NOTE 1 - GENERAL

A. Description of Business:

Microbot Medical Inc. (the “Company”) is a pre-clinical medical device company specializing in the research, design and development of next generation micro-robotics assisted medical technologies targeting the minimally invasive surgery space. The Company is primarily focused on leveraging its micro-robotic technologies with the goal of redefining surgical robotics while improving surgical outcomes for patients.

It was incorporated on August 2, 1988 in the State of Delaware under the name Cellular Transplants, Inc. The original Certificate of Incorporation was restated on February 14, 1992 to change the name of the Company to Cyto Therapeutics, Inc. On May 24, 2000, the Certificate of Incorporation as restated was further amended to change the name of the Company to StemCells, Inc.

On November 28, 2016 (the “Merger”), the Company consummated a transaction pursuant to an Agreement and Plan of Merger dated August 15, 2016, with Microbot Medical Ltd., a private medical device company organized under the laws of the State of Israel (“Microbot Israel”). On the same day and in connection with the Merger, the Company changed its name from StemCells, Inc. to Microbot Medical Inc. On November 29, 2016, the Company’s common stock began trading on the Nasdaq Capital Market under the symbol “MBOT”.

Prior to the Merger, the Company was a biopharmaceutical company that conducted research, development, and commercialization of stem cell therapeutics and related technologies. The sale of substantially all material assets relating to the stem cell business were completed on November 29, 2016.

The Company and its subsidiaries are collectively referred to as the “Company”. “StemCells” or “StemCells, Inc.” refers to the Company prior to the Merger.

B. Going Concern:

The unauditedpreparation of financial statements asin conformity with U.S. GAAP requires management to make estimates and assumptions pertaining to transactions and matters whose ultimate effect on the financial statements cannot precisely be determined at the time of September 30, 2019financial statements preparation. Although these estimates are based on management’s best judgment, actual results may differ from these estimates.

The accompanying unaudited interim condensed consolidated financial statements have been prepared underin accordance with U.S. GAAP for interim financial information and with the assumptioninstructions to Form 10-Q and Article 10 of U.S. Securities and Exchange Commission (“SEC”) regulations. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included (consisting only of normal recurring adjustments except as otherwise discussed).

Operating results for the three and six-month periods ended June 30, 2020, are not necessarily indicative of the results that may be expected for the year ended December 31, 2020.

To date, the Company will continue as a going concern for the next 12 months. The Company’s ability to continue as a going concern is dependent uponhas not generated revenues from its uncertain ability to obtain additional equity and/or debt financing and reduce expenditures. The Company has incurred operating losses and negative cash flows from operating activities each year since inception.operations. As of SeptemberJune 30, 2019,2020, the Company had an accumulated deficitunrestricted cash and cash equivalent balance of approximately $33,241. $28,311, which management believes is sufficient to fund its operations for more than 12 months from the date of issuance of these financial statements and sufficient to fund its operations necessary to continue development activities of its current proposed products.

Due to continuing research and development activities, the Company expects to continue to incur additional losses for the foreseeable future. The Company’sWhile management plansof the Company believes that it has sufficient funds for more than 12 months, the Company may seek to continue to fund its current operations as well as other development activities relating toraise additional product candidates,funds through future issuances of either debt and/or equity securities and possibly additional grants from the Israeli Innovation Authority and other government institutions. The Company’s ability to raise additional capital in the equity and debt markets is dependent on a number of factors, including, but not limited to, the market demand for the Company’s stock, which itself is subject to a number of development and business risks and uncertainties, as well as the uncertainty that the Company would be able to raise such additional capital at a price or on terms that are favorable to the Company. These factors raise substantial doubt

An epidemic of the coronavirus disease (“COVID-19”) is ongoing throughout the world. As the outbreak is still evolving, much of its impact remains unknown. As of this filing, it is impossible to predict the company’seffect and potential spread of the coronavirus disease globally. The coronavirus disease may cause significant delays and disruptions to our clinical trials.

Additionally, travel restrictions have been implemented with respect to certain countries in an effort to contain the coronavirus disease, and several countries have expanded screenings of travelers. As travel restrictions are increasingly implemented and extended to other countries, the Company and its contract research organizations may be unable to visit its clinical trial sites and monitor the data from its clinical trials on timely basis. The Company’s employees may also face travel restrictions, which would impact its business. Furthermore, some of the Company’s manufacturers and suppliers are in Europe and may be impacted by port closures and other restrictions resulting from the coronavirus outbreak, which may disrupt the Company’s supply chain or limit its ability to continue as a going concern.obtain sufficient materials for our products.

The accompanying financial statements asultimate impact of September 30, 2019 do not include any adjustments that might result from the outcome of this uncertainty. IfCOVID-19 outbreak or a similar health epidemic is highly uncertain and subject to change, and the Company is unable to continue as a going concern, it may have to liquidate its assetscannot presently predict the scope and may receive less than the value at which those assets are carried on the financial statements.

C. Useseverity of Estimates:

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions pertaining to transactions and matters whose ultimate effect on the financial statements cannot precisely be determined at the time of financial statements preparation. Although these estimates are based on management’s best judgment, actual results may differ from these estimates.

MICROBOT MEDICAL INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

(Except share and per share data)

D. Reverse Stock Split:

On September 4, 2018,any potential business shutdowns or disruptions, but if the Company filed a Certificate of Amendment to its Restated Certificate of Incorporation with the Secretary of Stateor any of the State of Delaware to affect a one-for-15 reverse stock split ofthird parties with whom the Company’s common stock (the “Reverse Split”). As a result ofengages, including the Reverse Split, every 15 shares ofsuppliers, clinical trial sites, contract research organizations, regulators, including the FDA health care providers and other third parties with whom the Company conducts business, were to experience shutdowns or other business disruptions, the Company’s old common stock were converted into one share ofability to conduct our business and operations could be materially and negatively impacted, which could prevent or delay the Company’s new common stock. Fractional shares resultingCompany from the Reverse Split were rounded up to the nearest whole number. The Reverse Split automatically and proportionately adjusted, based on the one-for-fifteen split ratio, all issued and outstanding shares of the Company’s common stock, as well as common stock underlying convertible preferred stock, stock options, warrants and other derivative securities outstanding at the time of the effectiveness of the Reverse Split. The exercise price on outstanding equity based-grants was proportionately increased, while the number of shares available under the Company’s equity-based plans was also proportionately reduced. Share and per share data (except par value)obtaining approval for the periods presented reflect the effects of the Reverse Split. References to numbers of shares of common stock and per share data in the accompanying financial statements and notes thereto for periods ended prior to September 4, 2018 have been adjusted to reflect the Reverse Split on a retroactive basis.its devices.

Unaudited Interim Financial Statements:

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of U.S. Securities and Exchange Commission (“SEC”) regulations. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included (consisting only of normal recurring adjustments except as otherwise discussed).

Operating results for the three- and nine-month periods ended September 30, 2019, are not necessarily indicative of the results that may be expected for the year ended December 31, 2019.

Significant Accounting Policies:Policies

The significant accounting policies followed in the preparation of these unaudited interim condensed consolidated financial statements are identical to those applied in the preparation of the latest annual audited financial statements with the exception of the following:

Short-term Investments:

The Company began investing excess cash in short-term investments during the first quarter of 2019.

Marketable debt securities are considered to be available for sale and are carried at fair value. Unrealized gains and losses net of tax, if any, are reported as a separate component of shareholders’ equity. The cost of marketable debt securities classified as available for sale is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion are included in interest income. Realized gains and losses and declines in value judged to be other than temporary, if any, are also included in other income, net. Interest on securities classified as available for sale is included in interest income. The cost of securities sold is based on the specific identification method.

Management evaluates whether available-for-sale securities are other-than-temporarily impaired (OTTI) on a quarterly basis. Debt securities with unrealized losses are considered OTTI if the Company intends to sell the security or if it is more likely than not that the Company will be required to sell such security prior to any anticipated recovery. If management determines that a security is OTTI under these circumstances, the impairment recognized in earnings is measured as the entire difference between the amortized cost and the then-current fair value. During the three and nine-months ended September 30, 2019, no investment OTTI losses were realized.

MICROBOT MEDICAL INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

(Except share and per share data)Recently adopted accounting pronouncements

Fair Value of Financial Instruments:

The carrying values of cashFrom time to time, new accounting pronouncements are issued by FASB, or other standard setting bodies and cash equivalents, other receivable and other accounts payable and accrued liabilities approximate their fair value due toadopted by the short-term maturity of these instruments.

The Company measures the fair value of certain of its financial instruments (marketable debt security) on a recurring basis.

A fair value hierarchy is used to rank the quality and reliabilityas of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in onespecified effective date. Unless otherwise discussed, the impact of the following three categories:

Level 1- Quoted prices (unadjusted) in active markets for identical assets and liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as unadjusted quoted prices for similar assets and liabilities, unadjusted quoted prices in the marketsrecently issued standards that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Reclassifications:

Certain prior period amounts have been reclassified to conform to current period presentation.

Leases:

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). This ASU requires entities that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by leases with lease terms of more than 12 months. The Company adopted this ASUyet effective January 1, 2019 using the modified retrospective application, applying the new standard to leases in place as of the adoption date. Prior periods havewill not been adjusted.

Arrangements that are determined to be leases at inception are recognized as long-term right-of-use assets (“ROU”) and lease liabilities in the condensed consolidated balance sheet at lease commencement. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future fixed lease payments over the lease term at commencement date. As most of the Company’s leases do not provide an implicit rate, the Company applies its incremental borrowing rate based on the economic environment at commencement date in determining the present value of future payments. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating leases or payments are recognized on a straight-line basis over the lease term.

Warrants:

Prior to January 1, 2019, warrants with non-standard anti-dilution provisions (referred to as down round protection) were classified as liabilities and re-measured each reporting period. On January 1, 2019, the Company adopted the provisions of Accounting Standards Update (“ASU”) 2017-11, which includes Part I “Accounting for Certain Financial Instruments with Down Round Features” and Part II “Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-Controlling Interests with a Scope Exception”, which indicates that a down round feature no longer precludes equity classification when assessing whether an investment is indexed to an entity’s own stock. The Company used a full retrospective approach to adoption and restated its financial statements as of the earliest period presented. As a result of the adoption of ASU 2017-11, the Company’s warrants were reclassified from liabilities to shareholders’ equity.

MICROBOT MEDICAL INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

(Except share and per share data)

The cumulative effect of adoption of ASU 2017-11 resulted as follows:

Refer to Note 6 for further information regarding the outstanding warrants as of September 30, 2019.

Recent Accounting Standards:

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. This ASU replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. This ASU is effective for the Company in the first quarter of 2020, with early adoption permitted. The Company does not expect that this ASU will have a material effectimpact on the Company’s consolidatedour financial statements.position or results of operations upon adoption.

In August 2018, the FASB issued ASU 2018-13, “Changes to Disclosure Requirements for Fair Value Measurements”, which will improve the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements. This ASUThe standard removes, modifies, and adds certain disclosure requirements, and is effective for the Company beginning on January 1, 2020. The Company doesadoption of this standard did not expect that this ASU will have a material effect on the Company’s interim consolidated financial statements.

The following table summarizes the Company’s marketable debt securities as of September 30, 2019 and December 31, 2018.

Recently issued accounting pronouncements not yet adopted

In June 2016, FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses – Measurement of Credit Losses on Financial Instruments” (as amended by ASUs 2018-19, 2019-04, 2019-05, 2019-10, 2019-11, 2020-02 and 2020-03), which introduces a model based on expected losses to estimate credit losses for most financial assets and certain other instruments. In addition, for available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. The Company’sASU is effective for smaller reporting companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, (January 1, 2023 for the Company). Early adoption is permitted. The Company is currently evaluating the impact this guidance may have on its consolidated financial assetstatements and related disclosures.

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes” which eliminates the need for an organization to analyze whether the following apply in a given period: (1) exception to the incremental approach for intraperiod tax allocation; (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments; and (3) exceptions in interim period income tax accounting for year-to-date losses that exceed anticipated losses. The ASU also is measured at fair valuedesigned to improve financial statement preparers’ application of income tax-related guidance and simplify GAAP for (1) franchise taxes that are partially based on income, (2) transactions with a recurringgovernment that result in a step-up in the tax basis by level within the fair value hierarchy.of goodwill, (3) separate financial statements of legal entities that are not subject to tax, and (4) enacted changes in tax laws in interim periods. The Company’s marketable securitystandard is classified as Level 1. Other than the marketable debt security,effective for the Company doesn’t have any other financial assets or financial liabilities marked to market at fair value.on January 1, 2021 with early adoption permitted.

The contractual maturity of the marketable security is one year.

MICROBOT MEDICAL INC.NOTE 3 - LEASES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

(Except share and per share data)

On January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”) using the modified retrospective approach for all lease arrangements at the beginning period of adoption. Leases existing for the reporting period beginning January 1, 2019 are presented under ASU 2016-02. The Company leases office space and vehicles under operating leases. At September

The Company determines if an arrangement is a lease at inception. Operating lease assets are presented as operating lease right-of-use (“ROU”) assets, and corresponding operating lease liabilities are presented within accrued expenses and other current liabilities (current portions), and as operating lease liabilities (long-term portions), on the Company’s consolidated balance sheet.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the remaining lease payments over the lease term at commencement date. The Company’s leases do not provide an implicit interest rate. The Company calculates the incremental borrowing rate to reflect the interest rate that the Company would have to pay to borrow on a collateralized basis an amount equal to the lease payments in a similar economic environment over a similar term, and consider the Company’s historical borrowing activities and market data in this determination. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

The Company has lease agreements with lease and non-lease components, which the Company accounts for as a single lease component. Some of the Company’s leases contain variable lease payments, which are expensed as incurred unless those payments are based on an index or rate. Variable lease payments based on an index or rate are initially measured using the index or rate in effect at lease commencement and included in the measurement of the lease liability; thereafter, changes to lease payments due to rate or index updates are recorded as rent expense in the period incurred. The Company has elected not to recognize ROU assets and lease liabilities for short-term leases that have a term of 12 months or less. The effect of short-term leases on the Company’s ROU assets and lease liabilities was not material. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. In addition, the Company does not have any related party leases and the Company’s sublease transactions are de minimis.

As of June 30, 2019,2020, the Company’s ROU assets and lease liabilities for operating leases totaled $421$869 and $445,$855, respectively. The impact of adopting the new lease standard was not material to the Company’s condensed consolidated statement of operations for the periods presented.

Supplemental cash flow information related to operating leases was as follows (unaudited):

Undiscounted maturities of operating lease payments as June 30, 2020 are summarized as follows (in thousands):

Leases recorded on the balance sheet consist of the following (in thousands):

Undiscounted maturities of operating lease payments as of September 30, 2019 are summarized as follows (in thousands):

NOTE 4 - COMMITMENTS AND CONTINGENCIES

Government Grants:

Microbot Israel obtained from the Israeli Innovation Authority (“IIA”) grants for participation in research and development for the years 2013 through SeptemberJune 30, 20192020 in the total amount of approximately $1,500 and, in return, Microbot Israel is obligated to pay royalties amounting to 3%-3.5% of its future sales up to the amount of the grant. The grant is linked to the exchange rate of the dollar to the New Israeli Shekel and bears interest of Libor per annum.

The repayment of the grants is contingent upon the successful completion of the Company’s research and development programs and generating sales. The Company has no obligation to repay these grants, if the project fails, is unsuccessful or aborted or if no sales are generated. The financial risk is assumed completely by the Government of Israel. The grants are received from the Government on a project-by-project basis.

MICROBOT MEDICAL INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

(Except share and per share data)

TRDF Agreement:

Microbot Israel signed an agreement with the Technion Research and Development Foundation (“TRDF”) in June 2012 by which TRDF transferred to Microbot Israel a global, exclusive, royalty-bearing license. As partial consideration for the license, Microbot Israel shall pay TRDF royalties on net sales (between 1.5%-3%) and on sublicense income as detailed in the agreement.

Contract Research Agreements:

Agreement with Washington University

On January 27, 2017, the Company entered into a Contract Research Agreement (the “Research Agreement”) with The Washington University (“Washington U.”), pursuant to which the parties are collaborating to determine the effectiveness of the Company’s self-cleaning shunt.

The study in Washington U. includes several phases. The first phase (initial research) was completed. An agreement on the second phase was entered in September 2018 with total expected costs of approximately $248. As of SeptemberJune 30, 2019, his2020, this study is still on going and will be extended to continue until March 1, 2020. 15, 2021. Pursuant to the Research Agreement, all rights, title and interest in the data, information and results obtained or arrived at by Washington U. in the performance of its services under the Research Agreement, as well as any patentable inventions obtained or arrived at in the performance of such services, will be jointly owned by the Company and Washington U., and each will have full right to practice and grant licenses in joint inventions. Additionally, Washington U. granted to the Company: (a) a non-exclusive, worldwide, royalty-free, fully paid-up, perpetual and irrevocable license to use and practice patentable inventions (other than joint inventions and improvements to Washington U.’s animal models) obtained or arrived at by Washington U. in the provision of its services under the Research Agreement (“University Inventions”) with respect to the self-cleaning shunt; and (b) an exclusive option to obtain an exclusive worldwide license in University Inventions, on terms to be negotiated between the parties.

Agreement with Wayne State University

On September 12, 2016, the Company entered into a research agreement (the “WSU Agreement”) with Wayne State University (“WSU.”), pursuant to which the parties are collaborating to determine the efficacy of the Company’s self-cleaning shunt.

The study in WSU includes several phases. The first phase (initial research) was completed. An agreement on the second phase was entered in April 2018 with total expected costs of approximately $130. In July 2018 the contract was updated to include phase 2.1 (preliminary phase to phase 2) with total expected costs of approximately $213. Pursuant to the WSU Agreement, WSU shall own all data generated by the research and the Company shall have unrestricted free right to use and disclose all the results, information and material generated from the WSU Agreement.

Rights to inventions, improvements or discoveries, whether or not patentable or copyrightable made solely by the employees of the Company in the course of performance of the workplan agreed upon between the Company and WSU shall belong to the Company.

Rights to inventions, improvements or discoveries, whether or not patentable or copyrightable made solely by the employees of WSU in the course of performance of the workplan agreed upon between the Company and WSU shall belong to WSU. WSU shall grant the Company with a worldwide non-exclusive, perpetual, royalty-free license to university inventions to use and practice patentable inventions.

Rights to inventions, improvements or discoveries, whether or not patentable or copyrightable made by at least one employee of WSU and one employee of the Company in the course of performance of the workplan agreed upon between the Company and WSU shall belong to WSU and the Company jointly. Both the Company and WSU will be free to use and license to others the rights of joint inventions for any and all purposes without consultation or obligation to the other party. WSU granted the Company a first option to negotiate an exclusive license to use and practice WSU inventions and its interest in the joint inventions as detailed in the WSU Agreement.

MICROBOT MEDICAL INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

(Except share and per share data)Litigation:

Sabby Litigation:Litigation Resulting from 2017 Financing

The Company is named aslost its appeal of an adverse judgment in the defendant in a lawsuit (the “Matter”), captioned Sabby Healthcare Master Fund Ltd. and Sabby Volatility Warrant Master Fund Ltd., Plaintiffs, against Microbot Medical Inc., Defendant, in the Supreme Court of the State of New York, County of New York (the “Court”) (Index No. 654581/2017). The complaint alleged, among other things, that the Company breached multiple representations and warranties contained inAs a result, the Securities Purchase Agreement (the “SPA”) related to the Company’s June 8, 2017 equity financing (the “Financing”) was rescinded as it related to Sabby Healthcare Master Fund Ltd. and Sabby Volatility Warrant Master Fund Ltd. (“Sabby”), and the Company paid approximately $3,700 to Sabby in return for the 83,333 (post-stock split) shares of which the Plaintiffs participated. The complaint sought rescission of the SPA and return of the Plaintiffs’ $3,375 purchase price with respectcommon stock Sabby purchased pursuant to the Financing, and damages in an amount to be determined at trial, but alleged to exceed $1 million. A trial was held on February 11, 2019. On February 28, 2019, the Court issued a Decision and Order After Trial to rescind the SPA. The rescission would require the Plaintiffs to transfer back toSoon after, the Company was named as the shares they purchaseddefendant in the Financing, and for the Company to return to Plaintiffs their purchase price of $3,375. Accordingly, the Company recorded a provision for extinguishment dispute as of $3,375 in current liabilities against Treasury shares classified in Equity.

On March 27, 2019, the Company filed a Notice of Appeal and an Undertaking to stay execution of the judgment pending appeal.

In accordance with New York law, in order to move forward with the appeal and to stay the lower court’s judgment, the Company placed approximately $4,200 in escrow with a surety bonding agent on March 26, 2019 in accordance with provisions set forth in the judgment from the Matter, which represents the judgment amount, plus interest and the fee to the bonding company. Accordingly, the Company recorded additional expenses of $178 with respect to interest from the judgement date and up until September 30, 2019.

Tolling and Standstill Agreement:

On April 4, 2018, Microbot entered into a Tolling and Standstill Agreement withlawsuit captioned Empery Asset Master Ltd., Empery Tax Efficient, LP, Empery Tax Efficient II, LP, and Hudson Bay Master Fund Ltd., the other investorsPlaintiffs, against Microbot Medical Inc., Defendant, in the Financing (“Other Investors”Supreme Court of the State of New York, County of New York (the “Court”) (Index No. 651182/2020). Pursuant to the Tolling Agreement,The complaint alleges, among other things, (a)that the Other Investors agree not to bring any claims against Microbot arising outCompany breached multiple representations and warranties contained in the SPA, of which the Plaintiffs participated, and fraudulently induced Plaintiffs into signing the SPA. The complaint seeks rescission of the Matter, (b) the parties agree that if Microbot reaches an agreement to settle the claims asserted by the Sabby Funds in the above suit, Microbot will provide the same settlement terms on a pro rata basis to the Other Investors,SPA and the Other Investors will either accept same or waive all of their claims and (c) the parties froze in time the rights and privileges of each party asreturn of the effective date of the Tolling Agreement, until (i) an agreement to settle the suit is executed; (ii) a judgment in the suit is obtained; or (iii) the suit is otherwise dismissed with prejudice.

No provision has been recordedPlaintiffs’ $6,750 purchase price with respect to the Tolling Agreement since no settlement was reached with respectFinancing. The Company filed a Motion to Dismiss on March 16, 2020, which Motion is pending before the Matter.Court.

Alliance Litigation:Litigation

On April 28, 2019, the Company brought an action against Alliance Investment Management, Ltd. (“Alliance”) in the Southern District of New York under Section 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. 78p(b), to compel Alliance to disgorge short swing profits realized by Alliance from purchases and sales of the Company’s securities within a period of less than six months, executed while Alliance was areported beneficial ownerownership of more than 10% of the Company’s outstanding common stock and a statutory “insider” status for purposes of the statute. The case is Microbot Medical Inc. v. Alliance Investment Management, Ltd., No. 19-cv-3782-GBD (SDNY). The amount of profits the Company is seeking to divest is estimated to be approximately $480,000.$468.

On August 21, 2019, Alliance filed an answer to the Company’s action, claiming that Alliance’san unnamed Alliance client Joseph Mona was the “beneficial owner” of the shares reportedly held and traded by Alliance. On October 18, 21, and 28, 2019, Joseph Mona (“Mona”) filed Section 16(a) and Schedule 13G reports, which are substantially similar to the reports previously filed by Alliance.

On October 28, 2019, Alliance filed a motion for summary judgment requesting that the Court dismiss the claims against Alliance in view of Joseph Mona’s SEC filings. filings, which Alliance asserted revealed Mona as the client referenced in Alliance’s answer.

On November 7, 2019, U.S. Magistrate Judge Robert W. Lehrburger ordered Alliance to produce relevant trading records, to enable the Company to determine whether to proceed against Alliance and/or Joseph Mona. Following Alliance’s production of Mona’s Microbot trading records, the Company filed a Second Amended Complaint on November 18, 2019, seeking to compel Alliance has agreedand/or Mona to postponedisgorge profits realized from the trades they each separately reported. The Company continued to oppose Alliance’s Motion for Summary Judgment given Alliance’s refusal to confirm that the trades reported by Alliance referred exclusively to the trades executed in Mona’s account—and did not refer to duplicative trading executed by Alliance. Alliance’s Motion for Summary Judgment is pending.

On February 4, 2020, Mona answered the 16(b) claim the Company asserted against him by claiming various equitable defenses, and filed a counterclaim against the Company under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Mona admits to engaging in the reported short swing trading of the Company’s responsestock while a 10% beneficial owner and statutory 16(b) insider of the Company, but alleges that he was induced to theirbuy the stock by various company misrepresentations. Mona claims a net loss on trading the Company’s stock of approximately $151.

On March 6, 2020 the Company filed a motion for summary judgment pending Alliance’s required productionon its 16(b) claim against Mona, together with a motion to dismiss Mona’s 10(b) counterclaim. The motion was fully briefed as of the trading records.

MICROBOT MEDICAL INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollarsApril 26, 2020 and is pending. All parties are currently scheduled to appear in thousands

(Except share and per share data)court on October 13, 2020.

Agreement with CardioSert Ltd.:

On January 4, 2018, Microbot Israel entered into an agreement with CardioSert Ltd. (“CardioSert”) to acquire certain patent-protected technology owned by CardioSert (the “Technology”).

Pursuant to the Agreement, Microbot Israel made an initial payment of $50 to CardioSert and had 90-days to elect to complete the acquisition. At the end of the 90-day period, at Microbot Israel’s sole option, CardioSert shall assign and transfer the Technology to Microbot Israel and Microbot Israel shall pay to CardioSert additional amounts and securities as determined in the agreement.

On April 10, 2018, Microbot delivered an Exercise Notice to CardioSert Ltd., notifying it that Microbot elected to exercise the option to acquire the Technology owned by CardioSert and therefore made an additional cash payment of $250 and 6,738 shares of common stock (100,000 shares of common stock before the Reverse Split) estimated at $74.

The agreement may be terminated by Microbot Israel at any time for convenience upon 90-days’ notice. The agreement may be terminated by CardioSert in case the first commercial sale does not occur by the third anniversary of the date of signing of the agreement except if Microbot Israel has invested more than $2,000 in certain development stages, or the first commercial sale does not occur within 50 months. In each of the above termination events, or in case of breach by Microbot Israel, CardioSert shall have the right to buy back the Technology from Microbot Israel for $1.00, upon 60 days prior written notice, but only 1 year after such termination. Additionally, the agreement may be terminated by either party upon breach of the other (subject to cure).

CardioSert agreed to assist Microbot Israel in the development of the Technology for a minimum of one year, for a monthly consultation fee of NIS 40,000 (or approximately US$11.50, based on an exchange rate of NIS3.47 to the dollar) covering up to 60 consulting hours per month.

Yehezkel (Hezi) Himelfarb Resignation:Compensation to Harel Gadot

Effective asOn February 25, 2020, the Company made the following changes to the compensation of FebruaryHarel Gadot, the Company’s CEO, President and Chairman:

● Mr. Gadot’s annual base salary was increased from $360 to $450, retroactive to January 1, 2019, Yehezkel (Hezi) Himelfarb,2020.

● Mr. Gadot’s annual bonus pursuant to his Employment Agreement with the Company was increased from 40% of his annual salary to 60% of his annual salary, based on achieving certain milestones, commencing 2020.

In addition, Mr. Gadot received a memberone-time special bonus equal to 60% of his newly-approved annual base salary. Mr. Gadot was also awarded non-qualified options to purchase 166,666 shares of Company common stock at an exercise price per share of $9.64, which vest in full on the one-year anniversary of the Boarddate of Directors ofgrant and expire on the Company, and the Company’s Chief Operating Officer, resigned from all positions with the Company. Effective as of February 1, 2019, Mr. Himelfarb also resigned from his position as General Manager of Microbot Medical Ltd., a wholly owned subsidiary of the Company. As a result of Mr. Himelfarb providing certain post-resignation transition services to the Company until July 31, 2019, Mr. Himelfarb was paid his full salary and certain benefits through that date.ten-year anniversary.(See note 6)

NOTE 5 - SHARE CAPITAL

Share Capital Developments:

On September 10, 2019, the Company reduced its authorized number of shares of capital stock from 221,000,000 to 61,000,000, including a reduction in the number of authorized shares of common stock of the Company from 220,000,000 to 60,000,000.

As of September June 30, 2019,2020, the Company had 4,307,6667,103,260 shares of common stock issued and outstanding.

On December 27, 2016, the Company exchanged 655,962 shares (9,735,925 shares before the Reverse Split) or rights to acquire shares of its common stock, for 9,736 shares of a newly designated class of Series A Convertible Preferred Stock.

On January 5, 2017, the Company entered into a definitive securities purchase agreement with an institutional investor (the “Purchaser”) for the purchase and sale of an aggregate of 47,163 shares (700,000 shares before the Reverse Split) of common stock in a registered direct offering for $74.00 per share ($5.00 per share before the Reverse Split) or gross proceeds of $3,500. The Company paid the placement agent a fee of $210 plus reimbursement of out-of-pocket expenses, as well as other offering-related expenses.

MICROBOT MEDICAL INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

(Except share and per share data)

On June 5, 2017, the Company entered into a Securities Purchase Agreement with certain institutional investors (the “Investors”) providing for the issuance and sale by the Company to the Investors of an aggregate of 252,652 shares (3,750,000 shares before the Reverse Split) of common stock, at a purchase price per share of $40.50 ($2.70 before the Reverse Split). The gross proceeds to the Company was $10,125 before deducting placement agent fees and offering expenses of $922. See Note 4 – “Commitments and Contingencies-Litigation” with respect to certain rescission rights awarded to two affiliated Investors.

On January 14, 2019, the Company entered into a Securities Purchase Agreement with an accredited institutional investor providing for the issuance and sale by the Company to the purchaser of an aggregate of (i) 330,000 shares of the Company’s common stock, at a purchase price per share of $6.50 and (ii) 125,323 pre-funded warrants each to purchase one share of common stock, at a purchase price per Pre-Funded Warrant of $6.49. The gross proceeds to the Company were approximately $3,000.$3,000 before deducting placement agent fees and other offering expenses of approximately $688. The closing of the offering took place on January 15, 2019. The pre-funded warrants were exercised in full in January 2019. As part of the offering the company issued to the underwriter 22,767 warrants for 3.5 years with an exercise price of $8.125 for total value of $165.

On January 15, 2019, the Company entered into a Securities Purchase Agreement with certain accredited institutional investors providing for the issuance and sale by the Company to the purchasers of an aggregate of 590,000 shares of the Company’s common stock, at a purchase price per share of $10.00. The gross proceeds to the Company were approximately $5,900.$5,900 before deducting placement agent fees and other offering expenses of approximately $720. The closing of the offering took place on January 17, 2019. As part of the offering the company issued to the underwriter 29,500 warrants for 3.5 years with exercise price of $12.50 for total value of $221.

On January 23, 2019 the Company entered into a Securities Purchase Agreement with accredited institutional investors providing for the issuance and sale by the Company to the purchasers of an aggregate of 250,000 shares of the Company’s common stock, at a purchase price per share of $9.875. The investors also purchased warrants to purchase an aggregate of up to 250,000 shares of the Company’s common stock, at a purchase price per warrant of $0.125. The warrants were exercisable for 1 year and had an exercise price of $10.00 per share, for a total value of $2,019. The gross proceeds to the Company from the sale of the shares and warrants were approximately $2,470.$2,500 before deducting placement agent fees and other offering expenses of approximately $370. The closing of the offering took place on January 25, 2019.

Employee Stock Option Grant:

In September 2014, Microbot Israel’s board As part of directors approved a grant of 26,906 stock options (403,592 stock options before the Reverse Split) (77,846 stock options as retroactively adjustedoffering the company issued to reflect the Merger) to its CEO, through MEDX Venture Group LLC. Each option was exercisable into an ordinary share, atunderwriter 12,500 warrants for 1 year with an exercise price of $12.00 ($0.80 before the Reverse Split) ($4.20 as retroactively adjusted to reflect the Merger). The stock options were fully vested at the date$12.50 for total value of grant.$99.

On May 2, 2016, Microbot Israel’s board of directors approvedDecember 25, 2019 the Company entered into a grant of 33,333 stock options (500,000 stock options beforeSecurities Purchase Agreement with accredited institutional investors providing for the Reverse Split) (96,482 as retroactively adjusted to reflectissuance and sale by the Merger) to certain of its employees and directors. Each stock option was exercisable into an ordinary share, NIS 0.001 par value, of Microbot Israel, at an exercise price equalCompany to the ordinary share’s par value. The stock options were fully vested at the datepurchasers of grant. As the exercise price of the stock options is nominal, Microbot Israel estimated the fair value of the options as equal to the Company’s share price of $20.25 ($1.35 before the Reverse Split) ($7.05 as retroactively adjusted to reflect the Merger) at the date of grant.

On September 12, 2017, the Company adopted the 2017 Equity Incentive Plan (the “Plan”), which Plan authorizes, among other things, the grant of options to purchase shares of common stock to directors, officers and employees of the Company and to other individuals.

On September 14, 2017, the board of directors approved a grant of stock options to purchase an aggregate of up to 120,848912,858 shares (1,812,712 shares beforeof the Reverse Split) ofCompany’s common stock, to Mr. Harel Gadot, the Company’s Chairman of the Board, President and CEO, at an exercisea purchase price per share of $15.75 ($1.05 before the Reverse Split).$10.50. The stock options vest over a period of 3-5 years as outlined in the option agreements. As a result,gross proceeds to the Company recognized compensationwere approximately $9,585 before deducting placement agent fees and other offering expenses of approximately $1,090. The closing of the offering took place on December 27, 2019. As part of the offering the Company issued to the underwriter 45,643 warrants for the three months ended September 30, 2019 and 2018 in3.5 years with an exercise price of $13.125 for total amountvalue of $122 and $121 respectively and for the nine months ended September 30, 2019 and 2018 in total amount of $362 and $460 respectively included in general and administrative expenses.$371.

MICROBOT MEDICAL INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

(Except shareOn December 27, 2019 the Company entered into a Securities Purchase Agreement with accredited institutional investors providing for the issuance and per share data)

On September 14, 2017,sale by the boardCompany to the purchasers of directors approved a grant of stock options to purchase an aggregate of up to 72,508952,383 shares (1,087,627 shares beforeof the Reverse Split) ofCompany’s common stock, to Mr. Hezi Himelfarb, the Company’s General Manager, COO andat a member of the Board, at an exercisepurchase price per share of $19.35 ($1.29 before the Reverse Split).$10.50. The grant was subjectgross proceeds to the Israeli Tax Authority’s approvalCompany were approximately $10,000 before deducting placement agent fees and other offering expenses of approximately $1,010. The closing of the plan which occurredoffering took place on October 14, 2017. In accordance withDecember 30, 2019. As part of the option agreement, the options vest for period of 3 years starting from the grand date. As a result,offering the Company recognized compensation expensesissued to the underwriter 47,619 warrants for the three months ended September 30, 2019 and 2018 in the3.5 years with an exercise price of $13.125 for total amountvalue of $108 and $98 respectively and for the nine months ended September 30, 2019 and 2018 in the total amount of $322 and $329 respectively included in research and development.$366.

On December 6, 2017,30, 2019 the boardCompany entered into a Securities Purchase Agreement with accredited institutional investors providing for the issuance and sale by the Company to the purchasers of directors approved a grant of 12,698 stock options (190,475 stock options before the Reverse Split) to purchase an aggregate of up to 12,698900,901 shares of the Company’s common stock, to certain of its directors, at an exercisea purchase price per share of $15.75 ($1.05 before the Reverse Split).$11.10. The stock options vest over a period of 3 years as outlined in the option agreements. As a result,gross proceeds to the Company recognized compensationwere approximately $10,000 before deducting placement agent fees and other offering expenses forof approximately $1,010. The closing of the three months ended September 30, 2019 and 2018 inoffering took place on December 31, 2019. As part of the total amount of $13 and $14 respectively and for the nine months ended September 30, 2019 and 2018 in the total amount of $40 and $55 respectively included in general and administrative expenses.

On December 28, 2017, the board of directors approved a grant of 66,036 stock options (990,543 stock options before the Reverse Split) to purchase an aggregate of up to 66,036 shares of common stock to certain of its employees, at an exercise price per share of $15.3 ($1.02 before the Reverse Split). The stock options vest over a period of 3 years as outlined in the option agreements. As a result,offering the Company recognized compensation expensesissued to the underwriter 45,045 warrants for the three months ended September 30, 2019 and 2018 in the total amount of $37 and $62 respectively and for the nine months ended September 30, 2019 and 2018 in the total amount of $116 and $273 respectively included in research and development expenses.

On November 2017, certain employees and consultant exercised 31,453 options (471,794 options before the Reverse Split) to 31,453 ordinary shares at exercise price of 0.001 NIS.

In February 2018, an employee exercised options to purchase 2,487 shares (37,300 shares before the Reverse Split) of common stock at3.5 years with an exercise price of $0.001 per share.$13.875 for total value of $343.

On August 13, 2018, the board of directors approved a grant of stock options to purchase an aggregate of up to 10,000 shares (150,000 shares before the Reverse Split) of common stock to a non-executive officer, at an exercise price per share of $9 ($0.6 before the Reverse Split). The grant was subject to the Israeli Tax Authority’s approval of the plan which occurred on October 14, 2017. In accordance with the option agreement, the options vest for period of 3 years starting from the grand date. As a result, the Company recognized compensation expenses for the three months ended September 30, 2019 and 2018 in the total amount of $6 and $22 respectively and for the nine months ended September 30, 2019 and 2018 in the total amount of $24 and $22 respectively included in research and development expenses.Employee Stock Option Grant

On January 21, 2019, the board of directors approved a grant of 11,630 stock options to purchase an aggregate of up to 11,630 shares of common stock to certain of its directors, at an exercise price per share of $8.60. The stock options vest over a period of 3 years as outlined in the option agreementsagreements. As a result, the Company recognized compensation expenses for the three months ended September as of June 30, 20192020 and 20182019 in the total amount of $7$14 and $0 respectively and for the nine months ended September 30, 2019 and 2018 in the total amount of $37 and $0$30, respectively, included in general and administrative expenses.

On August 12, 2019, the board of directors approved a grant of 17,503 stock options to purchase an aggregate of up to 17,503 shares of common stock to certain of its employees, at an exercise price per share of $5.95. The stock options vest over a period of 3 years as outlined in the option agreementsagreements. As a result, the Company recognized compensation expenses for the three months ended September as of June 30, 20192020 and 20182019 in the total amount of $4 and $0 respectively and for the nine months ended September 30, 2019 and 2018 in the total amount of $4$18 and $0, respectively, included in general and administrative expenses.

On October 23, 2019, the board of directors approved a grant of 19,760 stock options to purchase an aggregate of up to 19,760 shares of common stock to certain of its directors, at an exercise price per share of $5.06. The stock options vest over a period of 3 years as outlined in the option agreements. As a result, the Company recognized compensation expenses as of June 30, 2020 and 2019 in the total amount of $16 and $0, respectively, included in general and administrative expenses.

On February 25, 2020, the board of directors approved a grant of 166,666 stock options to purchase an aggregate of up to 166,666 shares of common stock to Mr. Harel Gadot, the Company’s Chairman of the Board, President and CEO, at an exercise price per share of $9.64. The stock options vest over a period of 1 years as outlined in the option agreements. As a result, the Company recognized compensation expenses as of June 30, 2020 and 2019 in the total amount of $505 and $0, respectively, included in general and administrative expenses.

MICROBOT MEDICAL INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

(Except share and per share data)

A summary of the Company’s option activity related to options to employees and directors, and related information is as follows:followed:

The stock options outstanding as of September June 30, 20192020 and December 31, 2018,2019, summarized by exercise prices, are as follows:

(*) Less than $0.01.

Compensation expense recorded by the Company for its stock-based employee compensation awards in accordance with ASC 718-10 for the ninesix months ended September June 30, 2020 and 2019 was $909 and 2018 was $906 and $1,139, respectively, and for the three months ended September 30, 2019 and 2018 was $296 and $317,$610, respectively.

The grant date fair valuevalues of the stock options isgranted in the years ended June 30, 2020 and 2019 were estimated at the date of grant using the Black-Scholes options pricingvaluation model with the following weighted-average assumptions:following:

Shares issued to service provider

On May 24, 2018 the Company issued an aggregate of 6,738 nonrefundable shares (100,000 nonrefundable shares before the Reverse Split) of common stock to CardioSert as part of certain patent acquisition. The Company recorded expenses of approximately $74 with respect to the issuance of these shares included in research and development expenses.

MICROBOT MEDICAL INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

(Except share and per share data)Warrants

Warrants

The remaining outstanding warrants and terms as of September June 30, 20192020 and December 31, 20182019 are as follows: