Note 11 – Share-based Compensation and Common Stock Issuance

The following table sets forth total non-cash share-based compensation for the issuance of common stock, options to purchase common stock, warrants to purchase common stock, and restricted stock unit awards by operating statement classification for the years ended December 31, 2023 and 2022:

 Schedule of Stock-based Compensation

As of December 31, 2023, unamortized share-based compensation for stock options was $376, with a weighted-average recognition period of 1.19 years.

Stock option and warrant activity

In December 2016, the Company adopted the Motus GI Holdings, Inc. 2016 Equity Incentive Plan (the “2016 Plan”). Pursuant to the 2016 Plan, the Company’s board of directors may grant options to purchase shares of the Company’s common stock, stock appreciation rights, restricted stock, stock units, performance shares, performance units, incentive bonus awards, other cash-based awards and other stock-based awards to employees, officers, directors, consultants and advisors. Pursuant to the terms of an annual evergreen provision in the 2016 Plan, the number of shares of common stock available for issuance under the 2016 Plan shall increase annually by six percent (6%) of the total number of shares of common stock outstanding on December 31st of the preceding calendar year; provided, however, that the board of directors may act prior to the first day of any calendar year to provide that there shall be no increase such calendar year, or that the increase shall be a lesser number of shares of our common stock than would otherwise occur. On January 1, 2023, pursuant to an annual evergreen provision, the number of shares of common stock reserved for future grants was increased by 18,639 shares. Under the 2016 Plan, effective as of January 1, 2024, the maximum number of shares of the Company’s common stock authorized for issuance is 98,905. As of December 31, 2023, there were 6,082 shares of common stock available for future grant under the 2016 Plan.

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

 Schedule of Stock option and Warrants

The options granted during the years ended December 31, 2023 and 2022 were valued using the Black-Scholes option pricing model using the following weighted average assumptions:

 Schedule of Option Pricing Model Using Weighted Average Assumptions

The grant date fair value for stock options issued during the years ended December 31, 2023 and 2022 were $6.96 and $129.30, respectively.

The warrants granted during the years ended December 31, 2023 and 2022 were valued using the Black-Scholes option pricing model using the following weighted average assumptions:

Schedule of Warrant Pricing Model Using Weighted Average Assumptions 

Restricted Stock units

As of December 31, 2023, there were 1,009 outstanding restricted stock unit awards at a weighted average grant date fair value of $125.42. During the year ended December 31, 2023, there were 104 restricted stock units released and 233 cancellations. As of December 31, 2022, there were 1,346 nonvested restricted stock unit awards at a weighted average grant date fair value of $277.57.

As of December 31, 2023, unamortized stock compensation for restricted stock units was $22, with a weighted-average recognition period of 0.58 years.

Issuance of Warrants to Purchase Common Stock

In February 2020, the Company entered into a services agreement whereby it agreed to issue warrants to purchase 400 shares of common stock of the Company. The warrants fully vested over a one-year period on a monthly basis and expire three years from the date of issuance and were exercisable at weighted average exercise price equal to $849.00 per share of common stock. In March 2022, the Company granted new warrants as a replacement to the vested warrants held by the service provider, for which all the share-based compensation expense had been recognized in prior fiscal periods. The issuance of new warrants concurrently with the cancellation of the existing warrants was treated as a modification. The Company agreed to issue replacement warrants to purchase 400 shares of common stock of the Company exercisable at a price equal to $150 per share of common stock. The fair value of the warrants were valued on the date of grant at $5.70 using the Black-Scholes option-pricing model with the following parameters: (1) risk-free interest rate of 0.91%; (2) expected life in years of 1.62; (3) expected stock volatility of 81.97%; and (4) expected dividend yield of 0%. The replacement warrants immediately vested upon issuance and expire three years from the date of issuance. As a result, the Company recognized $0 and $26 of share-based compensation for the year ended December 31, 2023 and 2022, respectively, related to the incremental fair value which is equal to the excess of the fair value of the new warrants granted over the fair value of the original award on the cancellation date.

Private Placement Offering

On May 17, 2023, the Company entered into a securities purchase agreement with an accredited investor pursuant to which it agreed to issue and sell in a private placement an aggregate of (i) 35,000 shares of common stock, (ii) warrants to purchase up to 241,134 shares of common stock (the “Pre-Funded Warrants”) and (iii) warrants to purchase up to 276,134 shares of common stock (the “Common Warrants”). The purchase price was $12.675 for each share of common stock and $12.674 for each Pre-Funded Warrant, resulting in net proceeds of approximately $3.1 million, inclusive of issuance costs of $0.5 million and exclusive of warrant issuance costs of $0.3 million. The closing of the offering occurred on May 19, 2023. Each Common Warrant is exercisable for a period of five and one-half years from the issuance date at an exercise price of $10.80 per share, subject to adjustment, and may, under certain circumstances, be exercised on a cashless basis. As of March 18, 2024, all of the Pre-Funded Warrants were exercised.

The measurement of fair value of the Pre-Funded Warrants and the Common Warrants was determined utilizing a Black-Scholes model. The relative fair value allocated to the shares of common stock issued in the offering was $0.3 million, to the Pre-Funded Warrants was $1.7 million and to the Common Warrants was $1.5 million. The total fair value allocated to these instruments in excess of par value is reflected within additional paid-in capital as the Pre-Funded Warrants and Common Warrants were determined to be equity classified.

In addition, pursuant to the terms of the offering, the Company issued the placement agent, H.C. Wainwright & Co., LLC., warrants to purchase up to 13,806 shares of the Company’s common stock (the “Placement Agent Warrants”). The Placement Agent Warrants are exercisable for a period of five and one-half years from the issuance date, at an exercise price of $15.845 per share, subject to adjustment, and may, under certain circumstances, be exercised on a cashless basis. As these Placement Agent Warrants were issued for services provided in facilitating the private placement, the Company recorded the fair value of such Placement Agent Warrants as a cost of capital on the issuance date. The measurement of fair value was determined utilizing a Black-Scholes model. The fair value of these Placement Agent Warrants was estimated to be $0.1 million on May 19, 2023, and is reflected within additional paid-in capital as of December 31, 2023 as the Placement Agent Warrants were determined to be equity classified.

Additionally, in connection with the Private Placement, the Company entered into a warrant amendment (the “Warrant Amendment”), dated May 17, 2023 with the holder named therein, pursuant to which the Company agreed to amend certain existing warrants to purchase up to an aggregate of 299,997 shares of Common Stock that were previously issued in January 2021 through February 2021 at an exercise price of $42.40 per share after the 1-to-20 reverse stock split, such that effective upon the closing of the Private Placement the amended warrants have a reduced exercise price of $0.72 per share, at an additional offering price of $0.125 per amended warrant. The Company calculated an incremental fair value of approximately $0.1 million by calculating the fair value of the warrants immediately before and immediately after the modification. The Company recognized the change in the fair value of the warrants as an equity issuance cost.

The Private Placement resulted in net proceeds of approximately $3.0 million, inclusive of issuance costs of $0.5 million and exclusive of warrant issuance costs of $0.2 million.

December 2023 Public Offering and Convertible Note Exchange

On December 18, 2023, the Company entered into a securities purchase agreement with certain purchasers pursuant to which it agreed to issue and sell, in a public offering (the “Public Offering”), an aggregate of (i) 520,000 shares of common stock, (ii) pre-funded warrants to purchase up to 2,813,334 shares of common stock (the “Public Offering Pre-Funded Warrants”), (iii) warrants to purchase up to 3,333,334 shares of common stock (the “Series A Common Warrants”), and (iv) warrants to purchase up to 3,333,334 shares of common stock (the “Series B Common Warrants,” collectively with the other warrants issued in the Public Offering, the “Public Offering Warrants”). The purchase price was $1.50 for each share of common stock and $1.4999 for each Public Offering Pre-Funded Warrant, resulting in net proceeds of approximately $3.9 million, inclusive of issuance costs of $1.1 million and exclusive of warrant issuance costs of $0.1 million. The closing of the Public Offering occurred on December 21, 2023.

The Public Offering Pre-Funded Warrants are exercisable until exercised in full at an exercise price of $0.0001 per share. Each Series A Common Warrant is exercisable for a period of five years from the issuance date at an exercise price of $1.50 per share and each Series B Common Warrant is exercisable for a period of one and one-half years from the issuance date at an exercise price of $1.50 per share. The Public Offering Warrants may be exercised on a cashless basis. The Company is prohibited from effecting an exercise of any Public Offering Warrants to the extent that such exercise would result in the number of shares of common stock beneficially owned by such holder and its affiliates exceeding 4.99% (or 9.99% at election of the holder) of the total number of shares of common stock outstanding immediately after giving effect to the exercise.

The measurement of fair value of the Public Offering Warrants was determined utilizing a Black-Scholes model. The relative fair value allocated to the shares of common stock issued in the Public Offering was $0.3 million, to the Public Offering Pre-Funded Warrants was $1.9 million and to the Series A and Series B Common Warrants was $2.8 million. The total fair value allocated to these instruments in excess of par value is reflected within additional paid-in capital as the Public Offering Warrants were determined to be equity classified.

As part of the Public Offering, the Company entered into a placement agency agreement with Alliance Global Partners (“A.G.P.”), pursuant to which A.G.P. agreed to act as exclusive placement agent for the issuance and sale of the securities in the Public Offering. In exchange for these services, the Company paid A.G.P. an aggregate cash fee of $0.4 million. In addition, the Company incurred an additional $0.6 million in legal and other fees related to the Public Offering. These fees were recorded as costs of the Public Offering and reduced the amount recorded to additional paid in capital.

In connection with the completion of the Public Offering, the Company was also obligated to issue H.C. Wainwright & Co., LLC. warrants to purchase an aggregate of 150,417 shares of Common Stock (the “Public Offering Placement Agent Warrants”). The Public Offering Placement Agent Warrants are to be exercisable for a period of five years from the issuance date, at an exercise price of $1.875 per share, subject to adjustment, and may be exercised on a cashless basis. As the obligation to issue the Public Offering Placement Agent Warrants related to services provided in facilitating the Public Offering, the Company recorded the estimated fair value of the obligation as a cost of the Public Offering. The Public Offering Placement Agent Warrants were issued on January 4, 2024, and as such, the Company recorded the estimated fair value of the obligation to issue the warrants as a liability as of December 31, 2023. The estimated fair value of the obligation to issue the Public Offering Placement Agent Warrants was determined utilizing a Black-Scholes model and was estimated to be $0.2 million, and is recorded as a component of other current liabilities in the balance sheet.

As discussed in Note 8, the Company issued (i) 54,461 shares of Common Stock, (ii) the Private Pre-Funded Warrants to purchase up to 2,612,205 shares of common stock, (iii) the Series A Private Warrants to purchase up to 2,666,666 shares of common stock and (iv) the Series B Private Warrants to purchase up to 2,666,666 shares of common stock upon the exchange and cancellation of the $4,000 outstanding principal amount of the Convertible Note. The Series A Private Warrants and the Series B Private Warrants are each exercisable for one share of common stock at an exercise price of $1.50 per share and will expire on the fifth anniversary and the one and one-half year anniversary from the date of issuance, respectively. The Series B Private Warrants will not be exercisable until shareholder approval is obtained. In addition, upon a fundamental transaction that occurs within the control of the Company, the holder of the Series A Private Warrants and Series B Private Warrants shall have the right to receive payment in cash, or under certain circumstances in other consideration, from the Company at the Black Scholes value, as described in such warrants. The Private Pre-Funded Warrants are each exercisable for one share of common stock at an exercise price of $0.0001 per share and will expire when exercised in full. The Private Warrants may be exercised on a cashless basis. The Company is prohibited from effecting an exercise of any Private Warrants to the extent that such exercise would result in the number of shares of common stock beneficially owned by such holder and its affiliates exceeding 4.99% (or 9.99% at election of the holder) of the total number of shares of common stock outstanding immediately after giving effect to the exercise.

The measurement of fair value of the Private Warrants was determined utilizing a Black-Scholes model. The relative fair value allocated to the shares of common stock issued was less than $0.1 million, to the Private Pre-Funded Warrants was $1.8 million and to the Series A and Series B Private Warrants was $2.2 million. The total fair value allocated to these instruments in excess of par value is reflected within additional paid-in capital as the Private Warrants were determined to be equity classified.

On February 26, 2024, the Company closed a definitive agreement for the immediate exercise of an outstanding Series B Common Warrant held by an institutional investor from the issuance described above to purchase an aggregate of 2,933,334 shares of the Company’s common stock. See note 13 for further detail.

In March 2021, we entered into an Equity Distribution Agreement (the “Equity Distribution Agreement”) with Oppenheimer & Co. Inc. (“Oppenheimer”), under which we may offer and sell from time to time common shares having an aggregate offering price of up to $25.0 million. During the year ended December 31, 2023, the Company sold approximately 7,942 shares of our common stock under this agreement, resulting in net cash proceeds of $102 thousand, after deducting issuance costs of $19 thousand.