As noted in Note 1 above, in March 2020, the Company issued and sold to certain Investors an aggregate of 660,000 shares of Series A Preferred Stock. The terms of the Series A Preferred Stock are governed by a Certificate of Designation filed by the Company with the Secretary of State of the State of Delaware on March 18, 2020. The following is a summary of the material terms of the Series A Preferred Stock:

Upon issuance, the effective conversion price of the Series A Preferred Stock of $1.93 per share were lower than the market price of the Company’s common stock on the date of issuance of the Series A Preferred Stock of $2.47 per share, as a result, the Company recorded the beneficial conversion feature of $3,564 in APIC. Because the Series A Preferred Stock is perpetual, it is carried at the amount recorded at inception. Subsequently, upon conversion of the Series A Preferred Stock, the beneficial conversion feature was accounted for as deemed dividend as disclosed below.

The Company evaluated the Series A Preferred Stock for liability or equity classification in accordance with the provisions of ASC 480, Distinguishing Liabilities from Equity, and determined that equity treatment was appropriate because the Series A Preferred Stock did not meet the definition of the liability instruments defined thereunder for convertible instruments. Specifically, the Series A Preferred Stock is not mandatorily redeemable and does not embody an obligation to buy back the shares outside of the Company’s control in a manner that could require the transfer of assets. Additionally, the Company determined that the Series A Preferred Stock would be recorded as permanent equity, not temporary equity, based on the guidance of ASC 480 given that the holders of equally and more subordinated equity would be entitled to also receive the same form of consideration upon the occurrence of the event that gives rise to the redemption or events of redemption that are within the control of the Company.

Since Series A Preferred Stock was sold as a unit with warrants, the proceeds received were allocated to each instrument on a relative fair value basis as it is described below. All outstanding shares of Series A Preferred Stock were converted into shares of common stock on June 16, 2020, as described below.

As noted in Note 1 above, in March 2020, the Company issued and sold to the Investors in the 2020 Private Placement warrants to purchase up to 6,675,000 shares of common stock with an exercise price of $3.50 per share, along with the shares of common stock and preferred stock the Investors purchased. The 2020 Private Placement Warrants have a five-year term and are exercisable beginning 181 days after their issue date. The Company evaluated the 2020 Private Placement Warrants for liability or equity classification in accordance with the provisions of ASC 480, Distinguishing Liabilities from Equity, and determined that equity treatment was appropriate because the warrants only require settlement through the issuance of the Company’s common stock which is not redeemable, and do not represent an obligation to issue a variable number of shares. Based on this guidance, the Company determined, for each issuance, that the 2020 Private Placement Warrants did not need to be accounted for as a liability. Accordingly, the 2020 Private Placement Warrants were classified as equity and are not subject to remeasurement at each balance sheet date. The proceeds received in the 2020 Private Placement were allocated to each instrument on a relative fair value basis.

Total net proceeds of $20,300 reduced by $3,564 of the beneficial conversion feature were allocated as follows: $8,063 to Series A Preferred Stock, $4,052 to shares of common stock and $4,621 to the 2020 Private Placement Warrants issued. Series A Preferred Stock and common stock issued in the 2020 Private Placement were recorded at par value of $0.0001 with the excess of par value recorded in APIC.

On June 16, 2020, upon the approval of the Company’s stockholders, 660,000 shares of Series A Preferred Stock were converted into 6,600,000 shares of the Company’s common stock. As a result of the conversion, in accordance with ASC 470-20-40-1, the beneficial conversion feature of $3,564 was recorded as a deemed dividend in APIC, that has been presented as a component of the net loss attributable to common stockholders in the Company’s condensed consolidated statement of operations.

In November 2010, the Company’s Board of Directors (the “Board”) adopted a share option plan (the “2010 Share Option Plan”) pursuant to which shares of the Company’s common stock are reserved for issuance upon the exercise of options to be granted to directors, officers, employees and consultants of the Company. The 2010 Share Option Plan is administered by the Company’s Board, which designates the options and dates of grant. Options granted vest over a period determined by the Board, originally had a contractual life of seven years, which was extended by ten years in November 2017 and are non-assignable except by the laws of descent. The Board has the authority to prescribe, amend and rescind rules and regulations relating to the 2010 Share Option Plan, provided that any such amendment or rescindment that would adversely affect the rights of an Optionee that has received or been granted an Option shall not be made without the Optionee’s written consent. As of September 30, 2020, the number of shares of the Company’s common stock reserved for issuance and available for grant under the 2010 Share Option Plan was 133,517 (44,450 as at December 31, 2019).

The 2019 Incentive Award Plan was originally established under the name Restoration Robotics, Inc., as the 2017 Incentive Award Plan. It was adopted by the Company’s Board on September 12, 2017 and approved by the Company’s stockholders on September 14, 2017. The 2017 Incentive Award Plan was amended, restated, and renamed as set forth above, and was approved by the Company’s stockholders on October 4, 2019.

Under the 2019 Plan, 450,000 shares of common stock were initially reserved for issuance pursuant to a variety of stock-based compensation awards, including stock options, stock appreciation rights, or SARs, performance stock awards, performance stock unit awards, restricted stock awards, restricted stock unit awards and other stock-based awards, plus the number of shares remaining available for future awards under the 2019 Plan as of the date of the Merger. As of September 30, 2020, there were 99,032 of shares of common stock available under the 2019 Plan (698,378 as at December 31, 2019). The 2019 Plan contains an “evergreen” provision, pursuant to which the number of shares of common stock reserved for issuance pursuant to awards under such plan shall be increased on the first day of each year from 2020 and ending in 2029 equal to the lesser of (A) four percent (4.00%) of the shares of stock outstanding on the last day of the immediately preceding fiscal year and (B) such smaller number of shares of stock as determined by the Board.

The Company recognized stock-based compensation for its employees and non-employees in the accompanying condensed consolidated statements of operations as follows:

	Three Months Ended September 30				Nine Months Ended September 30
	2020		2019		2020		2019
Cost of sales	$	6	$	—	$	18	$	—
Selling and marketing		234		121		647		954
General and administrative		285		190		869		694
Research and development		22		2		69		84
Total stock-based compensation	$	547	$	313	$	1,603	$	1,732

The fair value of each option is estimated at the date of grant using the Black-Scholes option pricing formula with the following assumptions:

	Three Months Ended September 30						Nine Months Ended September 30
	2020			2019			2020			2019
Expected term (in years)		6.04			4.36		5.00-6.54			4.00-5.00
Risk-free interest rate	0.38 -0.40		%		2.43	%	0.38-1.50		%	1.4-2.53		%
Expected volatility		44.30	%		50.00	%		42.81	%		49.00	%
Expected dividend rate		0	%		0	%		0	%		0	%

Expected Term—The expected term represents management’s best estimate for the options to be exercised by option holders.

Volatility—Since the Company does not have a trading history for its common stock, the expected volatility was derived from the historical stock volatilities of comparable peer public companies within its industry that are considered to be comparable to the Company’s business over a period equivalent to the expected term of the stock-based awards.

Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant for zero-coupon U.S. Treasury notes with maturities approximately equal to the stock-based awards’ expected term.

Dividend Rate—The expected dividend is zero as the Company has not paid nor does it anticipate paying any dividends on its common stock in the foreseeable future.

Fair Value of Common Stock— Prior to the Merger, Venus Concept Ltd. used the price per share in its latest sale of securities as an estimate of the fair value of its ordinary shares. After the closing of the Merger, the fair value of the Company’s common stock is used to estimate the fair value of the stock-based awards at grant date.

The following table summarizes stock option activity under the Company’s stock option plans:

	Number of Shares			Weighted- Average Exercise Price per Share, $		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding – January 1, 2020		3,278,439		$	5.29		5.08	$	4,885
Options granted		1,944,000			4.20				-
Options exercised		(48,588	)		3.59
Options forfeited/cancelled		(288,654	)		15.91
Outstanding – September 30, 2020		4,885,197		$	4.27		6.01	$	1,326
Exercisable – September 30, 2020		2,894,591		$	3.82		3.77	$	1,326
Expected to vest – after September 30, 2020		1,990,606		$	4.91		9.27	$	-

The following tables summarize information about stock options outstanding and exercisable at September 30, 2020:

	Options Outstanding						Options Exercisable
Exercise Price Range	Number		Weighted average remaining contractual term (years)		Weighted average Exercise Price		Options exercisable		Weighted average remaining contractual term (years)		Weighted average Exercise Price
$0.15 - $3.64		3,323,945		5.62	$	2.77		1,988,636		2.98	$	2.24
$4.26 - $7.95		1,503,766		6.84		6.79		866,968		5.46		6.38
$12.45 - $26.10		35,011		7.97		18.45		17,511		7.80		18.96
$27.00 - $33.00		13,564		3.93		27.94		13,514		3.92		27.94
$36.00 - $94.65		8,911		6.76		46.29		7,962		6.75		45.16
		4,885,197		6.01	$	4.27		2,894,591		3.77	$	3.82

The aggregate intrinsic value of options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those options that had exercise prices lower than the fair value of the Company’s common stock. The total intrinsic value of options exercised were $23 and $1,500 for the three months ended September 30, 2020 and 2019, respectively. The total intrinsic value of options exercised were $43 and $1,531 for the nine months ended September 30, 2020 and 2019, respectively.

The weighted-average grant date fair value of options granted was $3.11 and $5.45 per share for the three months ended September 30, 2020 and 2019, respectively. The weighted-average grant date fair value of options granted was $4.20 and $5.50 per share for the nine months ended September 30, 2020 and 2019, respectively.