Tenon Medical, Inc 10-Q for FY2022 Q1
Tenon Medical, Inc. (TNON)
10-Q
2022-06-09
For: 2022-03-31
View Original
Added on
April 12, 2026
About this 10-Q
Tenon Medical, Inc filed this 10-Q on June 9, 2022, covering the quarter ended March 31, 2022 (FY2022 Q1).
Headline figures
Quarter ended March 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $71K
- up 373.3% from $15K a year earlier
- Net loss
- $2.35M
- compared with a net loss of $200K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ to __________
COMMISSION FILE NUMBER 001-41364
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) (Zip Code) |
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(Registrant’s telephone number, including area code) |
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Securities registered pursuant to Section 12(b) of the Act:
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Trading Symbol(s) |
Name of each exchange on which registered |
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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
x
No
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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes
x
No
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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.
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Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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
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No
As of June 9, 2022, the registrant had a total of 11,236,801 shares of its common stock, par value $0.001 per share, issued and outstanding.
INDEX
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends impacting the financial condition of our business. Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made and/or management’s good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements.
Forward-looking statements include all statements that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “intend,” “seek,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” “might,” “forecast,” “continue,” or the negative of those terms, and similar expressions and comparable terminology intended to reference future periods. Forward-looking statements include, but are not limited to, statements about:
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Our ability to effectively operate our business segments; |
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Our ability to manage our research, development, expansion, growth and operating expenses; |
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Our ability to evaluate and measure our business, prospects and performance metrics; |
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Our ability and our national distributor’s ability to compete, directly and indirectly, and succeed in the highly competitive medical devices industry; |
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Our ability to respond and adapt to changes in technology and customer behavior; |
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Our ability to protect our intellectual property and to develop, maintain and enhance a strong brand; and |
Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.
Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We cannot guarantee future results, levels of activity, performance or achievements. Accordingly, the forward-looking statements in this Quarterly Report on Form 10-Q should not be regarded as representations that the results or conditions described in such statements will occur or that our objectives and plans will be achieved, and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
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March 31, |
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December 31, |
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2022 |
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2021 |
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(Unaudited) |
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Assets |
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Current Assets |
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Cash and cash equivalents |
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$ |
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$ |
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Investments |
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Accounts receivable |
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Inventory |
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Prepaid expenses |
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Total current assets |
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Fixed assets - net |
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Deposits |
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Operating lease right-of-use asset |
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Deferred offering costs |
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TOTAL ASSETS |
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$ |
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$ |
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Liabilities, Convertible Preferred Stock, and Stockholders’ Deficit |
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Current Liabilities |
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Accounts payable |
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$ |
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$ |
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Accrued expenses |
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Current portion of operating lease liability |
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Convertible notes payable and accrued interest; net of debt discount of $ |
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Convertible notes payable and accrued interest due to related parties; net of debt discount of $ |
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Total current liabilities |
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Operating lease liability – net of current portion |
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Total Liabilities |
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Commitments and Contingencies (Notes 6 and 9) |
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Convertible Preferred Stock |
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Series A convertible preferred stock, $ |
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Series B convertible preferred stock, $ |
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Stockholders’ Deficit |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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Accumulated other comprehensive income (loss) |
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( |
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( |
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Total stockholders’ deficit |
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( |
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( |
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TOTAL LIABILITIES, CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS' DEFICIT |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
| 1 |
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
(In thousands, except per share data)
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Three Months Ended March 31, |
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2022 |
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2021 |
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Revenue |
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$ |
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$ |
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Cost of sales |
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Gross (Loss) Profit |
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( |
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Operating Expenses |
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Research and development expenses |
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Sales and marketing expenses |
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General and administrative expenses |
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Total Operating Expenses |
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Loss from Operations |
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( |
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( |
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Other Income (Expense) |
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Gain on investments |
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Interest expense |
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( |
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( |
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Other expense |
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( |
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( |
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Total Other Expense |
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( |
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( |
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Net Loss |
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( |
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( |
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Loss attributable to non-controlling interest |
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— |
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Net Loss Attributable to Tenon Medical, Inc. |
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$ |
( |
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$ |
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Net Loss Attributable to Tenon Medical, Inc. Per Share of Common Stock |
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Basic and diluted |
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$ |
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$ |
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Weighted-Average Shares of Common Stock Outstanding |
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Basic and diluted |
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Consolidated Statements of Comprehensive Loss: |
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Net loss |
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$ |
( |
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$ |
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Unrealized loss on investments |
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Change in foreign currency translation adjustment |
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Total Comprehensive Loss |
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( |
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( |
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Comprehensive loss attributable to non-controlling interest |
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( |
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Total comprehensive loss attributable to Tenon Medical, Inc. |
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$ |
( |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
| 2 |
Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Deficit (Unaudited)
(In thousands, except share data)
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Series A Convertible Preferred Stock |
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Series B Convertible Preferred Stock |
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Common Stock |
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Additional Paid-In |
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Accumulated |
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Accumulated Other Comprehensive |
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Non- Controlling |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Income |
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Interest |
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Total |
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Balance at December 31, 2020 |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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$ |
( |
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Stock-based compensation expense |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Net loss |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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- |
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( |
) |
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( |
) |
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Balance at March 31, 2021 |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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Balance at December 31, 2021 |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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Stock-based compensation expense |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Net loss |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
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- |
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- |
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( |
) |
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Balance at March 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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$ |
( |
) |
The accompanying notes are an integral part of these consolidated financial statements.
| 3 |
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
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Three Months Ended March 31, |
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2022 |
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2021 |
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Cash Flows from Operating Activities |
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Net loss |
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$ |
( |
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$ |
( |
) |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Non-cash interest expense |
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Stock-based compensation expense |
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Depreciation and amortization |
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Amortization of operating right-of-use asset |
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Increase (decrease) in cash resulting from changes in: |
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Accounts receivable |
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( |
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Inventory |
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( |
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Prepaid expenses and other assets |
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Accounts payable |
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( |
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Accrued expenses |
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( |
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( |
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Operating lease liability |
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( |
) |
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Net cash used in operating activities |
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( |
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( |
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Cash Flows from Investing Activities |
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Sales of investments |
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Purchases of property and equipment |
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( |
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Net cash provided by investing activities |
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Cash Flows from Financing Activities |
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Deferred offering costs |
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( |
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( |
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Net cash used in financing activities |
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( |
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( |
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Effect of foreign currency translation on cash flow |
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( |
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Net Increase (Decrease) in Cash and Cash Equivalents |
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( |
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Cash and Cash Equivalents at Beginning of Period |
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Cash and Cash Equivalents at End of Period |
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$ |
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$ |
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Supplemental Disclosures of Cash Flow Information |
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Cash paid during the year for: |
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Interest |
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$ |
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$ |
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Income taxes |
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$ |
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$ |
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Non-cash investment and financing activities: |
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Conversion of trade payable to law firm to note payable |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
| 4 |
1. Organization and Business
Nature of operations
Tenon Medical, Inc. (the “Company”), was incorporated in the State of Delaware on June 19, 2012 and was headquartered in San Ramon, California until June 2021 when it relocated to Los Gatos, California. The Company is a medical device company that has developed a novel posterior approach to sacroiliac joint fusion for treatment of the most common types of sacroiliac joint disorders that cause lower back pain. The Company received U.S. Food and Drug Administration (“FDA”) clearance in 2018 for its primary product, The CATAMARAN
TM
System. The Company is in the early stages of its commercial launch with its primary focus being on the US market.Basis of consolidation
The consolidated financial statements of the Company include the accounts of the Company and its wholly-owned subsidiary, Tenon Technology AG (“TTAG”), a Swiss company. TTAG was a majority-owned subsidiary until October 28, 2021, at which date the Company acquired the remaining non-controlling interest of TTAG (see Note 8). All intercompany balances and transactions have been eliminated in consolidation.
2. Summary of Significant Accounting Principles
Basis of presentation
We have prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the SEC. As permitted under these rules and regulations, we have condensed or omitted certain financial information and footnote disclosures we normally include in our annual consolidated financial statements prepared in accordance with
accounting principles generally accepted in the United States of America (“U.S. GAAP”).
The unaudited condensed consolidated balance sheet as of December 31, 2021 has been derived from our audited consolidated financial statements, which are included in our
amended Registration Statement on Form S-1 filed with the SEC on April 20, 2022 (our “amended Registration Statement”).
These condensed consolidated financial statements have been prepared on the same basis as our annual consolidated financial statements and, in management’s opinion, reflect all adjustments consisting only of normal recurring adjustments that are necessary for a fair presentation of our financial information. Our interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year.
The financial statements of the subsidiary are prepared for the same reporting period as the parent, using consistent accounting policies in all material respects. The amount of consolidated net loss attributable to the Company and ownership interests in TTAG held by parties other than the Company are both presented on the face of the Consolidated Statements of Operations. Given that TTAG is a wholly-owned subsidiary as of March 31, 2022, this separate presentation has been discontinued for the three months then ended. Further, given that the Company purchased the non-controlling interest in TTAG as of October 28, 2021, the amount of consolidated net loss attributable to the Company and the non-controlling interest are both presented on the face of the Consolidated Statements of Operations and Comprehensive Loss.
These unaudited condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s audited consolidated financial statements as of and for the years ended December 31, 2021 and 2020 included in our Registration Statement.
The Company’s significant accounting policies are disclosed in the audited consolidated financial statements as of and for the years ended December 31, 2021 and 2020 included in our Registration Statement. There have been no material changes in the Company’s significant accounting policies during the three months ended March 31, 2022.
Going concern uncertainty and liquidity requirements
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.
Since inception, the Company has incurred losses and negative cash flows from operations. Management expects to incur additional operating losses and negative cash flows from operations in the foreseeable future as the Company continues its product development programs and starts the commercial launch of The CATAMARAN System. Based on the Company’s current level of expenditures, the Company believes that its existing cash and cash equivalents as of March 31, 2022 will not provide sufficient funds to enable it to meet its obligations through June 2022. On April 29, 2022, the Company closed an initial public offering of its common stock (see Note 12). The Company believes that the proceeds from the offering will provide sufficient funds to enable it to meet its obligations through for a period of at least twelve months from the date these consolidated financial statements were available to be released.
| 5 |
Use of estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Significant estimates made by management include, but are not limited to, realization of deferred tax assets, accrued liabilities, obsolescence of inventory, stock-based compensation and the fair value of the Company’s common stock and preferred stock.
Income Taxes
The Company accounts for income taxes utilizing ASC 740, “Income Taxes”. ASC 740 requires the measurement of deferred tax assets for deductible temporary differences and operating loss carry forwards, and of deferred tax liabilities for taxable temporary differences. Measurement of current and deferred tax liabilities and assets is based on provisions of enacted tax law. The effects of future changes in tax laws or rates are not included in the measurement. The Company recognizes the amount of taxes payable or refundable for the current year and recognizes deferred tax liabilities and assets for the expected future tax consequences of events and transactions that have been recognized in the Company’s financial statements or tax returns. The Company currently has substantial net operating loss carry forwards. The Company has recorded a 100 % valuation allowance against net deferred tax assets due to uncertainty of their ultimate realization. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
Impact of COVID-19
In March 2020, the World Health Organization declared the coronavirus (“COVID-19”) outbreak to be a pandemic. During the years ended December 31, 2021 and 2020, the Company’s financial results were not significantly affected by the COVID-19 outbreak. The Company has considered all information available as of the date of issuance of these consolidated financial statements and the Company is not aware of any specific events or circumstances that would require an update to its estimates or judgments, or a revision to the carrying value of its assets or liabilities. These estimates may change as new events occur and additional information becomes available. The extent to which the COVID-19 outbreak affects the Company’s future financial results and operations will depend on future developments which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the outbreak, and current or future domestic and international actions to contain and treat it.
Net loss per share
Basic net loss per share is based upon the weighted-average number of common shares outstanding. Diluted net loss per share is based on the assumption that all potential common stock equivalents (convertible preferred stock, stock options, and warrants) are converted or exercised. The calculation of diluted net loss per share excludes potential common stock equivalents if the effect is anti-dilutive. The Company’s weighted-average common shares outstanding for basic and diluted are the same because the effect of the potential common stock equivalents is anti-dilutive.
The Company had the following dilutive common stock equivalents as of March 31, 2022 and December 31, 2021 which were excluded from the calculation because their effect was anti-dilutive.
|
March 31, 2022 |
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December 31, 2021 |
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|
Common shares convertible from notes payable |
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Common shares convertible from preferred stock |
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Outstanding stock options |
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|
|
|
|
|
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Outstanding warrants |
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|
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Total |
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|
| 6 |
Recent Accounting Pronouncements
There have been no accounting pronouncements or changes in accounting pronouncements that are significant or potentially significant to the Company.
3.
Investments
The following table sets forth by level, within the fair value hierarchy, the Company’s investments at fair value as of March 31, 2022 and December 31, 2021:
|
|
|
Level 2 |
|
|
|
Corporate debt securities: |
|
|
|
|
|
March 31, 2022 |
|
$ |
|
|
|
December 31, 2021 |
|
$ |
|
|
Cost and fair value of available-for-sale investments as of March 31, 2022 and December 31, 2021 are as follows:
|
|
|
Amortized Cost |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|||
|
Corporate debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2022 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
December 31, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The following table presents fair values and gross unrealized losses recorded to accumulated other comprehensive income as of March 31, 2022 and December 31, 2021, aggregated by investment category and the length of time that individual securities have been in a continuous loss position:
|
|
|
Less Than 12 Months |
|
|
Unrealized Losses |
|
||
|
Corporate debt securities: |
|
|
|
|
|
|
|
|
|
March 31, 2022 |
|
$ |
|
|
|
$ |
|
|
|
December 31, 2021 |
|
$ |
|
|
|
$ |
|
|
During the three months ended March 31, 2022 and the year ended December 31, 2021, the Company did no
During the year ended December 31, 2021, there was a net gain of approximately $2 included in the Company’s net loss. Accrued interest as of December 31, 2021 was approximately $18 and is included in prepaid expenses in the Company’s consolidated balance sheet.
4.
Property and Equipment
Property and equipment, net, consisted of the following:
|
March 31, 2022 |
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|
December 31,2021 |
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||||||||
|
Reusable Product |
|
$ |
|
|
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$ |
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||||
|
IT Equipment |
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|
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||||
|
Lab Equipment |
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||||
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Office Furniture |
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||||
|
Property and equipment, gross |
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|
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|
||||
|
Less: accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
||||
|
Property and equipment, net |
|
$ |
|
|
|
$ |
|
|
||||
The Company recorded depreciation expense for the three-month periods ended March 31, 2022 and 2021 of approximately $10 and $0 , respectively.
| 7 |
5. Accrued Expenses
Accrued expenses consisted of the following:
|
|
March |
|
|
December 31, 2021 |
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|||
|
Accrued compensation |
|
$ |
|
|
|
$ |
|
|
|
Accrued commissions |
|
|
|
|
|
|
|
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Other accrued expenses |
|
|
|
|
|
|
|
|
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Total accrued expenses |
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$ |
|
|
|
$ |
|
|
6. Debt
Convertible notes payable – parent company
During 2015, the Company issued a $53 convertible promissory note to a consultant that, along with accrued interest at an annual rate of 8.0 %, was automatically convertible upon a preferred stock financing of at least $500 , at a conversion price equal to 90 % of the price per share paid by the other cash purchasers in the future financing. In June 2019, the note and its accrued interest to date was replaced by a $68 convertible promissory note that, along with accrued interest at an annual rate of 8.0 %, was automatically convertible upon a preferred stock financing of at least $1,000 , at a conversion price equal to 90 % of the price per share paid by the other cash purchasers in the future financing. The note had a maturity date of June 12, 2021 . In May 2021, the note was again replaced by a $68 convertible promissory note with a maturity date of May 7, 2022 that, along with accrued interest at an annual rate of 8.0 %, is automatically convertible upon an initial public offering (“IPO”) or a capital stock financing of at least $5,000 . The conversion price is equal to 80 % of the IPO price or $1.9565 per share in the event of a capital stock financing of at least $5,000 . Since the conversion is contingent upon an event outside the Company’s control, the beneficial conversion feature will be recorded once the contingency is resolved. Accrued interest at March 31, 2022 and December 31, 2021 totaled approximately $15 and $14 , respectively.
During 2016, the Company issued a $118 convertible promissory note to a vendor that, along with accrued interest at an annual rate of 8.0 %, was automatically convertible upon a preferred stock financing of at least $500 , at a conversion price equal to 90 % of the price per share paid by the other cash purchasers in the future financing. The note had a maturity date of January 1, 2019 and remained unpaid during 2019 and 2020. In April 2021, the note was replaced by a $118 convertible promissory note with a maturity date of April 30, 2022 that, along with accrued interest at an annual rate of 8.0 %, is automatically convertible upon an IPO or a capital stock financing of at least $5,000 . The conversion price is equal to 80 % of the IPO price or $1.9565 per share in the event of a capital stock financing of at least $5,000 . Since the conversion is contingent upon an event outside the Company’s control, the beneficial conversion feature will be recorded once the contingency is resolved. Accrued interest at March 31, 2022 and December 31, 2021 totaled approximately $59 and $56 , respectively.
In October 2019, the Company issued a $70 convertible promissory note to the Company’s former Chief Executive Officer that, along with accrued interest at an annual rate of 8.0 %, was automatically convertible upon a preferred stock financing of at least $500 , at a conversion price equal to 80 % of the price per share paid by the other cash purchasers in the future financing. The note had a maturity date of October 12, 2022 . In April 2021, the note was replaced by a $70 convertible promissory note with a maturity date of April 30, 2022 that, along with accrued interest at an annual rate of 8.0 %, is automatically convertible upon an IPO or a capital stock financing of at least $5,000 . The conversion price is equal to 70 % of the IPO price or $1.9565 per share in the event of a capital stock financing of at least $5,000 . Since the conversion is contingent upon an event outside the Company’s control, the beneficial conversion feature will be recorded once the contingency is resolved. Accrued interest at March 31, 2022 and December 31, 2021 totaled approximately $14 and $12 , respectively.
In October 2019, the Company issued a $50 convertible promissory note to an investor that, along with accrued interest at an annual rate of 8.0 %, was automatically convertible upon a preferred stock financing of at least $500 , at a conversion price equal to 80 % of the price per share paid by the other cash purchasers in the future financing. The note had a maturity date of October 21, 2022 . In May 2021, the note was replaced by a $50 convertible promissory note with a maturity date of May 3, 2022 that, along with accrued interest at an annual rate of 8.0 %, is automatically convertible upon an IPO or a capital stock financing of at least $5,000 . The conversion price is equal to 70 % of the IPO price or $1.9565 per share in the event of a capital stock financing of at least $5,000 . Since the conversion is contingent upon an event outside the Company’s control, the beneficial conversion feature will be recorded once the contingency is resolved. Accrued interest at March 31, 2022 and December 31, 2021 totaled approximately $10 and $9 , respectively.
| 8 |
In November 2020, the Company issued a $200 convertible promissory note to the same investor that, along with accrued interest at an annual rate of 8.0 %, was automatically convertible upon a preferred stock financing of at least $2,000 , at a conversion price equal to 80 % of the price per share paid by the other cash purchasers in the future financing. The note had a maturity date of November 16, 2022 . In May 2021, the note was replaced by a $200 convertible promissory note with a maturity date of May 3, 2022 that, along with accrued interest at an annual rate of 8.0 %, is automatically convertible upon an IPO or a capital stock financing of at least $5,000 . The conversion price is equal to 70 % of the IPO price or 70 % of the price per share paid by the other cash purchasers in the future financing. Since the conversion is contingent upon an event outside the Company’s control, the beneficial conversion feature will be recorded once the contingency is resolved. Accrued interest at March 31, 2022 and December 31, 2021was approximately $22 and $18 , respectively.
In January 2021, the Company issued a promissory note of $131 to a law firm. The note bore interest at 3.0 % per annum and had a maturity date of the earlier of July 27, 2021 , the closing of a debt or equity financing, or the closing of a change in control transaction. The interest rate was to increase to 5.0 % if all principal and interest had not been paid by the maturity date. The Company repaid this note and accrued interest in May 2021.
In April 2021, the Company issued two convertible promissory notes of $40 and $170 to the vendor described in the second paragraph above that, along with accrued interest at an annual rate of 8.0 %, are automatically convertible upon an IPO or a capital stock financing of at least $5,000 . The conversion price is equal to 70 % of the IPO price or 70 % of the price per share paid by the other cash purchasers in the future financing. Since the conversion is contingent upon an event outside the Company’s control, the beneficial conversion feature will be recorded once the contingency is resolved. Accrued interest at March 31, 2022 and December 31, 2021 totaled approximately $15 and $11 , respectively.
From May through July 2021, in multiple rounds of closings the Company issued convertible promissory notes to multiple investors for aggregate proceeds of approximately $12,177 , with maturity dates twelve months from the issuance dates. Of this amount, $620 of notes were issued to related officers, directors, and their family members, and a $50 note was issued to the Chief Executive Officer of the Representative described in Note 9. The notes, along with accrued interest at an annual rate of 8.0 %, are automatically convertible upon an IPO, a capital stock financing of at least $5,000 , or a change of control transaction. The conversion price upon an IPO or a capital stock financing is equal to the lesser of 70 % of the price per share paid by the other cash purchasers, or the price per share at a Company valuation of $22,500 . Upon a change of control, noteholders will receive the greater of a 100 % premium on the outstanding principal, plus accrued interest, or the conversion of the principal and accrued interest into common stock at a Company valuation of $22,500 . Since the conversion is contingent upon an event outside the Company’s control, the beneficial conversion feature will be recorded once the contingency is resolved. The Company recorded debt issuance costs of approximately $71 as a discount on the convertible notes payable balance. As of March 31, 2022, there was a remaining unamortized discount of approximately $15 . Accrued interest at March 31, 2022 and December 31, 2021 was approximately $767 and $527 , respectively.
Principal and interest payments on the convertible notes payable are due as follows:
|
2022 |
|
$ |
|
|
|
Accrued interest |
|
|
|
|
|
Total principal and interest |
|
$ |
|
|
Convertible notes payable – subsidiary
In June 2021, the Company’s subsidiary issued a convertible promissory note for approximately $107 to TTAG’s minority shareholder. This note, along with accrued interest at an annual rate of 8.0 %, could be applied to future TTAG capital increases. The Company purchased this note and accrued interest of approximately $114 in October 2021 from TTAG’s minority shareholder.
| 9 |
7. Leases
In June 2021, the Company entered into a facility lease agreement for its company headquarters in Los Gatos, California. This non-cancelable operating lease expires in June 2026 . The Company includes options that are reasonably certain to be exercised as part of the determination of lease terms. The Company may negotiate termination clauses in anticipation of any changes in market conditions, but generally these termination options are not exercised. Residual value guarantees are generally not included within operating leases. In addition to base rent payments, leases may require the Company to pay directly for taxes and other non-lease components, such as insurance, maintenance, and other operating expenses, which may be dependent on usage or vary month-to-month. Non-lease components were considered and determined not to be material. The Company determined if an arrangement is a lease at inception of the contract in accordance with guidance detailed in the new standard and performed the lease classification test as of the lease commencement date. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease’s commencement date based on the present value of lease payments over the lease term. When a lease did not provide an implicit rate, the Company used its estimated incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments.
Operating lease costs for the facility lease during the three months ended March 31, 2022 were approximately $135 , and were included in general and administrative expenses in the consolidated statements of operations and comprehensive loss.
Supplemental balance sheet information related to leases was as follows:
|
|
|
March 31, |
|
|
December 31, |
|
||
|
|
|
2022 |
|
|
2021 |
|
||
|
Operating lease right-of-use assets |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease liability, current |
|
$ |
( |
) |
|
$ |
( |
|
|
Operating lease liability, noncurrent |
|
|
( |
) |
|
|
( |
|
|
Total operating lease liabilities |
|
$ |
( |
) |
|
$ |
( |
|
Future maturities of operating lease liabilities as of March 31, 2022 were as follows:
|
2022 |
|
$ |
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
Total lease payments |
|
|
|
|
|
Less: imputed interest |
|
|
( |
) |
|
Present value of operating lease liabilities |
|
$ |
|
|
|
|
|
|
|
|
|
Other information: |
|
|
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities for the three months ended March 31, 2022 |
|
$ |
|
|
|
Remaining lease term - operating leases (in years) |
|
|
|
|
|
Average discount rate - operating leases |
|
|
|
% |
8. Stockholders’ Equity
The Amended and Restated Certificate of Incorporation dated February 18, 2014 authorized the issuance of 3,937,550 shares of common stock and 2,099,525 shares of preferred stock, with a par value of $0.001 7,000,000 shares of common stock and 2,460,802 shares of preferred stock, and increased the number of authorized shares of Series A Convertible Preferred Stock (“Series A Preferred Stock”) to 1,798,905 . During October 2021 the Company increased the number of authorized shares to 10,487,904 shares of common stock and 3,297,061 shares of preferred stock. During February 2022, the Company increased the number of authorized shares to 130,000,000 shares of common stock and 20,000,000 shares of preferred stock.
| 10 |
Preferred Stock
On October 28, 2021, the Company entered into an Agreement (the “Exchange Agreement”) with TTAG’s minority shareholder. Pursuant to the Exchange Agreement, TTAG’s minority shareholder agreed to exchange 574,033 shares of Series A Convertible Preferred Stock issued by TTAG, representing its entire ownership interest in TTAG, for the Company’s Series A Preferred Stock, representing a 24 % ownership interest in the Company’s fully-diluted capital, which includes the pro forma conversion of all outstanding convertible preferred stock and promissory notes, options, and warrants. Pursuant to the terms of the Exchange Agreement, the Company has issued TTAG’s minority shareholder 2,550,763 shares of Series A Preferred Stock. These shares are subject to anti-dilution protection that maintains TTAG’s minority shareholder’s 24 % ownership interest in the Company, excluding any shares issued by the Company in an initial public offering or a qualified offering of at least $5,000 at a per share price of at least $3.3737 . The anti-dilution protection terminates upon the earlier of (i) the closing of an initial public offering; (ii) the conversion of the $12,177 convertible promissory notes described in Note 6; (iii) the repayment of the $12,177 convertible promissory notes described in Note 6, in the case of a change in control of the Company; or (iv) the liquidation of the Company.
In accordance with ASC 810-10-45-23, the Company did no t recognize any gain or loss in the consolidated statements of operations and comprehensive loss in conjunction with the Exchange Agreement. The carrying value of the non-controlling interest in TTAG was reduced to zero , and the value of the Company’s investment in TTAG increased accordingly. The shares of Series A Preferred Stock issued were recorded at fair value. The difference between the increase in the Company’s investment and the fair value of the Series A Preferred Stock issued was recorded as a decrease in Additional Paid in Capital (“APIC”). The resulting negative APIC was then reclassified to accumulated deficit.
In a series of closings from 2012 through 2015, the Company issued an aggregate of 491,222 shares of Series B Convertible Preferred Stock (“Series B Preferred Stock”) at $2.795 per share for proceeds of $1,272 , net of stock issuance costs.
The Company classifies the convertible preferred stock outside of total stockholders’ deficit because, in the event of certain deemed liquidation events that are not solely within the control of the Company, the shares would become redeemable at the option of the holders. The Company did not adjust the carrying values of the convertible preferred stock to the deemed liquidation values of such shares since a liquidation event was not probable of occurring at March 31, 2022. Subsequent adjustments to increase or decrease the carrying values to the ultimate liquidation values will be made only if, and when, it becomes probable that such a liquidation event will occur.
Conversion
At the option of the holder, shares of Series A and Series B Preferred Stock are convertible into common stock at a conversion rate of one-to-0.5 , subject to adjustments for stock dividends, splits, combinations, and similar events. Automatic conversion will occur in the event of a firmly underwritten public offering of common stock of the Company at a price of at least $4.00 per share, subject to appropriate adjustments for stock dividends, splits, combinations, and similar events, and with total gross proceeds to the Company of at least $15,000 , before deduction of underwriters’ commissions and expenses.
Redemption
The shares of the Series A and Series B Preferred Stock are redeemable only upon acquisition or liquidation of the Company.
Liquidation preference
With respect to any distributions in connection with a liquidation, dissolution or winding up of the Company, or in connection with the sale of voting control of all or substantially all of the assets of the Company, by way of merger, acquisition, consolidation or similar transaction, prior to any distribution to common stockholders, the holders of Series A and Series B Preferred Stock are entitled to receive $1.526 and $4.981 per share, respectively, plus any declared but unpaid dividends, adjusted to reflect any dividends previously paid. If, upon the occurrence of such event, the assets and funds distributed among the holders of Series A and Series B Preferred Stock shall be insufficient to permit the payment to such holders of the full liquidation preference amounts, the entire assets and funds of the Company legally available shall be distributed ratably among the preferred stockholders in proportion to the preferential amount to which each holder is entitled.
After payment of the liquidation preferences, the holders of common stock are entitled to receive the remaining assets of the Company available for distribution to its stockholders pro rata based on the number of shares of common stock held by each holder.
| 11 |
Voting rights
The holders of vested shares of common stock shall be entitled to vote on any matter submitted to a vote of the stockholders and each such holder shall be entitled to one vote per share of common stock held. The holders of Series A and Series B Preferred Stock shall be entitled to vote together with the common stock as a single class on any matter submitted to a vote of the stockholders. Holders of Series A and Series B Preferred Stock shall be entitled to the number of votes equal to the number of common stock issuable upon conversion of their respective Series A and Series B Preferred Stock at the time such shares are voted. The holders of a majority of the preferred stock have additional voting rights as specified in the Company’s Amended and Restated Certificate of Incorporation, as amended.
Equity awards
In 2012, the Board of Directors of the Company (the “Board”) approved the Tenon Medical, Inc. 2012 Equity Incentive Plan (the “2012 Plan”). The 2012 Plan provides for the issuance of common stock options, appreciation rights, and other awards to employees, directors, and consultants. Options issued under the 2012 Plan generally vest over a period of to four years and have a 10 -year expiration date. In April 2021, the Board increased the number of shares of common stock reserved for issuance under the 2012 Plan to 662,516 . In July 2021, the Board increased the number of shares of common stock reserved for issuance under the 2012 Plan to 737,516 . In August 2021, the Board increased the number of shares of common stock reserved for issuance under the 2012 Plan from 737,516 shares to 799,266 shares and approved the form of a 2022 Equity Incentive Plan. See Note 12.
The Company adopted the fair value recognition provisions in accordance with authoritative guidance related to equity-based payments. Compensation expense in 2022 and 2021 includes the portion of awards vested in the periods for all equity-based awards granted, based on the grant date fair value estimated using a Black-Scholes option valuation model, consistent with authoritative guidance.
A summary of the Company’s share option activity is as follows:
Number of Shares | Weighted Average Exercise Price Per Share | Intrinsic Value | ||||||||||
Options outstanding at December 31, 2021 | $ | $ | ||||||||||
Granted | $ | |||||||||||
Forfeited | $ | |||||||||||
Options outstanding at March 31, 2022 | $ | $ | ||||||||||
Options vested and exercisable at March 31, 2022 | $ | $ | ||||||||||
The following table sets forth stock-based compensation expense recognized for the three months ended March 31, 2022 and 2021:
Three months ended March 31, | ||||||||
2022 | 2021 | |||||||
Research and development | $ | $ | ||||||
Sales and marketing | ||||||||
General, and administrative | ||||||||
Total stock-based compensation expense | $ | $ | ||||||
As of March 31, 2022, there was approximately $1,309 of total unrecognized compensation expense related to unvested stock-based compensation arrangements granted under the Plan. The cost is expected to be recognized over a weighted-average period of 2.17 years.
There were no option grants during the three-month period ended March 31, 2022. There were 10,122 stock option shares available to be issued at March 31, 2022.
| 12 |
Warrants
During 2020, the Company issued warrants to purchase 25,000 shares of common stock to a consultant. The warrants, which are equity-classified, are immediately exercisable at an exercise price of $5.20 per share. The fair value of the warrants on the grant date was $2.30 per warrant, which was calculated based on the following weighted-average assumptions, using a Black-Scholes option valuation model: expected term of 5.00 years; expected volatility of 51.88 %; dividend yield of 0 %, and risk-free interest rate of 0.30 %. The Company recorded deferred offering costs of approximately $58 associated with these warrants during 2020.
9. Commitments and Contingencies
Sales Representative Agreement
In April 2020, the Company entered into an Exclusive Sales Representative Agreement, under which the counterparty to the agreement (the “Representative”) received exclusive rights to market, promote, and distribute The CATAMARANTM System in the United States and Puerto Rico. The agreement is for an initial period of
In June 2021, the Company issued a $50 convertible note payable to the Chief Executive Officer of the Representative, as part of the convertible debt offering described in Note 6.
Litigation
In the normal course of business, the Company may possibly be named as a defendant in various lawsuits.
On September 2, 2021, Khalid Mentak, a former director and Chief Executive Officer of the Company filed an arbitration claim with the American Arbitration Association (“AAA”) against the Company, asserting damages in excess of $3,000 , plus attorneys’ fees and other costs, for alleged unpaid wages, defamation, and other claims. The Company maintains that any such claim has an upper limit of $600 because the services provided by Mr. Mentak are governed by a Consulting Agreement between the Company and Key Medical, Inc (“Key Medical”), a company which Mr. Mentak served as Chief Executive Officer. The AAA proceeding was also initiated pursuant to the arbitration provision in the Consulting Agreement. The parties have selected an arbitrator and the Company filed a motion to dismiss the proceeding as currently pled because the proper parties should be Key Medical and the Company, and not Mr. Mentak as an individual. The arbitrator ruled that Mr. Mentak was the real-party-in-interest and denied the motion, without prejudice to any arguments on the merits of the underlying claims. On March 1, 2022, Mr. Mentak filed a more detailed Statement of Claims, which the Company responded to on March 16, 2022. The Company also filed a cross-complaint for declaratory relief seeking to establish its rights and obligations under the Consulting Agreement with respect to the claimant and Key Medical, which was formally named a defendant in the cross complaint. The claimant has objected to the cross-complaint as unnecessary, and the objection is under submission. The arbitration hearing has been set for the week of November 14, 2022, and the parties are engaging in pre-hearing matters. There have been some overtures toward resolution, but the parties have not bridged their differences. While the Company is unable to provide any assurances as to the ultimate outcome of this matter, it believes the claim for additional compensation is without merit and intends to vigorously defend against it. The Company is currently unable to estimate the costs of the arbitration, including any potential damages if the other party were to prevail on its claim. As of March 31, 2022 and December 31, 2021, approximately $600
| 13 |
10. Concentrations
Credit risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents.
The Company maintains cash balances at financial institutions located in California and Switzerland. Accounts at the U.S. financial institutions are secured by the Federal Deposit Insurance Corporation. At times, balances may exceed federally insured limits. The Company has not experienced any losses in such accounts. Management believes that the Company is not exposed to any significant credit risk with respect to its cash and cash equivalents.
The Company grants unsecured credit to its customers based on an evaluation of the customer’s financial condition and a cash deposit is generally not required. Management believes its credit policies do not result in significant adverse risk and historically has not experienced significant credit-related losses.
Currency risk
The Company’s subsidiary, Tenon Technology AG, realizes a portion of its expenses in Swiss francs. Consequently, certain assets and liabilities are exposed to foreign currency fluctuations. At March 31, 2022 and December 31, 2021, approximately $25 and $21 , respectively, of the Company’s net monetary assets were denominated in Swiss francs. The Company has not entered into any hedging transactions to reduce the exposure to currency risk.
11. Related Party Transactions
During 2018 through 2020, the Company’s subsidiary issued convertible promissory notes to TTAG’s minority shareholder. In November 2020, these notes payable and accrued interest were converted into TTAG shares. In June 2021, the Company’s subsidiary issued a convertible promissory note for approximately $107 to TTAG’s minority shareholder. The Company purchased this note and accrued interest of $114 in October 2021 from TTAG’s minority shareholder. See Note 6.
The Company had a consulting agreement with a company owned by the former Chief Executive Officer of the Company. Under this consulting agreement, the Chief Executive Officer was to provide services from 2015 through June 1, 2021. Total payments under the consulting agreement of $600 are to be paid as follows: (a) $300 paid upon closing of financing round of at least $5,000 , followed by twelve monthly payments of $25 per month; (b) $300 paid upon achieving at least $3,000 of annual revenue and a financing round of less than $5,000 ; or (c) the entire $600 payable immediately upon an acquisition of the Company. During the three months ended March 31, 2022 and March 31, 2021, the Company recorded consulting expense of $25 and $0 , respectively, related to this agreement. As of March 31, 2022 and December 31, 2021, approximately $600
During 2021, the Company issued convertible promissory notes totaling $620 to officers, directors, and their family members. See Note 6. In addition, a note was issued to the Chief Executive Officer of the Representative described in Note 9.
On October 28, 2021, the Company entered into an agreement with TTAG’s minority shareholder. See Note 8. Pursuant to the terms of the Exchange Agreement, the Company purchased the convertible note and accrued interest between TTAG and Zuhlke Ventures AG (“ZVAG”), TTAG’s minority shareholder, in the amount of approximately $114 .
On December 31, 2021, the Company and TTAG entered into the IP Sale and Purchase Agreement, whereby TTAG transferred certain patents and trademarks to the Company. In connection with this transfer, the Company issued an unsecured promissory note to TTAG in the amount of $818 which eliminates in consolidation.
| 14 |
12. Subsequent Events
On January 10, 2022 and February 2, 2022, the Board and stockholders, respectively, of the Company approved the Tenon Medical, Inc. 2022 Equity Incentive Plan (the “2022 Plan”), which was to be deemed effective on April 25, 2022. The number of shares of common stock that may be subject to awards and sold under the 2022 Plan is equal to 1,600,000 . Automatic annual increases in number of shares available for issuance under the 2022 Plan is equal to the least of (a) 1,100,000 shares, (b) 4 % of the total number of shares of all classes of common stock outstanding on the last day of the immediately preceding fiscal year, or (c) such number determined by the 2022 Plan administrator no later than the last day of the immediately preceding fiscal year. Annual increases will continue until the tenth anniversary of the earlier of the Board or stockholder approval of the 2022 Plan, which is January 10, 2032.
On April 6, 2022, we effected a 1:2 reverse stock split (the “Reverse Stock Split”) by filing an amendment to the Company’s Amended and Restated Certificate Incorporation, as amended, with the Delaware Secretary of State. The Reverse Stock Split combined every two shares of our common stock issued and outstanding immediately prior to effecting the Reverse Stock Split into one share of common stock. Similarly, shares of Series A and Series B Preferred Stock are convertible into common stock at a conversion rate of one-to-0.5, subject to adjustments for stock dividends, splits, combinations, and similar events. No fractional shares were issued in connection with the Reverse Stock Split. All historical and per share amounts reflected throughout this document have been adjusted to reflect the Reverse Stock Split. The authorized number of shares and the par value per share of our common stock were not affected by the Reverse Stock Split.
On April 26, 2022, the following events occurred:
|
• |
The Registration Statement relating to the IPO was declared effective by the SEC. The IPO consisted of |
|
• |
Pursuant to the Underwriting Agreement dated April 26, 2022, between the Company, The Benchmark Company, LLC (“Benchmark”) and Valuable Capital Limited (together with Benchmark, the “Underwriters”), the Company granted the Underwriters warrants to purchase a total of |
On April 27, 2022, the shares of the Company’s common stock began trading on the Nasdaq Capital Market LLC under the symbol “TNON.”
On April 29, 2022, the following events occurred:
|
• |
The IPO closed, and the Company received approximately $ |
|
• |
As a result of the completion of the IPO and as required under the terms of the convertible notes payable described in Note 6, the Company converted the entirety of the related outstanding principal and accrued interest to |
|
• |
As result of the completion of the IPO, the Company converted all shares of Series A and Series B Preferred Stock to |
|
• |
In accordance with the Amended and Restated Exclusive Sales Representative Agreement executed in May 2021, the counterparty to the agreement received anti-dilution protections to maintain ownership of |
|
• |
As a result of the completion of the IPO, the Company issued |
| 15 |
The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and the other information set forth in the Registration Statement. In addition to historical information, the following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors discussed herein and any other periodic reports filed and to be filed with the SEC.
Overview
Tenon Medical, Inc., a medical device company formed in 2012, has developed a proprietary, U.S. Food and Drug Administration (“FDA”) approved surgical implant system, which we call The CATAMARAN
TM
SIJ Fusion System (“The CATAMARAN System”), designed to fuse one or both sacroiliac joints (“SI-Joint”) to treat SI-Joint dysfunction that often causes severe lower back pain. Published clinical studies have shown that 15% to 30% of all chronic lower back pain is associated with the SI-Joint. We believe that the implant design and procedure we have developed, along with the 2D and 3D protocols for proper implantation will be received well by the clinician community who have been looking for a next generation device. Our initial clinical results indicate that The CATAMARAN System implant is promoting fusion across the joint as evidenced by CT scans which is the gold standard widely accepted by the clinical community. We are preparing for a national launch of The CATAMARAN System through a national distributor to address the greatly underserved market opportunity that exists.We have incurred net losses since our inception in 2012. During the first three months of 2022 and 2021, we had net losses of approximately $2,353,000, and $201,000, respectively. As of March 31, 2022, we had an accumulated deficit of approximately $23.0 million. To date, we have financed our operations primarily through private placements of equity securities, certain debt-related financing arrangements, and sales of our product. We have devoted substantially all of our resources to research and development, regulatory matters and sales and marketing of our product.
Reverse Stock Split
On April 6, 2022, we effected the Reverse Stock Split. Any fractional shares that would have resulted from the Reverse Stock Split were rounded up to the nearest whole share. Our authorized common stock was not impacted by the Reverse Stock Split. Immediately after the Reverse Stock Split there were 989,954 shares of our common stock outstanding. Profit per share and share amounts for the condensed consolidated financial statements as of and for the periods ended March 31, 2022 and 2021 reflect the impact of the Reverse Stock Split. Further, we have retrospectively adjusted the 2021 and 2020 financial statements for profit per share and share amounts as a result of the Reverse Stock Split.
Components of Results of Operations
Revenue
We derive substantially all our revenue from sales of The CATAMARAN System to a limited number of clinicians. Revenue from sales of The CATAMARAN System fluctuates based on volume of cases (procedures performed), discounts, and the number of implants used for a particular patient. Similar to other orthopedic companies, our revenue can also fluctuate from quarter to quarter due to a variety of factors, including reimbursement, changes in independent sales representatives and physician activities.
Cost of Goods Sold, Gross Profit, and Gross Margin
We utilize contract manufacturers for production of The CATAMARAN System implants and instrument sets. Cost of goods sold consists primarily of costs of the components of The CATAMARAN System implants and instruments, quality inspection, packaging, scrap and inventory obsolescence, as well as distribution-related expenses such as logistics and shipping costs. We anticipate that our cost of goods sold will increase in absolute dollars as case levels increase.
Our gross margins have been and will continue to be affected by a variety of factors, including the cost to have our product manufactured for us, pricing pressure from increasing competition, and the factors described above impacting our revenue.
| 16 |
Operating Expenses
Our operating expenses consist of sales and marketing, research and development, and general and administrative expenses. Personnel costs are the most significant component of operating expenses and consist of consulting expenses, salaries, sales commissions and other cash and stock-based compensation related expenses. We expect operating expenses to increase in absolute dollars as we continue to invest and grow our business.
Sales and Marketing Expenses
Sales and marketing expenses primarily consist of stock-based compensation expense and independent sales representative training and commissions. Starting in May 2021, commissions to our national distributor have been based on a percentage of sales and we anticipate that these commissions will make up a significant portion of our sales and marketing expenses. We expect our sales and marketing expenses to increase in absolute dollars with the commercial launch of The CATAMARAN System resulting in higher commissions, increased The CATAMARAN System clinician and sales representative training, and the start of clinical studies to gain wider clinician adoption of The CATAMARAN System. Our sales and marketing expenses may fluctuate from period to period due to timing of sales and marketing activities related to the commercial launch of our product.
Research and Development Expenses
Our research and development expenses primarily consist of engineering, product development, regulatory expenses, and consulting services, outside prototyping services, outside research activities, materials, and other costs associated with development of our product. Research and development expenses also include related personnel and consultants’ compensation and stock-based compensation expense. We expense research and development costs as they are incurred. We expect research and development expense to increase in absolute dollars as we improve The CATAMARAN System, develop new products, add research and development personnel, and undergo clinical activities that may be required for regulatory clearances of future products.
General and Administrative Expenses
General and administrative expenses primarily consist of salaries, consultants’ compensation, stock-based compensation expense, and other costs for finance, accounting, legal, compliance, and administrative matters. We expect our general and administrative expenses to increase in absolute dollars as we add personnel and IT infrastructure to support the growth of our business. We also expect to incur additional general and administrative expenses as a result of operating as a public company, including but not limited to: expenses related to compliance with the rules and regulations of the SEC and those of The Nasdaq Capital Market LLC on which our securities will be traded; additional insurance expenses; investor relations activities; and other administrative and professional services. While we expect the general and administrative expenses to increase in absolute dollars, we anticipate that it will decrease as a percentage of revenue over time.
Gain (Loss) on Investments, Interest Expense and Other Income (Expense), Net
Gain (loss) on investments consists of interest income and realized gains and losses from the sale of our investments in money market and corporate debt securities. Interest expense is related to borrowings and includes deemed interest derived from the beneficial conversion prices of notes payable. Other income and expenses have not been significant to date.
| 17 |
Results of Operations
The following table sets forth our results of operations for the period presented:
|
|
|
Three Months Ended March 31, (In thousands) |
|
|||||
|
Consolidated Statements of Operations Data: |
|
2022 |
|
|
2021 |
|
||
|
Revenue |
|
$ |
71 |
|
|
$ |
15 |
|
|
Cost of goods sold |
|
|
275 |
|
|
|
11 |
|
|
Gross (loss) profit |
|
|
(204) |
|
|
|
4 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
Research and development |
|
|
562 |
|
|
|
87 |
|
|
Sales and marketing |
|
|
276 |
|
|
|
4 |
|
|
General and administrative |
|
|
1,037 |
|
|
|
102 |
|
|
Total operating expenses |
|
|
1,875 |
|
|
|
193 |
|
|
Loss from operations |
|
|
(2,079 |
) |
|
|
(189 |
) |
|
Interest and other income (expense), net: |
|
|
|
|
|
|
|
|
|
Gain on investments |
|
|
1 |
|
|
|
— |
|
|
Interest expense |
|
|
(274 |
) |
|
|
(11 |
) |
|
Other expense |
|
|
(1 |
) |
|
|
(1 |
) |
|
Net loss |
|
|
(2,353 |
) |
|
|
(201 |
) |
|
Loss attributable to non-controlling interest |
|
|
— |
|
|
(1 |
) |
|
|
Net loss attributable to Tenon Medical, Inc. |
|
$ |
(2,353 |
) |
|
$ |
(200 |
) |
The following table sets forth our results of operations as a percentage of revenue:
|
|
|
Three Months Ended March 31, |
|
|||||
|
Consolidated Statements of Operations Data: |
|
2022 |
|
|
2021 |
|
||
|
Revenue |
|
|
100 |
% |
|
|
100 |
% |
|
Cost of goods sold |
|
|
383 |
|
|
|
73 |
|
|
Gross profit |
|
|
(283) |
|
|
|
27 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
Research and development |
|
|
784 |
|
|
|
555 |
|
|
Sales and marketing |
|
|
385 |
|
|
|
30 |
|
|
General and administrative |
|
|
1,446 |
|
|
|
648 |
|
|
Total operating expenses |
|
|
2,615 |
|
|
|
1,232 |
|
|
Loss from operations |
|
|
(2,898 |
) |
|
|
(1,205 |
) |
|
Interest and other income (expense), net: |
|
|
|
|
|
|
|
|
|
Gain on investments |
|
|
1 |
|
|
|
— |
|
|
Interest expense |
|
|
(382 |
) |
|
|
(72 |
) |
|
Other expense |
|
|
(1 |
) |
|
|
(4 |
) |
|
Net loss |
|
|
(3,280 |
) |
|
|
(1,281 |
) |
|
Loss attributable to non-controlling interest |
|
|
— |
|
|
(5 |
) |
|
|
Net loss attributable to Tenon Medical, Inc. |
|
|
(3,280 |
)% |
|
|
(1,276 |
)% |
| 18 |
Comparison of the Three Months Ended March 31, 2022 and 2021 (in thousands, except percentages)
Revenue, Cost of Goods Sold, Gross Profit, and Gross Margin
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|||||||
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
|
Revenue |
|
$ |
71 |
|
|
$ |
15 |
|
|
$ |
56 |
|
|
|
373 |
% |
|
Cost of goods sold |
|
|
275 |
|
|
|
11 |
|
|
|
264 |
|
|
|
2,400 |
% |
|
Gross (loss) profit |
|
$ |
(204) |
|
|
$ |
4 |
|
|
$ |
(208) |
|
|
|
(5,200) |
% |
|
Gross margin |
|
|
(287) |
% |
|
|
27 |
% |
|
|
|
|
|
|
|
|
Revenue.
Revenue increased approximately $56 or 373%, for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021. The increase was primarily due to an 80% increase in the number of surgical procedures in which The CATAMARAN System was used, combined with lower revenue per procedure due to a national distribution agreement in effect for sales from July 2020 through April of 2021 that decreased the amount of revenue that the Company was able to recognize per surgical procedure.
Cost of Goods Sold, Gross Profit, and Gross Margin.
Total cost of goods sold increased approximately $264 or 2,400%, for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021. The increase in cost of goods sold is due to a 7,844% year-over-year increase in operations overhead spending as the Company progressed toward commercial launch of The CATAMARAN system, combined with an 80% year-over-year increase in the number of surgical procedures. Gross (loss) profit decreased approximately $208 or 5,200%, to a gross loss of approximately $204 due to the increases in overhead spending and the number of surgical procedures. Gross margin percentage decreased from 27% to negative 283%, driven by higher operations overhead spending, and partially offset by higher revenue per procedure from resulting from an amended and restated national distribution agreement.
Operating Expenses
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|||||||
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
|
Research and development |
|
$ |
562 |
|
|
$ |
87 |
|
|
$ |
475 |
|
|
|
546 |
% |
|
Sales and marketing |
|
|
276 |
|
|
|
4 |
|
|
|
272 |
|
|
|
6,800 |
% |
|
General and administrative |
|
|
1,037 |
|
|
|
102 |
|
|
|
935 |
|
|
|
917 |
% |
|
Total operating expenses |
|
$ |
1,875 |
|
|
$ |
193 |
|
|
$ |
1,682 |
|
|
|
|
|
Research and Development Expenses.
Research and development expenses increased approximately $475, or 546%, for the three months ended March 31, 2022, compared to the three months ended March 31, 2021. The increase was primarily due to increased payroll expenses, and professional fees of approximately $403 and $129, respectively. The increase in consulting expenses relates to a quality/regulatory consulting group hired in May 2021 to upgrade our quality system. The increase in payroll expenses reflects the fact that we did not have any employees during the first three months of 2021.
Sales and Marketing Expenses.
Sales and marketing expenses increased approximately $272, or 6,800%, for the three months ended March 31, 2022, compared to the three months ended March 31, 2021. The increase was primarily due to increased sales training expenses ($72), payroll expenses ($65), sales commissions ($43), consulting fees ($32), and marketing collateral expenses ($25).
General and Administrative Expenses
. General and administrative expenses increased approximately $935, or 917%, for the three months ended March 31, 2022, compared to the three months ended March 31, 2021. The increase was primarily due to increased payroll expenses ($293), consulting and legal fees ($279 and $143, respectively), stock-based compensation ($128), and rent expense ($73). The significant increase in general and administrative expenses was a result of the Company’s ongoing transition to an operating company with formalization and amendment of consulting and sales representative agreements, an audit of the Company’s 2021 audited consolidated financial statements, and the creation of an infrastructure to support future growth through the hiring of employees and establishment of a facility lease.
| 19 |
Gain (Loss) on Investments, Interest Expense and Other Income (Expense), Net
Gain on investments increased approximately $1 for the twelve months ended March 31, 2022 compared to the three months ended March 31, 2021, due to interest on our investments in money market and corporate debt securities. We did not have any investments in corporate debt securities during the three months ended March 31, 2021. Interest expense increased approximately $263, or 2,336%, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021, primarily due to an $12.2 million increase in the level of borrowings associated with closing a new convertible debt offering during May through July 2021.
Liquidity and Capital Resources
As of March 31, 2022, we had cash and cash equivalents of $4.7 million. Since inception, we have financed our operations through private placements of preferred stock, debt financing arrangements, and the sale of our products. As of March 31, 2022, we had $13.8 million of outstanding debt and accrued interest, net of debt discounts.
As of March 31, 2022, we had an accumulated deficit of $22.9 million. During the first three months of 2022 and 2021, we incurred net losses of $2.4 million and $0.2 million, respectively, and expect to incur additional losses in the future. We have not achieved positive cash flow from operations to date. Based on the Company’s current level of expenditures, the Company believes that its existing cash and cash equivalents as of March 31, 2022 will not provide sufficient funds to enable it to meet its obligations through June 2022.
On April 29, 2022, the Company closed an initial public offering of its common stock. Based upon our current operating plan, we believe that the net proceeds from this initial public offering, together with our existing cash and cash equivalents, will enable us to fund our operating expenses and capital expenditure requirements through at least the next 12 months from the date these consolidated financial statements were available to be released. We continue to face challenges and uncertainties and, as a result, our available capital resources may be consumed more rapidly than currently expected due to (a) the uncertainty of future revenues from The CATAMARAN System; (b) changes we may make to the business that affect ongoing operating expenses; (c) changes we may make in our business strategy; (d) regulatory developments affecting our existing products; (e) changes we may make in our research and development spending plans; and (f) other items affecting our forecasted level of expenditures and use of cash resources.
If we need to raise additional capital to fund our operations, funding may not be available to us on acceptable terms, or at all. If we are unable to obtain adequate financing when needed, we may have to delay, reduce the scope of or suspend one or more of our sales and marketing efforts, research and development activities, or other operations. We may seek to raise any necessary additional capital through a combination of public or private equity offerings, debt financings, and collaborations or licensing arrangements. If we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. If we are unable to raise capital, we will need to delay, reduce, or terminate planned activities to reduce costs. Doing so will likely harm our ability to execute our business plans.
Contractual Obligations
The following table summarizes our contractual obligations as of March 31, 2022:
|
|
|
Payments Due By Period (In thousands) |
|
|||||||||||||||||
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
More than |
|
|||||
|
|
|
Total |
|
|
1 year |
|
|
1-3 years |
|
|
4-5 years |
|
|
5 years |
|
|||||
|
Principal obligations on the debt arrangements |
|
$ |
12,893 |
|
|
$ |
12,893 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Interest obligations on the debt arrangements |
|
|
902 |
|
|
|
902 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Operating leases |
|
|
1,263 |
|
|
|
286 |
|
|
|
598 |
|
|
|
378 |
|
|
|
— |
|
|
Purchase obligations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total |
|
$ |
15,058 |
|
|
$ |
14,081 |
|
|
$ |
598 |
|
|
$ |
378 |
|
|
$ |
— |
|
| 20 |
Cash Flows (in thousands, except percentages)
The following table sets forth the primary sources and uses of cash for each of the periods presented below:
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|||||||
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
|
Net cash (used in) provided by: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
(2,464 |
) |
|
$ |
(162 |
) |
|
$ |
(2,302 |
) |
|
|
1,421 |
% |
|
Investing activities |
|
|
4,276 |
|
|
|
— |
|
|
|
4,276 |
|
|
|
N/A |
|
|
Financing activities |
|
|
(54) |
|
|
|
(30) |
|
|
|
(24) |
|
|
|
80 |
% |
|
Effect of foreign currency translation on cash flow |
|
|
2 |
|
|
(2) |
|
|
|
4 |
|
|
(200 |
)% |
||
|
Net increase (decrease) in cash and cash equivalents |
|
$ |
1,760 |
|
|
$ |
(194) |
|
|
$ |
1,954 |
|
|
|
|
|
Net cash used in operating activities increased $2.3 million, or 1,421%, from the three months ended March 31, 2021 to the three months ended March 31, 2022. The increase in the net cash used in operating activities was primarily due to an increase of $2.4 million in our net loss during the three months ended March 31, 2022 as we continued to utilize the cash received from our convertible debt offering during May through July of 2021, partially offset by an increase in non-cash interest and stock-based compensation expenses totaling $0.4 million.
Net cash provided by investing activities increased $4.3 million from the three months ended March 31, 2021 to the three months ended March 31, 2022. Cash provided by investing activities for the three months ended March 31, 2022 was primarily due to the sale of short-term investments, partially offset by the purchase of $0.1 million of property and equipment.
Cash provided by financing activities was not significant for the three months ended March 31, 2022 and the three months ended March 31, 2021.
Critical Accounting Policies, Significant Judgments, and Use of Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported results of operations during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates under different assumptions or conditions. For the three months ended March 31, 2022, there were no significant changes to our existing critical accounting policies which are included in the Registration Statement.
Off-Balance Sheet Arrangements
As of March 31, 2022 and December 31, 2021, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Not required under Regulation S-K for “smaller reporting companies.”
| 21 |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the rules and forms promulgated by the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Because of the inherent limitations to the effectiveness of any system of disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that all control issues and instances of fraud, if any, with a company have been prevented or detected on a timely basis. Even disclosure controls and procedures determined to be effective can only provide reasonable assurance that their objectives are achieved.
As of March 31, 2022, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) pursuant to Rule 13a-15 of the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are not effective at the reasonable assurance level.
Our size has prevented us from being able to employ sufficient resources to enable us to have an adequate level of supervision and segregation of duties. Therefore, it is difficult to effectively segregate accounting duties which comprises a material weakness in internal controls. This lack of segregation of duties leads management to conclude that the Company’s disclosure controls and procedures are not effective to give reasonable assurance that the information required to be disclosed in reports that the Company files under the Exchange Act is recorded, processed, summarized and reported as and when required.
To the extent reasonably possible given our limited resources, we intend to take measures to cure the aforementioned weaknesses, including, but not limited to, increasing the capacity of our qualified financial personnel to ensure that accounting policies and procedures are consistent across the organization and that we have adequate control over our Exchange Act reporting disclosures.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control procedures over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our fiscal quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| 22 |
On September 2, 2021, Khalid Mentak, a former director and Chief Executive Officer of the Company filed an arbitration claim with the American Arbitration Association (“AAA”) against us, asserting damages in excess of $3 million, plus attorneys’ fees and other costs, for alleged unpaid wages, defamation, and other claims. We maintain that any such claim has an upper limit of $600,000 because the services provided by Mr. Mentak are governed by a Consulting Agreement between us and Key Medical, Inc (“Key Medical”), a company which Mr. Mentak served as Chief Executive Officer. The AAA proceeding was also initiated pursuant to the arbitration provision in the Consulting Agreement. The parties have selected an arbitrator and we filed a motion to dismiss the proceeding as currently pled because the proper parties should be Key Medical and the Company, and not Mr. Mentak as an individual. The arbitrator ruled that Mr. Mentak was the real-party-in-interest and denied the motion, without prejudice to any arguments on the merits of the underlying claims. On March 1, 2022, Mr. Mentak filed a more detailed Statement of Claims, which we responded to on March 16, 2022. We also filed a cross-complaint for declaratory relief seeking to establish our rights and obligations under the Consulting Agreement with respect to the claimant and Key Medical, which was formally named a defendant in the cross complaint. The claimant has objected to the cross-complaint as unnecessary, and the objection is under submission. The arbitration hearing has been set for the week of November 14, 2022, and the parties are engaging in pre-hearing matters. There have been some overtures toward resolution, but the parties have not bridged their differences. While we are unable to provide any assurances as to the ultimate outcome of this matter, we believe the claim for additional compensation is without merit and intend to vigorously defend against it. We are currently unable to estimate the costs of the arbitration, including any potential damages if the other party were to prevail on its claim.
As a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and in item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this item. In any event, there have been no material changes in our risk factors as previously disclosed in the Registration Statement on Form S-1 (File No. 333-260931), as amended, originally filed with the U.S. Securities and Securities Exchange Commission (“SEC”) on November 10, 2021 (the “Registration Statement”).
(A) Unregistered Sales of Equity Securities
None.
(B) Use of Proceeds
The Registration Statement for our IPO was declared effective by the SEC on April 26, 2022. The IPO consisted of 3,200,000 shares of common stock, par value $0.001 per share, at a public offering price of $5.00 per share. On April 29, 2022, the IPO closed, and the Company received approximately $14,617,400 in net proceeds from the IPO after deducting the underwriting discount and commission and other estimated IPO expenses payable by the Company.
There has been no material change in the planned use of proceeds from such use as described in the Company’s Registration Statement on Form S-1 (File No. 333-260931), as amended.
(C) Issuer Purchases of Equity Securities
None
None.
| 23 |
Not Applicable.
Subsequent Events
On January 10, 2022 and February 2, 2022, the Company’s Board of Directors (“Board”) and its stockholders approved the Tenon Medical, Inc. 2022 Equity Incentive Plan (“2022 Plan”), respectively, of which was to be deemed effective on April 25, 2022. The number of shares of common stock that may be subject to awards and sold is equal to 1,600,000. Automatic annual increases in number of shares available for issuance under the 2022 Plan is equal to the least of (a) 1,100,000 shares, (b) 4% of the total number of shares of all classes of common stock outstanding on the last day of the immediately preceding fiscal year, or (c) such number determined by the 2022 Plan administrator no later than the last day of the immediately preceding fiscal year. Annual increases will continue until the tenth anniversary of the earlier of the Board or stockholder approval of the 2022 Plan, which is January 10, 2032.
On April 6, 2022, we effected a 1:2 reverse stock split (the “Reverse Stock Split”) by filing an amendment to the Company’s Amended and Restated Certificate Incorporation, as amended, with the Delaware Secretary of State. The Reverse Stock Split combined every two shares of our common stock issued and outstanding immediately prior to effecting the Reverse Stock Split into one share of common stock. Similarly, shares of Series A and Series B Preferred Stock are convertible into common stock at a conversion rate of one-to-0.5, subject to adjustments for stock dividends, splits, combinations, and similar events. No fractional shares were issued in connection with the Reverse Stock Split. The authorized number of shares and the par value per share of our common stock were not affected by the Reverse Stock Split.
On April 26, 2022, the following events occurred:
|
· |
The Registration Statement relating to the initial public offering of the Company (“IPO”) was declared effective by the SEC. The IPO consisted of 3,200,000 shares of common stock, par value $0.001 per share, at a public offering price of $5.00 per share. |
|
· |
Pursuant to the Underwriting Agreement dated April 26, 2022, between the Company, The Benchmark Company, LLC (“Benchmark”) and Valuable Capital Limited (together with Benchmark, the “Underwriters”), on April 26, 2022, the Company granted the Underwriters warrants to purchase a total of 96,000 shares of the Company’s common stock. The warrants expire on the fifth anniversary of the commencement of sales under the IPO. |
On April 27, 2022, the shares of the Company’s common stock began trading on the Nasdaq Capital Market under the symbol “TNON.”
On April 29, 2022, the following events occurred:
|
· |
The IPO closed, and the Company received approximately $14,617,400 in net proceeds from the IPO after deducting the underwriting discount and commission and other estimated IPO expenses payable by the Company. |
|
· |
As a result of the completion of the IPO and as required under the terms of the convertible notes payable described in Note 6 of Part I, Item I of this Quarterly Report on Form 10-Q, the Company converted the entirety of the related outstanding principal and accrued interest to 3,955,415 shares of the Company’s common stock at the conversion price detailed in Note 6 and issued the common stock to the noteholders, fully satisfying the Company’s obligations. |
|
· |
As a result of the completion of the IPO, the Company converted all shares of Series A and Series B Preferred Stock to 2,693,342 shares of the Company’s common stock at the conversion rate detailed in Note 8 of Part I, Item I of this Quarterly Report on Form 10-Q, and issued the common stock to the preferred stockholders, fully satisfying the Company’s obligations. This includes 1,172,346 shares issued to Zuhlke Ventures AG, in accordance with the anti-dilution protection provisions of the Exchange Agreement entered into between the Company and Zuhlke Ventures AG on October 28, 2021. |
|
· |
In accordance with the Amended and Restated Exclusive Sales Representative Agreement executed in May 2021, the counterparty to the agreement (the “Representative”) received anti-dilution protections to maintain ownership of 3.0% of the fully diluted equity of the Company through the date of an initial public offering. As a result of the completion of the IPO, the Company issued 312,351 shares of its common stock to the Representative, fully satisfying the Company’s obligations. |
|
· |
As a result of the completion of the IPO, the Company issued 85,739 shares of its common stock to a consultant. |
|
· |
As a result of the completion of the IPO, the Tenon Medical, Inc. 2012 Equity Incentive Plan was terminated. |
| 24 |
EXHIBIT INDEX
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Description |
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| 26 |
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101.INS*** |
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Inline XBRL Instance Document |
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101.SCH*** |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL*** |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF*** |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB*** |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE*** |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
|
# |
Incorporated by reference to the same exhibit number in the Company’s Registration Statement No. 333-260931, filed with the Securities and Exchange Commission on April 20, 2022. |
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* |
Filed herewith |
|
** |
Exhibits 32.1 and 32.2 are being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall such exhibits be deemed to be incorporated by reference in any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as otherwise specifically stated in such filing. |
|
*** |
Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, and otherwise are not subject to liability under those sections. |
| 27 |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
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TENON MEDICAL, INC. |
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Dated: June 9, 2022 |
/s/ Steven M. Foster |
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Steven M. Foster |
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Chief Executive Officer and President, Director (Principal Executive Officer) |
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Dated: June 9, 2022 |
/s/ Steven Van Dick |
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Steven Van Dick |
|
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Chief Financial Officer (Principal Financial and Accounting Officer) |
| 28 |
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECTUIVE OFFICER
PURSUANT TO RULE 13a-14(a)/15d-14(a), AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Steven Foster, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Tenon Medical, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
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|
| (b) | [Intentionally omitted]; |
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| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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|
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
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|
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: June 9, 2022 | By: | /s/ Steven Foster |
|
| Name: | Steven Foster |
|
| Title: | Chief Executive Officer and President |
|
|
| (Principal Executive Officer) |
|
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a)/15d-14(a), AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Steven Van Dick, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Tenon Medical, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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| (b) | [Intentionally omitted]; |
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| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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|
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: June 9, 2022 | By: | /s/ Steven Van Dick |
|
| Name: | Steven Van Dick |
|
| Title: | Chief Financial Officer |
|
|
| (Principal Financial Officer) |
|
|
| (Principal Accounting Officer) |
|
EXHIBIT 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Steven Foster, the Chief Executive Officer and President of Tenon Medical, Inc. (the “Company”), hereby certify, that, to my knowledge:
1. The Quarterly Report on Form 10-Q for the period ended March 31, 2022 (the “Report”) of the Company fully complies with the requirements of Section 13(a) and 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: June 9, 2022 | By: | /s/ Steven Foster |
|
| Name: | Steven Foster |
|
| Title: | Chief Executive Officer and President |
|
|
| (Principal Executive Officer) |
|
EXHIBIT 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Steven Van Dick, the Chief Financial Officer of Tenon Medical, Inc. (the “Company”), hereby certify, that, to my knowledge:
1. The Quarterly Report on Form 10-Q for the period ended March 31, 2022 (the “Report”) of the Company fully complies with the requirements of Section 13(a)/15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: June 9, 2022 | By: | /s/ Steven Van Dick | |
| Name: | Steven Van Dick |
|
| Title: | Chief Financial Officer |
|
|
| (Principal Financial Officer) |
|
|
| (Principal Accounting Officer) |
|