Motus GI Holdings, Inc. and Subsidiaries

Notes to the Interim Condensed Consolidated Financial Statements (unaudited)
(In thousands, except share and per share amounts)

Leases

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. On January 1, 2019, the Company adopted the new lease standard using the optional transition method under which comparative financial information will not be restated and continue to apply the provisions of the previous lease standard in its annual disclosures for the comparative periods. In addition, the new lease standard provides a number of optional practical expedients in transition. The Company elected the package of practical expedients. As such, the Company did not have to reassess whether expired or existing contracts are or contain a lease; did not have to reassess the lease classifications or reassess the initial direct costs associated with expired or existing leases.

The new lease standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption under which the Company will not recognize right-of-use (“ROU”) assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases. The Company elected the practical expedient to not separate lease and non-lease components for certain classes of assets (facilities).

On January 1, 2019, the Company recognized ROU assets of $1,065 and lease liabilities of $1,074 and no adjustment was made to the Company’s accumulated deficit. The adoption of the new lease standard did not impact the Company’s condensed consolidated statement of comprehensive loss or its condensed consolidated statement of cash flows.

The Company determines if an arrangement is a lease at inception. For the Company’s operating leases, the ROU asset represents the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent an obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Since all of the lease agreements do not provide an implicit rate, the Company estimated an incremental borrowing rate in determining the present value of the lease payments. Operating lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectations regarding the terms. Variable lease costs such as operating costs and property taxes are expensed as incurred.

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:

Motus GI Holdings, Inc. and Subsidiaries

Notes to the Interim Condensed Consolidated Financial Statements (unaudited)
(In thousands, except share and per share amounts)

Fixed assets, summarized by major category, consist of the following for the years ended:

Depreciation and amortization expense for the three and nine months ended September 30, 2019 is $58 and $157, respectively. Depreciation and amortization expense for the three and nine months ended September 30, 2018 is $44 and $106, respectively. For the three and nine months ended September 30, 2019, a fixed asset impairment charge of $35 was recorded as general and administrative expense to write down lab and medical equipment related to the first-generation Pure-Vu System.

Stock Based Compensation

2016 Equity Incentive Plan

In December 2016, the Company adopted the Motus GI Holdings, Inc. 2016 Equity Incentive Plan (the “2016 Plan”). Pursuant to the 2016 Plan, the Company’s board of directors may grant options to purchase shares of the Company’s common stock, stock appreciation rights, restricted stock, stock units, performance shares, performance units, incentive bonus awards, other cash-based awards and other stock-based awards to employees, officers, directors, consultants and advisors. Pursuant to the terms of an annual evergreen provision in the 2016 Plan, the number of shares of common stock available for issuance under the 2016 Plan shall increase annually by six percent (6%) of the total number of shares of common stock outstanding on December 31st of the preceding calendar year; provided, however, that the board of directors may act prior to the first day of any calendar year to provide that there shall be no increase such calendar year, or that the increase shall be a lesser number of shares of our common stock than would otherwise occur. On January 1, 2019, pursuant to an annual evergreen provision, the number of shares of common stock reserved for future grants was increased by 1,286,409 shares. Under the 2016 Plan, the maximum number of shares of the Company’s common stock authorized for issuance is 3,927,659. As of September 30, 2019, there were 92,202 shares of common stock available for future grant under the 2016 Plan.

Adoption of Accounting Standards Update 2018-07

The Company has adopted Accounting Standards Update 2018-07 (“ASU 2018-07”), “Improvement to Nonemployee Share-based Payment Accounting”, which expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The new guidance will be applied prospectively to all new awards granted after the date of adoption. In addition, the new guidance will be applied to all existing equity-classified awards for which a measurement date has not been established under ASC 505-50 by the adoption date by remeasuring at fair value as of the adoption date, and recording a cumulative effect adjustment to opening accumulated deficit on January 1, 2019.

For the Company’s equity-classified awards for which a measurement date has not been established under ASC 505-50, the fair value on January 1, 2019, the adoption date, approximated the value assigned on December 31, 2018, therefore no cumulative adjustment to opening accumulated deficit was required.

Motus GI Holdings, Inc. and Subsidiaries

Notes to the Interim Condensed Consolidated Financial Statements (unaudited)
(In thousands, except share and per share amounts)

Under the revised guidance, the accounting for awards issued to non-employees will be similar to the model for employee awards, except that ASU 2018-07:

Employee and Non-Employee Stock Based Compensation

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.

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 condensed consolidated statement 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.

Basic and diluted net loss per share

Basic loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the year. Diluted loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the year, plus the number of common shares that would have been outstanding if all potentially dilutive ordinary shares had been issued, using the treasury stock method, in accordance with ASC 260-10 “Earnings per Share”. Potentially dilutive common shares were excluded from the calculation of diluted loss per share for all periods presented due to their anti-dilutive effect due to losses in each period.

Research and development expenses, net

Research and development expenses are charged to the unaudited condensed consolidated statement of comprehensive loss as incurred.

Motus GI Holdings, Inc. and Subsidiaries

Notes to the Interim Condensed Consolidated Financial Statements (unaudited)
(In thousands, except share and per share amounts)

Patent costs

Costs incurred in connection with acquiring patent rights and the protection of proprietary technologies are expensed as incurred.

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 September 30, 20192020, and December 31, 2018,2019, the Company had a full valuation allowance against its deferred tax assets.

For the three and nine months ended September 30, 20192020 and 2018,2019, the Company recorded zero income tax expense. No tax benefit has been recorded in relation to the pre-tax loss for the three and nine months ended September 30, 20192020 and 2018,2019, due to a full valuation allowance to offset any deferred tax asset related to net operating loss carry forwards attributable to the losses.

Restructuring charges

Restructuring charges are comprised of severance costs related to workforce reductions and other costs directly related to the 2020 Plan, including lease exit and fixed asset impairment. The Company recognizes restructuring charges when the liability is incurred. Employee termination benefits are accrued at the date management has committed to a plan of termination and employees have been notified of their termination dates and expected severance payments, see Note 12.

Recently Adopted Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13, “Changes to Disclosure Requirements for Fair Value Measurements”, which will improve the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements. ASU 2018-13 removes, modifies, and adds certain disclosure requirements, and is effective for all entities for fiscal years ending after December 15, 2019. The Company adopted ASU 2018-13 on January 1, 2020. The adoption of ASU 2018-13 did not have a material impact on the Company’s financial instrumentsposition or results of operations.

In August 2018, the FASB issued ASU 2018-15, “Internal-Use Software (Subtopic 350-40) — Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service”. ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license), by requiring a customer in a cloud computing arrangement that is a service contract to capitalize certain implementation costs as if the arrangement was an internal-use software project, and is effective for public business entities for fiscal years beginning after December 15, 2019. The Company adopted ASU 2018-15 on January 1, 2020. The adoption of ASU 2018-15 did not have a material impact on the Company’s financial position or results of operations.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” 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 2019-04, “Codification Improvements to Topic 326, Financial Instruments — Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments” and ASU 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 Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates”, which defers the effective date for public filers that are considered small reporting companies (“SRC”) as defined by the Securities and Exchange Commission to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Since the Company is an SRC, implementation is not needed until January 1, 2023. The Company will continue to evaluate the effect that adopting ASU 2016-13 will have on the Company’s financial statements and disclosures.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”, which is intended to simplify various aspects related to accounting for income taxes. This ASU removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements and related disclosures.

In March 2020, the FASB issued ASU 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. The ASU is intended to provide temporary optional expedients and exceptions to the US GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance is effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements and related disclosures.

Note 4 – Investments and Fair Value of Financial Instruments

Investments consist of available-for-sale securities, which are carried at fair value. Interest and dividends on investments are included in finance income, net.

As of September 30, 2020, the Company did not have any investments. The following table summarizes, by major security type, the Company’s investments as of December 31, 2019:

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 three and nine months ended September 30, 20192020 and during the year ended December 31, 2018.2019.

Motus GI Holdings, Inc. and Subsidiaries

Notes to the Interim Condensed Consolidated Financial Statements (unaudited)
(In thousands, except share and per share amounts)

The following table summarizes the fair value of ourthe Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis, by level within the fair value hierarchy, as of September 30, 20192020 and December 31, 2018:2019:

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.

Contingent Royalty Obligation

In estimating the fair value of the Company’s contingent royalty obligation (see Note 6)9), the Company used the discounted cash flow method as of September 30, 20192020 and December 31, 2018.2019. 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 following table sets forth a summary of changes in the estimated fair value of the Company’s Level 3 contingent royalty obligation for the nine months ended September 30, 2019:2020:

The contingent royalty obligation is re-measured at each balance sheet date using the following assumptions: 1) discount rate of 21% and 20% as ofat both September 30, 20192020 and December 31, 2018, respectively,2019, and 2) rate of royalty payment of 3% as ofat both September 30, 20192020 and December 31, 2018.

For the nine months ended September 30, 2019, the Company’s estimated discount rate increased from 20% to 21% due to changes in market conditions.2019.

In accordance with ASC-820-10-50-2(g), the Company performed a sensitivity analysis of the liability, which was classified as a Level 3 financial instrument. The Company recalculated the fair value of the liability by applying a +/- 2% change to the input variable in the discounted cash flow model; the discount rate. A 2% decrease in the discount rate would increase the liability by approximately $175$171 and a 2% increase in the discount rate would decrease the liability by approximately $157.$152.

Motus GI Holdings, Inc. and Subsidiaries

Notes to the Interim Condensed Consolidated Financial Statements (unaudited)
(In thousands, except share and per share amounts)Note 5 – Inventory

Recently issued accounting standards

In June 2016,Inventory is stated at lower of cost or net realizable value using the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses” to improve informationweighted average cost method and is evaluated at least annually for impairment. Write-downs for potentially obsolete or excess inventory are made based on credit losses for financial assetsmanagement’s analysis of inventory levels, historical obsolescence and net investment in leases that are not accounted for at fair value through net income. ASU 2016-13 replacesfuture sales forecasts. For the current incurred loss impairment methodology with a methodology that reflects expected credit losses. In April 2019three and May 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivativesnine months ended September 30, 2020, no inventory write-down charge was recorded; 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. Management has not yet completed its assessment of the impact of the new standards on the Company’s financial statements. The Company is currently evaluating the effect the adoption of these ASUs will have on its condensed consolidated financial statements. These ASUs are effective for the Company in the first quarter of 2020.

In August 2018, the FASB issued ASU 2018-13, “Changes to Disclosure Requirements for Fair Value Measurements”, which will improve the effectiveness of disclosure requirements for recurringthree and nonrecurring fair value measurements. ASU 2018-13 removes, modifies, and adds certain disclosure requirements, and is effective for the Company in the first quarter of 2020. The Company is evaluating the impact this standard will have on the Company’s condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, “Internal-Use Software (Subtopic 350-40)—Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service”. ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license), by requiring a customer in a cloud computing arrangement that is a service contract to capitalize certain implementation costs as if the arrangement was an internal-use software project. ASU 2018-15 will be effective on January 1, 2020. The Company is currently evaluating the impact of this new standard.

Note 4 – Investments

Investments as ofnine months ended September 30, 2019, an inventory write-down charge of $57 and December 31, 2018 consist of available-for-sale securities which are carried at fair value. Interest and dividends on investments are included in finance income, net.$76, respectively, was recorded.

The following table summarizes, by major security type,Inventory consists of the Company’s investments asfollowing:

Note 6 – Fixed assets, net

Fixed assets, net, consists of the following:

Depreciation and amortization expense for the three and nine months ended September 30, 2020 was $154 and $279, respectively. Depreciation and amortization expense for the three and nine months ended September 30, 2019 was $58 and December 31, 2018:$157 respectively. The Company incurred a loss on the impairment of fixed assets in the amount of $0 and $18 for the three and nine months ended September 30, 2020, respectively. The Company incurred a loss on the impairment of fixed assets in the amount of $35 for the three and nine months ended September 30, 2019.

Note 57 – 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%.

Motus GI Holdings, Inc. and Subsidiaries

Notes As described within Note 10, the Company shares this space with a related party pursuant to the Interim Condensed Consolidated Financial Statements (unaudited)
(In thousands, except share and per share amounts)Shared Space Agreement, as defined below.

The Company leases an office in Israel under an operating lease thatlease. The term expires on December 31, 2019. On July 4, 2019, the Company exercised its option to extend the lease expiration to December 31, 2022. The right-of-use asset and lease liability were adjusted to include the renewal period in the amount of $176. Theannual base rent is subject to aincreases of 4% increase beginning on January 1, 2020..

The Company leases vehicles under operating leases that expire at various dates through 2022.

Many of these leases provide for payment by the Company, as the lessee, of taxes, insurance premiums, costs of maintenance and other costs which are expenses as incurred. Certain operating leases include escalation clauses and some of which may include options to extend the leases for up to 3 years.

Operating cash flowThe components of lease cost and supplemental balance sheet information for the Company’s lease portfolio were as follows: 

The Company records operating lease payments to lease expense using the straight-line method. The Company’s lease expense was $66 and $229 for the three and nine months ended September 30, 2019:

An initial right-of-use asset of $1,065 was recognized as a non-cash asset2020, respectively, included in general and operating lease liabilities of $1,074 was recognized as a non-cash liability addition with the adoptionadministrative expenses which is net of the new lease standard. An initial right-of-use assetrelated party license fee of $47 and liability in$126 for the amount of $176 was recognized as a non-cash assetthree and operating lease liability upon the exercise of its option to extend the Israel lease. Cash paid for amounts included in the present value of operating lease liabilities was $261 during the nine months ended September 30, 2019.

Future minimum lease payments under non-cancellable operating leases as of September 30, 2019 were as follows:

2020, respectively (see Note 10). The Company’s lease expense was $127 and $356 for the three and nine months ended September 30, 2019, respectively, included in general and administrative expenses.

Future minimum lease payments under non-cancellable operating leases as of September 30, 2020 were as follows:

Future minimum lease payments under non-cancellable operating leases as of December 31, 2019 were as follows:

Future minimum receipts under the related party license fee as of September 30, 2020 were as follows:

Note 8 – Term Debt

On December 13, 2019 (the “Effective Date”), the Company entered into a Loan and Security Agreement (the “Loan Debt”) for $8,000 (the “Term Debt”) with Silicon Valley Bank (the “Bank” or “SVB”). On April 10, 2020, the Company entered into a Deferral Agreement (the “Deferral Agreement”) with SVB, effective April 2, 2020, which amends certain provisions of the Loan and Security Agreement, between the Company and SVB.

Pursuant to and among other changes effected by, the Deferral Agreement, as of April 2, 2020, the originally scheduled period of monthly interest-only payments under the Loan Agreement, and the originally scheduled maturity date of the Loan Agreement, have each been extended by six months. As a result, pursuant to the Deferral Agreement, the Loan Agreement now provides for monthly interest-only payments through June 30, 2022, followed by monthly payments of principal and interest until June 1, 2024.

The Term Debt of $8,000 bears an interest rate equal to the greater of (i) one-half of one percent (0.50%) above the Prime Rate and (ii) five and one-half percent (5.50%). At September 30, 2020, the interest rate was 5.50%. The Term Debt is collateralized by substantially all assets of the Company. Additionally, the Company has pledged 65% of the outstanding capital stock in the Company’s lease expense was $122foreign subsidiary, Motus GI Medical Technologies, Ltd., to collateralize the Term Debt.

Interest payments have commenced on January 1, 2020, following each month until the maturity date. Principal payments will commence July 1, 2022 and $368continuing for 24 consecutive months thereafter. The Company may prepay all, but not less than all, of the outstanding principal balance of the Term Debt subject to prepayment premium of $240, plus all other sums, if any, that shall have become due and payable.

The Company incurred $50 of debt issuance costs related to the Term Debt. For the three and nine months ended September 30, 2018,2020, $2 and $23 of debt issuance costs was amortized to interest expense, respectively, includedusing the effective interest method. The effective interest rate on the Term Debt for the three months ended September 30, 2020 was 5.69%. The Company accounts for its bank indebtedness at amortized cost.

Further, under the terms of the agreement, the Company must maintain unrestricted cash in generalaccounts with the Bank of at least $10,000. The covenant was met by the Company as of September 30, 2020. The Company’s cash forecast indicates that it will need to raise additional funds during 2021, which is part of the current operating plan, in order to meet this liquidity requirement covenant during the coming year.

The Term Debt includes a subjective acceleration clause. Since March 2020, the Company has been evaluating the actual and administrative expenses.potential business impacts related to the COVID-19 pandemic.  In response to the pandemic, certain measures were taken by authorities that could result in adverse financial impacts to the Company, including requiring Company workers to stay home. The Company considered the probability of a further slow-down of its sales team and the related impact on the potential to trigger the Liquidity Covenant, along with the tightening of the capital markets, which could cause SVB to exercise the subjective acceleration clause in determining the classification of the Company’s Term Debt. When considering these factors, the Company determined the likelihood of acceleration could be probable if the pandemic continues, and therefore the Company has classified the Term Debt in current liabilities.

Future maturities under the amended terms of the Term Debt are as follows:

Note 69 – Commitments and Contingencies

Royalty on Coated Products

On January 30, 2018, the Company entered into a license and supply agreement with a third party whereby it was granted a worldwide license to sell its products coated with an agent that is the intellectual property of the third party for providing a lubricious surface to the Company’s products (a “Coated Product” or “Coated Products”). The third party is entitled to a royalty in the amount of:

The above two tiers reset annually on January 1^st of each calendar year.

Motus GI Holdings, Inc. and Subsidiaries

Notes to the Interim Condensed Consolidated Financial Statements (unaudited)
(In thousands, except share and per share amounts)

Minimum royalties shall be paid for each Coated Product sold by the Company as follows:

Additionally, the Company shall make one-time milestone payments as follows:

The Company provided the third party a notice of termination of the license and supply agreement, which is effective ninety days from September 30, 2019. The Company shipped its first commercial Coated Product in the second quarter of 2019. For the three and nine months ended September 30, 2019, the Company has recorded a de minimus amount in relation to the royalty on coated products as cost of revenue. For the three and nine months ended September 30, 2019, the Company recorded $37 as a reduction to general and administrative expense for the reversal of the estimated accrual for additional one-time milestone payments. As of September 30, 2019, the Company has recorded $13 as other current liabilities to accrue the one-time milestone payment.

For the three and nine months ended September 30, 2018, the Company has recorded $0 and $50, respectively, as general and administrative expense to accrue the one-time milestone payments in anticipation of the first commercial sale of a coated product. As of December 31, 2018, the Company has recorded $25 as other current liabilities and $25 as other non-current liabilities to accrue the one-time milestone payments.

Royalties to the IIA

The Company has received grants from the Government of the State of Israel through the Israeli National Authority for Technical Innovation (the “IIA”) for the financing of a portion of its research and development expenditures. The total amount that was received and recorded between the periods ending December 31, 2011 through 2016 was $1,332. The total amountNo amounts were received during the three and nine months ended September 30, 20192020 and 2018 was $0.2019. The Company has a contingent obligation to the IIA for the total amount received along with the accumulated LIBOR interest to date in the amount of approximately $1,394$1,405 and $1,383$1,396 as of September 30, 20192020 and December 31, 2018,2019, respectively. This obligation is repaid in the form of royalties on revenues generated in any fashion with a rate that is currently at 4% (which may be increased under certain circumstances). The Company may be obligated to pay up to 100% (which may be increased under certain circumstances) of the U.S. dollar-linked value of the grants received, plus interest at the rate of 12-month LIBOR.

Repayment of the grants is contingent upon the successful completion of the Company’s R&D programs and generating sales. The Company has no obligation to repay these grants if the R&D program fails, is unsuccessful, or aborted, or if no sales are generated. The Company has recorded an immaterial expense and liability duringfor the three and nine months ended September 30, 2020 and 2019, and 2018 as sales occur.an immaterial liability at September 30, 2020 and 2019.

Royalty Payment Rights on Royalty Payment Rights Certificates

The Company filed a Certificate of Designation of Preferences, Rights and Limitations (the “Certificate of Designation”), establishing the rights and preferences of the holders of the Series A Convertible Preferred Stock, including certain directors and officers of the Company (the “Royalty Payment Rights”). As set forth in the Certificate of Designation, the Royalty Payment Rights initially entitled the holders in aggregate, to a royalty in an amount of:

Motus GI Holdings, Inc. and Subsidiaries

Notes to the Interim Condensed Consolidated Financial Statements (unaudited)
(In thousands, except share and per share amounts)

In addition, in connection with completion of the 2017 Private Placement, the Company issued the placement agent royalty payment rights certificates (the “Placement Agent Royalty Payment Rights Certificates”) which grants the placement agent, and its designees, the right to receive, in the aggregate, 10% of the amount of payments paid to the holders of the Series A Convertible Preferred Stock, or the holders of the Royalty Payment Rights Certificates (the “Royalty Payment Rights Certificates”), upon the conversion of the Series A Convertible Preferred Stock into shares of the Company’s common stock. The Placement Agent Royalty Payment Rights Certificates are on substantially similar terms as the Royalty Payment Rights of the Series A Convertible Preferred Stock.

The Royalty Payment Rights Certificate obligation and Placement Agent Royalty Payment Rights Certificate obligation (the “Contingent Royalty Obligation”) was recorded as a liability at fair value as “Contingent royalty obligation” in the consolidated balance sheets at September 30, 20192020 and December 31, 20182019 (see Contingent Royalty Obligation below). The fair value at inception was allocated to the royalty rights and the residual value was allocated to the preferred shares and recorded as equity.

The Company amended its Certificate of Designation to modify the Royalty Payment Rights when the Company consummated its Initial Public Offering (“IPO”) on February 16, 2018, at which time the Company converted the Series A Convertible Preferred Stock into shares of the Company’s common stock and issued the Royalty Payment Rights Certificates. Pursuant to the terms of the Royalty Payment Rights Certificates, if and when the Company generates sales of the current and potential future versions of the Pure-Vu System, including disposables, parts, and services, or if the Company receives any proceeds from the licensing of the current and potential future versions of the Pure-Vu System, then the Company will pay to the holders of the Royalty Payment Rights Certificates a royalty (the “Royalty Amount”) equal to, in the aggregate, in royalty payments in any calendar year for all products:

The Royalty Amount will be payable up to the later of (i) the latest expiration date of the Company’s patents issued as of December 22, 2016, or (ii) the latest expiration date of any pending patents as of December 22, 2016 that have since been issued or may be issued in the future (which is currently April 2035). Following the expiration of all such patents, the holders of the Royalty Payment Rights Certificates and the holders of the Placement Agent Royalty Payment Rights Certificates will no longer be entitled to any further royalties for any period following the latest to occur of such patent expiration.

On February 16, 2018, the date of the closing of the IPO, (1) the amendment to the Certificate of Designation became effective, (2) all outstanding shares of Series A Convertible Preferred Stock were converted into shares of the Company’s common stock pursuant to a mandatory conversion, and (3) the Royalty Payment Rights Certificates were issued to the former holders of the Series A Convertible Preferred Stock.

Motus GI Holdings, Inc. and Subsidiaries

Notes to the Interim Condensed Consolidated Financial Statements (unaudited)
(In thousands, except share and per share amounts)

Contingent Royalty Obligation

The Contingent Royalty Obligation was recorded as a non-current liability at fair value in the consolidated balance sheets at September 30, 20192020 and December 31, 20182019 in the amount of $1,885$1,624 and $1,953,$1,872, respectively. A gain on change in fair value of Contingent Royalty Obligation of $3 and $248 were recorded for the three months and nine months ended September 30, 2020, respectively. For the three and nine months ended September 30, 2019, the Company recorded a gain on change in fair value of Contingent Royalty Obligation in the amount of $127 and $68, respectively. For the three and nine months ended September 30, 2018, the Company recorded a loss on change in fair value of Contingent Royalty Obligation in the amount of $85 and $244, respectively.

Manufacturing Component Purchase Obligations

The Company utilizes two outsourcing partners to manufacture its WorkstationOther Commitments and Disposable, and to perform final assembly and testing of finished products. These outsourcing partners acquire components and build product based on demand information supplied by the Company. As of September 30, 2019, the Company expects to pay $55 under manufacturing-related supplier arrangements within the next year, substantially all of which is noncancelable.

Other CommitmentsContingencies

The Company has a severance contingency for severance payments to its CEO, COO, and CFO in the aggregate of approximately $1,319, in the event that they are terminated without cause or leave due to good reason, as outlined in their employee agreements. Management estimates that the likelihood of payment is remote; therefore, no liability was reflected in these condensed consolidated financial statements.

Any serious disruption with the Company’s operations due to the COVID-19 outbreak could impair the Company’s ability to generate sufficient cash to repay its debt obligations when they become due and payable, either when they mature, or in the event of a default, which will cause the Company to breach its covenants and may negatively impact the Company’s business operations, financial condition, and results of operations. The Company is unable to predict the outcome of these matters and is unable to make a meaningful estimate of the amount or range of loss, if any, that could result from an unfavorable outcome. 

Note 710 – Related Party Transactions

Shareholder LoanShared Space Agreement

TheIn January 2020, the Company entered into a shareholder loan on May 15, 2017 forlicense agreement (the “Shared Space Agreement”) with Orchestra BioMed, Inc., a principal balancegreater than 5% holder of $122 atthe Company’s common stock and entity in which David Hochman, the Chairman of the Company’s board of directors, serves as the Chairman of the board of directors and Chief Executive Officer, and Darren Sherman, a stated interest ratemember of 3.4%. Forthe Company’s board of directors, serves as a director and as President and Chief Operating Officer. As of September 30, 2020, the Company has a related party receivable in the amount of $2 in relation to the Shared Space Agreement. During the three and nine months ended September 30, 2018,2020, the Company recorded $3license fee of $47 and $4,$126, respectively, as finance income relatedin relation to the shareholder loan.Shared Space Agreement. This amount is netted with rent expense in general and administrative expenses.

Orchestra BioMed, Inc. will continue to pay a monthly license fee based on the shared space to the Company until the expiration of the Shared Space Agreement in September 2024. Aggregate license fees will range from $162 to $198 in any given calendar year during the term of the Shared Space Agreement.

Note 11 – Stock-based compensation

Issuance of Common Stock

On July 10, 2020, the non-employee members of the Board of Directors were granted an aggregate of 44,600 shares of Common Stock as compensation, in lieu of $55 of cash compensation, for service as directors during the second quarter of 2020, pursuant to the Company’s non-employee director compensation policy. The loan principal andCompany recorded $56 in accrued interest was repaid in fullexpenses as of December 31, 2018.

Sales and Marketing Services Arrangement with FreeHold Surgical, Inc.

BeginningSeptember 30, 2020, in relation to the fourth quarter of 2017, the Company began to make payments to FreeHold Surgical, Inc (“FreeHold”), an entity in which one of our Directors servesservice as a Director and President,directors for services rendered beginning August 2017. On October 31, 2018, the Company gave thirty-day notice to FreeHold for termination of its services agreement effective November 30, 2018. As of December 31, 2018, the Company had $0 recorded as accounts payable to FreeHold. For the three and nine months ended September 30, 2018,2020. On October 10, 2020, the Company recorded $25 and $100, respectively, as general and administrative expense related to this arrangement.

Note 8 – Shareholders’ Equity

Issuancenon-employee members of the Board of Directors were granted an aggregate of 58,804 shares of Common Stock as compensation, in lieu of cash compensation, for service as directors during the third quarter of 2020, pursuant to the Company’s non-employee director compensation policy. The number of shares granted to the Company’s directors, in lieu of cash compensation, is determined by the dollar amount of quarterly fees due under the non-employee director compensation policy divided by the fair market value of a share of Common Stock as of the grant date.

On March 5, 2019,September 1, 2020 the Company issued 10,313 shares of its common stock related to the vested portion of the restricted stock unit award granted on October 1, 2018 to the Chief Executive Officercompleted a securities purchase agreement (the “CEO”“Securities Purchase Agreement”) for 165,000 shares of common stock.

On July 1, 2019 the Company closed an underwritten public offering in which it sold 6,666,667and issued, in a registered direct offering, an aggregate of 3,200,000 shares of the Company’s common stock par value $0.0001 per share (the “Common Stock”), and pre-funded warrants to purchase an aggregate of 5,533,625 shares of Common Stock (the “Pre-Funded Warrants”). The offering price was $1.145 for each share of Common Stock and $1.144 for each Pre-Funded Warrant. The Pre-Funded Warrants are immediately exercisable at a public offering price of $3.00$.0001 per share.share of Common Stock. Pursuant to the Securities Purchase Agreement, in a concurrent private placement, the Company has also agreed to sell and issue to the purchasers warrants to purchase up to 8,733,625 shares of Common Stock. These warrants are immediately exercisable at an exercise price of $1.30 per share and expire on the fifth anniversary of the date of issuance. In connection with the closing of the offering, the Company received netgross proceeds of $18,241 after$9,994 before deducting underwriting discounts and commissions of $1,500placement agent fees and other offering expenses of $259. In addition,$830, from the Company granted the representativeissuance of the several underwriters inCommon Stock and the offering (the “Representative”) a 30-day option (the “Over-Allotment Option”) to purchase up to an aggregate 1,000,000 additional shares of the Company’s common stock at an exercise price of $3.00 per share.

Motus GI Holdings, Inc. and Subsidiaries

Notes to the Interim Condensed Consolidated Financial Statements (unaudited)
(In thousands, except share and per share amounts)Pre-Funded Warrants.

On July 10, 2019, the Company closed the sale of an additional 648,333 shares of its common stock at a price of $3.00 per share, pursuant to the partial exercise of the Over-Allotment Option. In connection with the closing of the partial exercise of the Over-Allotment Option, the Company received additional net proceeds of $1,789 after deducting underwriting discounts and commissions of $156.

On August 20, 2019, the Company issued 30,140 shares of its common stock to the CEO and executives related to the vested portion of the restricted stock unit awards granted on October 1, 2018 to the CEO for 165,000 shares of common stock and on February 13, 2019 to executives for 76,112 shares of common stock.

Issuance of Warrants to Purchase Common Stock

On June 6, 2018, the Company entered into a consultant agreement with a service provider which shall continue until the agreement is terminated by the Company or service provider by providing at least five business days’ prior written notice. Pursuant to the agreement, the Company (a) issued a warrant on June 6, 2018 to purchase 10,000 shares of the Company’s common stock, with an exercise price of $5.25 per share, at which time a measurement date was reached (b) issued a warrant on October 6, 2018 to purchase 10,000 shares of the Company’s common stock, with an exercise price of $6.25 per share at which time a measurement date was reached, and (c) issued a warrant on February 6, 2019 to purchase 10,000 shares of the Company’s common stock, with an exercise price of $7.25 per share (collectively, such warrants referred to as the “Consultant Warrants”). The Consultant Warrants each have a five-year term, vest immediately, and provide for cashless exercise. Warrants totaling 30,000 in relation to this agreement were valued using the Black-Scholes option pricing model under the following assumptions, (i) expected life of 5 years, (ii) volatility of 67.25%, 67.28%, and 69.23% (iii) risk-free rate of 2.51%, 2.81%, and 3.07%, and (iv) dividend rate of zero. The fair value of the 30,000 warrants was initially estimated to be $95 at the inception of the agreement. On January 1, 2019, upon adoption of ASU 2018-07, the fair value was re-measured which approximated the fair value as of December 31, 2018 of $76 which is expensed using the straight-line method over eight months. The Company recorded $0 and $10 as general and administrative expense in the accompanying condensed consolidated statement of comprehensive loss in relation to the 30,000 warrants for the three and nine months ended September 30, 2019, respectively. The Company recorded $38 and $45 as general and administrative expense in the accompanying condensed consolidated statements of comprehensive loss in relation to the consulting agreement for the three and nine months ended September 30, 2018, respectively.

On July 2, 2018, the Company entered into a consultant agreement with a service provider which continued until February 28, 2019. Pursuant to the agreement, the Company (i) issued a fully-vested and nonforfeitable warrant on July 2, 2018 (at which point a measurement date was reached) to purchase 25,000 shares of the Company’s common stock, with an exercise price of $7.39 per share, and expired 12 months from the date of agreement, (ii) issued a fully-vested and nonforfeitable warrant on July 2, 2018 (at which point a measurement date was reached) to purchase 25,000 shares of the Company’s common stock, with an exercise price of $7.39 per share, and expires 18 months from the date of the agreement, (iii) issued a fully-vested and nonforfeitable warrant on October 2, 2018 (at which point a measurement date was reached) to purchase 25,000 shares of the Company’s common stock with an exercise price of $8.75 per share, and expires 18 months from the date of the agreement and (iv) issued a fully-vested and nonforfeitable warrant on January 2, 2019 to purchase 25,000 shares of common stock of the Company with an exercise price of $10.00 per share, and expires 24 months from the date of the agreement. The warrants issued under this agreement are callable by the Company and it will have the right to require the consultant to exercise all or any warrants still unexercised for a cash exercise or the Company may re-purchase the warrant at a price of $0.01 per warrant share if the Company’s stock trades above a closing floor price ranging from $9.00 to $13.00 per share for ten (10) consecutive trading days. In accordance with FASB ASC 480, “Distinguishing Liabilities from Equity”, the call feature is a conditional obligation upon an event not certain to occur that becomes mandatorily redeemable if that event occurs, the condition is resolved, or that event becomes certain to occur. Because the conditional event is within control of the Company, the call feature is not recognized for accounting purposes until the Company exercises its rights under agreement. Warrants totaling 100,000 in relation to this agreement were valued using the Black-Scholes option pricing model under the following assumptions, (i) expected life of 1-2 years, (ii) volatility of 62.04% - 65.84%, (iii) risk-free rate of 2.34% - 2.66%, and (iv) dividend rate of zero. The aggregate fair value of the 100,000 warrants was initially estimated to be $146 and was re-measured on January 1, 2019, upon the adoption of ASU 2018-07, which approximated the fair value as of December 31, 2018 of $126 which was expensed using the straight-line method over eight months. The Company recorded $0 and $31 as general and administrative expense in the accompanying condensed consolidated statement of comprehensive loss for the three and nine months ended September 30, 2019, respectively. The Company recorded $55 as general and administrative expense in the accompanying condensed consolidated statements of comprehensive loss for both the three and nine months ended September 30, 2018. As of September 30, 2019 and December 31, 2018, the Company has recorded a prepaid expense in the amount of $0 and $27, respectively, related to the fully vested nonforfeitable shares of common stock and warrants issued for which services have not been rendered.

Motus GI Holdings, Inc. and Subsidiaries

Notes to the Interim Condensed Consolidated Financial Statements (unaudited)
(In thousands, except share and per share amounts)

On July 3, 2018, the Company entered into an amendment to a consulting agreement dated May 27, 2017 as a continuation of investor relation and consulting services to extend the termination of the agreement to July 2019 and issued 30,000 shares of common stock which vested immediately and a warrant to purchase 90,000 shares of common stock which vested immediately. The warrants are exercisable at $8.50 per share and expire five years from the date of issuance. The 90,000 warrants were valued using the Black-Scholes option pricing model under the following assumptions, (i) expected life of 5 years, (ii) volatility of 68.31%, (iii) risk-free rate of 2.72%, and (iv) dividend rate of zero. The fair value of the 90,000 warrants and 30,000 shares of common stock was estimated to be $594 which will be expensed using the straight-line method over thirteen months, the expected term of the agreement. The Company recorded $41$139 and $317$276 as general and administrative expense in the accompanying condensed consolidated statement of comprehensive loss for the three and nine months ended September 30, 2019, respectively. The Company recorded $136 as general and administrative expense in the accompanying condensed consolidated statements of comprehensive loss for both the three and nine months ended September 30, 2018. As of September 30, 2019 and December 31, 2018, the Company has recorded a prepaid expense in the amount of $0 and $317, respectively, related to the fully vested nonforfeitable shares of common stock and warrants issued for which services have not been rendered.

On January 1, 2019, the Company entered into an amended and restated consultant agreement to restate and replace the existing consultant agreement dated October 1, 2018 with a service provider which shall continue until September 30, 2019, unless and until sooner terminated by the Company or service provider by providing at least thirty days prior written notice. Pursuant to the agreement, the Company issued a fully-vested and nonforfeitable warrant on February 13, 2019 to purchase 50,000 shares of the Company’s common stock, with an exercise price of $5.00 per share, and expires March 20, 2022. The warrants were valued using the Black-Scholes option pricing model under the following assumptions, (i) expected life of 3 years, (ii) volatility of 67.43%, (iii) risk-free rate of 2.52%, and (iv) dividend rate of zero. The aggregate fair value of the 50,000 warrants was estimated to be $90 which will be expensed using the straight-line method over nine months. The Company recorded $30 and $90$60 as general and administrative expense in the accompanying condensed consolidated statement of comprehensive loss for the three and nine months ended September 30, 2019, respectively.

On February 13, 2019, the Company issued to an existing service provider for past services rendered a fully-vested and nonforfeitable warrant to purchase 30,000 shares of the Company’s common stock, with an exercise price of $5.00 per share, and expires March 20, 2022. The warrants were valued using the Black-Scholes option pricing model under the following assumptions, (i) expected life of 3 years, (ii) volatility of 67.43%, (iii) risk-free rate of 2.52%, and (iv) dividend rate of zero. The aggregate fair value of the 30,000 warrants was estimated to be $55. The Company recorded $0 and $55 as general and administrative expense in the accompanying condensed consolidated statements of comprehensive loss for the three and nine months ended September 30, 2019.

On August 1, 2019,February 6, 2020, the Company entered into a consultingservices agreement which shall continue until the agreement is terminated by the Company or service provider by providing at least ten business days’ prior written notice. On September 16, 2019, the Company issued a notice of terminationwhereby it agreed to the service provider to terminate the consulting agreement on November 30, 2019. Pursuant to the agreement, the Company issued twoissue warrants on August 8, 2019 to purchase an aggregate120,000 shares of 20,000 shares the Company’s common stock with an exerciseof the Company. The warrants will vest over a one-year period on a monthly basis and expire three years from the date of issuance. 60,000 of the granted warrants are exercisable at a price of $2.66equal to $2.16 per share (the “August 2019 Consultant Warrants”), which vest for four equal tranches beginning November 1, 2019 through August 1, 2020. On November 13, 2019, the Company’s board of directors accelerated the vestingcommon stock and 60,000 of the August 2019 Consultant Warrants which will vest in their entirety on November 30, 2019.remaining warrants granted are exercisable at a price equal to $3.50 per share of common stock. The August 2019 Consultant Warrants have a three-year term and provide for a cashless exercise. The August 2019 Consultant Warrants were valued using the Black-Scholes option pricing model under the following assumptions, (i) expected life of 3 years, (ii) volatility of 69.36%, (iii) risk-free rate of 1.71%, and (iv) dividend rate of zero. The aggregate fair value of the August 2019 Consultant Warrants was estimated to be $18 which will be expensedwarrants were valued on the date of grant at $112 using the straight-line method from August 8, 2019 through November 30, 2019.Black-Scholes option-pricing model with the following parameters: (1) risk-free interest rate of 1.43%; (2) expected life in years of 3.0; (3) expected stock volatility of 74.82%; and (4) expected dividend yield of 0%. The Company recorded $8$28 and $75 as general and administrative expense in the accompanying condensed consolidated statement of comprehensive loss in relation to the consulting agreement for both the three and nine months ended September 30, 2019.

Motus GI Holdings, Inc. and Subsidiaries

Notes to the Interim Condensed Consolidated Financial Statements (unaudited)
(In thousands, except share and per share amounts)

Consultant Award2020, respectively.

On July 3, 2018,June 11, 2020, the Company engaged an executive search firm (the “Firm”) to conduct a confidential search for a Chief Executive Officer (the “CEO”) for the Company. The terms of the engagement were that upon a successful search, the Company would compensate the Firm one-third of the total first-year actual cash compensation for the position. The Company agreed to (a) make payments based on the CEO’s base salary of $475, and (b) make a true-up payment (the “True-up Payment”) at the end of the CEO’s first year of employment based on the actual cash compensation earned within the CEO’s first year of employment, exclusive of any Employment Buy-Out Payments.

The recruiter was successful in recruiting a new CEO for the Company. An employment agreement was finalized and entered into during the third quarter of 2018 and effective October 1, 2018. The Company deemed the Firm’s services were rendered in the third quarter of 2018 as an employment agreement was finalized in September 2018. The CEO’s annual base salary is $475 and is entitled to bonus and Employment Buy-Out Payments.

Firm Compensation

The Company entered into ana services agreement whereby it agreed to issue warrants to purchase 50,000 shares of common stock of the Company which vested immediately. The warrants are exercisable at $1.17 per share and expire three years from the date of issuance. The fair value of the warrants were valued on August 30, 2019the date of grant at $28 using the Black-Scholes option-pricing model with the Firm which superseded the True-up Payment.following parameters: (1) risk-free interest rate of 0.22%; (2) expected life in years of 3.0; (3) expected stock volatility of 73.06%; and (4) expected dividend yield of 0%. The Company agreedrecorded $14 and $17 as general and administrative expense in the final amount dueaccompanying condensed consolidated statement of comprehensive loss in relation to the Firm isconsulting agreement for the three and nine months ended September 30, 2020, respectively.  As of September 30, 2020, the Company has recorded a prepaid expense which will be recognized through December 31, 2020, in the amount of $11 related to the fully vested nonforfeitable warrants issued for which services have not been rendered. On July 10, 2020 and August 3, 2020, the Company issued an aggregate of 50,000 shares of common stock upon exercise of the warrant which resulted in aggregate proceeds of approximately $59.

In connection with the Securities Purchase Agreement, as described above, the Company issued a pre-funded common stock purchase warrant to purchase up to 5,533,625 shares of its common stock with the aggregate exercise price already being pre-funded to the Company on September 1, 2020 and, consequently, no additional consideration other than the nominal exercise price of $0.001 per warrant share shall be required to be paid as follows: (a)to effect any exercise of the warrant. The pre-funded common stock purchase warrant will be exercisable until it is exercised in full. Pursuant to the Securities Purchase Agreement, on September 1, 2020, the Company also issued a cash payment of $57 which was paid on October 4, 2019, and (b) a fully-vested and nonforfeitablecommon stock purchase warrant to purchase 6,333 shares8,733,625 of the Company’sits common stock withat an exercise price of $3.00$1.30 per share (the “November 2019 Consultant Warrant”).that expires on September 1, 2025. The November 2019 Consultant Warrant, which hasterms of both warrants include certain provisions related to fundamental transactions, a three-year term, wascashless exercise provision in the event registered shares are not issued until November 13, 2019.available, and do not include any mandatory redemption provisions. Therefore, the warrants have been classified as equity upon issuance.

Consultant Liability

As of September 30, 2019 and December 31, 2018, the Company has accrued $62 and $93, respectively, in accounts payable and accrued expenses for the True-up Payment.

Warrants

A summary of the Company’s warrants to purchase common stock activity is as follows:

As of September 30, 2019, 2,719,468 warrants2020, 17,018,051 shares of the Company’s common stock were exercisable.issuable upon exercise of outstanding warrants.

Stock Options

2016 Equity Incentive Plan

In December 2016, the Company adopted the Motus GI Holdings, Inc. and Subsidiaries

Notes2016 Equity Incentive Plan (the “2016 Plan”). Pursuant to the Interim Condensed Consolidated Financial Statements (unaudited)
(In thousands, except share2016 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 per share amounts)

Stock Options

Exerciseother stock-based awards to employees, officers, directors, consultants and advisors. Pursuant to the terms of Options

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 the Company’s common stock than would otherwise occur. On January 31, 2019,1, 2020, pursuant to an annual evergreen provision, the Company issued 416number of shares of its common stock uponreserved for future grants was increased by 1,728,665 shares. Under the exercise2016 Plan, effective as of 416 employee options at an exercise priceJanuary 1, 2020, the maximum number of $3.78 per share. In connection withshares of the exercise,Company’s common stock authorized for issuance is 5,656,324. As of September 30, 2020, there were 635,663 shares of common stock available for future grant under the Company received $2 in proceeds.2016 Plan.

A summary of the Company’s stock option activity is as follows: