Notes
to the Interim Condensed Consolidated Financial Statements
(unaudited, in thousands, except share and per share amounts)
Note
1 – Description of Business
Motus
GI Holdings, Inc. (the “Company”) was incorporated in Delaware, U.S.A. in September 2016. The Company and its subsidiaries,
Motus GI Technologies, Ltd. and Motus GI, LLC, are collectively referred to as “Motus GI” or the “Company”.
The
Company has developed the Pure-Vu System, a medical device that has been cleared by the U.S. Food and Drug Administration (the “FDA”)
to help facilitate the cleansing of a poorly prepared gastrointestinal tract during colonoscopy and to help facilitate upper gastrointestinal
(“GI”) endoscopy procedures. The Pure-Vu System has received 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 improve visualization during colonoscopy and upper GI procedures
while preserving established procedural workflow and techniques. Through irrigation and evacuation of debris, the Pure-Vu System is designed
to provide better-quality exams. The Company received 510(k) clearance in February 2022 from the FDA for the Pure-Vu EVS System and has
commenced commercialization of this product. The Company does not expect to generate significant revenue from product sales until it
further expands its commercialization efforts, which is subject to significant uncertainty.
Note
2 – Basis of Presentation and Going Concern Uncertainty
The
accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the 2022 10-K filed with the SEC on March 31, 2023. The accompanying condensed consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”)
for interim financial information, the instructions for Form 10-Q and the rules and regulations of the SEC. Accordingly, since they are
interim statements, the accompanying condensed consolidated financial statements do not include all of the information and notes required
by GAAP for annual financial statements, but reflect all adjustments consisting of normal, recurring adjustments, that are necessary
for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. Interim results
are not necessarily indicative of the results that may be expected for any future periods. The December 31, 2022 balance sheet information
was derived from the audited financial statements as of that date.
The
Company has generated limited revenues to date from the sale of products. The Company has never been profitable and has incurred significant
net losses each year since its inception, including a loss of $4.4 million for the three months ended March 31, 2023. The Company expects to
continue to incur net operating losses for the foreseeable future. Net cash used in operating activities for the three months ended March
31, 2023 was $4.8 million. As of March 31, 2023, the Company had cash and cash equivalents of $8.6 million and an accumulated deficit
of $145.7 million.
In
January and April 2023, the Company committed to a restructuring initiative designed to position the Company to explore a range of strategic
and financing alternatives focused on maximizing stockholder value and accelerating the commercialization of the Pure-Vu System. If
a strategic transaction is not completed, or if additional financing is not available, the Company may not be able to service our outstanding
indebtedness and our payables and may have to file for bankruptcy protection or pursue a dissolution of the Company and liquidation of
all of the Company’s remaining assets. In such an event, the amount of cash available for distribution to the Company’s shareholders,
if any, will depend heavily on the timing of such decision, as with the passage of time the amount of cash available for distribution
will be reduced as the Company continues to fund its operations and service the Company’s outstanding indebtedness. The Company
cannot provide assurance as to the amount of cash that will be available to distribute to shareholders, if any, after paying its debts
and other obligations and setting aside funds for reserves, nor as to the timing of any such distribution, if any. Such conditions raise substantial doubts about the
Company’s ability to continue as a going concern.
The
Company has financed its operations primarily through sales of equity-related securities. 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 three months
ended March 31, 2023, the Company sold approximately 119 thousand shares of our common stock under this agreement, resulting in net cash
proceeds of $102 thousand, after deducting issuance costs of $19 thousand.
Note
3 – Summary of Significant Accounting Policies
Significant
Accounting Policies
The
significant accounting policies used in preparation of these condensed consolidated financial statements for the three months ended March
31, 2023 are consistent with those discussed in Note 3 to the consolidated financial statements in the Company’s 2022 Annual Report
on Form 10-K. There have been no material changes to the Company’s significant accounting policies during the three months ended
March 31, 2023.
Reverse
Stock Split
On
July 25, 2022, the Company effected a reverse stock split of its issued and outstanding common stock, par value $0.0001 per share, at
a ratio of 1-for-20. Shares of common stock underlying outstanding stock options and other equity instruments convertible into common
stock were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased in accordance with
the terms of the agreements governing such securities.
Accordingly,
all share and per share amounts for all periods presented in the accompanying condensed consolidated financial statements and notes thereto
have been retroactively adjusted, where applicable, to reflect the reverse stock split.
Basis
of presentation and principles of consolidation
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP and include the accounts
of the Company and its wholly owned subsidiaries, Motus Ltd., an Israel corporation, which has operations in Tirat Carmel, Israel, and
Motus Inc., a Delaware corporation, which has operations in the U.S. All inter-company accounts and transactions have been eliminated
in consolidation.
Use
of estimates
The
preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Accounting
Pronouncements- Adopted
In
September 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. ASU 2016-13 replaces
the current incurred loss impairment methodology with a methodology that reflects expected credit losses. In April 2019 and May 2019,
the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives
and Hedging, and Topic 825, Financial Instruments” and ASU No. 2019-05, “Financial Instruments-Credit Losses (Topic 326):
Targeted Transition Relief” which provided additional implementation guidance on the previously issued ASU. In November 2019, the
FASB issued ASU 2019-10, “Financial Instruments - Credit Loss (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic
842),” which defers the effective date for public filers that are considered smaller reporting companies as defined by the Securities
and Exchange Commission to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company
adopted this ASU on January 1, 2023. The adoption of this ASU did not result in a material
impact to the consolidated financial statements and disclosures.
Accounting
Pronouncements- Not Yet Adopted
In
August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an
Entity’s Own Equity. This guidance simplifies the accounting for convertible instruments primarily by eliminating the existing
cash conversion and beneficial conversion models within Subtopic 470-20, which will result in fewer embedded conversion options being
accounted for separately from the debt host. The guidance also amends and simplifies the calculation of earnings per share relating to
convertible instruments. This guidance is effective for annual periods beginning after December 15, 2021, including interim periods within
that reporting period, excluding smaller reporting companies. For all other entities, the amendments are effective for fiscal years beginning
after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal
years beginning after December 15, 2020, including interim periods within that reporting period, using either a full or modified retrospective
approach. Since the Company is a smaller reporting company (“SRC”), implementation is not needed until after December 15,
2023. We are currently evaluating the impact of the provisions of this guidance on our consolidated financial statements.
Note
4 –Fair Value Measurements
Liabilities
measured and recorded at fair value on a recurring basis consisted of the following at March 31, 2023 and December 31, 2022:
Schedule of Fair Value of Financial Assets and Liabilities
| |
March 31, 2023 | |
| |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Fair Value | |
| |
| | |
| | |
| | |
| |
Liabilities | |
| | | |
| | | |
| | | |
| | |
Contingent royalty obligation | |
$ | - | | |
$ | - | | |
$ | 992 | | |
$ | 992 | |
| |
December 31, 2022 | |
| |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Fair Value | |
Liabilities | |
| | | |
| | | |
| | | |
| | |
Contingent royalty obligation | |
$ | - | | |
$ | - | | |
$ | 1,212 | | |
$ | 1,212 | |
Financial
instruments with carrying values approximating fair value include cash and cash equivalents, accounts receivable, prepaid expenses and
other current assets, accounts payable and accrued expenses, and certain other current liabilities, due to their short-term nature.
In
estimating the fair value of the Company’s contingent royalty obligation, the Company used the discounted cash flow
method as of March 31, 2023 and December 31, 2022. Based on the fair value hierarchy, the Company classified contingent royalty obligation
within Level 3 because valuation inputs are based on projected revenues discounted to a present value.
Changes
in the fair value of recurring fair value measurements using significant unobservable inputs (Level 3), which solely consisted of a contingent
royalty obligation, during the three months ended March 31, 2023 was as follows:
Schedule of Estimated Fair Value of Level 3 Contingent Royalty Obligation
| |
Fair Value Measurements of Contingent Royalty Obligation (Level 3) | |
Balance at December 31, 2022 | |
$ | 1,212 | |
Change in estimated fair value of contingent royalty obligation | |
| (220 | ) |
Balance at March 31, 2023 | |
$ | 992 | |
The
contingent royalty obligation is re-measured at each balance sheet date using several assumptions, including the following: 1) estimated
sales growth, 2) length of product cycle, 3) patent life, 4) discount rate (28.5%
and 23%
as of March 31, 2023 and December 31, 2022, respectively),
and 5) rate of royalty payment (3%
as of March 31, 2023 and December 31, 2022).
In
accordance with ASC-820-10-50-2(g), the Company performed a sensitivity analysis of the liability, which was classified as a Level 3
financial instrument. The Company recalculated the fair value of the liability by applying a +/- 2% change to the input variable in the
discounted cash flow model; the discount rate. A 2% decrease in the discount rate would increase the liability by $94 and a 2% increase
in the discount rate would decrease the liability by $84. Such amounts are based on highly sensitive estimates and actual results could result in material change in future
periods.
Note
5 – Inventory
Inventory
is stated at lower of cost or net realizable value using the weighted average cost method and is evaluated at least annually for impairment.
Write-downs for potentially obsolete or excess inventory are made based on management’s analysis of inventory levels, historical
obsolescence and future sales forecasts. For the three months ended March 31, 2023 and 2022, an inventory impairment of $165 and $159,
respectively, was recorded. Inventories that exceed estimated realization for the next twelve months from balance sheet date based on future
sales forecasts are classified as long-term assets.
Inventory
at March 31, 2023 and December 31, 2022 consisted of the following:
Schedule of Inventory
| |
March 31, 2023 | | |
December 31, 2022 | |
Raw materials | |
$ | 497 | | |
$ | 697 | |
Work-in-process | |
| 164 | | |
| 155 | |
Finished goods | |
| 703 | | |
| 548 | |
Inventory reserve | |
| (566 | ) | |
| (401 | ) |
Inventory, net | |
$ | 798 | | |
$ | 999 | |
Inventory, current | |
$ | 464 | | |
$ | 488 | |
Inventory, non-current | |
$ | 334 | | |
$ | 511 | |
Note
6 – Fixed assets, net
Fixed
assets, summarized by major category, consist of the following for the years ended:
Schedule
of Fixed Assets Net
| |
March 31, 2023 | | |
December 31, 2022 | |
Office equipment | |
$ | 171 | | |
$ | 171 | |
Computers and software | |
| 321 | | |
| 321 | |
Machinery | |
| 1,052 | | |
| 1,049 | |
Lab and medical equipment | |
| 1,503 | | |
| 1,477 | |
Leasehold improvements | |
| 200 | | |
| 200 | |
Total | |
| 3,247 | | |
| 3,218 | |
Less: accumulated depreciation and amortization | |
| (2,010 | ) | |
| (1,893 | ) |
Fixed assets, net | |
$ | 1,237 | | |
$ | 1,325 | |
Depreciation
and amortization expense for the three months ended March 31, 2023 and 2022 was $117 and $124, respectively.
Note
7 – Leases
The
Company leases offices in Fort Lauderdale, Florida and Israel which expire in November 2024 and December 2023, respectively.
The
Company leases vehicles under operating leases that expire at various dates through 2025.
The
components of lease cost and supplemental balance sheet information for the Company’s lease portfolio were as follows:
Schedule
of Lease Cost and Supplemental Balance Sheet Information
| |
Three Months Ended March 31, | | |
Three Months Ended March 31, | |
| |
2023 | | |
2022 | |
Lease Cost | |
| | | |
| | |
Operating lease cost, net of related party license fee | |
$ | 16 | | |
$ | 39 | |
Variable lease cost | |
| 25 | | |
| 30 | |
Total lease cost | |
$ | 41 | | |
$ | 69 | |
| |
As of March 31, | | |
As of December 31, | |
| |
2023 | | |
2022 | |
Assets | |
| | | |
| | |
Operating lease, right-of-use- asset | |
$ | 390 | | |
$ | 428 | |
Liabilities | |
| | | |
| | |
Current | |
| | | |
| | |
Operating lease liabilities | |
$ | 248 | | |
$ | 245 | |
Non-current | |
| | | |
| | |
Operating lease liabilities, net of current portion | |
| 136 | | |
| 178 | |
Total lease liabilities | |
$ | 384 | | |
$ | 423 | |
| |
| | | |
| | |
Other information: | |
| | | |
| | |
Weighted average remaining lease term - operating leases | |
| 1.75 years | | |
| 1.79 years | |
Weighted-average discount rate - operating leases | |
| 7.20 | % | |
| 7.36 | % |
The
Company’s lease expense is included in general and administrative expenses which is net of the related party license fee of
$49 and
$47 for the three months ended March 31, 2023 and 2022, respectively (see Note 10).
Note
8 – Convertible Note and Long-Term Debt
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 Note”, or “Tranche A”),
(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 Tranche B, the “Long-term
Debt”). The Kreos Loan Agreement contains customary representations and warranties, indemnification provisions in favor of the
Lender, events of default and affirmative and negative covenants, including, among others, covenants that limit or restrict the Company’s
ability to, among other things, incur additional indebtedness, merge or consolidate, make acquisitions, pay dividends or other distributions
or repurchase equity, make investments, dispose of assets and enter into certain transactions with affiliates, in each case subject to
certain exceptions. Outstanding borrowings under the Loan are secured by a first priority security interest on substantially all of the
personal property assets of the Company, including the Company’s material intellectual property and equity interests in its subsidiaries.
There are no liquidity or financial covenants.
The
Convertible Note and Tranche B were funded on the Effective Date. As of December 31, 2021,
the Company drew down the full $3,000 aggregate principal amount of Tranche C.
The
Convertible Note requires forty-eight monthly interest only payments at 7.75% per annum commencing after the Effective Date and thereafter
full payment of the then outstanding principal balance of the Convertible Note on July 1, 2025. The Kreos Loan Agreement contains features
that would permit the Lender to convert all or any portion of the outstanding principal balance of the Convertible Note at any time,
pursuant to which the converted part of the Convertible Note will be converted into that number of shares of common stock of the Company
to be issued to the Lender at a price per share equal to the conversion price, of $28 per share. Following the conversion of any portion
of the outstanding principal balance of the Convertible Note, the principal balance of the Convertible Note remaining outstanding shall
continue to bear interest at 7.75% per annum. 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 requires interest only monthly payments commencing on the date of the draw down until September 30, 2022 and,
thereafter, thirty-two monthly payments of principal and interest accrued thereon until June 1, 2025.
In
connection with the Kreos Loan Agreement, the Company also issued to the Lender a warrant (“Warrant”), dated July 16, 2021,
to purchase up to 9,547 shares of the Company’s common stock, at an exercise price of $20.948 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 Company concluded that the Warrant is indexed to its
own stock and, accordingly is classified as equity. See Note 11 for further discussion of the Warrant.
The
Company treated Tranche A, Tranche B and Tranche C, and the Warrant as three separate freestanding financial instruments with the proceeds
received in connection with the transaction allocated amongst the instruments based on relative fair value. The proceeds received in
connection with the transaction allocated amongst the instruments based on relative fair value 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. The Company recorded an aggregate
debt discount of $845 related to the Loan, inclusive of the debt discount of $165 in connection to the Warrant, which will be amortized
to interest expense over the term of each respective tranche using the effective interest method. The Company also paid $540 in cash
for debt issuance costs. Additionally, per the Kreos Loan Agreement, with respect to the Long-term Debt, there is an advance payment
of $274 that is recorded at a debt discount. The advance payment represents the last month’s payment in relation to the Long-term
Debt. There is also an end of loan payment of $140 which
is included on the balance sheet as a liability within the Long-term Debt and also within the total aggregate debt discount of $845.
For
the three months ended March 31, 2023 and 2022, interest expense for the Loan was as follows:
Schedule
of Interest Expense for Loan
| |
Three
Months Ended March 31,
| |
Three
Months Ended March 31,
| |
| |
2023
| |
2022 | |
Contractual interest expense | |
$ | 246 | | |
$ | 268 | |
Amortization of debt issuance costs | |
| 62 | | |
| 59 | |
Total interest expense | |
$ | 308 | | |
$ | 327 | |
Future
principal payments under the Convertible Note as of March 31, 2023 are as follows:
Schedule
of Future Principal Payments of Convertible Note
Years Ending December 31, | |
Amount | |
2023 | |
$ | - | |
2024 | |
| - | |
2025 | |
| 4,000 | |
Total future principal payments | |
| 4,000 | |
Less unamortized debt issuance costs | |
| (94 | ) |
Total balance – Convertible Note | |
$ | 3,906 | |
Future
principal payments under the Long-term Debt as of March 31, 2023 are as follows:
Schedule
of Future Principal Payments of Long-term Debt
Years Ending December 31, | |
Amount | |
2023 | |
$ | 2,059 | |
2024 | |
| 2,983 | |
2025 | |
| 1,601 | |
Total future principal payments | |
| 6,643 | |
End of loan payments | |
| 140 | |
Less unamortized debt issuance costs of current portion of long-term debt | |
| (168 | ) |
Less unamortized debt issuance costs of non-current portion of long-term debt | |
| (100 | ) |
Total balance | |
$ | 6,515 | |
Less long-term debt, current | |
$ | (2,611 | ) |
Long- term debt, net of current portion | |
$ | 3,904 | |
Note
9 – Commitments and Contingencies
The Company has entered into and expects to enter
into from time to time in the future, license agreements, strategic alliance agreements, assignment agreements, research service agreements,
and similar agreements related to the advancement of its research and development efforts. Significant agreements are described in detail
in the Company’s 2022 Form 10-K. While specific amounts will differ from quarter to quarter, the Company believes its overall activities
regarding these agreements are materially consistent with those described in the 2022 Form 10-K. In addition to the specific agreements
described in the 2022 Form 10-K, the Company has entered into, and will in the future enter into, other research and service provider
agreements for the advancement of its research and development efforts. The Company expects to pay additional amounts in future periods
in connection with existing and future research and service provider agreements.
Manufacturing
Component Purchase Obligations
The
Company utilizes two outsourcing partners to manufacture its workstation and disposable portions of the Pure-Vu System, and to perform
final assembly and testing of finished products. These outsourcing partners acquire components and build product based on demand information
supplied by the Company. As of March 31, 2023, the Company expects to pay $114 under manufacturing-related supplier arrangements within
the next year, substantially all of which is noncancelable.
Other
Commitments and Contingencies
The
Company has a severance contingency for severance payments to its Executives in the aggregate of $1,428, in the event that they are
terminated without cause or leave due to good reason, as outlined in their employee agreements. Management estimates that the
likelihood of payment is remote; therefore, no liability was reflected in these condensed consolidated financial
statements.
Note
10 – Related Party Transactions
Shared
Space Agreement
In
January 2020, the Company entered into a license agreement (the “Shared Space Agreement”) with Orchestra BioMed, Inc. (OBIO),
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. Pursuant to the Shared Space Agreement, the Company granted a license
to OBIO for the use of portions of the office space not being used by the Company in the Company’s leased facility in Fort Lauderdale,
Florida (the “Premises”), and a proportionate share of common areas of such Premises, which previously covered approximately
35% of the Premises and was to expand incrementally to approximately 60 to 70% of the Premises by September 2024. In May 2022, the Company
entered into an amendment to the Shared Space Agreement. Pursuant to the amendment, the area covered by the Shared Space Agreement was
expanded to 95% of the premises and the aggregate license fees will generally range from approximately $212 to
approximately $270 in any given calendar year during the term of the Shared Space Agreement
until the termination of the lease in November 2024. During the three months ended March 31, 2023 and 2022, the Company recorded a license
fee of $49 and $47, respectively, in relation
to the Shared Space Agreement. This amount is netted with rent expense in general and administrative expenses.
Note
11 – 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 three months ended
March 31, 2023 and 2022:
Schedule
of Stock-based Compensation
| |
2023 | | |
2022 | |
| |
Three Months ended March 31, | |
| |
2023 | | |
2022 | |
Research and development | |
$ | 59 | | |
$ | 97 | |
Sales and marketing | |
| 1 | | |
| 58 | |
General and administrative | |
| 162 | | |
| 366 | |
Total | |
$ | 222 | | |
$ | 521 | |
As
of March 31, 2023, unamortized share-based compensation for stock options was $572, with a weighted-average recognition period of 0.79
years.
Stock
option and warrant activity
A
summary of the Company’s stock option and warrant activity is as follows:
Schedule
of Stock Option and Warrants
| |
Options | | |
Warrants | |
| |
Shares Underlying Options | | |
Weighted Average Exercise Price | | |
Shares Underlying Warrants | | |
Weighted Average Exercise Price | |
Outstanding at December 31, 2022 | |
| 400,137 | | |
$ | 42.69 | | |
| 393,261 | | |
$ | 50.86 | |
Expired | |
| (249 | ) | |
$ | 10.40 | | |
| (54,717 | ) | |
$ | 100.00 | |
Forfeited | |
| (24,854 | ) | |
$ | 12.70 | | |
| - | | |
$ | - | |
Outstanding at March 31, 2023 | |
| 375,034 | | |
$ | 44.70 | | |
| 338,544 | | |
$ | 42.91 | |
Exercisable at March 31, 2023 | |
| 318,094 | | |
$ | 50.04 | | |
| 338,544 | | |
$ | 42.91 | |
As
of March 31, 2023, there were 16,606
nonvested restricted stock unit awards at a weighted
average grant date fair value of $16.17.
As of December 31, 2022, there were 20,278 nonvested restricted stock unit awards at a weighted average grant date fair value of $18.62.
As
of March 31, 2023, unamortized stock compensation for restricted stock units was $233,
with a weighted-average recognition period of 0.76
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 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 $0 and $26 of share-based compensation for the three months ended
March 31, 2023 and 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.
Note
12 – Restructuring
In
January 2023, the Company commenced a strategic restructuring program aimed at capital preservation.
It reduced its quarterly cash expenditures by approximately 35% by eliminating approximately 45% of its workforce during the first quarter
of 2023. In addition, the non-management members of the Board agreed to defer their Board fees until a future date. During the
three months ended March 31, 2023, the Company recorded charges of $1,250 related to the strategic restructuring program. Of that amount,
the Company paid $1,007 during the three months ended March 31, 2023. The Company expects to pay the remaining $244 in the second quarter of 2023.
In
April 2023, the Company approved the implementation of additional cost cutting measures, including an executive reorganization and other
cuts in clinical expenses, in connection with its ongoing efforts to reduce operating expenses. The Company expects to incur non-recurring
charges related to these cost-cutting measures of approximately $400 in the second quarter of 2023. See Note 13.
The
outstanding restructuring liabilities are included in accounts payable and accrued expenses on the condensed consolidated balance sheet.
As of March 31, 2023, the components of the liabilities were as follows:
Schedule
of Restructuring Liabilities included in Accounts Payable and Accrued Expenses
| |
Employee Severance and
Other Benefits (1) | |
Balance as of January 1, 2023 | |
$ | - | |
Restructuring expenses- Sales and Marketing | |
| 453 | |
Restructuring expenses- Research and Development | |
| 582 | |
Restructuring expenses- General and Administrative | |
| 215 | |
Restructuring expenses | |
| - | |
Cash payments | |
| (1,007 | ) |
Liability included in accounts payable and accrued expenses at March 31, 2023 | |
$ | 243 | |
(1) |
Employee
severance and other benefits expenses were included in sales and marketing expenses, research and development expenses, and general
and administrative expenses in the statements of comprehensive loss. |
Note
13 – Subsequent Events
In addition,
in order to further reduce expenses, Andrew Taylor, our current Chief Financial Officer, intends to step down from his role as Chief
Financial Officer before the end of the second quarter of 2023. We are actively putting in place an internal transition plan and
intend to appoint another officer to replace Mr. Taylor as our Chief Financial Officer.