Tenon Medical, Inc S-1/A, filed Jun 21, 2024

Tenon Medical, Inc. (TNON)

S-1/A 2024-06-21

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Delaware		3841		45-5574718
(State or Other Jurisdiction of Incorporation or Organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification No.)

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☒

ABOUT THIS PROSPECTUS	ii
MARKET DATA	ii
PROSPECTUS SUMMARY	1
SUMMARY OF THE OFFERING	9
RISK FACTORS	10
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS	45
USE OF PROCEEDS	46
DIVIDEND POLICY	46
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS	46
LINCOLN PARK TRANSACTION	48
SELLING STOCKHOLDER	54
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	55
BUSINESS	66
MANAGEMENT	84
EXECUTIVE COMPENSATION	90
PRINCIPAL STOCKHOLDERS	99
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS	101
DESCRIPTION OF SECURITIES	101
PLAN OF DISTRIBUTION	108
EXPERTS	109
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT	109
LEGAL MATTERS	110
WHERE YOU CAN FIND MORE INFORMATION	110
INDEX TO FINANCIAL STATEMENTS	F-1

Common stock offered by the Selling Stockholder		Up to 5,000,000 shares of our common stock, that we may sell to Lincoln Park pursuant to the Purchase Agreement from time to time after the registration statement of which this prospectus forms a part is declared effective and all of the other conditions set forth in the Purchase Agreement are satisfied (the “Purchase Shares”). As of June 20, 2024, there are also 410,153 shares of our common stock, that we may sell to Lincoln Park pursuant to the Purchase Agreement from time to time that are covered by the Original Registration Statement (the “Original Purchase Shares”). The Original Purchase Shares are not being offered pursuant to this prospectus.

Selling Stockholder		Lincoln Park Capital Fund, LLC. See “Selling Stockholder” on page 54 of this prospectus.
Use of Proceeds		We will receive no proceeds from the sale of shares of common stock by Lincoln Park in this offering. We may receive up to approximately $9.9 million in gross proceeds that remains available under the Purchase Agreement that we may sell to Lincoln Park pursuant to the Purchase Agreement from time to time after the registration statement of which this prospectus forms a part is declared effective. Any proceeds from Lincoln Park that we receive under the Purchase Agreement are expected to be used for general corporate purposes, capital expenditures, working capital and general and administrative expenses.
Risk Factors		See “Risk Factors” on page 10 and other information included in this prospectus for a discussion of factors to consider carefully before deciding to invest in shares of our common stock.
Listing		Our common stock and tradeable warrants (“Tradeable Warrants”) trade on The Nasdaq Capital Market under the symbols “TNON” and “TNONW,” respectively.

	●	faulty human judgment and simple errors, omissions or mistakes;

	●	fraudulent action of an individual or collusion of two or more people;

	●	inappropriate management override of procedures; and

	●	the possibility that any enhancements to controls and procedures may still not be adequate to assure timely and accurate financial information.

	●	Our ability to effectively operate our business segments;

	●	Our ability to manage our research, development, expansion, growth, and operating expenses;

	●	Our ability to evaluate and measure our business, prospects, and performance metrics;

	●	Our ability to compete, directly and indirectly, and succeed in the highly competitive medical devices industry;

	●	Our ability to respond and adapt to changes in technology and customer behavior;

	●	Our ability to protect our intellectual property and to develop, maintain and enhance a strong brand; and

	●	Other factors (including the risks contained in the section of this prospectus entitled “Risk Factors”) relating to our industry, our operations and results of operations.

	●	171,389 shares of our common stock issuable pursuant to options and restricted stock units granted pursuant to our equity incentive plan;

	●	9,600 shares of our common stock issuable upon the exercise of warrants issued to the underwriters in our initial public offering that closed on April 29, 2022;

	●	Warrants to purchase up to 1,918,000 shares of our common stock at an exercise price equal to $3.146 per share issued to investors in our June 2023 public offering;

	●	Warrants to purchase up to 45,000 shares of our common stock at an exercise price equal to $1.94 per share issued to investors in our November 2023 private placement; and

	●	Warrants to purchase up to 415,468 shares of our common stock at an exercise price equal to $1.2705 per share issued to investors in our February 2024 private placement.

	●	the lowest sale price for our common stock on the purchase date of such shares; and
	●	the arithmetic average of the three lowest closing sale prices for our common stock during the 10 consecutive business days ending on the business day immediately preceding the purchase date of such shares.

	●	25% of the aggregate number of shares of our common stock traded during all or, if certain trading volume or market price thresholds specified in the Purchase Agreement are crossed on the applicable Accelerated Purchase date, which is defined as the next business day following the purchase date for the corresponding Regular Purchase, the portion of the normal trading hours on the applicable Accelerated Purchase date prior to such time that any one of such thresholds is crossed, which period of time on the applicable Accelerated Purchase date we refer to as the Accelerated Purchase Measurement Period; and

	●	300% of the number of purchase shares purchased pursuant to the corresponding Regular Purchase.

	●	the volume weighted average price of our common stock during the applicable Accelerated Purchase Measurement Period on the applicable Accelerated Purchase date; and
	●	the closing sale price of our common stock on the applicable Accelerated Purchase date.

	●	25% of the aggregate shares of our common stock traded during a certain portion of the normal trading hours on such Accelerated Purchase date as determined in accordance with the Purchase Agreement, which period of time we refer to as the Additional Accelerated Purchase Measurement Period; and
	●	three times the number of purchase shares purchased pursuant to the Regular Purchase corresponding to the Accelerated Purchase that was completed on such Accelerated Purchase date on which an Additional Accelerated Purchase notice was properly received.

	●	the effectiveness of the registration statement of which this prospectus forms a part lapses for any reason (including, without limitation, the issuance of a stop order), or any required prospectus supplement and accompanying prospectus are unavailable for the resale by Lincoln Park of our common stock offered hereby, and such lapse or unavailability continues for a period of 10 consecutive business days or for more than an aggregate of 30 business days in any 365-day period;

	●	suspension by our principal market of our common stock from trading for a period of one business day;

	●	the delisting of the common stock from The Nasdaq Capital Market (or nationally recognized successor thereto), provided, however, that our common stock is not immediately thereafter trading on the New York Stock Exchange; The Nasdaq Global Market, The Nasdaq Global Select Market, the NYSE American, the NYSE Arca, or the OTCQX Best Market or the OTCQB Venture Market operated by OTC Markets Group Inc. (or nationally recognized successor to any of the foregoing);

	●	the failure of our transfer agent to issue to Lincoln Park shares of our common stock within two business days after the applicable date on which Lincoln Park is entitled to receive such shares;

	●	any breach of the representations or warranties or covenants contained in the Purchase Agreement or the Registration Rights Agreement that has or could have a material adverse effect on us and, in the case of a breach of a covenant that is reasonably curable, that is not cured within five business days;

	●	any person commences a proceeding against us pursuant to or within the meaning of Title 11, U.S. Code, or any similar federal or state law for the relief of debtors (“Bankruptcy Law”);

	●	a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that (i) is for relief against us in an involuntary case, (ii) appoints a custodian for us or for all or substantially all of our property or (iii) orders the liquidation of us or our subsidiaries; or

	●	if at any time we are not eligible to transfer our common stock electronically as Deposit Withdrawal At Custodian shares.

Assumed Average Purchase Price Per Share			Number of Registered Shares to be Issued if Full Purchase⁽¹⁾		Percentage of Outstanding Shares After Giving Effect to the Issuance to Lincoln Park⁽²⁾			Proceeds from the Sale of Shares to Lincoln Park Under the Purchase Agreement⁽¹⁾
$	0.25			5,000,000		57.3	%	$	1,250,000
$	0.50			5,000,000		57.3	%		2,500,000
$	0.5907	(3)		5,000,000		57.3	%	$	2,953,500
$	1.00			5,000,000		57.3	%	$	5,000,000
$	1.25			5,000,000		57.3	%	$	6,250,000
$	1.50			5,000,000		57.3	%	$	7,500,000

(1)	Although we may sell up to approximately $9.9 million in aggregate gross proceeds of our common stock that remains available under the Purchase Agreement and for resale under the registration statement of which this prospectus forms a part, we are only registering 5,000,000 shares of common stock. Therefore, only 5,000,000 of such shares represent Purchase Shares that we may issue and sell to Lincoln Park for cash consideration in purchases under the Purchase Agreement from time to time, at our sole discretion, after the date of this prospectus and for the remaining duration of the 24-month period that began on the Commencement Date, which may or may not cover all the shares of our common stock we ultimately sell to Lincoln Park under the Purchase Agreement, if any, depending on the purchase price per share. We have included in this column only the 5,000,000 Purchase Shares that we may issue and sell to Lincoln Park for cash consideration in purchases under the Purchase Agreement that are being registered for resale in the offering made by this prospectus, without giving effect to the Beneficial Ownership Cap. Accordingly, depending on the assumed average price per share, we may or may not be able to ultimately sell to Lincoln Park a number of shares of our common stock with a total value of approximately $9.9 million remains available under the Purchase Agreement.
(2)	The denominator is based on [*] shares of our common stock outstanding as of June 20, 2024 (which includes the 98,909 shares of our common stock that we previously issued to Lincoln Park and 89,847 shares of our common stock that we previously issued and sold to Lincoln Park pursuant to the Purchase Agreement (of which 14,654 are currently held by Lincoln Park), adjusted to include the number of shares of our common stock set forth in the adjacent column. The numerator is based on the number of shares of our common stock set forth in the adjacent column.
(3)	The closing sale price of our shares on June 18, 2024.

(1)	Although we may sell up to approximately $9.9 million in aggregate gross proceeds of our common stock to Lincoln Park that remains available under the Purchase Agreement, we are only registering 5,000,000 shares of our common stock for resale under this prospectus. Therefore, only 410,153 Original Purchase Shares and 5,000,000 Purchase Shares represent shares that we may issue and sell to Lincoln Park for cash consideration in purchases under the Purchase Agreement from time to time, at our sole discretion, after the date of this prospectus and for the remaining duration of the 24-month period that began on the Commencement Date. Depending on the price per share at which we sell our common stock to Lincoln Park pursuant to the Purchase Agreement, we may need to sell to Lincoln Park under the Purchase Agreement more shares of our common stock than are offered under this prospectus in order to receive aggregate gross proceeds equal to the full $10.0 million available to us under the Purchase Agreement. If we choose to do so, we must first register for resale under the Securities Act such additional shares. The number of shares ultimately offered for resale by Lincoln Park is dependent upon the number of shares we sell to Lincoln Park under the Purchase Agreement.
(2)	Assumes the sale of all shares of common stock registered pursuant to the registration statement that includes this prospectus, although the Selling Stockholder is under no obligation known to us to sell any shares of common stock at this time.
(3)	Joshua Scheinfeld and Jonathan Cope, the Managing Members of Lincoln Park Capital, LLC, the manager of the Selling Stockholder, are deemed to be beneficial owners of all of the shares of our common stock owned by the Selling Stockholder. Messrs. Cope and Scheinfeld have shared voting and investment power over the shares of our common stock being offered under this prospectus. Neither Lincoln Park Capital, LLC, nor the Selling Stockholder, is a licensed broker-dealer or an affiliate of a licensed broker-dealer.
(4)	Represents the 14,654 shares of our common stock previously issued and sold to Lincoln Park pursuant to the Purchase Agreement, all of which have been registered under the Original Registration Statement. In accordance with Rule 13d-3(d) under the Exchange Act, we have excluded from the number of shares of our common stock beneficially owned prior to the offering all of the shares of our common stock that we may issue and sell to Lincoln Park pursuant to the Purchase Agreement from and after the date of this prospectus, because the issuance and sale of such shares of our common stock to Lincoln Park under the Purchase Agreement is solely at our discretion and is subject to certain conditions, the satisfaction of all of which are outside of Lincoln Park’s control, including the registration statement of which this prospectus is a part becoming and remaining effective under the Securities Act. Furthermore, under the terms of the Purchase Agreement, issuances and sales of shares of our common stock to Lincoln Park under the Purchase Agreement are subject to certain limitations on the amounts we may sell to Lincoln Park at any time, including the Beneficial Ownership Cap. See “The Lincoln Park Transaction” for more information about the Purchase Agreement.

	Three Months Ended March 31,
Consolidated Statements of Operations Data:	2024			2023
Revenue	$	719		$	433
Cost of goods sold		249			480
Gross profit (loss)		470			(47	)
Operating expenses:
Research and development		669			834
Sales and marketing		1,381			2,026
General and administrative		1,926			1,979
Total operating expenses		3,976			4,839
Loss from operations		(3,506	)		(4,886	)
Interest and other income (expense), net:
Gain on investments		27			56
Interest expense		(34	)		—
Other income (expense)		(63	)		—
Net loss	$	(3,576	)	$	(4,830	)

	Years Ended December 31,
Consolidated Statements of Operations Data in Dollars:	2023			2022
Revenue	$	2,928		$	691
Cost of goods sold		1,687			1,332
Gross profit (loss)		1,241			(641	)
Operating expenses:
Research and development		3,163			2,828
Sales and marketing		6,778			7,833
General and administrative		7,027			7,423
Total operating expenses		16,968			18,084
Loss from operations		(15,727	)		(18,725	)
Interest and other income (expense), net:
Gain on investments		167			180
Interest expense		(21	)		(354	)
Other expense		—			(18	)
Net loss	$	(15,581	)	$	(18,917	)

	Years Ended December 31,
	2023			2022			$ Change			% Change
Net cash (used in) provided by:
Operating activities	$	(12,183	)	$	(12,025	)	$	(158	)		1	%
Investing activities		6,142			(2,884	)		9,026			(313	)%
Financing activities		6,302			14,114			(7,812	)		(55	)%
Effect of foreign currency translation on cash flow		38			7			31			(443	)%
Net increase (decrease) in cash and cash equivalents	$	299		$	(788	)	$	1,087			(138	)%

	Payments Due By Period (In thousands)
			Less than						More than
	Total		1 year		1-3 years		4-5 years		5 years
Operating leases	$	756	$	302	$	454	$	—	$	—
Convertible debt (1)		1,260		1,260		—		—		—
Total	$	2,016	$	1,562	$	454	$	—	$	—

	1.	Designed for Safety: the approach trajectory and angle are away from the neural foramen.

	2.	Focus on Efficiency: the approach is designed to be direct to the SI-Joint, which allows for visualization of the joint and is designed to pass through minimal muscle structures, which may result in a faster and more efficient surgical procedure and reduced post-op pain for the patient.

	●	product and clinical procedure effectiveness;

	●	ease of surgical technique and use of associated instruments;

	●	safety;

	●	published clinical outcomes and evidence;

	●	sales force knowledge and service levels;

	●	product support and service, and customer service;

	●	comprehensive training, including disease, anatomy, diagnosis, and treatment;

	●	product innovation and the speed of innovation;

	●	intellectual property;

	●	accountability and responsiveness to customers’ demands;

	●	pricing and reimbursement;

	●	scientific (biomechanics) data; and

	●	attracting and retaining key personnel.

Post-Op fluoroscopic image of implant spanning the SI-Joint		6-Month CT-Scan showing clear bridging bone fusion

	●	Educate and inform physicians and other healthcare providers, payors, and patients about the growing body of evidence supporting what we believe is the safety, durable clinical effectiveness, economic benefit, and reduction in opioid use associated with SI-Joint fixation and The Catamaran System procedure.

	●	Utilize the most effective means of training via video and in-person labs demonstrating the ease of use with 2D and 3D navigation. Since many physicians have already been trained but have not incorporated SI-Joint fixation into their practices we will work with these physicians to reengage and train them on the Next Generation of an SI-Joint implant which incorporates a safer and simpler approach.

	●	Utilize the best approaches of direct-to-consumer outreach to educate patients that there is a safe solution to help them improve their quality of life. Additionally, to reach the broadest physician and patient audience on case study results from around the United States we plan to implement an active social media campaign incorporating Facebook, Instagram, YouTube, etc.

	●	Invest in our independent sales representative network to ensure that all Tenon representatives have the latest in marketing and education tools to reduce the time from training to adoption.

	●	Remain true to our next generation product development strategy by continually bringing out new advancements in and around the SI-Joint and pelvic region.

	●	Continue to grow our existing intellectual property portfolio.

	●	Execute post-market clinical research to confirm the benefits of the distinct approach and implant.

	●	Dual Pontoon implant that transfixes the targeted joint;

	●	Open cell design designed for utilizing the patient’s own autologous bone for promotion of fusion;

	●	Bridge design between the dual pontoons for enhanced strength;

	●	Leading edge of the implant designed to function as an osteotome providing a self-creating defect feature not available with competitive systems;

	●	Single implant designed with varying pontoon sizes to ensure a robust fixation based on anatomy; and

	●	Additional smaller Catamaran designed for smaller anatomy and/or revision surgery.

Name	Age	Position
Steven M. Foster	56	Chief Executive Officer and President, Director
Richard Ginn	58	Chief Technology Officer and Director
Steve Van Dick	69	EVP, Finance and Administration and Chief Financial Officer
Richard Ferrari	70	Executive Chairman of the Board
Ivan Howard	57	Director
Kristine M. Jacques	57	Director
Robert K. Weigle	64	Director
Stephen H. Hochschuler, M.D.	81	Director

	●	the director is, or at any time during the past three (3) years was, an employee of the company;

	●	the director or a family member of the director accepted any compensation from the company in excess of $120,000 during any period of twelve (12) consecutive months within the three (3) years preceding the independence determination (subject to certain exemptions, including, among other things, compensation for board or board committee service);

	●	the director or a family member of the director is a partner in, controlling shareholder of, or an executive officer of an entity to which the company made, or from which the company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exemptions);

	●	the director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three (3) years, any of the executive officers of the company served on the compensation committee of such other entity; or

	●	the director or a family member of the director is a current partner of the company’s outside auditor, or at any time during the past three (3) years was a partner or employee of the company’s outside auditor, and who worked on the company’s audit.

	●	reviewing and discussing with management and the independent auditor the annual audited financial statements, and recommending to the board whether the audited financial statements should be included in our annual disclosure report;

	●	discussing with management and the independent auditor significant financial reporting issues and judgments made in connection with the preparation of our financial statements;

	●	discussing with management major risk assessment and risk management policies;

	●	monitoring the independence of the independent auditor;

	●	verifying the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law;

	●	reviewing and approving all related-party transactions;

	●	inquiring and discussing with management our compliance with applicable laws and regulations;

	●	pre-approving all audit services and permitted non-audit services to be performed by our independent auditor, including the fees and terms of the services to be performed;

	●	appointing or replacing the independent auditor;

	●	determining the compensation and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work;

	●	establishing procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or reports which raise material issues regarding our financial statements or accounting policies; and

	●	approving reimbursement of expenses incurred by our management team in identifying potential target businesses.

	●	reviews, approves and determines, or makes recommendations to our Board regarding, the compensation of our executive officers;

	●	administers our equity compensation plans;

	●	reviews and approves, or makes recommendations to our Board, regarding incentive compensation and equity compensation plans; and

	●	establishes and reviews general policies relating to compensation and benefits of our employees.

	●	identifying, reviewing and evaluating candidates to serve on our Board consistent with criteria approved by our Board;

	●	evaluating director performance on our Board and applicable committees of our Board and determining whether continued service on our Board is appropriate;

	●	evaluating nominations by stockholders of candidates for election to our Board; and

	●	corporate governance matters.

	●	been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

	●	had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two (2) years prior to that time;

	●	been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan or insurance activities, or to be associated with persons engaged in any such activity;

	●	been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated;

	●	been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

	●	been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

Name and Principal Position	(Salary $)		($)Bonus		Option/RSU Awards⁽¹⁾ ($)		Total ($)
Steven M. Foster, Chief Executive Officer
2023	$	400,000	$	87,600	$	—	$	487,600
2022	$	300,000	$	70,000	$	1,926,634	$	2,296,634
Steven Van Dick, Chief Financial Officer
2023	$	325,000	$	60,225	$	—	$	385,225
2022	$	275,000	$	148,125	$	808,998	$	1,232,123
Richard Ginn, Chief Technology Officer
2023	$	290,000	$	60,225	$	—	$	350,225
2022	$	275,000	$	148,125	$	3,995,603	$	4,418,728

	Option Awards							Equity Awards (RSUs)
Name	Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexercisable		Option Exercise Price ($)		Option Expiration Date	Number of RSUs that have not Vested		Market Value of RSUs
Steven M. Foster⁽¹⁾		9,687		1,563	$	52.00	May 1, 2031		10,874	$	17,181
Steven Van Dick⁽²⁾		4,865		785	$	52.00	May 1, 2031		4,566	$	7,214
		2,786		673	$	70.60	July 19, 2031
Richard Ginn⁽³⁾		4,865		785	$	52.00	May 1, 2031		22,551	$	35,631
		443		107	$	70.60	July 19, 2031

Director	Cash Compensation¹		Equity Compensation²		Total Compensation
Frank Fischer	$	60,000	$	—	$	60,000
Ivan Howard	$	60,000	$	—	$	60,000
Kristine M. Jacques³	$	—	$	—	$	—
Robert Weigle	$	67,500	$	—	$	67,500
Stephen Hochschuler	$	45,000	$	—	$	45,000
Total		232,500	$	—	$	232,500

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)		(b)		(c)
Equity compensation plans approved by security holders		179,005	$	42.54		37,486
Equity compensation plans not approved by security holders		—	$	—		—
Total		179,005	$	42.54		37,486