The following discussion and analysis of our financial condition and results of
operations should be read together with our financial statements and the related
notes and the other financial information included elsewhere in this Quarterly
Report. This discussion contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including those discussed below and elsewhere in this Quarterly Report,
particularly those under "Risk Factors."
All share amounts presented in this Item 2 give effect to the 1-for-20 reverse
stock split of our outstanding shares of common stock, par value $0.0001 per
share ("common stock"), that occurred on July 25, 2022.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains forward-looking statements made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995 under Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Forward-looking statements include statements with respect to our beliefs,
plans, objectives, goals, expectations, anticipations, assumptions, estimates,
intentions and future performance, and involve known and unknown risks,
uncertainties and other factors, which may be beyond our control, and which may
cause our actual results, performance or achievements to be materially different
from future results, performance or achievements expressed or implied by such
forward-looking statements. All statements other than statements of historical
fact are statements that could be forward-looking statements. You can identify
these forward-looking statements through our use of words such as "may," "can,"
"anticipate," "assume," "should," "indicate," "would," "believe," "contemplate,"
"expect," "seek," "estimate," "continue," "plan," "point to," "project,"
"predict," "could," "intend," "target," "potential" and other similar words and
expressions of the future.
There are a number of important factors that could cause the actual results to
differ materially from those expressed in any forward-looking statement made by
us. These factors include, but are not limited to:
? our limited operating history;
? our history of operating losses in each year since inception and expectation
that we will continue to incur operating losses for the foreseeable future;
? our current and future capital requirements to support our development and
commercialization efforts for the Pure-Vu System and our ability to satisfy
our capital needs;
? our ability to remain compliant with the requirements of The Nasdaq Capital
Market for continued listing;
? our dependence on the Pure-Vu System, our sole product;
? our ability to commercialize the Pure-Vu System;
? our ability to obtain approval from regulatory agents in different
jurisdictions for the Pure-Vu System;
? our Pure-Vu System and the procedure to cleanse the colon in preparation for
colonoscopy are not currently separately reimbursable through private or
governmental third-party payors;
? our ability to obtain approval or certification from regulatory or other
competent entities in different jurisdictions for the Pure-Vu System;
? our dependence on third-parties to manufacture the Pure-Vu System;
? our ability to maintain or protect the validity of our patents and other
intellectual property;
19
? our ability to retain key executives and medical and science personnel;
? our ability to internally develop new inventions and intellectual property;
? interpretations of current laws and the passages of future laws;
? acceptance of our business model by investors;
? the accuracy of our estimates regarding expenses and capital requirements
? our ability to adequately support growth; and
? our ability to project in the short term the hospital medical device
environment considering the global pandemic and its impact on hospital systems
? our ability to predict the financial impact of inflation on costs such as
labor, freight and materials
The foregoing does not represent an exhaustive list of matters that may be
covered by the forward-looking statements contained herein or risk factors that
we are faced with that may cause our actual results to differ from those
anticipated in our forward-looking statements. Please see "Part II-Item 1A-Risk
Factors" for additional risks which could adversely impact our business and
financial performance.
All forward-looking statements are expressly qualified in their entirety by this
cautionary notice. You are cautioned not to place undue reliance on any
forward-looking statements, which speak only as of the date of this report or
the date of the document incorporated by reference into this report. We have no
obligation, and expressly disclaim any obligation, to update, revise or correct
any of the forward-looking statements, whether as a result of new information,
future events or otherwise. We have expressed our expectations, beliefs and
projections in good faith and we believe they have a reasonable basis. However,
we cannot assure you that our expectations, beliefs or projections will result
or be achieved or accomplished.
20
Overview
We have developed the Pure-Vu System, a medical device that has been cleared by
the U.S. Food and Drug Administration (the "FDA") to help facilitate the
cleansing of a poorly prepared gastrointestinal tract during colonoscopy and to
help facilitate upper gastrointestinal ("GI") endoscopy procedures. The Pure-Vu
System is also CE marked in the European Economic Area (EEA) for use in
colonoscopy. The Pure-Vu System integrates with standard and slim colonoscopes,
as well as gastroscopes, to improve visualization during colonoscopy and upper
GI procedures while preserving established procedural workflow and techniques.
Through irrigation and evacuation of debris, the Pure-Vu System is designed to
provide better-quality exams. Challenges exist for inpatient colonoscopy and
endoscopy, particularly for patients who are elderly, with comorbidities, or
active bleeds, where the ability to visualize, diagnose and treat is often
compromised due to debris, including fecal matter, blood, or blood clots. We
believe this is especially true in high acuity patients, like GI bleeding where
the existence of blood and blood clots can impair a physician's view and
removing them can be critical in allowing a physician the ability to identify
and treat the source of bleeding on a timely basis. We believe use of the
Pure-Vu System may lead to positive outcomes and lower costs for hospitals by
safely and quickly improving visualization of the colon and upper GI tract,
potentially enabling effective diagnosis and treatment without delay. In
multiple clinical studies to date, involving the treatment of challenging
inpatient and outpatient cases, the Pure-Vu System has consistently helped
achieve adequate bowel cleanliness rates greater than 95% following a reduced
prep regimen. We also believe that the technology may be useful in the future as
a tool to help reduce user dependency on conventional pre-procedural bowel prep
regimens. Based on our review and analysis of 2019 market data and 2021
projections for the U.S. and Europe, as obtained from iData Research Inc., we
believe that during 2021 approximately 1.5 million inpatient colonoscopy
procedures were performed in the U.S. and approximately 4.8 million worldwide.
Upper GI bleeds occurred in the U.S. at a rate of approximately 400,000 cases
per year in 2019, according to iData Research Inc. The Pure-Vu System has been
assigned an ICD-10 code in the US. The system does not currently have unique
codes with any private or governmental third-party payors in any other country
or for any other use; however, we intend to pursue reimbursement activities in
the future, particularly in the outpatient colonoscopy market. We received
510(k) clearance in February 2022 from the FDA for our Pure-Vu EVS System and
recently commenced commercialization of this product.
Recent Developments
On May 24, 2022, the Company issued a press release announcing positive topline
data from the EU Study of the Pure-Vu System in hard to prepare patients. The
data were presented during Digestive Week 2022 with a poster titled "An
Intracolonoscopy Bowel Cleansing System For Hard-to-Prepare Patients - a
Prospective Multicenter Study (Poster #: Tu1012)". The Company reported that the
Pure-Vu system was able to improve the adequate cleansing rate from 31.8% to
97.7% in patients with a history of poor bowel preparation. The EU study
evaluated the safety and efficacy of the Pure-Vu Gen2 system in patients with a
history of poor bowel preparation in the last two years and undergoing
outpatient screening or surveillance colonoscopy. Patients were prescribed a low
volume preparation consisting of 300mL (10.1 oz) split dose sodium
picosulfate/magnesium citrate + 2-day low fiber diet, liquid diet upon starting
bowel prep along with additional intraprocedural cleansing with the Pure-Vu
System. The primary outcome for the study was the percentage of adequately
prepared patients as measured by the Boston Bowel Preparation Scale (BBPS) score
per segment. The secondary outcomes included cecal intubation rate (CIR),
procedure times, and safety.
Financial Operations Overview
We have generated limited revenues to date from the sale of products. We have
never been profitable and have incurred significant net losses each year since
our inception, including a loss of $10.0 million for the six months ended June
30, 2022, and we expect to continue to incur net operating losses for the
foreseeable future. As of June 30, 2022, we had $15.8 million in cash and cash
equivalents and an accumulated deficit of $132.7 million. We expect our expenses
to increase in connection with our ongoing activities to commercialize and
market the Pure-Vu System, including additional expenditures in sales and
marketing personnel, clinical affairs and manufacturing. Accordingly, we will
need additional financing to support our continuing operations. We will seek to
fund our operations through public or private equity or debt financings or other
sources, which may include collaborations with third parties. The sale of equity
and convertible debt securities may result in dilution to our shareholders and
certain of those securities may have rights senior to those of our common
shares. If we raise additional funds through the issuance of preferred stock,
convertible debt securities or other debt financing, these securities or other
debt could contain covenants that would restrict our operations. Any other third
party funding arrangement could require us to relinquish valuable rights. The
source, timing and availability of any future financing will depend principally
upon market conditions, and, more specifically, on the progress of our product
and clinical development programs as well as commercial activities. Adequate
additional financing may not be available to us on acceptable terms, or at all.
Our failure to raise capital as and when needed would have a negative impact on
our financial condition and our ability to pursue our business strategy. We will
need to generate significant revenues to achieve profitability, and we may never
do so. Additionally, the potential impact of the COVID-19 pandemic on the
operation of our business will depend on future developments of the virus and
its variants, including the duration and spread of the outbreak, related travel
advisories and restrictions, production delays, or the uncertainty with respect
to the accessibility of additional liquidity or capital markets, all of which
are highly uncertain and cannot be predicted. Furthermore, the effects of
recently experienced inflation on costs such as labor, freight and materials may
negatively affect the financial performance of the business.
We expect to continue to incur significant expenses and increasing operating
losses for at least the next several years as we continue to expand our
commercial launch. We expect our expenses will increase in connection with our
ongoing activities, as we:
? continue to expand commercialization;
? scale manufacturing with our contracted partners for both the workstation and
disposable portions of the Pure-Vu System;
? develop future generations of the Pure-Vu System to improve user interface,
optimize handling and reduce the cost structure;
? raise sufficient funds to effectuate our business plan, including
commercialization activities and reimbursement efforts related to our Pure-Vu
System and our research and development activities, including clinical and
regulatory development, and the continued development and enhancement of our
Pure-Vu System; and
? operate as a public company.
21
Critical Accounting Policies and Estimates
Our accounting policies are essential to understanding and interpreting the
financial results reported on the condensed consolidated financial statements.
The significant accounting policies used in the preparation of our condensed
consolidated financial statements are summarized in Note 3 to the consolidated
financial statements and notes thereto found in our Annual Report on Form 10-K
for the year ended December 31, 2021. Certain of those policies are considered
to be particularly important to the presentation of our financial results
because they require us to make difficult, complex or subjective judgments,
often as a result of matters that are inherently uncertain.
During the six months ended June 30, 2022, there were no material changes to
matters discussed under the heading "Critical Accounting Policies and
Significant Judgement and Estimates" in Part II, Item 7 of the Company's Annual
Report on Form 10-K for the year ended December 31, 2021.
Results of Operations
Comparison of Three Months Ended June 30, 2022 and 2021
Revenue
Revenue totaled $185.0 thousand for the three months ended June 30, 2022,
compared to $100.0 thousand for the three months ended June 30, 2021. The $85.0
thousand increase was attributed to sales of the new EVS product recently
launched.
Cost of Revenue
Cost of revenue for the three months ended June 30, 2022 totaled $68.0 thousand,
compared to $42.0 thousand for the three months ended June 30, 2021. The
increase of $26.0 thousand was primarily attributed to the cost of our system
disposable evaluation and commercial units.
Research and Development
Research and development expenses include cash and non-cash expenses relating to
the advancement of our development and clinical programs for the Pure-Vu System.
We have research and development capabilities in electrical and mechanical
engineering with laboratories in our facility in Israel for development and
prototyping, and electronics design and testing. We also use consultants and
third-party design houses to complement our internal capabilities.
Research and development expenses for the three months ended June 30, 2022
totaled $1.4 million, compared to $1.5 million for the three months ended June
30, 2021. The decrease of $0.1 million was primarily attributable to decreases
of $0.2 million in material costs, offset by a increase of $0.1 million in
salaries and other personnel related costs.
Sales and Marketing
Sales and marketing expenses include cash and non-cash expenses primarily
related to our sales and marketing personnel and infrastructure supporting the
commercialization of the second generation Pure-Vu System.
Sales and marketing expenses for the three months ended June 30, 2022 totaled
$1.2 million, compared to $0.8 million for the three months ended June 30, 2021.
The increase of $0.4 million was primarily attributable to increases of $0.5
million in salaries and other personnel related costs, partially offset with a
$0.1 million decrease in professional and consulting fees.
22
General and Administrative
General and administrative expenses consist primarily of costs associated with
our overall operations and being a public company. These costs include
personnel, legal and financial professional services, insurance, investor
relations, compliance related fees, and expenses associated with obtaining and
maintaining patents.
General and administrative expenses for the three months ended June 30, 2022
totaled $2.1 million, compared to $2.3 million for the three months ended June
30, 2021. The $0.2 million decrease is primarily attributed to a decrease of
$0.4 million in stock compensation, partially offset by increases of $0.1
million in salaries and other personnel costs and $0.1 million in travel and
other general and administrative costs.
Other Income and Expenses
Other expense, net for the three months ended June 30, 2022 totaled $0.5 million
compared to other expense of $0.2 million for the three months ended June 30,
2021. The increase of $0.3 million in other expense net, was primarily
attributable to an increase of $0.2 million in finance expense and $0.1 million
in exchange rate differences.
Comparison of Six Months Ended June 30, 2022 and 2021
Revenue
Revenue totaled $205.0 thousand for the six months ended June 30, 2022, compared
to $151.0 thousand for the six months ended June 30, 2021. The increase of $54.0
thousand is primarily attributed to sales of the new EVS product recently
launched.
Cost of Revenue
Cost of revenue for the six months ended June 30, 2022 totaled $242 thousand,
compared to $70.0 thousand for the six months ended June 30, 2021 The increase
of $172.0 thousand was primarily attributed to a net increase of $159.0 thousand
in inventory impairment and an increase of $13.0 thousand to the cost of our
system disposable evaluation and commercial units.
Research and Development
Research and development expenses include cash and non-cash expenses relating to
the advancement of our development and clinical programs for the Pure-Vu System.
We have research and development capabilities in electrical and mechanical
engineering with laboratories in our facility in Israel for development and
prototyping, and electronics design and testing. We also use consultants and
third-party design houses to complement our internal capabilities.
Research and development expenses for the six months ended June 30, 2022 totaled
$2.7 million, compared to $2.9 million for the six months ended June 30, 2021.
The decrease of $0.2 million was primarily attributable to a decrease of $0.3
million in material costs, $0.1 million in share-based compensation, partially
offset by an increase of $0.2 million in salaries and other personnel related
costs.
Sales and Marketing
Sales and marketing expenses include cash and non-cash expenses primarily
related to our sales and marketing personnel and infrastructure supporting the
commercialization of the second generation Pure-Vu System.
Sales and marketing expenses for the six months ended June 30, 2022 totaled $2.2
million, compared to $1.5 million for the six months ended June 30, 2021. The
increase of $0.7 million was primarily attributable to increases of $0.8 million
in salaries and other personnel related cost to support our commercialization
efforts of the Pure-Vu System, $0.1 million in demonstration product and $0.1
million in other sales and marketing costs offset by decreases of $0.2 million
professional services and $0.1 million in share-based compensation and other
sales and marketing costs.
General and Administrative
General and administrative expenses consist primarily of costs associated with
our overall operations and being a public company. These costs include
personnel, legal and financial professional services, insurance, investor
relations, compliance related fees, and expenses associated with obtaining and
maintaining patents.
General and administrative expenses for the six months ended June 30, 2022
totaled $4.2 million, compared to $4.8 million for the six months ended June 30,
2021. The decrease of $0.6 million was primarily attributable to decreases of
$0.8 million in share-based compensation, $0.1 million in professional services,
$0.1 million in investor and public relation fees, offset with a $0.2 million
increase in salaries and other personnel related costs, $0.1 million in travel
costs and $0.1 million in other general and administrative costs.
Other Income and Expenses
Other expense, net for the six months ended June 30, 2022 totaled $0.8 million
compared to $0.4 thousand for the six months ended June 30, 2021. The increase
of $0.4 million in other expense, was primarily attributable to an increase of
$0.4 million in finance expense.
23
Liquidity and Capital Resources
To date, we have generated minimal revenues, experienced negative operating cash
flows and have incurred substantial operating losses from our activities. We
expect operating costs will increase significantly as we incur costs associated
with commercialization activities related to the Pure-Vu System. We expect to
continue to fund our operations primarily through utilization of our current
financial resources, future product sales, and through the issuance of debt or
equity. As of June 30, 2022, our accumulated deficit was $132.7 million. Such
conditions raise substantial doubts about our ability to continue as a going
concern.
In March 2021, we entered into an Equity Distribution Agreement (the "Equity
Distribution Agreement") with Oppenheimer & Co. Inc. ("Oppenheimer"), under
which we may offer and sell from time to time common shares having an aggregate
offering price of up to $25.0 million. During the three and six months ended
June 30, 2022, we sold approximately 8.0 thousand and 307.0 thousand shares of
our common stock under this agreement, resulting in net cash proceeds of $45.0
thousand and $3.0 million, after deducting issuance costs of $5.0 thousand and
$0.1 million, respectively. From July 1, 2022 to August 10, 2022, the Company
issued and sold approximately 258.0 thousand common shares of our common stock
under this agreement, resulting in net cash proceeds of approximately $1.34
million, after deducting issuance costs $41.0 thousand.
We have been continuously evaluating the actual and potential business impacts
related to the COVID-19 pandemic. While the full impact of the pandemic
continues to evolve, the financial markets have been subject to significant
volatility that adversely impacts our ability to enter into, modify, and
negotiate favorable terms and conditions relative to equity and debt financing
initiatives. The uncertain financial markets, potential disruptions in supply
chains, mobility restraints, and changing priorities could also affect our
ability to enter into key agreements.
The future progression of the outbreak and its effects on our business and
operations continues to be uncertain. We and our third-party contract
manufacturers, contract research organizations, and clinical sites may also face
disruptions in procuring items that are essential to our research and
development activities, including, for example, medical and laboratory supplies,
in each case, that are sourced from abroad or for which there are shortages
because of ongoing efforts to address the outbreak.
As of June 30, 2022, we had total current assets of $18.2 million and total
current liabilities of $4.3 million resulting in working capital of $13.9
million. Net cash used in operating activities for the six months ended June 30,
2022 was $9.8 million, which includes a net loss of $10.0 million, offset by
non-cash expenses principally related to share-based compensation expense of
$1.0 million, depreciation and amortization of $0.3 million, amortization of
debt issuance costs of $0.1 million, issuance of common stock for board of
directors' compensation of $0.1 million, amortization of operating lease
right-of-use asset of $0.2 million and inventory impairment of $0.2 million,
offset by changes in net working capital items principally related to the
increase in prepaid expenses and other current assets of $0.4 million, the
increase in accounts payable and accrued expenses of $0.5 million, and an
increase in inventory of $0.8 million.
24
Net cash used in investing activities for the six months ended June 30, 2022
totaled $49.0 thousand related to the purchase of fixed assets.
Net cash provided by financing activities for the six months ended June 30, 2022
totaled $3.1 million related to proceeds from issuance of common shares pursuant
to at-the-market issuance registered offering of $3.2 million, offset by
financing fees related to the at the market offering of $0.1 million.
As of June 30, 2022, we had cash and cash equivalents of $15.8 million. We will
need to raise significant additional capital to continue to fund operations. We
may seek to sell common or preferred equity, convertible debt securities or seek
other debt financing. In addition, we may seek to raise cash through
collaborative agreements or from government grants. 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.
Shelf Registration Statement
On March 16, 2021, we filed a shelf registration statement (File No. 333-254343)
with the Securities and Exchange Commission (the "2021 Shelf Registration
Statement"), which was declared effective on March 26, 2021, that allows us to
offer, issue and sell up to a maximum aggregate offering price of $100.0 million
of any combination of our common stock, preferred stock, warrants, debt
securities, subscription rights and/or units from time to time, together or
separately, in one or more offerings. As of June 30, 2022, we have not sold any
securities under the 2021 Shelf Registration Statement, except as described
below.
The 2021 Shelf Registration Statement includes a prospectus registering an
at-the-market offering program pursuant to an Equity Distribution Agreement (the
"Equity Distribution Agreement") with Oppenheimer & Co. Inc. ("Oppenheimer"),
entered into in March 2021, under which Oppenheimer may offer and sell from time
to time shares of our common stock having an aggregate offering price of up to
$25.0 million, subject to the provisions of General Instruction I.B.6 of Form
S-3, which provides that we may not sell securities in a public primary offering
with a value exceeding one-third of our public float in any twelve-month period
(approximately $8.8 million beginning effective as of March 29, 2022, the date
of filing of our most recent Annual Report on Form 10-K) unless our public float
is at least $75 million. If our public float meets or exceeds $75.0 million at
any time, we will no longer be subject to the restrictions set forth in General
Instruction I.B.6 of Form S-3, at least until the filing of our next Section
10(a)(3) update as required under the Securities Act.
In March 2021, we entered into an Equity Distribution Agreement (the "Equity
Distribution Agreement") with Oppenheimer & Co. Inc. ("Oppenheimer"), under
which we may offer and sell from time to time common shares having an aggregate
offering price of up to $25.0 million. During the three and six months ended
June 30, 2022, we sold approximately 8 thousand and 307 thousand shares of our
common stock under this agreement, resulting in net cash proceeds of $45.0
thousand and $3.0 million, after deducting issuance costs of $5.0 thousand and
$0.1 million, respectively.
Our ability to issue securities is subject to market conditions and other
factors including, in the case of our debt securities, our credit ratings.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any
off-balance sheet arrangements, as defined under SEC rules, such as
relationships with unconsolidated entities or financial partnerships, which are
often referred to as structured finance or special purpose entities, established
for the purpose of facilitating financing transactions that are not required to
be reflected on our balance sheets.
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MOTUS GI HOLDINGS, INC. 
