulations, as described below). As of December 31, 2021, we paid a minimal amount to the IIA. We may
apply for additional IIA grants in the future. However, as the funds available for IIA grants out of the annual budget of the State of Israel are subject to the pre-approval of the
IIA and have been reduced in the past and may be further reduced in the future, we cannot predict whether we will be entitled to – or approved for – any future grants, or the
amounts of any such grants (if approved).
46
In exchange for these grants, we are required to pay royalties to the IIA of 4% (which may be increased under certain circumstances) from our revenues generated (in any
fashion) from knowhow developed using IIA grants, up to an aggregate of 100% (which may be increased under certain circumstances) of the U.S. dollar-linked value of the
grant, plus interest at the rate of 12-month LIBOR.
The IIA Regulations also require that products developed with IIA grants be manufactured in Israel at a rate (scope) which will not be less than the rate of manufacturing and
added value in Israel that were included in the relevant grant applications submitted to the IIA. Furthermore, the IIA Regulations require that the know-how resulting from
research and development according to an IIA-approved plan, not being the product developed within the framework of such approved plan, and any right deriving therefrom
may not be transferred outside of Israel (including by way of certain licenses), unless prior approval is received from the IIA. We received a general approval for such transfer.
The transfer outside of Israel of manufacturing which is connected with the IIA-funded knowhow at a greater scope than the scope set forth in the general approval will result in
a higher royalty repayment rate and may further result in increased royalties (up to three times the aggregate amount of the IIA grants plus interest thereon). In addition, the
transfer outside of Israel of IIA-funded know-how may trigger additional payments to the IIA (up to six times the aggregate amount of the IIA grants plus interest thereon).
Even following the full repayment of any IIA grants, we must nevertheless continue to comply with the requirements of the IIA Regulations. The foregoing restrictions and
requirements for payment may impair our ability to transfer or sell our technology assets outside of Israel or to outsource or transfer development or manufacturing activities
with respect to any IIA-funded know-how outside of Israel.
Furthermore, companies that receive IIA funding are generally required to ensure that all rights in the IIA-backed product are retained by them. This means that, generally, all
know-how which is derived from the research and development conducted pursuant to an IIA approved plan, and every right derived from it, must be owned by the recipient of
the IIA funding from the date such know-how is generated. Companies that receive IIA funding are further subject to reporting requirements and other technical requirements,
which are intended to allow the IIA to ensure that the IIA Regulations are being complied with.
If we fail to comply with any of the conditions and restrictions imposed by the IIA Regulations, or by the specific terms under which we received the grants, we may be
required to refund any grants previously received together with interest and penalties, and, in certain circumstances, may be subject to criminal charges.
It may be difficult to enforce a judgment of a U.S. court against us in Israel or the United States to assert U.S. securities laws claims in Israel or to serve process on these
experts.
Motus GI Medical Technologies Ltd., our wholly owned subsidiary, is incorporated in Israel. Our Israeli experts reside in Israel, and substantially all of our technology and
intellectual property assets are located in Israel. Therefore, a judgment obtained against us, or any of such persons, may not be collectible in the United States and may not be
enforced by an Israeli court. It also may be difficult for you to affect service of process on such persons in the United States or to assert U.S. securities law claims in original
actions instituted in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities laws on the grounds that Israel is not the most appropriate
forum in which to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If
U.S. law is found to be applicable, the content of applicable U.S. law must be proven as a fact by expert witnesses, which can be a time consuming and costly process. Certain
matters of procedure would also be governed by Israeli law. There is little binding case law in Israel that addresses the matters described above. As a result of the difficulty
associated with enforcing a judgment against us in Israel, you may not be able to collect any damages awarded by either a U.S. or foreign court.
We may become subject to claims for payment of compensation for assigned service inventions by our current or former employees, which could result in litigation and
adversely affect our business.
Under the Israeli Patents Law, 5727-1967, or the Patents Law, inventions conceived by an employee during the scope of his or her employment are regarded as “service
inventions” and are owned by the employer, absent a specific agreement between the employee and employer giving the employee service invention rights. The Patents Law
also provides that if no such agreement between an employer and an employee exists, which prescribes whether, to what extent, and on what conditions the employee is entitled
to remuneration for his or her service inventions, then such matters may, upon application by the employee, be decided by a government-appointed compensation and royalties
committee established under the Patents Law. A significant portion of our intellectual property has been developed by our employees in Israel in the course of their
employment. Such employees have agreed to waive and assign to us all rights to any intellectual property created in the scope of their employment with us, and most of our
current employees, including all those involved in the development of our intellectual property, have agreed to waive economic rights they may have with respect to service
inventions.
However, despite such contractual obligations, we cannot assure you that claims will not be brought against us by current or former employees demanding remuneration in
consideration for assigned alleged service inventions or any other intellectual property rights. If any such claims were filed, we could potentially be required to pay
remuneration to our current or former employees for such assigned service inventions or any other intellectual property rights, or be forced to litigate such claims, which could
negatively affect our business.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2.
PROPERTIES
We currently rent 7,836 square feet of space in Tirat Carmel, Israel. This facility is used for office space as well as laboratories for product development. We entered the lease
on January 1, 2015, and the lease is for a period of five-years. Annual rent is $82 thousand per year. The lease was set to expire on December 31, 2019. On July 4, 2019, we
exercised the option to extend the lease expiration to December 31, 2022.
On April 13, 2017, we entered into a lease for a facility in Fort Lauderdale, Florida, which we began occupying in October 2017. On December 20, 2017, we entered into a
lease amendment upon remeasurement of the lease space. The facility currently consists of 4,554 square feet, which increased to 6,496 square feet by the second year of the
lease. The term runs for seven years and two months from September 2017. Annual base rent was amended to $159 thousand per year, subject to annual increases of 2.75%.
This facility is used for office space as well as laboratories for both quality assurance and product development. In January 2020, we entered into a license agreement with
Orchestra BioMed, Inc., formerly a greater than 5% holder of our Common Stock, pursuant to which we granted a license to Orchestra BioMed, Inc. for the use of portions of
the office space not being used by us in our leased facility in Fort Lauderdale, Florida (the “Premises”), and a proportionate share of common areas of such Premises, which
compromises approximately 35% of the Premises as of January 2020 and will expand incrementally to approximately 60 to 70% of the Premises by September 2024.
We believe our facilities are adequate for our foreseeable needs.
ITEM 3.
LEGAL PROCEEDINGS
We are not currently subject to any material legal proceedings; however, we may from time to time become a party to various legal proceedings arising in the ordinary course of
our business. Although the results of litigation and claims cannot be predicted with certainty, as of the date of this report, we do not believe we are party to any claim or
litigation the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our business.
Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
PART II
SECURITIES
Market Information
Our Common Stock trades on the NASDAQ Capital Market under the symbol “MOTS”. Trading of our Common Stock commenced on February 14, 2018 in connection with
our IPO. Prior to that time, there was no established public trading market for our Common Stock.
Holders of Record
As of February 14, 2022, we had approximately 143 holders of record of our Common Stock. This number does not include beneficial owners whose shares were held in street
name. The actual number of holders of our Common Stock is greater than this number of record holders and includes stockholders who are beneficial owners, but whose shares
are held in street name by brokers or held by other nominees.
ITEM 6.
RESERVED
Not Applicable.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
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 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 report,
particularly those under “Risk Factors.”
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 recently received 510(k) clearance from the
FDA for our Pure-Vu EVS System and expect to commence commercialization by the end of Q1 2022. We do not expect to generate significant revenue from product sales
until the COVID-19 pandemic has fully subsided and we further expand our commercialization efforts, which is subject to significant uncertainty.
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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 $19.0 million for the year ended December 31, 2021, and we expect to continue to incur net operating losses for the foreseeable future. As of December 31,
2021, we had $22.6 million in cash and cash equivalents and an accumulated deficit of $122.8 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. 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. Furthermore, the extent of the impact and effects of the recent outbreak of the coronavirus COVID-19 on
the operation and financial performance of our business will depend on future developments, including the duration and spread of the outbreak, related travel advisories and
restrictions, production delays, or the uncertainty with respect to the accessibility of additional liquidity or capital markets, all of which are highly uncertain and cannot be
predicted. If the demand for our Pure-Vu system is impacted by this outbreak for an extended period, our results of operations may be materially adversely affected.
We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. 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.
Critical Accounting Policies and Significant Judgement and Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our consolidated
financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and
the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors
that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different
assumptions or conditions.
While our significant accounting policies are described in more detail in Note 3 to our consolidated financial statements, we believe that the following accounting policies are
those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Revenue recognition
We generate revenue from the sale or lease of our Pure-Vu System Workstation (“Workstation”) and from the sale of our single-use disposable sleeves (“Disposables”), and
related services, which are primarily support and maintenance services on our Workstations. See Note 3 for further discussion of revenue recognition.
Sales of our Workstation and Disposables are accounted for in accordance with ASC Topic 606 - Revenue from Contracts with Customers to depict the transfer of control to our
customers in an amount reflecting the consideration to which we expect to be entitled to. Revenue from the sale of a Workstation is recognized after a customer commits to
purchase the Workstation and the Workstation is delivered, which is when title is transferred. Disposables are identified as a separate performance obligation, and therefore,
revenue from the sale of Disposables is recognized when the Disposables are delivered to the customer and title is transferred.
For contracts outside the scope of ASC 606, we determine income for proposed supply arrangements with an embedded lease in accordance with ASC 842 and certain
components of sales within the proposed supply arrangement in accordance with ASC 606. We allocate the transaction price to the performance obligations within the proposed
supply arrangements using the total estimated purchases method for both (i) arrangements that contain minimum purchase commitments and (ii) those arrangements that do not
contain a minimum purchase commitment, but instead offer a volume discount for purchases that exceed a specified tier.
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Inventory
Inventory is accounted for at lower of cost and 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.
Share-Based Compensation
Our share-based compensation programs grant awards that have included stock options, warrants, and restricted stock units. Grants are awarded to employees and non-
employees, including directors.
We account for our share-based compensation awards in accordance with ASC Topic 718, Compensation—Stock Compensation, or ASC 718. ASC 718 requires all stock-based
payments to employees and non-employee directors, including grants of employee stock options and restricted stock units and modifications to existing stock options, to be
recognized in the consolidated statements of comprehensive loss based on their fair values.
We account for forfeitures as they occur instead of estimating forfeitures at the time of grant and revising those estimates in subsequent periods if actual forfeitures differ from
its estimates. Share-based compensation expense recognized in the financial statements is based on awards for which performance or service conditions are expected to be
satisfied.
Our share-based awards are subject to service or performance-based vesting conditions. Compensation expense related to awards to employees, directors and non-employees
with service-based vesting conditions is recognized on a straight-line basis based on the grant date fair value over the associated service period of the award, which is generally
the vesting term.
We expense restricted stock unit awards to employees based on the fair value of the award on a straight-line basis over the associated service period of the award.
We estimate the fair value of our option awards to employees, directors and non-employees using the Black-Scholes option pricing model, which requires the input of
subjective assumptions, including (i) the expected stock price volatility, (ii) the calculation of expected term of the award, (iii) the risk-free interest rate and (iv) expected
dividends. Due to the lack of complete company-specific historical and implied volatility data for the full expected term of the stock-based awards, we base our estimate of
expected volatility on a representative group of publicly traded companies in addition to our own volatility data. For these analyses, we selected companies with comparable
characteristics to our own, including enterprise value, risk profiles, position within the industry and with historical share price information sufficient to meet the expected life of
the stock-based awards. We compute historical volatility data using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated
expected term of the stock-based awards. We will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock
price becomes available. We have estimated the expected term of our employee stock options using the “simplified” method, whereby, the expected term equals the arithmetic
average of the vesting term and the original contractual term of the option due to its lack of sufficient historical data. The risk-free interest rates for periods within the expected
term of the option are based on the U.S. Treasury securities with a maturity date commensurate with the expected term of the associated award. We have never paid, and do not
expect to pay, dividends in the foreseeable future.
Contingent Royalty Obligation
We estimate and record a contingent royalty obligation at fair value in relation to our royalty obligation, which is payable over the life of certain patents after certain conditions
are met. Forecasted revenue over an expected life of the product is the largest driver of the estimated obligation at fair value, with other factors being growth rate, patent
expiration assessments, and the discount rate. All these drivers are subject to a high degree of uncertainty which we determine at present based on a very limited-
commercialized product.
Emerging Growth Company Status
Under Section 107(b) of the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private
companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or
revised accounting standards as other public companies that are not emerging growth companies.
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Recent Accounting Pronouncements
Refer to Note 3, “Significant Accounting Policies and Basis of Presentation”, in the accompanying notes to the consolidated financial statements for a discussion of recent
accounting pronouncements.
Results of Operations
Comparison of Year Ended December 31, 2021 and 2020
Revenue
As of December 31, 2021, as part of our initial launch, we have generated a small amount of revenue from the sales of products. We do not expect to generate significant
revenue from product sales until we expand our commercialization efforts for the Pure-Vu EVS System, which is subject to significant uncertainty.
Revenue totaled $391.0 thousand for the year ended December 31, 2021, compared to $98.0 thousand for the year ended December 31, 2020. The increase of $293.0 thousand
was largely driven by the limited improvement in in-hospital commercial activity in 2021 compared to 2020. Sales growth in 2021 continued to be hampered, though, by the
impact of COVID-19 in U.S. hospitals.
Cost of Revenue
Cost of revenue for the year ended December 31, 2021 totaled $624.0 thousand, compared to $496.0 thousand for the year ended December 31, 2020. The increase of $128.0
thousand was primarily attributable to the net increase of inventory impairment of $42.0 thousand, due to the lengthening of sales cycles and lower than anticipated sales
volume in light of COVID-19 and the anticipated launch of the Pure-Vu EVS System in 2022, and an increase in the volume sold of our evaluation and commercial units of
$86.0 thousand.
Research and Development
Research and development expenses consist of costs 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 year ended December 31, 2021 totaled $5.3 million, compared to $5.6 million for the year ended December 31, 2020. The decrease
of $0.3 million was primarily attributable to decreases of $0.5 million in salaries and other personnel related costs, partially offset by a $0.2 million increase in material costs
and other research and development costs.
Sales and Marketing
Sales and marketing expenses consist of costs 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 year ended December 31, 2021 totaled $3.1 million, compared to $3.5 million for the year ended December 31, 2020. The decrease of
$0.4 million was primarily attributable to decreases of $0.6 million in salaries and other personnel related cost and promotional items of $0.2 million, partially offset by
increases in professional services of $0.2 million and other sales and marketing costs of $0.1 million.
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.
General and administrative expenses for the year ended December 31, 2021 totaled $9.3 million, compared to $9.6 million for the year ended December 31, 2020. The decrease
of $0.3 million was primarily attributed to decreases of $0.9 million in salaries and other personnel related cost, $0.2 million in professional services, $0.1 million in lease
cancellation costs, partially offset by increases of $0.1 million in investor and public relation costs, insurance premiums of $0.2 million and share-based compensation of $0.6
million.
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Other Income and Expenses
Other expense, net for the year ended December 31, 2021 totaled $1.1 million compared to other expense, net of $0.2 million for the year ended December 31, 2020. The
increase of $0.9 million in other expenses, net was primarily attributable to an increase of $0.3 million in finance expense, an increase of $0.4 million from the loss on the
change in estimated fair value of contingent royalty obligation and a loss on extinguishment of debt associated with the Silicon Valley Bank loan of $0.2 million in 2021.
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, and through the issuance of debt or equity.
On August 28, 2020, we entered into a securities purchase agreement (the “Securities Purchase Agreement”) under which we sold and issued to an institutional investor (the
“Holder”), in a registered direct offering, an aggregate of 3,200,000 shares of our Common Stock par value $0.0001 per share (the “Common Stock”), and pre-funded warrants
to purchase an aggregate of 5,533,625 shares of Common Stock (the “Pre-Funded Warrants”). The offering price was $1.145 for each share of Common Stock and $1.144 for
each Pre-Funded Warrant. The Pre-Funded Warrants were immediately exercisable at a price of $0.001 per share of Common Stock. Pursuant to the Securities Purchase
Agreement, in a concurrent private placement, we also agreed to issue to the Holder warrants to purchase up to 8,733,625 shares of Common Stock (the “Private Placement
Warrants”). These warrants were immediately exercisable at an exercise price of $1.30 per share and expire on the fifth anniversary of the date of issuance. In connection with
the closing of the offering, we received gross proceeds of $10.0 million before deducting placement agent fees and other offering expenses of $0.8 million from the issuance of
the Common Stock, the Pre-Funded Warrants and the Private Placement Warrants.
On January 27, 2021, we entered into a Warrant Exercise Agreement (the “Exercise Agreement”) with the Holder, at which time 8,000,000 of the Private Placement Warrants
remained outstanding, due to the prior exercise of 733,625 of the Private Placement Warrants on January 22, 2021. Pursuant to the Exercise Agreement, in order to induce the
Holder to exercise all of its remaining outstanding 8,000,000 Private Placement Warrants for cash, we agreed to sell to the Holder, new warrants (the “New Warrants”) to
purchase 0.75 shares of Common Stock for each share of Common Stock issued upon such exercise of the remaining 8,000,000 Private Placement Warrants pursuant to the
Exercise Agreement, or an aggregate of 6,000,000 New Warrants. The terms of the New Warrants are substantially similar to those of the Private Placement Warrants, except
that the New Warrants will have an exercise price of $2.12, will be immediately exercisable and will expire five years from the date of the Exercise Agreement. In addition, the
Holder paid a cash payment of $0.10 for each New Warrant issued to the Holder, for an aggregate of $600,000 to the Company. We received aggregate gross proceeds before
expenses of approximately $11.0 million from the exercise of all of the remaining 8,000,000 outstanding Private Placement Warrants held by the Holder and the payment of the
purchase price for the New Warrants.
In connection with the Exercise Agreement, we entered into a financial advisory agreement (the “Letter Agreement”) with A.G.P./Alliance Global Partners (“A.G.P.”), pursuant
to which A.G.P. acted as exclusive financial advisor to us in this transaction and received a cash fee of $300,000 upon full cash exercise of the Private Placement Warrants. As
additional compensation, A.G.P. will receive a cash fee equal to $200,000 upon the cash exercise in full of the New Warrants.
In March 2021, we entered into an Equity Distribution Agreement (the “Equity Distribution Agreement”) with Oppenheimer, under which it may offer and sell from time to
time common shares having an aggregate offering price of up to $25.0 million. During the twelve months ended December 31, 2021, we sold approximately 1.3 million shares
of Common Stock pursuant to the above-described Equity Distribution Agreement, resulting in net cash proceeds of $1.8 million, after deducting issuance costs of $0.1 million.
Upon the filing of this Annual Report on Form 10-K, our registration statement on Form S-3 (File No. 333- 254343), including the accompanying prospectus and related
prospectus supplements related to the “at the market offering” pursuant to the Equity Distribution Agreement is 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 unless our public
float is at least $75 million. As of March 25, 2022, the Company’s public float (i.e., the aggregate market value of our Common Stock held by non-affiliates) was approximately
$23.4 million, which was calculated based on 51,946,084 shares of our Common Stock held by non-affiliates at a price of $0.45 per share, the closing price of our common
shares on February 10, 2022. As a result of the limitations of General Instruction I.B.6, and in accordance with the terms of the Equity Distribution Agreement, we are now
restricted to the offer and sale of our Common Stock having an aggregate offering price of up to approximately $7.8 million from time to time through Oppenheimer. 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.
On July 16, 2021 (the “Effective Date”), we entered into a loan facility (the “Kreos Loan Agreement”) with Kreos Capital VI (Expert Fund) LP (the “Lender”). Under the
Kreos Loan Agreement, Lender will provide us with access to term loans in an aggregate principal amount of up to $12.0 million. We drew $9.0 million of term loans pursuant
to the Kreos Loan Agreement on the Effective Date, and applied $8.2 million of the proceeds, inclusive of a negotiated prepayment premium of approximately $0.2 million, to
repay in full all amounts outstanding under, and discharge all obligations in respect of our prior Loan and Security Agreement, entered into in December 2019, as was amended
from time to time, (the “SVB Loan Agreement”) with Silicon Valley Bank. As a result, the SVB Loan Agreement, together with all documents and agreements executed in
connection therewith, including certain liquidity covenants, have terminated and all liens associated therewith have been released as of the Effective Date. We intend to use the
remaining proceeds of the Kreos Loan Agreement to enhance our product development and commercial growth plans, and for general corporate purposes. As of December 31,
2021, we drew down the full $3.0 million aggregate principal amount of Tranche C.
We have been continuously evaluating the actual and potential business impacts related to the COVID-19 pandemic. While the full impact of the pandemic continues to evolve,
the financial markets have been subject to significant volatility that adversely impacts 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, mobility restraints, and changing priorities could also affect our
ability to enter into key agreements. The outbreak and government measures taken in response to the pandemic have also had a significant 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 medical services and supplies, have spiked, while demand for other goods and services have fallen. The future progression of the outbreak and its effects
on our business and operations are 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 to address the outbreak.
53
Our ability to continue as a going concern for the next twelve months from the issuance of our Annual Report on Form 10K, depends on our ability to execute our business
plan, increase revenue and reduce expenditures. As of December 31, 2021, we had cash and cash equivalents of $22.6 million and an accumulated deficit of $122.8 million.
Based on our current business plan, we believe our cash and cash equivalents as of December 31, 2021 will be sufficient to meet our anticipated cash requirements into Q1
2023. 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. 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.
These factors raise substantial doubt about our ability to continue as a going concern. For more information, refer to Note 2 to our consolidated financial statements included
elsewhere in this Annual Report.
Cash Flows
The following table provides information regarding our cash flows for each of the periods below:
Net cash used in operating activities
Net cash (used in) provided by investing activities
Net cash provided by financing activities
Net increase in cash and cash equivalents
Operating Activities
Years Ended December 31,
2021
2020
(in thousands)
(14,422)
(470)
16,636
1,744
$
$
(16,993)
8,115
9,169
291
$
$
During the year ended December 31, 2021, operating activities used $14.4 million of cash, due to our net loss of $19.0 million, offset by non-cash expenses principally related
to share-based compensation expense of $3.5 million, depreciation and amortization of $0.4 million, loss on extinguishment of debt associated with the Silicon Valley Bank
loan of $0.2 million, impairment of inventory of $0.4 million, issuance of Common Stock for board of directors’ compensation of $0.2 million, a loss on the change in
estimated fair value of contingent royalty obligation of $0.1 million, and offset by changes in net working capital items principally related to the decrease in inventory of $0.3
million, the increase in accounts payable and accrued expenses of $0.3 million, and the increase in prepaid expenses and other current assets of $0.4 million.
Investing Activities
During the year ended December 31, 2021, net cash used in investing activities was $0.5 million related to the purchase of fixed assets of $0.5 million.
54
Financing Activities
During the year ended December 31, 2021, net cash provided by financing activities was $16.6 million, related to proceeds from issuance of common shares of $1.9 million,
exercise and purchase of warrants of $12.0 million, and borrowings under loans of $12.0 million, offset by repayments under term loans of $8.2 million, equity financing fees
of $0.4 million and payment of debt issuance costs of $0.6 million.
Shelf Registration Statement
On March 26, 2019, we filed a shelf registration statement with the Securities and Exchange Commission (the “2019 Shelf Registration Statement”), which was declared
effective on April 24, 2019, that allows us to offer, issue and sell up to a maximum aggregate offering price of $75.0 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. Each issuance under the 2019 Shelf
Registration Statement will require the filing of a prospectus supplement identifying the amount and terms of the securities to be issued. As of December 31, 2021, we have
sold approximately $31.9 million of securities under our shelf registration statement. Our ability to issue securities is subject to market conditions and other factors including, in
the case of our debt securities, our credit ratings.
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 December
31, 2021, 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 the at-the-market offering program pursuant to the Equity Distribution Agreement with 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 year ended December 31, 2021, we
sold approximately 1.3 million shares of Common Stock pursuant to the above-described Equity Distribution Agreement, resulting in net cash proceeds of $1.8 million, after
deducting issuance costs of $0.1 million.
Our ability to issue securities is subject to market conditions and other factors including, in the case of our debt securities, our credit ratings. Each issuance under the shelf
registration statements will require the filing of a prospectus supplement identifying the amount and terms of the securities to be issued.
Contractual Obligations and Commitments
For Operating Leases and Other Commitments
For further information, refer to Note 5 and Note 7 of the Notes to the Consolidated Financial Statements included in Pages F-15 through F-17 of this Annual Report of Form
10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exchange Rate Risk
As a result of our foreign operations, we face exposure to movements in foreign currency exchange rates, primarily the Israeli New Shekel against the U.S. dollar. The current
exposures arise primarily from cash, accounts payable and intercompany receivables and payables. Changes in foreign exchange rates affect our consolidated statement of
operations and distort comparisons between periods. To date, foreign currency transaction gains and losses have not been material to our financial statements.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements required to be filed pursuant to this Item 8 are found on pages F-1 through F-25.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
55
ITEM 9A. 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
December 31, 2021. 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 December 31, 2021.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting based on criteria established in the framework in Internal Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on the results of this evaluation, management has concluded that our internal control over
financial reporting was effective at the reasonable assurance level as of December 31, 2021.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm because we are an “emerging growth company,”
and may take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not “emerging growth companies”
including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act.
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
December 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not applicable.
56
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following sets forth certain information with respect to our officers and directors.
PART III
Name
Timothy P. Moran
Mark Pomeranz
Andrew Taylor
David Hochman
Darren Sherman
Shervin Korangy
Gary J. Pruden
Sonja Nelson
Management
Age
50
60
51
46
50
47
60
48
Position(s)
Chief Executive Officer and Director
President, Chief Operating Officer and Director
Chief Financial Officer
Chairman of the Board
Director
Director
Director
Director
Timothy P. Moran, Chief Executive Officer and Director
Mr. Moran has served as Chief Executive Officer since October 1, 2018. Prior to joining us, from 2015 to September 2018, Mr. Moran served as President of the Americas,
ConvaTec Group Plc (LON: CTEC) (“ConvaTec”), an international medical products and technologies company, offering products and services in the areas of wound and skin
care, ostomy care, continence and critical care and infusion devices. Prior to his employment at ConvaTec, Mr. Moran held roles in sales, marketing and general management
over the course of eighteen years at Covidien plc (“Covidien”), an Irish-headquartered global health care products company and manufacturer of medical devices and supplies.
While at Covidien, until 2015, Mr. Moran served simultaneously as VP and General Manager of both the SharpSafety and Monitoring & Operating Room divisions. Following
the 2015 acquisition of Covidien by Medtronic (NYSE:MDT), Mr. Moran was named the Global Vice President and General Manager of the Patient Care and Safety Division.
Mr. Moran also served on the CEO Advisory Council for Advanced Medical Technology Association (AdvaMed), a medical device trade association. Mr. Moran earned a B.A.
in Organizational Communication at The State University of New York at Geneseo. Mr. Moran was selected as a director because of his broad commercial experience and
leadership in the medical technology sector.
Mark Pomeranz, President, Chief Operating Officer and Director
Mr. Pomeranz has served as Chief Operating Officer since September 24, 2018. Prior to his tenure as our Chief Operating Officer, Mr. Pomeranz served as our Chief Executive
Officer from December 2016 through September 2018, and as the Chief Executive Officer of Motus GI Medical Technologies Ltd., our wholly owned subsidiary, from 2014
through September 2018. Prior to joining Motus GI Medical Technologies Ltd., from 2008 to 2014, Mr. Pomeranz was the founding CEO of Svelte Medical Systems, a start-up
company that is currently commercializing a unique drug eluting stent platform. From 2007 to 2008 Mr. Pomeranz was the Vice President of Research and Development at
Prescient Medical, Inc. From 1998 to 2007, Mr. Pomeranz served as Vice President at Cordis, a Johnson& Johnson Company, where his responsibilities included developing
new technologies, exploring new market opportunities and leading major restructuring efforts to create cross-functional global commercialization teams. Prior to that, Mr.
Pomeranz held a number of senior leadership roles, including positions at Cardiac Pathways Corporations from 1991 to 1998, and Cardiovascular Imaging Systems from 1989
to 1991, both of which were acquired by Boston Scientific Corporation. Mr. Pomeranz earned a M.Sc. in biomedical engineering from the University of Miami. Mr. Pomeranz
was selected as a director due to his history as a director of Motus GI Medical Technologies Ltd. and his business and leadership experience in the medical technology sector;
his broad scientific background is also seen as an asset to us.
57
Andrew Taylor, Chief Financial Officer
Mr. Taylor has served as our Chief Financial Officer since August 2017. Prior to joining us, Mr. Taylor served as the CFO and President of Angel Medical Systems from 2007
until 2017 and has served on the board of directors of Angel Medical Systems, Inc. since 2017. Angel Medical Systems is a medical device company that develops and
manufactures ischemia monitoring and alerting systems. While at Angel Medical Systems, Mr. Taylor supervised the majority of the operations and employees in the United
States and Brazil, while also overseeing the financial planning and analysis activities, capital raise and licensing efforts, and implementation of capital and operating budgets.
From 2005 to 2007, Mr. Taylor was a Practice Leader for AC Lordi Consulting (now part of BDO USA, LLP), where he oversaw staff providing CFO and Controller consulting
services. Prior to that, Mr. Taylor was the CFO of Safe3w, Inc. from 2001 to 2005 until its acquisition by iPass, Inc., where he led all accounting and finance functions as well
as the fundraising efforts, and negotiated the sale of the company. From 1999 to 2001, Mr. Taylor served as the Vice President of Finance and Administration of Abridge, Inc.,
where he developed and managed processes for budgeting, forecasting and cash management. Prior to that, Mr. Taylor was a Senior Finance Associate at Delta Air Lines
(NYSE: DAL), from 1998 to 1999. Mr. Taylor earned a B.A. in Political Science and Economics at McGill University and his MBA in Finance at Northeastern University, and
is CFA Program Level II Candidate.
On December 31, 2018, Angel Medical Systems, Inc. filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Bankruptcy Code in the U.S.
Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). On February 11, 2019, the conditions of the Chapter 11 Plan of Reorganization (the “Bankruptcy
Plan”) for Angel Medical Systems, Inc. were confirmed by the Bankruptcy Court. On March 29, 2019, the Bankruptcy Plan became effective and Angel Medical Systems, Inc.
emerged from its Chapter 11 reorganization as a private company.
Directors
Timothy P. Moran, Chief Executive Officer and Director
See description under Management.
Mark Pomeranz, President, Chief Operating Officer and Director
See description under Management.
David P. Hochman, Chairman of the Board
Mr. Hochman has served as the Chairman of our board of directors since 2016, and as Chairman of the Board of Motus GI Medical Technologies Ltd., our wholly owned
subsidiary, since 2011. Since May 2018, he has been Chairman and Chief Executive Officer of Orchestra BioMed, Inc., a biomedical innovation company focused on bringing
high-impact procedure-based therapeutic innovations to life through risk-reward sharing partnerships. From 2006 until 2019, he served as Managing Partner of Orchestra
Medical Ventures, LLC, an investment firm that employed a strategy to create, build and invest in medical technology companies intended to generate substantial clinical value.
Mr. Hochman has also served as President of Accelerated Technologies, Inc., a medical device accelerator company previously managed by Orchestra Medical Ventures, LLC,
and now a wholly owned subsidiary of Orchestra BioMed, Inc. Mr. Hochman has over twenty-four years of medical innovation, entrepreneurial, venture capital and investment
banking experience. He was a co-founder of Caliber Therapeutics, Inc., a wholly owned subsidiary of Orchestra BioMed, Inc., and was on the Board of Caliber Therapeutics,
Inc. from 2009 until 2018. He was a co-founder of BackBeat Medical, Inc., a wholly owned subsidiary of Orchestra BioMed, Inc., and served as its President and a member of
its Board since inception in 2010 until 2018. He was a co-founder of FreeHold Surgical, Inc., a wholly owned subsidiary of Orchestra BioMed, Inc., and served as a member of
its Board from 2011 until 2018. Mr. Hochman served as a board member of Corbus Pharmaceuticals Holdings, Inc. (NASDAQ: CRBP), a clinical-stage drug development
company pioneering transformative medicines that target the endocannabinoid system, from 2013 until 2020. He also served as a director of Adgero Biopharmaceuticals
Holdings, Inc until 2020 when it was acquired by Kintara Therapeutics, Inc. (NASDAQ: KTRA). Prior to joining Orchestra Medical Ventures LLC, Mr. Hochman was Chief
Executive Officer of Spencer Trask Edison Partners, LLC, an investment partnership focused on development stage healthcare companies. He was also Managing Director of
Spencer Trask Ventures, Inc. during which time he led financing transactions for over twenty early-stage companies. From 1999 to 2006 Mr. Hochman was a board advisor of
Health Dialog Services Corporation, a leader in collaborative healthcare management that was acquired in 2008 by the British United Provident Association. From 2005 to
2007, he was a co-founder and board member of PROLOR Biotech, Inc., a biopharmaceutical company developing longer lasting versions of approved therapeutic proteins,
which was purchased by Opko Health (NYSE: OPK) in 2013. He is also President and a Board Member of the Mollie Parnis Livingston Foundation, a family foundation. He
has a B.A. degree with honors from the University of Michigan. Mr. Hochman was selected as a director due to his history as a director of Motus GI Medical Technologies Ltd.,
our wholly owned subsidiary, his leadership experience at other public companies, including medical technology companies, his financial experience and his expertise in
governance matters.
58
Darren Sherman, Director
Mr. Sherman has been a director of Motus GI Medical Technologies Ltd., our wholly owned subsidiary, since 2011 and has served on our board of directors since December
2016. Since May 2018, Mr. Sherman has been President, Chief Operations Officer and a member of the Board of Orchestra BioMed, Inc., a biomedical innovation company
focused on bringing high-impact procedure-based therapeutic innovations to life through risk-reward sharing partnerships. Mr. Sherman has over 24 years of management and
entrepreneurial experience in the medical technology industry spanning interventional cardiology, cardiac electrophysiology, sudden cardiac death, stroke, surgery, GI, and
neurovascular therapies. From 2009 until December 2019, Mr. Sherman served as Managing Partner of Orchestra Medical Ventures, LLC, an investment firm that employed a
strategy to create, build and invest in medical technology companies intended to generate substantial clinical value. Mr. Sherman has also served as Chief Technical Officer of
Accelerated Technologies, Inc. (ATI), a medical device accelerator company managed by Orchestra Medical Ventures, LLC, from 2008 to 2019, and now a wholly owned
subsidiary of Orchestra BioMed, Inc. From 2009 until March 2018, Mr. Sherman served as Chief Executive Officer and a director of Caliber Therapeutics, Inc., from 2012 until
March 2019 served as Chief Executive Officer and a director of FreeHold Surgical, Inc., and from 2009 until March 2019 he served as a director of BackBeat Medical, Inc.,
each of which entities are now wholly owned subsidiary of Orchestra BioMed, Inc.. From 2009 until 2016, he served on the board of directors of Vivasure Medical Limited, a
medical device company based in Galway, Ireland. Prior to joining Orchestra Medical Ventures, LLC, from February 2002 until March 2008, Mr. Sherman held various
positions in executive management for Cordis Neurovascular (CNV), a Johnson & Johnson company, including Executive Director R&D and Director of Strategic Marketing
for stroke products. From January 1997 until February 2002, Mr. Sherman played an integral role in the formation and development of Revivant Corp (acquired by Zoll
Medical Corporation) while working at Fogarty Engineering. He was Revivant Corp’s first employee and managed the design, development, and testing of the AutoPulse
device from concept through market introduction. From January 1995 until January 1997, Mr. Sherman held positions in research and development for Cardiac Pathways Corp.,
prior to its acquisition by Boston Scientific. Prior to Cardiac Pathways Corp., he worked at Baxter Healthcare. In each of these companies, he participated in the creation,
development and launch of products. Mr. Sherman has authored more than eighty-five U.S. patents and has over one-hundred additional published applications. He earned a BS
degree in Bioengineering from the University of California, San Diego. Mr. Sherman was selected as a director due to his history as a director of Motus GI Medical
Technologies Ltd., our wholly owned subsidiary, and his leadership experience at other companies, including medical technology companies.
Shervin J. Korangy, Director
Mr. Korangy has served on our board of directors since March 2017. Mr. Korangy also serves as the President and Chief Executive Officer of BVI Medical, Inc., a leading
global developer, manufacturer and marketer of specialized surgical devices for the ophthalmic marketplace. Prior to his appointment as CEO of BVI, he served as the Chief
Financial Officer and Head of Strategy of BVI. From 2012 to 2017, Mr. Korangy served in various country General Management roles for Novartis Group AG (NYSE: NVS), a
global healthcare company, where he worked with medical device, pharmaceutical and consumer health product segments. Prior to that, while part of Novartis Group AG from
2010 to 2012, Mr. Korangy was the Global Head of Corporate Finance, where he was responsible for global M&A, strategy, integrations, BD&L and portfolio planning. He
served on the Novartis Finance Leadership Team and the Global Deal Committee. From 1996 to 2010, Mr. Korangy worked in the Private Equity and Restructuring Advisory
divisions of the Blackstone Group (NYSE: BX), where he most recently was a Managing Director. Mr. Korangy is a current member of the Board of Directors (and Chairman
of the strategy committee and member of the audit committee) of The Hain Celestial Group (NASDAQ: HAIN), a leading organic and natural products company. Mr. Korangy
has also served on the Advisory Board of the McNulty Center for Leadership and Change Management at The Wharton School of the University of Pennsylvania, since January
2019. Mr. Korangy is a former member of the Board of Directors of Pelican Rouge, a consumer coffee manufacturer and vending business, Ultra Music, an electronic and
dance music record label, Graham Packaging, a manufacturer and distributer of custom plastic containers for consumer product companies, Pinnacle Foods (NYSE: PF), a
consumer packaged foods manufacturer and distributor and Bayview Financial, an asset manager and loan servicer. Mr. Korangy received his B.S. degree in economics at the
Wharton School of the University of Pennsylvania. Mr. Korangy was selected as a director due to his board experience, his management experience with medical device,
pharmaceutical and consumer health products, and his financial and accounting experience.
59
Gary J. Pruden, Director
Mr. Pruden has served on our board of directors since December 2017. Prior to joining us, from 1985 until 2017, Mr. Pruden held a number of senior commercial leadership
positions across both the medical devices and pharmaceutical sectors of Johnson & Johnson (NYSE: JNJ). In April 2004, he became President of the Johnson & Johnson
subsidiary, Janssen-Ortho Inc. in Canada. In January 2006, Mr. Pruden was appointed Worldwide President of Ethicon, Inc., a Johnson & Johnson subsidiary, and in 2009
became the Company Group Chairman of Ethicon, Inc. In 2012, he was named Worldwide Chairman of Johnson & Johnson’s Global Surgery Group and in 2015 he became
Worldwide Chairman in the Medical Devices division. In April 2016, Mr. Pruden became a member of the Executive Committee at Johnson & Johnson where his official title
was Executive Vice President, Worldwide Chairman, Medical Devices. Mr. Pruden also served in several capacities with the Advanced Medical Technology Association
(AdvaMed), a medical device trade association, where he participated in negotiations with the FDA. While at AdvaMed Mr. Pruden served as a member of the Board of
Directors, as Chair of the AdvaMed Regulatory Committee, and as a member of the AdvaMed Executive Committee. Mr Pruden serves as an independent board member for
Lantheus Holdings, Inc. (NASDAQ: LNTH) (and serves as a member of its Audit committee and the chair of its Compensation committee), OSSIO Inc, (and serves as a the
chair of its Audit committee) and Avisi Technologies Inc. Mr. Pruden received his B.S. degree in finance at Rider University, where he later served on the Board of Trustees
from 2011 until 2015. Mr. Pruden was selected as a director due to his global management and regulatory experience with medical device and pharmaceutical products and his
financial experience in leading a large business.
Sonja Nelson, Director
Ms. Nelson has served on our board of directors since June 2021. In June 2021, Ms. Nelson began serving as the Chief Financial Officer of Ambrx Biopharma, Inc, (NYSE:
AMAM). Prior to that, Ms. Nelson, served as the Senior Vice President, Finance, of ImmunityBio, Inc. (NASDAQ: IBRX), from March 2021 to June 2021. Ms. Nelson served
as the Chief Financial Officer of NantKwest, Inc. from June 2018 to March 2021, at which time NantKwest, Inc. merged with ImmunityBio, Inc. (NASDAQ: IBRX). Ms.
Nelson previously served as the Chief Accounting Officer of NantKwest, Inc. from May 2016 to June 2018 and as the VP/Corporate Controller of NantKwest, Inc. from
November 2015 to May 2016. Ms. Nelson also served as a director of Inex Bio (a subsidiary of NantKwest, Inc., now merged with ImmunityBio, Inc. (NASDAQ: IBRX)) from
October 2017 to June 2021. Prior to joining NantKwest, Inc., Ms. Nelson was Vice President and Corporate Controller at AltheaDx, Inc. from July 2014 through October 2015.
Previously, Ms. Nelson was Senior Director and Controller at Cadence Pharmaceuticals, Inc. (acquired by Mallinckrodt plc) from May 2012 through June 2014. Prior to that,
Ms. Nelson was Director, General Accounting at Cricket Communications, Inc. (acquired by AT&T, Inc.) from September 2008 through May 2012. Ms. Nelson began her
career with KPMG LLP, holds a Bachelor’s degree in business administration with specialization in and taxation and auditing from the University of Applied Sciences in
Pforzheim, Germany, and is a Certified Public Accountant. Ms. Nelson was selected as a director due to her management experience with pharmaceutical and consumer health
products, and her financial and accounting experience.
Family Relationships
There are no family relationships among any of the members of our board of directors or executive officers.
Code of Business Conduct and Ethics
We have adopted a written code of business conduct and ethics that applies to our employees, officers and directors. A current copy of our code is posted on the Corporate
Governance section of our website, which is located at www.motusgi.com. We intend to disclose future amendments to certain provisions of our code of business conduct and
ethics, or waivers of such provisions applicable to any principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing
similar functions, and our directors, on our website identified above or in filings with the SEC.
Committees of the Board of Directors
Our board of directors has established an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee. Our board of directors may
establish other committees to facilitate the management of our business. The composition and functions of each committee are described below. Members serve on these
committees until their resignation or until otherwise determined by our board of directors. Each of these committees operates under a charter that has been approved by our
board of directors, which are available on our website.
Audit Committee. Our Audit Committee consists of Ms. Nelson, Mr. Pruden and Mr. Sherman, with Ms. Nelson serving as the Chairman of the Audit Committee. Our board
of directors has determined that the three directors currently serving on our Audit Committee are independent within the meaning of the NASDAQ Marketplace Rules and Rule
10A-3 under the Exchange Act. In addition, our board of directors has determined that Ms. Nelson qualifies as an audit committee financial expert within the meaning of SEC
regulations and The NASDAQ Marketplace Rules.
The Audit Committee oversees and monitors our financial reporting process and internal control system, reviews and evaluates the audit performed by our registered
independent public accountants and reports to the board of directors any substantive issues found during the audit. The Audit Committee is directly responsible for the
appointment, compensation and oversight of the work of our registered independent public accountants. The Audit Committee reviews and approves all transactions with
affiliated parties.
Compensation Committee. Our Compensation Committee consists of Mr. Hochman, Mr. Pruden and Mr. Korangy, with Mr. Hochman serving as the Chairman of the
Compensation Committee. Our board of directors has determined that the three directors currently serving on our Compensation Committee are independent under the listing
standards, are “non-employee directors” as defined in rule 16b-3 promulgated under the Exchange Act and are “outside directors” as that term is defined in Section 162(m) of
the Internal Revenue Code of 1986, as amended.
60
The Compensation Committee provides advice and makes recommendations to the board of directors in the areas of employee salaries, benefit programs and director
compensation. The Compensation Committee also reviews and approves corporate goals and objectives relevant to the compensation of our President, Chief Executive Officer,
and other officers and makes recommendations in that regard to the board of directors as a whole.
Nominating and Corporate Governance Committee. Our Nominating and Corporate Governance Committee consists of Mr. Sherman, Mr. Pruden, and Mr. Korangy, with
Mr. Sherman serving as the Chairman of the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee nominates individuals
to be elected to the board of directors by our stockholders. The Nominating and Corporate Governance Committee considers recommendations from stockholders if submitted
in a timely manner in accordance with the procedures set forth in our bylaws and will apply the same criteria to all persons being considered. All members of the Nominating
and Corporate Governance Committee are independent directors as defined under the NASDAQ listing standards.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table shows the compensation awarded to or earned by our principal executive officer during the fiscal year ended December 31, 2021, our two other most highly
compensated executive officers who were serving as executive officers as of December 31, 2021, and up to two additional individuals for whom disclosure would have been
provided but for the fact that the individual was not serving as an executive officer as of December 31, 2020. The persons listed in the following table are referred to herein as
the “named executive officers”.
Name and Principal Position
Timothy P. Moran (3)
Chief Executive Officer
Year
2021
2020
Salary
($)
475,000
475,000
Bonus
($)
265,050
262,200
Stock
Awards
($) (2)
250,980
224,035
Option
Awards
($) (1)
202,758
408,685
Mark Pomeranz (4)
President and Chief Operating Officer
2021
2020
385,000
385,000
229,025
174,213
115,700
87,126
93,470
160,766
Andrew Taylor (5)
Chief Financial Officer
2021
2020
310,000
310,000
115,320
112,220
106,800
99,572
86,280
178,695
All Other
Compensation
($)
47,282(7)
558,930(6)
34,837(8)
18,015(8)
42,332(9)
25,596(9)
Total
($)
1,241,070
1,928,850
858,032
825,120
660,732
726,083
(1) Amounts reflect the grant date fair value of option awards granted in 2021 and 2020 in accordance with Accounting Standards Codification Topic 718. For information
regarding assumptions underlying the valuation of equity awards, see Note 11 to our Consolidated Financial Statements and the discussion under “Part II—Item 7—
Management’s Discussion and Analysis of Financial Condition and Results of Operation” included in this report. These amounts do not correspond to the actual value that
may be received by the named executive officers if the stock options are exercised.
(2) Amounts reflects the grant date fair value of stock awards granted in 2021 and 2020 computed in accordance with Accounting Standards Codification Topic 718. For
information regarding assumptions underlying the valuation of equity awards, see Note 11 to our Consolidated Financial Statements.
(3) Timothy P. Moran began serving as our Chief Executive Officer on October 1, 2018.
(4) Mark Pomeranz began serving as our President and Chief Operating Officer on September 24, 2018. Mark Pomeranz served as our Chief Executive Officer from December
2016 through September 23, 2018.
(5) Andrew Taylor began serving as our Chief Financial Officer on August 16, 2017.
(6) $533,333 reflects Employment Buy-Out Payments (as defined below), the remainder relates to corporate and health benefits.
(7) Amounts relate to corporate and health benefits and 401K employer match.
(8) Amounts relate to corporate and health benefits and 401K employer match.
(9) Amounts relate to corporate and health benefits and 401K employer match.
61
Narrative Disclosure to Summary Compensation Table
Employment Agreements with Our Named Executive Officers
We entered into an employment agreement with Mr. Moran, which became effective on October 1, 2018, on an at-will basis, which contains non-disclosure and invention
assignment provisions. Under the terms of Mr. Moran’s employment agreement, he holds the position of Chief Executive Officer and receives a base salary of $475,000
annually (the “Base Salary”). In addition, Mr. Moran is eligible to receive an annual bonus payment (the “Performance Bonus”) in an amount equal to up to sixty percent (60%)
of his then-Base Salary (the “Bonus Target”) if our board of directors determines that he has met the target objectives communicated to him. For the first twelve months of his
employment (the period from October 1, 2018 through October 1, 2019), the payout range for the Performance Bonus is between fifty percent (50%) and two hundred percent
(200%) of the Bonus Target if our board of directors determines the objectives have been achieved. Thereafter, subsequent payout parameters will be determined by our board
of directors based upon parameters set by our board of directors and Mr. Moran for an overall executive bonus program using market data and analysis input from a third-party
expert compensation firm.
In connection with his employment agreement, Mr. Moran was granted (i) an option, granted on November 8, 2018 to purchase 495,000 shares (the “Initial Option Grant”) of
our Common Stock pursuant to the our 2016 Equity Incentive Plan (the “Plan”), at an exercise price equal to $3.78 per share and (ii) a restricted stock unit award, granted on
February 13, 2019, for 165,000 shares of Common Stock pursuant to the Plan (the “Initial Restricted Stock Unit Award”). The Initial Option Grant vests in substantially equal
quarterly installments over three years commencing from October 1, 2018, subject to Mr. Moran’s continued employment by us. The Initial Restricted Stock Unit Award vests
in substantially equal quarterly installments over four years commencing from October 1, 2018, subject to Mr. Moran’s continued employment by us. The stock option grant
agreement and restricted stock unit award agreements include terms and conditions set forth in our standard forms of such agreements under the Plan. In addition, pursuant to
the terms of his employment agreement, Mr. Moran is eligible to receive, from time to time, equity awards under the Plan, or any other equity incentive plan we may adopt in
the future, and the terms and conditions of such awards, if any, will be determined by our board of directors or Compensation Committee, in their discretion. Mr. Moran is also
eligible to participate in any executive benefit plan or program we adopt. Further, Mr. Moran received employment buy-out payments (the “Employment Buy-Out Payments”)
in the amount of $400,000 each on March 1, 2019, November 1, 2019, March 1, 2020 and November 1, 2020.
In the event of death, termination due to disability, termination by us for cause or by Mr. Moran without good reason, Mr. Moran will be entitled to: (i) the amount of his
earned, but unpaid salary, prior to the effective date of termination; (ii) reimbursement for any expenses incurred through the effective date of termination; and (iii) any vested
amount or benefit as of the effective date of termination. In addition, in the event of death or termination due to disability Mr. Moran will be entitled to the Employment Buy-
Out Payments in accordance with the schedule described above. In the event of termination by us without cause or by Mr. Moran for good reason, Mr. Moran will be entitled to
receive: (i) the amount of his earned, but unpaid salary, prior to the effective date of termination; (ii) reimbursement for any expenses incurred through the effective date of
termination; (iii) any vested amount or benefit as of the effective date of termination; (iv) other than in the event of a termination within twelve months of a change in control,
payment as severance twelve months of his Base Salary, or if Mr. Moran is terminated within twelve months of a change in control, payment as severance eighteen months of
his Base Salary; (v) other than in the event of a termination within twelve months of a change in control, payment of our portion of the cost of COBRA coverage for twelve
months, or if Mr. Moran is terminated within twelve months of a change in control, payment of our portion of the cost of COBRA coverage for eighteen months; (vi) any
unpaid portion of the Employment Buy-Out Payments in accordance with the schedule described above; (vii) any earned but unpaid Performance Bonus that relates to the
calendar year prior to the calendar year in which termination occurs; and (viii) other than in the event of a termination within twelve months of a change in control, accelerated
vesting of any options that otherwise would have vested within twelve months of the termination date, or if Mr. Moran is terminated within twelve months of a change in
control, accelerated vesting of all outstanding options.
On September 24, 2018, we entered into an amended and restated employment agreement with Mark Pomeranz, pursuant to which Mr. Pomeranz transitioned from his previous
role as President and Chief Executive Officer, into the role of President and Chief Operating Officer as of October 1, 2018.
62
The amended and restated employment agreement with Mr. Pomeranz became effective on September 24, 2018, provides for employment on an at-will basis, and contains non-
disclosure and invention assignment provisions. Under the terms of the amended and restated employment agreement, Mr. Pomeranz holds the position of President and Chief
Operating Officer, and receives a base salary of $385,000 annually (the “Pomeranz Base Salary”). In addition, Mr. Pomeranz is eligible to receive (i) for the calendar year
ending December 31, 2018, a bonus payment in an amount equal to up to thirty one and one quarter percent (31.25%) (the “2018 Bonus Target”) of his then base salary (the
“2018 Bonus”) if our board of directors determines that he has met the target objectives communicated to him, with a payout range for the 2018 Bonus of between fifty percent
(50%) and two hundred percent (200%) of the 2018 Bonus Target, and (ii) effective January 1, 2019 and thereafter an annual bonus payment (the “Pomeranz Performance
Bonus”) in an amount equal to up to fifty percent (50%) of the Pomeranz Base Salary if our board of directors determines that he has met the target objectives communicated to
him. Payout parameters for the Pomeranz Performance Bonus will be determined by our board of directors based upon parameters set by our board of directors and CEO for an
overall executive bonus program using market data and analysis input from a third-party expert compensation firm. In May 2017, pursuant to his original employment
agreement, Mr. Pomeranz received a grant of options to purchase up to 511,113 shares of our Common Stock pursuant to our Equity Incentive Plan with an exercise price of
$5.00 per share, of which fifty-three percent (53%) were fully vested when issued, forty percent (40%) vest in a series of twelve (12) successive equal quarterly installments
upon the completion of each successive calendar quarter of active service over the three (3) year period measured from the date of grant, as was determined by the
Compensation Committee of our board of directors, and seven percent (7%) will not become fully vested until December 22, 2019. This option was repriced to $4.50 per share
in September 2017. Pursuant to the terms of the amended and restated employment agreement, Mr. Pomeranz is also eligible to receive, from time to time, equity awards under
our existing equity incentive plan, or any other equity incentive plan we may adopt in the future, and the terms and conditions of such awards, if any, will be determined by our
board of directors or Compensation Committee, in their discretion. Mr. Pomeranz is also eligible to participate in any executive benefit plan or program we adopt.
In the event of termination for cause, or if Mr. Pomeranz terminates voluntarily, Mr. Pomeranz is entitled to: (i) his unpaid salary through and including the date of termination;
(ii) any vested amount or benefit; and, (iii) reimbursement of business expenses. In the event of death, termination due to disability, termination without cause, or if Mr.
Pomeranz terminates for good reason, Mr. Pomeranz will be entitled to: (i) his unpaid salary through and including the date of termination; (ii) any vested amount or benefit;
(iii) reimbursement of business expenses; (iv) payment as severance twelve months of his base salary; (v) payment of the Company’s portion of the cost of COBRA coverage
for twelve months; (vi) any earned but unpaid 2018 Bonus or Pomeranz Performance Bonus that relates to the calendar year prior to the calendar year in which termination
occurs; and (vii) other than in the event of a termination within twelve months of a change in control, 25% of any unvested options will vest upon termination, or if Mr.
Pomeranz is terminated within twelve months of a change in control, accelerated vesting of all outstanding options.
On March 26, 2019, we entered into an amended and restated employment agreement with Andrew Taylor, our Chief Financial Officer.
The amended and restated employment agreement with Mr. Taylor became effective on March 26, 2019, as subsequently amended on March 15, 2021, provides for
employment on an at-will basis, and contains non-disclosure and invention assignment provisions. Under the terms of the amended and restated employment agreement, Mr.
Taylor holds the position of Chief Financial Officer, and receives a base salary of $310,000 annually (the “Taylor Base Salary”). In addition, Mr. Taylor is eligible to receive,
for any bonus period subsequent to December 31, 2019, an annual bonus payment (the “Taylor Performance Bonus”) in an amount equal to up to forty percent (40%) of the
Taylor Base Salary if our board of directors determines that he has met the target objectives communicated to him. Payout parameters for the Taylor Performance Bonus will be
determined by our board of directors based upon parameters set by our board of directors and CEO for an overall executive bonus program using market data and analysis input
from a third-party expert compensation firm. In September 2017, pursuant to his original employment agreement, Mr. Taylor received a grant of options to purchase up to
240,000 shares of our Common Stock pursuant to our Equity Incentive Plan with an exercise price of $4.50 per share, which vests in a series of twelve (12) successive equal
quarterly installments upon the completion of each successive calendar quarter of active service over the three (3) year period measured from the date of grant, as determined
by the Compensation Committee of our board of directors. Pursuant to the terms of the amended and restated employment agreement, Mr. Taylor is also eligible to receive,
from time to time, equity awards under our existing equity incentive plan, or any other equity incentive plan we may adopt in the future, and the terms and conditions of such
awards, if any, will be determined by our board of directors or Compensation Committee, in their discretion. Mr. Taylor is also eligible to participate in any executive benefit
plan or program we adopt.
63
In the event of termination for cause, or if Mr. Taylor terminates voluntarily, Mr. Taylor is entitled to: (i) his unpaid salary through and including the date of termination; (ii) any
vested amount or benefit; and, (iii) reimbursement of business expenses. In the event of death, termination due to disability, termination without cause, or if Mr. Taylor
terminates for good reason, Mr. Taylor will be entitled to: (i) his unpaid salary through and including the date of termination; (ii) any vested amount or benefit; (iii)
reimbursement of business expenses; (iv) payment as severance twelve months of his base salary; (v) payment of the Company’s portion of the cost of COBRA coverage for
twelve months; (vi) any earned but unpaid Taylor Performance Bonus that relates to the calendar year prior to the calendar year in which termination occurs; and (vii) other
than in the event of a termination within twelve months of a change in control, 25% of any unvested options will vest upon termination, or if Mr. Taylor is terminated within
twelve months of a change in control, accelerated vesting of all outstanding equity awards.
The employment agreements with Israeli employees of Motus GI Medical Technologies Ltd., our wholly owned subsidiary, contain standard provisions for a company in our
industry regarding non-competition, confidentiality of information and assignment of inventions. The enforceability of covenants not to compete in Israel is subject to
limitations. For example, Israeli courts have required employers seeking to enforce non-compete undertakings of a former employee to demonstrate that the competitive
activities of the former employee will harm one of a limited number of material interests of the employer which have been recognized by the courts, such as the secrecy of a
company’s confidential commercial information or its intellectual property.
Outstanding Equity Awards at Fiscal Year-End Table – 2021
The following table summarizes, for each of the named executive officers, the number of shares of our Common Stock underlying outstanding stock options held as of
December 31, 2021.
Option Awards
Stock Awards
Name
Timothy P. Moran (CEO)
Mark Pomeranz (COO)
Andrew Taylor (CFO)
Number of Securities
Underlying Unexercised
Options
Exercisable Exercisable
Option
Exercise
Price ($)
495,000
26,532
35,292
200,000
190,000
35,250
67,238
511,113
117,920
23,527
80,000
75,000
16,250
240,000
64,856
26,893
90,000
78,000
15,000
-
2,412
68,428
-
-
105,750
-
-
10,721
16,809
-
-
48,750
-
5,897
19,205
-
-
45,000
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
3.78(1)
4.32(2)
2.16(3)
1.17(4)
0.74(5)
1.78(11)
2.38(6)
4.50(7)
4.32(2)
2.16(3)
1.17(4)
0.74(5)
1.78(11)
4.50(8)
4.32(2)
2.16(3)
1.17(4)
0.74(5)
1.78(11)
Option
Expiration
Date
November 8, 2028
February 13, 2029
February 6, 2030
June 11, 2030
November 11, 2030
February 17, 2031
April 2, 2024
May 3, 2027
February 13, 2029
February 6, 2030
June 11, 2030
November 11,2030
February 17, 2031
September 29, 2027
February 13, 2029
February 6, 2030
June 11, 2030
November 11, 2030
February 17, 2031
Number of
Shares or Units
of Stock That
Have Not
Vested
Market Value of
Shares or Units
of Stock That
Have Not
Vested ($)
193,230(9)
90,238
78,957(10)
36,873
71,578(10)
33,427
(1) Represents options to purchase shares of our Common Stock granted on November 8, 2018 with an exercise price of $3.78 per share. The shares underlying the option vest
in a series of twelve (12) successive equal quarterly installments commencing on October 1, 2018 and continuing on the first day of each third month thereafter.
(2) Represents options to purchase shares of our Common Stock granted on February 13, 2019 with an exercise price of $4.32 per share. The shares underlying the option vest
in a series of twelve (12) successive equal quarterly installments commencing on May 1, 2019 and continuing on the first day of each third month thereafter.
(3) Represents options to purchase shares of our Common Stock granted on February 6, 2020 with an exercise price of $2.16 per share. The shares underlying the option vest
in a series of twelve (12) successive equal quarterly installments commencing on May 1, 2020 and continuing on the first day of each third month thereafter.
(4) Represents options to purchase shares of our Common Stock granted on June 11, 2020 with an exercise price of $1.17 per share. The shares underlying the option vest on
the first anniversary of the date of grant.
(5) Represents options to purchase shares of our Common Stock granted on November 11, 2020 with an exercise price of $0.74 per share. The shares underlying the option
vest on the first anniversary of the date of grant.
(6) Represents options to purchase shares of our Common Stock granted on April 2, 2014, under the Motus GI Medical Technologies LTD Employee Share Option Plan that
were outstanding as of the Share Exchange Transaction, which were assumed by the 2016 Equity Incentive Plan (the “2016 Plan”) and continue in effect in accordance
with their terms, on an adjusted basis to reflect the Share Exchange Transaction. 61% of the option was vested as of December 31, 2017, with the remaining 39% of the
option vesting in full in November 2018.
64
(7) Represents options to purchase shares of our Common Stock granted on May 4, 2017, with an exercise price of $5.00 per share. Fifty-three percent (53%) of the option
vested immediately upon grant, forty percent (40%) of the option vests in a series of twelve (12) successive equal quarterly installments commencing on May 4, 2017 and
continuing on the first day of each third month thereafter, and the remaining seven percent (7%) of the option vests on December 22, 2019. This option was repriced to
$4.50 per share in September 2017.
(8) Represents options to purchase shares of our Common Stock granted on September 29, 2017, with an exercise price of $4.50 per share. The shares underlying the option
vest in a series of twelve (12) successive equal quarterly installments commencing on December 1, 2017 and continuing on the first day of each third month thereafter.
(9) Represents RSUs granted on October 1, 2018, February 13, 2019, February 6, 2020, and February 17, 2021. The shares underlying the RSUs granted on October 1, 2018
and February 13, 2019 vest in a series of sixteen (16) successive equal quarterly installments commencing on January 1, 2019 and May 1, 2019 and continuing on the first
day of each third month thereafter. The shares underlying the RSUs granted on February 6, 2020 vest in a series of twelve (12) successive equal quarterly installments
commencing on May 1, 2020 and continuing on the first day of each third month thereafter. The shares underlying the RSUs granted on February 17, 2021 vest in a series
of twelve (12) successive equal quarterly installments commencing on May 1, 2021 and continuing on the first day of each third month thereafter.
(10) Represents RSUs granted on February 13, 2019, February 6, 2020, and February 17, 2021. The shares underlying the RSUs granted on February 13, 2019 vest in a series of
sixteen (16) successive equal quarterly installments commencing on May 1, 2019 and continuing on the first day of each third month thereafter. The shares underlying the
RSUs granted on February 6, 2020 vest in a series of twelve (12) successive equal quarterly installments commencing on May 1, 2020 and continuing on the first day of
each third month thereafter. The shares underlying the RSUs granted on February 17, 2021 vest in a series of twelve (12) successive equal quarterly installments
commencing on May 1, 2021 and continuing on the first day of each third month thereafter.
(11) Represents options to purchase shares of our Common Stock granted on February 17, 2021 with an exercise price of $1.78 per share. The shares underlying the option vest
in a series of twelve (12) successive equal quarterly installments commencing on February 1, 2021 and continuing on the first day of each third month thereafter.
Director Compensation
The following table sets forth information concerning the compensation paid to certain of our non-employee directors during 2021.
Name
David Hochman (2)
Darren Sherman (3)
Samuel Nussbaum (4)
Shervin Korangy (5)
Gary Pruden (6)
Sonja Nelson (7)
Stock Awards
($)
Option Awards
($) (1)
Total
($)
129,000(9)
92,900(9)
58,441(9)
89,401(9)
99,901(9)
18,937(8)
55,400
41,550
41,550
41,550
41,550
41,300
184,400
134,450
99,991
130,951
141,451
60,237
(1) Amounts reflect the aggregate grant date fair value of each stock option granted in 2021 in accordance with the Accounting Standards Codification Topic 718. For
information regarding assumptions underlying the valuation of equity awards, see Note 11 to our Consolidated Financial Statements and the discussion under “Part II—
Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operation” included in this report. These amounts do not correspond to the actual
value that may be received by the directors if the stock options are exercised.
(2) The aggregate number of shares of Common Stock underlying stock options outstanding as of December 31, 2021 held by Mr. Hochman was 275,000.
(3) The aggregate number of shares of Common Stock underlying stock options outstanding as of December 31, 2021 held by Mr. Sherman was 167,500.
(4) The aggregate number of shares of Common Stock underlying stock options outstanding as of December 31, 2021 held by Dr. Nussbaum was 117,500. Dr. Nussbaum
ceased being a director upon his death in September 2021.
(5) The aggregate number of shares of Common Stock underlying stock options outstanding as of December 31, 2021 held by Mr. Korangy was 132,500.
(6) The aggregate number of shares of Common Stock underlying stock options outstanding as of December 31, 2021 held by Mr. Pruden was 117,500.
(7) The aggregate number of shares of Common Stock underlying stock options outstanding as of December 31, 2021 held by Ms. Nelson was 50,000.
(8) Represents the value of Common stock issued to Ms. Nelson in lieu of cash compensation in 2021.
(9) Represents the value of Common stock issued in lieu of cash compensation in 2021 and the FV of RSU’s issued in 2021.
65
Non-Employee Director Compensation
Our board of directors approved a director compensation policy for our directors, effective January 1, 2022. This policy provides for the following cash compensation:
● each director is entitled to receive a quarterly fee of $7,150;
● the chairman of our board of directors will receive a quarterly fee of $6,450;
● the chair of the Audit Committee will receive a quarterly fee of $2,750;
● each chair of any other board of director committee will receive a quarterly fee of $1,650;
● each non-employee director sitting on more than two of our board of directors committees will receive an additional quarterly fee of $825;
● each non-chairperson member of the audit committee, the compensation committee and the nominating and corporate governance committee will receive annual fees
of $2,062, $1,375 and $1,375, respectively.
Each non-employee director is also eligible to receive an annual option grant in an amount to be determined annually by our Compensation Committee in consultation with an
independent compensation consultant, to purchase shares of our Common Stock under our existing equity incentive plan, or any other equity incentive plan we may adopt in the
future, which shall vest in two equal annual installments, beginning on the first anniversary of the date of grant, and ending on the second anniversary of the date of grant.
All fees under the director compensation policy will be paid on a quarterly basis in arrears and no per meeting fees will be paid. Effective February 2021, our Board approved a
temporary modification to the non-employee director compensation policy to permit payment of the entire 2021 fees in a single grant of our Common Stock, in lieu of cash
compensation, for the quarters ending March 31, 2021, June 30, 2021, September 30, 2021 and December 31, 2021 (the “2021 Fee Grant”). The 2021 Fee Grant was made to
each non-employee director on February 17, 2021. Effective January 2022, our Board approved a temporary modification to the non-employee director compensation policy to
permit payment of the entire 2022 fees in a single grant of our Common Stock, in lieu of cash compensation, for the quarters ending March 31, 2022, June 30, 2022, September
30, 2022 and December 31, 2022 (the “2022 Fee Grant”). The 2022 Fee Grant was made to each non-employee director on January 5, 2022. We will also reimburse non-
employee directors for reasonable expenses incurred in connection with attending board of director and committee meetings.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Securities Authorized for Issuance Under Equity Compensation Plans
2016 Equity Incentive Plan
General
On December 14, 2016, our board of directors adopted our Motus GI Holdings, Inc. 2016 Equity Incentive Plan and 2016 Israeli Sub-Plan to the Motus GI Holdings, Inc. 2016
Equity Incentive Plan (the “2016 Plan”), subject to stockholder approval, which was received on December 20, 2016.
The general purpose of the 2016 Plan is to provide a means whereby eligible employees, officers, non-employee directors and other individual service providers develop a
sense of proprietorship and personal involvement in our development and financial success, and to encourage them to devote their best efforts to our business, thereby
advancing our interests and the interests of our stockholders. By means of the 2016 Plan, we seek to retain the services of such eligible persons and to provide incentives for
such persons to exert maximum efforts for our success and the success of our subsidiaries.
66
The following table provides information with respect to our compensation plans under which equity compensation was authorized as of December 31, 2021.
Plan category
Equity compensation plans approved by security holders(1)
Equity compensation plans not approved by security holders
Total
Number of
securities
to be issued
upon exercise of
outstanding
options,
warrants and
rights
(a)
6,655,076(2)
-
6,655,076
Weighted
average exercise
price of
outstanding
options,
warrants and
rights
(b)
$
$
$
2.71(3)
-
2.71
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column a)
(c)(4)
145,520
-
145,520
(1) The amounts shown in this row include securities under the 2016 Plan.
(2) Includes 6,152,562 shares of Common Stock issuable upon exercise of outstanding options and 502,513 shares of Common Stock issuable pursuant to outstanding
restricted stock units
(3) The weighted average exercise price does not take into account the shares issuable pursuant to outstanding restricted stock units, which have no exercise price.
(4) In accordance with the “evergreen” provision in our 2016 Plan, an additional 2,903,016 shares were automatically made available for issuance on the first day of 2022,
which represents 6% of the number of shares outstanding on December 31, 2021; these shares are excluded from this calculation.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding the beneficial ownership of our Common Stock as of the date of this report by:
● each of our stockholders who is known by us to beneficially own 5% or more of our Common Stock;
● each of our named executive officers;
● each of our directors; and
● all of our directors and current officers as a group.
Beneficial ownership is determined based on the rules and regulations of the SEC. A person has beneficial ownership of shares if such individual has the power to vote and/or
dispose of shares. This power may be sole or shared and direct or indirect. In computing the number of shares beneficially owned by a person and the percentage ownership of
that person, shares of our Common Stock that are subject to options or warrants held by that person and exercisable as of, or within 60 days of, February 14, 2022 are counted
as outstanding. These shares, however, are not counted as outstanding for the purposes of computing the percentage ownership of any other person(s). Except as otherwise
noted in the footnotes to the table, we believe that each person or entity named in the table has sole voting and investment power with respect to all shares of the Company’s
Common Stock shown as beneficially owned by that person or entity (or shares such power with his or her spouse). Unless indicated below, the address of each individual listed
below is c/o Motus GI Holdings, Inc., 1301 East Broward Boulevard, 3rd Floor, Ft. Lauderdale, FL 33301.
The percentage of the Common Stock beneficially owned by each person or entity named in the following table is based on 48,810,153 shares of Common Stock issued and
outstanding as of February 14, 2022 plus any shares issuable upon exercise of options or warrants that are exercisable on or within 60 days after February 14, 2022 held by such
person or entity.
67
Beneficial ownership representing less than 1% is denoted with an asterisk (*).
Name of Beneficial Owner
Officers and Directors
Timothy P. Moran (1)
Mark Pomeranz (2)
David Hochman (3)
Darren Sherman (4)
Sonja Nelson (5)
Shervin Korangy (6)
Andrew Taylor (7)
Gary Pruden (8)
Directors and Officers as a Group (9 persons)
5% Stockholders
Perceptive Life Sciences Master Fund Ltd. (9)
Number of
Shares
Beneficially
Owned
Percentage of Shares
Beneficially
Owned
1,341,012
1,007,903
691,263
358,235
100,709
318,522
603,907
376,449
5,013,189
2,906,597
2.68%
2.02%
1.41%
*
*
*
1.22%
*
9.51%
5.93%
1.
2.
3.
4.
Includes 1,009,921 shares of our Common Stock issuable upon the exercise of stock options that are exercisable within sixty days of February 14, 2022. Does not include
323,743 shares of our Common Stock issuable upon the exercise of stock options that are not exercisable within sixty days of February 14, 2022. Includes 267,758 shares
of our Common Stock pursuant to restricted stock unit awards which have vested as of February 14, 2022, or which will be vested within sixty days of February 14, 2022.
Does not include 326,610 shares of our Common Stock issuable upon the vesting of restricted stock units that will not vest within sixty days of February 14, 2022.
Includes 910,546 shares of our Common Stock issuable upon the exercise of stock options that are exercisable within sixty days of February 14, 2022. Does not include
151,782 shares of our Common Stock issuable upon the exercise of stock options that are not exercisable within sixty days of February 14, 2022. Includes 80,716 shares of
our Common Stock pursuant to restricted stock unit awards which have vested as of February 14, 2022, or which will be vested within sixty days of February 14, 2022.
Does not include 162,500 shares of our Common Stock issuable upon the vesting of restricted stock units that will not vest within sixty days of February 14, 2022.
Includes (i) 16,572 shares of our Common Stock held by NSH 2008 Family Trust, a family trust of which Mr. Hochman is a co-trustee and beneficiary and (ii) 110,000
shares of our Common Stock held by DPH 2008 Trust, a trust of which Mr. Hochman is a co-trustee and beneficiary. Includes 268,333 shares of our Common Stock
issuable upon the exercise of stock options that are exercisable within sixty days of February 14, 2022. Does not include 56,667 shares of our Common Stock issuable upon
the exercise of stock options that are not exercisable within sixty days of February 14, 2022. Includes (i) 904 shares of our Common Stock issuable upon the exercise of
warrants, held directly by Mr. Hochman, that are exercisable within sixty days of February 14, 2022 and (ii) 3,785 shares of our Common Stock issuable upon the exercise
of warrants, held by NSH 2008 Family Trust, a family trust of which Mr. Hochman is a co-trustee and beneficiary, that are exercisable within sixty days of February 14,
2022.
Includes 163,333 shares of our Common Stock issuable upon the exercise of stock options that are exercisable within sixty days of February 14, 2022. Does not include
54,167 shares of our Common Stock issuable upon the exercise of stock options that are not exercisable within sixty days of February 14, 2022. Includes 300 shares of our
Common Stock issuable upon the exercise of warrants, held directly by Mr. Sherman, that are exercisable within sixty days of February 14, 2022.
5. Does not include 50,000 shares of our Common Stock issuable upon the exercise of stock options that are not exercisable within sixty days of February 14, 2022.
6.
Includes 128,333 shares of our Common Stock issuable upon the exercise of stock options that are exercisable within sixty days of February 14, 2022. Does not include
54,167 shares of our Common Stock issuable upon the exercise of stock options that are not exercisable within sixty days of February 14, 2022.
68
7.
8.
Includes 529,478 shares of our Common Stock issuable upon the exercise of stock options that are exercisable within sixty days of February 14, 2022. Does not include
150,364 shares of our Common Stock issuable upon the exercise of stock options that are not exercisable within sixty days of February 14, 2022. Does not include 156,262
shares of our Common Stock issuable upon the vesting of restricted stock units that will not vest within sixty days of February 14, 2022.
Includes 113,333 shares of our Common Stock issuable upon the exercise of stock options that are exercisable within sixty days of February 14, 2022. Does not include
54,167 shares of our Common Stock issuable upon the exercise of stock options that are not exercisable within sixty days of February 14, 2022.
9. Based on the information provided in the Schedule 13G/A filed with the SEC on January 27, 2021 by Mr. Joseph Edelman with respect to himself, Perceptive Life
Sciences Master Fund Ltd. and Perceptive Advisors LLC (Mr. Edelman, together with Perceptive Life Sciences Master Fund Ltd. and Perceptive Advisors LLC, the
“Perceptive Reporting Persons”). Includes 246,055 shares of our Common Stock issuable upon exercise of warrants that are exercisable within sixty days of February 14,
2022, held by Perceptive Life Sciences Master Fund Ltd. Perceptive Life Sciences Master Fund Ltd., Perceptive Advisors LLC and Mr. Edelman have shared voting and
dispositive power with respect to the shares of our Common Stock held by Perceptive Life Sciences Master Fund Ltd. Perceptive Advisors LLC serves as the investment
manager to Perceptive Life Sciences Master Fund Ltd. and may be deemed to beneficially own the securities directly held by Perceptive Life Sciences Master Fund Ltd.
Mr. Edelman is the managing member of Perceptive Advisors LLC and may be deemed to beneficially own the securities directly held by Perceptive Life Sciences Master
Fund Ltd. The principal address for the Perceptive Reporting Persons is 51 Astor Place, 10th Floor New York, NY 10003.
69
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Other than compensation arrangements for our named executive officers and directors, we describe below each transaction or series of similar transactions, since January 1,
2020 to which we were a party or will be a party, in which:
● the amounts involved exceeded or will exceed the lesser of (i) $120,000 or (ii) 1% of the average total assets of the Company at year end for the last two completed
fiscal years; and
● any of our directors, executive officers, promoters or holders of more than 5% of our capital stock, or any member of the immediate family of the foregoing persons,
had or will have a direct or indirect material interest.
Compensation arrangements for our named executive officers and directors are described in Part III—Item 11—Executive Compensation.”
Royalty Payment Rights Certificates - Related Party Participation
Simultaneously with the closing of our IPO in February 2018, all 1,581,128 previously outstanding shares of our Series A Convertible Preferred Stock were converted, on a
one-to-one basis, into an aggregate of 1,581,128 shares of our Common Stock. In connection with the conversion of the Series A Convertible Preferred Stock we issued Royalty
Payment Rights Certificates (the “Royalty Payment Rights Certificates”) to each former holder of our Series A Convertible Preferred Stock, including certain of our directors
and executive officers, and certain of our existing stockholders, including stockholders affiliated with certain of our directors including (i) a Royalty Payment Rights Certificate
for 0.05% of the aggregate royalty amount payable to the holders of the Royalty Payment Rights Certificates to David Hochman, the Chairman of our board of directors, (ii) a
Royalty Payment Rights Certificate for 0.05% of the aggregate royalty amount payable to the holders of the Royalty Payment Rights Certificates to Darren Sherman, a member
of our board of directors, (iii) Royalty Payment Rights Certificate for an aggregate of 10.79% of the aggregate royalty amount payable to the holders of the Royalty Payment
Rights Certificates to Ascent Biomedical Ventures II, L.P. and Ascent Biomedical Ventures Synecor, L.P., former beneficial owners of more than five percent of our Common
Stock, (iv) a Royalty Payment Rights Certificate for 6.31% of the aggregate royalty amount payable to the holders of the Royalty Payment Rights Certificates to Orchestra
Medical Ventures II, L.P., a former beneficial owner of more than five percent of our Common Stock, (v) a Royalty Payment Rights Certificate for 4.11% of the aggregate
royalty amount payable to the holders of the Royalty Payment Rights Certificates to Orchestra MOTUS Co-Investment Partners, LLC, a former beneficial owner of more than
five percent of our Common Stock, (vi) a Royalty Payment Rights Certificate for 4.00% of the aggregate royalty amount payable to the holders of the Royalty Payment Rights
Certificates to Jacobs Investment Company LLC, an investment firm in which Gary Jacobs, a former member of our board of directors, who resigned as a member of our board
of directors effective January 6, 2020, serves as Founder and Managing Director, and (vii) a Royalty Payment Rights Certificate for 16.22% of the aggregate royalty amount
payable to the holders of the Royalty Payment Rights Certificates to Perceptive Life Sciences Master Fund Ltd., a beneficial owner of more than five percent of our Common
Stock. Pursuant to the terms of the Royalty Payment Rights Certificates, if and when we generate sales of the Pure-Vu System, or if we receive any proceeds from the licensing
of the Pure-Vu System, then we will pay to the holders of the Royalty Payment Rights Certificates (the “Holders”) the allocation of such royalty payment rights as listed on
such Holders Royalty Payment Rights Certificate, a royalty (the “Royalty Amount”) equal to, in the aggregate, in royalty payments in any calendar year for all products:
The Company Commercializes Product Directly
3% of Net Sales*
The Rights to Commercialize the Product is
Sublicensed by the Company to a third-party
5% of any Licensing Proceeds**
* 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 we
have first generated, in the aggregate, since inception, Net Sales equal to $20 million (the “Initial Net Sales Milestone”), and royalties shall only be computed on, and due
with respect to, Net Sales generated in excess of the Initial Net Sales Milestone, and (b) the total Net Sales based Royalty Amount due and payable in any calendar year
shall be subject to a cap per calendar year of $30 million. “Net Sales” is defined in the Royalty Payment Rights Certificates.
70
** 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 we have first generated, in the aggregate, since inception, Licensing Proceeds equal to $3.5 million (the “Initial Licensing Proceeds Milestone”), and
royalties shall only be computed on, and due with respect to, Licensing Proceeds in excess of the Initial Licensing Proceeds Milestone and (b) the total Licensing Proceeds
based Royalty Amount due and payable in any calendar year shall be subject to a cap per calendar year of $30 million. “Licensing Proceeds” is defined in the Royalty
Payment Rights Certificates.
The royalty will be payable up to the later of (i) the latest expiration date of our 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 May 2036). Following the expiration of all such patents, the Holders of
the 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.
Between December 12, 2019 and February 24, 2020, we consented to the transfer of Royalty Payment Rights Certificates representing an aggregate of 53.01% of the aggregate
royalty amount payable to the holders of the Royalty Payment Rights Certificates from certain of our directors and certain of our existing stockholders, including stockholders
affiliated with certain of our directors including (i) David Hochman, the Chairman of our board of directors, (ii) Darren Sherman, a member of our board of directors, (iii)
Ascent Biomedical Ventures II, L.P. and Ascent Biomedical Ventures Synecor, L.P., former beneficial owners of more than five percent of our Common Stock, (iv) Orchestra
Medical Ventures II, L.P., a former beneficial owner of more than five percent of our Common Stock, (v) Orchestra MOTUS Co-Investment Partners, LLC, a former beneficial
owner of more than five percent of our Common Stock, (vi) Perceptive Life Sciences Master Fund Ltd., a beneficial owner of more than five percent of our Common Stock,
and (vii) certain other holders of our Royalty Payment Rights Certificates to Orchestra BioMed, Inc., formerly a greater than 5% holder of our Common Stock and entity in
which David Hochman, the Chairman of our board of directors, serves as the Chairman of the board of directors and as chief executive officer, and Darren Sherman, a member
of our board of directors, serves as a director and as president and chief operating officer, pursuant to a private transaction between such parties.
71
License Agreement with Orchestra BioMed, Inc.
In January 2020, we entered into a license agreement (the “License Agreement”) with Orchestra BioMed, Inc., formerly a greater than 5% holder of our Common Stock and
entity in which David Hochman, the Chairman of our board of directors, serves as the Chairman of the board of directors and as chief executive officer, and Darren Sherman, a
member of our board of directors, serves as a director and as president and chief operating officer, pursuant to which we granted a license to Orchestra BioMed, Inc. for the use
of portions of the office space not being used by us in our leased facility in Fort Lauderdale, Florida (the “Premises”), and a proportionate share of common areas of such
Premises, which compromises approximately 35% of the Premises as of January 2020 and will expand incrementally to approximately 60 to 70% of the Premises by September
2024. In January 2020, Orchestra BioMed, Inc. paid us a one-time fee of $28.5 thousand, upon entering into the License Agreement and will continue to pay a monthly license
fee to us until the expiration of the License Agreement in September 2024. Aggregate license fees will generally range from approximately $162 thousand to approximately
$198 thousand in any given calendar year during the term of the License Agreement.
Indemnification Agreements
We have entered into indemnification agreements with all of our directors and named executive officers. These agreements require us to indemnify these individuals to the
fullest extent permitted under Delaware law against liabilities that may arise by reason of their service to us, and to advance expenses incurred as a result of any proceeding
against them as to which they could be indemnified. We also intend to enter into indemnification agreements with our future directors and executive officers.
Policies and Procedures for Related Party Transactions
Our board of directors has adopted a policy that our executive officers, directors, nominees for election as a director, beneficial owners of more than 5% of any class of our
Common Stock, any members of the immediate family of any of the foregoing persons and any firms, corporations or other entities in which any of the foregoing persons is
employed or is a partner or principal or in a similar position or in which such person has a 5% or greater beneficial ownership interest (collectively “related parties”), are not
permitted to enter into a transaction with us without the prior consent of our board of directors acting through the Audit Committee or, in certain circumstances, the chairman of
the Audit Committee. Any request for us to enter into a transaction with a related party, in which the amount involved exceeds $100,000 and such related party would have a
direct or indirect interest must first be presented to our Audit Committee, or in certain circumstances the chairman of our Audit Committee, for review, consideration and
approval. In approving or rejecting any such proposal, our Audit Committee, or the chairman of our Audit Committee, is to consider the material facts of the transaction,
including, but not limited to, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar
circumstances, the extent of the benefits to us, the availability of other sources of comparable products or services and the extent of the related party’s interest in the transaction.
Director Independence
Our board of directors undertook a review of its composition, the composition of its committees and the independence of each director. Based upon information requested from
and provided by each director concerning his or her background, employment and affiliations, including family relationships, our board of directors has determined that Mr.
Hochman, Mr. Sherman, Dr. Nussbaum (who ceased being a director upon his death in September 2021), Mr. Korangy, Mr. Pruden and Ms. Nelson do not have a relationship
that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is
defined under the Rules of the Nasdaq Market and the SEC.
72
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
Principal Accountant Fees and Services
The following table summarizes the fees paid for professional services rendered by EisnerAmper LLP, our independent registered public accounting firm, for each of the last
two fiscal years:
Fee Category
Audit Fees
Audit-Related Fees
Tax Fees
All Other Fees
Total Fees
Audit Fees
$
$
$
$
$
2021
2020
246,421
-
64,470
-
310,891
$
$
$
$
$
186,704
-
33,540
-
220,244
“Audit fees” consist of approximately $182,000 and $171,000 in 2021 and 2020, respectively, of fees for professional services provided in connection with the audit of our
annual audited financial statements and the review of our quarterly financial statements, and approximately $64,000 and $16,000 in 2021 and 2020, respectively, of fees for
consents and comfort letters provided in connection with the offerings of our Common Stock.
Tax Fees
“Tax fees” consist of approximately $27,000 and $25,000, in 2021 and 2020, respectively, for services related to tax preparation and filing, and $38,000 and $9,000, in 2021
and 2020, respectively, for tax consulting services associated with tax preparation and filings and intercompany transfer pricing activities.
Procedures for Approval of Fees
The Audit Committee is responsible for appointing, setting compensation and overseeing the work of the independent auditors. The Audit Committee has established a policy
regarding pre-approval of all auditing services and the terms thereof and non-audit services (other than non-audit services prohibited under Section 10A(g) of the Exchange Act
or the applicable rules of the SEC or the Public Company Accounting Oversight Board) to be provided to us by the independent auditor. However, the pre-approval requirement
may be waived with respect to the provision of non-audit services for us if the “de minimis” provisions of Section 10A(i)(1)(B) of the Exchange Act are satisfied.
The Audit Committee has considered whether the provision of Audit-Related Fees, Tax Fees, and all other fees as described above is compatible with maintaining EisnerAmper
LLP’s independence and has determined that such services for fiscal year 2021 were compatible. All such services were approved by the Audit Committee pursuant to Rule 2-
01 of Regulation S-X under the Exchange Act to the extent that rule was applicable.
The Audit Committee is responsible for reviewing and discussing the audited financial statements with management, discussing with the independent registered public
accountants the matters required in AS 1301, receiving written disclosures from the independent registered public accountants required by the applicable requirements of the
Public Company Accounting Oversight Board regarding the independent registered public accountants’ communications with the Audit Committee concerning independence
and discussing with the independent registered public accountants their independence, and recommending to our board of directors that the audited financial statements be
included in our annual report on Form 10-K.
73
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) List of Documents filed as part of this Report
(1) Consolidated Financial Statements
PART IV
The financial statements and related notes, together with the report of EisnerAmper LLP appear at pages F-1 through F-26 following the Exhibit List as required by “Part II—
Item 8—Financial Statements and Supplementary Data” of this Form 10-K.
(2) Financial Statement Schedules.
Schedules are omitted because they are either not required, not applicable, or the information is otherwise included.
(3) Exhibits
The Company has filed with this report or incorporated by reference herein certain exhibits as specified below pursuant to Rule 12b-32 under the Exchange Act.
Exhibit
Number
2.1 +
Exhibit Description
Share Exchange Agreement, dated December 1, 2016
Form
S-1
Incorporated by Reference
File No.
333-222441
Exhibit
2.1
Filing Date
1/5/2018
Filed
Herewith
3.1
3.2
3.3
3.4
3.5
3.6
4.1
4.2
4.3
4.4
4.5
4.6
4.7
Certificate of Incorporation
Certificate of Amendment to the Certificate of Incorporation
Certificate of Amendment to the Certificate of Incorporation, dated
August 13, 2020
Bylaws
Certificate of Designations of Series A Convertible Preferred Stock
S-1
S-1
8-K
S-1
S-1
333-222441
333-222441
001-38389
333-222441
333-222441
Certificate of Amendment of Certificate of Designations of Series A
10-Q
001-38389
Convertible Preferred Stock
Form of Common Stock Certificate
Form of Series A Convertible Preferred Stock Certificate
Form of Exchange Warrant
Form of Placement Agent Warrant
Form of Registration Rights Agreement
Form of May 2017 Consultant Warrant
Form of Placement Agent Royalty Payment Rights Certificate
74
S-1
S-1
S-1
S-1
S-1
S-1
S-1
333-222441
333-222441
333-222441
333-222441
333-222441
333-222441
333-222441
3.1
3.2
3.1
3.3
3.4
3.1
4.1
4.2
4.3
4.4
4.5
4.6
4.7
1/5/2018
1/5/2018
8/14/2020
1/5/2018
1/5/2018
5/14/2018
1/5/2018
1/5/2018
1/5/2018
1/5/2018
1/5/2018
1/5/2018
1/5/2018
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
10.1
10.2
10.3
Exhibit
Number
4.8
Exhibit Description
Form of Amendment to Registration Rights Agreement
Form
S-1
Incorporated by Reference
File No.
333-222441
Exhibit
4.8
4.9
Form of Ten Percent Warrant
S-1
333-222441
Form of Royalty Payment Rights Certificate
S-1/A
333-222441
Form of June 2018 Consultant Warrant
10-Q
001-38389
Form of May 2017 Additional Consultant Warrant
10-Q
001-38389
Form of July 2018 Consultant Warrant
Form of November 2018 Consultant Warrant
10-Q
001-38389
10-Q
001-38389
Filed
Herewith
Filing Date
1/5/2018
1/5/2018
1/31/2018
8/13/2018
8/13/2018
8/13/2018
11/14/2018
4.9
4.10
4.1
4.2
4.3
4.4
Description of Registrants Securities
10-K
001-38389
4.15
3/16/2021
333-222441
10.1
1/5/2018
Form of Pre-Funded Warrant
Form of Common Warrant
Form of New Warrant
Placement Agency Agreement, dated December 1, 2016, between the
Company and Placement Agent
Form of Subscription Agreement
Form of Voting Agreement, dated December 1, 2016, by and among the
Company and the stockholders named therein
10.4 †
2016 Equity Incentive Plan and 2016 Israel Sub-Plan
10.5
Amendment to the Motus GI Holdings, Inc. 2016 Equity Incentive Plan,
dated February 6, 2020
10.6 †
Form of Incentive Stock Option Agreement
10.7 †
Form of Non-Qualified Stock Option Agreement
10.8 †
Form of Restricted Stock Agreement
8-K
001-38389
8-K
8-K
S-1
S-1
S-1
S-1
8-K
S-1
S-1
S-1
001-38389
001-38389
333-222441
333-222441
333-222441
001-38389
333-222441
333-222441
333-222441
10.9 †
Form of Assumed Options to Israeli Employees and Directors Agreement
S-1
333-222441
10.10
Form of Assumed Options to Israeli Non-Employees and Controlling
S-1
333-222441
Shareholders Agreement
4.1
4.2
4.1
8/28/2020
8/28/2020
1/21/2021
10.2
10.3
10.4
10.1
10.5
10.6
10.7
10.8
10.9
1/5/2018
1/5/2018
1/5/2018
8/14/2020
1/5/2018
1/5/2018
1/5/2018
1/5/2018
1/5/2018
10.11 †
Form of Israeli Option Grant to Israeli Employees and Directors
S-1
333-222441
10.10
1/5/2018
Agreement
10.12
Form of Israeli Option Grant to Israeli Non-Employees and Controlling
S-1
333-222441
10.11
1/5/2018
Shareholders Agreement
10.13 †
Employment Agreement, dated December 22, 2016, between the
S-1
333-222441
10.12
1/5/2018
Company and Mark Pomeranz
75
Exhibit
Number
10.14
Exhibit Description
Lease, dated April 13, 2017, between Company and Victoriana Building,
LLC
Form
S-1
Incorporated by Reference
File No.
333-222441
Exhibit
10.13
Filing Date
1/5/2018
Filed
Herewith
10.15
Form of Subscription Agreement for Convertible Notes Offering
10.16
Finders Agreement, dated October 14, 2016, between the Company and
Aegis Capital Corporation
S-1
S-1
333-222441
333-222441
10.14
10.15
1/5/2018
1/5/2018
10.17
Finders Agreement, dated December 22, 2016, between the Company and
S-1
333-222441
10.16
1/5/2018
Aegis Capital Corporation
10.18 †
Form of Indemnification Agreement
10.19 †
Employment Agreement, dated August 16, 2017, between the Company
and Andrew Taylor
10.20 #
Supply Agreement, dated September 1, 2017, between Motus GI
Technologies Ltd. and Polyzen, Inc.
S-1
S-1
333-222441
333-222441
10.17
10.18
1/5/2018
1/5/2018
X
10.21 †
Amended and Restated Employment Agreement, effective September 24,
8-K
001-38389
10.2
9/25/2018
2018, between the Company and Mark Pomeranz
10.22 †
Employment Agreement, effective October 1, 2018, between the
8-K
001-38389
10.1
9/25/2018
Company and Timothy P. Moran
10.23
Form of Restricted Stock Unit Award Agreement
10-K
001-38389
10.24 †
Amended and Restated Employment Agreement, effective March 26,
10-K
001-38389
2019, between the Company and Andrew Taylor
10.22
10.23
3/26/2019
3/26/2019
10.25 †
First Amendment to Amended and Restated Employment Agreement,
10-K
001-38389
10.25
3/16/2021
dated March 15, 2021, between the Company and Andrew Taylor
10.26
Loan and Security Agreement, dated as of December 13, 2019 between
8-K
001-38389
10.1
12/18/2019
Silicon Valley Bank and Motus GI Holdings, Inc.
10.27
Joinder and First Amendment to Loan and Security Agreement, dated as
10-K
001-38389
10.25
3/30/2020
of February 7, 2020 between Silicon Valley Bank and Motus GI
Holdings, Inc.
10.28
Second Amendment to Loan and Security Agreement, dated as of
10-K
001-38389
10.26
3/30/2020
February 25, 2020 between Silicon Valley Bank and Motus GI Holdings,
Inc.
76
Exhibit
Number
10.29
Exhibit Description
Third Amendment to Loan and Security Agreement, dated as of January
Form
10-K
4, 2021 between Silicon Valley Bank and Motus GI Holdings, Inc.
Incorporated by Reference
File No.
001-38389
Exhibit
10.25
Filing Date
3/16/2021
Filed
Herewith
10.30
Deferral Agreement, dated as of April 10, 2020, effective as of April 2,
8-K
001- 38389
10.1
4/13/2020
2020, by and between Silicon Valley Bank, Motus GI Holdings, Inc. and
Motus GI, Inc.
10.31
Placement Agency Agreement, dated August 28, 2020, by and between
8-K
001-38389
10.1
8/28/2020
A.G.P./Alliance Global Partners and Motus GI Holdings, Inc.
10.32
Form of Securities Purchase Agreement, dated August 28, 2020, by and
8-K
001-38389
10.2
8/28/2020
between Motus GI Holdings, Inc. and each Purchaser thereto
10.33
Form of Warrant Exercise Agreement, dated January 27, 2021, by and
8-K
001-38389
10.1
1/27/2021
between Motus GI Holdings, Inc. and the Holder
10.34
Letter Agreement, dated January 27, 2021, by and between
8-K
001-38389
10.2
1/27/2021
A.G.P./Alliance Global Partners and the Company
10.35
Loan Agreement, dated July 16, 2021, by and between Kreos Capital,
8-K
001-38389
10.1
7/21/2021
Motus GI Holdings, Inc., Motus GI, LLC and Motus GI Medical
Technologies, LTD.
10.36
Security Agreement, dated July 16, 2021 between Kreos Capital and
8-K
001-38389
10.2
7/21/2021
Motus GI Holdings, Inc.
10.37
Security Agreement, dated July 16, 2021 between Kreos Capital and
8-K
001-38389
10.3
7/21/2021
Motus GI, LLC.
10.38
Debenture – Fixed Charge dated July 16, 2021, between Kreos Capital
8-K
001-38389
10.4
7/21/2021
and Motus GI Medical Technologies, LTD.
10.39
Debenture – Floating Charge dated as of July 16, 2021, between Kreos
8-K
001-38389
10.5
7/21/2021
Capital and Motus GI, LLC.
10.40
US Intellectual property Security Agreement, dated July 16, 2021,
between Kreos Capital and Motus GI Medical Technologies, LTD.
8-K
001-38389
10.6
7/21/2021
10.41 #
Master Supply Agreement, dated April 1, 2021, between J. Sterling
Industries LLC and Motus GI Holdings, Inc.
21.1
List of Subsidiaries of the Company
10-K
001-38389
21.1
3/16/2021
23.1
Consent of EisnerAmper LLP
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or
Rule 15d-14(a)
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or
Rule 15d-14(a)
32.1 **
Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350
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).
101.SCH Inline XBRL Taxonomy Extension Schema Document.
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104
Cover Page Interactive Data File (formatted as Inline XBRL and
contained in Exhibits 101)
X
X
X
X
X
X
X
X
X
X
X
+ As permitted by Item 601(b)(2) of Regulation S-K, certain schedules to this agreement have not been filed herewith. The company will furnish supplementally a copy of
any omitted schedule to the SEC upon request.
Indicates management contract or compensatory plan.
†
# Certain portions of this exhibit (indicated by “[***]”) have been omitted as we have determined (1) it is not material and (2) is the type that the Company treats as private
or confidential.
** The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Annual Report on Form 10-K and will not be deemed “filed” for purposes of Section 18
of the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.
ITEM 16.
FORM 10-K SUMMARY
None.
77
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 29, 2022
Date: March 29, 2022
MOTUS GI HOLDINGS, INC.
By:
By:
/s/ Timothy P. Moran
Timothy P. Moran
Chief Executive Officer
(Principal Executive Officer)
/s/ Andrew Taylor
Andrew Taylor
Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature
Title
/s/ Timothy P. Moran
Timothy P. Moran
/s/ Andrew Taylor
Andrew Taylor
/s/ David Hochman
David Hochman
/s/ Mark Pomeranz
Mark Pomeranz
/s/ Darren Sherman
Darren Sherman
/s/ Sonja Nelson
Sonja Nelson
/s/ Shervin Korangy
Shervin Korangy
/s/ Gary Pruden
Gary Pruden
President, Chief Executive Officer and Director
(Principal Executive Officer)
Chief Financial Officer (Principal Financial and Accounting Officer)
Chairman of the Board
President, Chief Operating Officer, and Director
Director
Director
Director
Director
78
Date
March 29, 2022
March 29, 2022
March 29, 2022
March 29, 2022
March 29, 2022
March 29, 2022
March 29, 2022
March 29, 2022
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
Contents
Consolidated Financial Statements – December 31, 2021 and 2020:
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 274)
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2021 and 2020
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2021 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020
Notes to the Consolidated Financial Statements
F-1
Page
F-2
F-3
F-4
F-5
F-6
F-7 - F-23
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Motus GI Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Motus GI Holdings, Inc. and Subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related statements
of comprehensive loss, changes in shareholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “financial
statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the
results of their operations and their cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the
Company generated minimal revenues, experienced negative cash flows from operating activities and has incurred substantial operating losses that raise substantial doubt about
its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the
purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We
believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be
communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we
are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Contingent Royalty Obligation
As described in Note 4 to the consolidated financial statements, the Company estimates the fair value of its contingent royalty obligation using the discounted cash flow
method. Management estimates the contingent royalty obligation primarily by estimating the future projected revenue of the Company, with other factors being growth rate,
patent expiration assessments and a discount rate. The fair value of the contingent royalty obligation was approximately $1,760,000 as of December 31, 2021.
We identified the valuation of the contingent royalty obligation as a critical audit matter because the valuation inputs involve the application of significant judgement and
estimation on the part of management, which led to a high degree of auditor subjectivity. We also applied significant judgment in performing our audit procedures and involved
a valuation specialist to evaluate the reasonableness of management’s valuation model, as well as the inputs used within the model.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.
Our procedures included, among other things, (i) obtaining an understanding of management’s process and evaluating the design of controls related to the valuation of the
contingent royalty obligation; (ii) assessing the reasonableness of management’s projected revenue by inquiring of management regarding its process for developing the
projections and evaluating assumptions utilized for reasonableness; (iii) performing a sensitivity analysis of the assumptions in the calculation to evaluate the potential material
effects of any changes in assumptions; and (iv) with the assistance of our valuation specialists, we (1) evaluated the reasonableness of management’s valuation methodology;
(2) evaluated the reasonableness of the discount rate used by management by developing an independent weighted average cost of capital and compared it to the rate used by
management; and (3) tested the mathematical accuracy of the discounted cash flow calculation.
/s/ EisnerAmper LLP
We have served as the Company’s auditor since 2018.
EISNERAMPER LLP
Philadelphia, Pennsylvania
March 29, 2022
F-2
Motus GI Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
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
Term debt, net of debt discount of $0 and $21, respectively
Total current liabilities
Contingent royalty obligation
Operating lease liabilities - non-current
Convertible note, net of unamortized debt discount of $166 and $0, respectively
Long-term debt, net of unamortized debt discount of $588 and $0, respectively
Total liabilities
Commitments and contingent liabilities (Note 9)
Shareholders’ equity
Preferred stock $0.0001 par value; 10,000,000 shares authorized; zero shares issued and outstanding
Common stock $0.0001 par value; 115,000,000 shares authorized; 48,320,986 and 32,272,309 shares issued and
outstanding as of December 31, 2021 and December 31, 2020, respectively
Additional paid-in capital
Accumulated deficit
Total shareholders’ equity
Total liabilities and shareholders’ equity
December 31,
2021
2020
$
$
$
22,563
109
496
793
23,961
1,428
687
13
26,089
2,584
307
10
-
2,901
1,760
385
3,834
7,552
16,432
20,819
35
805
448
22,107
1,178
766
13
24,064
2,333
238
60
7,979
10,610
1,617
547
-
-
12,774
-
5
132,406
(122,754)
9,657
26,089
$
-
3
115,008
(103,721)
11,290
24,064
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Motus GI Holdings, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Loss
(In thousands, except share and per share amounts)
Revenue
Operating expenses:
Costs of revenue - sales
Costs 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 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
Years Ended December 31,
2021
2020
$
391
$
98
181
443
5,341
3,077
9,273
18,315
(17,924)
(143)
(237)
(717)
5
(17)
(19,033)
(6,145)
(25,178)
$
$
95
401
5,555
3,532
9,562
19,145
(19,047)
255
-
(464)
-
(1)
(19,257)
-
(19,257)
(0.54)
$
46,895,187
(0.60)
32,120,017
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Motus GI Holdings, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity
(in thousands, except share and per share amounts)
Common Stock
Amount
Additional
paid-in
capital
Accumulated
deficit
Total
shareholders’
equity
Balance at December 31, 2019
Issuance of common shares upon public offering, net of offering
costs of $849
Issuance of common stock upon exercise of warrants
Issuance of common stock for board of directors’ compensation
Issuance of common shares upon vesting of restricted stock units
Share-based compensation
Net loss
Balance at December 31, 2020
Issuance of common shares upon public offering, net of issuance
costs of $74
Issuance of common stock upon exercise of warrants, net of
financing fees of $366
Proceeds from issuance of warrants
Issuance of common stock for board of directors’ compensation
Issuance of common shares upon vesting of restricted stock units
Issuance of common stock to consultants
Share-based compensation
Issuance of warrants associated with convertible note and long-term
debt
Net loss
Balance at December 31, 2021
Shares
28,811,087
3,200,000
50,000
103,404
107,818
-
-
32,272,309
1,340,870
14,267,250
-
191,763
198,794
50,000
-
-
-
48,320,986
$
3
$
102,789
$
(84,464)
$
18,328
-
-
-
-
-
-
3
-
2
-
-
-
-
-
-
5
9,145
58
111
-
2,905
-
115,008
1,826
10,991
600
291
-
53
3,472
-
-
-
-
-
(19,257)
(103,721)
-
-
-
-
-
-
165
-
132,406
$
$
(19,033)
(122,754)
$
9,145
58
111
-
2,905
(19,257)
11,290
1,826
10,993
600
291
-
53
3,472
165
(19,033)
9,657
$
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Years Ended December 31,
2021
2020
$
(19,033) $
(19,257)
Motus GI Holdings, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands, except share and per share amounts)
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
(Gain) 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
Related party receivable
Inventory
Prepaid expenses and other current assets
Accounts payable and accrued expenses
Operating lease liability
Other current and non-current liabilities
Net cash used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets
Proceeds from sale of available-for-sale securities
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common shares
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 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 FINANCING AND INVESTING ACTIVITIES:
Common stock issued to settle accrued expenses for 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
Warrants issued related to convertible note and long-term debt recorded as debt discount
Accrued end of loan payment recorded as debt discount
Right of use asset obtained in exchange for lease obligation
Prepayment of lease obligation
$
$
$
$
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-6
439
95
143
3,472
235
53
237
443
-
262
(74)
-
(274)
(413)
303
(260)
(50)
(14,422)
(470)
-
(470)
1,900
11,959
12,000
(8,220)
(563)
(440)
16,636
1,744
20,819
22,563 $
640 $
56 $
140 $
75 $
4 $
165 $
140 $
184 $
17 $
377
25
(255)
2,905
168
-
-
401
18
255
30
18
(621)
(109)
(489)
(249)
(210)
(16,993)
(88)
8,203
8,115
9,994
58
-
-
(34)
(849)
9,169
291
20,528
20,819
433
-
200
430
-
-
-
-
-
Motus GI Holdings, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
(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 from the FDA for its Pure-Vu EVS System and expects to commence commercialization by
the end of Q1 2022. The Company does not expect to generate significant revenue from product sales until the COVID-19 pandemic has fully subsided and it further expands
its commercialization efforts, which is subject to significant uncertainty.
Note 2 – Going Concern
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. While the full impact of the COVID-19 pandemic continues to evolve, the financial markets have been subject
to significant volatility that adversely impacts 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, mobility restraints, and changing priorities could also affect the Company’s ability to enter
into key agreements. The outbreak and government measures taken in response to the pandemic have also had a significant 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 effects on the
Company’s business and operations are 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 to address the outbreak. These disruptions have negatively impact the Company’s
sales, its results of operations, financial condition, and liquidity in 2021.
Such conditions raise substantial doubts about the Company’s ability to continue as a going concern. These 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 – Significant Accounting Policies and Basis of Presentation
A summary of the significant accounting policies applied in the preparation of the accompanying consolidated financial statements follows:
Basis of presentation and use of estimates
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“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. Any reference in these notes to
applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification, or ASC, and Accounting Standards Updates, or ASUs, of
the Financial Accounting Standards Board.
The preparation of the 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.
Functional currency and foreign currency translation
The functional currency of the Company, inclusive of foreign subsidiaries, is the U.S dollar (“dollar”) since the dollar is the currency of the primary economic environment in
which the Company has operated and expects to continue to operate in the foreseeable future. Transactions and balances denominated in dollars are presented at their original
amounts. Transactions and balances denominated in foreign currencies have been re-measured to dollars in accordance with the provisions of ASC 830-10, “Foreign Currency
Translation”. All transaction gains and losses from re-measurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the consolidated
statement of comprehensive loss as foreign currency (loss) gain, as appropriate.
F-7
Cash and cash equivalents
The Company considers all highly liquid investment securities with an original maturity of three months or less to be cash equivalents. Due to the short-term maturity of such
investments, the carrying amounts are a reasonable estimate of fair value. Cash and cash equivalents include cash on-hand and highly-rated U.S. government backed money
market fund investments.
Revenue recognition
Sales contracts executed for the second generation Pure-Vu System are accounted for in accordance with ASC Topic 606 - Revenue from Contracts with Customers (“ASC
606”) to depict the transfer of control to the Company’s customers in an amount reflecting the consideration to which the Company expects to be entitled to. The Pure-Vu
System consists of a Workstation (a “Workstation”) and single use disposable sleeve (a “Disposable”).
ASC 606 applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases and collaboration arrangements. To determine
revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (1) identify the contract
with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in
the contract and (5) recognize revenue when a performance obligation is satisfied.
Commercial placements of the second generation system include the Workstation, sale of the Disposables, and a service plan. The Workstation is operational without any
significant customization and modification and the Disposables are specialized consumables that are readily available for purchase from the Company. Therefore, revenue from
the sale of a Workstation is recognized after the customer commits to purchase the Workstation and the Workstation is delivered, which is when title is transferred. Disposables
are identified as a separate performance obligation, and therefore, revenue from the sale of Disposables is recognized when the Disposables are delivered to the customer and
title is transferred.
A free one-year service plan is included with the purchase of any second generation Pure-Vu Workstation. An extended service plan with varying support and maintenance of
the Workstation is offered for sale after the free one-year service plan period. In the case of the free one-year service plan, a portion of the Workstation sales price is deferred
and recognized ratably over the one-year service plan term based upon the relative standalone value. The standalone selling price of the Workstation is set at the beginning of
the contract based on observable prices from standalone sales of the Workstation, however, at times, the Company has offered discounts from that price to certain customers.
The standalone sales price of the one year service plan is based on the expected costs of replacement parts and direct costs to perform the service plus a standard margin, as set
by the Company. The standard margin assumed is consistent with the margin expected in pricing the extended service plan. Revenue for the extended service plans is
recognized ratably over the term of the service plan contract period.
F-8
At times, the Company may include a limited time free trial to potential customers to evaluate the Workstation for a period of up to 6 months and in certain instances extend the
period to an aggregate of up to 11 months. The Company considers the 6-11 month usage period as a non-contiguous limited trial period because the total length of the free trial
is still less than one year. In scenarios where the Company continues to provide the Workstation to a customer for a usage period of greater than one year, the arrangement falls
outside of the scope of ASC 606, as described below. Management does not collect any upfront payments or deposits prior to commencing a free trial period. No revenue is
recognized for the Workstation during the duration of a free trial, however, any Disposables purchased by the evaluator are recognized when delivered, as described above.
For contracts outside the scope of ASC 606, the Company determines income for proposed supply arrangements under 1) ASC 842 as it pertains to an embedded lease of the
Workstation within a proposed supply arrangement and 2) ASC 606 for the sale of the sleeves within the proposed supply arrangement. The Company allocates the transaction
price to the performance obligations within the proposed supply arrangements using the total estimated purchases method for both (i) arrangements that contain minimum
purchase commitments and (ii) those arrangements that do not contain a minimum purchase commitment, but instead offer a volume discount for purchases that exceed a
specified tier.
During the year ended December 31, 2021, the Company recognized revenue of $391, which consisted of $303 in accordance with ASC 606 and $88 in accordance with ASC
842. During the year ended December 31, 2020, the Company recognized revenue of $98, which consisted of $91 in accordance with ASC 606 and $7 in accordance with ASC
842.
Contract Costs
Incremental commissions, if applicable, above a base commission level, are paid to sales representatives upon certain eligible sales, which are paid upon execution of the sales
agreement. The guidance within ASC 606 provides a practical expedient if the amortization period of the assets that the entity otherwise would have recognized is one year or
less. The Company chose to apply the available practical expedient as the commission paid on eligible sales orders relates to the period in which the sales order was fulfilled.
For the years ending December 31, 2021 and 2020, incremental commissions paid on eligible sales orders were $35 and $0, respectively.
Accounts receivable and allowance for doubtful accounts
Accounts receivable are recorded and carried at the original invoiced amount less an allowance for any potential uncollectible amounts. The Company makes estimates for the
allowance for doubtful accounts based upon its assessment of various factors, including historical experience, the age of the accounts receivable balances, credit quality of our
customers, current economic conditions, and other factors that may affect customers’ ability to pay. As of December 31, 2021 and 2020, the allowance for doubtful accounts
was $0.
Inventory
Inventory is stated at lower of cost and net realizable value using the weighted average cost method and is evaluated at least annually for impairment. The Company records an
inventory reserve for losses associated with dated, expired, excess and obsolete items. Reserves and write-downs of inventory is based on management’s current knowledge
with respect to inventory levels, planned production, and extension capabilities of materials on hand. A significant change in the timing or level of demand for the Company’s
products compared to forecasted amounts may result in recording additional charges for excess and obsolete inventory in the future. The Company records charges for excess
and obsolete inventory within cost of revenues.
Leases
The Company accounts its leases in accordance with ASC 842, Leases, or ASC 842. At the inception of an arrangement, the Company determines whether the arrangement is
or contains a lease based on the unique facts and circumstances present in the arrangement. Leases with a term greater than one year are recognized on the balance sheet as
right-of-use assets and short-term and long-term lease liabilities, as applicable. The Company does not have financing leases.
F-9
Operating lease liabilities and their corresponding right-of-use assets are initially recorded based on the present value of lease payments over the expected remaining lease term.
Certain adjustments to the right-of-use asset may be required for items such as incentives received. The interest rate implicit in lease contracts is typically not readily
determinable. As a result, the Company utilizes its incremental borrowing rate to discount lease payments, which reflects the fixed rate at which the Company could borrow on
a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. Prospectively, the Company will adjust the
right-of-use assets for straight-line rent expense or any incentives received and remeasure the lease liability at the net present value using the same incremental borrowing rate
that was in effect as of the lease commencement or transition date.
The Company has elected not to recognize leases with an original term of one year or less on the balance sheet. The Company typically only includes an initial lease term in its
assessment of a lease arrangement. Options to renew a lease are not included in the Company’s assessment unless there is reasonable certainty of renewal.
Fixed assets, net
Fixed assets are stated at cost less accumulated depreciation. Depreciation is calculated based on the straight-line method, at annual rates reflecting the estimated useful lives of
the related assets, as follows:
Office equipment
Computers and software
Machinery
Lab and medical equipment
Leasehold improvements
Share-based compensation
Employee and Non-Employee Share-Based Compensation
5-15 years
3-5 years
5-10 years
3-7 years
Shorter of lease term or useful life
The Company applies ASC 718-10, “Share-Based Payment,” which requires the measurement and recognition of compensation expenses for all share-based payment awards
made to employees and directors including employee stock options under the Company’s stock plans and equity awards issued to non-employees based on estimated fair
values.
The accounting for awards issued to non-employees is similar to the accounting for employee awards, except that:
● the Company may elect on an award-by-award basis to use the contractual term as the expected term assumption in the option pricing model, and
● the cost of the grant is recognized in the same period(s) and in the same manner as if the grantor had paid cash.
ASC 718-10 requires companies to estimate the fair value of equity-based option awards on the date of grant using an option-pricing model. The fair value of the award is
recognized as an expense on a straight-line basis over the requisite service periods in the Company’s consolidated statements of comprehensive loss. The Company recognizes
share-based award forfeitures as they occur.
F-10
The Company estimates the fair value of granted option equity awards using a Black-Scholes options pricing model. The option-pricing model requires a number of
assumptions, of which the most significant are share price, expected volatility and the expected option term (the time from the grant date until the options are exercised or
expire). Expected volatility is estimated based on volatility of similar companies in the technology sector. The Company has historically not paid dividends and has no
foreseeable plans to issue dividends. The risk-free interest rate is based on the yield from governmental zero-coupon bonds with an equivalent term. The expected option term is
calculated for options granted to employees and directors using the “simplified” method. Grants to non-employees are based on the contractual term. Changes in the
determination of each of the inputs can affect the fair value of the options granted and the results of operations of the Company.
Restricted Stock Units
The Company issues restricted stock units under its 2016 Equity Incentive Plan. The fair value of the restricted stock units is based on the closing stock price on the date of
grant and is expensed as operating expense over the period during which the units vest. Each restricted stock unit entitles the grantee to one share of common stock to be
received upon vesting up to four years after the grant date. Recipients of restricted stock units have no voting rights until the vesting of the award.
Basic and diluted net loss per share
Basic loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the year. The shares of common stock into
which the Pre-Funded Warrants may be exercised are considered outstanding for the purposes of computing earnings per share because the shares may be issued for little or no
consideration, are fully vested, and are exercisable after the original issuance date. 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 consist 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 year ended December 31, 2021 for $6,145. The deemed dividend is added to the net loss in determining the net loss available to common stockholders.
Research and development expenses
Research and development expenses are charged to the consolidated statement of comprehensive loss as incurred.
Patent costs
Costs incurred in connection with acquiring patent rights and the protection of proprietary technologies are expensed as incurred.
Debt issuance costs
Debt issuance costs represent the costs associated with the issuance of a debt instrument and are amortized using the effective interest method over the life of the related debt
instrument. The Company records debt issuance costs as a debt discount and is a reduction of the carrying amount of the debt liability.
Liabilities due to termination of employment agreements
Under Israeli employment laws, employees of Motus Ltd. are included under Article 14 of the Severance Compensation Act, 1963 (“Article 14”) for a portion of their salaries.
According to Article 14, these employees are entitled to monthly deposits made by Motus Ltd. on their behalf with insurance companies.
Payments in accordance with Article 14 release Motus Ltd. from any future severance payments (under the Israeli Severance Compensation Act, 1963) with respect of those
employees. The aforementioned deposits are not recorded as an asset in the Company’s balance sheet, and there is no liability recorded as the Company does not have a future
obligation to make any additional payments.
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 December 31, 2021 and
2020, the Company had a full valuation allowance against deferred tax assets.
F-11
The Company is subject to the provisions of ASC 740-10-25, Income Taxes (ASC 740). ASC 740 prescribes a more likely-than-not threshold for the financial statement
recognition of uncertain tax positions. ASC 740 clarifies the accounting for income taxes by prescribing a minimum recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. On a quarterly basis, the Company undergoes a process to
evaluate whether income tax accruals are in accordance with ASC 740 guidance on uncertain tax positions. There are currently no open Federal or State audits. The Company
has not recorded any liability for uncertain tax positions at December 31, 2021 or December 31, 2020.
For the years ended December 31, 2021 and 2020, the Company recorded zero income tax expense. No tax benefit has been recorded in relation to the pre-tax loss for the years
ended December 31, 2021 and 2020, due to a full valuation allowance to offset any deferred tax asset related to net operating loss carry forwards attributable to the losses.
Fair value of financial instrument
The Company accounts for financial instruments in accordance with ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”). ASC 820 establishes a fair value
hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under
ASC 820 are described below:
Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 – Quoted prices in non-active markets or in active markets for similar assets or liabilities, observable inputs other than quoted prices, and inputs that are not
directly observable but are corroborated by observable market data;
Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
There were no changes in the fair value hierarchy leveling during the years ended December 31, 2021 and 2020.
New Accounting Pronouncements- Recently Adopted
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that the Company adopts as of the specified effective date. The
Company does not believe that the adoption of recently issued standards have or may have a material impact on its consolidated financial statements and disclosures.
F-12
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 annual periods beginning after December 15, 2021, including interim periods within that reporting period, excluding smaller reporting companies.
For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is
permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within that reporting period, using either a full or modified
retrospective approach. Since the Company is a small reporting company (“SRC”), implementation is not needed until after December 15, 2023. We are 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 public filers that are considered small reporting companies
as defined by the Securities and Exchange Commission to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Since the
Company is an SRC, implementation is not needed until January 1, 2023. The Company will continue to evaluate the effect of adopting ASU 2016-13 will have on the
Company’s financial statements and disclosures.
Note 4 – Fair Value Measurements
Liabilities measured and recorded at fair value on a recurring basis consisted of the following at December 31, 2021 and December 31, 2020:
Liabilities
Contingent royalty obligation
Liabilities
Contingent royalty obligation
Level 1
Level 2
Level 3
Fair Value
December 31, 2021
-
$
-
$
1,760
$
1,760
Level 1
Level 2
Level 3
Fair Value
December 31, 2020
-
$
-
$
1,617
$
1,617
$
$
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 December 31, 2021 and
2020. Based on the fair value hierarchy, the Company classified contingent royalty obligation within Level 3 because the 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 year ended December 31, 2021 was as follows:
Balance at December 31, 2020
Change in estimated fair value of contingent royalty obligation
Balance at December 31, 2021
Fair Value
Measurements
of Contingent
Royalty
Obligation
(Level 3)
$
$
1,617
143
1,760
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 (21% as of December 31, 2021 and December 31, 2020), and 5) rate of royalty payment (3% as of December 31, 2021 and December 31,
2020).
In accordance with ASC-820-10-50-2(g), the Company performed sensitivity analyses of the liability, which was classified as a Level 3 financial instrument. The contingent
royalty obligation estimate may be significantly impacted by changes in assumptions used in these analyses. For example, the Company recalculated the fair value of the
liability by applying a +/- 2% change to the input variable in the discounted cash flow model; the discount rate. A 2% decrease in the discount rate would increase the liability
by approximately $150 and a 2% increase in the discount rate would decrease the liability by approximately $136.
Note 5 – Inventory
Inventory at December 31, 2021 and 2020 consisted of the following:
Raw materials
Work-in-process
Finished goods
Inventory reserve
Inventory, net
December 31,
2021
2020
569
-
292
(365)
496
$
$
333
211
529
(268)
805
$
$
For the years ended December 31, 2021 and 2020, an inventory impairment of $443 and $401, respectively, was recorded.
F-13
Note 6 – Fixed assets, net
Fixed assets, net, consists of the following:
Office equipment
Computers and software
Machinery
Lab and medical equipment
Leasehold improvements
Total
Less accumulated depreciation and amortization
Fixed assets, net
December 31,
2021
2020
$
$
171
305
807
1,342
193
2,818
(1,390)
1,428
$
$
167
299
455
1,039
185
2,145
(967)
1,178
Depreciation and amortization expense for the years ended December 31, 2021 and 2020 was $439 and $377, respectively. The Company incurred a loss on the impairment of
fixed assets in the amount of $0 and $18 for the years end December 31, 2021 and 2020, respectively.
Note 7 – Leases
The Company leases an office in Fort Lauderdale, Florida under an operating lease. The term expires November 2024. The annual base rent is subject to annual increases of
2.75%. As described within Note 10, the Company shares this space with a related party pursuant to the Shared Space Agreement, as defined below.
The Company leases an office in Israel under an operating lease. The term expires on December 31, 2022. The annual base rent is subject to increases of 4%.
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 expensed as incurred.
Certain operating leases include escalation clauses and some of which may include options to extend the leases for up to 3 years.
The components of lease cost and supplemental balance sheet information for the Company’s lease portfolio were as follows:
Lease Cost
Operating lease cost, net of related party license fee
Variable lease cost
Total lease cost
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
$
$
$
$
$
Year Ended December 31,
2021
2020
139
119
258
$
$
As of December 31,
2021
2020
687
307
385
692
$
$
$
176
118
294
766
238
547
785
2.49 years
7.66%
3.33 years
7.78%
F-14
The Company records operating lease payments to lease expense using the straight-line method. The Company’s lease expense was $258 and $294 for the years ended
December 31, 2021 and 2020, respectively, included in general and administrative expenses, which is net of the related party license fee of $189 and $172 for the years ended
December 31, 2021 and 2020, respectively (see Note 10).
Future minimum lease payments under non-cancellable operating leases as of December 31, 2021 were as follows:
Year Ended December 31,
2022
2023
2024
Total future minimum lease payments
Imputed interest
Total liability
$
$
Amount
346
251
156
753
(61)
692
The following table summarizes the cash paid for amounts included in the measurement of lease liabilities for the years ended December 31, 2021 and 2020:
Years Ended December 31,
2021
2020
Cash paid for amounts included in measurement of lease liabilities:
$
(324)
$
(335)
Note 8 – Convertible Note, Term Debt and Long-Term Debt
On December 13, 2019, the Company entered into a Loan and Security Agreement for $8,000 with Silicon Valley Bank (“SVB”). On April 10, 2020, the Company entered into
a Deferral Agreement with SVB, effective April 2, 2020, which amended certain provisions of the Loan and Security Agreement, between the Company and SVB.
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 $12,000 (the “Loan”) in three
tranches as follows: (a) on the Effective Date, a loan in the aggregate principal amount of $4,000 (the “Convertible Note”, or “Tranche A”), (b) on the Effective Date, a loan in
the aggregate principal amount of $5,000 (“Tranche B”), and (c) available until December 31, 2021, a loan in the aggregate principal amount of $3,000 (“Tranche C”, together
with Tranche B, the “Long-term Debt”). The Kreos Loan Agreement contains customary representations and warranties, indemnification provisions in favor of the Lender,
events of default and affirmative and negative covenants, including, among others, covenants that limit or restrict the Company’s ability to, among other things, incur additional
indebtedness, merge or consolidate, make acquisitions, pay dividends or other distributions or repurchase equity, make investments, dispose of assets and enter into certain
transactions with affiliates, in each case subject to certain exceptions. Outstanding borrowings under the Loan are secured by a first priority security interest on substantially all
of the personal property assets of the Company, including the Company’s material intellectual property and equity interests in its subsidiaries. There are no liquidity or financial
covenants.
The Convertible Note and Tranche B were funded on the Effective Date. As of December 31, 2021, the Company drew down the full $3,000 aggregate principal amount of
Tranche C. On the Effective Date, the Company used a portion of the proceeds from the Loan to repay in full all amounts outstanding under, and discharge all obligations in
respect of, the Loan and Security Agreement between the Company and SVB. The payment amount of $8,220 included a negotiated prepayment penalty of $220 under the
terms of the payoff arrangement with SVB and to pay fees and expenses incurred to obtain the Loan. The Company accounted for the repayment of the SVB term debt under
the Loan and Security Agreement as an extinguishment of debt and recorded a loss on extinguishment of $237. As a result, the SVB term debt under the loan agreement,
together with all documents and agreements executed in connection therewith, have terminated and all liens associated therewith have been released as of the Effective Date.
The Convertible Note requires forty-eight monthly interest only payments at 7.75% per annum commencing after the Effective Date and thereafter full payment of the then
outstanding principal balance of the Convertible Note on July 1, 2025. The Kreos Loan Agreement contains features that would permit the Lender to convert all or any portion
of the outstanding principal balance of the Convertible Note at any time, pursuant to which the converted part of the Convertible Note will be converted into that number of
shares of common stock of the Company to be issued to the Lender at a price per share equal to the conversion price, of $1.40 per share. Following the conversion of any
portion of the outstanding principal balance of the Convertible Note, the principal balance of the Convertible Note remaining outstanding shall continue to bear interest at
7.75% per annum. The Tranche B loan requires interest only monthly payments commencing on the Effective Date until September 30, 2022 and, thereafter, thirty-three
monthly payments of principal and interest accrued thereon until June 1, 2025. The Tranche C loan requires interest only monthly payments commencing on the on the date of
the draw down until September 30, 2022 and, thereafter, thirty-two monthly payments of principal and interest accrued thereon until June 1, 2025. Notwithstanding the
foregoing, in the event the Company completes a capital raise of a minimum of $20,000 prior to September 30, 2022, the repayment terms of the Tranche B and Tranche C
loans shall automatically be amended so that the interest only period will be extended to June 30, 2023, and, thereafter, the Company shall pay twenty-four monthly payments
of principal and interest accrued thereon until June 1, 2025. Interest on the Tranche B and Tranche C loans accrues at 9.5% per annum.
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 190,949 shares of the
Company’s common stock, at an exercise price of $1.0474 per share, payable in cash or on a cashless basis according to the formula set forth in the Warrant. The exercise price
of the Warrant and the number of shares issuable upon exercise of the Warrant are subject to adjustments for stock splits, combinations, stock dividends or similar events. The
Warrant is exercisable until the date that is ten years after the date of issuance. The Company concluded that the Warrant is indexed to its own stock and, accordingly is
classified as equity. See note 11 for further discussion of the Warrant.
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 $165 being allocated to the Warrant and a corresponding amount recorded as a debt discount to the Convertible Note and Long-term Debt. The
Company recorded an aggregate debt discount of $845 related to the Loan, inclusive of the debt discount of $165 in connection to the Warrant, which will be amortized to
interest expense over the term of each respective tranche using the effective interest method. The Company also paid $563 in cash for debt issuance costs. Additionally, per the
Kreos Loan Agreement, with respect to the Long-term Debt, there is an advance payment of $274 that is recorded at a debt discount and is included in the $563 of cash paid for
debt issuance costs for the year ended December 31, 2021. The advance payment represents the last month’s payment in relation to the Long-term Debt. There is also an end of
loan payment of $140 which is included on the balance sheet as a liability within the Long-term Debt and also within the total debt discount of $845.
For the year ended December 31, 2021, interest expense for the Loan was as follows:
Contractual interest expense
Amortization of debt issuance costs
Total interest expense
F-15
$
$
362
91
453
Future principal payments under the Convertible Note as of December 31, 2021 are as follows:
Years Ending December 31,
2022
2023
2024
2025
Total future principal payments
Less unamortized debt issuance costs
Total balance
Future principal payments under the Long-term Debt as of December 31, 2021 are as follows:
Years Ending December 31,
2022
2023
2024
2025
Total future principal payments
End of loan payments
Less unamortized debt issuance costs
Total balance
Note 9 – Commitments and Contingencies
Royalties to the IIA
Amount
-
-
-
4,000
4,000
(166)
3,834
Amount
702
2,714
2,983
1,601
8,000
140
(588)
7,552
$
$
$
$
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
$1,332. No amounts were received during the years ended December 31, 2021 and 2020. The Company has a contingent obligation to the IIA for the total amount received
along with the accumulated LIBOR interest to date in the amount of $1,419 and $1,407 as of December 31, 2021 and 2020, respectively. This obligation is repaid in the form of
royalties on revenues generated in any fashion with a rate that is currently at 4% (which may be increased under certain circumstances). The Company may be obligated to pay
up to 100% (which may be increased under certain circumstances) of the U.S. dollar-linked value of the grants received, plus interest at the rate of 12-month LIBOR.
Repayment of the grants is contingent upon the Company’s ongoing commercialization and generation of sales, which is subject to significant risk and uncertainty. The
Company has no obligation to repay these grants if no significant sales are generated. The Company has recorded an immaterial expense for the years ended December 31,
2021 and 2020, and an immaterial liability at December 31, 2021 and 2020.
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, the Royalty Payment Rights initially entitled the holders in aggregate, to a royalty in an amount of:
● 3% of net sales subject to a maximum in any calendar year equal to the total dollar amount of Units closed on in the Company’s 2017 private placement (the “2017
Private Placement”); and
● 5% of licensing proceeds subject to a maximum in any calendar year equal to the total dollar amount of Units closed on in the 2017 Private Placement.
F-16
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, 10% of the amount of payments paid to the
holders of the Series A Convertible Preferred Stock, or the holders of the Royalty Payment Rights Certificates (the “Royalty Payment Rights Certificates”), upon the conversion
of the Series A Convertible Preferred Stock into shares of the Company’s common stock. The Placement Agent Royalty Payment Rights Certificates are on substantially similar
terms as the Royalty Payment Rights of the Series A Convertible Preferred Stock.
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 at December 31, 2021 and 2020 (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:
● 3% of Net Sales* for commercialized product directly; and
● 5% of any Licensing Proceeds** for rights to commercialize the product if sublicensed by the Company to a third-party.
* 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 $20,000 (the “Initial Net Sales Milestone”), and royalties shall only be computed
on, and due with respect to, Net Sales generated in excess of the Initial Net Sales Milestone, and (b) the total Net Sales based Royalty Amount due and payable in any
calendar year shall be subject to a royalty cap amount per calendar year of $30,000. “Net Sales” is defined in the Royalty Payment Rights Certificates. The Company has
not reached the Initial Net Sales Milestone as of December 31, 2021.
** 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 $3,500 (the “Initial Licensing Proceeds
Milestone”), and royalties shall only be computed on, and due with respect to, Licensing Proceeds in excess of the Initial Licensing Proceeds Milestone and (b) the total
Licensing Proceeds based Royalty Amount due and payable in any calendar year shall be subject to a royalty cap amount per calendar year of $30,000. “Licensing”
Proceeds is defined in the Certificate. The Company has not reached the Initial Licensing Proceeds Milestone as of December 31, 2021.
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 May 2036). 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.
F-17
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 consolidated balance sheets at December 31, 2021 and 2020 in the amount of
$1,760 and $1,617, respectively. A loss and a gain on change in fair value of Contingent Royalty Obligation of $143 and $255 was recorded for the years ended December 31,
2021 and 2020, respectively.
Other Commitments and Contingencies
The Company has a severance contingency for severance payments to its CEO, COO, and CFO in the aggregate of approximately $1,408, in the event that they are terminated
without cause or leave due to good reason, as outlined in their employee agreements. Management estimates that the likelihood of payment is remote; therefore, no liability was
reflected in these consolidated financial statements.
Any serious disruption with the Company’s operations due to the COVID-19 outbreak could impair the Company’s ability to generate sufficient cash to repay its debt
obligations when they become due and payable, either when they mature, or in the event of a default, which will cause the Company to breach its covenants and may negatively
impact the Company’s business operations, financial condition, and results of operations. The Company is unable to predict the outcome of these matters and is unable to make
a meaningful estimate of the amount or range of loss, if any, that could result from an unfavorable outcome.
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., formerly a greater than 5% 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. During the years
ended December 31, 2021 and 2020, the Company recorded license fee income of $189 and $172, respectively, in relation to the Shared Space Agreement. This amount is
netted with rent expense in general and administrative expenses.
Orchestra BioMed, Inc. will continue to pay a monthly license fee based on the shared space to the Company until the expiration of the Shared Space Agreement in September
2024. Aggregate license fees will range from $162 to $198 in any given calendar year during the term of the Shared Space Agreement.
Note 11 – Share-based compensation
Issuance of Common Stock
On January 13, 2021, the non-employee members of the Board of Directors were granted an aggregate of 52,317 fully vested shares of Common Stock as compensation, in lieu
of cash compensation, for service as directors during the fourth quarter of 2020, pursuant to the Company’s non-employee director compensation policy. The Company
recorded $56 in accrued expenses as of December 31, 2020 for director services during the three months ended December 31, 2020. The number of shares granted to the
Company’s directors, in lieu of cash compensation, was determined by the dollar amount of quarterly fees due under the non-employee director compensation policy divided by
the fair market value of a share of Common Stock as of the grant date which was $1.08.
On February 17, 2021, the Company’s Compensation Committee approved a modification to the non-employee director compensation policy to permit payment of the fees for
service as directors for 2021 in grants of the Company’s common stock, in lieu of cash compensation. Non-employee members of the Board of Directors were granted an
aggregate of 121,237 fully vested shares of common stock at a price equal to $1.78 per share of Common Stock, which was the fair market value of a share of Common Stock
on the grant date of February 17, 2021 as compensation, in lieu of $216 of cash compensation, for service as directors for 2021. On June 22, 2021, the Company granted to its
newly appointed director an aggregate of 18,209 fully vested shares of Common Stock at a price equal to $1.04 per share of common stock, which was the fair market value of
a share of Common Stock on the grant date as compensation, in lieu of $19 of cash compensation, for service as a director for 2021. For the year ended December 31, 2021, the
Company recorded $235 in relation to the board of directors’ compensation.
In March 2021, the Company entered into an Equity Distribution Agreement (the “Equity Distribution Agreement”) , or at- the- market offering, with Oppenheimer & Co. Inc.
(“Oppenheimer”), under which it may offer and sell from time to time common shares having an aggregate offering price of up to $25,000. On April 30, 2021, the Company
sold 1,340,870 shares of Common Stock pursuant to the above-described Equity Distribution Agreement, resulting in net cash proceeds of $1,826, after deducting issuance
costs of $74.
On May 17, 2021, the Company issued an aggregate of 50,000 fully vested shares of common stock to a consultant in consideration for services that were performed during
2021 under a consulting agreement, with fair value of $53, based on a price of $1.06 per share of Common Stock, which was the closing price of the Company’s stock at the
date of issuance. The Company recorded $53 of expense in the year ended December31, 2021, respectively, in relation to the consulting agreement.
F-18
Issuance of Warrants to Purchase Common Stock
On February 6, 2020, the Company entered into a services agreement whereby it agreed to issue warrants to purchase 120,000 shares of common stock of the Company. The
warrants will vest over a one-year period on a monthly basis and expire three years from the date of issuance. 60,000 of the granted warrants are exercisable at a price equal to
$2.16 per share of common stock and 60,000 of the remaining warrants granted are exercisable at a price equal to $3.50 per share of common stock. The fair value of the
warrants were valued on the date of grant at $112 using the Black-Scholes option-pricing model with the following parameters: (1) risk-free interest rate of 1.43%; (2) expected
life in years of 3.0; (3) expected stock volatility of 74.82%; and (4) expected dividend yield of 0%. The Company recorded $10 and $102 as general and administrative expense
in the accompanying consolidated statements of comprehensive loss in relation to the consulting agreement for the years ended December 31, 2021 and 2020, respectively.
On January 20, 2021, the Company entered into a services agreement with a service provider whereby it agreed to issue warrants to purchase an aggregate 340,020 shares of
common stock of the Company with an exercise price equal to $1.75 per share of common stock, which will vest over a one-year period on a monthly basis and will have an
exercise period of three years from the date of issuance. The fair value of the warrants were valued on the date of grant at $355 using the Black-Scholes option-pricing model
with the following parameters: (1) risk-free interest rate of 0.19%; (2) expected life in years of 3.0; (3) expected stock volatility of 100.99%; and (4) expected dividend yield of
0%. The Company recorded $326 as general and administrative expense in the accompanying consolidated statement of comprehensive loss in relation to the consulting
agreement for the year ended December 31, 2021.
On August 28, 2020 the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) under which it sold and issued to an institutional investor
(the “Holder”), in a registered direct offering, an aggregate of 3,200,000 shares of the Company’s common stock par value $0.0001 per share (the “Common Stock”), and pre-
funded warrants to purchase an aggregate of 5,533,625 shares of Common Stock (the “Pre-Funded Warrants”) at an exercise price of $0.001 per share. During the year ended
December 31, 2021, the Pre-Funded Warrants for 5,533,625 shares of common stock were exercised which resulted in aggregate proceeds of $6.
Pursuant to the Securities Purchase Agreement, as described above, in a concurrent private placement, the Company also agreed to issue to the purchaser warrants to purchase
up to 8,733,625 shares of Common Stock (the “Private Placement Warrants”). These warrants were immediately exercisable at an exercise price of $1.30 per share and expire
on the fifth anniversary of the date of issuance. On January 27, 2021, the Company entered into a Warrant Exercise Agreement (the “Exercise Agreement”) with the Holder, at
which time 8,000,000 of the Private Placement Warrants remained outstanding, due to the prior exercise of 733,625 of the Private Placement Warrants on January 22, 2021.
Pursuant to the Exercise Agreement, the Holder agreed to exercise the remaining outstanding 8,000,000 Private Placement Warrants. In consideration of the exercise, the
Company agreed to sell to the Holder, new warrants (the “New Warrants”) to purchase 0.75 shares of Common Stock for each share of Common Stock issued upon such
exercise of the remaining 8,000,000 Private Placement Warrants pursuant to the Exercise Agreement, or an aggregate of 6,000,000 New Warrants. In addition, the Holder paid a
cash payment of $0.10 for each New Warrant issued to the Holder, for an aggregate of $600,000 to the Company. The Company received aggregate gross proceeds before
expenses of approximately $11,000 from the exercise of all of the remaining 8,000,000 outstanding Private Placement Warrants held by the Holder and the payment of the
purchase price for the New Warrants. The terms of the New Warrants are substantially similar to those of the Private Placement Warrants, except that the New Warrants will
have an exercise price of $2.12, will be immediately exercisable and will expire five years from the date of the Exercise Agreement. The aggregate of 6,000,000 New Warrants
were issued in four tranches during the first quarter of 2021 as the 8,000,000 Private Placement Warrants were exercised. The fair values of the 6,000,000 New Warrants were
valued on the date of grant of each tranche and totaled in aggregate of $6,745 using the Black-Scholes option-pricing model with the following parameters: (1) risk-free interest
rates with a range of 0.41%-0.57%.; (2) expected life in years with a range of 4.95-5.00; (3) expected stock volatilities with a range of 103.00%-103.23%; and (4) expected
dividend yields of 0%. The Company recognized the excess fair value of the New Warrants above the aggregate purchase price as a deemed dividend of $6,145 for the year
ended December 31, 2021. However, as the Company is in an accumulated deficit position as of the issuance dates, the resulting deemed dividend was recorded as a reduction
of additional paid-in capital, however the deemed divided was included in net loss attributable to common shareholders in the calculation of loss per share.
In connection with the Exercise Agreement, the Company entered into a financial advisory agreement (the “Letter Agreement”) with A.G.P./Alliance Global Partners
(“A.G.P.”), pursuant to which A.G.P. acted as exclusive financial advisor to the Company in this transaction and received a cash fee of $300 upon full cash exercise of the
Private Placement Warrants, which was included in financing fees in the consolidated statement of shareholders’ equity, for the year ended December 31, 2021. As additional
compensation, A.G.P. will receive a cash fee equal to $200 upon the cash exercise in full of the New Warrants.
In connection with the Kreos Loan Agreement as described in Note 8, the Company issued to the Lender a Warrant, dated July 16, 2021, to purchase up to 190,949 shares of the
Company’s common stock. The Warrant is immediately exercisable at an exercise price of $1.0474 per share, payable in cash or on a cashless basis according to the formula set
forth in the Warrant. The exercise price of the Warrant and the number of shares issuable upon exercise of the Warrant are subject to adjustments for stock splits, combinations,
stock dividends or similar events. The Warrant is exercisable until the date that is ten years after the date of issuance. The fair value of the warrant was valued on the date of
grant at $168 using the Black-Scholes option-pricing model with the following parameters: (1) risk-free interest rate of 1.31%; (2) expected life in years of 10; (3) expected
stock volatility of 108.87%; and (4) expected dividend yield of 0%. As described in Note 8, in connection with the Kreos Loan Agreement, the Company treated the Warrant as
a separate freestanding financial instrument amongst the other financial instruments in the Loan with the proceeds received in connection with the transaction allocated amongst
the instruments based on relative fair value which resulted in $165 being allocated to the Warrant and a corresponding amount recorded as a debt discount to the Convertible
Note and Long-term Debt. See Note 8 for further detail.
F-19
Warrants
A summary of the Company’s warrants to purchase common stock activity is as follows:
Outstanding at January 1, 2020
Granted
Exercised
Forfeited
Outstanding at December 31, 2020
Granted
Exercised
Forfeited
Outstanding at December 31, 2021
*
represents amount less than $1,000
Shares
Underlying
Warrants
2,745,801
14,437,250
(50,000)
(75,000)
17,058,051
6,530,969
(14,267,250)
(915,154)
8,406,616
Weighted
Average
Exercise Price
5.24
1.25
1.17
8.71
1.86
2.07
1.24
5.00
2.74
$
$
Weighted
Average
Remaining
Contractual
Life (years)
2.58
5.78
3.40
Aggregate
Intrinsic Value
-
$
$
$
$
$
*
-
-
-
As of December 31, 2021, 8,378,302 warrants were exercisable with a weighted-average exercise price per share of $2.74.
Stock Options
2016 Equity Incentive Plan
In December 2016, the Company adopted the Motus GI Holdings, Inc. 2016 Equity Incentive Plan (the “2016 Plan”). Pursuant to the 2016 Plan, the Company’s board of
directors may grant options to purchase shares of the Company’s common stock, stock appreciation rights, restricted stock, stock units, performance shares, performance units,
incentive bonus awards, other cash-based awards and other stock-based awards to employees, officers, directors, consultants and advisors. Pursuant to the terms of an annual
evergreen provision in the 2016 Plan, the number of shares of common stock available for issuance under the 2016 Plan shall increase annually by six percent (6%) of the total
number of shares of common stock outstanding on December 31st of the preceding calendar year; provided, however, that the board of directors may act prior to the first day of
any calendar year to provide that there shall be no increase such calendar year, or that the increase shall be a lesser number of shares of our common stock than would otherwise
occur. On January 1, 2022, pursuant to an annual evergreen provision, the number of shares of common stock reserved for future grants was increased by 2,903,016 shares.
Under the 2016 Plan, effective as of January 1, 2022, the maximum number of shares of the Company’s common stock authorized for issuance is 10,495,679. As of December
31, 2021, there were 145,520 shares of common stock available for future grant under the 2016 Plan.
A summary of the Company’s stock option activity is as follows:
Outstanding at January 1, 2020
Granted
Forfeited
Outstanding at December 31, 2020
Granted
Forfeited
Outstanding at December 31, 2021
Shares
Underlying
Options
3,519,769
2,650,666
(1,141,316)
5,029,119
1,293,500
(170,057)
6,152,562
Weighted
Average
Exercise Price
4.22
1.46
3.17
3.00
1.64
3.43
2.71
$
$
F-20
Weighted
Average
Remaining
Contractual
Life (years)
7.91
Aggregate
Intrinsic Value
-
$
7.96
-
7.45
$
-
The options granted during the years ended December 31, 2021 and 2020 were valued using the Black-Scholes option pricing model using the following weighted average
assumptions:
Expected term, in years
Expected volatility
Risk-free interest rate
Dividend yield
For the year ended December 31,
2021
2020
5.8
106.24%
0.77%
-
5.6
82.70%
0.86%
-
The grant date fair value for stock options issued during the years ended December 31, 2021 and 2020 were $1.32 and $1.83, respectively.
As of December 31, 2021, unamortized share-based compensation for stock options was $1,450, with a weighted-average recognition period of 1.00 years.
As of December 31, 2021, outstanding options to purchase 4,812,004 shares of common stock were exercisable with a weighted-average exercise price per share of $2.96.
For the years ended December 31, 2021 and 2020, the Company recorded $2,269 and $2,299, respectively, for share-based compensation expense related to stock options.
Restricted Stock Units
On February 17, 2021, the Company’s Compensation Committee approved the issuance of 160,000 restricted stock unit awards to non-employee directors which vest on the
first anniversary of the date of grant, and 266,000 restricted stock unit awards, to executives which vest over a three-year period on a quarterly basis. The aggregate fair value of
the restricted stock unit awards granted was estimated to be $758 using the market price of the stock on the date of the grant which is expensed using the straight-line method
over a one to three-year period.
The Company recorded $867 and $476 as general and administrative expense in the accompanying consolidated statements of comprehensive loss for the years ended
December 31, 2021 and 2020, respectively, in relation to the aggregate 927,266 restricted stock units issued to date to the executives and directors. As of December 31, 2021,
62,618 restricted stock units that vested during the year ended December 31, 2021 were not yet issued as common stock.
A summary of the Company’s restricted stock unit awards activity is as follows:
Nonvested at January 1, 2020
Granted
Vested
Nonvested at December 31, 2020
Granted
Vested
Nonvested at December 31, 2021
Number of Shares
Aggregate
Weighted Average Grant
Date Fair Value
185,589
260,154
(107,818)
337,925
426,000
(261,412)
502,513
$
$
$
4.71
2.16
3.59
3.10
1.71
2.42
2.24
At December 31, 2021, unamortized stock compensation for restricted stock units was $749, with a weighted-average recognition period of 0.83 years.
Share-based Compensation
The following table sets forth total non-cash share-based compensation for the issuance of common stock, options to purchase common stock, warrants to purchase common
stock, and restricted stock unit awards by operating statement classification for the years ended December 31, 2021 and 2020:
Research and development
Sales and marketing
General and administrative
Total
December 31,
2021
2020
575
353
2,544
3,472
$
$
588
340
1,977
2,905
$
$
F-21
Note 12 – Income Taxes
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes. The Company’s deferred tax assets relate primarily to its net operating loss carryforwards and other balance sheet basis differences. In
accordance with ASC 740, “Income Taxes,” the Company recorded a valuation allowance to fully offset the gross deferred tax asset, because it is not more likely than not that
the Company will realize future benefits associated with these deferred tax assets at December 31, 2021 and 2020.
As of December 31, 2021 and 2020, the Company had deferred tax assets of approximately $27,200 and $22,300, respectively, against which a full valuation allowance of
$27,200 and $22,300, respectively had been recorded. The change in the valuation allowance for the year ended December 31, 2021 was an increase of $4,900. The increase in
the valuation allowance for the year ended December 31, 2021 was mainly attributable to increases in net operating losses and non-deductible share-based compensation, which
resulted in an increase in the deferred tax assets with a corresponding valuation allowance. Significant components of the Company’s deferred tax assets at December 31, 2021
and 2020 were as follows:
Deferred tax assets:
Net operating loss carryforwards – Federal and state
Net operating loss carryforwards – Israel
Share-based compensation
Capitalized research and development
Accrued liabilities and reserves
Total deferred tax assets
Deferred tax liabilities:
Right of use asset
Other
Total deferred tax liabilities
Net deferred tax assets before valuation allowance
Valuation allowance
Net deferred tax assets after valuation allowance
December 31,
2021
2020
$
$
5,281
19,354
1,732
218
831
27,416
(158)
(14)
(172)
27,244
(27,244)
-
$
$
A reconciliation of the federal statutory tax rate and the effective tax rates for the years ended December 31, 2021 and 2020 is as follows:
U.S. federal statutory tax rate
State income taxes, net of federal benefit
U.S. vs. foreign tax rate differential
Non-deductible expenses
Deferred tax asset adjustments
Change in valuation allowance
Effective tax rate
For the Year Ended December 31,
2021
2020
21.0%
2.0
0.9
(1.9)
2.5
(24.5)
-%
3,371
16,323
1,268
734
743
22,439
(132)
(16)
(148)
22,291
(22,291)
-
21.0%
4.2
1.5
(0.6)
-
(26.1)
-%
The Company had approximately $119,600 and $91,000 of gross net operating loss (“NOL”) carryforwards (federal, state and Israel) as of December 31, 2021 and 2020,
respectively. Sections 382 and 383 of the Internal Revenue Code, and similar state regulations, contain provisions that may limit the NOL carryforwards available to be used to
offset income in any given year upon the occurrence of certain events, including changes in the ownership interests of significant stockholders. In the event of a cumulative
change in ownership in excess of 50% over a three-year period, the amount of the NOL carryforwards that the Company may utilize in any one year may be limited.
A reconciliation of the Company’s NOLs for the years ended December 31, 2021 and 2020 is as follows:
U.S. Federal NOL’s
U.S. State NOL’s
Israel NOL’s
Total NOL’s
December 31,
2021
2020
$
$
18,420
17,009
84,148
119,577
$
$
10,724
9,314
70,971
91,009
The Company’s federal and state NOLs of $3,300 and $17,000, respectively, begin to expire after 2036 through 2041. The Company’s federal NOL of $15,100, generated since
2018, and the Israel NOL of $84,100 do not expire. A check the box election for Israel was made and accepted by the IRS as of January 1, 2019. As such, approximately
$27,700 of Israeli NOLs are available for use in the U.S and have an indefinite life.
F-22
The Company follows guidance on accounting for uncertainty in income taxes which prescribes a minimum threshold a tax position is required to meet before being recognized
in the financial statements. The Company does not have any liabilities as of December 31, 2021 and 2020 to account for potential income tax exposure. The Company is
obligated to file income tax returns in the U.S. federal jurisdiction, several U.S. States and Israel. Since the Company had losses in the past, all prior years that generated net
operating loss carry-forwards are open and subject to audit examination in relation to the net operating loss generated from those years. On March 27, 2020, the Coronavirus
Aid, Relief, and Economic Security Act, or the CARES Act, was enacted in the United States, the impact of which was not material.
Note 13 – Subsequent Events
On January 5, 2022, non-employee members of the Board of Directors were granted an aggregate of 489,167 shares of common stock at a price equal to $0.48 per share of
common stock, as compensation, in lieu of $235 of cash compensation, for service as directors for 2022.
On February 10, 2022, the Company’s Compensation Committee approved the issuance of 1,570,000 options, in the aggregate, to executives and employees which vest over a
three-year period on a quarterly basis to purchase shares of the Company’s common stock with an exercise price equal to $0.46 per share of common stock.
On February 10, 2022, the Company’s Compensation Committee approved the issuance of 365,000 restricted stock unit awards to executives which vest over a three-year
period on a quarterly basis.
On February 10, 2022, the Company’s Compensation Committee approved the issuance of 250,000 options, in the aggregate, to non-employee directors which vest on the first
anniversary of the date of grant to purchase shares of the Company’s common stock with an exercise price equal to $0.46 per share of common stock.
F-23
CONFIDENTIAL TREATMENT
CERTAIN IDENTIFIED INFORMATION HAS BEEN EXCLUDED FROM THIS EXHIBIT BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) IS THE TYPE
THAT THE COMPANY TREATS AS PRIVATE OR CONFIDENTIAL. THE REDACTED TERMS HAVE BEEN MARKED WITH ONE ASTERISK [*]
SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT (this “Agreement”) is made and entered into as of September_1_, 2017 (the “Effective Date”), by and between Polyzen, Inc., a North
Carolina corporation with its principal office located at 1041 Classic Road, Apex, North Carolina 27539 (“Polyzen”), and Motus GI Medical Technologies Ltd., an, Israeli
company with its principal office located at Keren Hayesod 22, Tirat Carmel, Israel, 3902638 (“Company”).
Exhibit 10.20
WHEREAS, Company is in the business of marketing and selling Food and Drug Administration (“FDA”) cleared or approved medical devices;
WHEREAS, Polyzen is in the business of developing, manufacturing and supplying products related to Company’s business; and
RECITALS
WHEREAS, Polyzen desires to develop manufacture and supply to Company, and Company desires to purchase from Polyzen, the Products (as defined below)
according to the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the mutual covenants and promises contained herein, and of other good and valuable consideration, the receipt and
sufficiency of which hereby are acknowledged, Polyzen and Company hereby agree as follows:
1. Definitions.
1.1 “Affiliate” means with respect to any party, any person/entity which, directly or indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, such party. A person/entity shall be deemed to control a corporation (or other entity) if such person or entity possesses, directly or indirectly, more
than fifty percent (50%) of the outstanding voting securities or other equity or voting interest of such corporation (or other entity) or has the power to vote, by contract or
otherwise, or to control in fact, the management decisions of such entity.
1.2 “Product” or “Products” shall mean those products consisting of (i) component parts and packaged assemblies developed and manufactured by Polyzen; and (ii)
fully assembled Medical Devices (as defined below) assembled by Polyzen, in each case, in accordance with the Specifications, and described in, Exhibit A attached hereto
and incorporated herein by reference, which may be modified from time to time to add or remove products, in each case, with the written approval of an authorized
representative of each party hereto. The parties shall negotiate in good faith with regard to any appropriate written amendment of, or addendum to, this Agreement or any
exhibit attached hereto, to accommodate such additional products, as the case may be, and to modify the Specifications, pricing and delivery requirements, as applicable,
therefor.
1.3 “Medical Device” shall mean the FDA cleared device Pure-Vu Product manufactured by Company.
1.4 “Regulatory Authority” shall mean an authorized agent of any federal, state or local or international regulatory agency, department, bureau or other governmental
entity, including the FDA, that is responsible for issuing approvals, licenses, registrations or authorizations necessary for the production, use, storage, import, transport or sale
of Products in any jurisdiction as part of the Services.
1.5 “Specifications” shall mean the written specifications for the Products set forth in Exhibit A attached hereto.
2. Manufacture and Supply of Products. Subject to the terms and conditions set forth herein, Polyzen shall manufacture and assemble Products in accordance with the
Specifications, and supply and deliver (collectively, the “Services”) to Company the Products in such quantities as are required to fulfill Purchase Orders (as defined below)
issued by Company or its Affiliates from time to time. Any use of secondary suppliers or other outsourcing of the Services to third parties by Polyzen shall be approved in
writing in advance by Company and set forth in Exhibit C attached hereto and incorporated herein by reference. Polyzen shall ensure that any approved secondary suppliers
and other third parties are bound by written agreements with substantially similar provisions as contained herein; provided that with respect to suppliers of components that are
“off-the-shelf”, Polyzen’s obligation under this section shall be to ensure that there are quality agreements in place with such suppliers that ensure that Polyzen can meet its
obligations under this Agreement. In the event that Polyzen subcontracts all or part of the Services hereunder to a third party supplier or other third party, Polyzen shall be
responsible for such secondary supplier’s or other third parties’ compliance with the terms of this Agreement and will retain primary liability vis-à-vis Company for the
performance of all obligations of such secondary suppliers and other third parties.
2.1 Based on the quality control standards developed mutually by the parties and incorporated herein by reference in the Quality Agreement attached hereto as Exhibit
B, which shall meet but in no event exceed the applicable standards set forth in ISO 9001, ISO 13485 and 21 C.F.R. Part 820 for contract manufacturers, Polyzen shall
manufacture the Products in accordance with the Specifications and shall perform all quality control and testing of the Products to ensure that they comply with the
Specifications. To the extent that any specialized tooling or equipment (as outlined in Exhibit D attached hereto and incorporated herein by reference) is necessary to provide
the Services, the parties shall negotiate in good faith the costs of such specialized tooling and/or equipment and agree on the use and ownership of such tooling and/or
equipment in writing in advance in accordance with Section 10.8 of this Agreement. At or prior to the purchase of a new tool, Polyzen and Company will discuss in good faith
the cost and payment options for such tools. Exhibit D attached hereto lists the owner of, and the purchase price paid for, each tool.
2.2 Purchase Orders. Polyzen’s performance of the Services shall be subject to Polyzen’s receipt from Company or its Affiliates, and Polyzen’s written acceptance
(except as provided below), of a written purchase order, each of which will set forth the requested quantity of Product, price per the terms of this Agreement, and the desired
delivery dates (each, a “Delivery Date”), for the Products then ordered (each, a “Purchase Order”). Company shall have the right, but not the obligation, to deliver Purchase
Orders as provided herein. Each Purchase Order shall cover a period of three (3) months (the “Order Period”) and, except for the Initial Purchase Order, which shall be
delivered as set forth in Section 2.4.1 below, shall be delivered by no later than 5:00 p.m. (EST) on the last business day of the second (2nd) month of the then current Order
Period. Polyzen will consider in good faith accepting any Purchase Order delivered by Company or its Affiliate at any other point. Each Purchase Order shall include the
requested amount of Product to be delivered in each month of the subsequent Order Period (each, a “Monthly Order”). Within five (5) business days after Polyzen’s receipt of
each Purchase Order, Polyzen shall notify Company in writing either of its acceptance of such Purchase Order or of its rejection thereof and the reason therefor. Any Purchase
Order that reflects Monthly Orders that are within twenty percent (20%) of the amount forecasted for such month in the most recent Forecast (as defined below) for the given
period shall be deemed accepted by Polyzen. Except as provided in the previous sentence, no Purchase Order submitted by Company shall be deemed to be accepted by
Polyzen unless and until confirmed in writing by an authorized representative of Polyzen. Polyzen shall deliver all Products pursuant to an accepted Purchase Order on the
desired Delivery Dates specified in the subject Purchase Order, provided that such date is no less than forty-five (45) days from the date of the Purchase Order is received by
Polyzen. Company, at its option, may upon prior written notice to Polyzen, delay the acceptance of any Monthly Order in an Order Period for up to three (3) months (an
“Order Delay”). Written notice of an Order Delay must be given to Polyzen at least fifteen (15) calendar days in advance of the subject Delivery Date and must include new
Delivery Dates for the delayed delivery. Products subject to an Order Delay will be invoiced as follows: 50% of the total purchase price for the subject Products on the original
Delivery Date, as provided in the subject Purchase Order; and the remaining 50% of the purchase price at time of shipment of the Products subject to the Order Delay. By way
of example, if a Purchase Order for the third calendar quarter of 2017 specified a Monthly Order of 100 units of Product in July 2017, Company will have the option of having
the subject 100 units of Product delivered through October 2017 without incurring any penalty. Further, any subsequent Monthly Orders will be subject to the same delivery
standards; the Monthly Orders for August 2017 and September 2017 could then be similarly delayed as requested by Company and delivered through November 2017 and
December 2017 respectively.
2.3 Order Interruption. In the event that the Company desires to deliver a Purchase Order subsequent to a calendar quarter in which there have not been any
deliveries of Product from Polyzen, Company shall provide Polyzen not less than sixty (60) days’ notice of the next anticipated Delivery Date and a restart fee equal to $50,000
to resume production of the Products.
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2.4 Forecasts.
2.4.1
Rolling Forecasts. Company shall provide Polyzen with a quarterly, rolling, written non-binding twelve (12) month forecast of its purchase requirements for
the Products (each, a “Forecast”). Company’s initial Forecast shall be provided to Polyzen on the Effective Date. Company’s initial Purchase Order (the
“Initial Purchase Order”) shall reflect the initial three months of the Forecast and shall be subject to the terms and conditions as provided in Section 2.2 of
this Agreement. Thereafter, Company shall deliver to Polyzen its updated Forecast by no later than 5:00p.m. (EST) of the last business day of the second
(2nd) month of the then current Order Period. For example, since the Effective Date of this Agreement is in July 2017, the initial Forecast delivered on the
Effective Date would cover August 2017 through July 2018. Polyzen will use commercially reasonable efforts to maintain sufficient production capacity and
redundancy to satisfy Company’s then forecasted requirements for the Products, which, in no event, will equal less than three (3) months of orders plus
twenty percent (20%) upside flexibility.
2.4.2 Material Planning Meeting. Within five (5) business days of receipt of a Forecast, Company and Polyzen shall have a materials planning meeting to
determine the appropriate volume of raw materials to order. Based on the determined volumes, Polyzen will place purchase orders with vendors to obtain the
appropriate level of pricing and lead times. Upon receipt and acceptance of all raw materials, Polyzen will invoice Company for raw materials as set forth in
Section 3.1. Polyzen shall ensure that all raw materials are of good quality, free from defects, meet applicable specifications, are sourced in accordance with
applicable law and fit for the purpose intended prior to acceptance. In the event of termination or expiration of this Agreement, other than a termination of this
Agreement by Company pursuant to Section 8.2 or 8.4 below, all non-cancellable purchase orders to vendors or sources component manufacturers will be
binding and paid for by Company with no mark-up by Polyzen; provided that in the event of a termination pursuant to Section 8.4 below as contemplated in
this sentence, the Company will be obligated to pay for such non-cancelable purchase orders to the extent provided under Section 8.5(a). Such payments will
be subject to the invoicing and payment provisions set forth in Section 3 below.
2.5 Acceptance and Rejection of Products. Upon Company’s receipt of each delivery of Product delivered in accordance with the terms and conditions set forth
herein, Company shall inspect such Product for non- conformance, defects and damages as per its Specifications (“Non-conforming Products”) and furnish to Polyzen in a
reasonably detailed writing any bona fide claim Company has in connection with such Non-conforming Products within thirty (30) days after its receipt thereof (“Non-
conforming Products Notice Period”). Failure to give written notice within the Non-conforming Products Notice Period shall constitute acceptance of Products by Company
as delivered, except in the case of latent Non-conforming Products that: (i) would not have been revealed by a timely inspection in accordance with customary and reasonable
procedures (“Latent Non-Conforming Products”), and (ii) are the subject of a written notice to Polyzen in reasonable detail within seven (7) business days of Company’s
initial knowledge thereof (“Latent Non-conforming Products Notice Period”), provided however that COMPANY shall provide notice of such Latent Non-Conforming
Products no later than the shelf-life of the product as defined in the FDA approved Product labeling. If Company submits a claim to Polyzen within the Non-conforming
Products Notice Period or the Latent Non-conforming Products Notice Period, as applicable, Polyzen will, promptly upon receipt of such claim, contact Company to discuss
and evaluate the validity of such claim. At Polyzen’s sole discretion, it may request that Company deliver to Polyzen a sample of the potentially defective Product for
evaluation. If, upon concluding its evaluation of such Product, Polyzen reasonably determines that such Product is Non-conforming Product, Polyzen shall send Company a
return material authorization, and at its sole expense, arrange for, and accept from Company, the return of any Non-conforming Product and ship to Company compliant, non-
damaged and non-defective Product as replacement for such returned Non-conforming Product. If Polyzen disagrees with Company’s determination that a Product is a
defective Non-conforming Product, the parties will first use good faith efforts to settle such dispute within twenty (20) business days of Company’s claim. If the parties are
unable to resolve such dispute within such twenty (20)-business day period, such Product shall be submitted to a mutually acceptable third party testing service, which shall
determine whether such Product meets the Specifications, and the parties agree that such testing service’s determination shall be final and binding on the parties. The party
against whom the testing services rules shall bear all costs of the third party testing service. If the third party testing service determines that the Products are Non-conforming
Products, Polyzen shall send Company a return material authorization, and at its sole expense, arrange for, and accept from Company, the return of any non-compliant,
damaged or defective Non-conforming Product and ship to Company compliant, non-damaged and non-defective Product as replacement for such returned Non-conforming
Product. In the event Polyzen becomes aware that any Product supplied may be Non-conforming Products despite quality assurance activities, Polyzen shall immediately notify
Company in writing.
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2.6 Change in Specifications. From time to time during the Term (as defined below), either party may propose modifications to the Specifications, including, without
limitation, modifications that may enhance the Products’ performance, safety or reliability, or that may make it easier or more economical to manufacture, handle or repair the
Products, or that otherwise may be an improvement thereof. All such changes shall be agreed to in accordance with Section 10.8 of this Agreement. Such proposals shall be
made in writing describing the modification in reasonable detail. Any such proposal by Polyzen shall also include a written estimate of the resulting change in the price, if any,
for the Product affected by such modification. If Polyzen receives a proposal from Company to modify the Specifications, Polyzen shall promptly provide Company with a
written estimate of the resulting change in the price, if any, for the Product affected by such modification. The parties shall negotiate in good faith with regard to any
appropriate written amendment of, or addendum to, this Agreement or any exhibit attached hereto, to accommodate such agreed to modifications, as the case may be, and to
modify the pricing and delivery requirements, as applicable, therefore.
2.7 Technology Transfer. Subject to the terms and conditions set forth herein, Polyzen agrees that it will transfer to Company or its designee such intellectual property
or other information as is necessary for Company or its designee to manufacture the Products and provide such other reasonable assistance to be billed at Polyzen’s then current
FTE rate, and Company agrees to pay such FTE rates and, in the event such transfer includes Polyzen’s Confidential Information and/or Polyzen’s Background Intellectual
Property, the compensation described herein, all in furtherance of an efficient and smooth transfer of the production of the Product (a “Technology Transfer”); provided that, in
the event that Polyzen terminates this Agreement under Section 8.2 below, it will have no obligation in connection with the Technology Transfer. Company may request a
Technology Transfer at any time during the Term (provided Company is not then in breach of any term or condition set forth herein) or upon the expiration or termination of
this Agreement for any reason (except as set forth in the proviso to the previous sentence). Company shall provide Polyzen with not less than thirty (30) days’ prior written
notice of a request for a Technology Transfer. In the event that any Polyzen’s Background Intellectual Property is included in the Technology Transfer, the Parties shall
negotiate in good faith fair compensation for Polyzen in respect of any licenses granted by Polyzen in connection with such Technology Transfer. Polyzen shall not incorporate
any Polyzen’s Background Intellectual Property in the development, manufacture or supply of Products in a manner that would restrict Company’s freedom to develop,
manufacture or commercialize a Product without a license from Polyzen without first receiving Company’s written consent. In no event will Polyzen will be responsible for any
equipment or tooling replacement costs or material costs associated with such Technology Transfer.
3. Pricing; Payment Terms; Title.
3.1 Pricing and Payment Terms. The price payable by Company or its Affiliates, as the case may be, to Polyzen for each Product purchased during the Term (as
defined below) is set forth in Exhibit C attached hereto and incorporated herein by reference. Company will pay Polyzen for the Products purchased according to the prices set
forth in Exhibit C attached hereto. Polyzen shall invoice Company for the Product upon shipment. Invoices shall be submitted by e-mail to the following address:
finance@motusgi.com. All payments for undisputed invoices are due thirty (30) days from the date of the e-mail containing the invoice. In the event Company disputes one or
more items in an invoice, such dispute must be in good faith, and Company will pay the undisputed portion within thirty (30) days from the date of the e- mail containing the
invoice and notify Polyzen in writing within ten (10) days of receipt of an invoice of the items being disputed and the basis therefor. The parties will use good faith efforts to
resolve any such disputes within twenty (20) days. Once resolved, payment will be made by Company within twenty (20) days from the date on which resolution was reached
by the parties. Any payment not received by Polyzen by the due date may be subject, at Polyzen’s sole discretion, to a late fee equal to one and one half percent (1.5%) (or the
maximum rate permitted by law) of the amount then due, for each month overdue. Also, Polyzen may, at its election, discontinue, terminate or suspend the Services without
incurring any liability to Company, provided that Polyzen provides written notice to Company at least seven (7) business days in advance of any discontinuation, termination or
suspension of Services. For amounts outstanding after sixty (60) days from the date of the e-mail containing the invoice therefor, Company shall be responsible for, and agrees
to pay, reasonable costs and expenses of collection, including, but not limited to court and reasonable attorneys’ fees and expenses. Prices do not include any governmental
taxes (including, without limitation, sales, use, excise, withholding, consumption or other VAT), or duties imposed by governmental authorities that are applicable to the import
or purchase of the Products, and Company shall bear all such taxes and duties.
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3.2 Price Adjustments. During the twelve (12)-month period that starts on the Effective Date, the parties shall undertake a review of pricing for the Products once
every ninety (90) days (“Quarterly Pricing Review”) beginning on the first business day that is no less than fifteen (15) days prior to the ninety (90)-day anniversary of the
Effective Date, considering all relevant costs to Polyzen reflected in determining the pricing including, but not limited to, labor costs, material and supplier component costs
(“Pricing Review Criteria”), and to use commercially reasonable efforts to reach agreement on any future pricing adjustments, reflecting both reductions and increases in cost,
(“Pricing Adjustment(s)”). After the twelve (12)-month anniversary of the Effective Date, the parties shall undertake an annual pricing review based on the Pricing Review
Criteria beginning on the first business day that is no more than thirty (30) days before the end of each subsequent twelve (12)-month anniversary of the Effective Date
(“Annual Pricing Review”). Any Pricing Adjustments agreed to by the Parties in a Quarterly Pricing Review or an Annual Pricing Review shall become effective when agreed
to in writing in an amendment to Exhibit C in accordance with Section 10.8 of this Agreement. Polyzen shall make available to Company all supporting documentation
reasonably necessary to calculate any Pricing Adjustments including labor costs and material and supplier component costs and will reasonably cooperate with Company in
negotiating any Pricing Adjustments. For clarity sake, any future Pricing Adjustments resulting in an increase to Company will be limited to situations where the underlying
documented costs to Polyzen increased. Polyzen agrees that any price increase associated with Polyzen labor costs shall be capped at two percent (2%); any agreed to reduction
in the then current pricing set forth in Exhibit C shall be retained by Company provided Company pre-purchases inventory as outlined in Section 2.4.2 above. If Polyzen
purchases inventory, such increases / decreases and mark-ups will be reasonably negotiated with Company.
3.3 Shipping Terms and Title to Product. All standard shipments of Product shall be shipped (via air or water) F.O.B. Origin using the Company’s Shipping Account
Number. All shipments shall be accompanied by a packing slip which describes the Products and states the Purchase Order number. Title and risk of loss with respect to any
shipment of Products shall pass to the Company or its Affiliates after delivery of the shipment by Polyzen to the agreed upon carrier. Polyzen shall assist Company, at
Company’s risk and expense, in obtaining any required export or import license or other official authorization necessary for the export from the United States of Products
imported to Israel or such other location designated in writing by Company If there is any conflict or inconsistency between this Agreement and any Purchase Order, Purchase
Order release, confirmation, acceptance or any similar document, the terms of this Agreement shall govern.
4. Confidentiality; Intellectual Property.
4.1 Restrictions on Use and Disclosure of Confidential Information. Any Confidential Information (as defined below) of a party shall: (i) be maintained by the
receiving party in strict confidence using the same degree of care such party would use to protect its own Confidential Information (but in any event, using no less than a
reasonable degree of care); (ii) not be disclosed, directly or indirectly, to any third party; and (iii) not be used for any purpose not expressly set forth in this Agreement;
provided, however, that the parties may disclose Confidential Information to their respective employees and agents requiring access to such information for purposes of this
Agreement, so long as, prior to such disclosure, each such person: (a) is advised of his/her obligation under this Section 4.1; and (b) shall have entered into a written agreement
with confidentiality and non-use restrictions, which are at least as restrictive as those restrictions contained in this Section 4.
4.2 Definition of Confidential Information. “Confidential Information,” means all confidential, non-public or proprietary information that is disclosed or made
available by one party to the other party in connection with this Agreement, that is labeled as “confidential” or with a similar designation, or that the receiving party should
reasonably know if confidential or proprietary under the circumstances of disclosure, including, without limitation, all inventions, discoveries, improvements, developments,
ideas, know-how, trade secrets, technical and non-technical data, specifications, formulae, compounds, formulations, assays, methods, processes, techniques, practices,
procedures, manufacturing techniques, designs, works of authorship, trade names, logos and other intellectual property, whether or not patentable or protectable by copyright or
trademark, business and product plans, research and development plans or results, and sales, marketing, financial and pricing information, in each case, whether disclosed or
made available in visual, oral, written, electronic, graphic or any other form. Confidential Information includes all copies, reproductions, notes and repositories thereof or based
thereon, whether in written, electronic, graphic or any other form, including in the form of samples. Confidential Information shall not include any information that:
(a) at the time of disclosure is/was generally available to the public; or
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(b) after disclosure becomes generally available to the public, except through breach of this Agreement by the receiving party; or
receiving party did not receive such information directly or indirectly from a third party under an obligation of confidentiality to the disclosing party; or
(c) is/was already possessed by the receiving party, as evidenced by its written records, predating receipt thereof from the disclosing party, so long as the
(d) is/was independently developed by or on behalf of the receiving party, as evidenced by written records, without direct or indirect use of any Confidential
Information of the disclosing party and without access to or knowledge of any Confidential Information of the disclosing party; or
(e) is required by law to be disclosed; provided, however, that receiving party shall promptly provide the disclosing party with written notice of such legal
requirement and shall cooperate with the disclosing party to seek and obtain a protective order or other appropriate remedy prior to the disclosure of such Confidential
Information.
4.3 Return of Confidential Information. All Confidential Information and copies and reproductions thereof (in whatever form, including information stored on
readable media) shall be promptly returned to the disclosing party upon the expiration or termination of this Agreement for any reason, or at any time at the disclosing party’s
request, except one copy of it can be retained for archival purposes. All information related to the production of Products that is not Polyzen’s Background Intellectual Property
shall be deemed Confidential Information of Company regardless of the party that discloses such Confidential Information.
4.4 Injunctive Relief. Each party acknowledges and agrees that any breach by the other party of any provision of this Section 4 would result in irreparable harm to the
non-breaching party for which money damages would be an inadequate remedy and, therefore, agrees that the non-breaching party shall be entitled to injunctive relief to
prevent or restrain any breach or threatened breach of the provisions of this Section 4, in addition to any other remedies available to the non-breaching party at law or in equity.
4.5 Intellectual Property. Except to the extent set forth herein, all right and title to any inventions, improvements or discoveries (“Inventions”), whether patentable or
not, developed, discovered, designed, produced or manufactured by Polyzen, any of its agents, employees or subcontractors or by Company in connection with its obligations
under this Agreement or using Confidential Information of Company, shall be and remain the exclusive property of the Company, upon Polyzen’s receipt of payment for
Services performed in connection therewith; provided, however, that inventions, ideas, know how, data, intellectual property, improvements and discoveries that are developed,
discovered, designed, conceived of, produced or manufactured by Polyzen: (i) before the Term; (ii) during the Term and outside of the scope of this Agreement; and (iii) during
the Term in connection with the performance of its obligations hereunder but, in each case that are not unique to the Products, which includes, for illustrative purposes, certain
intellectual properties, processes, and improvements relating to Polyzen’s business developed before or during the Term without the use of Company’s Confidential Information
or Company Intellectual Property (as defined below), in each case, as evidenced by Polyzen’s records, shall be and remain the property of Polyzen, including such intellectual
property used in connection with the Services as of the Effective Date as is outlined in Exhibit E attached hereto (collectively, “Polyzen’s Background Intellectual
Property”). In connection with Polyzen’s Background Intellectual Property, and upon Company’s payment to Polyzen of all then outstanding amounts due in accordance
herewith for Products delivered by Polyzen, Polyzen grants to Company a limited, non-exclusive, non-sub licensable, fully-paid, royalty-free license to use Polyzen’s
Background Intellectual Property solely to the extent comprising, and only in connection with, Product delivered to Company hereunder. Except for such license or as Polyzen
may agree otherwise in writing, no right, title or interest in or to the Polyzen’s Background Intellectual Property is granted by Polyzen to Company, whether expressly, by
implication, estoppel, or otherwise. Company hereby agrees not to derive or attempt to derive by reverse engineering, disassembling, decompiling or otherwise, any portion of
Polyzen’s Background Intellectual Property. If Company requests, and at Company’s expense, Polyzen will provide Company with all reasonable assistance to obtain patents,
and other intellectual property protection on such Inventions, except to the extent comprising Polyzen’s Background Intellectual Property, including procurement of written
assignments and title commitments, in forms acceptable to Company, from all affiliates, personnel and agents of Company. Polyzen acknowledges and agrees that Company has
the exclusive right to file patent applications and own patents in connection with any Inventions to the extent not comprised of Polyzen’s Background Intellectual Property.
Polyzen shall be free to use any Invention that it develops, discovers, designs, produces or manufacturers for the sole purpose of fulfilling its obligation under this Agreement.
Polyzen shall promptly disclose all Inventions pertinent to the Products to Company.
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4.6 Company Intellectual Property. Intellectual property, processes and improvements relating to Company’s business and/or the Products or production of the
Products, including all Inventions, in each case developed before or during the Term by Company and/or Polyzen or its agents, employees or subcontractors and that are not
Polyzen’s Background Intellectual Property, shall be and remain the property of Company (“Company Intellectual Property”). Company hereby grants to Polyzen a non-
exclusive, non-sub licensable, fully-paid, royalty-free license to use Company Intellectual Property solely to the extent necessary to provide the Services. Except as provided in
the previous sentence, no right, title or interest in or to the Company Intellectual Property is granted by Company to Polyzen, whether expressly, by implication, estoppel, or
otherwise.
5. Representations and Warranties. Each party represents and warrants to the other party that: (i) it is a company duly organized and validly existing in good standing under
the laws of the state of its formation or incorporation; (ii) it has all requisite right, power and authority to enter into and execute this Agreement, and to perform and
consummate the transactions contemplated hereby; (iii) this Agreement, when executed by it, constitutes a legal, valid and binding obligation enforceable against it in
accordance with the terms hereof; (iv) its execution, delivery and performance of this Agreement will not result in any violation of any other contract or agreement; and (v) it
shall comply with and shall not take any action which would violate or cause the other party to violate the provisions of: (a) the United States Foreign Corrupt Practices Act of
1977; or (b) The Bribery Act 2010 (c.23) of the United Kingdom; or (c) the Convention on Combating Bribery of Foreign Public Officials in International Business
Transactions of the Organization for Economic Co-operation and Development. Neither party nor any of its affiliates or their respective directors, officers, shareholders,
employees or agents shall make or offer, in respect of the performance of its obligations hereunder, any loan, gift or other payment, directly or indirectly, whether in cash or in
kind, for the use or benefit of a Foreign Official (as defined herein) for the purposes of influencing any act or decision of such Foreign Official in its official capacity, or
inducing such Foreign Official to do or omit to do any act in order to obtain or retain business or otherwise to secure any improper advantage. The term “Foreign Official”
shall mean (A) any officer or employee of a foreign government, department (whether executive, legislative, judicial or administrative), agency or instrumentality of such
foreign government, including a regional governmental body or a government-owned business, or of a public international organization; (B) any person acting in an official
capacity for or on behalf of such foreign government, department, agency, instrumentality, or public international organization; (C) any candidate for a foreign political office;
or (D) any foreign political party. Polyzen further represents and warrants to the Company that: (1) it shall provide the Services in compliance with all applicable international,
federal and state laws and regulations (“Applicable Laws”); (2) except to the extent arising in connection with Company’s payment obligations hereunder, Products, at the time
received by Company at its end destination, will be free and clear from all liens, encumbrances, and defects of title; (3) neither it nor any of its officers or directors or
employees or agents providing Services hereunder has been debarred pursuant to the Federal Food Drug and Cosmetic Act (“FDCA”) or excluded from participating in a
federal health care program, including without limitation the Medicare or Medicaid programs and shall notify the Company promptly in writing in the event Polyzen or its
officers, directors or employees or agents providing Services hereunder subsequently becomes debarred under the FDCA or excluded from a federal healthcare program; and
(4) it possesses all required licenses, permits and registration of any relevant governmental authority required to provide the Services hereunder. Company further represents
and warrants to Polyzen: (aa) neither it nor any of its officers or directors or employees or agents providing Services hereunder has been debarred pursuant to the FDCA or
excluded from participating in a federal health care program, including without limitation the Medicare or Medicaid programs; (bb) it controls all rights to Products, the
Specifications and the intellectual property rights associated therewith and has the right to grant to Polyzen the rights and licenses granted herein; and (cc) the Products, the
Specifications, the intellectual property rights associated therewith, and any trademarks, logos and trade dress provided to Polyzen hereunder do not, and will not, infringe,
violate or misappropriate the intellectual property or other rights of any third party.
EXCEPT AS SET FORTH IN THIS SECTION 5, THE SERVICES AND THE PRODUCTS ARE PROVIDED “AS IS” WITHOUT REPRESENTATION OR WARRANTY
OF ANY KIND. EXCEPT AS SET FORTH IN THIS SECTION 5, POLYZEN MAKES NO REPRESENTATION OR WARRANTY UNDER THIS AGREEMENT, ORAL
OR WRITTEN, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, USE OR TITLE OR NONINFRINGEMENT. EXCEPT AS SET FORTH IN THIS SECTION 5, POLYZEN DOES NOT WARRANT THAT THE SERVICES
WILL MEET COMPANY’S REQUIREMENTS NOR DOES IT GIVE ANY WARRANTY ABOUT THE RESULTS THAT MAY BE OBTAINED BY USING THE
SERVICES.
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6. Limitation of Liability. NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR ANY DIRECT, INDIRECT, INCIDENTAL, SPECIAL, LOST PROFITS,
PUNITIVE, EXEMPLARY, REMOTE OR CONSEQUENTIAL DAMAGES (INCLUDING BUT NOT LIMITED TO LOSS OF REVENUE OR PROFITS) ARISING FROM
OR CAUSED, DIRECTLY OR INDIRECTLY, BY THE PERFORMANCE OR FAILURE TO PERFORM UNDER THIS AGREEMENT, OR BY ANY OTHER ACT OR
OMISSION OF THE PARTIES, OR BY ANY OTHER CAUSE. POLYZEN’S TOTAL CUMULATIVE LIABILITY TO COMPANY FOR ANY CLAIM, LOSS OR
DAMAGE OF ANY KIND ARISING UNDER THIS AGREEMENT, WHETHER BASED ON CONTRACT, TORT, NEGLIGENCE, OR OTHERWISE WILL NOT
EXCEED TWO (2) TIMES THE ACTUAL AMOUNT INVOICED BY POLYZEN FOR SERVICES RENDERED FOR THE COST OF PRODUCT RESPONSIBLE FOR
SUCH CLAIMS, PROVIDED THAT SUCH CLAIMS ARE NEITHER AS A RESULT OF POLYZEN’S GROSS NEGLIGENCE, OR WILLFUL OR FRAUDULENT
MISCONDUCT IN THE PERFORMANCE OF THE SERVICES NOR ARE SUCH CLAIMS AN INDEMNIFICATION OBLIGATION OF POLYZEN UNDER SECTION
7. IN CONNECTION WITH POLYZEN’S INDEMNIFICATION OBLIGATIONS HEREUNDER, EXCEPT WITH RESPECT TO CLAIMS FOR FRAUD, GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT, IN NO EVENT WILL POLYZEN’S TOTAL LIABILITY TO COMPANY OR TO ANY THIRD PARTY EXCEED ONE
MILLION DOLLARS ($1,000,000) PER INCIDENT PROVIDED THAT POLYZEN’S TOTAL AGGREGATE LIABILITY HEREUNDER WILL NOT EXCEED THE
GREATER OF (A) THREE MILLION DOLLARS ($3,000,000) OR (B) TWELVE MONTHS OF PAYMENTS TO POLYZEN UNDER THIS AGREEMENT (EXCLUDING
EXPENSES).
7. Indemnification and Insurance.
7.1 Indemnity Obligations. In addition to its other indemnification obligations set forth herein, at its sole cost, each party (in such capacity, the “Indemnifying
Party”) hereby agrees to indemnify, defend and hold harmless the other party and its shareholders, officers, directors, employees, agents, representatives, subcontractors,
invitees, successors and assigns (each, an “Indemnitee”) from and against any and all claims, suits, actions, liabilities, losses, costs and expenses (including reasonable
attorneys’ fees), judgments and damages (“Claims”) brought against any Indemnitee by a third party which results or arises from, or is attributable to, (i) the Indemnifying
Party’s gross negligence, intentional misconduct, or failure to comply with Applicable Laws; or (ii) any breach of this Agreement or any term or condition set forth herein by
the Indemnifying Party, or its employees or agents, or any breach of any of such Indemnifying Party’s representations or warranties set forth herein. In addition to its other
indemnification obligations hereunder, and except to the extent Polyzen is the Indemnifying Party pursuant to this Section 7.1, Company hereby agrees to indemnify, defend
and hold harmless Polyzen and its Indemnitees from and against any and all Claims related to the sale, resale, licensing or registration, distribution or use by Company or any of
its end-users of any Product accepted by Company pursuant to Section 2.5 above.
7.2 Procedure for Indemnity. If any claim or action is asserted that would entitle Indemnitee to indemnification pursuant to Section 7.1 (a “Proceeding”), the
Indemnitee will give written notice thereof to the Indemnifying Party promptly of any demand, claim, loss, cost or damage or the commencement of any legal proceeding for
which indemnification is sought hereunder (but in no event later than 15 days from such event); provided, however, that the failure of the Indemnitee seeking indemnification to
give timely notice hereunder will not affect its rights to indemnification hereunder, except to the extent the Indemnifying Party demonstrates actual damage caused by such
failure. An Indemnifying Party will not settle or consent to any entry of judgment in connection with any Proceeding without obtaining the prior written consent of the
Indemnitee seeking indemnification hereunder, such consent not to be unreasonably withheld. The parties will fully cooperate with each other in any such Proceeding and will
make available to each other any books or records useful for the defense of any such Proceeding
7.3 Insurance. Each party shall maintain general liability insurance, including products liability coverage, and professional/ errors & omissions liability insurance
each in a minimum amount of $1,000,000 per occurrence or claims and $3,000,000 in the annual aggregate, with deductibles not exceeding $250,000 per occurrence or claim
that provides coverage for the Products and the Services, as applicable contemplated by this Agreement. At a minimum, such party shall maintain such insurance coverage
required hereunder for the entire Term and for a period of not less than three (3) years following expiration or termination of the Agreement. If any such policy shall provide
coverage on a claims made basis, the party holding such policy shall be required to maintain a claims made policy providing such coverage for an additional period of not less
than three (3) years following the expiration or termination of this Agreement. Each party shall deliver to the other party a certificate from the insurance carrier or broker
evidencing such coverage and noting any exclusions and agreeing to provide no less than thirty (30) days’ prior written notice to such other party in the event of a material
change in coverage or policy cancellation.
-8-
8. Term and Termination.
8.1 Term. The term of this Agreement shall commence on the Effective Date and shall continue for a period of five (5) years unless earlier terminated in accordance
with this Section 8 (the “Term”). At the end of the Term, this Agreement will automatically renew for a period of one (1) year unless terminated in accordance with this
Section 8. Prior to the end of the Term, the parties may mutually agree in writing to renew this Agreement for such period as they may mutually agree on the same, or
substantially similar, terms and conditions as those terms and conditions set forth herein.
8.2 Termination for Breach. A party may terminate immediately this Agreement upon written notice to the other party, if such other party commits a material breach
of this Agreement and fails to cure such material breach to the sole satisfaction of the non-breaching party within thirty (30) days after receiving written notice thereof.
8.3 Termination for Any Reason. Company may terminate this Agreement for any reason, upon providing Polyzen with one hundred eighty (180) days’ prior written
notice of its intention to terminate. For purposes of avoiding doubt, in the event of a termination of this Agreement under this Section 8.3, Company agrees to purchase the
amount of Products it is required to purchase under Section 2.2 (as modified by Section 2.3) during the one hundred eighty (180)-day notice period based on the most recent
Forecast provided by Company.
8.4 Termination for Force Majeure. Company may terminate this Agreement as provided in Section 10.5.
8.5 Effect of Termination.
(a) Expiration or termination of this Agreement for any reason shall not release any party hereto from any liability which, at the time thereof, has already
accrued to such party. Except in the event of Company’s termination of this Agreement pursuant to Section 8.2 or Section 8.4 above, Polyzen shall be entitled to payment of all
fees incurred up to the date of termination and all non-cancellable obligations, including all purchased inventory, work-in-progress inventory, incurred in connection with any
open and non-cancellable purchase order with a third-party vendor and all work-in-progress inventory and finished goods inventory at Polyzen, in each case, that is the subject
of a Purchase Order; provided that, in the event of a termination under Section 8.4 by Company, Polyzen shall be eligible for the payment of all purchased inventory and
materials that were procured in connection with a binding Purchase Order and that Polyzen actually delivers to the Company.
(b) Within ten (10) days after the effective date of the termination or expiration of this Agreement, each party shall return to the other party such other party’s
Confidential Information in accordance with Section 4.3 above, except to the extent such Confidential Information would be required in connection with a Technology
Transfer.
(c) Any and all provisions, promises and warranties contained herein which by their nature or effect are required or intended to be observed, kept or
performed after termination of this Agreement will survive the termination of this Agreement and remain binding upon and for the benefit of the parties hereto, including,
without limitation, the provisions of Sections 1, 2.7, 3, 4, 6, 7, 8, 9 and 10.
9. Recalls. Company shall have sole responsibility for and shall make all decisions with respect to any recall, market withdrawals or any other corrective action related to the
Medical Device. If any Medical Device is recalled as a result of the gross negligence or intentionally wrongful acts or omissions of Polyzen or its representatives in the
manufacture of the Products, then Polyzen shall bear and reimburse the Company for all of the costs and expenses of such recall, including reasonable attorney fees, expenses
related to communications and meetings with Regulatory Authorities, expenses of replacement Products, the cost of notifying users of the Medical Devices, including costs
associated with shipment of recalled Product from customers and shipment of an equal amount of replacement Product to those same customers (collectively, “Recall Costs”).
If any Product is recalled as a result of the negligent or intentionally wrongful acts or omissions of the Company or its representatives, or is not due to the fault of either party,
then the Company shall bear all Recall Costs including any outstanding inventory costs such as raw goods, work in progress and finished goods that cannot not be used by
Polyzen in future manufacturing of the Products that may be related to such Recall. To the extent that the reason for any recall of the Medical Device is in part the responsibility
of the Company or its agents and in part the responsibility of Polyzen, then the Recall Costs shall be allocated in an equitable manner between the parties. Any liability of
Polyzen hereunder shall be subject to the limitation of liability set forth in Section 6 of this Agreement.
-9-
10. Miscellaneous.
10.1 Governing Law. This Agreement shall be governed and construed by, and enforced in accordance with, the laws of the State of New York, without reference to
its conflicts of laws principles. The U.N Convention on Contracts for the International Sale of Goods shall not apply.
10.2 Financial Audit. During the Term and during the one (1)-year period thereafter, Polyzen agrees to allow the Company and its representatives, including its
external auditors, access to its records solely to conduct an invoice reconciliation related to Polyzen’s provision of the Services hereunder, provided that: (i) access will be
provided no more than one (1) time per year; (ii) Company provides Polyzen with reasonable prior written notice of its need for access; (iii) access will not disrupt
unreasonably Polyzen’s normal business operations and will be provided only during Polyzen’s standard business hours; and (iv) if access is granted to Company’s
representatives, such representatives must enter into a confidentiality and non-disclosure agreement reasonably acceptable to Polyzen. If any reconciliation reveals that Polyzen
has overcharged Company, Polyzen shall promptly reimburse the Company for such overcharge and in the event that any such overcharge equals an amount equal to or greater
than five percent (5%) of the amount that should have been charged under the terms of this Agreement”), then Polyzen shall promptly reimburse Company for fifty percent
(50%) of reasonable costs and expenses incurred to third parties in the conduct of the audit, up to a maximum amount of five thousand dollars ($5,000) per audit.
10.3 Relationship of the Parties. The parties agree that they are independent contractors and that neither of them has any fiduciary duty to the other. Neither party is
the agent of the other. Neither party may represent to any person that it has the power to bind the other party on any service contract or other agreement, or take any action
reasonably likely to lead a third party to believe that it is the agent or representative of the other party.
10.4 Notices. All notices hereunder shall be in writing and delivered: (i) personally; (ii) by registered or certified mail, postage prepaid, return receipt request; or (iii)
by overnight courier service; in each case, to the following addresses of the respective parties:
If to Company: Motus GI Medical Technologies Ltd.
Keren Hayesod 22,
Tirat Carmel, Israel, 3902638
Attn: General Manager
with a copy to:
Motus GI Medical Technologies Ltd.
1301 E. Broward Blvd.
Suite 310
Ft. Lauderdale, FL 33301
Attn: CFO
If to Polyzen:
Polyzen, Inc.
1041 Classic Road
Apex, North Carolina 27539
Attn: Executive Management
Notices shall be effective upon receipt if personally delivered, on the fifth (5th) business day following the date of mailing if mailed, and upon receipt if sent by overnight
courier service. A party may change its address listed above by notice to the other party.
10.5 Force Majeure. Except with respect to payments of money, neither party shall be liable to the other party for delays or failures in performance resulting from
causes beyond its reasonable control, including, without limitation, acts of God; fires, floods or explosions; actions of governing or Regulatory Authorities; judicial orders;
strikes or other labor disputes or disturbances; power disruptions or equipment malfunctions; acts of terrorism or war; riots or civil disturbances; or communication, utility or
transportation failures (“Force Majeure Event”), provided, that the affected party promptly notifies the other of the cause and its effects on the Services to be performed
hereunder and shall resume performance as soon as practicable following the end of the Force Majeure Event causing the delay. In the event that a Force Majeure Event
continues for ninety (90) days, Company may terminate this Agreement immediately upon providing notice to Polyzen.
-10-
10.6 Severability. In case any one or more of the provisions of this Agreement shall be held by a court with proper jurisdiction to be invalid, illegal, or unenforceable
in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby.
10.7 Assignment. This Agreement may not be assigned by either party without first obtaining the prior written consent of other party; provided, however, that no such
consent shall be required for assignments to an Affiliate or the successor or the transferee of all or substantially all of a party’s business or assets to which this Agreement
relates. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors and assigns. Any assignment by a party in
violation of this section shall be null and void.
10.8 Waiver; Modification of Agreement. No waiver, amendment or modification of any of the terms of this Agreement shall be valid unless in writing and signed
by authorized representatives of both parties hereto. No modification to this Agreement shall be affected by the acknowledgment or acceptance of any Purchase Order, invoice
or similar documents containing terms or conditions at variance with or in addition to those set forth herein. Failure by either party to enforce any rights under this Agreement
shall not be construed as a waiver of such rights nor shall a waiver by either party in one or more instances be construed as constituting a continuing waiver or as a waiver in
other instances.
10.9 Counterparts. This Agreement and any exhibit attached hereto may be executed in one or more counterparts, each of which shall for all purposes be deemed to
be an original and all of which shall constitute one and the same Agreement and shall become effective when signed by each of the Parties hereto and delivered to the other
Party in accordance with the terms of this Agreement. Facsimile or a Portable Document Format (i.e., PDF) data file signatures of any original document shall be considered
the same as delivery of an original.
10.10 Entire Agreement. This Agreement is the final, complete and exclusive agreement of the parties with respect to subject matter hereof and supersedes and
merges all prior discussions between the parties.
10.11 Export Restrictions. Each party acknowledges that any Product sold under this Agreement is subject to customs and export controls laws and regulations of the
United States and other countries. Each party agrees to abide by those laws and regulations. Further, under the laws of the United States, the Product shipped pursuant to this
Agreement may not be sold, leased or otherwise transferred to restricted end-users or to restricted countries. Such shipped Product may not be sold, leased or otherwise
transferred to, or utilized by, an end-user engaged in activities related to weapons of mass destruction, including without limitation, activities relating to the design,
development, production or use of nuclear weapons, materials, or facilities, missiles or the support of missile projects, and chemical or biological weapons.
[Signature page follows]
-11-
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officers as of the Effective Date.
POLYZEN, INC.
/s/ Nikin Shah
By:
Name: Nikin Shah
Title:
CFO / COO
Date: August 31, 2017
MOTUS GI MEDICAL TECHNOLOGIES, LTD
/s/ Mark Pomeranz
By:
Name: Mark Pomeranz
Title:
CEO
Date: August 31, 2017
-12-
QAF 403a Customer Specification Template Rev C
Exhibit A
Products and Specifications
POLYZEN, INC
CONTROLLED DOCUMENT – CONFIDENTIAL
CS 510254
Rev A
Customer P/N: PV-OSK-001 Rev: A
Customer Drawing: PV-OSK-001 Rev: A
Customer Contracts: FQA00006p
Part Description:
Polyzen P/N:
Motus GI Add-On Assembly - Packaged
510254
Polyzen P/N 410015 correlates to Motus GI Drawing PV-OS-001
Inspection Tools:
Reverse Vacuum Tube Fixture MF00046 (TL0154) 800476
Sleeve Clamp (TL0188) 800477
Inflation Fixture MF00046 (TL0045)
Inflation Hub Tester (TL0151) PZ0977
Rigid Head Clamping Jig (TL0183) 800485
Microscope PZ
USON (TL0153) PZ0955 / PZ1013
Specifications:
● *
● *
● *
● *
● *
Packaging and Labeling Requirements Add-On
● The IFU shall be included in the final packaging
● The Add-on outer and primary packaging shall be labeled with the following information: product name, lot number, product code, expiry date, company
name & contact information, latex or phthalate content, international symbols can be used as appropriate.
● All package labels must be legible, with no obvious wear or smudging
● Each single disposable shall be primary packaged in a pouch or a lidded box within a secondary shipper box
● Each shipper box shall contain up to 5 single disposable units.
Regulatory & Safety Requirements
● The Add-on shall be manufactured in a clean room
● Bioburden requirement: as per Motus GI’s specifications (< * CFU)
1 of 5
QAF 403a Customer Specification Template Rev C
POLYZEN, INC
CONTROLLED DOCUMENT – CONFIDENTIAL
Part Description:
Polyzen P/N:
Motus GI Add-On Assembly - Packaged
510254
Customer P/N: PV-OSK-001 Rev: A
Customer Drawing: PV-OSK-001 Rev: A
Customer Contracts: FQA00006p
CS 510254
Rev A
Labeling
● Labels printed through Kodit system, content per spec PV-OS-001, PV-OSK-001
● Label will contain at a minimum
○
○
○
○
○
Product Description
Reference Number (Customer PN)
Polyzen Lot Number
Manufacture Date
Expiration Date
Certificate of Conformance Requirements:
● Date
● Supplier Name:
● Customer PO#:
● Quantity Shipped:
● Product Description:
● Customer Part No.:
● Polyzen Part No.:
● Polyzen Lot No.:
● The COC shall be approved by Quality Assurance.
variable
Polyzen, Inc.
variable
variable
Motus GI Add-On Assembly – Packaged
PV-OSK-001 Rev. A
510254
variable
Packaging (single part per PV-OS-001, Box of 5 per PV-OSK-001)
● Assemblies to be packaged in five (5) individual In-patient Add-On boxes
● One (1) IFU – Add-On Assembly
● One (1 set) In-Patient Shipper Box Die Cut Foam Pad
● One (1) Pure Vu Add-On Label on Shipper Box
Note: parts to be sold will always be as a box of 5 (PV-OSK-001)
2 of 5
QAF 403a Customer Specification Template Rev C
POLYZEN, INC
CONTROLLED DOCUMENT – CONFIDENTIAL
Part Description:
Polyzen P/N:
Motus GI Add-On Assembly - Packaged
510254
Customer P/N: PV-OSK-001 Rev: A
Customer Drawing: PV-OSK-001 Rev: A
Customer Contracts: FQA00006p
In process inspection type and level:
● Visual 100% QC Inspection
CS 510254
Rev A
○
○
○
○
○
○
○
○
410016
■
■
■
■
410017
■
■
■
410010
■
■
■
■
■
■
■
■
■
410011
■
■
■
■
■
■
■
410012
■
■
410013
■
■
410014
■
■
■
410015
■
■
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
3 of 5
QAF 403a Customer Specification Template Rev C
POLYZEN, INC
CONTROLLED DOCUMENT – CONFIDENTIAL
Part Description:
Polyzen P/N:
Motus GI Add-On Assembly - Packaged
510254
Customer P/N: PV-OSK-001 Rev: A
Customer Drawing: PV-OSK-001 Rev: A
Customer Contracts: FQA00006p
CS 510254
Rev A
■ 100% visually inspect Add-On assembly as per table below:
●
●
●
●
●
●
●
●
External Sensor Line Red
○
○
Red luer
Filter
Internal Sensor Line Blue
○
○
Blue Luer
Filter
Irrigation line
○
Clear Luer
Pumping Line
○
○
○
Head
○
○
○
Cone x2
Strain Relief x2
Silicone tubes according to length x2
*
*
*
Complete Seal.
No folds in seal area.
Anchoring points are closed in trays.
Final Release Testing:
● 410015
○
Sampling Plan:
■
■
■
*
*
*
100% Visual Inspection
○
■
Ensure the seal seam is:
●
●
●
●
Complete
Clear
No Folds
Ensure the tubes inside the package are not kinked
Sterilization:
● This product is not sterile
● Sterilization is not required for this product
Contract agreements
● Customer Contract: FQA00006p
4 of 5
QAF 403a Customer Specification Template Rev C
POLYZEN, INC
CONTROLLED DOCUMENT – CONFIDENTIAL
Part Description:
Polyzen P/N:
Motus GI Cartridge Assembly - Packaged
510254
Customer P/N: PV-WSCK-001 Rev: A
Customer Drawing: PV-WSCK-001 Rev: A
Customer Contracts: FQA00006p
Revision History
Date
19Jan2018
DCO #
18-023
Rev
A
Initiator
*
Changes
Initial release of document
5 of 5
CS 510254
Rev A
QAF 403a Customer Specification Template Rev C
POLYZEN, INC
CONTROLLED DOCUMENT – CONFIDENTIAL
CS 510255
Rev A
Customer P/N: PV-WSCK-001 Rev: A
Customer Drawing: PV-WSCK-001 Rev: A
Customer Contracts: FQA00006p
Part Description:
Polyzen P/N:
Motus GI Cartridge Assembly - Packaged
510255
Polyzen P/N 410018 correlates to Motus GI Drawing PV-WSC-001
Inspection Tools:
Cartridge testing Device TL0152 PZ0978
USON TL0153 PZ0955 / PZ1013
Specifications:
Packaging and Labeling Requirements Add-On
● All package labels must be legible, with no obvious wear or smudging
● Each single disposable shall be primary packaged in a pouch or a lidded box within a secondary shipper box
● Each shipper box shall contain up to 5 single disposable units.
Regulatory & Safety Requirements
● WS Connector shall be manufactured in a Cleanroom
● Bioburden requirement: as per Motus GI specifications (< * CFU)
Labeling
● Labels printed through the Kodit system per spec PV-WSC-001, and PV-WSCK-001
● Label will contain at a minimum
○
○
○
○
○
Product Description
Reference Number (Customer PN)
Polyzen Lot Number
Manufacture Date
Expiration Date
Certificate of Conformance Requirements:
● Date
● Supplier Name:
● Customer PO#:
● Quantity Shipped:
● Product Description:
● Customer Part No.:
● Polyzen Part No.:
● Polyzen Lot No.:
● The COC shall be approved by Quality Assurance.
variable
Polyzen, Inc.
variable
variable
Motus GI Cartridge Assembly – Packaged
PV-WSCK-001 Rev. A
510255
variable
1 of 3
QAF 403a Customer Specification Template Rev C
POLYZEN, INC
CONTROLLED DOCUMENT – CONFIDENTIAL
CS 510255
Rev A
Customer P/N: PV-WSCK-001 Rev: A
Customer Drawing: PV-WSCK-001 Rev: A
Customer Contracts: FQA00006p
Part Description:
Polyzen P/N:
Motus GI Cartridge Assembly - Packaged
510255
Packaging (single part per PV-WSC-001, Box of 5 per PV-WSCK-001)
● Packaged Five (5) WS Cartridge Assemblies in Cartridge Boxes
● One (1 set) Cartridge Shipper Box Die Cut Foam Pad
● One (1) Pure Vu WS Cartridge Label
● One (1) Cartridge Shipper Box
Note: Parts to be sold will always be as a box of 5 (PV-WSCK-001)
In process inspection type and level:
● Visual 100% QC Inspection
○
410018
■
■
■
■
■
■
■
■
*
*
*
*
*
*
*
*
Final Release Testing:
● 410018
○
Sampling Plan:
■
■
■
*
*
*
○
100% Visual Inspection
■
■
■
Complete Seal
No folds in seal area
Anchoring points are closed in trays
Sterilization:
●
This product is not sterile
● Sterilization is not required for this product
Contract agreements
● Customer Contract: FQA00006p
2 of 3
QAF 403a Customer Specification Template Rev C
POLYZEN, INC
CONTROLLED DOCUMENT – CONFIDENTIAL
CS 510255
Rev A
Part Description:
Polyzen P/N:
Motus GI Cartridge Assembly - Packaged
510255
Customer P/N: PV-WSCK-001 Rev: A
Customer Drawing: PV-WSCK-001 Rev: A
Customer Contracts: FQA00006p
Revision History
Date
19Jan2018
DCO #
18-023
Rev
A
Initiator
*
Changes
Initial release of document
3 of 3
Exhibit B
Quality Agreement
[Attached]
Title:
Quality Agreement Form
Document No:
FQA00006p
Rev:
Page:
3.0
2 of 4
Quality Agreement – Suppliers of Materials
MOTUS GI Medical Technologies Ltd. has entered into a technical supply agreement with Polyzen, (the “Supplier”), dated 6/30/17 (the “Agreement”), for the provision of
Services. Capitalized terms used but not defined herein shall have the respective meanings given to such terms in the Agreement.
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
The supplier will establish and maintain a quality system in accordance with the relevant standards and regulations. A copy of any quality system certification will be
sent to MOTUS GI Medical Technologies Ltd (i.e., ISO: 9001, ISO: 13485, etc.).
The supplier agrees to supply only products complying with the purchasing specification developed and maintained by MOTUS GI Medical Technologies Ltd for the
specific material.
The Company will provide Supplier with copies of all material filings, submissions and correspondence with and to Regulatory Authorities with respect to issues
reasonably related to the performance of the Services by Supplier. Supplier will maintain pertinent Products documents, as applicable, to support the Company’s
ongoing regulatory activities required for the manufacture of the Medical Devices all in accordance with applicable laws and industry standards, including 21 C.F.R.
Part 820 and ISO 9001, ISO 13485.
During the term of the Agreement and for a period of time equivalent to the design and expected life of the Medical Device, but in no case, less than five years after
the last product has been manufactured, Supplier shall keep complete records related to the manufacture of the Products at the Facility
The supplier agrees not to make any design changes, including, but not limited to changes to the material, such as changes to manufacturing process, testing methods,
facility, site of manufacture etc., that may have impact on the quality system before the change is implemented for the materials sourced without the prior approval of
MOTUS GI Medical Technologies Ltd. Requests for changes shall be submitted by supplier on FQA00006q - Supplier Change Request (SCR) form.
The supplier agrees to inform MOTUS GI Medical Technologies Ltd immediately of any errors or deviations to manufacture of the material that may have impact on
the quality of the materials supplied.
The supplier agrees not to pass any information regarding the supply of materials to a 3rd party without the prior approval of MOTUS GI Medical Technologies Ltd.
Supplier will promptly advise the Company if a Regulatory Authority visits the Facility and requests or requires information or changes that directly pertain to the
Product(s). Supplier shall supply the Company with copies of any correspondence provide by the Regulatory Authority, as well as any other documents related thereto
requested by the Company. Supplier agrees to permit access to its Facility and records to any Regulatory Authority and to cooperate with such Regulatory Authority.
This document is property of MOTUS Gl Medical Technologies LTD, its contents are CONFIDENTIAL and shall not be disclosed,
disseminated, copied or used, without a written permission.
Title:
Quality Agreement Form
Document No:
FQA00006p
Rev:
Page:
3.0
3 of 4
Supplier will, to the extent possible, allow a representative of the Company to be present during any such inspection, investigation or inquiry.
1.9
1.10
1.11
Each party shall promptly (and in any event, within three (3) business days of the date of receipt of notice unless otherwise set forth herein) notify the other party in
writing of, and shall provide the other party with copies of any correspondence and other documentation received or prepared by such party in connection with any of
the following events: receipt of a letter from a Regulatory Authority including a Warning Letter or Untitled Letter related to the Product(s), FDA Form 483 (list of
inspectional observations) or similar item, from the FDA or any other Regulatory Authority directed to the Product(s), or in connection with any general inspection
applicable to the Facility that is impactful upon the Services or the Product(s) (“Regulatory Notices”). The parties shall cooperate with each other in responding to any
such Regulatory Notices and shall provide copies to the other party of any documentation submitted to the Regulatory Authority in connection therewith.
The Company or its representatives, including its external auditors, may perform on site quality assurance audits and audit any records of Supplier related to the
performance of the Services at any time during the Term of this Agreement and for the one (1) year period following the expiration or termination of this Agreement
during normal business hours and without notice to Service Provider (unannounced audits). Supplier shall make any records readily available for such audit, and the
Company or its designees may copy any and all such records in connection with any such audit.
In case non-conformance are found during the audit, the supplier undertakes to correct them within a reasonable time frame and acceptable by MOTUS GI Medical
Technologies Ltd. If deficiencies are such that hinder safety, performance or compliance with regulatory requirements, for the supplier to stop production of the
MOTUS GI Medical Technologies Ltd products and correct the deficiencies immediately. Beginning of remanufacturing is subject to approval in writing from the
MOTUS GI Medical Technologies Ltd.
1.12
All parts supplied should be procured only from official distributors.
1.13
1.14
All the processes performed in the supplier facilities that are not verifiable by audits, are required to pass validation. MOTUS GI Medical Technologies Ltd will
receive a copy of the final validation report concerning its products.
Electronic parts will not exceed the date code of 24 month. Older part will be provided only after coordination and written approval of MOTUS GI Medical
Technologies Ltd quality management.
1.15
The supplier agrees to supply with each shipment a Certificate of Assurance or Certificate of Compliance or Certificate of Tests as applicable for the material.
1.16
The supplier agrees to investigate complaints regarding the purchased materials and issue a written report to MOTUS GI Medical Technologies Ltd detailing the
findings and applicable corrective actions.
This document is property of MOTUS Gl Medical Technologies LTD, its contents are CONFIDENTIAL and shall not be disclosed, disseminated, copied or used, without a
written permission.
Title:
Quality Agreement Form
Document No:
FQA00006p
Rev:
Page:
3.0
4 of 4
1.17
1.18
The Company will be solely responsible for interacting with the public or third parties with respect to complaints regarding the Medical Devices. Supplier will
cooperate with the Company in investigating any such complaints to the extent that such complaint involves Products manufactured by Supplier for the Company
pursuant to this Agreement.
The Company will be solely responsible for all medical device reporting required under applicable laws for the Medical Device. To the extent, Supplier receives a
report of any adverse experience related to the Medical Device, Supplier will immediately, and in no event later than two (2) calendar days of receipt, forward the
report to the Company.
Records and Traceability
1.19
If the validity of the agreement with MOTUS GI Medical Technologies Ltd expires, the supplier agrees to transfer to MOTUS GI Medical Technologies Ltd all records
related to the company orders at least the last seven years.
The agreement scope is listed bellow:
Material / service description: Manufacturing of finished disposable Oversleevcs, Work station Connectors, including all packaging, labeling and shipping. Finished
good lot packages to be provided & approved to MOTUS GI prior to release I shipping.
This supplier Quality agreement has been signed by:
for MOTUS GI Medical Technologies Ltd
for Polyzen (supplier)
By:
Job Description:
Date:
Signature:
Mado Otzri
QA Director
4-Jul-2017
/s/ Mado Otzri
By:
Job Description:
Date:
Signature:
John Allgood
Director of Quality
3-Jul-2017
/s/ John Allgood
This document is property of MOTUS Gl Medical Technologies LTD, its contents are CONFIDENTIAL and shall not be disclosed, disseminated, copied or used, without a
written permission.
Exhibit C
Price and Suppliers
Volume / Capacity
* sleeve assemblies per week
Price
$ * / sleeve
Pricing as of October 2016
Description
Leaf Seals – *
Leaf Seals – *
Quantity Per Device
Volume / Capacity
Price
*
*
Polyzen Sleeve Assembly
Component: Sleeve Assembly
Supplier: Polyzen
Motus Part Number
ASM100016
Other Polyzen Components
Component: Leaf Seals
Supplier: Polyzen
Motus Part
Number
Polyzen Sourced Components
Pricing Methodology for Sourced Components: Polyzen will provide open-book pricing on all sourced components, provided that Polyzen charge a mark-up all
sourced components by * % to account for purchasing, incoming inspection / quality, and supplier management costs.
●
Component: Injection Molded Parts
Supplier: Medacys
Address: C6, Mingzhuo Industrial Park, Guangming New District, Shenzhen, Guangdong, China 518107
Note: Pricing is based on validations being complete. Thus, any additional inspections will be charged as a separate line item.
Motus Part Number
ASM100003
ASM100043
ASM100002
A
N/A
A
Rev
Part Description
*
*
*
ASM100003
ASM100043
ASM100002
A
N/A
A
*
*
*
Rev
Motus Part Number
MFR000388
MFR000212
MFR000213
MFR000334
A
A
N/A
A
Part Description
*
*
*
*
MFR000388
MFR000212
MFR000213
MFR000334
A
A
N/A
A
*
*
*
*
Quantity Per
Device
Quantity Per
Device
MOQ = 1,000
*
*
*
10,000
*
*
*
MOQ = 1,000
*
*
*
*
10,000
*
*
*
*
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2
1
1
2
1
1
1
1
1
2
1
1
1
2
Price Breaks
2,000
5,000
*
*
*
50,000
*
*
*
Price Breaks
2,000
*
*
*
*
50,000
*
*
*
*
$
$
$
$
$
$
$
$
$
$
$
$
$
$
*
*
*
100,000
*
*
*
5,000
*
*
*
*
100,000
*
*
*
*
●
Component: Tubing
Supplier: Natvar
Address: 8720 U.S. 70, Clayton, NC 27520
Motus Part Number
Description
Price (per unit)
Quantity per
Device
MFR000214
ASM100028
TUB000052-01
TUB000052-02
TUB000052-03
TUB000051-07
TUB000051-04
TUB000051-05
TUB000051-06
Supplier: Vesta
Address: 547 TRM Cir, Corona, CA 92879
Motus Part Number
TBD
Other Sourced Components
Vendor
Borla
Borla
Borla
Pall
Full Medical Device Assembly
Supplier: Polyzen
$
$
$
$
$
$
$
$
$
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
Price (per unit)
TBD
Description
Motus Part
Number
STP000195
STP000196
STP000194
STP000183
Description
Price (per unit)
*
*
*
*
$
$
$
$
*
*
*
*
2
1
1
1
1
1
1
1
1
2
1
1
1
Quantity per
Device
Quantity per
Device
Pricing will be determined and agreed to by the parties once full assembly transfer process has been determined, setup and confirmed. Initial estimates can be provided based
on current time-studies and process in Motus Israel.
Exhibit E
Polyzen’s Background Intellectual Property as of the Effective Date
1.
Polyzen Add-On Sleeve Assembly, Coated
a.
b.
c.
*
*
*
CERTAIN IDENTIFIED INFORMATION HAS BEEN EXCLUDED FROM THIS EXHIBIT BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) IS THE TYPE
THAT THE COMPANY TREATS AS PRIVATE OR CONFIDENTIAL. THE REDACTED TERMS HAVE BEEN MARKED WITH THREE ASTERISKS [***]
MASTER SUPPLY AGREEMENT
This MASTER SUPPLY AGREEMENT (this “Agreement”) is effective as of this April 1, 2021 (“Effective Date”) by and between J. STERLING INDUSTRIES
LLC, a limited liability corporation, with offices located at 6825 Beatrice Drive, Kalamazoo, MI, 49009 (“Sterling”) and MOTUS GI HOLDINGS, INC., a Delaware
corporation whose address is 1301 East Broward Boulevard, Fort Lauderdale, Florida 33301 (hereinafter referred to as “Motus”).
Exhibit 10.41
WHEREAS, Sterling is engaged in the business of supplying certain products for medical devices; and
Recitals
WHEREAS, Motus desires to retain Sterling to manufacture and supply for Motus the products designated on Exhibit A attached hereto subject to the terms and
conditions set forth herein; and
WHEREAS, it is the intention of the Parties to establish this Agreement to govern the respective rights, duties and obligations of the Parties;
NOW THEREFORE, in consideration of the mutual promises and benefits made and contained herein, the receipt and sufficiency of which are hereby acknowledged,
Agreement
the Parties hereby agree as follows:
1. Definitions.
When used herein with initial capitalization, whether in the singular or in the plural, the following terms shall have the following meanings:
“Acquired Entity” shall mean any corporation or business entity which becomes a Motus Affiliate after the Effective Date of this Agreement.
“Affiliate” shall mean (a) any corporation or business entity fifty percent (50%) or more of the voting stock/ownership interests of which is, and continues to be, owned directly
or indirectly by any Party hereto; (b) any corporation or business entity which directly or indirectly owns fifty percent (50%) or more of the voting stock of any Party hereto; (c)
any corporation or business entity under the direct or indirect control of such corporation or business entity as described in (a) or (b); or (d) in the case of Motus, any
corporation or business entity that satisfies the criteria set forth in (a), (b) or (c) at any time during the Term of this Agreement.
“AH Categories of Intellectual Property” means, with respect to a Party, the Present Intellectual Property of that Party, the Independently Developed Intellectual Property of
that Party, and the Project Intellectual Property.
“Applicable Requirements” means all applicable domestic and foreign federal, state, and local laws, statutes, acts, ordinances, rules, codes, standards, guidelines and
regulations, applicable to Sterling and the Products provided under this Agreement. Without limiting the generality of the foregoing, “Applicable Requirements” means all rules
and regulations applicable to the labeling, re-labeling, packaging, processing, assembly, record creation, record retention, record modification, record transmission (including
by electronic means), storage, handling, transport (including exportation and importation of Products within the United States, or to or from the United States and any other
country), and reporting of medical devices, and, as applicable, human cells, tissues or human cellular or tissue- based products (HCT/Ps, in accordance with 21 CFR 1271) in
effect at a particular time and promulgated by the United States Food and Drug Administration (“FDA”) and any foreign agency or authority equivalent to the FDA, including
without limitation 21 CFR 803 and 820 (the “Quality System Regulation”, “QS Regulation” or “QSR”), 21 CFR 11 (the “Electronic Records Regulation”), Quality
Management System requirements of ISO 13485:2016, ISO 14001 and ISO 13485:2016 CAN/CSA (and any amendments thereto) and all other applicable legal and regulatory
requirements, including, without limitation all requirements of the Canadian Medical Device Regulation, the Therapeutic Goods Administration, Medsafe (New Zealand
regulatory authority), European Directives (including CE marking requirements) and Japan’s Pharmaceutical Affairs Law (PAL) and Ministerial Ordinance #169.
“Contract Year” shall mean each successive twelve (12) month period commencing on the Effective Date and on each anniversary thereof.
“EAU” shall mean the estimated annual usage of a Product, component or material.
“Independently Developed Intellectual Property” means, with respect to a Party, any and all Patents, inventions, copyrights, trademarks, trade secrets, know-how, and any
other proprietary or confidential information invented, conceived, developed and/or reduced to practice after the Effective Date by such Party’s employee(s), consultant(s) or
other agent(s), solely or jointly with a third party but without involvement by the other Party, or acquired by such Party.
“Initial Term” shall have the meaning set forth in Section 6.1.
“Materials Declaration Requirements” means any requirements, obligations, standards, duties or responsibilities pursuant to any environmental, product composition and/or
materials declaration laws, directives, or regulations, including international laws and treaties regarding such subject matter; and any regulations, interpretive guidance or
enforcement policies related to any of the foregoing.
“Medical Device” means any surgical endoscope designed, developed, manufactured, marketed or distributed by Motus that incorporates some or all of the Product(s).
“New Products” shall mean any Products that Sterling does not supply to Motus as of the Effective Date of this Agreement.
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“Non-Conforming Products/Services” shall have the meaning set forth in Section 3.1.
“Packaging” shall mean bags, cases, cylinders, drums, pallets and other containers.
“Party” or “Parties” shall mean in the singular, either Motus or Sterling as context may so dictate, or in the plural, both Motus and Sterling.
“Patent(s)” means United States patent application(s) and foreign counterpart(s) thereof, and all United States and foreign patent(s) issued, or issuing therefrom, including any
additions, continuations and continuations-in-part, divisions, reissues, renewals and extensions thereof.
“Present Intellectual Property” means, with respect to a Party, any and all Patents, inventions, copyrights and trademarks and identified as present intellectual property of that
Party, as well as inventions, trade secrets, know-how and any other proprietary or confidential information controlled by such Party as of the Effective Date, which such Party is
free to license hereunder, which directly and substantially relate to the Products or the design and development thereof.
“Pricing Schedule” shall mean the list of Prices that Sterling may charge Motus for the supply of Products, and as more fully described in the List of Products and Pricing
Schedule attached hereto as Exhibit A.
“Motus’s Intellectual Property” means the design of the Products, all information related thereto and all information provided by Motus to Sterling in connection with or
otherwise under this Agreement, regardless of medium, and all rights to patents, copyrights, trademarks, trade secrets, know-how, designs, formulae, trade names, labels, trade
dress, literature, programs, advertising material or other documents, materials or information relating to the Products or the business operations of Motus or owned by Motus.
“Products” shall mean the products supplied by Sterling during the Term of this Agreement and as more fully described in the List of Products and Pricing Schedule attached
hereto as Exhibit A.
“Purchase Order” shall mean a document (in hard copy or electronic form) that Motus may, from time to time, issue to Sterling after the Effective Date of this Agreement to
specify the date of delivery and the amount of Products to be delivered to the Motus facility.
“Quality Agreement” shall have the meaning set forth in Section 7.3.
“Services” are Program Management, design engineering, prototyping, other non-recurring engineering charges, as well as any other services specified in a SOW.
“Signature” and “Electronic Signature” shall have the meaning set forth in Section 5.4. “Specifications” shall mean the document(s) and terms attached hereto as Exhibit B.
“Shipment” shall mean the time at which Products leave a Sterling facility.
“Term of this Agreement” shall have the meaning set forth in Section 6.1.
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2. Supply, Delivery and Inventory.
2.1 General.
2.1.1 Products. During the Term of this Agreement, Motus grants to Sterling the right to manufacture the Products described on Exhibit A. Sterling shall make
available to Motus those Products that are described in the List of Products and Pricing Schedule attached hereto as Exhibit A and shall supply those Products at such time
specified by Motus and consistent with Section 2.3.1.
2.2 Purchase Orders and Invoices. Motus or its designee shall notify Sterling of its requirements for quantities of Products from time to time by submitting Purchase Orders to
Sterling. Any and all Purchase Orders submitted by Motus or its designee for Products, and any and all invoices submitted by Sterling to Motus, shall be subject to the terms
and conditions of this Agreement. NO ADDITIONAL OR DIFFERENT TERMS OFFERED BY MOTUS IN A PURCHASE ORDER, BY STERLING IN AN INVOICE, OR
OTHERWISE, SHALL BE OR BECOME PART OF THIS OR ANY OTHER AGREEMENT BETWEEN MOTUS AND STERLING, AND ANY SUCH TERMS ARE
HEREBY REJECTED, UNLESS SAID ADDITIONAL OR DIFFERENT TERMS ARE AGREED TO IN A WRITTEN AGREEMENT SIGNED BY MOTUS AND
STERLING. IF THE TERMS OF THIS AGREEMENT CONFLICT WITH ANY RELATED DOCUMENTS INCLUDING A PURCHASE ORDER OR AN INVOICE, THE
TERMS AND CONDITIONS OF THIS AGREEMENT CONTROL, UNLESS OTHERWISE AGREED TO IN WRITING BY THE PARTIES.
2.3 Delivery, Title and Risk of Loss.
2.3.1 Delivery. Unless otherwise specifically provided for in a Purchase Order, delivery shall occur Ex-Works Sterling’s facility located in Kalamazoo, MI (FCA,
Incoterms 2020) and in accordance with the Specifications in Exhibit B. Sterling agrees to provide a numbered packing slip for Products delivered to Motus or its designee. At
a minimum, Sterling’s packing slip will contain the following information: (a) Purchase Order number, (b) part number, (c) description of the Product(s) shipped, and (d) the
quantity of Produces) shipped. Delivery of the Products is not complete until all of the Products comprising an order have been actually received, inspected, and accepted by
Motus or its designee in accordance with Section 3 of this Agreement. Additional terms of acceptance, if any, are described in Exhibit B.
2.3.2 Title. Title shall pass concurrent with delivery as set forth in Section 2.3.1.
2.4 Packaging and Shipment.
2.4.1 General. Products shall be packed at no additional cost to Motus in accordance with the Purchase Order, the Specifications, Motus’s instructions, and good
commercial practices. All articles comprising each shipment hereunder, shall, as of the date of such shipment comply with all applicable laws and the Specifications. Motus
reserves the right to select the method of shipment. Unless otherwise agreed to in writing by the Parties, the Products shall be shipped to Motus or its designee within the
applicable Production Lead Time Days specified on Exhibit A, as measured from the date of receipt by Sterling of the Purchase Order from Motus,.
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2.4.2 Back Orders and Proof of Delivery. Sterling shall indicate any back-ordered items on packing slip and invoices. Signed proof of delivery does not constitute or
imply that the contents of the boxes used for delivery contain all items ordered by Motus. Signed receipt acknowledges acceptance of number of specified boxes only and not
the contents. Any subsequent order placed by Motus as a result of items missing from a delivered shipment must be first credited then re-billed.
2.5 Forecasting. Exhibit A sets forth Motus’s initial forecast (EAU) for its supply requirements for Products. Motus or its designee will provide Sterling with an updated [***]
month EAU, as soon as Motus reasonably believes that the then-current EAU is not accurate. Such EAU shall be used for planning purposes only and shall not represent a
binding obligation on behalf of Motus. Exhibit A may be updated from time to time by mutual agreement. Sterling will review supply requirements and maintain stocking
levels as appropriate to the production lead time. Any inventory levels beyond three (3) months will be approved by Motus. Sterling will review the supply requirements on a
monthly basis. Sterling will ship to meet Motus Product needs in accordance with any Purchase Order Release form provided to Sterling by Motus or its designee. Such stock
will be rotated by Sterling on a first-in, first-out basis. Motus and Sterling may review and adjust inventory commitment levels as necessary but at a minimum on a quarterly
basis.
2.6 Customer Support. Sterling agrees to provide a customer service representative (“CSR”) for daily contact and coordination of needs with Motus or its designee, at Sterling’s
sole cost and expense. Such CSRs shall be responsible for placing orders, sourcing supplies, and processing returns and related account credits. Sterling shall, at its sole cost
and expense, supply personnel to provide technical information support for the Products it represents.
2.7 Maintenance of Inventory
2.7.1 Sterling shall monitor and maintain inventory of Products (more specifically described in Exhibit A) at Sterling’s location to ensure continued Products
availability and uninterrupted service to Motus. Upon request by Motus, Sterling shall provide an accurate report of off-site maintained inventory.
2.7.2 Inventory obligations. In the event of obsolescence of Product or expiration, or termination of this Agreement for any reason other than breach of this Agreement
by Sterling, Motus will be responsible for purchasing Sterling’s Product inventory in stock with Sterling but not beyond the agreed upon inventory levels as noted in section
2.5. Motus’s responsibility to purchase Product inventory in accordance with the foregoing shall include Motus’s obligation to purchase stock of obsolete Product as a result of,
among other things, discontinuations, product design changes, and lack of demand whereby Motus has failed to issue orders for Products for a period of [***] consecutive
months; provided, however, that in all instances Motus’s obligations shall not exceed the Maximum Inventory Commitment. The foregoing obligations of Motus shall not apply
to Product inventory ordered or purchased by Sterling following receipt of Motus’s notice of its intent to obsolete a Product or terminate or allow this Agreement to expire.
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2.8 Design Services
2.8.1 Services. During the term of this Agreement, Sterling shall provide the Services identified in one or more Statements of Work signed by both Parties (each, a
“SOW”), pursuant to the fee schedule attached hereto as Exhibit D. A SOW will detail the cost of Services to be provided and authorized out- of-pocket expenses. Each SOW
will be automatically incorporated into this Agreement upon execution by authorized representatives of the Parties. The Parties may from time to time amend a SOW in writing,
signed by authorized representatives of each party. A material change in a SOW may be subject to a corresponding change in the cost of the related Services, as agreed to by the
Parties in writing. Sterling will periodically consult with a designated representative of Motus at mutually acceptable, prearranged times to keep Motus fully informed of the
progress of each SOW.
2.8.2 Out-Of-Pocket Expenses. All out-of-pocket expenses, such as materials, travel, etc. incurred/procured by Sterling relating to the Services will be billed at cost
plus a [***] service fee to Motus. Sterling will exercise, in its sole discretion, reasonable judgment with all expenses and will notify Motus in writing prior to incurring any
cumulative expenses exceeding $[***]. Motus is responsible for notifying Sterling in writing if an additional SOW is required to ensure payment of associated out-of- pocket
expenses.
3. Acceptance and Rejection of Products and Services.
3.1 Acceptance and Rejection Procedure.
3.1.1 Acceptance. Motus or its designee shall have thirty (30) days from delivery of the Products or Services to either: (a) accept the Products/Services; or (b) notify
Sterling that it has delivered Non- Conforming Products/Services. Products or Services are “Non-Conforming” when the particular Products/Services do not meet the
requirements set forth in the Specifications, this Agreement, an applicable SOW, any applicable Purchase Order or applicable warranties. In the event that Motus does not
notify Sterling of non-conformity or non-compliance within such thirty (30) day period, then the Products/Services shall be deemed accepted.
3.1.2 Rejection and Replacement. In the event that Motus or its designee rejects the Products, Sterling shall, unless otherwise agreed to by the Parties, replace Non-
Conforming Products at no cost to Motus.
4. Pricing and Changes.
4.1 Pricing. In full satisfaction for all Products provided by Sterling hereunder, Motus agrees to compensate Sterling according to the Pricing Schedule as set forth in Exhibit A.
Services shall be billed pursuant to the prices as set out in Exhibit D unless otherwise indicated in a specific SOW. All prices are in United States Dollars.
4.2 Price Changes.
4.2.1 Prices. Subject to the provisions of Section 4.2.2 below, Sterling shall hold its prices on Products as set forth in the Pricing Schedule attached as Exhibit A. for
the duration of the Initial Term of this Agreement.
4.2.2 Cost Variation. Notwithstanding Section 4.2.1. in the event of a cost increase or decrease in the either the raw materials and/or the purchased components used in
the manufacture of the Products by an amount greater or less than [***], as measured from the cost at the Effective Date, then the affected Party will notify the other Party in
writing (with supporting documentation) to request a cost variation in the price of the affected Products. The Parties will meet within 15 days to discuss cost variation and
implementation date of the price increase/decrease, which will not be unreasonably delayed or denied.
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4.2.3 New Products. Any New Products to be covered by this Agreement, and the pricing thereof agreed to by the Parties through the normal quote process, shall be
documented in writing as an amendment to Exhibit A to this Agreement.
4.3 Taxes, Tariffs and Duties. Motus shall pay all sales, or use taxes, duties and tariffs due on the transactions hereunder or provide Sterling customary proof that the
transactions are exempt from such taxes, duties and Tariffs. Invoices shall separately identify any taxes, duties and tariffs that are the responsibility of Motus hereunder
(including value added taxes as exclusively net extra) and shall include either Sterling’s sales tax or use tax permit number. Sterling shall pay any other taxes and charges,
including without limitation, assessments or fines arising from Sterling’s performance of the transactions under the Agreement. Sterling is solely responsible for taxes based
upon Sterling’s net income and penalties or fees imposed due to failure to file or pay collected sales or use taxes, duties and tariffs and Sterling shall not be entitled to additional
compensation in connection therewith. In all instances where Motus purchases Products using an Incoterm requiring importation by Motus, Motus shall have the sole and
exclusive right to claim and apply for all duty drawbacks and Sterling shall reasonably assist Motus in making any such duty drawback claims.
4.4 Invoices. Sterling shall invoice Motus with Sterling’s shipment of Products or performance of Services with a complete, correct and audit worthy invoice within thirty (30)
days of shipment. The invoice shall include, at a minimum, the following information:
4.4.1 Invoices for Products shall contain: (a) purchase order number, (b) part number(s), (c) lot number(s), if applicable, (d) description of the Produces) shipped, (e)
quantity of the Product(s) shipped, (t) unit and extended price applicable, (g) date that the Product(s) shipped, (h) Sterling’s packing slip number, (i) any applicable taxes
chargeable under Section 4.3: and (j) any extraordinary charges that have been approved by Motus. In addition, Sterling’s invoices for Products shall conform to the
requirements specified in Exhibit B. Motus shall pay such invoices net within thirty (30) days of receipt of the invoice.
4.4.2 Invoices for Services shall be arranged by SOW number, and contain: staff name, staff type, date, hours and rate. Invoices that include out-of-pocket expense
entries will detail: expense name, expense type, date and amount. Sterling will provide Motus with scanned copies of original receipts. Motus shall pay all such invoices net
within forty-five (45) days of receipt of the invoice. Payment hereunder shall represent full and complete compensation for all obligations assumed by Sterling under this
Agreement and for all inventions, improvements and copyright or patent rights assigned to Motus as more fully set forth in Section 9. Sterling may delay any shipment or place
any shipments on COD when any invoice is past due.
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5. Electronic Commerce.
5.1 Availability. Motus shall communicate with Sterling to develop appropriate electronic commerce services as may be appropriate.
5.2 Proper Receipt. Transmissions shall not be deemed to have been properly received, and no transmission shall give rise to any obligation, until accessible, during regular
business hours of the receiving Party, to the receiving Party at such Party’s receipt device.
5.3 Garbled Transmissions. If any properly initiated transmission is received in an unintelligible or garbled form, the receiving Party shall promptly notify the originating Party
in a reasonable manner. In the absence of such notice, the originating Party’s records of the contents of such transmission shall control.
5.4 Signatures. Each Party shall adopt and notify the other Party of its electronic identification consisting of symbol(s) or code(s) which will be affixed to or contained in each
transmission by such Party and which shall act as its signature (“Signature”). Each Party agrees that any Signature of such Party affixed to or contained in any transmission
shall be sufficient to verify that such Party originated such document. Neither Party shall disclose to any unauthorized person the Signatures of the other Party, except as
required by law, court or administrative body.
5.4.1 Electronic Signatures. With regard to any Electronic Signatures, Sterling shall comply with all applicable provisions of 21 CFR Part 11 Subparts A and C
including, without limitation, ensuring the uniqueness of Electronic Signatures; basing Electronic Signatures upon biometrics or use of at least two distinct identification
components, such as an identification code and password, that are periodically checked or revised; following loss management procedures to electronically de authorize lost,
missing, stolen, or otherwise potentially compromised devices that bear or generate identification code or password information; initial and periodic testing of such devices; and
using transaction safeguards to detect, report, and prevent unauthorized use of passwords or identification codes.
5.5 Verification. Upon proper receipt of any transmission (except a confirmation), the receiving Party shall promptly and properly transmit a confirmation in return. A
confirmation shall constitute conclusive evidence a transmission has been properly received, however, such confirmation will not be construed as acceptance of the accuracy of
the data contained in the transmission.
5.6 System Operations. Each Party at its own expense, shall provide and maintain the equipment, software services and testing necessary to effectively and reliably initiate and
receive transmissions.
5.7 Security Procedures. Each Party shall properly use such security procedures that are reasonably sufficient to ensure that all transmissions are authorized and to protect its
business records and data from improper access.
5.8 Binding Commercial Transactions. Any commercial transaction properly transmitted pursuant to this Agreement shall be considered to be a “writing” or “document in
writing”; and any such transmission when containing, or to which there is affixed, a Signature shall be deemed for all purposes (a) to have been “signed” and (b) to constitute
an “original” when printed from electronic files or records established and maintained in the normal course of business.
-8-
6. Term and Termination.
6.1 Term. Unless earlier terminated in accordance with the provisions of this Agreement, the initial term of this Agreement shall commence on the Effective Date and shall end
five (5) years after the Effective Date (“Initial Term”); provided however, that this Agreement shall remain in effect with respect to any Purchase Order then in effect at the
time of such termination until performance thereunder is completed to the satisfaction of Motus, unless or until such Purchase Order is itself terminated as herein provided. This
Agreement may be extended upon the mutual written agreement of the Parties for additional terms of one (1) year and for a total of five (5) one-year extensions. The Parties
agree to confer at least one hundred eighty (180) days prior to the expiration of the initial or any renewal term regarding their intention to execute an extension. The Initial Term
of this Agreement and any extensions thereof are referred to as the “Term” in this Agreement. All references in this Agreement to “Term of this Agreement” shall include
both the Initial Term and any extensions thereof.
6.2 Termination.
6.2.1 Termination for Breach. Either Party may terminate this Agreement upon written notice to the other Party in the event the other Party materially breaches this
Agreement and fails to cure the breach within thirty (30) days after receipt of written notice thereof. Material breaches shall include, but are not limited to: (a) the filing of
bankruptcy, receivership or similar proceeding due to insolvency (voluntarily or involuntarily); (b) dissolution, liquidation, or other discontinuation of all or a significant part of
the other Party’s business operations or the threat to cease to carry on all or a significant part of it business operations; (c) material adverse change in the other Party’s financial
condition or failure to meet any of its debt obligations when due; (d) any unapproved assignment of or repeated non-performance of Sterling’s obligations under this
Agreement; (e) any breach of a Party’s representations and warranties. Any termination effected pursuant to this Section 6.2.1 shall be deemed effective as of the date specified
in the notice of termination.
6.2.2 Consequences of Termination. Upon termination of this Agreement, Sterling shall immediately cease all work, cease to represent itself as providing Products to
Motus and shall deliver to Motus: (a) a report describing Purchase Orders/SOWs outstanding as of the date of termination; (b) all Motus Confidential Information in its
possession; and (c) all work product, including, but not limited to, programs, reports, data, flow diagrams, materials and all work in process, in whatever state of development
they may exist on the date of termination. Upon delivery and receipt of the above, Motus shall pay Sterling, within 45 days of termination, for the Products and Services
delivered to and accepted by Motus including inventory obligations as set forth in Section 2.7.2 as of the date of termination, at the applicable prices under the terms of this
Agreement.
6.3 Survival. The provisions of Sections 6, 7, 8, 9, 10, 11, 12, 15, 17, 18, 19, 20 and 21 hereof shall survive the expiration or termination of this Agreement and shall be binding
to the respective successors, assigns, subsidiaries, or Affiliates of the Parties.
-9-
7. Representations and Warranties.
7.1 Compliance with Applicable Requirements. Sterling represents and warrants that all materials and equipment used by Sterling shall meet the Motus Specifications and shall
be used as directed by the manufacturer thereof. Sterling further represents and warrants that Products manufactured and supplied by it to Motus (a) shall conform to the
Specifications, (b) shall not be adulterated or misbranded within the meaning of the Food, Drug and Cosmetic Act, as amended from time to time (the “Act”), and (c) shall be
manufactured, inspected and supplied in accordance with the Applicable Requirements. Sterling will cause its suppliers to undertake such quality control and inspection
procedures as set forth above. Sterling further agrees that it will be responsible for the foregoing warranties with respect to sales made by Motus to its customers and that it will
replace at no charge any Product that is found to be defective within the warranty period indicated in Section 7.4. Sterling further agrees to provide and to cause its suppliers to
provide Motus with any manufacturing data that Motus may at any time be required to submit to the FDA, Health Canada, Therapeutic Goods Administration, Medsafe, all
European Competent Authorities or any other applicable regulatory body.
7.2 Compliance with Materials Declaration Requirements. Sterling represents and warrants that Sterling and any Sterling facility, equipment, employees, sub-suppliers, and
agents shall comply with Materials Declaration Requirements as applicable at all times during its performance under this Agreement.
7.3 Quality Assurance Requirements. Contemporaneously with the execution of this Agreement, Sterling and Motus are entering into an agreement with respect to quality
assurance in the provision of the Products the terms of which are incorporated herein and made a part hereof by reference (the “Quality Agreement”) [The parties will
exchange and review template quality agreements]. Sterling represents and warrants that Sterling and any Sterling facility, equipment, and employees shall at all times
comply with and provide all Products set forth in this Agreement in accordance with the Quality Agreement.
7.4 Limited Warranty.
7.4.1 Products. Sterling warrants to Motus that all Products shall: (i) be of merchantable quality, (ii) be free from latent and patent defects in material and
workmanship; and (iii) comply with the requirements of this Agreement, including all drawings, and Specifications. The foregoing warranties does not cover and specifically
excludes claims resulting from normal wear and tear, misuse, abuse, and uses by a party other than Sterling or its permitted sub-contractors exceeding Specifications. Sterling
further warrants the Products and all rights thereto (other than the Intellectual Property rights of Motus) are owned by Sterling prior to shipment and that the Products are free
and clear of all liens, security interest, and encumbrances or other adverse claims against title. The warranty in (ii) shall be limited in time to twelve (12) months after Product
acceptance by Motus.
7.4.2 Services. Sterling shall perform the Services in accordance with the generally accepted practices of similar professionals performing similar services at the time
the Services are performed for Motus.
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7.5 Limitation of Liability, Disclaimers of Warranties. WITH THE EXCEPTION OF CLAIMS ARISING UNDER GROSS NEGLIGENCE AND WILLFUL MISCONDUCT
AND THE CONFIDENTIALITY AND INDEMNITY OBLIGATIONS SET FORTH IN THIS AGREEMENT, BOTH PARTIES HEREBY AGREE THAT REGARDLESS
OF THE FORM OF ANY CLAIM, EITHER PARTY’S LIABILITY FOR ANY DAMAGES TO THE OTHER PARTY SHALL NOT EXCEED $1,000,000 (ONE MILLION
DOLLARS). EXCEPT FOR THE WARRANTIES EXPRESSLY AND SPECIFICALLY DESCRIBED IN THIS AGREEMENT, THERE ARE NO WARRANTIES
EXPRESSED OR IMPLIED AND ALL SUCH OTHER AND ADDITIONAL WARRANTIES ARE EXPRESSLY AND SPECIFICALLY DISCLAIMED. WITH THE
EXCEPTION OF CLAIMS ARISING UNDER GROSS NEGLIGENCE AND WILLFUL MISCONDUCT AND THE CONFIDENTIALITY AND INDEMNITY
OBLIGATIONS SET FORTH IN THIS AGREEMENT, IN NO EVENT UNDER ANY THEORY OF LAW, INCLUDING BUT NOT LIMITED TO, BREACH OF
WARRANTY, NEGLIGENCE, OR OTHER TORT, SHALL EITHER PARTY BE RESPONSIBLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, OR
CONSEQUENTIAL DAMAGES OR LOST PROFITS, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
7.6 No Infringement or Misappropriation. Sterling further represents and warrants that, to the extent not reliant upon a Motus design, the Products do not and will not violate,
infringe, or misappropriate any Intellectual Property Right or proprietary right of any third party anywhere in the world, nor has any claim of such infringement been threatened
or asserted.
7.7 Proper Authority. Sterling and Motus each represent to the other that the execution, delivery and performance of this Agreement by such Party: (a) has been duly authorized
by all necessary corporate action; (b) does not conflict with, or result in a material breach of, the articles of incorporation/organization or bylaws/operating agreement of such
Party, and any material agreement by which such Party is bound, or any law, regulation, rule, judgment or decree of any governmental instrumentality or court having
jurisdiction over such Party; and (c) this Agreement has been duly executed by such Party and constitutes a valid and legally binding obligation of such Party enforceable in
accordance with its terms.
7.8 Communications with FDA and other Notified Bodies. Sterling represents and warrants that, notwithstanding anything to the contrary in this Agreement, Sterling shall not
initiate nor participate in any communications with the United States Food & Drug Administration (“FDA”) or and other Notified Bodies concerning the subject matter hereof
without the express prior written consent of Motus. Notwithstanding the foregoing, Sterling may communicate with the FDA, or other Notified Body, without Motus’s prior
written consent in the event such communication is expressly required by applicable federal law, rule or regulation. When legally permissible and practicable, Sterling shall use
reasonable efforts to consult with Motus prior to any such communications.
7.9 Warranties Cumulative. The warranties provided herein are cumulative. During the Term of this Agreement, if Sterling’s representations in this Section 7 become untrue for
any reason, then Sterling shall promptly notify Motus of the circumstances that have made such representation(s) untrue.
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8. Confidential Information. The Parties acknowledge and agree that they are bound by that certain Non-Disclosure Agreement, dated as of October 5, 2020, by and between
Sterling and Motus (“2-Way NDA”), - and each shall comply in all respects with the terms and conditions of the NDA during the Term of this Agreement (and thereafter as set
forth in the terms thereof).
8.1 Ownership: No Rights Granted. Unless otherwise set forth in this Agreement, Confidential Information and all embodiments thereof are the sole property of the Disclosing
Party and no license or conveyance of any right under discovery, invention, patent, copyright, trade secret or other proprietary right that is owned or controlled by the
Disclosing Party is granted to the Receiving Party under this Agreement, other than the limited right to use the Disclosing Party’s Confidential Information to perform this
Agreement.
9. Intellectual Property: Tooling and Equipment.
9.1 Licenses.
9.1.1 Sterling hereby grants to Motus a fully-paid, royalty-free, exclusive worldwide license, without the right to sublicense (except to Motus Affiliates and as
expressly provided herein), under All Categories of Intellectual Property of Sterling solely for the purposes of making, having made, distributing and selling the Medical
Device as contemplated in this Agreement. Motus shall be responsible for compliance by its sublicensees with the terms of this Agreement. For the avoidance of doubt, the
license granted to Motus herein is exclusive only to the extent necessary for Motus to perform its obligations under this Agreement with respect to the Medical Device.
9.1.2 Motus hereby grants to Sterling a fully-paid, royalty-free worldwide license, without the right to sublicense (except to Sterling Affiliates and as expressly
provided herein), under All Categories of Intellectual Property of Motus solely for the purpose of making and having made the Products for incorporation into the Medical
Device as contemplated in this Agreement. Sterling shall be responsible for compliance by its sublicensees with the terms of this Agreement. For the avoidance of doubt, the
license granted to Sterling herein is solely to the extent necessary for Sterling to perform its obligations under this Agreement with respect to the Products.
9.1.3 Sterling acknowledges and agrees that (i) the Products are and shall be the sole and exclusive property of Motus, (ii) hereby irrevocably transfers and assigns to
Motus any and all of its right, title and interest, inclusive of intellectual property and proprietary rights, if any, in and to the Products, as well as any improvements or
modifications to the Products as well as any All Categories of Intellectual Property of Motus, (iii) Motus shall have the sole right to determine the treatment of the Products,
including the right to keep any of the same as a trade secret, to file and execute patent applications on it, to use and disclose it without prior patent application, to file
registrations for copyright or trademark on it in its own name, or to follow any other procedure that Motus deems appropriate, and (iv) Sterling shall take all reasonable steps to
acknowledge such ownership and assign any interest it may have in the Products and All Categories of Intellectual Property of Motus in which it has any interest.
9.1.4 Except as otherwise expressly provided in this Agreement, neither Party shall have any license or other right to use the Present Intellectual Property or
Independently Developed Intellectual Property of the other Party.
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9.1.5 The licenses granted above in this Section 9 shall continue for so long as this Agreement remains in full force and effect.
9.2 Patent Issues.
9.2.1 Motus and Sterling each shall have the right, in its sole discretion and at its own expense, to control the preparation, prosecution, and maintenance of Patents
covering its Present Intellectual Property and Independently Developed Intellectual Property and to select all patent counsel or other professionals to advise, represent or act for
it in all matters relating to such Patents. Each Party shall inform the other Party at reasonable regular intervals, or at such other Party’s reasonable request, about the status of
any such Patents which are licensed to the other Party hereunder.
9.2.2 Motus shall be responsible for the preparation, prosecution and maintenance of Patents covering Intellectual Property arising from any joint activities of the
Parties in connection with the development and manufacture of the Products (“Project Intellectual Property”) and to select all patent counsel or other professionals to advise,
represent or act for the Parties in all matters relating to such Patents. Sterling shall cooperate and provide reasonable assistance to Motus to facilitate Patenting or Patent
maintenance, and all patent expenses shall be borne by Motus (“Patent Expenses”). For all Patent applications on which the Parties cooperate in such fashion, Motus shall
provide Sterling with copies of all documents and correspondence associated with the preparation and prosecution of such Patents at least fifteen (15) days prior to filing to
enable Sterling to provide comments thereon.
9.2.3 If Motus or Sterling is threatened with suit or sued by a third party for intellectual property infringement because of activities in connection with the Project
Intellectual Property, or in connection with the development, processing and/or distribution of Products or the Medical Device, the Party which has been threatened with suit or
sued shall promptly notify the other Party in writing of such event. Motus and Sterling agree to take whatever action Motus deems appropriate in connection with such claim or
suit.
9.2.4 If Motus or Sterling is threatened or sued by a third party for intellectual property infringement because of activities in connection with the Present Intellectual
Property or Independently Developed Intellectual Property of any Party, then the Party which has been threatened with suit or sued shall promptly notify the other Party in
writing of such event. The Party whose intellectual property is involved shall be responsible for defending such suit including, inter alia, (a) controlling the defense of such suit
and/or (b) maintaining responsibility for the cost of such defense, including attorneys’ fees.
9.2.5 In the event that Motus or Sterling learns of any third party infringement or misappropriation or suspected infringement or misappropriation (hereinafter
“infringement”) of any Intellectual Property of any Party, such Party, as the case may be, shall promptly notify the other Party of such infringement.
9.2.6 Upon the distribution of any Medical Device, the Parties agree to mark any such product in accordance with the patent Laws of the United States and/or any
foreign country where such marking is required or desirable.
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9.3 Tooling and Equipment. Equipment, design, tools, jigs, dies, fixtures, templates, patterns, drawings, and other information and things (herein collectively, the “Tools”) paid
for or furnished by Motus shall be Motus’s property and Sterling shall not encumber or dispose of them in any way. Sterling shall maintain such Tools in good working
condition. The Tools shall be used exclusively for Sterling’s performance of its obligations hereunder. To the extent any equipment owned by Motus is placed at Sterling’s
facility to be used in connection with Sterling’s performance of its obligations hereunder, in addition to the foregoing terms and conditions, such equipment and Sterling’s use
thereof shall also be subject to the terms and conditions set forth in Exhibit C.
9.4 Disclosure. Sterling, warranting that it has the right to do so, agrees to disclose promptly, and to cause its employees, subcontractors, agents, or other representatives
performing under this Agreement to disclose promptly, to Motus any enhancements, additions, or improvements, to Motus’s Intellectual Property discovered, made, and/or
conceived by Sterling and/or by any such employees, subcontractors, agents or other representatives, either alone or jointly with others, both: (a) during the Term of this
Agreement or within twelve (12) months thereafter and (b) in the course of or as a result of Sterling’s performance under this Agreement or as a result of the information
revealed directly or indirectly by Motus or its Affiliates.
9.5 Copyrights. Where applicable, Sterling agrees that all original works of authorship prepared by or for Sterling in the performance for Motus under this Agreement shall be
works made for hire, and Motus shall own such works and all copyrights therein. For any original works of authorship prepared by or for Sterling in the performance of this
Agreement that, under the copyright laws of the United States, may not be considered works made for hire. Sterling agrees to do everything reasonably necessary to enable
Motus or its nominee to protect its rights in such works.
9.6 No Conflicts. Sterling represents that it is not now under any obligation to assign inventions, which obligation would conflict with those contained in this Section 9 and
Sterling agrees not to enter into any such conflicting agreements or arrangements during the Term of this Agreement.
10. Indemnification & Insurance.
10.1 Indemnity.
10.1.1 Indemnification by Sterling. Sterling shall defend, indemnify and hold harmless Motus and its Affiliates and other subsidiaries, and its and their shareholders,
officers, directors, employees, agents, successors, and assigns from and against any and all liabilities, claims, suits, actions, losses, costs, reasonable attorneys’ fees and
expenses, judgments or damages (“Claims”), resulting or arising (directly or indirectly) from Sterling, its Affiliates or other subsidiaries, or its or their shareholders, officers,
directors, employees, agents, successors, assigns, representatives, contractors, subcontractors or invitees performance (or failure to perform) hereunder, including: (a)
infringing, misappropriating or violating any patent, copyright, trademark, trade secret or any other intellectual property or proprietary right; (b) acts, omissions, negligence,
misconduct, or dishonesty in connection with the performance hereunder or any defect in Products; (c) breach of a representation, warranty and/or covenant, or failure to
perform its obligations hereunder; (d) violating any federal or state law, regulation, statute or ordinance including but not limited to the transportation, handling, disposal or
processing of regulated materials; (e) failure to comply with the confidentiality obligations set forth herein; (f) any loss or damage to persons (including death) or property, to
the extent caused by any act or omission of Sterling or, where applicable, by its employees, agents, representatives, subcontractors or invitees; (g) a claim of any lien, security
interest or other encumbrance made by a third party, (h) recalls associated with Products and required under the Quality Agreement to the extent they relate to a design,
material, manufacturing, sterilization or packaging defect in a Product and not a Product-design requirement or Specification of Motus or (i) any Products lost by libel,
condemnation or recall arising from or related to actions and proceedings brought by a government agency. Sterling’s liability under this Section 10.1.1 shall be reduced to the
extent that Sterling demonstrates, by a preponderance of the evidence, that any portion of such Claims were caused by the negligence or culpability or willful misconduct of
Motus or by the failure of Motus to perform its duties under this Agreement.
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10.1.2 Indemnification by Motus. Motus shall defend, indemnify and hold harmless Sterling and its Affiliates and other subsidiaries, and its and their shareholders,
officers, directors, employees, agents, successors, and assigns from and against any and all Claims, resulting from Motus, and/or its Affiliates, and other subsidiaries, and its
and their shareholders, officers, directors, employees, agents, successors, assigns, representatives, contractors, subcontractors or invitees performance (or failure to perform)
hereunder, including: (a) Motus’s required Product design or Specifications infringing, misappropriating or violating any patent, copyright, trademark, trade secret or any other
intellectual property or proprietary right; (b) acts, omissions, negligence, misconduct, or dishonesty in connection with the performance hereunder; (c) breach of a
representation, warranty and/or covenant, or failure to perform its obligations hereunder; (d) violating any federal or state law, regulation, statute or ordinance; (e) failure to
comply with the confidentiality obligations set forth herein; (f) any loss or damage to persons (including death) or property, to the extent caused by any act or omission of
Motus or, where applicable, by its employees, agents, representatives, subcontractors or invitees. Motus’s liability under this Section 10.1.2 shall be reduced to the extent that
Motus demonstrates, by a preponderance of the evidence, that any portion of such Claims were caused by the negligence or culpability or willful misconduct of Sterling or by
the failure of Sterling to perform its duties under this Agreement.
10.2 Indemnification Process. With respect to any third-party claims, the indemnified Party shall give the indemnifying Party prompt written notice of any third-party claim and
cooperate with the indemnifying Party at the indemnifying Party’s expense. The indemnifying Party shall have the right to assume the defense (at its own expense) of any such
claim through counsel of its own choosing by so notifying the indemnified Party within thirty (30) calendar days of the first receipt of such notice. The indemnified Party shall
have the right to participate in the defense thereof and to employ counsel, at its own expense, separate from the counsel employed by the indemnifying Party. The indemnifying
Party shall not, without the prior written consent of the indemnified Party not to be unreasonably withheld, agree to the settlement, compromise or discharge of such third-patty
claim.
10.3 Intellectual Property. Notwithstanding Motus’s indemnification rights under Section 10.1.1, in the event any Products provided under this Agreement are held or likely to
be held to constitute an infringement, misappropriation, or violation, Sterling shall, at its expense, first use reasonable and prompt efforts either (a) to procure for Motus the
right to continue to use such Products; or (b) to modify the Products so that they are non-infringing and of at least equivalent performance and functionality; or (c) upon
adequate showing to Motus that both of the foregoing options are not commercially feasible, provide functionally equivalent replacement Products, or offer to reimburse
Motus’s cost of doing so.
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10.4 Insurance. The parties shall cooperate in good faith to each maintain a primary and noncontributing products liability (bodily injury and property damage) insurance with a
combined single limit for bodily injury and property damage per occurrence in an equal amount, with the following coverage amounts: $[***] per incident. Such insurance
shall have provision for at least thirty (30) days prior written notice to the other party in the event of cancellation or material reduction of coverage. Each party shall provide
evidence of such coverage to the other, and subsequently, shall have the right to request and receive satisfactory evidence of continued insurance coverage from the other. In the
event of nonpayment of premiums or other lapse of coverage, each party shall have the right to maintain such insurance coverage on the lapsed party’s behalf and at the lapsed
party’s expense.
11. Independent Contractor.
11.1 Relationship of the Parties. Sterling shall perform this Agreement as an independent contractor, and Sterling is not an employee, agent, partner or representative of Motus.
Sterling shall conduct its business under its own name as an independent contractor, and is hereby expressly prohibited from holding itself out as an employee, agent, partner or
representative of Motus. It is agreed that any person employed by Sterling to perform hereunder shall not be deemed to be an employee of Motus, and Sterling and Sterling’s
employees, suppliers, subcontractors, agents or representatives shall not be, or represent themselves to be, officers, employees, agents or representatives of Motus and shall not
bind, or attempt to bind, Motus to any agreement, liability or obligation of any nature.
12. Assignment. This Agreement shall be binding upon and shall inure to the benefit of each Party, its successors and assigns. No Party shall have power to assign this
Agreement without the prior written consent of the other, which shall not be unreasonably withheld or delayed, except that any Party may assign this Agreement to any person
or entity who acquires all or substantially all of its assets, or who acquires a majority of its voting interests, or with whom it is merged, provided that the surviving entity must
agree to be bound to the terms and conditions of this Agreement.
13. Permits. Sterling confirms that prior to its performance under this Agreement, Sterling holds and maintains, or will hold and maintain, all registrations, licenses, certificates,
permits, approvals and authorizations and shall obtain all inspections required by any government agency throughout the Term of this Agreement to the extent applicable to the
manufacture, inspection, transportation or supply of the Products hereunder. Sterling agrees to obtain and maintain any registrations or licenses that may be required for its
performance in the future. Sterling shall assist Motus in obtaining additional permits and licenses that may be required by law to be issued in Motus’s name.
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14. Force Majeure.
14.1 Force Majeure Events. In the event that either Party is unable to perform any of its obligations under the Agreement, or to enjoy any of its benefits because of an
unforeseen and unanticipated event such as, fire, flood, natural disaster, riot, civil commotion, terrorism, sub-contractor/supplier bankruptcy, action or decrees of governmental
bodies (a “Force Majeure Event”), the Party who has been so affected shall immediately give written notice to the other Party and shall do everything possible to resume
performance. Upon receipt of such notice, all obligations under the Agreement shall be immediately suspended. If the period of nonperformance exceeds ninety (90) days from
the receipt of notice of the Force Majeure Event, the Party whose ability to perform has not been so affected may by giving written notice terminate the Agreement. Delays in
delivery due to Force Majeure Events shall automatically extend the delivery date for a period equal to the duration of such Force Majeure Events. Any acceptance or warranty
period affected by a Force Majeure Event shall likewise be extended for a period equal to the duration of such Force Majeure Event. As applied to this Section 14 and to
determine whether an event is wholly beyond control of a Party, strikes, slowdowns or other labor related delays are not Force Majeure Events. A period of Force Majeure or
other event causing inability to perform shall be deemed to commence on the date that the event of Force Majeure or other such event first occurs.
14.2 Exceptions. Notwithstanding the provisions set forth in Section 14.1, a Force Majeure Event shall not include any governmental action of an enforcement nature that arises
from or relates to Sterling’s failure to comply with any federal, national, state, provincial, or local law, statute, regulation or ordinance applicable to Sterling’s performance
hereunder or Sterling’s manufacture, storage or handling of materials associated with such performance.
15. Governing Law; Dispute Resolution: Waiver of Jury. The validity and interpretation of this Agreement and the legal relations of the Parties hereto shall be governed by the
laws of the State of Delaware of the United States, without regard to its rules governing conflicts of law. In the event of a dispute between the parties relative to this Agreement
or any transactions concluded hereunder, the parties shall first use good faith efforts to amicably arrive at a settlement acceptable to both parties. If, however, a settlement
cannot be reached within a reasonable time after such dispute arises (not to exceed 60 days from receipt of written notice of the dispute), the parties agree that any legal action
based upon such a dispute or any claims arising out of this Agreement shall be exclusively brought before and decided by the courts located within the State of Delaware. This
Agreement shall not be governed by the United Nations Convention for the Sale of International Goods. THE PARTIES HEREBY WAIVE ANY RIGHT TO A TRIAL BY
JURY WITH RESPECT TO ANY DISPUTE ARISING FROM OR RELATING TO THIS AGREEMENT.
16. Country of Origin. Sterling shall maintain and provide copies to Motus of a listing accurately specifying the country of origin of each Product to be supplied under this
Agreement. The initial country of origin for the Products is set forth in Exhibit A, and pursuant to Exhibit B, each invoice shall set forth the country of origin for Products
included in each shipment. Sterling shall provide not less than sixty (60) days’ advance written notice to Motus of any sourcing decision resulting in a change of the country of
origin of any item to be supplied pursuant to this Agreement. Sterling shall immediately update the required listing and provide a copy of a current and complete listing to
Motus whenever any item to be supplied pursuant to this Agreement has a change in country of origin or a new item is added to the scope of this Agreement. For purposes of
this Section 16 and Exhibits A and B, the term “country of origin” shall be interpreted consistent with the “substantial transformation test” (i.e., transforming an article into a
new and different article of commerce, with a name, character, or use distinct from the original article).
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17. Records and Inspections.
17.1 Records. Sterling shall keep complete and systematic written records of all Products and Services purchased by Motus. Such records shall include records specific to
Motus transactions (i.e. Purchase orders, SOWs, invoices, shipping documents) of a financial nature (including records for compliance with federal, state and local law) and
such other documentation pertaining to Sterling’s performance under this Agreement, and Sterling shall preserve all such records until seven (7) years from creation of the
record. During the Term of this Agreement and for seven (7) years thereafter, Motus shall have the right to inspect copy and audit such records during Sterling’s regular
working hours. Sterling shall fully cooperate in any such inspection or audit of its records.
17.2 Control & Security Compliance. Upon fifteen (15) business days’ notice to Sterling and during normal business hours, Motus shall be permitted to audit, inspect and/or
verify relevant Sterling’s operations and other areas of Services to confirm that (a) Sterling is maintaining controls and security measures specific to Sterling’s fulfillment of its
obligations to Motus pursuant to this Agreement (b) billings to Motus are correct, (c) reports relating to Sterling’s performance are complete and accurate, (d) records relating to
placed equipment are accurate, complete, valid and appropriately maintained, and (e) proof of shipping are accurate, complete and valid (“Inspection(s)”).
17.3 Nature of Inspection. Motus shall clearly state the nature of the Inspection being requested. Such Inspections shall be limited to information that relates directly to
Sterling’s fulfillment of its obligations pursuant to this Agreement. Motus may conduct Inspections itself or with the assistance of a third party organization acceptable to
Sterling, provided that the third party organization executes confidentiality agreement reasonably acceptable to Sterling, at Motus expense, as appropriate. Inspections may be
made as frequently as Motus reasonably deems appropriate. All Inspections will be performed in a manner and frequency intended to minimize disruption to the Parties’
respective businesses.
17.4 Access. Sterling shall provide to Motus and its respective auditors (including internal audit staff), inspectors, regulators, consultants and other representatives (collectively
“Inspectors”) as Motus may from time to time designate in writing, reasonable access: (a) Sterling’s facilities (and subcontractor facilities to extent applicable) where the
Product manufacturing and/or operations are being performed; (b) Sterling’s personnel and subcontractors performing any operations hereunder; (c) documents, data and
records related to the performance of Sterling’s obligations hereunder; and (d) operational or security audit reports and findings including remediation plans in the possession of
Sterling relating to any of its operations related to the Products. Sterling shall provide such access to Inspectors upon reasonable written notice (not less than 72 hours in
advance) by Motus during regular business hours, provided that all such persons adhere to Sterling’s security and safety policies and have executed a confidentiality agreement
reasonably acceptable to Sterling. Upon request by Motus and with Sterling’s prior consent, not to be unreasonably withheld, delayed or conditioned, Sterling will assist and
cooperate with Motus Inspectors in connection with Inspection functions, including the review and/or timely remediation of audit issues. Such cooperation shall extend to
regulatory compliance pertaining to the Sarbanes Oxley Act of 2002.
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19. Notices.
All notices hereunder shall be delivered (i) personally, (ii) by registered or certified mail, postage prepaid or (iii) by overnight courier service to the following addresses of the
respective Parties:
If to Sterling:
If to Motus:
J Sterling Industries LLC 6825 Beatrice Drive Kalamazoo, MI, 49009
ATTN: David Van Slingerland
Motus GI Holdings, Inc.
1301 East Broward Boulevard
Fort Lauderdale, Florida 33301
ATTN: Mark Pomeranz, COO
Notices shall be effective upon receipt. A Party may change its address listed above by notice to the other Party.
20. Miscellaneous.
20.1 Remedies. No remedy herein conferred is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to
every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise.
20.2 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall be considered one
and the same agreement, it being understood that all Parties need not sign the same counterpart. The exchange of copies of this Agreement or Amendments hereto and of
signature pages by facsimile transmission or by email transmission in portable document format, or similar format, shall constitute effective execution and delivery of such
instrument(s) as to the Parties and may be used in lieu of the original Agreement or Amendment for all purposes. Signatures of the Parties transmitted by facsimile or by email
transmission in portable document format, or similar format, shall be deemed to be their original signatures for all purposes.
20.3 Waiver: Modification of Agreement. Waiver of any breach under this Agreement shall not constitute waiver of any other breach of the same or any other provision.
Acceptance of any items or payment therefor shall not waive any breach. No waiver or modification of any of the terms of this Agreement shall be valid unless in writing and
signed by authorized representatives of both Parties.
20.4 Headings. The headings in this Agreement are for convenience of reference only and in no way define or limit any of the provisions hereof or otherwise affect their
construction or effect.
20.5 Severability. In case any one or more of the provisions of this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability
of the remaining provisions contained herein shall not in any way be affected or impaired thereby.
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20.6 Exhibits. Exhibits described below and attached hereto are incorporated into this Agreement wherever referenced.
Exhibit A
Exhibit B
Exhibit C
Exhibit D
List of Products and Pricing Schedule
Specifications
Equipment Placement Terms
Fees for Services
21. Entire Agreement. This Agreement, including any documents referred to herein and any exhibits attached hereto, are incorporated herein by reference and constitute the
entire agreement between the Parties, and there are no other representations, warranties, covenants or obligations except as set forth in this Agreement and the signing by both
Parties shall cause this Agreement to be valid on the Effective Date. This Agreement supersedes all prior and contemporaneous agreements, understandings, negotiations and
discussions, written or oral, of the Parties, relating to any transaction contemplated by this Agreement (including any confidentiality agreement(s) entered into by the Parties or
their Affiliates for the purposes of effectuating this Agreement). No course of dealing or usage of trade shall be used to modify the terms hereof. This Agreement is the product
of negotiations between the Parties, and shall be construed as if jointly prepared and drafted by them, and no provision hereof shall be construed for or against any Party due to
its actual role in the preparation or drafting hereof by reason of ambiguity in language and/or rules of construction against the drafting Party or similar doctrine. The documents
referred to herein and attached hereto shall be read together with this Agreement to determine the Parties’ intent. In the event of a conflict between or among such documents,
the documents shall govern in this order: (1) this Agreement; (2) the Specifications; and (3) a Purchase Order/SOW, unless specifically otherwise stated in document signed
after the date of this Agreement by both Parties.
Signature Page Follows
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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed by their duly authorized corporate officers or representatives as of the date
first above written.
MOTUS GI HOLDINGS, INC.
J. STERLING INDUSTRIES LLC.
/s/ Mark Pomeranz
By:
Name: Mark Pomeranz
Title:
Chief Operating Officer
/s/ David Van Slingerland
By:
Name: David Van Slingerland
Title:
Chief Executive Officer
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EXHIBIT A
LIST OF PRODUCTS AND PRICING SCHEDULE
[***]
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EXHIBIT B
SPECIFICATIONS
1. Product Specifications. All Specification references include and incorporate the most current revision level from which Product is to be manufactured. All applicable
Specifications references will be incorporated on each approved Motus Purchase Order for Product.
2. Delivery Acceptance Specifications.
As stated in Sections 2.3and 3.1 of this Agreement.
[***]
3. Packaging and Shipment Specifications. The Parties will agree whether the packaging and shipment specifications described below is appropriate on a Product by Product
basis. In the event that the Parties agree to initiate international shipments, the following shall apply:
● Advise Motus in advance of any shipments destined for Motus by sending an e-mail notification to [***]
● Marking- ensure that goods sold to Motus for import into the United States are marked legibly and permanently with their country of origin, as directed by Motus.
● Packing Materials - ensure that any wood packing material complies with the “International Standards for Phytosanitary Measures: Guidelines for Regulating Wood
Packaging Material in International Trade” (ISPM No. 15) and is appropriately stamped.
● Special Programs- do not indicate the use of any special trade program (e.g., NAFTA, GSP, 9801U.S. Goods Returned, etc.) without prior instructions from Motus to
do so.
4. Warranty.
Sterling’s warranty as described in the Agreement shall be for the period of thirty-six (36) months after Product acceptance at Motus.
5. Invoices. For circumstances of foreign trade that require a customs declaration. Sterling shall submit commercial invoices that shall conform to the requirements specified
below. The commercial invoice shall act as the customs declaration form.
5.1 Every invoice must include and conform to the requirements on the attached Commercial Invoice Requirements Checklist attached to this Exhibit B as Schedule 1.
5.2 Also include the following on every invoice:
(i) Purchase Order number or another unique transaction identifier if no Purchase Order number is involved.
(ii) All values relating to the goods, including unit price of goods, total price of goods, packing costs and freight charges.
(iii) Accurate county of origin information. Note: Country of origin is (1) the county of growth, manufacture, or production; or (2) for goods subject to multi-country
production, the last country in which a substantial transformation occurs. For goods exempted from NAFTA countries, the NAFTA rules (19 CFR Part 102) must be
consulted. If any trade agreement shall goes into effect between the United States and Canada during the term of this Agreement, the parties shall comply with that
agreement, its rules and regulations.
(iv) Name of the person within your company who is responsible for the accuracy of the invoice.
5.3 Do not include tariff classification numbers on invoices unless they are numbers provided by or agreed to by Motus.
5.4 Invoices issued for Customs purposes should be identical in every way (including currency) to invoices sent to Motus for payment. Any exceptions require prior approval
from Motus.
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Schedule 1
COMMERCIAL INVOICE
REQUIREMENTS CHECKLIST
By statute (19 USC §1481) and by regulation (19 CFR §141.81-92), commercial invoices must provide the following information as described below:
Invoice Elements
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Date
Port of Entry
Names of buyer and seller of product. If applicable, name and address of foreign party invoicing the article.
Name of employee of exporter with knowledge of transaction.
Detailed description of product, including SKU, internal part number and product name. The description must be sufficient to determine the tariff classification of the
goods. If available, also include any mark, number, symbol or trade name used by seller to the trade.
Quantity (weight and measures)
Purchase price
Currency
Terms of Sale
All charges upon the product, itemized by name and amount. This should include freight, insurance, commission, packing costs, and inland freight to port of export, if
applicable.
Any discount, rebate, drawback or bounty.
Any goods or services furnished for the production of the product.
Country of origin.
Number of packages.
Format Requirements
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Individual invoices must represent a single shipment.
Original invoices need not be submitted. Photocopies are acceptable substitutes.
Invoices must either be written in English or have an accurate translation attached to them.
Required information must be written on invoice itself, or as an attachment.
Where an entry includes multiple invoices, each invoice must be numbered sequentially, starting with the number “1”.
Pages within an invoice must also be numbered sequentially.
Any notation made by the broker on the commercial invoice must either be in blue or black ink, as other colors are reserved for the use of Customs personnel.
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1. Use and Location of Equipment.
EXHIBIT C
EQUIPMENT PLACEMENT TERMS
(a) Motus hereby agrees to place, or has already placed, the Equipment on temporary loan to Sterling at Sterling’s manufacturing facility located at [***] (“Facility”)
for the limited use by Sterling or within the terms of this Agreement. The Patties acknowledge and agree that the Equipment may only be used by Sterling in the manufacture of
the Products for Motus pursuant to the Supply Agreement.
(b) Sterling shall not move or transfer the Equipment from its Facility, or make any alterations, additions or improvements to the Equipment not approved or
recommended by Motus. Sterling shall keep the Equipment in a safe and secure location and use the Equipment in accordance with the Equipment operating manuals and
instructions provided by Motus and attached to Schedule 1. Motus shall have the right, at reasonable times and after reasonable notice to Sterling, to enter the Facility to inspect
or otherwise protect Motus’s interest in the Equipment and its rights hereunder.
(c) During the term of this Agreement, Sterling shall be responsible for making all repairs and replacements required to be made in order to maintain the Equipment in
good condition, ordinary wear and tear excepted, and perform calibration and/or preventative maintenance on all Equipment per manufacturer (or Motus) suggested
maintenance schedules, including as set forth in Schedule 2 attached hereto. Copies of documentation of calibration and/or preventative maintenance procedures shall be
forwarded to Motus within five (5) business days of Motus’s request. Sterling shall be responsible for any loss of or damage to the Equipment resulting from its use, handling or
storage of the Equipment while such Equipment is in the Facility or otherwise in Sterling’s control. Upon expiration or termination of the Supply Agreement or at Motus’s
request, the Equipment shall be removed from the Facility and returned to Motus at Motus’s expense. Notwithstanding the foregoing provision, Motus may, at any time and for
any reason, pick up or claim the Equipment from Sterling.
(d) The Patties agree that additional items of equipment purchased by Motus and placed at Sterling from time to time for use in the manufacture of the Products may
be added to the “Equipment” as that term is defined herein by supplements to Schedule 1. Such additional Equipment shall be subject to the terms and conditions of this
Agreement unless otherwise specifically agreed to by the Parties in writing.
2. Ownership of Equipment.
During the term of this Agreement (and until Motus’s retrieval of the Equipment), Sterling agrees as follows: (a) Sterling shall not sell, transfer, pledge, hypothecate or allow
any lien or other encumbrance of the Equipment, and shall defend Motus’s right, title, and interest in and to the Equipment as to any lien, interest or encumbrance created by or
through Sterling; (b) Sterling will allow the Equipment to be used only by competent employees or other parties in a careful manner solely in the manner for which such
Equipment was intended to be used; (c) Sterling shall have possession of the Equipment only and title to such Equipment shall be and remain in Motus’s name at all times; (d)
if and to the extent Contractor is deemed to have any rights or interest in the Equipment, Sterling hereby grants to Motus, its successors and assigns, a security interest in all of
Sterling’s rights and interest in the Equipment, now existing or hereafter arising, all additions to the Equipment and all proceeds of the foregoing. Such security interest shall
secure all of Motus’s rights and interest in the Equipment, Motus’s rights under this Agreement, and Sterling’s performance of its obligations under this Agreement. Sterling
authorizes Motus to file financing statements disclosing Motus’s interest in the Equipment. Sterling shall provide Motus with at least forty-five (45) days’ prior written notice of
any change to its principal place of business or state of organization or incorporation; (e) Sterling will promptly pay all taxes, assessments and other governmental charges
levied or assessed upon the use or operation of the Equipment by Sterling; and (t) Sterling shall, at all times, comply with all applicable laws, ordinances, regulations and
standards applicable to the Equipment or the installation, use or operation thereof. Unless Motus has already done so, Sterling will firmly affix to the Equipment, in a
conspicuous place, decals or other markings showing Motus as owner of the Equipment. Sterling shall replace any such markings that become defaced.
3. Disclaimer of Warranties.
The Equipment is being provided for the use of Sterling as an accommodation to Sterling. Motus makes no representations or warranties as to the condition or operation of the
Equipment.
4. Survival.
The operation of this Agreement shall continue for so long as the Equipment has not been returned to Motus hereunder.
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SCHEDULE 1
EQUIPMENT LIST
Note: Also attach copies of equipment manuals of operation, maintenance, etc.
[***]
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SCHEDULE 2
CALIBRATION AND PREVENTATIVE MAINTENANCE SCHEDULE
[***]
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EXHIBIT D
Fees for Services
Unless otherwise stated in an applicable SOW, the following Fee Schedule shall apply to the Services provided by Sterling to Motus under this Agreement:
Program management
Mechanical /Quality Engineering
Technical Writing
Expenses, disbursements, and travel cost
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[***]
[***]
[***]
[***]
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements of Motus GI Holdings, Inc. on Form S-3 (Nos. 333-230516, 333-254343 and 333-254346) and
Form S-8 (Nos. 333-224003, 333-230506, 333-237476 and 333-254344) of our report dated March 29, 2022, on our audits of the consolidated financial statements as of
December 31, 2021 and 2020 and for each of the years then ended which report is included in this Annual Report on Form 10-K to be filed on or about March 29, 2022. Our
report includes an explanatory paragraph about the existence of substantial doubt concerning the Company’s ability to continue as a going concern.
Exhibit 23.1
/s/ EisnerAmper LLP
EISNERAMPER LLP
Philadelphia, Pennsylvania
March 29, 2022
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Timothy P. Moran, certify that:
1.
I have reviewed this annual report on Form 10-K for the period ended December 31, 2021 of Motus GI Holdings, Inc.;
Exhibit 31.1
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Date: March 29, 2022
/s/ Timothy P. Moran
Timothy P. Moran
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Andrew Taylor, certify that:
1.
I have reviewed this annual report on Form 10-K for the period ended December 31, 2021 of Motus GI Holdings, Inc.;
Exhibit 31.2
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Date: March 29, 2022
/s/ Andrew Taylor
Andrew Taylor
Chief Financial Officer
(Principal Financial Officer)
Certification Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1
This Certification is being filed pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002. This Certification is included solely for the
purposes of complying with the provisions of Section 906 of the Sarbanes-Oxley Act and is not intended to be used for any other purpose. In connection with the accompanying
Annual Report on Form 10-K of Motus GI Holdings, Inc. for the year ended December 31, 2021 (the “Annual Report”), each of the undersigned hereby certifies in his capacity
as an officer of Motus GI Holdings, Inc. (the “Company”) that to such officer’s knowledge:
(1) The Annual Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: March 29, 2022
Dated: March 29, 2022
By:/s/ Timothy P. Moran
Timothy P. Moran
Chief Executive Officer
(Principal Executive Officer)
By:/s/ Andrew Taylor
Andrew Taylor
Chief Financial Officer
(Principal Financial Officer)
This Certification is being furnished solely to accompany the Annual Report pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, and shall not be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be incorporated by
reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the
date of this Report, irrespective of any general incorporation language contained in such filing. A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by
Section 906, has been provided to Motus GI Holdings, Inc. and will be retained by Motus GI Holdings, Inc. and furnished to the Securities and Exchange Commission or its
staff upon request.