Note 11 – Share-based compensation

Issuance of Common Stock

On January 5, 2022, non-employee members of the Board of Directors were granted an aggregate of 24,458 shares of fully-vested common stock with a fair value of $9.60 per share of common stock, as compensation, in lieu of $235 of cash compensation, for service as directors for 2022. The Company recorded $61 and $118 in expense for director services during the three and six months ended June 30, 2022, respectively. The Company recorded $117 in prepaid expenses for director services as of June 30, 2022.

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 6,000 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 $56.60 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 6,000 shares of common stock of the Company exercisable at a price equal to $10 per share of common stock. The replacement warrants immediately vested upon issuance and expire three years from the date of issuance. As a result, the Company recognized $26 of share-based compensation for the six months ended June 30, 2022, related to the incremental fair value which is equal to the excess of the fair value of the new stock options granted over the fair value of the original award on the cancellation date.

On January 20, 2021, the Company entered into a services agreement with a service provider whereby it agreed to issue warrants to purchase an aggregate 17,001 shares of common stock of the Company with an exercise price equal to $35 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 $0 and $30 as general and administrative expense in the accompanying condensed consolidated statements of comprehensive loss in relation to the consulting agreement for the three and six months ended June 30, 2022, respectively. The Company recorded $89 and $148 as general and administrative expense in the accompanying condensed consolidated statements 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 and issued to an institutional investor (the “Holder”), in a registered direct offering, an aggregate of 160,000 shares of the Company’s common stock par value $0.0001 per share (the “Common Stock”), and pre-funded warrants to purchase an aggregate of 276,681 shares of Common Stock (the “Pre-Funded Warrants”) at an exercise price of $0.02 per share. During the six months ended June 30, 2021, the Pre-Funded Warrants for 276,681 shares of common stock were exercised which resulted in aggregate proceeds of $6.

Pursuant to the Securities Purchase Agreement, as described above, in a concurrent private placement, the Company also agreed to issue to the purchaser warrants to purchase up to 436,681 shares of Common Stock (the “Private Placement Warrants”). These warrants were immediately exercisable at an exercise price of $26 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 400,000 of the Private Placement Warrants remained outstanding, due to the prior exercise of 36,681 of the Private Placement Warrants on January 22, 2021. Pursuant to the Exercise Agreement, the Holder agreed to exercise the remaining outstanding 400,000 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 400,000 Private Placement Warrants pursuant to the Exercise Agreement, or an aggregate of 300,000 New Warrants. In addition, the Holder paid a cash payment of $2 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 400,000 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 $42.40, will be immediately exercisable and will expire five years from the date of the Exercise Agreement. The aggregate of 300,000 New Warrants were issued in four tranches during the first quarter of 2021 as the 400,000 Private Placement Warrants were exercised. The fair values of the 300,000 New Warrants were valued on the date of grant of each tranche and totaled in aggregate of $6,745 using the Black-Scholes option-pricing model with the following parameters: (1) risk-free interest rates with a range of 0.41%-0.57%.; (2) expected life in years with a range of 4.95-5.00; (3) expected stock volatilities with a range of 103.00%-103.23%; and (4) expected dividend yields of 0%. The Company recognized the excess fair value of the New Warrants above the aggregate purchase price as a deemed dividend of $6,145 for the six months ended June 30, 2021. However, as the Company is in an accumulated deficit position as of the issuance dates, the resulting deemed dividend was recorded as a reduction of additional paid-in capital, however the deemed divided was included in net loss attributable to common shareholders in the calculation of loss per share.

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

In connection with the Kreos Loan Agreement as described in Note 8, the Company issued to the Lender a Warrant, dated July 16, 2021, to purchase up to 9,547 shares of the Company’s common stock. The Warrant is immediately exercisable at an exercise price of $20.95 per share, payable in cash or on a cashless basis according to the formula set forth in the Warrant. The exercise price of the Warrant and the number of shares issuable upon exercise of the Warrant 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. The fair value of the warrant was valued on the date of grant at $168 using the Black-Scholes option-pricing model with the following parameters: (1) risk-free interest rate of 1.31%; (2) expected life in years of 10; (3) expected stock volatility of 108.87%; and (4) expected dividend yield of 0%. As described in Note 8, in connection with the Kreos Loan Agreement, the Company treated the Warrant as a separate freestanding financial instrument amongst the other financial instruments in the Loan with the proceeds received in connection with the transaction allocated amongst the instruments based on relative fair value which resulted in $165 being allocated to the Warrant and a corresponding amount recorded as a debt discount to the Convertible Note and Long-term Debt. See Note 8 for further detail.

Warrants

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

 Schedule of Warrants

As of June 30, 2022, 394,577 warrants were exercisable with a weighted-average exercise price per share of $50.87.

Stock Options

2016 Equity Incentive Plan

In December 2016, the Company adopted the Motus GI Holdings, Inc. 2016 Equity Incentive Plan (the “2016 Plan”). Pursuant to the 2016 Plan, the Company’s board of directors may grant options to purchase shares of the Company’s common stock, stock appreciation rights, restricted stock, stock units, performance shares, performance units, incentive bonus awards, other cash-based awards and other stock-based awards to employees, officers, directors, consultants and advisors. Pursuant to the terms of an annual evergreen provision in the 2016 Plan, the number of shares of common stock available for issuance under the 2016 Plan shall increase annually by six percent (6%) of the total number of shares of common stock outstanding on December 31st of the preceding calendar year; provided, however, that the board of directors may act prior to the first day of any calendar year to provide that there shall be no increase such calendar year, or that the increase shall be a lesser number of shares of the Company’s common stock than would otherwise occur. On January 1, 2022, pursuant to an annual evergreen provision, the number of shares of common stock reserved for future grants was increased by 86,433 shares. Under the 2016 Plan, effective as of January 1, 2022, the maximum number of shares of the Company’s common stock authorized for issuance is 524,783. As of June 30, 2022, there were 13,401 shares of common stock available for future grant under the 2016 Plan.

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

 Schedule of Stock Option Activity

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:

 Schedule of Stock Option Pricing Model Using Weighted Average Assumptions

The grant date fair value for stock options issued during the three and six months ended June 30, 2022 were $5.0 and $8.80, respectively.

As of June 30, 2022, unamortized share- based compensation for stock options was $1,524, with a weighted-average recognition period of 1.01 years.

As of June 30, 2022, outstanding options to purchase 271,808 shares of common stock were exercisable with a weighted-average exercise price per share of $56.16.

For the three and six months ended June 30, 2022, the Company recorded $302 and $586, respectively, for share-based compensation expense related to stock options.

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.

Restricted Stock Units

On February 10, 2022, the Company’s Compensation Committee approved the issuance of 18,250 restricted stock unit awards to executives which vest over a three-year period on a quarterly basis.

The Company recorded $159 and $340 as general and administrative expense in the accompanying condensed consolidated statement of comprehensive loss for the three and six months ended June 30, 2022, respectively, in relation to the aggregate restricted stock units issued to date to the CEO, executives, and directors. As of December 31, 2021, there were 3,140 vested and unissued restricted stock units. These restricted stock units were issued as common stock during the six months ended June 30, 2022.

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

 Schedule of Restricted Stock Unit Awards Activity

As of June 30, 2022, unamortized stock compensation for restricted stock units was $575, with a weighted-average recognition period of 0.87 years.

Share-based Compensation

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 six months ended June 30, 2022 and 2021:

 Schedule of Stock-based Compensation