UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

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, 2018June 30, 2021

or

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

For the transition period from________ to_________.from ________ to ________.

Commission File Number: 001-38389

001-38389

Motus GI Holdings, Inc.

(Exact name of registrant as specified in its charter)

(786) 459 1831(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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒   No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or 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 7, 2018, 15,645,755August 6, 2021, 48,241,188 shares of the registrant’s common stock, $0.0001 par value, were issued and outstanding.

MOTUS GI HOLDINGS, INC.

Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2018

TABLE OF CONTENTS

Motus GI Holdings, Inc. and Subsidiaries

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements.Statements

Motus GI Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Inin thousands, except share and per share amounts)

Royalties to the IIA

The Company has received, and may receive in the future, grants from the Government of the State of Israel through the IsraelIsraeli National Authority for Technical Innovation Authority of the Ministry of Economy and Industry (the “IIA”) (formerly known as the Office of the Chief Scientist of the Ministry of Economy and Industry (the “OCS”)) for the financing of a portion of its research and development expenditures pursuant to the Israeli Law for the Encouragement of Research, Development and Technological Innovation in Industry 5744-1984 (the “Research Law”), and the Industry Law 5744-1984 (formerly knownregulations previously promulgated thereunder, as well as the Encouragement of Industrial ResearchIIA’s rules and Development Law, 5744-1984), referredbenefit tracks which apply to ascompanies receiving IIA funding (collectively, including the Research Law, and related regulations. We have received funding from the IIA, which“IIA Regulations”) The total amount that was received and recorded between the periods ending December 31, 2011 through 2016 inwas $1,332.  No amounts were received during the aggregate amount of $1,330three and havesix months ended June 30, 2021 and 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 approximately $1,370, which$1,413 and $1,407 as of June 30, 2021 and December 31, 2020, respectively. This obligation is generally repaid in the form of royalties rangingon revenues generated in any fashion from 3% to 5% of revenues on sales of products and services based on technologyknow-how developed using IIA grants, with a rate that is currently 4% (which may be increased under certain circumstances), up to an aggregate of 100% (which may be increased under certain circumstances) of the U.S. dollar-linked value of the grant,grants received, plus interest at the rate of 12-month LIBOR.

Repayment of the grants is contingent upon the successful completion of the Company’s R&D programs and generating sales. The Company has no obligation to repay these grants if the R&D program fails, is unsuccessful, or aborted, or if no sales are generated. The Company has recorded an immaterial expense and liability duringfor the three and six months ended MarchJune 30, 2021 and 2020, and an immaterial liability at June 30, 2021 and December 31, 2018 as sales occur.2020.

Motus GI Holdings, Inc. and Subsidiaries

Notes to the Interim Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

Royalty Payment Rights on Series A Convertible Preferred StockRoyalty 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 RoyaltyCompany (the “Royalty Payment Rights”). As set forth in the in the Certificate of Designation, the Royalty Payment Rights initially entitled the holders in aggregate, to a royalty in an amount of:

On February 16, 2018, each share of Series A Convertible Preferred Stock converted into one share of common stock pursuant to a mandatory conversion. As provided for in the Certificate of Designation, if a holder had elected to convert all of their Series A Convertible Preferred Stock into shares of the Company’s common stock prior to the mandatory conversion, the holder would have forfeited any and all rights to future royalty payments, if any. If a holder had elected to convert any portion of their Series A Convertible Preferred Stock to common stock at any time prior to the mandatory conversion, such holder would have forfeited any rights to future royalty payments, if any, with respect to such converted shares. No such conversion elections were received by the Company prior to the mandatory conversion.

In addition, in connection with completion of the 2017 private placement,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 condensed consolidated balance sheets at March 31, 2018June 30, 2021 and December 31, 20172020 (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)IPO”) on February 16, 2018.2018, 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 amended 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,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,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:

* Notwithstanding the foregoing, with respect to Net Sales based Royalty Amounts, (a) no Net Sales based Royalty Amount shall begin to accrue or become payable until the Company has first generated, in the aggregate, since its inception, Net Sales equal to $20,000 (the “Initial Net Sales Milestone”), and royalties shall only be computed on, and due with respect to, Net Sales generated in excess of the Initial Net Sales Milestone, and (b) the total Net Sales based Royalty Amount due and payable in any calendar year shall be subject to a cap per calendar year of $30,000. Net Sales is defined in the Certificate of Designations.

Motus GI Holdings, Inc. and Subsidiaries

Notes to the Interim Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

** Notwithstanding the foregoing, with respect to Licensing Proceeds based Royalty Amounts, (a) no Licensing Proceeds based Royalty Amount shall begin to accrue or become payable until the Company has first generated, in the aggregate, since its inception, Licensing Proceeds equal to $3,500 (the “Initial Licensing Proceeds Milestone”), and royalties shall only be computed on, and due with respect to, Licensing Proceeds in excess of the Initial Licensing Proceeds Milestone and (b) the total Licensing Proceeds based Royalty Amount due and payable in any calendar year shall be subject to a cap per calendar year of $30,000. Licensing Proceeds is defined in the Certificate of Designations.

The Royalty Amount will be payable up to the later of (i) the latest expiration date forof the Company’s current patents (which is currently October 2026),issued as of December 22, 2016, or (ii) the latest expiration date of any pending patents as of the date of the Initial ClosingDecember 22, 2016 that have since been issued or may be issued in the future.future (which is currently 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 as “other-long-term liabilities” in the consolidated balance sheets at March 31, 2018June 30, 2021 and December 31, 20172020 in the amount of $1,740$1,734 and $1,662,$1,617, respectively. The Company records changesA loss on change in the fair value of the Contingent Royalty Obligation in the consolidated statements of comprehensive loss as “financing” income or expense. For$37 and $117 was recorded for the three and six months ending March 31, 2018 and 2017, the Company recorded financing expenseended June 30, 2021, respectively. A loss on change in the amountfair value of $78 and $65 in connection with the Contingent Royalty Obligation.Obligation of $77 and a gain on change in fair value of Contingent Royalty Obligation of $245 was recorded for the three and six months ended June 30, 2020, respectively. 

Lease Agreements

On April 13, 2017, the Company entered into a lease for a facility in Fort Lauderdale, Florida, which the Company began occupying in October 2017. The facility currently consists of 4.6 square feet, which will increase to 6.4 square feet by the second year of the lease. The term runs for seven years and two months from October 2017. Annual base rent is initially $159 per year, subject to annual increases of 2.75%, which is recognized on a straight-line basis.

On January 1, 2015, the Company entered into a five-year lease agreement for its facilities in Israel through December 31, 2019. The facility currently consists of 7.7 square feet. The annual lease fees are $82. The Company has an option to renew the lease agreement for three more years after the initial term period ends. The annual lease fees will increase by 4% beginning on the renewal option date.

Certain vehicles are leased by the Company under agreements that expire at various dates through 2021.

Many of these leases provide for payment by us, as the lessee, of taxes, insurance premiums, costs of maintenance and other costs. At March 31, 2018, the Company had the following future minimum lease commitments:

Motus GI Holdings, Inc. and Subsidiaries

Notes to the Interim Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

Other Commitments and Contingencies

The Company has a severance liabilitycontingency for severance payments to its CEO, COO, and CFO in the aggregate of approximately $600$1,408, in the event that they are terminated without cause or leave due to good cause,reason, as outlined in their employee agreements. Management estimates that the likelihood of payment is remote; therefore, no liability was reflected in these consolidated financial statements.

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

Note 510 – Related Party Transactions

Shared Space Agreement

Other than transactions and balances related to cash and share-based compensation to officers and directors,

In January 2020, the Company did not haveentered 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. During the three and six months ended June 30, 2021, the Company recorded license fee of $47 and $94, respectively, in relation to the Shared Space Agreement. This amount is netted with rent expense in general and administrative expenses. During the three and six months ended June 30, 2020, the Company recorded license fee of $44 and $79, respectively, in relation to the Shared Space Agreement. This amount is netted with rent expense in general and administrative expenses. As of June 30, 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 transactions and balances with related parties and executive officersgiven 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 fully vested shares of Common Stock as compensation, in lieu of cash compensation, for service as directors during the fourth quarter of 2020, 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 ending Marchended December 31, 20182020. 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 17, 2021, the Company’s Compensation Committee approved a modification to the non-employee director compensation policy to permit payment of the fees for service as directors for 2021 in grants of the Company’s common stock, in lieu of cash compensation. Non-employee members of the Board of Directors were granted an aggregate of 121,237 fully vested shares of common stock at a price equal to $1.78 per share of common stock, as compensation, in lieu of $216 of cash compensation, for service as directors for 2021. On June 22, 2021, the Company granted to its newly appointed director an aggregate of 18,209 fully vested shares of common stock at a price equal to $1.04 per share of common stock, as compensation, in lieu of $19 of cash compensation, for service as a director for 2021. As of June 30, 2021, the Company recorded $121 in prepaid board of directors’ compensation. For the three and 2017 except forsix months ended June 30, 2021, the following:Company recorded $60 and $114 of expense, respectively, in relation to the board of directors’ compensation.

SalesIn March 2021, the Company entered into an Equity Distribution Agreement (the “Equity Distribution Agreement”) , or at- the- market offering, with Oppenheimer & Co. Inc. (“Oppenheimer”), under which it may offer and Marketing Services Arrangement with FreeHold Surgical, Inc.sell from time to time common shares having an aggregate offering price of up to $25,000. On April 30, 2021, the Company sold 1,340,870 shares of common stock pursuant to the above-described Equity Distribution Agreement, resulting in net cash proceeds of $1,826, after deducting issuance costs of $74.

In August, 2017, the Company began payingOn May 17, 2021, we issued an aggregate of 50,000 fully vested shares of common stock to a monthly fee to FreeHold Surgical, Inc (“FreeHold”), an entityconsultant in which one of our Directors serves as a Director and President. Pursuant to the fee arrangement, the Company pays FreeHold a monthly amount of approximately $25 as all-in compensationconsideration for sales and marketing services that were performed for the Company, on a part time basis, by two Freehold sales representatives. As of March 31, 2018 and December 31, 2017, the Company had $50 recorded as accounts payable to FreeHold. Forduring the three months ended March 31, 2018,June 30, 2021 under a consulting agreement, with fair value of $53, based on a price of $1.06 per share of common stock, which was the closing price of the Company’s stock at the date of issuance. The Company recorded $53 of expense in the six months ended June 30, 2021, in relation to the consulting agreement.

Issuance of Warrants to Purchase Common Stock

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 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 $75$28 and $47 as general and administrative expense relatedin the accompanying condensed consolidated statement of comprehensive loss in relation to this arrangement.the consulting agreement for the three and six months ended June 30, 2020, respectively. The Company recorded $0 and $9 as general and administrative expense in the accompanying condensed consolidated statement of comprehensive loss in relation to the consulting agreement for the three and six months ended June 30, 2021, respectively.

Note 6 – Stockholder’s Equity

Initial Public Offering

On February 16, 2018,January 20, 2021, the Company closed its IPOentered 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 $89 and $148 as general and administrative expense in the accompanying consolidated statement of comprehensive loss in relation to the consulting agreement for the three and six months ended June 30, 2021, respectively.

On August 28, 2020 the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) under which it sold 3,500,000and 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 at a public offering price of $5.00par value $0.0001 per share. In connection with the closing of the IPO, (1) the Company received net proceeds of approximately $15,000 after deducting underwriting discountsshare (the “Common Stock”), and commissions of $1,400 and other offering expenses of approximately $1,100, (2) the amendment to the registration rights agreement described below became effective, (3) the amendment to the Certificate of Designation described above in Note 4 became effective, (4) all outstanding shares of Series A Convertible Preferred Stock converted, on a one-to-one basis, into shares of the Company’s common stock, (5) the Company issued the Royalty Payment Rights Certificates as described in Note 4, and (6) the Company issuedpre-funded warrants to certain of the former Series A Convertible Preferred Stock and common stock holders, pursuant to the amendment to the Registration Rights Agreement, the amendment to the Certificate of Designation, and the execution of a lock up agreement, to purchase an aggregate of 1,095,6825,533,625 shares of the Company’s common stockCommon Stock (the “Ten Percent“Pre-Funded Warrants”). The Ten Percent Warrants are exercisable any time on or after the 180-day anniversary of the completion of the IPO, have a five-year term, and provide for cashless exercise. In addition, the Company granted the representative of the several underwriters in the IPO (the “Representative”) a 30-day option (the “Over-Allotment Option”) to purchase up to an aggregate 525,000 additional shares of the Company’s common stock at an exercise price of $5.00$0.001 per share.

The Ten Percent Warrants were valued using the Black-Scholes option pricing model under the following assumptions, (i) expected life of 5 years, (ii) volatility of 67.08%, (iii) risk-free rate of 2.63%, and (iv) dividend rate of zero. The fair value of the Ten Percent Warrants was estimated to be $3,156 which was recorded as warrant expense in the accompanying condensed consolidated statements of comprehensive loss.

On March 12, 2018, the Company closed the sale of an additional 56,000 shares of its common stock at a price of $5.00 per share, pursuant to the Representative’s partial exercise of the Over-Allotment Option. In connection with the closing of the partial exercise of the Over-Allotment Option, the Company received net proceeds of $258 after deducting underwriting discounts and commissions of $22.

Registration Rights

The Company entered into an amended registration rights agreement to waive investors’ rights to receive penalties which became effective upon the closing of the IPO. Accordingly, all penalties or other amounts due to the investors under the registration rights agreement have been forever waived and discharged, and the Company may be required to file a registration statement in accordance with the registration rights agreement, as amended, within 225 days after the IPO date.

Motus GI Holdings, Inc. and Subsidiaries

Notes to the Interim Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

Issuance of Stock

On March 27, 2018, the Company’s Board of Directors approved the issuance of 15,000 shares of the Company’s common stock to a third party for services to be provided. The stock vests immediately and is subject to a lock-up through February 14, 2019. The Company recorded the fair market value of the stock on the date of issuance as stock-based compensation in the amount of $69.

Exercise of Options

On February 21, 2018, a consultant exercised 896 options on a cashless basis which resulted in the issuance of 394 shares of the Company’s common stock.

Stock Based Compensation

Stock Options

The following table summarizes stock option activity during During the three and six months ended March 31, 2018:

At March 31, 2018, unamortized stock compensationJune 30, 2021, the Pre-Funded Warrants for stock options was $2,494, with a weighted-average recognition period of 1.21 years.

At March 31, 2018, outstanding options to purchase 657,3055,533,625 shares of common stock were exercised which resulted in aggregate proceeds of $0 and $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 $11,000 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 weighted-average exerciserange 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 per shareas a deemed dividend of $4.31.

Stock Based Compensation

The following table sets forth total non-cash stock-based compensation by operating statement classification$6,145 for the three months ended March 31, 20182021. 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 2017: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 June 30, 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 June 30, 2021, 8,932,491 warrants were exercisable.

Stock Options

2016 Equity Incentive Plan

The options granted during

In December 2016, the three months ending March 31, 2018 were valued usingCompany adopted the Black-Scholes option pricing model using the following weighted average assumptions: (i) expected life of 5.7 years, (ii) volatility of 67.04%, (iii) risk free interest rate of 2.63% and (iv) dividend yield of zero.

Motus GI Holdings, Inc. and Subsidiaries

Notes to the Interim Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

2016 Equity Incentive Plan

The Company has one equity incentive plan that was adjusted in 2016. As of March 31, 2018, there are 2,641,250 shares of common stock available for issuance under the 2016 Equity Incentive Plan (the “Equity“2016 Plan”). ThePursuant 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 Equity2016 Plan shall increase annually by six percent (6%) of the total number of shares of our Common Stockcommon stock outstanding on December 31st of the preceding calendar year; provided, however, that the board of directors may act prior to the first day of any calendar year to provide that there shall be no increase such calendar year, or that the increase shall be a lesser number of shares of our Common Stockthe Company’s common stock than would otherwise occur.

As On January 1, 2021, pursuant to an annual evergreen provision, the number of March 31, 2018, there were 745,788 shares of common stock reserved for future grants was increased by 1,936,669 shares. Under the 2016 Plan, effective as of January 1, 2021, the maximum number of shares of the Company’s common stock authorized for issuance is 7,592,663. As of June 30, 2021, there were 261,863 shares of common stock available for future grant under the Equity2016 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 June 30, 2021, unamortized share-based compensation for stock options was $2,354, with a weighted-average recognition period of 1.04 years.

As of June 30, 2021, outstanding options to purchase 3,637,864 shares of common stock were exercisable with a weighted-average exercise price per share of $3.43.

For the three and six months ended June 30, 2021, the Company recorded $680 and $1,349, respectively, for share based compensation expense related to stock options.

For the three and six months ended June 30, 2020, the Company recorded $498 and $1,180, respectively, for share based compensation expense related to stock options.

Restricted Stock Units

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

The Company recorded $241 and $423 as general and administrative expense in the accompanying condensed consolidated statements of comprehensive loss for the three and six months ended June 30, 2021, respectively, in relation to the aggregate 927,266 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 June 30, 2021, unamortized share compensation for restricted stock units was $1,233, with a weighted-average recognition period of 0.99 years.

Share-based Compensation

The following table sets forth total non-cash share-based compensation for the issuance of options to purchase common stock, warrants to purchase common stock, and restricted stock unit award by operating statement classification for the three and six months ended June 30, 2021 and 2020:

Note 712 – Subsequent Events

Term Loan Refinancing

On July 16, 2021 (the “Effective Date”), the Company entered into a loan facility (the “Kreos Loan Agreement”) with Kreos Capital VI (Expert Fund) LP (the “Lender”). Under the Kreos Loan Agreement, the Lender will provide the Company with access to term loans in an aggregate principal amount of up to $12,000 (the “Loan”) in three tranches as follows: (a) on the Effective Date, a loan in the aggregate principal amount of $4,000 (the “Convertible Bullet Loan”), (b) on the Effective Date, a loan in the aggregate principal amount of $5,000 (“Tranche B”), and (c) available until December 31, 2021, a loan in the aggregate principal amount of $3,000 (“Tranche C”, together with the Convertible Bullet Loan and Tranche B, the “Loan” or “Loans”). The Convertible Bullet Loan and Tranche B were funded on the Effective Date.

The Company has analyzed its operations subsequentConvertible Bullet Loan requires forty-eight monthly interest only payments commencing after the Effective Date and thereafter full payment of the then outstanding principal balance of the Bullet Loan on July 1, 2025. The Tranche B loan requires interest only monthly payments commencing on the Effective Date until September 30, 2022 and, thereafter, thirty-three monthly payments of principal and interest accrued thereon until June 1, 2025. The Tranche C loan, to Marchthe extent drawn on or prior to December 31, 20182021, requires monthly payments of interest only commencing on the date drawn until September 30, 2022 and, notedthereafter, thirty-three monthly payments of principal and interest accrued thereon until June 1, 2025. Notwithstanding the following subsequent events:foregoing, in the event the Borrower completes a capital raise of a minimum of $20,000 prior to September 30, 2022, the repayment terms of the Tranche B and Tranche C loans shall automatically be amended so that the interest only period will be extended to June 30, 2023, and, thereafter, the Borrower shall pay twenty-four monthly payments of principal and interest accrued thereon until June 1, 2025.

Interest on the Convertible Bullet Loan accrues at 7.75% per annum. Interest on the Tranche B and Tranche C loans accrues at 9.5% per annum.

On May 10, 2018,

The Loan Agreement contains customary representations and warranties, indemnification provisions in favor of Lender, events of default and affirmative and negative covenants, including, among others, covenants that limit or restrict the Company’s Boardability to, among other things, incur additional indebtedness, merge or consolidate, make acquisitions, pay dividends or other distributions or repurchase equity, make investments, dispose of Directors approvedassets and enter into certain transactions with affiliates, in each case subject to certain exceptions. There are no liquidity or financial covenants.

In connection with the issuance of 58,000 optionsKreos Loan Agreement, the Company also issued to 4 employees which vest overLender a three-year period on a quarterly basiswarrant (“Warrant”), dated July 16, 2021, to purchase up to 190,949 shares of the Company’s common stock, at $4.36, the closing share price of the Company’s common stock on the Nasdaq Capital Market on May 10, 2018.

On May 10, 2018, the Company’s Board of Directors approved the entry into a Consultant Agreement with a proposed service provider to the Company. Pursuant to the agreement, the board authorized (a) upon execution of the agreement, issuance of a warrant to purchase 10,000 shares of the Company’s common stock, with an exercise price of $5.25$1.0474 per share, (b) uponpayable in cash or on a cashless basis according to the four (4) month anniversary offormula set forth in the execution of the agreement, provided the service provider is still engaged at that time, issuance of a warrant to purchase 10,000 shares of the Company’s common stock, with anWarrant. The exercise price of $6.25 per share,the Warrant and (c)the number of shares issuable upon the eight (8) month anniversaryexercise of the executionWarrant are subject to adjustments for stock splits, combinations, stock dividends or similar events. The Warrant is exercisable until the date that is ten years after the date of issuance.

On the Effective Date, the Company used a portion of the agreement, providedproceeds from the service provider is still engaged at that time, issuance of a warrantLoan to purchase 10,000 sharesrepay in full all amounts outstanding under, and discharge all obligations in respect of, the Company’s common stock,Loan Agreement, between the Company and Silicon Valley Bank. The payment amount of approximately $8,200 included a negotiated prepayment premium of $220 under the terms of the payoff arrangement with an exercise price of $7.25 per share (collectively, such warrants referred to as the “Consultant Warrants”). The Consultant Warrants will each have a five year term and will provide for cashless exercise. Silicon Valley Bank.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS 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 anticipateanticipated 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, a single-use medical device system (the “Pure-Vu system”),that has been cleared by the United StatesU.S. Food and Drug Administration (the “FDA”), that is intended to connect to standard colonoscopes to help facilitate intraprocedural cleaningthe cleansing of a poorly prepared colon by irrigating or cleaning the colongastrointestinal tract during colonoscopy and evacuating the irrigation fluid (water), feces and other bodily fluids and matter.to help facilitate upper gastrointestinal (“GI”) endoscopy procedures.  The Pure-Vu systemSystem has been designed to integratereceived a CE Mark in the EU for use in colonoscopy.  The Pure-Vu System integrates with standard and slim colonoscopes, as well as gastroscopes, to enable cleaningimprove visualization during the procedurecolonoscopy and upper GI procedures while preserving standardestablished procedural workflow and techniques.  OurThrough irrigation and evacuation of debris, the Pure-Vu systemSystem 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 procedureability to cleansevisualize, diagnose and treat is often compromised due to debris, including fecal matter, blood, or blood clots.  We believe this is especially true in high acuity patients, like GI bleeding where the existence of blood and blood clots can impair a physician’s view and removing them can be critical in allowing a physician the ability to identify and treat the source of bleeding on a timely basis.  We believe use of the Pure-Vu System may lead to positive outcomes and lower costs for hospitals by safely and quickly improving visualization of the colon and upper GI tract, potentially enabling effective diagnosis and treatment without delay.  In multiple clinical studies to date, involving the treatment of challenging inpatient and outpatient cases, the Pure-Vu System has consistently helped achieve adequate bowel cleanliness rates greater than 95% following a reduced prep regimen. We also believe that the technology may be useful in preparationthe future as a tool to help reduce user dependency on conventional pre-procedural bowel prep regimens. Based on our review and analysis of 2019 market data and 2021 projections for the U.S. and Europe, as obtained from iData Research Inc., we estimate that during 2021 approximately 1.5 million inpatient colonoscopy areprocedures will be performed in the U.S. and approximately 4.8 million worldwide.  Upper GI bleeds occurred in the U.S. at a rate of approximately 400,000 cases per year in 2019, according to iData Research Inc. The Pure-Vu System does not currently reimbursable throughhave a unique reimbursement code with any private or governmental third-party payors in any country, but we intend to seek reimbursement through private or governmental third-party payorscountry. We began commercialization in the future. We do not currently promote a particular prep regimen as this is left up tofourth quarter of 2019, with the discretionfirst commercial placements of the physician since our current indication does not reference any preparation protocol. We will look to expand thesecond generation Pure-Vu system indication to allow us to actively promote minimal prep capabilities directly to patients. We plan to initiate a clinical trial in 2018 that should facilitate approval of expanded labeling in 2019. To date,System as part of our limited pilotinitial U.S. market launch we have focused on collecting clinical data on the use of the Pure-Vu system.targeting early adopter hospitals. We do not expect to generate significant revenue from product sales unlessuntil the COVID-19 pandemic has fully subsided and until we expand our commercialization efforts.efforts for the Pure-Vu System, which is subject to significant uncertainty.

Recent Developments

Our business

In March 2021, we presented a request for an ICD-10 code at a Center for Medicare and Medicaid Services (“CMS”) 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.

On August 2, 2021, CMS granted the Pure-Vu System a permanent ICD-10 code which will commence on October 1, 2021.  The Pure-Vu System was spun outnot selected for the fast-track new technology add-on payment for inpatient procedures.  However, the Company does not believe it faces reimbursement headwinds in the hospital inpatient environment.

On April 30, 2021, we announced that we received 510(k) clearance from the New Generation TechnologyFDA 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 providing continuous irrigation and suction, while not obstructing the working channel of the gastroscope will assist physicians as they 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).

On 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, as compared to the current standard of care for outpatient colonoscopy.

On June 3, 2021, we announced the publication of data from our REDUCE (“NGT”Reliable Endoscopic Diagnosis Utilizing Cleansing Enhancement”) incubator basedstudy in Nazareth, Israelan article (the “Article”) titled, “A multicenter, prospective, inpatient feasibility study to evaluate the use of an intra-colonoscopy cleansing device to optimize colon preparation in 2011hospitalized patients: the REDUCE study” in the peer-reviewed journal BMC Gastroenterology.