Motus GI
Annual Report 2023

Plain-text annual report

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, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission file number: 001-38389 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) Registrant’s telephone number, including area code: (954) 541-8000 Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock, par value $0.0001 per share Trading Symbol(s) MOTS Name of Each Exchange on Which Registered The 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 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. ☐ If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ As of June 30, 2023, 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 $3.1million based on the closing price of the registrant’s Common Stock on June 30, 2023. The number of shares outstanding of the registrant’s Common Stock, par value of $0.0001 per share, as of March 6, 2024 was 5,031,376. DOCUMENTS INCORPORATED BY REFERENCE None. Motus GI Holdings, Inc. ANNUAL REPORT ON FORM 10-K For the Year Ended December 31, 2023 PART I Item 1 Item 1A Item 1B Item 1C Item 2 Item 3 Item 4 PART II Item 5 Item 6 Item 7 Item 7A Item 8 Item 9 Item 9A Item 9B Item 9C PART III Item 10 Item 11 Item 12 Item 13 Item 14 PART IV Item 15 Item 16 Business Risk Factors Unresolved Staff Comments Cybersecurity 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 Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplementary Data Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 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 Exhibits, Financial Statement Schedules Form 10-K Summary EXHIBIT INDEX SIGNATURES i Page 2 25 55 55 55 55 55 56 56 56 65 65 65 65 65 65 66 69 73 76 77 78 84 85 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 and need for additional capital; ● our ability to execute our strategic restructuring program aimed at capital preservation, reduction in cash expenditures and reduction of our workforce; ● our ability to enter into and consummate strategic alternatives, including any acquisition, merger, reverse merger, other business combination, sale of assets, licensing and other strategic transactions; ● our history of operating losses in each year since inception and expectation that we will continue to incur operating losses for the foreseeable future; ● our current and future capital requirements to support our development and commercialization efforts for the Pure-Vu System and our ability to satisfy our capital needs; ● our ability to remain compliant with the requirements of The Nasdaq Capital Market for continued listing; ● our dependence on the Pure-Vu System, our sole product; ● our ability to commercialize the Pure-Vu System; ● our Pure-Vu System and the procedure to cleanse the colon in preparation for colonoscopy are not currently separately reimbursable through private or governmental third-party payors; ● our ability to obtain approval or certification from regulatory agents 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; ● our ability to predict the financial impact of inflation on costs such as labor, freight and materials; ● our ability to project in the short term the hospital medical device environment considering the global pandemic and financial strains on hospital systems; and ● the impact of the events occurring in the Middle East and the conflict taking place in Israel 1 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. 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 and colonoscopies. A redesigned version of the system received FDA 510(k) clearance in Q4 of 2023 which improves the overall ease of use of the system and lowers the overall cost of goods by close to 50%. An earlier version of the Pure-Vu System is also “Conformité Européenne” (“CE”) marked in the European Economic Area (EEA) for use in colonoscopy. 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 2023 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 may pursue reimbursement activities in the future, particularly in the outpatient colonoscopy market. Since we received 510(k) clearance in Q4 2023 from the FDA for the new Pure-Vu EVS System for use in the Upper GI tract and Colon we commenced limited market introduction of this product at the end of 2023. Both devices leverage the same Workstation and feature key enhancements such as a larger and more powerful suction channel, more efficient irrigation jets, a smaller profile distal tip that offers enhanced flexibility during insertion, enhanced navigation and a much easier bed side set up. 2 Strategic Review and Restructuring We have initiated a process to explore a range of strategic and financing alternatives focused on maximizing stockholder value and accelerating the commercialization of the Pure-Vu System. Potential strategic alternatives that we may consider are expected to include an acquisition, merger, reverse merger, other business combination, sale of assets, licensing and other strategic transactions. In the first half of the year ended December 31, 2023, we committed to a restructuring initiative designed to reduce our expenses and allow us to explore a range of strategic and financing alternatives focused on maximizing stockholder value and accelerating the commercialization of the Pure-Vu System. We intend to continue to evaluate and identify other areas of our business to enhance efficiencies and improve processes, with a goal to further lower our operating expenses and capital needs. There can be no assurance that this strategic review process will result in any changes to our current business plans or lead to any specific action or transaction. We do not intend to discuss or disclose further developments during this strategic review process unless and until the Board has approved a specific action or we otherwise determine that further disclosure is appropriate. If we fail to complete a strategic transaction, we may need to pursue bankruptcy, dissolution or liquidation. Market Overview Upper and Lower endoscopy are performed in the hospital setting to diagnose and treat patients with emergent GI disorders. 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 2023 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. These procedures are typically performed to help diagnose and treat GI bleeding, unknown abdominal pain, irritable bowel syndrome (IBS), inflammatory bowel disease (IBD), anemia or infection. 3 Despite the pervasiveness and effectiveness of endoscopy, it can lead to failed, delayed and poor quality procedures especially in the inpatient setting. Rescheduling the procedure creates inefficiencies in the provider’s workflow, and increases the length of hospital stay, each of which results in increased healthcare costs. In GI bleeding, diagnosing the treating the source of the bleed can be critical to the patients outcome, especially in upper GI bleeding which has a mortality rate of 10%. For colonoscope in the inpatient setting the preparation regimen typically requires patients to be on a liquid diet for 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, which can be difficult for frail patients in the hospital. For inpatients, approximately 51% have inadequate preparation that leads to at least one extra night in the hospital according to a published study by the Cleveland Clinic. Upper GI Endoscopy Market In Q4 of 2023, we announced that we received 510(k) clearance from the FDA for a version of the Pure-Vu EVS 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 in the U.S. at a rate of approximately 400,000 cases per year in 2019, according to iData Research Inc. Approximately 50% of these patients have blood and blood clots that impair a physician’s view during the procedure, thereby making it difficult to rapidly identify the bleeding source. We believe removing adherent blood clots from the field of view is a significant need in allowing a physician the ability to identify and treat the bleed source. The mortality rate of this condition can reach up to approximately 13%, as noted in Thad Wilkins, MD, et al., American Family Physician (2012). The Company has initiated a controlled launch of new Upper GI device in the US market, with positive feedback in not only Upper GI bleed procedures but in also removing stomach content in therapeutic procedures that would have otherwise been canceled. With the Pure Vu EVS system in place it eliminates the need to utilize existing irrigation and suction through the working channel of the gastroscope, physicians can use tools in tandem with Pure-Vu EVS. For example, the use of snares to break up large clots and then immediately suction out the smaller pieces using the large Pure-Vu EVS smart sense suction channel. In addition, during cases with significant bleeding, Pure-Vu EVS allows the physician to clean the area of interest and immediately apply therapy to achieve hemostasis, since the physician can have their therapeutic device prepositioned in the gastroscope’s working channel and deliver it before the blood flow covers the area of interest after cleansing. Inpatient Opportunity: improving outcomes, hospital resource utilization and reducing the time to a successful endoscopic 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 & 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 efforts 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. 4 An inpatient colonoscopy is generally more problematic than an outpatient procedure due primarily to the acuity of the patient who often struggles to complete a satisfactory pre-procedural 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 shown 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. Our Pure-Vu Solution Our system consists of a workstation controller and a single-use, disposable Flex-Channel that attaches to most gastroscopes and colonoscopes (endoscopes). Together with the endoscopes, the Pure-Vu System performs rapid, effective, and efficient intra-procedural cleaning without compromising procedural workflow and techniques. The Flex- Channel has an umbilical section that connects the disposable to the workstation. 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 GI tract to break up debris while simultaneously evacuating the 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 have built and continue to extend our intellectual property portfolio designed to protect key aspects of the system, including the pulsed vortex irrigation and auto-purge functions. 5 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 in January 2021. On October 2023, we announced the 510(k) clearance by the FDA of an upgraded version of Pure-Vu EVS System for the colon based on the design of the Pure Vu EVS Gastro which streamlines the device, eliminates the sleeve covering the scope and dramatically simplifies the set up. The Pure-Vu EVS offers usability advancements, including enhanced physician navigation and control, on-demand bedside loading, expanded cleansing capacity, and a smaller workstation footprint. Pre-Clinical and Clinical Data & Safety The Pure-Vu System has been studied in multiple clinical studies in study subjects 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 subjects and was completed in the second quarter of 2016. The second study was completed in June 2017 and involved 46 subjects. The subjects in these studies had a restricted diet for 18-24 hours and received a split dose of 20mg of over-the-counter Dulcolax® (bisocodyl). They 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 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 subjects receiving a reduced prep regimen. The study was initially designed to compare two different minimal bowel preparation regimens. Initially subjects 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 subjects 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 subjects 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. 6 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 subjects: 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 subjects 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 subjects 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: Current Additional Clinical Studies In Q2 2022, we completed the EU study of subjects 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 subjects underwent a low volume bowel preparation, with just 2x150ml picoprep. The subjects 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 subjects 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 results of the study were presented at the Digestive Disease Week meeting in May 2022 and showed a statistically significant improvement of subjects who were adequality prepped from a baseline of 31.8% to 97.7% after the use of Pure-Vu with a p-value of <0.0001. A full manuscript of this study was published in the February 2024 issue of United European Gastroenterology Journal. 7 Cost Effectiveness Analysis and Independent Studies In 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. In 2021, we also announced the presentation of results from an independent single-center study of the Pure-Vu System as an adjunct to colon cleansing in subjects 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 subjects (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 subjects. In subjects with IBP, the mean BBPS score improved from 3.1 (range: 0-6) to 8.5 (range 5-9) after intra-procedural cleansing. Three subjects 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 subjects detecting and treating diverticular and post-polypectomy bleeding in one subject 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. Further, at the ACG meeting in October 2022, results from an independent single center in the VA system were presented on the use of Pure-Vu EVS on 45 subjects over a 6- month period as either a rescue method for those with endoscopically visualized inadequate preparation or used initially with those subjects with high suspicion for being poorly prepped. The study showed an improvement from an average of 4.8 on the BBPS at baseline to 8.7 after the use of Pure-Vu EVS (below 6 is considered inadequate with 9 being the top of the range). The conclusion from the investigator stated, “Use of this intraprocedural cleansing device increases examination quality, extends surveillance intervals, improves resource utilization”. 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 eighteen granted or allowed patents in the U.S., nineteen patents in Asia (Japan, China and Hong Kong), and ten patents in the EU, with patent protection until at least 2040. In addition, we have eleven 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. 8 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. 9 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, 2023, 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, 2023, 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 (which is typically calculated at the 12-month U.S. dollar LIBOR rate published at the beginning of the calendar year in which the specific grant was approved by the IIA). 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 approval for the transfer of manufacturing of the sleeves outside of Israel. The transfer outside of Israel of manufacturing which is connected with the IIA-funded knowhow 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. 10 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.” 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 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 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. Sterling Industries uses 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 market introduction strategy of the newly approved version of the device in the United States is focused on the inpatient hospital market. We are focused on building clinical champions amongst key Gastroenterologists, that can be key reference accounts to articulate the benefits and ease of use in the upper GI tract and the colon. 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 other network hospital locations. On September 29, 2022, the Company announced that it has officially been recognized as a sole source provider and small business by the Veterans Health Administration (VHA). The VHA is the largest integrated health care system in the U.S., and provides care to over nine million veterans. The special designation will provide the Company with direct access to the VHA’s procurement arm, thereby streamlining the purchasing and contracting process. 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 approximately six 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 in key reference accounts to facilitate scaling of the commercial efforts either directly or through partnerships. Market Expansion Opportunities While our time, effort and attention are 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 Europe and other targeted OUS markets and targeted outpatient markets, as described below. 11 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. Additionally, if we choose to explore either market, we may be able to leverage our existing hospital and physician relationships developed through our clinical and future commercial efforts. In 2021, the Center for Medicare and Medicaid Services (“CMS”) granted the Pure-Vu System a permanent ICD-10 code for inpatient uses. This coding effort is part of a broader strategy to potentially 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. Employees As of December 31, 2023, we had 15 full time employees. All of our employees are engaged in administration, finance, research and development, engineering, regulatory or sales and marketing functions. We believe our relations with our employees are good. 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. 12 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. 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. 13 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. 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. 14 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, including clinical studies that assess new or modified uses for already marketed medical devices, 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. 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. 15 On January 31, 2024, FDA issued a final rule amending the QSR’s current good manufacturing practice (CGMP) requirements under 21 CFR part 820 to align more closely with the international consensus standard for Quality Management Systems for medical devices used by many other regulatory authorities around the world. This rule amends 21 CFR part 820 by incorporating by reference the quality management system requirements of the international standard specific for medical device quality management systems set by the International Organization for Standardization (ISO), ISO 13485:2016. The new rule is effective two years following its publication in the Federal Register. Until then manufacturers are required to comply with the QS regulation. FDA will begin to enforce the QMSR requirements upon its effective date, February 2, 2026. 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. 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. 16 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. 17 On March 15, 2023, the European Parliament and the Council of the European Union adopted a Regulation amending the EU MDR, and the current transitional provisions of Article 120 of the EU MDR to allow an extension in the validity of certain CE Certificates of Conformity. These transitional provisions allow CE Certificates of Conformity issued under the EU MDD to remain valid until 31 December 2027 for class IIb implantable devices (and others) and 31 December 2028 for class IIa devices (and others) under the following main conditions: (1) devices do not present any unacceptable risk to health and safety, (2) devices have not undergone significant changes in design or intended purpose, and (3) the manufacturers should undertake the necessary steps to launch the certification process under the MDR, such as adaptation of their quality management system to the MDR and submission of an application for MDR certification to a Notified Body. This amendment to the EU MDR may have an impact in our current CE Certificate of Conformity, by extending its validity beyond May 27, 2024. 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 July 2024, and certificates issued by Notified Bodies designated in the EEA will continue to be valid for the Great Britain market until July 2024. From July 2024, when the future UK Medical Device Regulations are expected to become applicable, manufacturers will have to obtain the UKCA mark to place a medical device on the Great Britain market. There are certain transition periods for existing CE and UKCA marked devices. 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. 18 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 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 payment amounts. 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. 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 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. 19 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 play a primary role in the recommendation and use of our current products and any future products for which we may obtain marketing approval for which payment is or may become available under any federal health care program. 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 products. 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. The term “remuneration” has been broadly interpreted 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 to provide services to the company; 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. Failure to meet all of the requirements of a particular statutory exception or regulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute, but the legality of the arrangement will be evaluated on a case by case basis based on the totality of the facts and circumstances. ● 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. 20 ● 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, directly or indirectly, to physicians, physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, and certified nurse midwives, and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. ● 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. 21 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. 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. Some available lawful transfer mechanisms are under scrutiny and in flux, such as the European Commission’s Standard Contractual Clauses (SCCs). While the SCCs remained the most common authorized procedure to transfer personal data out of the EU, on July 10, 2023, the European Commission adopted its adequacy decision for the EU-US Data Privacy Framework, meaning that personal data can now flow freely from the EEA to US companies that participate in the Data Privacy Framework. 22 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 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. 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. 23 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. 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. 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. 24 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. 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 strategic alternative process, including risks related to: ● the inability to identify and implement any strategic business combination or other transaction. ● the negative consequences of any strategic transaction that we may consummate. ● the operational and financial risks related to the negotiation and completion of a strategic transaction. ● if we fail to complete a strategic transaction we may need to pursue bankruptcy, dissolution or liquidation. 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. 25 ● 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. ● 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 $2.5 million minimum stockholders’ equity requirement. ● the potential adverse effect on the liquidity of our Common Stock if we implement a reverse stock split. 26 ● 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. ● 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: ● the impact of Israel’s political, economic and military instability, including the ongoing war between Israel and the terrorist organizations in the Gaza Strip, 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. Risks Related to our Strategic Alternative Process We may not be successful in identifying and implementing any strategic business combination or other transaction. We continue to evaluate various potential strategic options for us, including a merger, reverse merger, sale or other strategic transaction. However, there can be no assurance that we will be able to identify a counterparty willing to move forward with us or, if we do, successfully consummate any particular strategic transaction. The biotech industry is a competitive industry and thus there are numerous competitors of ours for strategic transactions with a limited number of parties seeking a transaction on terms that would be beneficial to our shareholders. The process of evaluating these strategic options may be very costly, time-consuming and complex and we have incurred, and may in the future incur, significant costs related to this continued evaluation, such as legal and accounting fees and expenses and other related charges. We may also incur additional unanticipated expenses in connection with this process. A considerable portion of these costs will be incurred regardless of whether any such course of action is implemented or transaction is completed. Any such expenses will decrease the remaining cash available for use in our business and may diminish or delay any future distributions to our stockholders. Any delays in identifying a potential counterparty will cause our cash balance to continue to deplete, which could make us less attractive as a strategic counterparty. Our existing outstanding indebtedness with Kreos may also impact the interest of potential third parties and may negatively impact our ability to consummate a strategic transaction. The continued review of our strategic options may also create continued uncertainty for our employees and this uncertainty may adversely affect our ability to retain key employees necessary to maintain our ongoing operations or to execute any potential strategic options, which could have a material adverse effect on our business. Further, the market capitalization of our company is below the value of our cash and cash equivalents. Potential counterparties in a strategic transaction involving our company may place minimal or no value on our remaining assets. As a result, we may not be able to execute on a strategic transaction before our cash position gets reduced, as a result of running a public company, to the point that we will need to pursue the winding down and dissolution of the company. Any strategic transactions that we may consummate in the future could have negative consequences. Any strategic business combination or other transactions that we may consummate in the future could have a variety of negative consequences and we may implement a course of action or consummate a transaction that yields unexpected results that adversely affect our business and decrease the value of our company. There can be no assurances that any particular course of action, business arrangement or transaction, or series of transactions, will be pursued, be successfully consummated, lead to increased stockholder value, or achieve the results hoped for. Any failure of such potential transaction to achieve the anticipated results could significantly impair the ability of a shareholder to realize any benefit from any future strategic transaction. 27 If we are successful in completing any strategic transaction, we may be exposed to other operational and financial risks. The negotiation and consummation of any strategic transaction may also require more time or greater cash resources than we anticipate and expose us to other operational and financial risks, including: ● increased near-term and long-term expenditures; ● our ability to service our outstanding indebtedness; ● exposure to unknown liabilities; ● higher than expected acquisition or integration costs; ● incurrence of substantial additional debt or dilutive issuances of equity securities to fund future operations; ● write-downs of assets or goodwill or incurrence of non-recurring, impairment or other charges; ● increased amortization expenses; ● difficulty and cost in combining the operations and personnel of any acquired business with our operations and personnel; ● impairment of relationships with key suppliers or customers of any acquired business due to changes in management and ownership; ● inability to retain key employees of our company or any acquired business; and ● possibility of future litigation. Any of the foregoing risks could have a material adverse effect on our business, financial condition and prospects. If a strategic transaction is not consummated, our Board may decide to file for bankruptcy protection or pursue a dissolution and liquidation of our remaining assets. In such an event, as a result of our outstanding indebtedness, the amount of cash available for distribution to our stockholders, if any, will depend heavily on the timing of such bankruptcy or liquidation as well as the amount of cash that will need to be reserved for our current debts, including repayment of amounts under our Loan Agreement (as defined below), and commitments and contingent liabilities and there may not be any cash or other assets to distribute to our stockholders. There can be no assurance that a strategic transaction will be completed. If a strategic transaction is not completed, our Board may decide to file for bankruptcy protection or pursue a dissolution of the company and liquidation of all of our remaining assets. In such an event, the amount of cash available for distribution to our stockholders, if any, will depend heavily on the timing of such decision, as with the passage of time the amount of cash available for distribution will be reduced as we continue to fund our operations and service our outstanding indebtedness. The process of bankruptcy or liquidation may be lengthy and we cannot make any assurances regarding the timing of completing such a process. If our Board were to approve and recommend, and our stockholders were to approve, a dissolution and liquidation, we would be required under Delaware corporate law to pay our outstanding obligations, as well as to make reasonable provision for contingent and unknown obligations, including repayment of the indebtedness under our Loan Agreement, which debt is secured by our assets, prior to making any distributions in liquidation to our stockholders. There can be no assurance as to the amount of available cash that will be available to distribute to stockholders, if any, after paying our debts and other obligations and setting aside funds for reserves, nor as to the timing of any such distribution. Our financial commitments and contingent liabilities would include: (i) repayment of our outstanding indebtedness under our Loan Agreement; (ii) personnel costs, including severance; (iii) contractual obligations to vendors and clinical study sites; (iv) non-cancelable lease obligations; and (v) potential litigation against us. 28 As a result of the requirement to reserve for contingencies, a portion of our assets may need to be reserved pending the resolution of such obligations and the timing of any such resolution is uncertain. In addition, we may be subject to litigation or other claims related to a bankruptcy or dissolution and liquidation. If a dissolution and liquidation were pursued, our Board, in consultation with our advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly, holders of our common stock could lose all or a significant portion of their investment in the event of a bankruptcy, liquidation, dissolution or winding up. We may become involved in securities class action litigation that could divert management’s attention and harm the company’s business, and insurance coverage may not be sufficient to cover all costs and damages. In the past, securities class action litigation has often followed certain significant business transactions, such as the sale of a company or announcement of any other strategic transaction, or the announcement of negative events, such as discontinuations of clinical programs. These events may also result in investigations by the SEC. We may be exposed to such litigation or investigation even if no wrongdoing occurred. Litigation and investigations are usually expensive and divert management’s attention and resources, which could adversely affect our business and cash resources and our ability to consummate a potential strategic transaction or the ultimate value our stockholders receive in any such transaction. 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, 2023 were prepared under the assumption that we will continue as a going concern. The independent registered public accounting firm that audited our 2023 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, 2023 and December 31, 2022 was approximately $12.9 million and $18.6 million, respectively. As of December 31, 2023, we had an accumulated deficit of approximately $154.2 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. 29 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 and we may need to file for bankruptcy protection. 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. 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 2023 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. On December 31, 2023, we had cash and cash equivalents of approximately $5.0 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. 30 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. 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. 31 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 (both domestic and foreign). 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 Quality Management and Quality Systems 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 regulatory inquiries, warning letters, or enforcement actions from the FDA, or other enforcement bodies and foreign competent authorities. 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. 32 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. 33 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 third-party payor coverage policies and reimbursement rates, 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 out-of-pocket. 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. 34 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. 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. If our operations are found to be in violation of any of these laws or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, exclusion from participation in government healthcare programs, damages, fines and the curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment or restructuring of our operations could adversely affect our ability to operate our business and our financial results. The risk of our being found in violation of these laws is increased by the fact that their provisions are open to a variety of evolving interpretations and enforcement discretion. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. 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. 35 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. 36 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; ● 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; 37 ● the introduction and market acceptance of competing products and technologies; ● rapid technological change may make our Pure-Vu System obsolete; ● our inability to project in the short term the hospital medical device environment considering the global pandemic and strains on hospital systems; and ● our inability to predict the financial impact of inflation on costs such as labor, freight and materials 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; ● 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; 38 ● 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. 39 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. 40 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. 41 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; 42 ● 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. 43 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. 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 approval for the transfer of manufacturing of the sleeves outside of Israel. The transfer outside of Israel of manufacturing which is connected with the IIA-funded knowhow 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. 44 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.” 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. 45 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, 2023, we had 15 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. 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 Mark Pomeranz, our Chief Executive Officer, Ravit Ram, our Chief Financial Officer, Elad Amor, our Chief Accounting 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, Chief Financial Officer and Chief Accounting Officer, respectively, 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. 46 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. 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. 47 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. 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. 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, 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 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. 48 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 regain compliance with the requirements for continued listing on Nasdaq, our common stock could be delisted from trading, which would adversely affect the liquidity of our common stock and our ability to raise additional capital. The Nasdaq Capital Market’s rules for listed companies requires us to meet certain financial, public float, bid price and liquidity standards on an ongoing basis in order to continue the listing of our Common Stock. In order to maintain our listing on Nasdaq, we must satisfy the continued listing requirements of Nasdaq for inclusion in The Nasdaq Capital Market, including among other things, a minimum stockholders’ equity of $2.5 million and a minimum bid price for our Common Stock of $1.00 per share. As previously disclosed on the Current Report on Form 8-K filed on January 4, 2023, we received a letter from Nasdaq indicating that we were not in compliance with the minimum stockholders’ equity requirement for continued listing on Nasdaq under Nasdaq Listing Rule 5550(b)(1) (the “Equity Rule”). In addition, as previously disclosed on the Current Report on Form 8-K filed on October 2, 2023, we received a notice on September 27, 2023 that the Nasdaq Hearings Panel (the “Hearings Panel”) granted the Company an extension to regain compliance with the Equity Rule until January 2024. On January 18, 2024, the Company was formally notified that the Hearings Panel determined that the Company has demonstrated compliance with the minimum stockholders’ equity requirement set forth under the Equity Rule for continued listing on The Nasdaq Capital Market. Pursuant to Nasdaq Listing Rule 5815(d)(4)(B), the Company will be subject to a mandatory panel monitor through January 18, 2025. In addition, as previously disclosed on the Current Report on Form 8-K filed April 5, 2023, we received a letter from Nasdaq indicating that the bid price of the Company’s common stock had failed to close above the minimum $1 requirement for the past 30 trading days in violation of Listing Rule 5550(a)(2) (the “Bid Price Rule”). The Company was provided 180 calendar days, or until September 27, 2023, to regain compliance with the Bid Price Rule. On November 21, 2023, we received a letter from Nasdaq confirming that the Company had regained compliance with the minimum bid price requirement in Listing Rule 5550(a)(2). The delisting of our common stock from Nasdaq would have a material adverse effect on our access to capital markets, and any limitation on market liquidity or reduction in the price of our common stock as a result of that delisting would adversely affect our ability to raise capital on terms acceptable to us, if at all. 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. 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; 49 ● 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 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. 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. We do not expect that disclosure controls or internal control over financial reporting, 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. 50 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 a non-accelerated filer, 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. This Annual Report does not include an attestation report of our independent registered public accounting firm because we are a “non-accelerated filer,” and may take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are accelerated filers, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act. 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. 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. 51 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. 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. 52 In particular, on October 7, 2023, war broke out between Israel and the terrorist organizations in the Gaza Strip, following a surprise attack on Israel led by certain armed groups in the Gaza Strip. To date, our operations in Israel have not been significantly impacted by the ongoing war. 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, 2023, 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, 2023, 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 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 (which is typically calculated at the 12-month U.S. dollar LIBOR rate published at the beginning of the calendar year in which the specific grant was approved by the IIA). 53 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 approval for the transfer of manufacturing of the sleeves outside of Israel. The transfer outside of Israel of manufacturing which is connected with the IIA-funded knowhow 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). 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. 54 ITEM 1B. UNRESOLVED STAFF COMMENTS None. ITEM 1C. Cybersecurity Cybersecurity Risk Management We, like other companies in our industry, face a number of cybersecurity risks in connection with our business. Our business strategy, results of operations, and financial condition have not, to date, been affected by risks from cybersecurity threats. During the reporting period, we have not experienced any material cyber incidents, nor have we experienced a series of immaterial incidents, which would require disclosure. In the ordinary course of our business, we use, store and process data including data of our employees, partners, collaborators, and vendors. We have implemented a cybersecurity risk management program that is designed to identify, assess, and mitigate risks from cybersecurity threats to this data and our systems. Our cybersecurity risk management program incorporates several components, including information security program assessments, continuous monitoring of cyber risks and threats using automated tools, on-premises and cloud backups, periodic threat testing, and employee training. Under the direction of executive management, our cyber risk management program is led by a third-party IT consultant with Microsoft Cybersecurity Architect Expert certifications. We deploy endpoint detection software and device management in conjunction with other reputable cybersecurity software. We require multifactor authentication across all systems and utilize access control policies to further limit access to data within the systems. We periodically engage third parties to conduct risk assessments, including penetration testing and other vulnerability analyses. Our finance department, with the assistance of outside technical advisors, regularly conducts internal assessments of different systems to evaluate the efficacy of our risk management processes. As a result of these assessments and testing, we have evaluated known risks and hardened both our on-premises and cloud-based environments. Additionally, our program includes cybersecurity training and testing for all employees—during onboarding and quarterly thereafter. The training focuses on cyber threat awareness, phishing, and other attack methods and is supplemented by testing initiatives, including semi-annual phishing tests. Governance Under the ultimate direction of our Chief Executive Officer and our executive management team, with oversight from our Audit Committee of the Board of Directors (“Audit Committee”), we maintain a security governance structure to evaluate and address cyber risk. Our executive management team regularly consults with our third-party IT consultant who has expertise in cybersecurity to develop strategies to assess, address and align cybersecurity efforts with our business objectives and operational requirements. Our Board of Directors is responsible for the oversight of cybersecurity risk management. Our Board has delegated regular oversight of the cybersecurity risk management program to our Audit Committee, which includes oversight of information security and cybersecurity threats and related compliance and disclosure requirements. On a quarterly basis, our executive management team provides an update to our Audit Committee regarding our cybersecurity risk management program, including any critical cybersecurity risks, ongoing cybersecurity initiatives and strategies, and applicable regulatory requirements and industry standards. The executive management team also notifies the Audit Committee of any cybersecurity incidents (suspected or actual) and provides updates on the incidents as well as cybersecurity risk mitigation activities as appropriate. 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 into a new tenancy contract with the facility for a period of twelve months from January 1, 2024 to December 31, 2024. Rent is approximately $0.2 million for the twelve months. 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, the Company entered into a license agreement (the “Shared Space Agreement”) with Orchestra BioMed, Inc. (OBIO), formerly a greater than 5% holder of the Company’s common stock. Pursuant to the Shared Space Agreement, the Company granted a license to OBIO for the use of portions of the office space not being used by the Company in the Company’s leased facility in Fort Lauderdale, Florida (the “Premises”), and a proportionate share of common areas of such Premises, which previously covered approximately 35% of the Premises and was to expand incrementally to approximately 60 to 70% of the Premises by September 2024. In May 2022, the Company entered into an amendment to the Shared Space Agreement. Pursuant to the amendment, the area covered by the Shared Space Agreement was expanded to 95% of the premises and the aggregate license fees will generally range from approximately $212 thousand to approximately $270 thousand in any given calendar year during the term of the Shared Space Agreement until the termination of the lease in November 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. 55 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 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 6, 2024, we had approximately 289 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 the latest market data for the US and Europe as obtained from iData Research Inc., we believe that during 2022 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 may pursue reimbursement activities in the future, particularly in the outpatient colonoscopy market. We received 510(k) clearance in October 2023 from the FDA for the Pure-Vu EVS System for use in the Upper GI tract as well as an enhanced version for the colon. We have commenced market introduction of these products in late Q4 2024. We do not expect to generate significant revenue from product sales until we further expands our commercialization efforts, which is subject to significant uncertainty. 56 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 net loss of $12.9 million for year ended December 31, 2023, and we expect to continue to incur net operating losses for the foreseeable future. As of December 31, 2023, we had $5.0 million in cash and cash equivalents and an accumulated deficit of $154.2 million. We also had $2.3 million of debt outstanding under our Loan Agreement. In February, as described in more detail below, we completed a transaction for the immediate exercise of an outstanding Series B common stock purchase warrant held by an institutional investor to purchase an aggregate of 2,933,334 shares of common stock for gross proceeds to us of approximately $2.7 million. In January and April 2023, we committed to a restructuring initiative designed to position us to explore a range of strategic and financing alternatives focused on maximizing stockholder value and accelerating the commercialization of the Pure-Vu System. If a strategic transaction is not completed, or if additional financing is not available, we may not be able to service our outstanding indebtedness and our payables and may have to file for bankruptcy protection or pursue a dissolution and liquidation of all of our remaining assets. In such an event, the amount of cash available for distribution to our shareholders, if any, will depend heavily on the timing of such decision, as with the passage of time the amount of cash available for distribution will be reduced as we continue to fund our operations and service our outstanding indebtedness. We cannot provide assurance as to the amount of cash that would be available to distribute to shareholders, if any, after paying our debts and other obligations and setting aside funds for reserves, nor as to the timing of any such distribution, if any. Such conditions raise substantial doubts about our ability to continue as a going concern. We continue to seek to fund our operations through public or private equity or debt financings or other sources, which may include collaborations with third parties and evaluating other strategic alternative transactions including, but not limited to, an acquisition, merger, reverse merger, other business combination, sale of assets, licensing and other transactions. The sale of equity and convertible debt securities may result in dilution to our shareholders and certain of those securities may have rights senior to those of our common shares. If we raise additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these securities or other debt could contain covenants that would restrict our operations. Any other third-party funding arrangement could require us to relinquish valuable rights. The source, timing and availability of any future financing will depend principally upon market conditions, and, more specifically, on the progress of our product and clinical development programs as well as commercial activities. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital or execute a strategic transaction as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We will need to generate significant revenues to achieve profitability, and we may never do so. Additionally, the effects of inflation on costs such as labor, freight, and materials as well as the ongoing volatility in the financial markets may negatively affect the financial performance and the liquidity of the business. 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. 57 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. Inventory Inventory is accounted for at lower of cost and net realizable value using the weighted average cost method. The determination of whether inventory costs will be realizable requires estimates by management. We perform an assessment of the realizability of inventory during each reporting period. Write-downs for potentially obsolete or excess inventory are made based on management’s analysis of inventory levels, historical obsolescence, future sales forecasts, and any changes in the commercial business. We write- down any excess and obsolete inventories to their estimated realizable value in the period in which the impairment is first identified. Inventories that exceed estimated realization for the next twelve months from balance sheet date based on future sales forecasts are classified as long-term assets. 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 our 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. 58 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. Complex Financial Instruments The Company reviews the terms of debt instruments, equity instruments, and other financing arrangements to determine whether there are embedded derivative features, including embedded conversion options that are required to be bifurcated and accounted for separately as a derivative financial instrument. Additionally, in connection with the issuance of financing instruments, the Company may issue freestanding options and warrants, including options or warrants to non-employees in exchange for consulting or other services performed. The Company accounts for its common stock warrants in accordance with Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging (“ASC 815”). Based upon the provisions of ASC 815, the Company accounts for common stock warrants as liabilities if the warrant requires net cash settlement or gives the holder the option of net cash settlement, or it fails the equity classification criteria. The Company accounts for common stock warrants as equity if the contract requires physical settlement or net physical settlement or if the Company has the option of physical settlement or net physical settlement and the warrants meet the requirements to be classified as equity. Common stock warrants classified as liabilities are initially recorded at fair value on the grant date and remeasured at fair value each balance sheet date with the offset adjustments recorded in change in fair value of warrant liability within the consolidated statements of operations. Common stock warrants classified as equity are initially measured at fair value on the grant date and are not subsequently remeasured. 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, 2023 and 2022 Revenue As of December 31, 2023, we have generated a limited amount of revenue from the sales of products. We do not expect to generate significant revenue from product sales until we further expand our commercialization efforts for the Pure-Vu EVS System, which is subject to significant uncertainty. Revenue totaled $319.0 thousand for the year ended December 31, 2023, compared to $592.0 thousand for the year ended December 31, 2022. The decrease of $273.0 thousand was primarily attributed to decrease in sales of the EVS product line, due to our reduced sales force from our restructuring in 2023. Cost of Revenue Cost of revenue for the year ended December 31, 2023 totaled $569.0 thousand, compared to $796.0 thousand for the year ended December 31, 2022. The decrease of $227.0 thousand was primarily attributed to a decrease of $117.0 thousand in the disposable evaluation and commercial units sold as well as workstation units sold, and a decrease of $110.0 thousand in inventory impairment related to excess inventory. Cost of revenue for product sales for the year ended December 31, 2023 totaled $81.0 thousand, compared to $198.0 thousand, which resulted in a gross profit for product sales of 75% and 67% for the years ended December 31, 2023 and 2022, respectively. 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, 2023 totaled $3.5 million, compared to $5.6 million for the year ended December 31, 2022. The decrease of $2.1 million was primarily attributable to decreases of $0.9 million in payroll and related costs as a result of our restructuring during the first half of the year ended December 31, 2023, $0.6 million of clinical trial costs, $0.2 million in share-based compensation, professional and consulting costs of $0.3 million and $0.1 million in travel and other R&D costs. 59 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 Pure-Vu System. Sales and marketing expenses for the year ended December 31, 2023 totaled $1.6 million, compared to $4.4 million for the year ended December 31, 2022. The decrease of $2.8 million was primarily attributable to decreases of $1.9 million in payroll and related costs as a result of our restructuring during the first half of the year ended December 31, 2023, $0.2 million in demonstrational product, $0.2 million in promotional and tradeshow, $0.2 million in share-based compensation and $0.3 million in travel and other sales and marketing expenses. 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, and compliance related fees. General and administrative expenses for the year ended December 31, 2023 totaled $6.6 million, compared to $7.6 million for the year ended December 31, 2022. The decrease of $1.0 million was primarily attributed to decreases of $0.9 million in share-based compensation, $0.2 million in investor and public relation costs, insurance costs of $0.1 million, and $0.3 million in other general and administrative costs, partially offset by an increase of $0.5 million in payroll and related costs. Other Income and Expenses Other expense, net for the year ended December 31, 2023 totaled $1.0 million compared to $0.7 million for the year ended December 31, 2022. The increase of $0.3 million in other expense, net was primarily attributable to a decrease of $0.5 million in finance expense, offset by a decrease of $0.4 million in the gain on change in estimated fair value of contingent royalty obligation and a $0.3 million increase in loss on extinguishment of debt. 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. As described above under “Overview” and “Financial Operations Overview,” we adopted a restructuring program in January and April 2023 intended to reduce our operating costs and other expenses and have commenced a process of evaluating strategic alternatives. If a strategic transaction is not completed, or if additional financing is not available, we may not be able to service our outstanding indebtedness and our payables and may have to file for bankruptcy protection or pursue a dissolution of the company and liquidation of all of our remaining assets. In such an event, the amount of cash available for distribution to our shareholders, if any, would depend heavily on the timing of such decision, as with the passage of time the amount of cash available for distribution may be reduced as we continue to fund our operations and service our outstanding indebtedness. Further, we cannot provide assurance as to the amount of cash that would be available to distribute to shareholders, if any, after paying our debts and other obligations and setting aside funds for reserves, nor as to the timing of any such distribution, if any. We expect to continue to fund our operations primarily through utilization of our current financial resources, future product sales, the issuance of debt or equity, as well as through potential strategic alternative transactions. We believe our cash on hand at December 31, 2023 and the proceeds received in our February 2024 transaction will fund our projected operations through Q2 2024. 60 On November 28, 2023 (“Amendment Effective Date”), we and Kreos entered into the First Amendment (“First Amendment”) to the 2021 Loan Agreement, which provided: ● On the Amendment Effective Date, we paid Kreos $750 thousand in cash which was applied against the outstanding obligations under the Long-term Debt. ● Upon consummation of a First Amendment Capital Raise (as defined below) and immediately following the Convertible Note Securities Exchange (as defined below), which First Amendment Capital Raise (as described below) occurred in December 2023, we paid Kreos $1.5 million in cash which will be applied against the outstanding obligations under the Long-term Debt. ● Upon consummation of a First Amendment Capital Raise, we will make interest-only payments on the Long-term Debt for a period of six months, and for the remaining 12 months, principal and interest, until the Long-term Debt is repaid in full. ● Subject to the satisfaction (or waiver by Kreos) of certain Exchange Conditions (as defined in the Amendment), immediately following the consummation of an equity financing registered under the Securities Act of 1933, as amended (the “Securities Act”), and to be consummated no later than December 29, 2023 with gross proceeds of at least $5 million (“First Amendment Capital Raise”), Kreos surrendered securities representing $4 million (the “Conversion Amount”) of the outstanding aggregate principal balance of the Convertible Note and we delivered to Kreos, in exchange for the surrender of the Convertible Loan Securities, the securities described below (the “Convertible Note Securities Exchange”). We determined that the First Amendment should be accounted for as a modification, as the change in cash flows was not determined to be substantial. Additionally, we assessed the addition of the Convertible Note Securities exchange feature as a share-settled redemption provision and determined that it did not require bifurcation as a separate derivative liability. As such, we accounted for the First Amendment on a prospective basis and capitalized $300 thousand in fees paid to Kreos in relation to the First Amendment. In addition, we recognized a loss on debt extinguishment of $22 thousand reflecting the proportional write-down of unamortized debt issuance costs upon the $750 thousand partial repayment required under the First Amendment. 61 On December 18, 2023, we entered into a securities purchase agreement (the “Purchase Agreement”) with certain purchasers, pursuant to which we agreed to issue and sell, in a public offering (the “Offering”), (i) 520,000 shares (the “Shares”) of our common stock, par value $0.0001 per share (the “Common Stock”), (ii) 2,813,334 pre-funded warrants (the “Pre-Funded Warrants”) exercisable for an aggregate of 2,813,334 shares of Common Stock, (iii) 3,333,334 Series A common warrants (the “Series A Common Warrants”) exercisable for an aggregate of 3,333,334 shares of Common Stock, and (iv) 3,333,334 Series B common warrants (the “Series B Common Warrants,” and together with the Series A Common Warrants, the “Common Warrants”) exercisable for an aggregate of 3,333,334 shares of Common Stock. The Shares (or Pre-Funded Warrants sold in lieu thereof) and the accompanying Common Warrants were offered for a combined purchase price of $1.50 per Share (or $1.4999 per Pre-Funded Warrant) and accompanying Series A Common Warrant to purchase one share of Common Stock and Series B Common Warrant to purchase one share of Common Stock. The Offering closed on December 21, 2023. The Shares and the Warrants were offered and sold pursuant to a prospectus, dated December 18, 2023. This transaction was deemed to be the First Amendment Capital Raise. On December 21, 2023, immediately following the closing of the Offering, and pursuant to the terms of the First Amendment, the $4 million outstanding principal amount of the Convertible Note was automatically exchanged into (i) 54,461 shares of Common Stock (the “Private Shares”), (ii) pre-funded warrants (the “Private Pre-Funded Warrants”) exercisable for an aggregate of up to 2,612,205 shares of Common Stock, (iii) Series A common warrants (the “Series A Private Warrants”) exercisable for an aggregate of up to 2,666,666 shares of Common Stock and (iv) Series B common warrants (the “Series B Private Warrants,” together with the Series A Private Warrants and Private Pre-Funded Warrants, the “Private Warrants”) exercisable for an aggregate of up to 2,666,666 shares of Common Stock (the shares issuable upon exercise of the Private Warrants, the “Private Warrant Shares”). The Series A Private Warrants and the Series B Private Warrants are each exercisable for one share of Common Stock at an exercise price of $1.50 per share and will expire on the fifth year anniversary and the eighteen months anniversary from the date of issuance, respectively. The Series B Private Warrants will not be exercisable until shareholder approval is obtained. In addition, upon a fundamental transaction, the holder of the Series A Private Warrants and Series B Private Warrants shall have the right to receive payment in cash, or under certain circumstances in other consideration, from the Company at the Black Scholes value, as described in such warrants. The Private Pre-Funded Warrants are each exercisable for one share of Common Stock at an exercise price of $0.0001 per share and will expire when exercised in full. On February 26, 2024, we closed a definitive agreement for the immediate exercise of an outstanding Series B common stock purchase warrant held by an institutional investor to purchase an aggregate of 2,933,334 shares of common stock for gross proceeds to us of approximately $2.7 million. As part of this transaction, the investor agreed to exercise the existing Series B common stock purchase warrant, which was originally issued in December 2023 and had an exercise price of $1.50 per share, at a revised exercise price of $0.925 per share. In consideration for the immediate exercise of the existing warrant for cash, we agreed to issue to the investor two new unregistered warrants, each to purchase 2,200,000 and 2,200,001 shares of common stock (or an aggregate of 4,400,001 shares) at an exercise price of $0.74 per share, respectively. The new warrants were exercisable immediately upon issuance. Such warrants are identical, except that the first 2,200,000 warrants have a term of five years from the date of issuance and the second 2,200,001 warrants have a term of eighteen months from the date of issuance. In connection with the offering, we also agreed to amend, effective upon the closing of this offering, the terms of 2,933,334 Series A common stock purchase warrants issued in December 2023 held by the same institutional investor to reduce the existing exercise price thereof to $0.74 per share and 276,134 warrants issued in May 2023 held by the institutional investor to reduce the existing exercise price thereof to $0.74. Both warrants will have an extended expiration date to February 2029. All of the other terms of such warrants remain unchanged. On May 17, 2023, we entered into a securities purchase agreement with an accredited investor pursuant to which we agreed to issue and sell in a private placement an aggregate of (i) 35,000 shares of common stock, (ii) warrants to purchase up to 241,134 shares of common stock (the “Pre-Funded Warrants”) and (iii) warrants to purchase up to 276,134 shares of common stock (the “Common Warrants”). The purchase price was $12.675 for each share of common stock and $12.674 for each Pre-Funded Warrant, resulting in net proceeds of approximately $3.0 million, inclusive of issuance costs of $0.5 million and exclusive of warrant issuance costs of $0.2 million. 62 On July 16, 2021, we entered into Loan Agreement with Kreos. Under the Loan Agreement, Kreos agreed to provide us with access to term loans in an aggregate principal amount of up to $12.0 million in three tranches as follows: (a) on the Effective Date, a loan in the aggregate principal amount of $4 million (the “Convertible Note”, or “Tranche A”), (b) on the Effective Date, a loan in the aggregate principal amount of $5 million (“Tranche B”), and (c) available until December 31, 2021, a loan in the aggregate principal amount of $3 million (“Tranche C”). Outstanding borrowings under the Loan Agreement were secured by a first priority security interest on substantially all of our personal property assets, including our material intellectual property and equity interests in its subsidiaries. The Convertible Note and Tranche B were funded on the Effective Date. As of December 31, 2021, we drew down the full $3 million aggregate principal amount of Tranche C. The Convertible Note required forty-eight monthly interest only payments at 7.75% per annum commencing after July 16, 2021, and thereafter full payment of the then outstanding principal balance of the Convertible Note on July 1, 2025. The Loan Agreement contains features that would permit Kreos 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 our common stock to be issued to Kreos at a price per share equal to the conversion price, of $420 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 would continue to bear interest at 7.75% per annum. The Tranche B loan requires interest only monthly payments commencing on the July 16, 2021 until September 30, 2022 and, thereafter, thirty-three monthly payments of principal and interest accrued thereon until June 1, 2025. The Tranche C loan required interest only monthly payments commencing 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. As of December 31, 2023, the outstanding principal balance of the Tranche B loan and the Tranche C loan in aggregate is $2.3 million. After effecting the Convertible Note Securities Exchange, there is an outstanding principal balance of $2.3 under the Loan Agreement. In March 2021, we entered into an Equity Distribution Agreement (the “Equity Distribution Agreement”) with Oppenheimer & Co. Inc. (“Oppenheimer”), under which we may offer and sell from time to time common shares having an aggregate offering price of up to $25.0 million. During the year ended December 31, 2023, we sold 7,942 shares of our common stock under this agreement, resulting in net cash proceeds of $102 thousand, after deducting issuance costs of $19 thousand. Rising inflation, rising interest rates, and financial market volatility may adversely impact our ability to enter into, modify, and negotiate favorable terms and conditions relative to equity and debt financing initiatives. The uncertain financial markets, potential disruptions in supply chains, and changing priorities could also affect our ability to enter into key agreements. These disruptions may negatively impact our future sales, results of operations, financial condition, and liquidity. Our ability to continue as a going concern for the next twelve months from the issuance of our Annual Report on Form 10-K, depends on our ability to execute our business plan, increase revenue and reduce expenditures. As of December 31, 2023, we had cash and cash equivalents of $5.0 million and an accumulated deficit of $154.2 million. We also had $2.3 million of debt outstanding under or Loan Agreement. In February 2024, as described in more detail below, we completed a transaction for the immediate exercise of an outstanding Series B common stock purchase warrant held by an institutional investor to purchase an aggregate of 2,933,334 shares of common stock for gross proceeds to us of approximately $2.7 million Based on our current business plan, we believe our cash and cash equivalents as of December 31, 2023 and the proceeds received in the February 2024 transaction will be sufficient to meet our anticipated cash requirements into Q2 2024. We will need to raise significant additional capital to continue to fund operations. We may seek to sell common or preferred equity, convertible debt securities or seek other debt financing. In addition, we may seek to raise cash through collaborative agreements or from government grants, as well as evaluate other strategic alternative transactions. The sale of equity and convertible debt securities may result in dilution to our shareholders and certain of those securities may have rights senior to those of our common shares. If we raise additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these securities or other debt could contain covenants that would restrict our operations. Any other third-party funding arrangement could require us to relinquish valuable rights. The source, timing and availability of any future financing will depend principally upon market conditions, and, more specifically, on the progress of our product and clinical development programs as well as commercial activities. Funding may not be available when needed, at all, or on terms acceptable to us. Lack of necessary funds may require us, among other things, to delay, scale back or eliminate expenses including those associated with our planned product development, clinical trial and commercial efforts. 63 These factors raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. 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 investing activities Net cash provided by financing activities Net decrease in cash and cash equivalents Operating Activities Years Ended December 31, 2023 2022 (in thousands) (11,197) (104) 2,217 (9,084) $ $ (17,467) (224) 9,170 (8,521) $ $ During the year ended December 31, 2023, operating activities used $11.2 million of cash, due to our net loss of $12.9 million, offset by non-cash expenses principally related to share-based compensation expense of $0.5 million, depreciation and amortization of $0.5 million, amortization of debt issuance costs of $0.3 million, loss on extinguishment of debt of $0.3 million, impairment of inventory of $0.5 million, amortization of operating lease right of use asset of $0.2 million and offset by a gain on the change in estimated fair value of contingent royalty obligation of $0.1 million, changes in net working capital items principally related to the increase in prepaid expenses and other current assets of $0.3 million, increase in operating lease liabilities of $0.2 million, and the increase in accounts payable and accrued expenses of $0.5 million. Investing Activities During the year ended December 31, 2023, net cash used in investing activities was $0.1 million related to the purchase of fixed assets. Financing Activities During the year ended December 31, 2023, net cash provided by financing activities was $2.2 million, related to proceeds from issuance of common shares pursuant to at-the- market issuance registered offerings of $0.1 million, proceeds from issuance of common shares upon public offerings of $5.0 million, and $3.5 million in proceeds from a private placement offering, offset by $5.0 million in repayment under term loan, $0.2 million in payment of debt issuance costs, and equity financing fees of $1.3 million. Shelf Registration Statement On March 16, 2021, we filed a shelf registration statement (File No. 333-254343) with the Securities and Exchange Commission (the “2021 Shelf Registration Statement”), which was declared effective on March 26, 2021, that allows us to offer, issue and sell through May 26, 2024, 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, 2023, we have not sold any securities under the 2021 Shelf Registration Statement, except pursuant to the at-the-market offering program with Oppenheimer 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, 2023, we sold approximately 7,942 shares of common stock pursuant to the above-described Equity Distribution Agreement, resulting in net cash proceeds of $102 thousand, after deducting issuance costs of $19 thousand. 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. 64 Contractual Obligations and Commitments For Operating Leases and Other Commitments For further information, refer to Note 7 and Note 9 of the Notes to the Consolidated Financial Statements included in Pages F-15 through F-17 of this Annual Report on Form 10-K. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, we are not required to provide the information required by this item. ITEM 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. ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Management, with the participation of our Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2023. 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, Chief Financial Officer, and Chief Accounting Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2023. 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, Chief Financial Officer, and Chief Accounting 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, 2023. 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 does not include an attestation report of our independent registered public accounting firm because we are a “non-accelerated filer,” and may take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are accelerated filers, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) 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, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION Director and Officer Trading Arrangements None of our directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the fourth quarter of the year ended December 31, 2023. Warrants During the quarter ended December 31, 2023 and in February 2024, we issued warrants to an investment bank to purchase an aggregate of (i) 150,417 shares of common stock at an exercise price of $1.875 and (ii) 146,667 shares of common stock at an exercise price of $1.1563 per share, respectively, which were exercisable immediately upon issuance and have a term of five years from the date of issuance. These securities have not been registered under the Securities Act and were offered pursuant to the exemption from registration provided in Section 4(a)(2) under the Securities Act, and Rule 506(b) promulgated thereunder. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. Not applicable. 65 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The following sets forth certain information with respect to our officers and directors. PART III Name Mark Pomeranz Ravit Ram Elad Amor Timothy P. Moran Scott Durbin Gary J. Pruden Sonja Nelson Management Age 62 49 40 52 55 62 50 Position(s) Chief Executive Officer and Director Chief Financial Officer Chief Accounting Officer Director Director Director Director Mark Pomeranz, Chief Executive Officer and Director Mr. Pomeranz has served as Chief Executive Officer since April 13, 2023 and a member of our board since 2014. Prior to his tenure as Chief Executive Officer, Mr. Pomeranz served as the Company’s Chief Operating Officer from September 2018 through April 2023. Mr. Pomeranz has also previously 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. Ravit Ram, Chief Financial Officer Mrs. Ram has served as Chief Financial Officer since June 2023. Prior to her tenure as our Chief Financial Officer, Mrs. Ram served as our General Manager and VP of Global Operations from April 2018 through May 2023. Prior to joining Motus GI in April 2018, Mrs. Ram served as the Director of Finance, supply chain, and site manager at EndoChoice, managing EndoChoice Israeli site finance, supply chain, and IT departments. Earlier, she served as Global Director Operation Controller at Given Imaging, responsible for all financial aspects of company global operations and R&D activities. Mrs. Ram earned her B.A. in Finance and Sociology at ‘Bar Ilan’ University and M.A. in Actuary – Haifa University. Elad Amor, Chief Accounting Officer Mr. Amor has served as Chief Accounting Officer since June 2023. Prior to his tenure as Chief Accounting Officer, Mr. Amor served as the Company’s Global Director of Corporate Finance and Accounting since 2019, where he oversaw all facets of the Company’s global accounting functions, as well as the preparation of internal and external financial reporting. Prior to joining the Company in 2019, Mr. Amor was the Associate Director of Accounting and SEC Reporting at Kaleido Biosciences. Earlier, from 2016- 2019, he served as the Manager of SEC Reporting and Technical Accounting at CRISPR Therapeutics AG, where he was responsible for preparing and overseeing the preparation of all public filings. Mr. Amor is a certified public accountant and earned his Master of Science in Accounting and Master of Business Administration from Northeastern University, as well as a Master of Science in Medical Epidemiology from the Medical College of Wisconsin and a BS in Genetics from the University of Wisconsin. 66 Directors Mark Pomeranz, President, Chief Executive Officer and Director See description under Management. Timothy P. Moran, Chairman of the Board Mr. Moran served as Chief Executive Officer from October 1, 2018 to April 13, 2023. 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. Scott Durbin, Director Mr. Durbin has served on our board of directors since September 2023. Currently, Mr. Durbin is CEO and Director of illumiSonics Inc., developer of the PARS platform, a revolutionary, non-contact, high-resolution, label-free, non-destructive optical imaging system based on new physics. Prior to illumiSonics, Mr. Durbin held executive roles at Viveve from May 2012 to March 2023, including as the Chief Executive Officer and Chief Financial Officer, as well as serving on the Board of Directors. Prior to his time at Viveve, he was Chief Financial Officer at Vericel, formerly Aastrom Biosciences (ASTM). Prior to joining Vericel, Mr. Durbin was Chief Financial Officer, Chief Operating Officer and Secretary of Board at Prescient Medical. Prior to Prescient Medical, Mr. Durbin was with the Investment Banking team, Healthcare and Merger & Acquisition, at Lehman Brothers. Mr. Durbin began his career as a Director of Neurophysiology at Biotronic. He holds a Master’s degree in Health Management w/ honors from Yale University. He received his Bachelor’s of Science / Pre-med from the University of Michigan. Mr. Durbin was selected as a director because he has decades of experience as an executive at start-ups and multi-national life sciences companies. During this time, he established strong industry knowledge across the life sciences industry, including substantial therapeutic clinical development and global commercialization experience. 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 Olympus Corporation, (OTCMKTS: OCPNY) (and serves as a member of its compensation committee), Lantheus Holdings, Inc. (NASDAQ: LNTH) (and serves as a member of its audit committee and the chair of its compensation committee), OSSIO Inc, 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. 67 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, (NASDAQ: AMAM ) and from October 2022 through April 2023, as the company’s Chief Financial and Operating Officer. 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 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. Durbin, 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 Ms. Nelson, Mr. Pruden and Mr. Durbin, with Mr. Durbin 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. 68 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 Ms. Nelson, Mr. Pruden and Mr. Durbin with Mr. Pruden 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. Section 16 Reports Section 16(a) of the Exchange Act requires our directors, executive officers, and persons who beneficially own more than ten percent of our capital stock to file reports on Forms 3, 4 and 5 with the SEC concerning their ownership of, and transactions in, our capital stock. To our knowledge, based solely on our review of the copies of such reports furnished to us and on the representations of the reporting persons, all of these reports were timely filed for the year ended December 31, 2023. 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, 2023, our two other most highly compensated executive officers who were serving as executive officers as of December 31, 2023, 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, 2023. The persons listed in the following table are referred to herein as the “named executive officers”. Name and Principal Position Mark Pomeranz Chief Executive Officer Ravit Ram Chief Financial Officer Elad Amor Chief Accounting Officer Year 2023 2022 Salary ($) 428,333 385,000 Bonus ($) 256,500 -(7) 2023 2022 197,425 214,710 66,916 -(7) 2023 2022 200,000 197,500 47,500 -(7) Stock Awards ($) (2) - 43,102 - - - - Option Awards ($) (1) 79,254 43,092 47,551 45,985 28,529 17,629 All Other Compensation ($) 192,266(4) 44,311(3) Total ($) 956,353 515,505 107,244(5) 74,908(3) 419,136 335,603 102,369(6) 45,144(3) 378,398 260,273 (1) Amounts reflect the grant date fair value of option awards granted in 2023 and 2022 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 2023 and 2022 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) Amounts relate to corporate and health benefits and retirement benefits. (4) Amount reflects a one-time retention of $100,000, accrued vacation payout of $51,825 and health benefits and retirement benefits of $40,441. (5) Amount reflects a one-time retention of $40,387, accrued vacation payout of $7,636 and health benefits and retirement benefits of $40,59,221. (6) Amount inclusive a one-time retention of $30,000, accrued vacation payout of $21,537 and health benefits and retirement benefits of $50,832. (7) Bonus payout was cancelled for 2022. 69 Narrative Disclosure to Summary Compensation Table Employment Agreements with Our Named Executive Officers On September 24, 2018, we entered into an amended and restated employment agreement with Mark Pomeranz, which 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 held the position of President and Chief Operating Officer, and was appointed Chief Executive Officer on April 13, 2023. He 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 25,555 shares of our Common Stock pursuant to our Equity Incentive Plan with an exercise price of $100.00 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 $90.00 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. In May 2023, Mr. Pomeranz’s base salary was increased to $450,000, annually and performance bonus increased to 60% of base salary, $270,000. Ms. Ram’s employment agreement (the “Ram Employment Agreement”) entitles Ms. Ram to the following compensation: (i) a monthly base salary of $16,500, which includes an overtime allotment per Israeli law, (ii) eligibility to earn a performance bonus equaling 25% of Ms. Ram’s base salary of $49,200, (iii) for as long as Ms. Ram remains employed by the Company, the Company and Ms. Ram shall maintain an advanced study fund for Ms. Ram’s benefit, which the Company shall contribute an amount equal to 7.5% of Ms. Ram’s annual salary and Ms. Ram shall contribute an amount equal to 2.5% of her salary, (iv) options to purchase up to 2,500 shares of the Company’s common stock, (v) a cellular line and (vi) a Company car. In August 2023, Ms. Ram’s performance bonus increased to 35% of base salary, $69,300. Mr. Amor’s employment agreement (the “Amor Employment Agreement”) entitles Mr. Amor to the following compensation: (i) an annualized base salary of $200,000, (ii) eligibility to earn a performance bonus equaling 15% of Mr. Amor’s base salary or $30,000, and (iii) options to purchase up to 2,500 shares of the Company’s common stock. In August 2023, Mr. Amor’s performance bonus increased to 25% of base salary, $50,000. The employment agreements with Israeli employees of Motus GI Medical Technologies Ltd., our wholly owned subsidiary, contain standard provisions for a company in our industry regarding non-competition, confidentiality of information and assignment of inventions. The enforceability of covenants not to compete in Israel is subject to limitations. For example, Israeli courts have required employers seeking to enforce non-compete undertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of the employer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or its intellectual property. 70 Outstanding Equity Awards at Fiscal Year-End Table – 2023 The following table summarizes, for each of the named executive officers, the number of shares of our Common Stock underlying outstanding stock options held as of December 31, 2023. Option Awards Name Exercisable Unexercisable Price ($) Number of Securities Underlying Unexercised Options Option Exercise Ravit Ram (CFO) Mark Pomeranz (CEO) Elad Amor (CAO) 166 142 172 166 150 212 252 569 223 1,703 428 134 266 250 198 184 948 166 66 66 103 96 341 - - - - - 21 181 6,263 - - - - - - 18 132 10,349 - - - 10 70 3,758 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Stock Awards Number of Shares or Units of Stock That Have Not Market Value of Shares or Units of Stock That Have Not Vested Vested ($) 150(9) $ 191.25 - Option Expiration Date May 10, 2028 February 13, 2029 February 6, 2030 June 11, 2030 November 11, 2030 February 17, 2031 February 10, 2032 August 5, 2033 April 2, 2024 May 3, 2027 February 13, 2029 February 6, 2030 June 11, 2030 November 11,2030 February 17, 2031 February 10, 2032 August 5, 2033 1,308(1) 1,296(2) 648(3) 351(4) 222(5) 534(8) 138(10) 9(11) 714(6) 1,350(7) 1,296(2) 648(3) 351(4) 222(5) 534(8) 138(10) 9(11) 648(3) 351(4) 222(5) 534(8) 138(10) 9(11) February 6, 2030 June 11, 2030 November 11, 2030 February 17, 2031 February 10,2032 August 5, 2033 71 (1) Represents options to purchase shares of our Common Stock granted on May 10, 2018 with an exercise price of $1,308.00 per share. The shares underlying the option vest in a series of twelve (12) successive equal quarterly installments commencing on April 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 $1,296.00 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 $648.00 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 $351.00 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 $222.00 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. (7) Represents options to purchase shares of our Common Stock granted on May 4, 2017, with an exercise price of $1500.00 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 $1,350.00 per share in September 2017. (8) Represents options to purchase shares of our Common Stock granted on February 17, 2021 with an exercise price of $534.00 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. (9) 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. (10) Represents options to purchase shares of our Common Stock granted on February 10, 2022 with an exercise price of $138.00 per share. The shares underlying the option vest in a series of twelve (12) successive equal quarterly installments commencing on May 1, 2022 and continuing on the first day of each third month thereafter. (11) Represents options to purchase shares of our Common Stock granted on August 5, 2023 with an exercise price of $9.00 per share. The shares underlying the option vest in a series of twelve (12) successive equal quarterly installments commencing on November 1, 2023 and continuing on the first day of each third month thereafter. Director Compensation The following table sets forth information concerning the compensation paid to certain of our non-employee directors during 2023. Name Scott Durbin (1) (2) Gary Pruden Sonja Nelson Timothy P. Moran Fees earned or paid in cash ($) Option Awards ($) (1) Total ($) 17,417 52,250 53,900 40,800 72 963 - - - 18,380 52,250 53,900 40,800 (1) Amounts reflect the aggregate grant date fair value of each stock option granted in 2023 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, 2023 held by Mr. Durbin was 166. 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. Actions to Recover Erroneously Awarded Compensation At no point during or after the last completed fiscal year did we prepare an accounting statement that required the recovery of erroneously awarded compensation pursuant to the company’s compensation recovery policy, nor was there an outstanding balance as of the end of the last completed fiscal year of erroneously awarded compensation to be recovered from the application of the policy to a prior restatement. 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. 73 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. The following table provides information with respect to our compensation plans under which equity compensation was authorized as of December 31, 2023: 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 and rights (a) Weighted- average exercise price of outstanding options and rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column a) (c)(4) 60,602(2) - 60,602 $ $ $ 171.23(3) - 171.23 6,082 - 6,082 (1) The amounts shown in this row include securities under the 2016 Plan. (2) Includes 60,170 shares of Common Stock issuable upon exercise of outstanding options and 432 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 92,823 shares were automatically made available for issuance on the first day of 2024, which represents 6% of the number of shares outstanding on December 31, 2023; 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. 74 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, 2024 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 4,078,042 shares of Common Stock issued and outstanding as of February 6, 2024 plus any shares issuable upon exercise of options or warrants that are exercisable on or within 60 days after February 6, 2024 held by such person or entity. Beneficial ownership representing less than 1% is denoted with an asterisk (*). Name of beneficial owner Officers and Directors Mark Pomeranz (1) Ravit Ram (2) Elad Amor (3) Timothy P. Moran (4) Scott Durbin (5) Sonja Nelson (6) Gary Pruden (7) Directors and Officers as a Group (7 persons) 5% Stockholders Armistice Capital Amount and nature of beneficial ownership Percentage of class 6,085 2,455 1,204 5,892 - 666 1,432 24,063 226,000 *% * * * * * * 1.6% 5.54% 1. 2. 3. 4. Includes 5,326 shares of our Common Stock issuable upon the exercise of stock options that are exercisable within sixty days of February 6, 2024. Does not include 9,597 shares of our Common Stock issuable upon the exercise of stock options that are not exercisable within sixty days of February 6, 2024. Includes 702 shares of our Common Stock pursuant to restricted stock unit awards which have vested as of February 6, 2024, or which will be vested within sixty days of February 6, 2024. Does not include 106 shares of our Common Stock issuable upon the vesting of restricted stock units that will not vest within sixty days of February 6, 2024. Includes 2,455 shares of our Common Stock issuable upon the exercise of stock options that are exercisable within sixty days of February 6, 2024. Does not include 5,839 shares of our Common Stock issuable upon the exercise of stock options that are not exercisable within sixty days of February 6, 2024. Includes 1,204 shares of our Common Stock issuable upon the exercise of stock options that are exercisable within sixty days of February 6, 2024. Does not include 3,472 shares of our Common Stock issuable upon the exercise of stock options that are not exercisable within sixty days of February 6, 2024. Includes 3,896 shares of our Common Stock issuable upon the exercise of stock options that are exercisable within sixty days of February 6, 2024. Does not include 544 shares of our Common Stock issuable upon the exercise of stock options that are not exercisable within sixty days of February 6, 2024. Includes 1,785 shares of our Common Stock pursuant to restricted stock unit awards which have vested as of February 6, 2024, or which will be vested within sixty days of February 6, 2024. Does not include 195 shares of our Common Stock issuable upon the vesting of restricted stock units that will not vest within sixty days of February 6, 2024. 5. Does not include 166 shares of our Common Stock issuable upon the exercise of stock options that are not exercisable within sixty days of February 6, 2024. 75 6. 7. Includes 332 shares of our Common Stock issuable upon the exercise of stock options that are exercisable within sixty days of February 6, 2024. Includes 697 shares of our Common Stock issuable upon the exercise of stock options that are exercisable within sixty days of February 6, 2024. 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, 2021 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.” 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. Moran, Mr. Durbin, 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. 76 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 2023 2022 $ $ $ $ $ 377,265 - 32,875 - 410,140 $ $ $ $ $ 272,369 - 27,800 - 300,169 “Audit fees” consist of approximately $275,000 and $207,000 in 2023 and 2022, 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 $102,000 and $65,000 in 2023 and 2022, 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 $29,000 and $28,000, in 2023 and 2022, respectively, for services related to tax preparation and filing, and $4,000 and $0, in 2023 and 2022, respectively, for other tax consulting and preparation services. 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 2023 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. 77 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. Incorporated by Reference Exhibit File No. 2.1 333-222441 Exhibit Number 2.1 + 3.1 3.2 Exhibit Description Share Exchange Agreement, dated December 1, 2016 Certificate of Incorporation Certificate of Amendment to the Certificate of Incorporation 3.3 Certificate of Amendment to the Certificate of Incorporation, dated August 13, 2020 3.4 Certificate of Amendment of Certificate of Incorporation of Motus GI Holdings, Inc. dated July 25, 2022 3.5 3.6 Bylaws, as amended Certificate of Designations of Series A Convertible Preferred Stock Form S-1 S-1 S-1 8-K 8-K 10-Q S-1 333-222441 333-222441 001-38389 001-38389 001-38389 333-222441 3.7 Certificate of Amendment of Certificate of 10-Q 001-38389 Designations of Series A Convertible Preferred Stock 3.8 Certificate of Amendment of Certificate of 8-K 001-38389 Incorporation, as amended, dated November 1, 2023 Form of Common Stock Certificate Form of Series A Convertible Preferred Stock Certificate Form of Exchange Warrant 4.1 4.2 4.3 333-222441 333-222441 333-222441 S-1 S-1 S-1 78 Filed Herewith Filing Date 1/5/2018 1/5/2018 1/5/2018 8/14/2020 7/26/2022 11/14/2022 1/5/2018 5/14/2018 11/2/2023 1/5/2018 1/5/2018 1/5/2018 3.1 3.2 3.1 3.1 3.1 3.4 3.1 3.1 4.1 4.2 4.3 Filed Herewith Exhibit Number 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 4.15 4.16 4.17 4.18 4.19 4.20 Exhibit Description Form of Placement Agent Warrant Form of Registration Rights Agreement Form of May 2017 Consultant Warrant Form of Placement Agent Royalty Payment Rights Certificate Form of Amendment to Registration Rights Agreement Form of Ten Percent Warrant Form of Royalty Payment Rights Certificate Form of June 2018 Consultant Warrant Form of May 2017 Additional Consultant Warrant Form of July 2018 Consultant Warrant Form of November 2018 Consultant Warrant Description of Registrants Securities Form of Pre-Funded Warrant Form of Common Warrant Form of New Warrant Form of Common Stock Purchase Warrant Form of Pre-Funded Common Stock Purchase Warrant 4.21 Form of Placement Agent Warrant Incorporated by Reference Exhibit File No. 4.4 333-222441 333-222441 333-222441 333-222441 333-222441 333-222441 333-222441 001-38389 001-38389 001-38389 001-38389 4.5 4.6 4.7 4.8 4.9 4.10 4.1 4.2 4.3 4.4 Filing Date 1/5/2018 1/5/2018 1/5/2018 1/5/2018 1/5/2018 1/5/2018 1/31/2018 8/13/2018 8/13/2018 8/13/2018 11/14/2018 001-38389 4.15 3/16/2021 001-38389 001-38389 001-38389 001-38389 001-38389 001-38389 4.1 4.2 4.1 4.1 4.2 4.3 8/28/2020 8/28/2020 1/27/2021 5/22/2023 5/22/2023 5/22/2023 Form S-1 S-1 S-1 S-1 S-1 S-1 S-1/A 10-Q 10-Q 10-Q 10-Q 10-K 8-K 8-K 8-K 8-K 8-K 8-K 79 Exhibit Number Exhibit Description Form Incorporated by Reference Exhibit File No. 4.22 4.23 4.24 4.25 4.26 4.27 4.28 4.29 4.30 4.31 10.1 10.2 10.3 Form of Amendment Agreement, dated September 12, 2023 Form of Pre-Funded Warrant Form of Series A Common Warrant Form of Series B Common Warrant Form of Pre-Funded Warrant Form of Series A Common Warrant Form of Series B Common Warrant Form of Private Pre-Funded Warrant Form of Series A Private Warrant Form of Series B Private 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 8-K S-1 S-1 S-1 8-K 8-K 8-K 8-K 8-K 8-K S-1 S-1 S-1 S-1 80 001-38389 333-275121 333-275121 333-275121 001-38389 001-38389 001-38389 001-38389 001-38389 001-38389 4.1 4.19 4.20 4.21 4.1 4.2 4.3 4.4 4.5 4.6 Filed Herewith Filing Date 9/14/2023 12/11/2023 12/11/2023 12/11/2023 12/22/2023 12/22/2023 12/22/2023 12/22/2023 12/22/2023 12/22/2023 333-222441 10.1 1/5/2018 333-222441 333-222441 10.2 10.3 1/5/2018 1/5/2018 333-222441 10.4 1/5/2018 Exhibit Description Amendment to the Motus GI Holdings, Inc. 2016 Equity Incentive Plan, dated February 6, 2020 Form 8-K Incorporated by Reference Exhibit File No. 10.1 001-38389 Filing Date 8/14/2020 Filed Herewith Exhibit Number 10.5 10.6 † 10.7 † 10.8 † 10.9 † 10.10 10.11 † 10.12 Form of Incentive Stock Option Agreement Form of Non-Qualified Stock Option Agreement Form of Restricted Stock Agreement Form of Assumed Options to Israeli Employees and Directors Agreement Form of Assumed Options to Israeli Non- Employees and Controlling Shareholders Agreement Form of Israeli Option Grant to Israeli Employees and Directors Agreement Form of Israeli Option Grant to Israeli Non- Employees and Controlling Shareholders Agreement 10.13 † Employment Agreement, dated December 22, 2016, between the Company and Mark Pomeranz 10.14 Lease, dated April 13, 2017, between Company and Victoriana Building, LLC 10.15 10.16 10.17 Form of Subscription Agreement for Convertible Notes Offering Finders Agreement, dated October 14, 2016, between the Company and Aegis Capital Corporation Finders Agreement, dated December 22, 2016, between the Company and Aegis Capital Corporation 10.18 † Form of Indemnification Agreement S-1 S-1 S-1 S-1 S-1 S-1 S-1 S-1 S-1 S-1 S-1 S-1 S-1 333-222441 333-222441 333-222441 333-222441 333-222441 10.5 10.6 10.7 10.8 10.9 1/5/2018 1/5/2018 1/5/2018 1/5/2018 1/5/2018 333-222441 10.10 1/5/2018 333-222441 10.11 1/5/2018 333-222441 10.12 1/5/2018 333-222441 10.13 1/5/2018 333-222441 10.14 1/5/2018 333-222441 10.15 1/5/2018 333-222441 10.16 1/5/2018 333-222441 10.17 1/5/2018 81 Exhibit Number 10.19 # Exhibit Description Supply Agreement, dated September 1, 2017, between Motus GI Technologies Ltd. and Polyzen, Inc. Form 10-K Incorporated by Reference Exhibit File No. 10.20 001-38389 Filing Date 3/29/2022 Filed Herewith 10.20 † Amended and Restated Employment Agreement, 8-K 001-38389 10.2 9/25/2018 effective September 24, 2018, between the Company and Mark Pomeranz 10.21 † Employment Agreement, effective October 1, 2018, between the Company and Timothy P. Moran 10.22 Form of Restricted Stock Unit Award Agreement 10.23 † First Amendment to Amended and Restated Employment Agreement, dated March 15, 2021, between the Company and Andrew Taylor 8-K 001-38389 10.1 9/25/2018 10-K 10-K 001-38389 001-38389 10.22 10.25 3/26/2019 3/16/2021 10.24 Loan and Security Agreement, dated as of 8-K 001-38389 10.1 12/18/2019 10.25 10.26 December 13, 2019 between Silicon Valley Bank and Motus GI Holdings, Inc. Joinder and First Amendment to Loan and Security Agreement, dated as of February 7, 2020 between Silicon Valley Bank and Motus GI Holdings, Inc. Second Amendment to Loan and Security Agreement, dated as of February 25, 2020 between Silicon Valley Bank and Motus GI Holdings, Inc. 10-K 001-38389 10.25 3/30/2020 10-K 001-38389 10.26 3/30/2020 10.27 Third Amendment to Loan and Security 10-K 001-38389 10.29 3/16/2021 Agreement, dated as of January 4, 2021 between Silicon Valley Bank and Motus GI Holdings, Inc. 10.28 Deferral Agreement, dated as of April 10, 2020, effective as of April 2, 2020, by and between Silicon Valley Bank, Motus GI Holdings, Inc. and Motus GI, Inc. 8-K 001- 38389 10.1 4/13/2020 82 Exhibit Number 10.29 10.30 10.31 Exhibit Description Placement Agency Agreement, dated August 28, 2020, by and between A.G.P./Alliance Global Partners and Motus GI Holdings, Inc. Form of Securities Purchase Agreement, dated August 28, 2020, by and between Motus GI Holdings, Inc. and each Purchaser thereto Form of Warrant Exercise Agreement, dated January 27, 2021, by and between Motus GI Holdings, Inc. and the Holder Form 8-K Incorporated by Reference Exhibit File No. 10.1 001-38389 Filing Date 8/28/2020 Filed Herewith 8-K 001-38389 10.2 8/28/2020 8-K 001-38389 10.1 1/27/2021 10.32 Letter Agreement, dated January 27, 2021, by 8-K 001-38389 10.2 1/27/2021 and between A.G.P./Alliance Global Partners and the Company 10.33 Loan Agreement, dated July 16, 2021, by and 8-K 001-38389 10.1 7/21/2021 between Kreos Capital, Motus GI Holdings, Inc., Motus GI, LLC and Motus GI Medical Technologies, LTD. Security Agreement, dated July 16, 2021 between Kreos Capital and Motus GI Holdings, Inc. Security Agreement, dated July 16, 2021 between Kreos Capital and Motus GI, LLC. Debenture – Fixed Charge dated July 16, 2021, between Kreos Capital and Motus GI Medical Technologies, LTD. Debenture – Floating Charge dated as of July 16, 2021, between Kreos Capital and Motus GI, LLC. 10.34 10.35 10.36 10.37 8-K 001-38389 10.2 7/21/2021 8-K 8-K 001-38389 001-38389 10.3 10.4 7/21/2021 7/21/2021 8-K 001-38389 10.5 7/21/2021 10.38 US Intellectual property Security Agreement, 8-K 001-38389 10.6 7/21/2021 dated July 16, 2021, between Kreos Capital and Motus GI Medical Technologies, LTD. 10.39 # Master Supply Agreement, dated April 1, 2021, between J. Sterling Industries LLC and Motus GI Holdings, Inc. 10.40 10.41 10.42 Form of Securities Purchase Agreement Form of Registration Rights Agreement Form of Warrant Amendment 10.43 Employment Agreement, dated April 1, 2018, between the Company and Ravit Ram 10.44 10.45 10.46 10.47 10.48† Employment Agreement, dated December 23, 2019, between the Company and Elad Amor First Amendment to Agreement for the Provision of a Loan Facility, dated November 28, 2023, by and between Lender, Motus GI Holdings, Inc., Motus GI, LLC and Motus GI Medical Technologies, LTD. Form of Securities Purchase Agreement Form of Placement Agency Agreement, between the Company and A.G.P. Form of Amendment to Employment Agreement between the Company and Ravit Ram 10-K 001-38389 10.41 3/29/2022 8-K 8-K 8-K 8-K 8-K 8-K S-1 S-1 8-K 001-38389 001-38389 001-38389 001-38389 001-38389 001-38389 333-275121 333-275121 001-38389 10.1 10.2 10.3 10.1 10.2 10.1 10.48 10.47 10.1 21.1 5/22/2023 5/22/2023 5/22/2023 6/5/2023 6/5/2023 11/28/2023 12/11/2023 12/11/2023 03/11/2024 3/16/2021 21.1 List of Subsidiaries of the Company 10-K 001-38389 83 Exhibit Number 23.1 31.1 Exhibit Description Form Consent of EisnerAmper LLP 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) 31.3 Certification of Chief Accounting Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) 32.1 ** Certification of Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer pursuant to 18 U.S.C. Section 1350 97.1† Compensation Recovery Policy 101.INS 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE 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). Inline XBRL Taxonomy Extension Schema Document. Inline XBRL Taxonomy Extension Calculation Linkbase Document. Inline XBRL Taxonomy Extension Definition Linkbase Document. Inline XBRL Taxonomy Extension Label Linkbase Document. Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibits 101) Incorporated by Reference Exhibit File No. Filing Date Filed Herewith X 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. 84 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MOTUS GI HOLDINGS, INC. SIGNATURES Date: March 18, 2024 Date: March 18, 2024 Date: March 18, 2024 /s/ Mark Pomeranz By: Name: Mark Pomeranz Title: Chief Executive Officer (Principal Executive Officer) /s/ Ravit Ram By: Name: Ravit Ram Title: Chief Financial Officer (Principal Financial Officer) /s/ Elad Amor By: Name: Elad Amor Title: Chief Accounting Officer (Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, 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 /s/ Mark Pomeranz Mark Pomeranz /s/ Ravit Ram Ravit Ram /s/ Elad Amor Elad Amor /s/ Timothy P. Moran Tim P. Moran /s/ Scott Durbin Scott Durbin /s/ Sonja Nelson Sonja Nelson /s/ Gary Pruden Gary Pruden Chief Executive Officer and Director (Principal Executive Officer) Title Chief Financial Officer (Principal Financial Officer) Chief Accounting Officer (Principal Accounting Officer) Director Director Director Director 85 Date March 18, 2024 March 18, 2024 March 18, 2024 March 18, 2024 March 18, 2024 March 18, 2024 March 18, 2024 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Contents Consolidated Financial Statements – December 31, 2023 and 2022: Report of Independent Registered Public Accounting Firm (PCAOB ID No. 274) Consolidated Balance Sheets as of December 31, 2023 and 2022 Consolidated Statements of Comprehensive Loss for the years ended December 31, 2023 and 2022 Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2023 and 2022 Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 Notes to the Consolidated Financial Statements F-1 Page F-2 F-4 F-5 F-6 F-7 F-8 - 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 consolidated balance sheets of Motus GI Holdings, Inc. and Subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated 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 consolidated financial position of the Company as of December 31, 2023 and 2022, and the consolidated 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 has 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. F-2 Accounting for Debt and Equity Transactions As described in Notes 8 and 11 to the financial statements, the Company entered into two separate securities purchase agreements and a debt amendment and subsequent settlement to which the Company agreed to issue an aggregate of (i) 609,461 shares of the Company’s common stock, (ii) 5,666,673 pre-funded warrants exercisable for shares of common stock, and (iii) 12,276,134 common warrants exercisable for shares of common stock. Based on the specific terms in the agreements and the applicable authoritative guidance, the Company determined that the pre-funded warrants and common warrants should be classified as permanent equity. The Company was also required to apply complex accounting guidance to determine the appropriate accounting for the amendment and settlement of the Convertible Note, including complexities in determining the fair value of the equity instruments used to settle the Convertible Note. We identified the assessment of the appropriate accounting and balance sheet classification of the pre-funded warrants and the common warrants as equity or liability as well as the accounting and valuation of the equity instruments exchanged to settle the Convertible Note as a critical audit matter due to the complexity in assessing the instruments features, which requires management to interpret and apply the complex terms in the agreements to the appropriate application of accounting authoritative guidance. As such, there was a high degree of auditor judgement and subjectivity, and significant audit effort was required in performing procedures to evaluate management’s conclusions. Addressing the critical audit matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. These procedures included, among others, (i) obtaining an understanding of and evaluating the design of controls related to accounting over financial reporting, including complex transactions; (ii) obtaining the agreements and evaluating the terms and conditions of the agreements and assessing the reasonableness of management’s interpretation and application of the appropriate accounting authoritative guidance; and (iii) utilizing personnel with specialized skill and knowledge to assist in assessing the appropriateness of conclusions reached by management by (a) evaluating the underlying terms of the agreements, (b) assessing the appropriateness of management’s application of the authoritative accounting guidance and (c) evaluating the methodologies and assumptions used to estimate the fair value of the instruments exchanged to settle the Convertible Note. /s/ EisnerAmper LLP We have served as the Company’s auditor since 2018. EISNERAMPER LLP Iselin, New Jersey March 18, 2024 F-3 Motus GI Holdings, Inc. and Subsidiaries Consolidated Balance Sheets (in thousands, except share and per share amounts) December 31, 2023 2022 Assets Current assets: Cash and cash equivalents Accounts receivable Inventory, current Prepaid expenses and other current assets Total current assets Fixed assets, net Inventory, non-current Right-of-use assets Other non-current assets Total assets Liabilities and Shareholders’ Equity Current liabilities: Accounts payable and accrued expenses Operating lease liabilities - current Other current liabilities Current portion of long-term debt, net of unamortized debt discount of $16 and $182, respectively Total current liabilities Contingent royalty obligation Operating lease liabilities - non-current Convertible note, net of unamortized debt discount of $0 and $108, respectively Long-term debt, net of unamortized debt discount of $108 and $135, 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; 1,547,042 and 310,494 shares issued and outstanding as of December 31, 2023 and 2022, respectively Additional paid-in capital Accumulated deficit Total shareholders’ equity Total liabilities and shareholders’ equity $ $ $ $ 4,958 76 245 478 5,757 992 251 210 13 7,223 1,842 169 226 1,033 3,270 - 27 - 1,239 4,536 - - 156,905 (154,218) 2,687 7,223 $ $ $ $ 14,042 59 488 781 15,370 1,325 511 428 13 17,647 1,969 245 53 2,532 4,799 1,212 178 3,892 4,589 14,670 - - 144,328 (141,351) 2,977 17,647 The accompanying notes are an integral part of these consolidated financial statements. F-4 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 Loss from Operations Gain on change in estimated fair value of contingent royalty obligation Loss on extinguishment of debt Finance expense, net Foreign currency loss Net loss Basic and diluted loss per common share: Weighted average number of common shares outstanding, basic and diluted Years Ended December 31, 2023 2022 319 $ 592 81 488 3,467 1,611 6,579 12,226 (11,907) 103 (284) (761) (18) (12,867) (15.89) 809,506 $ $ 198 598 5,611 4,425 7,611 18,443 (17,851) 548 - (1,252) (42) (18,597) (86.15) 215,863 $ $ $ The accompanying notes are an integral part of these consolidated financial statements. F-5 Motus GI Holdings, Inc. and Subsidiaries Consolidated Statements of Changes in Shareholders’ Equity (in thousands, except share and per share amounts) Balance at December 31, 2021 160,915 $ - $ 132,411 $ (122,754) $ 9,657 Common Stock Shares Amount Additional paid-in Capital Accumulated Total shareholders’ deficit equity Issuance of common shares pursuant to at-the-market registered offering, net of issuance costs of $368 Issuance of common shares upon vesting of restricted stock units Fractional shares settled in cash pursuant to reverse stock split Issuance of common stock for board of directors’ compensation Share-based compensation Net loss Balance at December 31, 2022 Issuance of common shares pursuant to at-the-market registered offering, net of issuance costs of $19 Issuance of common shares upon vesting of restricted stock units Private Placement offering, net of financing fees of $731 Issuance of common share upon public offering, net of financing fees of $1,125 Issuance of common shares upon exercise of warrants Issuance of common shares upon extinguishment of contingent royalty obligation, net of issuance fees of $38, and gain on extinguishment of $398 Issuance of common shares upon settlement of convertible note Fractional shares settled in cash pursuant to reverse stock split Share-based compensation Net loss Balance at December 31, 2023 146,338 1,747 (136) 1,630 - - 310,494 7,942 104 35,000 520,000 523,469 - - - - - - - - - - 9,884 - (11) 235 1,809 - 144,328 102 - 3,070 3,875 - - - - - - (18,597) (141,351) - - - - - 97,042 54,461 (1,470) - - 1,547,042 $ - - - - - - $ 1,071 4,000 (12) 471 - 156,905 $ - - - - (12,867) (154,218) $ 9,884 - (11) 235 1,809 (18,597) 2,977 102 - 3,070 3,875 - 1,071 4,000 (12) 471 (12,867) 2,687 The accompanying notes are an integral part of these consolidated financial statements. F-6 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 on change in estimated fair value of contingent royalty obligation Share-based compensation Issuance of common stock for board of directors’ compensation Loss on extinguishment of debt Impairment of inventory Impairment of fixed assets Amortization on operating lease right of use asset Loss on lease termination Changes in operating assets and liabilities: Accounts receivable Inventory Prepaid expenses and other current assets Accounts payable and accrued expenses Operating lease liability Other current liabilities Net cash used in operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common shares pursuant to at-the-market registered offering Proceeds from private placement offering Proceeds from issuance of common shares upon public offering Fractional shares paid in cash pursuant to reverse stock split Repayment of long-term debt Payment of debt issuance costs Equity financing fees Net cash provided by financing activities NET DECREASE 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: Reclassification of inventory to fixed assets Reclassification of prepaid expenses to fixed assets Purchase of fixed assets in accounts payable and accrued expenses Non-cash issuance cost from private placement offering Non-cash issuance cost from public offering Financing fees incurred but unpaid at period end Debt issuance costs incurred but unpaid at period end Extinguishment of contingent royalty obligation Operating lease liabilities arising from obtaining right-of-use assets Settlement of convertible note to equity Years Ended December 31, 2023 2022 $ (12,867) $ (18,597) 451 252 (103) 471 - 284 488 - 226 11 (17) 2 283 (454) (241) 20 (11,194) (104) (104) 121 3,537 5,000 (12) (4,965) (200) (1,267) 2,214 (9,084) 14,042 4,958 $ 836 $ 14 - - 264 154 228 100 1,109 68 4,000 $ $ $ $ $ $ $ $ $ 510 330 (548) 1,809 235 - 598 46 327 - 50 (1,302) 12 (650) (330) 43 (17,467) (224) (224) 10,252 - - (11) (703) - (368) 9,170 (8,521) 22,563 14,042 977 201 4 24 - - - - - 66 - $ $ $ $ $ $ $ $ $ $ $ $ The accompanying notes are an integral part of these consolidated financial statements. F-7 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 in October 2023 from the FDA for the Pure-Vu EVS System for use in the upper GI tract and Gen 4 Colon and will commence market introduction of these products in the coming months. Both devices leverage the same workstation and feature key enhancements such as a larger and more powerful suction channel, more efficient irrigation jets, a smaller profile distal tip that offers enhanced flexibility during insertion, enhanced navigation and a much easier bed side set up. The Company does not expect to generate significant revenue from product sales until it further expands its commercialization efforts, which is subject to significant uncertainty. Note 2 – Going Concern Uncertainty 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, as well as through other strategic alternative transactions. Rising inflation, rising interest rates, and financial market volatility may adversely impact the Company’s ability to enter into, modify, and negotiate favorable terms and conditions relative to equity and debt financing initiatives. The uncertain financial markets, potential disruptions in supply chains, and changing priorities could also affect the Company’s ability to enter into key agreements. These disruptions may negatively impact the Company’s sales, its results of operations, financial condition, and liquidity into 2024. 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 $12.9 million for the year ended December 31, 2023, and we expect to continue to incur net operating losses for the foreseeable future. As of December 31, 2023, we had $5.0 million in cash and cash equivalents and an accumulated deficit of $154.2 million. We expect our current spend level to continue in connection with ongoing operating activities, including expenditures in R&D, sales and marketing, clinical affairs and manufacturing. In order to continue to operate as a standalone company, we will need additional financing to support our continuing operations. We also have significant debt under our Loan Agreement with Kreos which could negatively impact our ability to operate or consummate a strategic transaction. In addition, we are exploring a range of strategic and financing alternatives focused on maximizing stockholder value and accelerating the commercialization of the Pure-Vu System. If a strategic transaction is not completed, or if additional financing is not available, we may not be able to service our outstanding indebtedness and our payables and may have to file for bankruptcy protection or pursue a dissolution of the Company and liquidation of all of our remaining assets. In such an event, the amount of cash available for distribution to our stockholders, if any, will depend heavily on the timing of such decision, as with the passage of time the amount of cash available for distribution will be reduced as we continue to fund our operations and service our outstanding indebtedness. We cannot provide assurance as to the amount of cash that will be available to distribute to stockholders, if any, after paying our debts and other obligations and setting aside funds for reserves, nor as to the timing of any such distribution, if any. F-8 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 that might result from the outcome for his uncertainty. 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 (“FASB”). 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. Reverse Stock Split On November 2, 2023, the Company effected a reverse stock split of its issued and outstanding common stock, par value $0.0001 per share, at a ratio of 1-for-15. Shares of common stock underlying outstanding stock options and other equity instruments convertible into common stock were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased in accordance with the terms of the agreements governing such securities. Accordingly, all share, share-related information and per share amounts for all periods presented in the accompanying consolidated financial statements and notes thereto have been retroactively adjusted, where applicable, to reflect the reverse stock split. 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. 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. F-9 Concentrations of Credit Risk and Off-balance Sheet Risk Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents. The Company has not experienced any credit losses in such accounts and does not believe it is exposed to any significant credit risk on these funds. The Company has no financial instruments with off-balance sheet risk of loss. Revenue recognition Sales contracts executed for the Pure-Vu EVS 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 EVS 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 EVS 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 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. 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 – Leases (“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. F-10 During the year ended December 31, 2023, the Company recognized revenue of $319, which consisted of $295 in accordance with ASC 606 and $24 in accordance with ASC 842. During the year ended December 31, 2022, the Company recognized revenue of $592, which consisted of $540 in accordance with ASC 606 and $52 in accordance with ASC 842. During the year ended December 31, 2023, the Company recognized revenue at a point in time of $281 and recognized revenue over time of $38. During the year ended December 31, 2022, the Company recognized revenue at a point in time of $529 and recognized revenue over time of $63. Deferred revenue was $67 and $39 as of December 31, 2023 and 2022, respectively. 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, 2023 and 2022, incremental commissions paid on eligible sales orders were $0 and $96, 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 both December 31, 2023 and 2022, the allowance for doubtful accounts was $0. The Company’s account receivables consist of creditworthy entities that maintain an ongoing relationship with the Company and as such, the Company does not have an allowance for estimated credit losses recorded related to these receivables. 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. Inventories that exceed estimated realization for the next twelve months from balance sheet date based on future sales forecasts are classified as long-term assets. Leases The Company accounts for 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. 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. F-11 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. 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. F-12 Basic and diluted net loss per share Basic net loss per share is calculated by dividing the net loss attributable to common shareholders by the weighted average number of common shares outstanding during the applicable period. Diluted net loss per share is calculated by dividing the net loss attributable to common shareholders by the weighted average number of common shares outstanding for the applicable period, including any potentially dilutive securities such as stock options, unvested restricted stock, warrants, and other convertible instruments unless the result of inclusion would be antidilutive. The dilutive effect of restricted stock units subject to vesting and other share-based payment awards is calculated using the “treasury stock method,” which assumes that the “proceeds” from the exercise of these instruments are used to purchase common shares at the average market price for the period. The dilutive effect of convertible securities is calculated using the “if-converted method.” Under the if-converted method, securities are assumed to be converted at the beginning of the period, and the resulting common shares are included in the denominator of the diluted calculation for the entire period being presented. The Company’s net loss is net loss attributable to common shareholders for all periods presented. Given the nominal exercise price of the Company’s issuance of Pre-Funded Warrants, such Pre-Funded Warrants are included in in the calculation of basic and diluted net loss per share as the exercise price per warrant is deemed nonsubstantive when compared to the fair value of the underlying common shares. The 5,143,205 unexercised pre-funded warrants as of December 31, 2023 were included in the Company’s calculation of basic and diluted loss per share. The following outstanding stock-based awards and warrants, were excluded from the calculation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect due to net loss for the periods: Outstanding options Unvested restricted stock units Warrants Research and development expenses Year Ended December 31, 2023 2022 60,170 432 12,312,107 26,567 1,346 26,088 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. F-13 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, 2023 and 2022, the Company had a full valuation allowance against deferred tax assets. 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, 2023 or December 31, 2022. If such matters were to arise, the Company would recognize interest and penalties related to income tax matters in income tax expense. For the years ended December 31, 2023 and 2022, 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, 2023 and 2022, 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 instruments 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, 2023 and 2022. Complex Financial Instruments The Company reviews the terms of debt instruments, equity instruments, and other financing arrangements to determine whether there are embedded derivative features, including embedded conversion options that are required to be bifurcated and accounted for separately as a derivative financial instrument. Additionally, in connection with the issuance of financing instruments, the Company may issue freestanding options and warrants, including options or warrants to non-employees in exchange for consulting or other services performed. The Company accounts for its common stock warrants in accordance with Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging (“ASC 815”). Based upon the provisions of ASC 815, the Company accounts for common stock warrants as liabilities if the warrant requires net cash settlement or gives the holder the option of net cash settlement, or it fails the equity classification criteria. The Company accounts for common stock warrants as equity if the contract requires physical settlement or net physical settlement or if the Company has the option of physical settlement or net physical settlement and the warrants meet the requirements to be classified as equity. Common stock warrants classified as liabilities are initially recorded at fair value on the grant date and remeasured at fair value each balance sheet date with the offset adjustments recorded in change in fair value of warrant liability within the consolidated statements of operations. Common stock warrants classified as equity are initially measured at fair value on the grant date and are not subsequently remeasured. F-14 New Accounting Pronouncements- Recently Adopted 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 smaller 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. The Company adopted this ASU on January 1, 2023. The adoption of this ASU did not result in a material impact to the consolidated financial statements and disclosures. 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. The Company adopted this ASU in Q4 2023. The adoption of this ASU did not result in a material impact to the consolidated financial statements and disclosures. Accounting Pronouncements- Not Yet Adopted In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting which provides optional expedients and exceptions for the accounting for contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. In January 2021, the FASB issued ASU 2021-01 to clarify the scope of certain optional expedients for derivatives that are affected by the discounting transition. In December 2022, the FASB issued ASU 2022-06 to defer the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. As of December 31, 2023, the Company is currently evaluating the impact of this guidance on its consolidated financial statements. Note 4 – Fair Value Measurements Liabilities measured and recorded at fair value on a recurring basis consisted of the following at December 31, 2023 and December 31, 2022: Liabilities Contingent royalty obligation Liabilities Contingent royalty obligation Level 1 Level 2 Level 3 Fair Value December 31, 2023 - $ - $ - $ - Level 1 Level 2 Level 3 Fair Value December 31, 2022 - $ - $ 1,212 $ 1,212 $ $ 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. Debt instruments are measured at amortized cost on the Company’s consolidated balance sheets. If measured at fair value in the financial statements, these instruments would be classified as Level 2 in the fair value hierarchy. F-15 In estimating the fair value of the Company’s contingent royalty obligation, the Company used the discounted cash flow method as of September 12, 2023 and December 31, 2022. Based on the fair value hierarchy, the Company classified contingent royalty obligation within Level 3 because valuation inputs are based on projected revenues discounted to a present value. The contingent royalty obligation is re-measured at each balance sheet date and at September 12, 2023 using several assumptions, including the following: 1) estimated sales growth, 2) length of product cycle, 3) patent life, 4) discount rate (28.5% and 23% as of September 12, 2023 and December 31, 2022, respectively), and 5) rate of royalty payment (3% as of September 12, 2023 and December 31, 2022). As noted in Note 9, under the Amendment Agreement, the Company extinguished its royalty obligation in exchange for equity interests. The Company measured the difference between the fair value of the shares of common stock issued and the carrying value (at a final fair value) of the royalty obligation as a gain. As the holder of a majority of the Royalty Payment Rights Certificates is considered a related party, as noted in Note 10, the Company recorded the retirement of the royalty obligation based on the total value of shares issued as well as the gain on settlement within equity as additional paid in capital as a capital transaction. Note 5 – Inventory Inventory at December 31, 2023 and 2022 consisted of the following: Raw materials Work-in-process Finished goods Inventory reserve Inventory, net Inventory, current Inventory, non-current December 31, 2023 2022 $ $ $ $ 487 196 541 (728) 496 245 251 $ $ $ $ For the years ended December 31, 2023 and 2022, an inventory impairment of $488 and $598, respectively, was recorded. 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, 2023 2022 $ $ 171 321 1,155 1,489 200 3,336 (2,344) 992 $ $ 697 155 548 (401) 999 488 511 171 321 1,049 1,477 200 3,218 (1,893) 1,325 Depreciation and amortization expense for the years ended December 31, 2023 and 2022 was $451 and $510, respectively. The Company incurred a loss on the impairment of fixed assets in the amount of $0 and $46 for the years end December 31, 2023 and 2022, respectively. F-16 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 expired on December 31, 2023. The Company entered into a new tenancy contract with the facility for a period of twelve months from January 1, 2024 to December 31, 2024. The Company leases vehicles under operating leases that expire at various dates through 2026. 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 (income) cost, net of related party license fee Variable lease cost Short-term 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, 2023 2022 (29) 178 161 310 $ $ As of December 31, 2023 2022 210 169 27 196 $ $ $ 92 120 - 212 428 245 178 423 1.18 years 7.30% 1.79 years 7.36% The Company records operating lease payments to lease expense using the straight-line method. The Company’s lease expense was $310 and $212 for the years ended December 31, 2023 and 2022, respectively, included in general and administrative expenses, which is net of the related party license fee of $270 and $242 for the years ended December 31, 2023 and 2022, respectively (see Note 10). F-17 Future minimum lease payments under non-cancellable operating leases as of December 31, 2023 were as follows: Year Ended December 31, 2024 2025 2026 Total future minimum lease payments Imputed interest Total liability $ $ Amount 175 23 5 203 (7) 196 The following table summarizes the cash paid for amounts included in the measurement of lease liabilities for the years ended December 31, 2023 and 2022: Years Ended December 31, 2023 2022 Cash paid for amounts included in measurement of lease liabilities: $ (256) $ (342) Note 8 – Convertible Note and Long-Term Debt On July 16, 2021 (the “Effective Date”), the Company entered into a loan facility (the “Kreos Loan Agreement”) with Kreos Capital VI (Expert Fund) LP (the “Lender”). Under the Kreos Loan Agreement, the Lender will provide the Company with access to term loans in an aggregate principal amount of up to $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. 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 $420 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, as well as the payment of an end of loan payment of 1.75% of principal drawn. The Tranche C loan requires interest only monthly payments commencing 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, as well as the payment of an end of loan payment of 1.75% of principal drawn. The Lender retained the final payment of principal and interest due on June 1, 2025 for the Tranche B and Tranche C Loans upon their issuance in the amount of $274, which was recorded in other non-current assets in the balance sheet. F-18 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 9,547 shares of the Company’s common stock, at an exercise price of $20.948 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. On November 28, 2023 (“Amendment Effective Date”), the Company and Kreos entered into the First Amendment (“First Amendment”) to the 2021 Loan Agreement, pursuant to which the Company: ● On the Amendment Effective Date, paid Kreos $750 in cash which was applied against the outstanding obligations under the Long-term Debt. ● Upon consummation of a First Amendment Capital Raise (as defined below) and immediately following the Convertible Note Securities Exchange (as defined below), the Company paid Kreos $1,500 in cash which was be applied against the outstanding obligations under the Long-term Debt. ● Upon consummation of a First Amendment Capital Raise, the Company will make interest-only payments on the Long-term Debt for a period of six months, and for the remaining 12 months, principal and interest, until the Long-term Debt is repaid in full. ● Subject to the satisfaction (or waiver by Kreos) of certain Exchange Conditions (as defined in the Amendment), immediately following the consummation of an equity financing registered under the Securities Act of 1933, as amended (the “Securities Act”), and to be consummated no later than December 29, 2023 with gross proceeds of at least $5,000 (“First Amendment Capital Raise”), Kreos will be deemed to have surrendered to the Company securities representing $4,000 (the “Conversion Amount”) of the outstanding aggregate principal balance of the Convertible Note and the Company will deliver to Kreos, in exchange for the surrender of the Convertible Loan Securities, such number of shares of the common stock of the Company (the “Common Stock”) at a price per share equal to the public offering price per share in the First Amendment Capital Raise representing the Conversion Amount (the “Convertible Note Securities Exchange”); provided, that, (A) Kreos agrees to execute a customary lock-up agreement with an underwriter or placement agent in connection with the First Amendment Capital Raise, (B) Kreos shall receive the same warrant coverage per share of Common Stock, if any, as investors purchasing securities in the First Amendment Capital Raise, and (C) Kreos shall receive a pre- funded warrant in lieu of shares of Common Stock otherwise issuable upon the Convertible Note Securities Exchange for such number of shares that would represent more than 4.5% of the post-exercise outstanding shares of Common Stock. In total, Kreos will obtain instruments with substantially similar terms to the purchasers in the Public Offering (and no worse terms) at the same price paid by the purchasers in the Public Offering (see Note 11). The Company determined that the First Amendment should be accounted for as a modification as the change in cash flows expected under the 2021 Loan Agreement was less than 10% (not substantial). Additionally, the Company assessed the addition of the Convertible Note Securities exchange feature as a share-settled redemption provision and determined that it did not require bifurcation as a separate derivative liability upon execution of the First Amendment. As such, the Company accounted for the First Amendment on a prospective basis and capitalized $300 in fees paid to the Lender in relation to the First Amendment. The partial repayment required by the First Amendment was comprised of a reduction of $776 in principal of the Long-term Debt and end of loan payment obligations, as well as the application of $26 of the advance payment held by the Lender, resulting in a net cash payment of $750 to the Lender. In addition, the Company recognized a loss on debt extinguishment of $22 reflecting the proportional write- down of unamortized debt issuance costs upon the $750 partial repayment. F-19 On December 21, 2023, immediately following the closing of the Company’s public offering (see Note 11), and pursuant to the terms of the First Amendment, the $4,000 outstanding principal amount of the Convertible Note was automatically exchanged, into (i) 54,461 shares of common stock (the “Private Shares”), (ii) pre-funded warrants (the “Private Pre-Funded Warrants”) exercisable for an aggregate of up to 2,612,205 shares of common stock, (iii) Series A common warrants (the “Series A Private Warrants”) exercisable for an aggregate of up to 2,666,666 shares of common stock and (iv) Series B common warrants (the “Series B Private Warrants,” together with the Series A Private Warrants and Private Pre-Funded Warrants, the “Private Warrants”) exercisable for an aggregate of up to 2,666,666 shares of Common Stock (the shares issuable upon exercise of the Private Warrants, the “Private Warrant Shares”). The terms of the Private Warrants are discussed in Note 11. The Company applied the extinguishment model to recognize the exchange of the Convertible Note for the common stock and Private Warrants upon the First Amendment Capital Raise. The Company recognized a loss on debt extinguishment of $181, representing the difference between the $4,000 estimated fair value of the instruments issued in the exchange, determined in relation to the price paid by the purchasers in the Public Offering, and the carrying value of the Convertible Note. The partial repayment triggered by the First Amendment Capital Raise was comprised of a reduction of $1,551 in principal of the Long-term Debt and end of loan payment obligations as well as the application of $51 of the advance payment held by the Lender, resulting in a net cash payment of $1,500 to the Lender. In addition, the Company recognized a loss on debt extinguishment of $81 reflecting the proportional write-down of unamortized debt issuance costs upon the $1,500 partial repayment. The Company recorded an adjustment to interest expense (included in finance expense, net in the consolidated statements of comprehensive loss) during the fourth quarter totaling $211, of which $128 related to prior years. For the years ended December 31, 2023 and 2022, interest expense for the Loan was as follows: Year Ended December 31, 2023 2022 Contractual interest expense Amortization of debt issuance costs Total interest expense $ $ 695 252 947 Future principal payments under the Long-term Debt as of December 31, 2023 are as follows: Years Ending December 31, 2024 2025 Total future principal payments End of loan payments Less unamortized debt issuance costs of current portion of long-term debt Less unamortized debt issuance costs of non-current portion long-term debt Total balance Note 9 – Commitments and Contingencies Royalties to the IIA $ $ $ $ Amount 1,001 330 1,331 1,141 1,177 2,318 78 (16) (108) 2,272 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, 2023 and 2022. The Company has a contingent obligation to the IIA for the total amount received along with the accumulated interest to date in the amount of $1,439 and $1,426 as of December 31, 2023 and 2022, 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 (which is typically calculated at the 12- month U.S. dollar LIBOR rate published at the beginning of the calendar year in which the specific grant was approved by the IIA). 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, 2023 and 2022, and an immaterial liability at December 31, 2023 and 2022. Royalty Payment Rights on Royalty Payment Rights Certificates The Company issued certain (i) Royalty Payment Rights Certificates, as amended (“Royalty Payment Rights Certificates”) to the former holders of the Company’s shares of Series A Convertible Preferred Stock, par value $0.0001 per share (the “Series A Convertible Preferred Stock” and such holders, the “Certificate Holders”), with the right to receive certain single digit royalties for the achievement of certain commercialization milestones (the “Royalty Amount”), and (ii) Placement Agent Royalty Payment Rights Certificates dated December 22, 2016 (the “Placement Agent Payment Rights Certificates”) to Aegis Capital Corp., a New York corporation (the “Placement Agent”) or its designees, with the right to receive a payment equal to a percentage of the aggregate Royalty Amount paid to the Certificate Holders (the “Certificate Payment”). On September 12, 2023 (the “Effective Date”), the Company, entered into an Amendment Agreement (the “Amendment Agreement”) with the holders of a majority of the Royalty Payment Rights Certificates to cancel the rights of all Certificate Holders to receive the Royalty Amounts in exchange for an aggregate of 88,221 shares of the Company’s common stock (the “Certificate Holder Securities”). As a result, the right of the holders of the Placement Agent Payment Rights Certificates to receive the Certificate Payment was also cancelled, in exchange for an aggregate of 8,821 shares (such shares, together with the Certificate Holder Securities, the “Exchange Securities”). As such, effective September 12, 2023, the Company agreed to issue a total of 97,042 shares of the Company’s common stock to settle all outstanding royalty payment obligations. The Company measured the difference between the fair value of the shares of common stock issued and the carrying value (at a final fair value) of the royalty obligation as a gain. As the holder of a majority of the Royalty Payment Rights Certificates is considered a related party, as noted in Note 10, the Company recorded the extinguishment of the royalty obligation based on the total fair value of shares issued as well as the gain on settlement within equity as additional paid in capital as a capital transaction. Balance at December 31, 2022 Extinguishment of Royalty Obligation $ 1,212 Change in estimated fair value of royalty obligation Balance at September 12, 2023 Less fair value of common stock exchanged for extinguishment of royalty obligation Gain on extinguishment – recorded within additional paid-in-capital Note 10 – Related Party Transactions Shared Space Agreement (103) 1,109 711 398 $ In January 2020, the Company entered into a license agreement (the “Shared Space Agreement”) with Orchestra BioMed, Inc. (OBIO), formerly a greater than 5% holder of the Company’s common stock. Pursuant to the Shared Space Agreement, the Company granted a license to OBIO for the use of portions of the office space not being used by the Company in the Company’s leased facility in Fort Lauderdale, Florida (the “Premises”), and a proportionate share of common areas of such Premises, which previously covered approximately 35% of the Premises and was to expand incrementally to approximately 60 to 70% of the Premises by September 2024. In May 2022, the Company entered into an amendment to the Shared Space Agreement. Pursuant to the amendment, the area covered by the Shared Space Agreement was expanded to 95% of the premises and the aggregate license fees will generally range from approximately $212 to approximately $270 in any given calendar year during the term of the Shared Space Agreement until the termination of the lease in November 2024. During the years ended December 31, 2023 and 2022, the Company recorded a license fee of $270 and $242, respectively, in relation to the Shared Space Agreement. This amount is netted with rent expense in general and administrative expenses. Extinguishment of Royalty Obligation As noted in Note 9, under the Amendment Agreement, the Company extinguished its royalty obligation in exchange for equity interests. OBIO held the majority of the Royalty Payment Rights Certificates, and as such approved the Amendment Agreement and the settlement exchange. OBIO received 46,768 shares as a part of the settlement of all outstanding royalty payment obligations. Note 11 – Share-based Compensation and Common Stock Issuance 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, 2023 and 2022: Research and development Sales and marketing General and administrative Total Year ended December 31, 2023 2022 140 $ 15 316 471 $ 388 238 1,183 1,809 $ $ As of December 31, 2023, unamortized share-based compensation for stock options was $376, with a weighted-average recognition period of 1.19 years. Stock option and warrant activity 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, 2023, pursuant to an annual evergreen provision, the number of shares of common stock reserved for future grants was increased by 18,639 shares. Under the 2016 Plan, effective as of January 1, 2024, the maximum number of shares of the Company’s common stock authorized for issuance is 98,905. As of December 31, 2023, there were 6,082 shares of common stock available for future grant under the 2016 Plan. F-20 A summary of the Company’s stock option and warrant activity is as follows: Options Warrants Outstanding at December 31, 2021 Granted Expired Cancelled Forfeited Outstanding at December 31, 2022 Granted Exercised Expired Cancelled Forfeited Outstanding at December 31, 2023 Exercisable at December 31, 2023 Shares Underlying Options Weighted Average Exercise Price 812.48 130.97 963.98 - 172.35 640.72 8.99 - 738.53 - 202.03 171.23 566.11 $ 20,421 6,839 $ (437) $ - $ (256) $ $ 26,567 $ 45,712 - $ (8,729) $ - $ (3,380) $ 60,170 $ $ 17,202 Weighted Average Remaining Contractual Life (years) 7.45 Average Intrinsic Value Shares Underlying Warrants $ - 7.21 $ 8.44 $ - - Weighted Average Exercise Price 817.77 150.00 1,394.9 849.00 - 759.26 1.18 0.0001 1,589.80 - - 1.99 1.99 $ 27,870 400 $ (1,782) $ (400) $ $ - $ 26,088 $ 17,956,613 $ (523,469) (3,920) $ $ - - $ 17,455,312 $ $ 17,455,312 Weighted Average Remaining Contractual Life (years) 3.40 Average Intrinsic Value $ - 2.66 $ 4.43 $ - - The options granted during the years ended December 31, 2023 and 2022 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, 2023 2022 5.34 80.66% 2.93% - 5.8 99.21% 2.10% - The grant date fair value for stock options issued during the years ended December 31, 2023 and 2022 were $6.96 and $129.30, respectively. The warrants granted during the years ended December 31, 2023 and 2022 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 Restricted Stock units For the year ended December 31, 2023 2022 2.33 75% 3.0% - - -% -% - As of December 31, 2023, there were 1,009 outstanding restricted stock unit awards at a weighted average grant date fair value of $125.42. During the year ended December 31, 2023, there were 104 restricted stock units released and 233 cancellations. As of December 31, 2022, there were 1,346 nonvested restricted stock unit awards at a weighted average grant date fair value of $277.57. As of December 31, 2023, unamortized stock compensation for restricted stock units was $22, with a weighted-average recognition period of 0.58 years. Issuance of Warrants to Purchase Common Stock In February 2020, the Company entered into a services agreement whereby it agreed to issue warrants to purchase 400 shares of common stock of the Company. The warrants fully vested over a one-year period on a monthly basis and expire three years from the date of issuance and were exercisable at weighted average exercise price equal to $849.00 per share of common stock. In March 2022, the Company granted new warrants as a replacement to the vested warrants held by the service provider, for which all the share-based compensation expense had been recognized in prior fiscal periods. The issuance of new warrants concurrently with the cancellation of the existing warrants was treated as a modification. The Company agreed to issue replacement warrants to purchase 400 shares of common stock of the Company exercisable at a price equal to $150 per share of common stock. The fair value of the warrants were valued on the date of grant at $5.70 using the Black-Scholes option-pricing model with the following parameters: (1) risk-free interest rate of 0.91%; (2) expected life in years of 1.62; (3) expected stock volatility of 81.97%; and (4) expected dividend yield of 0%. The replacement warrants immediately vested upon issuance and expire three years from the date of issuance. As a result, the Company recognized $0 and $26 of share-based compensation for the year ended December 31, 2023 and 2022, respectively, related to the incremental fair value which is equal to the excess of the fair value of the new warrants granted over the fair value of the original award on the cancellation date. Private Placement Offering On May 17, 2023, the Company entered into a securities purchase agreement with an accredited investor pursuant to which it agreed to issue and sell in a private placement an aggregate of (i) 35,000 shares of common stock, (ii) warrants to purchase up to 241,134 shares of common stock (the “Pre-Funded Warrants”) and (iii) warrants to purchase up to 276,134 shares of common stock (the “Common Warrants”). The purchase price was $12.675 for each share of common stock and $12.674 for each Pre-Funded Warrant, resulting in net proceeds of approximately $3.1 million, inclusive of issuance costs of $0.5 million and exclusive of warrant issuance costs of $0.3 million. The closing of the offering occurred on May 19, 2023. Each Common Warrant is exercisable for a period of five and one-half years from the issuance date at an exercise price of $10.80 per share, subject to adjustment, and may, under certain circumstances, be exercised on a cashless basis. As of March 18, 2024, all of the Pre-Funded Warrants were exercised. The measurement of fair value of the Pre-Funded Warrants and the Common Warrants was determined utilizing a Black-Scholes model. The relative fair value allocated to the shares of common stock issued in the offering was $0.3 million, to the Pre-Funded Warrants was $1.7 million and to the Common Warrants was $1.5 million. The total fair value allocated to these instruments in excess of par value is reflected within additional paid-in capital as the Pre-Funded Warrants and Common Warrants were determined to be equity classified. In addition, pursuant to the terms of the offering, the Company issued the placement agent, H.C. Wainwright & Co., LLC., warrants to purchase up to 13,806 shares of the Company’s common stock (the “Placement Agent Warrants”). The Placement Agent Warrants are exercisable for a period of five and one-half years from the issuance date, at an exercise price of $15.845 per share, subject to adjustment, and may, under certain circumstances, be exercised on a cashless basis. As these Placement Agent Warrants were issued for services provided in facilitating the private placement, the Company recorded the fair value of such Placement Agent Warrants as a cost of capital on the issuance date. The measurement of fair value was determined utilizing a Black-Scholes model. The fair value of these Placement Agent Warrants was estimated to be $0.1 million on May 19, 2023, and is reflected within additional paid-in capital as of December 31, 2023 as the Placement Agent Warrants were determined to be equity classified. Additionally, in connection with the Private Placement, the Company entered into a warrant amendment (the “Warrant Amendment”), dated May 17, 2023 with the holder named therein, pursuant to which the Company agreed to amend certain existing warrants to purchase up to an aggregate of 299,997 shares of Common Stock that were previously issued in January 2021 through February 2021 at an exercise price of $42.40 per share after the 1-to-20 reverse stock split, such that effective upon the closing of the Private Placement the amended warrants have a reduced exercise price of $0.72 per share, at an additional offering price of $0.125 per amended warrant. The Company calculated an incremental fair value of approximately $0.1 million by calculating the fair value of the warrants immediately before and immediately after the modification. The Company recognized the change in the fair value of the warrants as an equity issuance cost. The Private Placement resulted in net proceeds of approximately $3.0 million, inclusive of issuance costs of $0.5 million and exclusive of warrant issuance costs of $0.2 million. December 2023 Public Offering and Convertible Note Exchange On December 18, 2023, the Company entered into a securities purchase agreement with certain purchasers pursuant to which it agreed to issue and sell, in a public offering (the “Public Offering”), an aggregate of (i) 520,000 shares of common stock, (ii) pre-funded warrants to purchase up to 2,813,334 shares of common stock (the “Public Offering Pre-Funded Warrants”), (iii) warrants to purchase up to 3,333,334 shares of common stock (the “Series A Common Warrants”), and (iv) warrants to purchase up to 3,333,334 shares of common stock (the “Series B Common Warrants,” collectively with the other warrants issued in the Public Offering, the “Public Offering Warrants”). The purchase price was $1.50 for each share of common stock and $1.4999 for each Public Offering Pre-Funded Warrant, resulting in net proceeds of approximately $3.9 million, inclusive of issuance costs of $1.1 million and exclusive of warrant issuance costs of $0.1 million. The closing of the Public Offering occurred on December 21, 2023. The Public Offering Pre-Funded Warrants are exercisable until exercised in full at an exercise price of $0.0001 per share. Each Series A Common Warrant is exercisable for a period of five years from the issuance date at an exercise price of $1.50 per share and each Series B Common Warrant is exercisable for a period of one and one-half years from the issuance date at an exercise price of $1.50 per share. The Public Offering Warrants may be exercised on a cashless basis. The Company is prohibited from effecting an exercise of any Public Offering Warrants to the extent that such exercise would result in the number of shares of common stock beneficially owned by such holder and its affiliates exceeding 4.99% (or 9.99% at election of the holder) of the total number of shares of common stock outstanding immediately after giving effect to the exercise. The measurement of fair value of the Public Offering Warrants was determined utilizing a Black-Scholes model. The relative fair value allocated to the shares of common stock issued in the Public Offering was $0.3 million, to the Public Offering Pre-Funded Warrants was $1.9 million and to the Series A and Series B Common Warrants was $2.8 million. The total fair value allocated to these instruments in excess of par value is reflected within additional paid-in capital as the Public Offering Warrants were determined to be equity classified. As part of the Public Offering, the Company entered into a placement agency agreement with Alliance Global Partners (“A.G.P.”), pursuant to which A.G.P. agreed to act as exclusive placement agent for the issuance and sale of the securities in the Public Offering. In exchange for these services, the Company paid A.G.P. an aggregate cash fee of $0.4 million. In addition, the Company incurred an additional $0.6 million in legal and other fees related to the Public Offering. These fees were recorded as costs of the Public Offering and reduced the amount recorded to additional paid in capital. In connection with the completion of the Public Offering, the Company was also obligated to issue H.C. Wainwright & Co., LLC. warrants to purchase an aggregate of 150,417 shares of Common Stock (the “Public Offering Placement Agent Warrants”). The Public Offering Placement Agent Warrants are to be exercisable for a period of five years from the issuance date, at an exercise price of $1.875 per share, subject to adjustment, and may be exercised on a cashless basis. As the obligation to issue the Public Offering Placement Agent Warrants related to services provided in facilitating the Public Offering, the Company recorded the estimated fair value of the obligation as a cost of the Public Offering. The Public Offering Placement Agent Warrants were issued on January 4, 2024, and as such, the Company recorded the estimated fair value of the obligation to issue the warrants as a liability as of December 31, 2023. The estimated fair value of the obligation to issue the Public Offering Placement Agent Warrants was determined utilizing a Black-Scholes model and was estimated to be $0.2 million, and is recorded as a component of other current liabilities in the balance sheet. F-21 As discussed in Note 8, the Company issued (i) 54,461 shares of Common Stock, (ii) the Private Pre-Funded Warrants to purchase up to 2,612,205 shares of common stock, (iii) the Series A Private Warrants to purchase up to 2,666,666 shares of common stock and (iv) the Series B Private Warrants to purchase up to 2,666,666 shares of common stock upon the exchange and cancellation of the $4,000 outstanding principal amount of the Convertible Note. The Series A Private Warrants and the Series B Private Warrants are each exercisable for one share of common stock at an exercise price of $1.50 per share and will expire on the fifth anniversary and the one and one-half year anniversary from the date of issuance, respectively. The Series B Private Warrants will not be exercisable until shareholder approval is obtained. In addition, upon a fundamental transaction that occurs within the control of the Company, the holder of the Series A Private Warrants and Series B Private Warrants shall have the right to receive payment in cash, or under certain circumstances in other consideration, from the Company at the Black Scholes value, as described in such warrants. The Private Pre-Funded Warrants are each exercisable for one share of common stock at an exercise price of $0.0001 per share and will expire when exercised in full. The Private Warrants may be exercised on a cashless basis. The Company is prohibited from effecting an exercise of any Private Warrants to the extent that such exercise would result in the number of shares of common stock beneficially owned by such holder and its affiliates exceeding 4.99% (or 9.99% at election of the holder) of the total number of shares of common stock outstanding immediately after giving effect to the exercise. The measurement of fair value of the Private Warrants was determined utilizing a Black-Scholes model. The relative fair value allocated to the shares of common stock issued was less than $0.1 million, to the Private Pre-Funded Warrants was $1.8 million and to the Series A and Series B Private Warrants was $2.2 million. The total fair value allocated to these instruments in excess of par value is reflected within additional paid-in capital as the Private Warrants were determined to be equity classified. On February 26, 2024, the Company closed a definitive agreement for the immediate exercise of an outstanding Series B Common Warrant held by an institutional investor from the issuance described above to purchase an aggregate of 2,933,334 shares of the Company’s common stock. See note 13 for further detail. In March 2021, we entered into an Equity Distribution Agreement (the “Equity Distribution Agreement”) with Oppenheimer & Co. Inc. (“Oppenheimer”), under which we may offer and sell from time to time common shares having an aggregate offering price of up to $25.0 million. During the year ended December 31, 2023, the Company sold approximately 7,942 shares of our common stock under this agreement, resulting in net cash proceeds of $102 thousand, after deducting issuance costs of $19 thousand. 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, 2023 and 2022. As of December 31, 2023 and 2022, the Company had deferred tax assets of approximately $40,200 and $37,400, respectively, against which a full valuation allowance of $40,200 and $37,400, respectively had been recorded. The change in the valuation allowance for the year ended December 31, 2023 was an increase of $2,800. The increase in the valuation allowance for the year ended December 31, 2023 was mainly attributable to increases in net operating losses and non-deductible research expenses, 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, 2023 and 2022 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, 2023 2022 $ 17,943 18,740 975 2,184 409 40,251 (52) (39) (91) 40,160 (40,160) - $ 14,614 18,813 1,735 1,698 681 37,541 (109) (34) (143) 37,398 (37,398) - $ $ F-22 A reconciliation of the federal statutory tax rate and the effective tax rates for the years ended December 31, 2023 and 2022 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 Tax credits Deferred tax asset adjustments Change in valuation allowance Effective tax rate For the Year Ended December 31, 2023 2022 21.0% 0.7 0.8 (5.8) 1.9 (8.0) (10.6) -% 21.0% 6.6 0.8 (2.7) - (10.7) (15.0) -% The Company had approximately $151,400 and $134,100 of gross net operating loss (“NOL”) carryforwards (Federal, state and Israel) as of December 31, 2023 and 2022, 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. The Tax Cuts and Jobs Act of 2017 (TCJA) has modified the IRC 174 expenses related to research and development for the tax years beginning after December 31, 2021. Under the TCJA, the Company must now capitalize the expenditures related to research and development activities and amortize over five years for U.S. activities and 15 years for non-U.S. activities using a mid-year convention. Since this has been the Company’s policy since 2019, the current year net capitalization of research and development costs in accordance with IRC 174 was $1.8 million for a total net accumulated gross amount of $10.6 million as of December 31, 2023. During the year ended December 31, 2021, the Company incurred an ownership change under Internal Revenue Code Section 382, resulting in an annual NOL utilization limitation of approximately $3,700. None of the Company’s NOL carryforwards or deferred tax assets were required to be reduced since the limitation did not preclude the Company from potentially utilizing all of its NOL carryforwards. Future significant ownership changes could cause a portion or all of the Company’s NOL carryforwards to expire before utilization, however. A reconciliation of the Company’s NOLs for the years ended December 31, 2023 and 2022 is as follows: U.S. Federal NOL’s U.S. State NOL’s Israel NOL’s Total NOL’s December 31, 2023 2022 $ $ 35,676 34,266 81,480 151,422 $ $ 26,875 25,464 81,794 134,133 The Company’s Federal and state NOLs of $3,300 and $34,266, respectively, begin to expire after 2036 through 2042. The Company’s Federal NOL of $32,376, generated since 2018, and the Israel NOL of $81,480 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 $37,600 of Israeli NOLs are available for use in the U.S and have an indefinite life. 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, 2023 and 2022 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. Note 13 – Subsequent Events On February 26, 2024, the Company closed a definitive agreement for the immediate exercise of an outstanding Series B Common Warrant held by an institutional investor to purchase an aggregate of 2,933,334 shares of the Company’s common stock for gross proceeds to the Company of approximately $2.7 million. The Company intends to use the net proceeds for working capital and general corporate purposes. As part of this transaction, the investor agreed to exercise the existing Series B common stock purchase warrant, which was originally issued in December 2023 and had an exercise price of $1.50 per share, at a revised exercise price of $0.925 per share. In consideration for the immediate exercise of the existing warrant for cash, the Company agreed to issue to the investor two new unregistered warrants, each to purchase 2,200,000 and 2,200,001 shares of common stock (or an aggregate of 4,400,001 shares) at an exercise price of $0.74 per share, respectively. The new warrants will be exercisable immediately upon issuance. Such warrants are identical, except that the first 2,200,000 warrants have a term of five years from the date of issuance and the second 2,200,001 warrants have a term of eighteen months from the date of issuance. In connection with the transaction, the Company also agreed to amend, effective upon the closing of this transaction, the terms of 2,933,334 Series A Common Warrants issued in December 2023 held by the same institutional investor to reduce the existing exercise price thereof from $1.50 to $0.74 per share and warrants to purchase up to 276,134 shares of Common Stock issued in May 2023 held by the institutional investor to reduce the existing exercise price thereof from $10.80 to $0.74. Both warrants will have an extended expiration date to February 2029. All of the other terms of such warrants remain unchanged. F-23 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. 333-254343, 333-254346 and 333-272341) and Form S-8 (Nos. 333-224003, 333-230506, 333-237476, 333-254344, 333-263940 and 333-271080) of our report dated March 18, 2024, on our audits of the financial statements as of December 31, 2023 and 2022 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 18, 2024. 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 Iselin, New Jersey March 18, 2024 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Mark Pomeranz, certify that: 1. I have reviewed this annual report on Form 10-K for the period ended December 31, 2023 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 18, 2024 /s/ Mark Pomeranz Mark Pomeranz Chief Executive Officer (Principal Executive Officer) CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Ravit Ram, certify that: 1. I have reviewed this annual report on Form 10-K for the period ended December 31, 2023 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 18, 2024 /s/ Ravit Ram Ravit Ram Chief Financial Officer (Principal Financial Officer) CERTIFICATION OF CHIEF ACCOUNTING OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Elad Amor, certify that: 1. I have reviewed this annual report on Form 10-K for the period ended December 31, 2023 of Motus GI Holdings, Inc.; Exhibit 31.3 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 18, 2024 /s/ Elad Amor Elad Amor Chief Accounting Officer (Principal Accounting Officer) Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 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, 2023 (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. Exhibit 32.1 Dated: March 18, 2024 Dated: March 18, 2024 Dated: March 18, 2024 By: By: By: /s/ Mark Pomeranz Mark Pomeranz Chief Executive Officer (Principal Executive Officer) /s/ Ravit Ram Ravit Ram Chief Financial Officer (Principal Financial Officer) /s/ Elad Amor Elad Amor Chief Accounting Officer (Principal Accounting 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. MOTUS GI HOLDINGS, INC. COMPENSATION RECOVERY POLICY (Adopted and approved on November 9, 2023) Exhibit 97.1 1. Purpose Motus GI Holdings, Inc. (collectively with its subsidiaries, the “Company”) is committed to promoting high standards of honest and ethical business conduct and compliance with applicable laws, rules and regulations. As part of this commitment, the Company has adopted this Compensation Recovery Policy (this “Policy”). This Policy is designed to comply with the requirements of Section 10D of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Rule 10D-1 promulgated thereunder and the rules of the national securities exchange on which the Company’s securities are traded and explains when the Company will pursue recovery of Incentive Compensation awarded or paid to a Covered Person. Please refer to Exhibit A attached hereto (the “Definitions Exhibit”) for the definitions of capitalized terms used throughout this Policy. 2. Recovery of Recoverable Incentive Compensation In the event of a Restatement, the Company will pursue, reasonably promptly, recovery of all Recoverable Incentive Compensation from a Covered Person without regard to such Covered Person’s individual knowledge or responsibility related to the Restatement. Notwithstanding the foregoing, if the Company is otherwise required by this Policy to undertake a Restatement, the Company will not be required to recover the Recoverable Incentive Compensation if the Compensation Committee determines, after exercising a normal due process review of all the relevant facts and circumstances, that (a) a Recovery Exception exists and (b) it would be impracticable to seek such recovery under such facts and circumstances. If such Recoverable Incentive Compensation was not awarded or paid on a formulaic basis, the Company will pursue recovery of the amount that the Compensation Committee determines in good faith should be recovered. 3. Other Actions The Compensation Committee may, subject to applicable law, pursue recovery of Recoverable Incentive Compensation in the manner it chooses, including by pursuing reimbursement from the Covered Person of all or part of the compensation awarded or paid, by electing to withhold unpaid compensation, by set-off, or by rescinding or canceling unvested stock or option awards. In the reasonable exercise of its business judgment under this Policy, the Compensation Committee may in its sole discretion determine whether and to what extent additional action is appropriate to address the circumstances surrounding a Restatement to minimize the likelihood of any recurrence and to impose such other discipline as it deems appropriate. 4. No Indemnification or Reimbursement As required by applicable law, notwithstanding the terms of any other policy, program, agreement or arrangement, in no event will the Company or any of its affiliates indemnify or reimburse a Covered Person for any loss of Recoverable Incentive Compensation under this Policy and, to the extent prohibited by law, neither the Company nor any of its affiliates will pay premiums on any insurance policy that would cover a Covered Person’s potential obligations with respect to Recoverable Incentive Compensation under this Policy. 5. Administration of Policy The Compensation Committee will have full authority to administer this Policy. The Compensation Committee will, subject to the provisions of this Policy and Rule 10D-1 of the Exchange Act, and the Company’s applicable exchange listing standards, make such determinations and interpretations and take such actions in connection with this Policy as it deems necessary, appropriate or advisable. It is intended that this Policy be interpreted in a manner that is consistent with the requirements of Section 10D of the Exchange Act, Rule 10D-1 thereunder and any applicable rules or standards adopted by the Securities and Exchange Commission or any national securities exchange on which the Company’s securities are listed. All determinations and interpretations made by the Compensation Committee will be final, binding and conclusive. 6. Other Claims and Rights The requirements of this Policy are in addition to, and not in lieu of, any legal and equitable claims the Company or any of its affiliates may have or any actions that may be imposed by law enforcement agencies, regulators, administrative bodies, or other authorities. Further, the exercise by the Compensation Committee of any rights pursuant to this Policy will not impact any other rights that the Company or any of its affiliates may have with respect to any Covered Person subject to this Policy. 7. Acknowledgement by Covered Persons; Condition to Eligibility for Incentive Compensation The Company will provide notice and seek acknowledgement of this Policy from each Covered Person, provided that the failure to provide such notice or obtain such acknowledgement will have no impact on the applicability or enforceability of this Policy. After the Effective Date (and also with respect to any Incentive Compensation Received on or after October 2, 2023 pursuant to a preexisting contract or arrangement), any grant of Incentive Compensation to a Covered Person will be deemed to have been made subject to the terms of this Policy, whether or not such Policy is specifically referenced in the documentation relating to such grant and this Policy shall be deemed to constitute an integral part of the terms of any such grant. All Incentive Compensation subject to this Policy will remain subject to this policy, even if already paid, until the Policy ceases to apply to such Incentive Compensation and any other vesting conditions applicable to such Incentive Compensation are satisfied. 8. Amendment; Termination The Board or the Compensation Committee may amend or terminate this Policy at any time. In the event that Section 10D of the Exchange Act, Rule 10D-1 thereunder or the rules of the national securities exchange on which the Company’s securities are traded are modified or supplemented, whether by law, regulation or legal interpretation, such modification or supplement shall be deemed to modify or supplement this Policy to the maximum extent permitted by applicable law. 9. Effectiveness Except as otherwise determined in writing by the Compensation Committee, this Policy will apply to any Incentive Compensation that is Received by a Covered Person on or after the Effective Date. This Policy will survive and continue notwithstanding any termination of a Covered Person’s employment with the Company and its affiliates. 10. Successors This Policy shall be binding and enforceable against all Covered Persons and their successors, beneficiaries, heirs, executors, administrators, or other legal representatives. Exhibit A MOTUS GI HOLDINGS, INC. COMPENSATION RECOVERY POLICY DEFINITIONS EXHIBIT “Applicable Period” means the three completed fiscal years of the Company immediately preceding the earlier of (i) the date the Board, a committee of the Board, or the officer or officers of the Company authorized to take such action if Board action is not required, concludes (or reasonably should have concluded) that a Restatement is required or (ii) the date a court, regulator, or other legally authorized body directs the Company to prepare a Restatement. The “Applicable Period” also includes any transition period (that results from a change in the Company’s fiscal year) within or immediately following the three completed fiscal years identified in the preceding sentence. “Board” means the Board of Directors of the Company. “Compensation Committee” means the Company’s committee of independent directors responsible for executive compensation decisions, or in the absence of such a committee, a majority of the independent directors serving on the Board. “Covered Person” means any person who is, or was at any time, during the Applicable Period, an Executive Officer of the Company. For the avoidance of doubt, a Covered Person may include a former Executive Officer that left the Company, retired, or transitioned to an employee role (including after serving as an Executive Officer in an interim capacity) during the Applicable Period. “Effective Date” means December 1, 2023. “Executive Officer” means the Company’s president, principal executive officer, principal financial officer, principal accounting officer (or if there is no such accounting officer, the controller), any vice-president in charge of a principal business unit, division, or function (such as sales, administration, or finance), any other officer who performs a policy-making function, or any other person (including an officer of the Company’s parent(s) or subsidiaries) who performs similar policy-making functions for the Company. “Financial Reporting Measure” means a measure that is determined and presented in accordance with the accounting principles used in preparing the Company’s financial statements, and any measure that is derived wholly or in part from such measure (including but not limited to, “non-GAAP” financial measures, such as those appearing in the Company’s earnings releases or Management Discussion and Analysis). Stock price and total shareholder return (and any measures derived wholly or in part therefrom) shall be considered Financial Reporting Measures. “Recovery Exception:” A recovery of Recoverable Incentive Compensation shall be subject to a “Recovery Exception” if the Compensation Committee determines in good faith that: (i) pursuing such recovery would violate home country law of the jurisdiction of incorporation of the Company where that law was adopted prior to November 28, 2022 and the Company provides an opinion of home country counsel to that effect acceptable to the Company’s applicable listing exchange; (ii) the direct expense paid to a third party to assist in enforcing this Policy would exceed the Recoverable Incentive Compensation and the Company has (A) made a reasonable attempt to recover such amounts and (B) provided documentation of such attempts to recover to the Company’s applicable listing exchange; or (iii) recovery would likely cause an otherwise tax- qualified retirement plan, under which benefits are broadly available to employees of the Company, to fail to meet the requirements of Section 401(a)(13) or Section 411(a) of the Internal Revenue Code of 1986, as amended, and regulations thereunder. “Incentive Compensation” means any compensation that is granted, earned, or vested based wholly or in part upon the attainment of a Financial Reporting Measure. Incentive Compensation does not include any base salaries (except with respect to any salary increases earned wholly or in part based on the attainment of a Financial Reporting Measure performance goal); bonuses paid solely at the discretion of the Compensation Committee or Board that are not paid from a “bonus pool” that is determined by satisfying a Financial Reporting Measure performance goal; bonuses paid solely upon satisfying one or more subjective standards and/or completion of a specified employment period; non-equity incentive plan awards earned solely upon satisfying one or more strategic measures or operational measures; and equity awards that vest solely based on the passage of time and/or attaining one or more non-Financial Reporting Measures. Incentive Compensation includes any Incentive Compensation Received on or after October 2, 2023 pursuant to a preexisting contract or arrangement. “Received:” Incentive Compensation is deemed “Received” in the Company’s fiscal period during which the Financial Reporting Measure specified in the Incentive Compensation award is attained, even if the payment or grant of the Incentive Compensation occurs after the end of that period. “Recoverable Incentive Compensation” means the amount of any Incentive Compensation (calculated on a pre-tax basis) Received by a Covered Person during the Applicable Period that is in excess of the amount that otherwise would have been Received if the calculation were based on the Restatement. For Incentive Compensation based on (or derived from) stock price or total shareholder return where the amount of Recoverable Incentive Compensation is not subject to mathematical recalculation directly from the information in the applicable Restatement, the amount will be determined by the Compensation Committee based on a reasonable estimate of the effect of the Restatement on the stock price or total shareholder return upon which the Incentive Compensation was Received (in which case, the Company will maintain documentation of such determination of that reasonable estimate and provide such documentation to the Company’s applicable listing exchange). “Restatement” means an accounting restatement of any of the Company’s financial statements filed with the Securities and Exchange Commission under the Exchange Act, or the Securities Act of 1933, as amended, due to the Company’s material noncompliance with any financial reporting requirement under U.S. securities laws, regardless of whether the Company or Covered Person misconduct was the cause for such restatement. “Restatement” includes any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements (commonly referred to as “Big R” restatements), or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period (commonly referred to as “little r” restatements). 

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