UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

or2021

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from________ to_________.

Commission File Number: 001-38389

Motus GI Holdings, Inc.

(Exact name of registrant as specified in its charter)

(954) 541 8000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒  No☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒  No☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes☐ No☒

Securities registered pursuant to Section 12(b) of the Act:

As of May 8, 2020, 28,826,1574, 2021, 46,779,028 shares of the registrant’s common stock, $0.0001 par value, were issued and outstanding.

Motus GI Holdings, Inc. and Subsidiaries

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

Motus GI Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Motus GI Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Loss

(unaudited, in thousands, except share and per share amounts)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Motus GI Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Shareholders’ Equity

(unaudited, in thousands, except share and per share amounts)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Motus GI Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(unaudited, in thousands)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Motus GI Holdings, Inc. and Subsidiaries

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

Note 1 – Description of Business

Motus GI Holdings, Inc. (the “Company”) was incorporated in Delaware, U.S.A. in September 2016. The Company and its subsidiaries, Motus GI Technologies, Ltd. and Motus Inc.GI, LLC., are collectively referred to as “Motus GI” or the “Company”.

The Company has developed the Pure-Vu System, (the “Pure-Vu System”), a medical device that has received 510(k) clearance frombeen cleared by the U.S. Food and Drug Administration (the “FDA”). In June 2019, the 510(k) premarket notification for the second-generation of the Pure-Vu System was reviewed and cleared by the FDA. The first-generation and second-generation of the Pure-Vu System have received CE Mark approval in the European Economic Area. The Pure-Vu System is indicated to help facilitate the cleaningcleansing of a poorly prepared colongastrointestinal tract during colonoscopy and to help facilitate gastrointestinal (“GI”) endoscopy procedures.  The Pure-Vu System has received a CE Mark in the colonoscopy procedure.EU for use on colonoscopy.  The devicePure-Vu System integrates with standard and slim colonoscopes, as well as gastroscopes, to enable safeimprove visualization during colonoscopy and rapid cleansing during the procedureupper GI procedures while preserving established procedural workflow and techniques by irrigatingtechniques.  Through irrigation and evacuation of debris, the colon and evacuating the irrigation fluid (water), feces and other bodily fluids and matter.Pure-Vu System is designed to provide better-quality exams. The Company began commercialization in Octoberthe fourth quarter of 2019, with the first commercial placements of its second generation Pure-Vu System as part of its initial U.S. market launch targeting early adopter hospitals. The Company does not expect to generate significant revenue from product sales until the CompanyCOVID-19 pandemic has subsided and it expands its commercialization efforts for the Pure-Vu System, which is subject to significant uncertainty.

Note 2 – Basis of Presentation and Going Concern

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the 20192020 10-K filed with the SEC on March 30, 2020.16, 2021. The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, the instructions for Form 10-Q and the rules and regulations of the SEC. Accordingly, since they are interim statements, the accompanying condensed consolidated financial statements do not include all of the information and notes required by GAAP for annual financial statements, but reflect all adjustments consisting of normal, recurring adjustments, that are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. Interim results are not necessarily indicative of the results that may be expected for any future periods. The December 31, 20192020 balance sheet information was derived from the audited financial statements as of that date.

To date, the Company has generated minimal revenues, experienced negative operating cash flows and has incurred substantial operating losses from its activities. Management expects the Company to continue to generate substantial operating losses and to continue to fund its operations primarily through utilization of its current financial resources, future product sales, and through the issuance of debt or equity. During the quarter ended March 31, 2020, a pandemic occurred. While the full impact of the COVID-19 pandemic continues to evolve, the financial markets have been subject to significant volatility that adversely impacts the Company’s ability to enter into, modify, and negotiate favorable terms and conditions relative to equity and debt financing initiatives. The uncertain financial markets, potential disruptions in supply chains, mobility restraints, and changing priorities could also affect the Company’s ability to enter into key agreements. The outbreak and government measures taken in response to the pandemic have also had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as certain medical services and supplies, have spiked, while demand for other goods and services such as travel, have fallen. The future progression of the outbreak and its effects on ourthe Company’s business and operations are uncertain. The Company and its third-party contract manufacturers, contract research organizations, and clinical sites may also face disruptions in procuring items that are essential to the Company’s research and development activities, including, for example, medical and laboratory supplies, in each case, that are sourced from abroad or for which there are shortages because of ongoing efforts to address the outbreak. While expected to be temporary, theseThese disruptions willmay negatively impact the Company’s sales, its results of operations, financial condition, and liquidity in 2020.2021.

The Company has financed its operations primarily through sales of equity-related securities. As of March 31, 2020,2021, the Company had an accumulated deficit of $90,975,$108,370, total current assets of $23,870$29,814 and total current liabilities of $11,104$10,243 resulting in working capital of $12,766.$19,571. For the three months ended March 31, 2020,2021 the Company incurred a net loss of $6,511.$4,649. As of March 31, 2020,2021, the Company had cash and cash equivalents of $21,457.$27,749. Under the terms of the loan agreement with Silicon Valley Bank (“SVB”), the Company must maintain unrestricted cash in accounts held at SVB of at least $10,000 (the “Liquidity Covenant”). The Company will need to raise additional capital or generate substantial revenue in order to ensure compliance with the Liquidity Covenant to support its development and commercialization efforts. If adequate funds are not available to the Company on a timely basis, or at all, it may breach the Liquidity Covenant, in which case, the Company would be required to immediately pledge to the bank and thereafter maintain in a separate account, unrestricted and unencumbered cash in an amount equal to the amount then outstanding under the loan agreement.

Management’s plan, inclusive of its cost reduction plan (the “2020 Plan”) in 2020, includes revenue generation through the sale of products and raising funds from outside investors. However, there is no assurance that such sale of products will occur or that outside funding will be available to the Company, will be obtained on favorable terms or will provide the Company with sufficient capital to meet its objectives.

Such conditions, as well as the terms of its Liquidity Covenant and the uncertainty of the impact of the COVID-19 pandemic, raise substantial doubts about the Company’s ability to continue as a going concern. These condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets, carrying amounts or the amount and classification of liabilities that may be required should the Company be unable to continue as a going concern.

Note 3 – Summary of Significant Accounting Policies

Significant Accounting Policies

The significant accounting policies used in preparation of these condensed consolidated financial statements for the three months ended March 31, 20202021 are consistent with those discussed in Note 3 to the consolidated financial statements in the Company’s 20192020 Annual Report on Form 10-K. There have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 2020.

2021.

Basis of presentation and principles of consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP and include the accounts of the Company and its wholly owned subsidiaries, Motus Ltd., an Israel corporation, which has operations in Tirat Carmel, Israel, and Motus Inc., a Delaware corporation, which has operations in the U.S. All inter-company accounts and transactions have been eliminated in consolidation.

Use of estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue recognition

Sales contracts executed for the second generation Pure-Vu System are accounted for in accordance with ASC Topic 606 - Revenue from Contracts with Customers (“ASC 606”) to depict the transfer of control to the Company’s customers in an amount reflecting the consideration to which the Company expects to be entitled to. The Pure-Vu System consists of a Workstation and single use disposable sleeves (“Disposables”). For contracts outside the scope of ASC 606, the Company determines income for proposed supply arrangements under 1) ASC 842 as it pertains to an embedded lease of the Workstation within a proposed supply arrangement and 2) ASC 606 for the sale of the Disposables within the proposed supply arrangement. The Company allocates the transaction price to the performance obligations within the proposed supply arrangements using the total estimated purchases method for both (i) arrangements that contain minimum purchase commitments and (ii) those arrangements that do not contain a minimum purchase commitment, but instead offer a volume discount for purchases that exceed a specified tier. During the three months ended March 31, 2021, the Company recognized revenue of $51, which primarily consisted of $36 in accordance with ASC 606 and $15 in accordance with ASC 842. During the three months ended March 31, 2020, the Company recognized revenue of $28 in accordance with ASC 606.

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.

Net loss attributable to common stockholders consists of net income or loss, as adjusted for actual and deemed preferred stock dividends declared, amortized or accumulated. The Company recorded a deemed dividend for the issuance of warrants during three months ended March 31, 2021 of $6,145. The deemed dividend is added to the net loss in determining the net loss available to common stockholders.

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 March 31, 2020,2021, and December 31, 2019,2020, the Company had a full valuation allowance against its deferred tax assets.

For the three months ended March 31, 20202021 and 2019,2020, the Company recorded zero income tax expense. No tax benefit has been recorded in relation to the pre-tax loss for the three months ended March 31, 20202021 and 2019,2020, 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

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that the Company adopts as of the specified effective date. Unless otherwise discussed below, the Company does not believe that the adoption of recently issued standards have or may have a material impact on its consolidated financial statements and disclosures.

In August 2018,December 2019, the FASB issued ASU 2018-13, “Changes2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”, or ASU 2019-12, which is intended to Disclosure Requirementssimplify the accounting for Fair Value Measurements”, which willincome taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to 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.consistent application. The Companynew standard was adopted ASU 2018-13 on January 1, 2020 and the2021. The adoption of ASU 2019-12 did not have a material impact on the Company’s financial position 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” to improve information on credit losses for financial assets and net investment in leases that are not accounted for at fair value through net income. ASU 2016-13 replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. In April 2019 and May 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments” and ASU No. 2019-05, “Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief” which provided additional implementation guidance on the previously issued ASU. In November 2019, the FASB issued ASU 2019-10, “Financial Instruments - Credit Loss (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842),” which defers the effective date for public filers that are considered small reporting companies (“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 of 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.

Note 4 – Investments and Fair–Fair Value of Financial InstrumentsMeasurements

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 March 31, 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 months ended March 31, 2020 and during the year ended December 31, 2019.

The following table summarizes the fair value of the Company’s financial assetsAssets and liabilities that were accounted formeasured and recorded at fair value on a recurring basis by level withinconsisted of the fair value hierarchy, as offollowing at March 31, 20202021 and December 31, 2019:2020:

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 estimatingChanges in the fair value of the Company’srecurring fair value measurements using significant unobservable inputs (Level 3), which solely consisted of a contingent royalty obligation, (see Note 9), the Company used the discounted cash flow method as of March 31, 2020 and December 31, 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 forduring the three months ended March 31, 2020:2021 was as follows:

The contingent royalty obligation is re-measured at each balance sheet date using several assumptions, including the following assumptions:following: 1) estimated sales growth, 2) length of product cycle, 3) patent life, 4) discount rate (21% as of 21% at both March 31, 20202021 and December 31, 2019,2020), and 2)5) rate of royalty payment (3% as of 3% at both March 31, 20202021 and December 31, 2019.2020).

In accordance with ASC-820-10-50-2(g), the Company performed a sensitivity analysisanalyses of the liability, which was classified as a Level 3 financial instrument. The contingent royalty obligation estimate may be significantly impacted by changes in assumptions used in these analyses. For example, the Company recalculated the fair value of the liability by applying a +/- 2% change to the input variable in the discounted cash flow model; the discount rate. A 2% decrease in the discount rate would increase the liability by $177approximately $264 and a 2% increase in the discount rate would decrease the liability by $156.approximately $62.

Note 5 – Inventory

Inventory is stated at lower of cost or net realizable value using the weighted average cost method and is evaluated at least annually for impairment. Write-downs for potentially obsolete or excess inventory are made based on management’s analysis of inventory levels, historical obsolescence and future sales forecasts. ForThere were no inventory write-down charges for the three months ended March 31, 20202021 and 2019, inventory write-down charges recorded were $0 and $76, respectively.2020.

Inventory at March 31, 20202021 and December 31, 20192020 consisted of the following:

Note 6 – Fixed assets, net

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

Depreciation and amortization expense for the three months ended March 31, 2021 and 2020 was $98 and 2019 was $76, and $48, respectively. The Company incurred a loss on the impairment of fixed assets in the amount of $0 and $9 for the three months ended March 31, 2020.2021 and 2020, respectively.

Note 7 – Leases

The Company leases an office in Fort Lauderdale, Florida under an operating lease. The term expires November 2024. The annual base rent is subject to annual increases of 2.75%. As described within Note 10, we sharethe Company shares this space with a related party pursuant to the Shared Space Agreement, as defined below.

The Company leases an office in Israel under an operating lease. The term expires on December 31, 2022. The annual base rent is subject to increases of 4%.

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

On March 11, 2020, the Company entered into a lease for a facility in Norwood, Massachusetts. The Company expected to begin occupying the facility on or about June 11, 2020. Prior to occupying the space and a commencement date being established, on March 30, 2020, the Company executed a lease termination agreement with the landlord of the facility for the early termination of the lease.  The termination agreement requires the Company to pay a termination fee and releases the Company from any further obligations under the lease, effective upon the payment of the termination fee.  A termination fee of $170 was paid, included in general and administrative expense, to the landlord on March 30, 2020, in connection with the termination agreement.

The 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 $84$62 and $90$84 for the three months ended March 31, 20202021 and 2019,2020, respectively, included in general and administrative expenses which is net of the related party license fee of $47 and $35 for the three months ended March 31, 2021 and 2020, respectively (see Note 10).

Future minimum lease payments under non-cancellable operating leases as of March 31, 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 March 31, 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”Agreement”) 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 March 31, 2020,2021, 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 foreign 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 continuing 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 $250$50 of debt issuance costs related to the Term Debt. For the three months ended March 31, 2021 and 2020, $2 and $19 of debt issuance costs was amortized to interest expense, respectively, using the effective interest method. The effective interest rate on the Term Debt for the three months ended March 31, 20202021 was 6.73%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 accounts with the Bank of at least $10,000. The covenant was met by the Company as of March 31, 2020.2021. The Company’s cash forecast indicates that it will need to raise additional funds during 2020,2021, 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. DuringThe Company has been continuously evaluating the quarter ended March 31, 2020, a pandemic occurred, which caused a shift inactual and potential business impacts related to the capital markets.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 tighteningvolatility 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 during 2020 ifas 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 9 – Commitments and Contingencies

Royalties to the IIA

The Company has received grants from the Government of the State of Israel through the Israeli National Authority for Technical Innovation (the “IIA”) for the financing of a portion of its research and development expenditures. The total amount that was received and recorded between the periods ending December 31, 2011 through 2016 was $1,332. No amounts were received during the three months ended March 31, 20202021 and 2019.2020. The Company has a contingent obligation to the IIA for the total amount received along with the accumulated LIBOR interest to date in the amount of $1,399$1,410 and $1,396$1,407 as of March 31, 20202021 and December 31, 2019,2020, respectively. This obligation is repaid in the form of royalties on revenues generated in any fashion with a rate that is currently at 4% (which may be increased under certain circumstances). The Company may be obligated to pay up to 100% (which may be increased under certain circumstances) of the U.S. dollar-linked value of the grants received, plus interest at the rate of 12-month LIBOR.

Repayment of the grants is contingent upon the successful completion of the Company’s R&D programs and generating sales. The Company has no obligation to repay these grants if the R&D program fails, is unsuccessful, or aborted, or if no sales are generated. The Company has recorded an immaterial expense for the three months ended March 31, 20202021 and 2019,2020, and an immaterial liability at March 31, 20202021 and 2019.December 31, 2020.

Royalty Payment Rights on Royalty Payment Rights Certificates

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

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 March 31, 20202021 and December 31, 20192020 (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)May 2036). Following the expiration of all such patents, the holders of the Royalty Payment Rights Certificates and the holders of the Placement Agent Royalty Payment Rights Certificates will no longer be entitled to any further royalties for any period following the latest to occur of such patent expiration.

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

Contingent Royalty Obligation

The Contingent Royalty Obligation was recorded as a non-current liability at fair value in the consolidated balance sheets at March 31, 20202021 and December 31, 20192020 in the amount of $1,551$1,697 and $1,872,$1,617, respectively. For the three months ended March 31, 2020A loss on change in fair value of Contingent Royalty Obligation of $80 and 2019, the Company recorded a gain on change in fair value of Contingent Royalty Obligation in the amount of $321 was recorded for the three months ended March 31, 2021 and $27,2020, respectively.

Manufacturing Component Purchase Obligations

The Company utilizes two outsourcing partners to manufacture its Workstation 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 March 31, 2020, the Company expects to pay $93 under manufacturing-related supplier arrangements within the next year, substantially all of which is noncancelable.

Other Commitments and Contingencies

The Company has a severance contingency for severance payments to its CEO, COO, and CFO in the aggregate of $1,319,approximately $1,408, in the event that they are terminated without cause or leave due to good reason, as outlined in their employee agreements. Management estimates that the likelihood of payment is remote; therefore, no liability was reflected in these condensed consolidated financial statements.

Any serious disruption with the Company’s suppliers or customers due to the COVID-19 outbreak could impair the Company’s ability to meet and/or generate demand for its product, which may negatively impact the Company’s revenue, financial condition and commercial operations. Such outbreaks could also result in delays in or the suspension of the Company’s research and product development activities, regulatory work streams, its clinical studies and other important functions.

Additionally, the Company’s business may be harmed if, in connection with an outbreak, the Company’s customers seek to limit or prevent access by the Company’s sales and clinical support teams to their facilities, which the Company has already experienced in certain locations, or if the Company’s customers postpone elective procedures while their resources are diverted to addressing such an outbreak. 

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

Note 10 – Related Party Transactions

Shared Space Agreement

In January 2020, the Company entered into a license agreement (the “Shared Space Agreement”) with Orchestra BioMed, Inc., formerly a greater than 5% holder of the Company’s common stock and entity in which David Hochman, the Chairman of the Company’s board of directors, serves as the Chairman of the board of directors and Chief Executive Officer, and Darren Sherman, a member of the Company’s board of directors, serves as a director and as President and Chief Operating Officer. As of March 31, 2020, the Company has a related party receivable in the amount of $4 and a liability of $13 in relation to the Shared Space Agreement. During the three months ended March 31, 2021 and 2020, the Company recorded license fee of $47 and $35, respectively, in relation to the Shared Space Agreement. This amount is netted with rent expense in general and administrative expenses. As of March 31, 2021 and December 31, 2020, the Company recorded a related party receivable of $2 and $0, respectively.

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 January 13, 2021, the non-employee members of the Board of Directors were granted an aggregate of 52,317 shares of Common Stock as compensation, in lieu of cash compensation, for service as directors during the fourth quarter of 2021, pursuant to the Company’s non-employee director compensation policy. The Company recorded $56 in accrued expenses as of December 31, 2020 for director services during the three months ended December 31, 2020. The number of shares granted to the Company’s directors, in lieu of cash compensation, was determined by the dollar amount of quarterly fees due under the non-employee director compensation policy divided by the fair market value of a share of Common Stock as of the grant date which was $1.08.

On February 6, 2020,17, 2021, the Company’s Compensation Committee approved a modification to the issuancenon-employee director compensation policy to permit payment of 260,154 options,the fees for service as directors for 2021 in the aggregate, to executives and directors which vest over a three-year period on a quarterly basis to purchase sharesgrants of the Company’s common stock, within lieu of cash compensation. Non-employee members of the Board of Directors were granted an exerciseaggregate of 121,237 shares of common stock at a price equal to $2.16$1.78 per share of common stock.stock, as compensation, in lieu of $216 of cash compensation, for service as directors for 2021. As of March 31, 2021, the Company recorded $162 in prepaid board of directors’ compensation. For the three months ended March 31, 2021, the Company recorded $55 of expense in relation to the board of directors’ compensation.

On February 6, 2020, the Company’s Compensation Committee approved the issuance of 260,154 restricted stock unit awards, in the aggregate, to executives and directors which vests over a three-year period on a quarterly basis.

On February 6, 2020, the Company’s Compensation Committee approved the issuance of 831,012 options to employees which vest over a three-year period on a quarterly basis to purchase shares of the Company’s common stock with an exercise price equal to $2.16 per share of common stock.

On February 21, 2020, the Company issued 15,070 shares of common stock upon the vesting of 15,070 restricted stock unit awards.

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. The Company recorded $10 as general and administrative expense in the accompanying condensed consolidated statement of comprehensive loss in relation to the consulting agreement for the three months ended March 31, 2019.

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 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. The Company recorded $31 as general and administrative expense in the accompanying condensed consolidated statement of comprehensive loss for the three months ended March 31, 2019.

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 Company recorded $137 as general and administrative expense in the accompanying condensed consolidated statement of comprehensive loss for the three months ended March 31, 2019. 

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 Company recorded $30 as general and administrative expense in the accompanying condensed consolidated statement of comprehensive loss for the three months ended March 31, 2019. 

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 aggregate fair value of the 30,000 warrants was estimated to be $55 which was recorded as general and administrative expense in the accompanying condensed consolidated statements of comprehensive loss for the three months ended March 31, 2019.

On August 1, 2019, the Company entered into a consulting 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 termination to the service provider to terminate the consulting agreement on November 30, 2019. Pursuant to the agreement, the Company issued two warrants on August 8, 2019 to purchase an aggregate of 20,000 shares the Company’s common stock, with an exercise price of $2.66 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 vesting of the August 2019 Consultant Warrants which vested in their entirety on November 30, 2019. The August 2019 Consultant Warrants have a three-year term and provide for a cashless exercise.

On February 6, 2020, the Company entered into a services agreement whereby it agreed to issue warrants to purchase 120,000 shares of common stock of the Company. The warrants will vest over a one-year period on a monthly basis and expire three years from the date of issuance. 60,000 of the granted warrants are exercisable at a price equal to $2.16 per share of common stock and 60,000 of the remaining warrants granted are exercisable at a price equal to $3.50 per share of common stock. The fair value of the warrants were valued on the date of grant at $112,044$112 using the Black-Scholes option-pricing model with the following parameters: (1) risk-free interest rate of 1.43%; (2) expected life in years of 3.0; (3) expected stock volatility of 74.82%; and (4) expected dividend yield of 0%. The Company recorded $9 and $19 as general and administrative expense in the accompanying condensed consolidated statement of comprehensive loss in relation to the consulting agreement for the three months ended March 31, 2020.2021 and 2020, respectively.

On January 20, 2021, the Company entered into a services agreement with a service provider whereby it agreed to issue warrants to purchase an aggregate 340,020 shares of common stock of the Company with an exercise price equal to $1.75 per share of common stock, which will vest over a one-year period on a monthly basis and will have an exercise period of three years from the date of issuance. The fair value of the warrants were valued on the date of grant at $355 using the Black-Scholes option-pricing model with the following parameters: (1) risk-free interest rate of 0.19%; (2) expected life in years of 3.0; (3) expected stock volatility of 100.99%; and (4) expected dividend yield of 0%. The Company recorded $59 as general and administrative expense in the accompanying consolidated statement of comprehensive loss in relation to the consulting agreement for the three months ended March 31, 2021.

On August 28, 2020 the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) under which it sold and issued to an institutional investor (the “Holder”), in a registered direct offering, an aggregate of 3,200,000 shares of the Company’s common stock par value $0.0001 per share (the “Common Stock”), and pre-funded warrants to purchase an aggregate of 5,533,625 shares of Common Stock (the “Pre-Funded Warrants”) at an exercise price of $0.001 per share. During the three months ended March 31, 2021, the Pre-Funded Warrants for 5,533,625 shares of common stock were exercised which resulted in aggregate proceeds of $6.

Pursuant to the Securities Purchase Agreement, as described above, in a concurrent private placement, the Company also agreed to issue to the purchaser warrants to purchase up to 8,733,625 shares of Common Stock (the “Private Placement Warrants”). These warrants were immediately exercisable at an exercise price of $1.30 per share and expire on the fifth anniversary of the date of issuance. On January 27, 2021, the Company entered into a Warrant Exercise Agreement (the “Exercise Agreement”) with the Holder, at which time 8,000,000 of the Private Placement Warrants remained outstanding, due to the prior exercise of 733,625 of the Private Placement Warrants on January 22, 2021. Pursuant to the Exercise Agreement, the Holder agreed to exercise the remaining outstanding 8,000,000 Private Placement Warrants. In consideration of the exercise, the Company agreed to sell to the Holder, new warrants (the “New Warrants”) to purchase 0.75 shares of Common Stock for each share of Common Stock issued upon such exercise of the remaining 8,000,000 Private Placement Warrants pursuant to the Exercise Agreement, or an aggregate of 6,000,000 New Warrants. In addition, the Holder paid a cash payment of $0.10 for each New Warrant issued to the Holder, for an aggregate of $600,000 to the Company. The Company received aggregate gross proceeds before expenses of approximately $11.0 million from the exercise of all of the remaining 8,000,000 outstanding Private Placement Warrants held by the Holder and the payment of the purchase price for the New Warrants. The terms of the New Warrants are substantially similar to those of the Private Placement Warrants, except that the New Warrants will have an exercise price of $2.12, will be immediately exercisable and will expire five years from the date of the Exercise Agreement. The aggregate of 6,000,000 New Warrants were issued in four tranches during the first quarter of 2021 as the 8,000,000 Private Placement Warrants were exercised. The fair values of the 6,000,000 New Warrants were valued on the date of grant of each tranche and totaled in aggregate of $6,745 using the Black-Scholes option-pricing model with the following parameters: (1) risk-free interest rates with a range of 0.41%-0.57%.; (2) expected life in years with a range of 4.95-5.00; (3) expected stock volatilities with a range of 103.00%-103.23%; and (4) expected dividend yields of 0%. The Company recognized the excess fair value of the New Warrants above the aggregate purchase price as a deemed dividend of $6,145. However, as the Company is in an accumulated deficit position as of the issuance dates, the resulting deemed dividend was recorded as a reduction of additional paid-in capital, however the deemed divided was included in net loss attributable to common shareholders in the calculation of loss per share.

In connection with the Exercise Agreement, the Company entered into a financial advisory agreement (the “Letter Agreement”) with A.G.P./Alliance Global Partners (“A.G.P.”), pursuant to which A.G.P. acted as exclusive financial advisor to the Company in this transaction and received a cash fee of $300 upon full cash exercise of the Private Placement Warrants, which was included in financing fees in the consolidated statement of shareholders’ equity, as of March 31, 2021. As additional compensation, A.G.P. will receive a cash fee equal to $200 upon the cash exercise in full of the New Warrants.

Warrants

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

As of March 31, 2020, 2,617,8242021, 8,847,471 warrants were exercisable.

Stock Options

2016 Equity Incentive Plan

In December 2016, the Company adopted the Motus GI Holdings, Inc. 2016 Equity Incentive Plan (the “2016 Plan”). Pursuant to the 2016 Plan, the Company’s board of directors may grant options to purchase shares of the Company’s common stock, stock appreciation rights, restricted stock, stock units, performance shares, performance units, incentive bonus awards, other cash-based awards and other stock-based awards to employees, officers, directors, consultants and advisors. Pursuant to the terms of an annual evergreen provision in the 2016 Plan, the number of shares of common stock available for issuance under the 2016 Plan shall increase annually by six percent (6%) of the total number of shares of common stock outstanding on December 31st of the preceding calendar year; provided, however, that the board of directors may act prior to the first day of any calendar year to provide that there shall be no increase such calendar year, or that the increase shall be a lesser number of shares of the Company’s common stock than would otherwise occur. On January 1, 2020,2021, pursuant to an annual evergreen provision, the number of shares of common stock reserved for future grants was increased by 1,728,6651,936,669 shares. Under the 2016 Plan, effective as of January 1, 2020,2021, the maximum number of shares of the Company’s common stock authorized for issuance is 5,656,324.7,592,663. As of March 31, 2020,2021, there were 706,964371,577 shares of common stock available for future grant under the 2016 Plan.

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

The Company estimated the fair value of each stock option award using the Black-Scholes option pricing model based on the following weighted average assumptions:

As of March 31, 2020,2021, unamortized share- basedshare-based compensation for stock options was $3,909,$3,006, with a weighted-average recognition period of 1.261.07 years.

As of March 31, 2020,2021, outstanding options to purchase 2,242,7352,645,219 shares of common stock were exercisable with a weighted-average exercise price per share of $4.31.$4.14.

For the three months ended March 31, 20202021 and 2019,2020, the Company recorded $682$669 and $615,$682, respectively, for share based compensation expense related to stock options.

Restricted Stock Units

On February 6, 2020,17, 2021, the Company granted 260,154Company’s Compensation Committee approved the issuance of 160,000 restricted stock unit awards into non-employee directors which vest on the aggregate,first anniversary of the date of grant, and 266,000 restricted stock unit awards, to executives and directors which vestsvest over a three-year period on a quarterly basis. The aggregate fair value of the restricted stock unit awards granted was estimated to be $562$758 using the market price of the stock on the date of the grant which is expensed using the straight-line method over a three-year period.

The Company recorded $103$182 as general and administrative expense in the accompanying condensed consolidated statement of comprehensive loss for the three months ended March 31, 2020,2021, in relation to the aggregate 501,265 restricted stock units issued to date to the CEO, executives, and directors.

A summary of the Company’s restricted stock unit awards activity is as follows:

As of March 31, 2020,2021, unamortized stockshare compensation for restricted stock units was $1,270,$1,473, with a weighted-average recognition period of 1.461.12 years.

Stock-basedShare-based Compensation

The following table sets forth total non-cash stock-basedshare-based compensation for the issuance of common stock, options to purchase common stock, warrants to purchase common stock, and restricted stock unit award by operating statement classification for the three months ended March 31, 20202021 and 2019:

Note 12 – Restructuring2020:

In March 2020, the Company adopted the 2020 Plan in response to the ongoing disruptions from the COVID-19 outbreak, and to better align its cost structure with the resources required to more efficiently and effectively execute on its commercial strategy of creating a strong foundation in the market by establishing national and regional hospital networks as Pure Vu reference centers. Most significantly, the 2020 Plan resulted in the reduction of the Company’s overall headcount by approximately 50%, including a significant reduction of the Company’s commercial team in the US, the implementation of tighter expense controls, and the termination of the lease of the Company’s planned corporate office facility in Norwood, Massachusetts. These activities were initiated in the first quarter of 2020, with the majority of activity expected to be complete by the end of the second quarter of 2020.

During the three months ended March 31, 2020, the Company recorded charges of $624 related to the 2020 Plan. Of that amount, the Company paid $170 during the first quarter of 2020 and recorded non-cash charges of $9. The Company expects to pay the remaining $445 in the second quarter of 2020.

The outstanding restructuring liabilities are included in accounts payable and accrued expenses on the condensed consolidated balance sheet. As of March 31, 2020, the components of the liabilities were as follows:

Note 1312 – Subsequent Events

Promissory note under the Paycheck Protection Program

OnEffective April 22, 20201, 2021, the Company entered into a promissory note (the “Note”) under the Paycheck Protection Program (the “PPP”)services agreement with Silicon Valley Bank (“SVB”), in the amounta service provider whereby it agreed to issue 50,000 shares of $780,942 (the “PPP Loan”). The Paycheck Protection Program was established under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration. Under the termscommon stock of the Note and the PPP Loan, interest accrues on the outstanding principal at the rate of 1.0% per annum. The term of the Note is two years. The Note may be prepaid in part or in full, at any time, without penalty. On May 6, 2020 the Company exercised its right to prepay the loan in full and returned the entirety of the funds to SVB.Company.

Item 2. MANAGEMENT’S DISCUSSION AND ANLAYSISANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes and the other financial information included elsewhere in this Quarterly Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Quarterly Report, particularly those under “Risk Factors.”

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:

The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipated in our forward-looking statements. Please see “Part II—Item 1A—Risk Factors” for additional risks which could adversely impact our business and financial performance.

All forward-looking statements are expressly qualified in their entirety by this cautionary notice. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this report or the date of the document incorporated by reference into this report. We have no obligation, and expressly disclaim any obligation, to update, revise or correct any of the forward-looking statements, whether as a result of new information, future events or otherwise. We have expressed our expectations, beliefs and projections in good faith and we believe they have a reasonable basis. However, we cannot assure you that our expectations, beliefs or projections will result or be achieved or accomplished.

Overview

We have developed the Pure-Vu System, (the “Pure-Vu System”), a medical device that has received 510(k) clearance frombeen cleared by the U.S. Food and Drug Administration (the “FDA”). In June 2019, the 510(k) premarket notification for the second-generation of the Pure-Vu System was reviewed and cleared by the FDA. The first-generation and second-generation of our Pure-Vu System have received CE Mark approval in the European Economic Area. The Pure-Vu System is indicated to help facilitate the cleaningcleansing of a poorly prepared colongastrointestinal tract during colonoscopy and to help facilitate gastrointestinal (“GI”) endoscopy procedures.  The Pure-Vu System has received a CE Mark in the colonoscopy procedure.EU for use on colonoscopy.  The devicePure-Vu System integrates with standard and slim colonoscopes, as well as gastroscopes, to enable safeimprove visualization during colonoscopy and rapid cleansing during the procedureupper GI procedures while preserving established procedural workflow and techniquestechniques.  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 upper GI bleeds 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 the Pure-Vu System may lead to positive outcomes and lower costs for hospitals by irrigatingsafely and quickly improving visualization of the colon and evacuatingupper GI tract, enabling effective diagnosis and treatment the irrigation fluid (water), fecesfirst time.  In multiple clinical studies to date, involving the treatment of challenging inpatient and other bodily fluids and matter.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. Challenges with bowel preparationBased on our review and analysis of 2019 market data and 2021 projections for inpatient colonoscopy represent a significant area of unmet needthe U.S. and Europe, as obtained from iData Research Inc., we estimate that directly affects clinical outcomes and increases the cost of care for a hospital in a market segment where most of the reimbursement is under a bundle payment based on a Medicare Severity Diagnostic Related Group (a “MS-DRG”), comprisingduring 2021 approximately 1.5 million annual inpatient colonoscopy procedures will be performed in the U.S. and approximately 3.84.8 million annual inpatient colonoscopy procedures 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 does not currently have a unique reimbursement code with any private or governmental third-party payors in any country. We began commercialization in Octoberthe fourth quarter of 2019, with the first commercial placements of our second generation Pure-Vu System as part of our initial U.S. market launch targeting early adopter hospitals. We do not expect to generate significant revenue from product sales until the COVID-19 pandemic has subsided and we expand our commercialization efforts for the Pure-Vu System, which is subject to significant uncertainty.

Recent Developments

At the beginning of March 2021, we presented a request for an ICD-10 code at a Center for Medicare and Medicaid Services meeting, which is part of our broader strategy to obtain reimbursement for certain inpatient and outpatient procedures where the Pure-Vu System can help facilitate visualization of inadequately prepared colons in high medical need patients.

Our clinical research efforts are currently focused on critical patient populations such as acute lower GI bleeds, where time to a successful colonoscopy can be clinically impactful. We are working with a major hospital system on a study that has recently initiated enrollment that is focused on eliminating the barrier of traditional preparation to facilitate urgent colonoscopies in significant lower GI bleed patients. In this study the patients will ingest minimal to no purgative based preparation and only receive two tap water enemas prior to the procedure.

On April 30, 2021, we announced that we have received 510(k) clearance from the FDA for a version of the Pure-Vu System that is compatible with gastroscopes used during upper gastrointestinal (GI) endoscopy procedures to remove blood, blood clots and debris in order to provide a clear field-of-view for the endoscopist. The device is designed to integrate with therapeutic gastroscopes to enable safe and rapid cleansing during the procedure, while preserving established procedural workflow and techniques.

Upper GI bleeds occurred in the U.S. at a rate of approximately 400,000 cases per year in 2019, according to iData Research Inc. The existence of blood and blood clots in these patients can impair a physician’s view, making it difficult to identify the bleed source. We believe removing adherent blood clots from the field of view is a significant need in allowing a physician the ability to identify and treat the bleed source. The mortality rate of this condition can reach up to approximately 10%, as noted in Thad Wilkins, MD, et al., American Family Physician (2012).

Recent DevelopmentsOn May 7, 2021, we announced the publication of a sponsored Pure-Vu System® Cost Effectiveness Analysis in the Journal of Cost Effectiveness and Resource Allocation, which is titled, “Colonoscopy in poorly prepped colons. A cost effectiveness analysis comparing standard of care to a new cleansing technology.” Sponsorship of analysis and development of the manuscript was provided by us. 

The publication presents new data from a cost effectiveness and resource allocation analysis of the Pure-Vu System® on the outcomes of cost, quality of life, and aversion of colorectal cancers (CRC), as compared to the current standard of care (SOC) for outpatient colonoscopy. Please refer to our current report on Form 8-K filed on May 7, 2021 for additional information with respect to the publication.

Due to the recentworldwide outbreak around the world of the highly transmissible and pathogenic coronavirus COVID-19, the extent and duration of which is difficult to predict, our sales efforts with targeted early adopter hospitals continue to be disrupted. This disruption is specifically related to our limited on-site access at hospital accounts, an overall reduction in GI procedures, and physician and clinician time primarily being focused on care for COVID-19 patients. This has presented a temporary slow-down in commercial activities, but we expect a recovery as broader vaccination occurs. Projecting when new technology evaluations and non-critical hospital procedures will normalize across the country is challenging, and the ability of hospital systems to make capital investments in new medical technologies remains impacted. In addition to sales disruptions, we have also experienced changes with our suppliers, as well as with research & development, andan overall slowdown in clinical program activities.

As a result of the pandemic, we are in the process of permanently moving the manufacturing of our loading fixture from RMS Company to Sanmina Corporation. Over time, this switch has the potential to improve our overall efficiency as the workstation component of our Pure-Vu System is already being manufactured by Sanmina Corporation. We currently have enough stock of our loading fixture inventory to last beyond the expected time needed to ensure a smooth transition between manufacturers.

Further, certain research & development activity timelines have been extended as a result of some sub-contractor and supplier facilities being shut down for a period, which has impeded progress in particular areas. We expect up to six months of delays in certain aspects of our research and development activity as these facilities and workers come back online.

In order to streamline clinical programs, we will no longer pursue the RESCUE study. In its place, we will concentrate our clinical efforts by working with research hospitals focused on critical patient populations such as acute lower GI bleeds, where time to a successful colonoscopy can be clinically impactful, as well as controlled studies in the inpatient population focused on both the quality of the exam and health economics.

At this date, we cannot fully predict the full impact of the COVID-19 outbreak on our financial results and operations and we are continuingcontinue to analyzeclosely monitor the situation. We have been encouraged by an increase in GI procedural volume, as well as an uptake in hospital access and physician availability in certain parts of the United States where the prevalence of COVID-19 has lessened. We intend to continue to be nimble in our commercial approach and explore all options with respect to how we can best minimize the negative impact of COVID-19 on our business.

Financial Operations Overview

We are a development stage company and have not generated significantlimited revenues to date from the sale of products. We have never been profitable and have incurred significant net losses each year since our accumulated deficit asinception, including a loss of March 31, 2020 was $91.0 million. Our net loss$4.6 million for the three months ended March 31, 2020 was $6.5 million. We2021, and we expect to continue to incur significant expenses and increasingnet operating losses for the foreseeable future. As of March 31, 2021, we had $27.7 million in cash and cash equivalents and an accumulated deficit of $108.4 million. We expect our expenses to increase in connection with our ongoing activities to commercialize and market the Pure-Vu System. Furthermore, we expect to incur additional costs associated with operating as a public company. 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. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We will need to generate significant revenues to achieve profitability, and we may never do so. Furthermore, the extent of the impact and effects of the recent outbreak of the coronavirus COVID-19 on the operation and financial performance of our business will depend on future developments, including the duration and spread of the outbreak, related travel advisories and restrictions, production delays, or the uncertainty with respect to the accessibility of additional liquidity or capital markets, all of which are highly uncertain and cannot be predicted. If the demand for our second generationPure-Vu system is impacted by this outbreak for an extended period, our results of operations may be materially adversely affected.

We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We expect our expenses will increase substantially in connection with our ongoing activities, as we:

Restructuring Charges

In March 2020, we adopted a cost reduction plan (the “2020 Plan”) in response to the ongoing disruptions from the COVID-19 outbreak, and to better align our cost structure with the resources required to more efficiently and effectively execute on our commercial strategy of creating a strong foundation in the market by establishing national and regional hospital networks as Pure Vu reference centers.

Most significantly, the 2020 Plan resulted in the reduction of our overall headcount by approximately 50%, including a significant reduction of our commercial team in the US, the implementation of tighter expense controls, and the termination of the lease of our planned corporate office facility in Norwood, Massachusetts. These activities were initiated in the first quarter of 2020, with the majority of activity expected to be complete by the end of the second quarter of 2020.During the three months ended March 31, 2020, we recorded charges of $0.6 million related to the 2020 Plan. Of that amount, we paid $0.2 million in termination fees of the lease of our planned corporate facility and incurred non- cash charges of $9.0 thousand during the first quarter of 2020. We expect to pay the remaining $0.4 million in severance and employee related costs in the second quarter of 2020.

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, 2019.2020. 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 three months ended March 31, 2020,2021, there were no material changes to matters discussed under the heading “Critical Accounting Policies and Estimates” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.2020.

Results of Operations

Comparison of Three Months Ended March 31, 20202021 and 20192020

Revenue

As of March 31, 2020, as part of our limited launch,2021, we have generated minimallimited revenue from the sales of products. We do not expect to generate significant revenue from product sales until we further expand our commercialization efforts for the Pure-Vu System, which is subject to significant uncertainty.

Revenue totaled $51.0 thousand for the three months ended March 31, 2021, compared to $28.0 thousand for the three months ended March 31, 2020, compared to $1.0 thousand for the three months ended March 31, 2019. The increase of $27.0 thousand was primarily attributable to the sale of our second-generation system disposables.2020.

Cost of Revenue

Cost of revenue for the three months ended March 31, 20202021 totaled $30$28.0 thousand, compared to $1$30.0 thousand for the three months ended March 31, 2019. The increase of $29.0 thousand was primarily attributable to the cost of our second-generation system disposable evaluation and commercial units in the amount of $27.0 thousand, the expense of royalties to the IIA in the amount of $1.0 thousand, and the increase in freight in the amount of $1.0 thousand.2020.

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 March 31, 20202021 totaled $1.9$1.3 million, compared to $2.4$1.9 million for the three months ended March 31, 2019.2020. The decrease of $0.5$0.6 million was primarily attributable to decreases of $0.4 million in material costs as we shifted our focus to expanding our commercialization efforts for the Pure-Vu System , $0.1 million in clinical costs, and $0.1 million in salaries and other personnel related costs, and professional services, partially offset by an increase of $0.1 million in share-based compensation.compensation and $0.1 million in other research and development 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 March 31, 20202021 totaled $1.9$0.7 million, compared to $1.2$1.9 million for the three months ended March 31, 2019.2020. The increasedecrease of $0.7$1.2 million was primarily attributable to increasesdecreases of $0.7$1.0 million in salaries and other personnel related cost to support our commercialization efforts of the Pure-Vu System, and $0.1$0.2 million in share-based compensation, travelother sales and marketing and training product, partially offset by a decrease of $0.1 million in professional services.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 three months ended March 31, 20202021 totaled $2.9$2.4 million, compared to $2.8$2.9 million for the three months ended March 31, 2019.2020. The increasedecrease of $0.1$0.5 million was primarily attributable to increasesdecreases of $0.2$0.3 million in salaries and other personnel related costs, $0.2 million in lease termination fees, and $0.2 million in professional services, partially offset with $0.3a $0.2 million decreaseincrease in share-based compensation.

Other Income and Expenses

Other Income and Expenses

Other income,expense, net for the three months ended March 31, 20202021 totaled $0.2 million compared to $0.1other income of $0.2 million for the three months ended March 31, 2019.2020. The increase of $0.1$0.4 million in other income, netexpense, was primarily attributable to a change from finance incomegain of $0.1 million in 2021 compared to finance expense in finance income and foreign currencya loss of $0.2 million, and a gain of $0.3 million onin 2020 from the change in estimated fair value of contingent royalty obligation.

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 March 31, 2020, our accumulated deficit was $91.0 million. Such conditions raise substantial doubts about our ability to continue as a going concern.

In December 2019, we entered into a Loan and Security Agreement, as subsequently amended from time to time (the “Loan Agreement”), for $8.0 million with Silicon Valley Bank (the “Bank” or “SVB”). Under the terms of the Loan Agreement we must maintain unrestricted cash in accounts held at SVB of at least $10.0 million (the “Liquidity Covenant”). We will need to raise additional capital or generate substantial revenue in order to ensure compliance with the Liquidity Covenant to support our development and commercialization efforts. If adequate funds are not available to us on a timely basis, or at all, we may breach the Liquidity Covenant, in which case, we would be required to immediately pledge to the bank and thereafter maintain in a separate account, unrestricted and unencumbered cash in an amount equal to the amount then outstanding under the Loan Agreement.

Further, duringOn August 28, 2020 we entered into a securities purchase agreement (the “Securities Purchase Agreement”) under which we sold and issued to an institutional investor (the “Holder”), in a registered direct offering, an aggregate of 3,200,000 shares of our common stock par value $0.0001 per share (the “Common Stock”), and pre-funded warrants to purchase an aggregate of 5,533,625 shares of Common Stock (the “Pre-Funded Warrants”). The offering price was $1.145 for each share of Common Stock and $1.144 for each Pre-Funded Warrant. The Pre-Funded Warrants were immediately exercisable at a price of $0.001 per share of Common Stock. Pursuant to the quarter endedSecurities Purchase Agreement, in a concurrent private placement, we also agreed to issue to the Holder warrants to purchase up to 8,733,625 shares of Common Stock (the “Private Placement Warrants”). These warrants were immediately exercisable at an exercise price of $1.30 per share and expire on the fifth anniversary of the date of issuance. In connection with the closing of the offering, we received gross proceeds of $10.0 million before deducting placement agent fees and other offering expenses of $0.8 million from the issuance of the Common Stock, the Pre-Funded Warrants and the Private Placement Warrants.

On January 27, 2021, we entered into a Warrant Exercise Agreement (the “Exercise Agreement”) with the Holder, at which time 8,000,000 of the Private Placement Warrants remained outstanding, due to the prior exercise of 733,625 of the Private Placement Warrants on January 22, 2021. Pursuant to the Exercise Agreement, in order to induce the Holder to exercise all of its remaining outstanding 8,000,000 Private Placement Warrants for cash, we agreed to sell to the Holder, new warrants (the “New Warrants”) to purchase 0.75 shares of Common Stock for each share of Common Stock issued upon such exercise of the remaining 8,000,000 Private Placement Warrants pursuant to the Exercise Agreement, or an aggregate of 6,000,000 New Warrants. The terms of the New Warrants are substantially similar to those of the Private Placement Warrants, except that the New Warrants will have an exercise price of $2.12, will be immediately exercisable and will expire five years from the date of the Exercise Agreement. In addition, the Holder paid a cash payment of $0.10 for each New Warrant issued to the Holder, for an aggregate of $600,000 to the Company. We received aggregate gross proceeds before expenses of approximately $11.0 million from the exercise of all of the remaining 8,000,000 outstanding Private Placement Warrants held by the Holder and the payment of the purchase price for the New Warrants.

In connection with the Exercise Agreement, we entered into a financial advisory agreement (the “Letter Agreement”) with A.G.P./Alliance Global Partners (“A.G.P.”), pursuant to which A.G.P. acted as exclusive financial advisor to us in this transaction and received a cash fee of $0.3 million upon full cash exercise of the Private Placement Warrants. As additional compensation, A.G.P. will receive a cash fee equal to $0.2 million upon the cash exercise in full of the New Warrants.

In March 31, 2020, a pandemic occurred.2021, we entered into an Equity Distribution Agreement (the “Equity Distribution Agreement”) with Oppenheimer & Co. Inc. (“Oppenheimer”), under which it may offer and sell from time to time common shares having an aggregate offering price of up to $25.0 million.

We have been continuously evaluating the actual and potential business impacts related to the COVID-19 pandemic. While the full impact of the pandemic continues to evolve, the financial markets have been subject to significant volatility that adversely impacts our ability to enter into, modify, and negotiate favorable terms and conditions relative to equity and debt financing initiatives. The uncertain financial markets, potential disruptions in supply chains, mobility restraints, and changing priorities could also affect our ability to enter into key agreements. The outbreak and government measures taken in response to the pandemic have also had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services and supplies, have spiked, while demand for other goods and services such as travel, have fallen. The future progression of the outbreak and its effects on our business and operations are uncertain. We and our third-party contract manufacturers, contract research organizations, and clinical sites may also face disruptions in procuring items that are essential to our research and development activities, including, for example, medical and laboratory supplies, in each case, that are sourced from abroad or for which there are shortages because of ongoing efforts to address the outbreak.

While expected to be temporary, these disruptions will negatively impact our sales, results of operations, financial condition, and liquidity in 2020.

Our ability to continue as a going concern depends on our ability to execute our business plan, increase revenue and reduce expenditures. At quarter end, we adopted the 2020 Plan in response to the ongoing disruptions from the COVID-19 outbreak, and to better align our cost structure with the resources required to more efficiently and effectively execute on our commercial strategy of creating a strong foundation in the market by establishing national and regional hospital networks as Pure Vu reference centers. Most significantly, the 2020 Plan resulted in the reduction of our overall headcount by 50%, including a significant reduction of our commercial team in the US, the implementation of tighter expense controls, and the termination of the lease of our planned corporate office facility in Norwood, Massachusetts. These activities were initiated in the first quarter of 2020, with the majority of activity expected to be complete by the end of the second quarter of 2020.

As of March 31, 2020,2021, we had total current assets of $23.9$29.8 million and total current liabilities of $11.1$10.2 million resulting in working capital of $12.8$19.6 million. Net cash used in operating activities for the three months ended March 31, 20202021 was $7.2$4.5 million, which includes a net loss of $6.5$4.6 million, offset by non-cash expenses principally related to share based compensation expense of $0.8$0.9 million, depreciation and amortization of $0.1 million, and amortization of debt issuance costs of $19.0 thousand, partially offset by thea loss gain on the change in estimated fair value of contingent royalty obligation of $0.3$0.1 million, and offset by changes in net working capital items principally related to the increase in prepaid expenses and other current assets of $0.8$0.7 million, and the increase in accounts payable and accrued expenses of $17.0 thousand, and the increase in other current and non-current liabilities of $0.1 million, and an increase in inventory of $0.3 million.

Net cash provided byused in investing activities for the three months ended March 31, 20202021 totaled $8.1$0.1 million principally related to the proceeds from available-for-sale securities of $8.2 million, offset by the purchase of fixed assets of $0.1 million.assets.

Net cash used inprovided by financing activities for the three months ended March 31, 20202021 totaled $34.0 thousand$11.6 million related to $34.0 thousand inproceeds from exercise and purchase of warrants of $12.0 million, offset by financing fees related to debt financing.

the exercise of the warrants of $0.3 million.

As of March 31, 2020,2021, we had cash and cash equivalents of $21.5$27.7 million. We will need to raise significant additional capital to continue to fund operations and to maintain the Liquidity Covenant. 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 StatementStatements

On March 26, 2019, we filed a shelf registration statement (File No. 333-230516) with the Securities and Exchange Commission (the “2019 Shelf Registration Statement”), which was declared effective on April 24, 2019, that allows us to offer, issue and sell up to a maximum aggregate offering price of $75.0 million of any combination of our common stock, preferred stock, warrants, debt securities, subscription rights and/or units from time to time, together or separately, in one or more offerings. Each issuance under the shelf registration statement will require the filing of a prospectus supplement identifying the amount and terms of the securities to be issued. As of March 31, 2020,2021, we have sold $21.9approximately $31.8 million of securities under our2019 Shelf Registration Statement.

On March 16, 2021, we filed a shelf registration statement. 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 March 31, 2021, we have not sold any securities under 2021 Shelf Registration Statement.

The 2021 Shelf Registration Statement includes a prospectus registering the at-the-market offering program pursuant to the Equity Distribution Agreement with Oppenheimer, under which we may offer and sell from time to time common shares having an aggregate offering price of up to $25.0 million.

Our ability to issue securities is subject to market conditions and other factors including, in the case of our debt securities, our credit ratings. Each issuance under the shelf registration statements will require the filing of a prospectus supplement identifying the amount and terms of the securities to be issued.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules, such as relationships with unconsolidated entities or financial partnerships, which are often referred to as structured finance or special purpose entities, established for the purpose of facilitating financing transactions that are not required to be reflected on our balance sheets.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not Applicable.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2020.2021. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As a resultBased on the evaluation of the material weakness in our internal control over financial reporting described below,disclosure controls and procedures as of March 31, 2021, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective at the reasonable assurance level as of March 31, 2020.level.

Material Weakness in Internal Control over Financial Reporting

As discussed in our Annual Report on Form 10-K for the year ended December 31, 2019, our management has determined that we have a material weakness in our internal control over financial reporting related to the accounting for non-routine complex transactions. Refer to Part II, Item 9A, “Controls and Procedures,” in our Annual Report on Form 10-K for the year ended December 31, 2019, for a discussion of the actions that we have previously undertaken and continue to undertake to remediate this material weakness.

Notwithstanding the material weaknesses, our Chief Executive Officer and Chief Financial Officer concluded that the consolidated financial statements included in this report present fairly, in all material respects, our financial position, results of operations, and cash flows as of the dates and for the periods presented, in conformity with U.S. GAAP.

Changes in Internal Control over Financial Reporting

Other than the changes intended to remediate the material weakness as discussed in Part II, Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2019, thereThere was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended March 31, 2020period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019,2020, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K, for the year ended December 31, 20192020 may not be the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results.

There were no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 20192020 filed with the Securities and Exchange Commission on March 30, 2020 except as noted below.16, 2021.

If we fail to maintain compliance with the requirements of The Nasdaq Capital Market for continued listing, our common stock may be delisted and the price of our common stock and our ability to access the capital markets could be negatively impacted.

Our common stock is listed for trading on The Nasdaq Capital Market.

As previously reported, on April 24, 2020, we received a written notice from the Listing Qualifications Department of The Nasdaq Stock Market ("Nasdaq") indicating that we were not in compliance with the $1.00 Minimum Bid Price requirement set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing on The Nasdaq Capital Market (the "Bid Price Requirement").

On May 11, 2020, we received a letter from Nasdaq notifying us that we had regained compliance with Nasdaq Listing Rule 5550(a)(2) as a result of the closing bid price of our common stock being at $1.00 per share or greater for the 10 consecutive business days from April 27, 2020 through May 8, 2020. Accordingly, we have regained compliance with the Bid Price Requirement and Nasdaq considers the above matter closed.

Notwithstanding, there can be no assurance that we will be able to continue to maintain compliance with the Nasdaq continued listing requirements, and if we are unable to maintain compliance with the continued listing requirements, including the Bid Price Requirement, our securities may be delisted from Nasdaq, which could reduce the liquidity of our common stock materially and result in a corresponding material reduction in the price of our common stock. In addition, delisting could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, employees and business development opportunities. Such a delisting likely would impair your ability to sell or purchase our common stock when you wish to do so. Further, if we were to be delisted from Nasdaq, our common stock may no longer be recognized as a “covered security” and we would be subject to regulation in each state in which we offer our securities. Thus, delisting from Nasdaq could adversely affect our ability to raise additional financing through the public or private sale of equity securities, would significantly impact the ability of investors to trade our securities and would negatively impact the value and liquidity of our common stock.

Global or regional pandemics, including outbreaks of communicable diseases, may materially and adversely affect our business, financial condition, revenues, and results of operations.

We may face risks related to health epidemics or outbreaks of communicable diseases. For example, the recent outbreak around the world of the highly transmissible and pathogenic coronavirus COVID-19. The outbreak of such communicable diseases could result in a widespread health crisis that could adversely affect general commercial activity and the economies and financial markets of many countries.

The continued impact resulting from the COVID-19 outbreak where we and our business partners have operations, or the perception that such an outbreak could occur, and the measures taken by the governments of countries affected, could adversely affect our business, financial condition, revenues, and results of operations.

For example, the COVID-19 outbreak, or other similar outbreaks, could have an adverse effect on the overall productivity of our workforce and we may be required to take extraordinary measures to ensure the safety of our employees and those of our business partners. These measures could require that our employees refrain from traveling to their normal workplace for extended periods of time, which we have already experienced in certain locations as a result of the COVID-19 outbreak, which in turn could result in a decrease in our commercial activities, or result in higher costs or other inefficiencies. 

Such outbreaks could also result in delays in or the suspension of our business partners manufacturing operations, which we have already experienced as a result of the COVID-19 outbreak, including the loss of our contract manufacturing relationship with RMS Company, the contract manufacturer who manufactured the loading fixture for our Pure-Vu System, our research and product development activities, which we have begun to scale back as a result of the impact of COVID-19 on our business, our regulatory work streams, our clinical studies, which we have already experienced as a result of the COVID-19 outbreak, including that we will no longer pursue the RESCUE study, and other important commercial functions.

Additionally, our business may be harmed if, in connection with an outbreak, our customers seek to limit or prevent access by our sales and clinical support teams to their facilities, which we have already experienced in certain locations as a result of the COVID-19 outbreak, or if our customers postpone elective procedures while their resources are diverted to addressing such an outbreak, or if capital spending by hospitals is curtailed or delayed in connection with such an outbreak, which we have already experienced as a result of the COVID-19 outbreak. An outbreak may also result in restrictions on domestic and international travel, which could have a negative impact on our customer engagement efforts, including through the cancellation or postponement of third-party conferences, trade shows and similar events, each of which we have already experienced as a result of the COVID-19 outbreak.

Further, in our operations as a public company, prolonged government disruptions, global pandemics and other natural disasters or geopolitical actions could affect our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Unregistered Sales of Equity Securities

During the period covered by this Form 10-Q, or such period as described below, we issued the following unregistered securities:

In February 2020,On January 20, 2021, we entered into a services agreement with a service provider, pursuant to which we issued warrants on February 6, 2020a warrant to purchase 120,000340,020 shares of our common stock (the "February 2020 Warrants"). 60,000in the aggregate, with an exercise price of the granted warrants are exercisable at a price equal to $2.16$1.75 per share, of common stock, and 60,000 of the remaining warrants granted are exercisable at a price equal to $3.50 per share of common stock. The February 2020 Warrantswhich will vest over a one-year period on a monthly basis and expire(the “January 2021 Consultant Warrants”). The January 2021 Consultant Warrants have a three years from the date of issuance.(3) year term. The February 2020January 2021 Consultant Warrants were issued on substantially the same form as our Form of November 2018 Consultant Warrant, filed as Exhibit 4.4 of our Quarterly Report on Form 10-Q filed with the SEC on November 14, 2018, and incorporated herein by reference.

Securities Act Exemptions

We deemed the offers, sales and issuances of the securities described above to be exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance on Section 4(a)(2) of the Securities Act, including Regulation D and Rule 506 promulgated thereunder, relative to transactions by an issuer not involving a public offering.

All certificates representing the securities issued in the transactions described above included appropriate legends setting forth that the securities had not been offered or sold pursuant to a registration statement and describing the applicable restrictions on transfer of the securities.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6.Exhibits