Tenon Medical, Inc. - Quarter Report: 2023 June (Form 10-Q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2023

 

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

 

TENON MEDICAL, INC.

(Exact name of registrant as specified in its charter)

 

Delaware		45-5574718
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
104 Cooper Court Los Gatos, CA  95032		(408) 649-5760
(Address of principal executive offices) (Zip Code)		(Registrant’s telephone number, including area code)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.001 per share		TNON		The Nasdaq Stock Market LLC
Warrants to purchase shares of Common Stock, par value $0.001 per share		TNONW		The Nasdaq Stock Market LLC

 

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 ☒ No ☐

 

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 ☒ No ☐

 

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.

 

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

 

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 ☐ No ☒

 

As of August 11, 2023, the registrant had a total of 22,612,856 shares of its common stock, par value $0.001 per share, issued and outstanding.

 

 

 

INDEX

 

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss	2
	Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4.	Controls and Procedures	21
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	22
Item 1A.	Risk Factors	22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3.	Defaults Upon Senior Securities	22
Item 4.	Mine Safety Disclosures	22
Item 5.	Other Information	22
Item 6.	Exhibits	23
SIGNATURES		24

 

 

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:

 

●

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 and our national distributor’s 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

 

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.

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. Condensed Consolidated Financial Statements

 

Tenon Medical, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share data)

 

		June 30,				December 31,
		2023				2022
		(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	5,852			$	2,129
Short-term investments			493				6,441
Accounts receivable			601				228
Inventory			570				415
Prepaid expenses			413				134
Total current assets			7,929				9,347
Fixed assets, net			945				793
Deposits			51				51
Operating lease right-of-use asset			762				873
Deferred offering costs			168				25
TOTAL ASSETS		$	9,855			$	11,089
Liabilities and Stockholders’ EQUITY
Current liabilities:
Accounts payable		$	912			$	550
Accrued expenses			1,130				717
Current portion of accrued commissions			1,418				1,035
Current portion of operating lease liability			242				228
Warrant liability			3,164				—
Total current liabilities			6,866				2,530
Accrued commissions, net of current portion			1,526				1,624
Operating lease liability, net of current portion			560				683
Total liabilities			8,952				4,837
Commitments and contingencies (Note 8)
Stockholders’ equity:
Common stock, $0.001 par value; 130,000,000 shares authorized at June 30, 2023 and December 31, 2022; 21,623,769 and 11,236,801 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively			22				11
Additional paid-in capital			49,560				45,833
Accumulated deficit			(48,607	)			(39,492	)
Accumulated other comprehensive loss			(72	)			(100	)
Total stockholders’ equity			903				6,252
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	9,855			$	11,089

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

Tenon Medical, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
(In thousands, except per share data)

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2023				2022				2023				2022
Revenue		$	743			$	135			$	1,176			$	206
Cost of sales			549				271				1,029				546
Gross (Loss) Profit			194				(136	)			147				(340	)
Operating Expenses
Research and development			901				657				1,735				1,219
Sales and marketing			1,883				1,943				3,909				2,219
General and administrative			1,732				2,720				3,711				3,757
Total Operating Expenses			4,516				5,320				9,355				7,195
Loss from Operations			(4,322	)			(5,456	)			(9,208	)			(7,535	)
Other Income (Expense)
Gain on investments			37				35				93				36
Interest expense			—				(88	)			—				(362	)
Other income (expense), net			—				21				—				20
Total Other Income (Expense), net			37				(32	)			93				(306	)
Net Loss		$	(4,285	)		$	(5,488	)		$	(9,115	)		$	(7,841	)
Net Loss Per Share of Common Stock
Basic and diluted		$	(0.33	)		$	(0.65	)		$	(0.75	)		$	(1.66	)
Weighted-Average Shares of Common Stock Outstanding
Basic and diluted			13,051				8,422				12,151				4,726
Consolidated Statements of Comprehensive Loss:
Net loss		$	(4,285	)		$	(5,488	)		$	(9,115	)		$	(7,841	)
Unrealized gain (loss) on investments			3				(27	)			16				(27	)
Foreign currency translation adjustment			13				(21	)			12				(21	)
Total comprehensive loss		$	(4,269	)		$	(5,536	)		$	(9,087	)		$	(7,889	)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

Tenon Medical, Inc.
Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(Unaudited)
(In thousands, except share data)

 

Three Months Ended June 30, 2023 and 2022:

 

		Series A Convertible Preferred Stock								Series B Convertible Preferred Stock								Common Stock								Additional Paid-In				Accumulated				Accumulated Other Comprehensive
		Shares				Amount				Shares				Amount				Shares				Amount				Capital				Deficit				Loss				Total
Balance at March 31, 2023			—			$	—				—			$	—				11,251,299			$	11			$	46,873			$	(44,322	)		$	(88	)		$	2,474
Stock-based compensation expense			—				—				—				—				—				—				1,054				—				—				1,054
Release of restricted stock units			—				—				—				—				372,470				1				(1	)			—				—				—
Issuance of common stock and warrants, net of issuance costs			—				—				—				—				10,000,000				10				1,634				—				—				1,644
Other comprehensive income			—				—				—				—				—				—				—				—				16				16
Net loss			—				—				—				—				—				—				—				(4,285	)			—				(4,285	)
Balance at June 30, 2023			—			$	—				—			$	—				21,623,769			$	22			$	49,560			$	(48,607	)		$	(72	)		$	903
Balance at March 31, 2022			2,550,763			$	12,367				491,222			$	1,272				989,954			$	1			$	282			$	(22,928	)		$	(91	)		$	(22,736	)
Stock-based compensation expense			—				—				—				—				—				—				552				—				—				552
Issuance of common stock and warrants, net of issuance costs			—				—				—				—				3,200,000				3				13,762				—				—				13,765
Common stock issued upon conversion of Series A preferred stock			(2,550,763	)			(12,367	)			—				—				2,447,728				2				12,365												12,367
Common stock issued upon conversion of Series B preferred stock			—				—				(491,222	)			(1,272	)			245,614				—				1,272												1,272
Common stock issued upon conversion of debt			—				—				—				—				3,955,415				4				13,864				—				—				13,868
Common stock issued for services			—				—				—				—				398,090				1				1,560				—				—				1,561
Other comprehensive income			—				—				—				—				—				—				—				—				(48	)			(48	)
Net loss			—				—				—				—				—				—				—				(5,488	)			—				(5,488	)
Balance at June 30, 2022			—			$	—				—			$	—				11,236,801			$	11			$	43,657			$	(28,416	)		$	(139	)		$	15,113

 

Six months ended June 30, 2023 and 2022:

 

		Series A Convertible Preferred Stock								Series B Convertible Preferred Stock								Common Stock								Additional Paid-In				Accumulated				Accumulated Other Comprehensive
		Shares				Amount				Shares				Amount				Shares				Amount				Capital				Deficit				Loss				Total
Balance at December 31, 2022			—			$	—				—			$	—				11,236,801			$	11			$	45,833			$	(39,492	)		$	(100	)		$	6,252
Stock-based compensation expense			—				—				—				—				—				—				2,094				—				—				2,094
Release of restricted stock units			—				—				—				—				386,968				1				(1	)			—				—				—
Issuance of common stock and warrants, net of issuance costs			—				—				—				—				10,000,000				10				1,634				—				—				1,644
Other comprehensive income			—				—				—				—				—				—				—				—				28				28
Net loss			—				—				—				—				—				—				—				(9,115	)			—				(9,115	)
Balance at June 30, 2023			—			$	—				—			$	—				21,623,769			$	22			$	49,560			$	(48,607	)		$	(72	)		$	903
Balance at December 31, 2021			2,550,763			$	12,367				491,222			$	1,272				989,954			$	1			$	113			$	(20,575	)		$	(91	)		$	(20,552	)
Stock-based compensation expense			—				—				—				—				—				—				721				—				—				721
Issuance of common stock and warrants, net of issuance costs			—				—				—				—				3,200,000				3				13,762				—				—				13,765
Common stock issued upon conversion of Series A preferred stock			(2,550,763	)			(12,367	)			—				—				2,447,728				2				12,365												12,367
Common stock issued upon conversion of Series B preferred stock			—				—				(491,222	)			(1,272	)			245,614				—				1,272												1,272
Common stock issued upon conversion of debt			—				—				—				—				3,955,415				4				13,864				—				—				13,868
Common stock issued for services			—				—				—				—				398,090				1				1,560				—				—				1,561
Other comprehensive income			—				—				—				—				—				—				—				—				(48	)			(48	)
Net loss			—				—				—				—				—				—				—				(7,841	)			—				(7,841	)
Balance at June 30, 2022			—			$	—				—			$	—				11,236,801			$	11			$	43,657			$	(28,416	)		$	(139	)		$	15,113

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

Tenon Medical, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)

 

		Six Months Ended June 30,
		2023				2022
Cash Flows from Operating Activities
Net loss		$	(9,115	)		$	(7,841	)
Adjustments to reconcile net loss to net cash used in operating activities:
Non-cash interest expense			—				362
Stock-based compensation expense			2,094				721
Common stock issued for services			—				1,561
Depreciation and amortization			60				29
Amortization of operating right-of-use asset			111				103
Increase (decrease) in cash resulting from changes in:
Accounts receivable			(373	)			1
Inventory			(155	)			(440	)
Prepaid expenses and other assets			(325	)			(62	)
Accounts payable			362				(133	)
Accrued expenses			698				569
Operating lease liability			(109	)			(97	)
Net cash used in operating activities			(6,752	)			(5,227	)
Cash Flows from Investing Activities
Sales of short-term investments			6,503				4,404
Purchases of short-term investments			(493	)			(8,141	)
Purchases of fixed assets			(212	)			(169	)
Net cash provided by (used in) investing activities			5,798				(3,906	)
Cash Flows from Financing Activities
Proceeds from issuance of common stock and warrants, net of issuance costs			4,808				14,139
Deferred offering costs			(143	)			—
Net cash provided by financing activities			4,665				14,139
Effect of foreign currency translation on cash flow			12				(48	)
Net Increase in Cash and Cash Equivalents			3,723				4,958
Cash and Cash Equivalents at Beginning of Period			2,129				2,917
Cash and Cash Equivalents at End of Period		$	5,852			$	7,875
Supplemental Disclosures of Cash Flow Information
Non-cash investment and financing activities:
Common stock issued upon conversion of preferred stock		$	—			$	13,639
Common stock issued upon conversion of debt		$	—			$	13,868

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)(in thousands, except share and per-share data)

 

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, minimally invasive approach to the sacroiliac joint (the “SI Joint”) using a single, robust, titanium implant for treatment of the most common types of SI 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™ SI Joint Fusion System (“The Catamaran System”) which is designed to transfix and stabilize the SI Joint. The Company is in the early stages of its commercial launch with its only focus being on the US market.

 

Principles of consolidation

 

The condensed consolidated financial statements of the Company include the accounts of the Company and its wholly-owned subsidiary, Tenon Technology AG (“TTAG”), a Swiss company. All intercompany balances and transactions have been eliminated in consolidation. The financial statements of TTAG are prepared for the same reporting period as the parent, using consistent accounting policies in all material respects.

 

2. Summary of Significant Accounting Principles

 

Basis of presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). As permitted under these rules and regulations, the Company has condensed or omitted certain financial information and footnote disclosures normally included in its annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The condensed consolidated balance sheet as of December 31, 2022 has been derived from the Company’s audited consolidated financial statements, which are included in its Annual Report on Form 10-K filed with the SEC on March 10, 2023.

 

These condensed consolidated financial statements have been prepared on the same basis as the Company’s 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 its financial information. The 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.

 

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, 2022 and 2021 included in its Annual Report of Form 10-K filed with the SEC on March 10, 2023.

 

The Company’s significant accounting policies are disclosed in the audited consolidated financial statements as of and for the years ended December 31, 2022 and 2021. There have been no material changes in the Company’s significant accounting policies during the six months ended June 30, 2023.

 

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. There is substantial doubt about the Company’s ability to continue as a going concern for one year after the date that these financial statements are issued.

 

 

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 the commercialization of The Catamaran System. On April 29, 2022, the Company closed an initial public offering (the “IPO”) of its common stock for proceeds, net of issuance costs, of $13,765. On June 16, 2023, the Company closed a registered public offering (the “Registered Offering”) for proceeds, net of issuance costs, of $4,808. Based on the Company’s current level of revenues and expenditures, the Company believes that its existing cash and cash equivalents and short-term investments as of June 30, 2023 will not provide sufficient funds to enable it to meet its obligations for a period of at least twelve months from the date of the filing of these condensed consolidated financial statements. The Company plans to raise the necessary additional capital through one or a combination of public or private equity offerings, debt financings, and collaborations. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

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, accrued commissions, incremental borrowing rate, obsolescence of inventory, stock-based compensation and the fair value of investments, inventory and of the Company’s common 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.

 

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 June 30, 2023 and 2022 which were excluded from the calculation because their effect was anti-dilutive:

 

		June 30, 2023				June 30, 2022
Outstanding restricted stock units			931,562				1,117,530
Outstanding stock options			969,344				727,394
Outstanding warrants			20,096,000				121,000
Total			21,996,906				1,965,924

 

Recent Accounting Pronouncements Adopted

 

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). This standard requires an impairment model (known as the current expected credit loss (“CECL”) model) that is based on expected losses rather than incurred losses. Under the new guidance, each reporting entity estimates an allowance for expected credit losses, which is intended to result in more timely recognition of losses. The new standard applies to trade receivables arising from revenue transactions such as contract assets and accounts receivable. When trade receivables are recorded, they become subject to the CECL model and estimates of expected credit losses on trade receivables over their contractual life will be recorded at inception based on historical information, current conditions, and reasonable and supportable forecasts. The Company adopted ASU 2016-13 as of January 1, 2023. The adoption had no material impact on its results of operations or on its condensed consolidated financial statements.

 

 

Recent Accounting Pronouncements Not Yet Adopted

 

There have been no accounting pronouncements or changes in accounting pronouncements in the six months ended June 30, 2023 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 June 30, 2023 and December 31, 2022:

 

		Level 2
Corporate debt securities:
June 30, 2023		$	493
December 31, 2022		$	6,441

 

Cost and fair value of available-for-sale investments as of June 30, 2023 and December 31, 2022 are as follows:

 

		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
Corporate debt securities:
June 30, 2023		$	493			$	—			$	—			$	493
December 31, 2022		$	6,457			$	—			$	(16	)		$	6,441

 

All of the investments with gross unrealized losses have been in a continuous loss position for less than 12 months.

 

During the three and six months ended June 30, 2023 and 2022, the Company did not recognize any significant other-than-temporary impairment losses because the Company does not intend to sell the investments before recovery of their amortized cost bases.

 

During the three and six months ended June 30, 2023, there were net gains of approximately $37 and $93, respectively, included in the Company’s net loss. During the three and six months ended June 30, 2022, there were net gains of approximately $35 and $36, respectively, included in the Company’s net loss. Accrued interest as of June 30, 2023 and December 31, 2022 was approximately $12 and $13, respectively, and is included in prepaid expenses in the Company’s condensed consolidated balance sheets.

 

4. Fixed Assets, Net

 

Fixed assets, net, consisted of the following:

 

		June 30, 2023				December 31, 2022
Construction in progress		$	638			$	601
Catamaran tray sets			348				193
IT equipment			76				56
Lab equipment			14				14
Office furniture			9				9
Fixed assets, gross			1,085				873
Less: accumulated depreciation			(140	)			(80	)
Fixed assets, net		$	945			$	793

 

Construction in progress is made up of reusable components that will become Catamaran Tray Sets. Depreciation expense was approximately $35 and $19 for the three months ended June 30, 2023 and 2022, respectively. Depreciation expense was approximately $60 and $29 for the six months ended June 30, 2023 and 2022, respectively.

 

 

5. Accrued Expenses

 

Accrued expenses consisted of the following:

 

		June 30, 2023				December 31, 2022
Accrued compensation		$	641			$	452
Other accrued expenses			489				265
Total accrued expenses		$	1,130			$	717

 

6. Leases

 

In June 2021, the Company entered into a facility lease agreement for its company headquarters in Los Gatos, California. This non-cancellable 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 and performed the lease classification test as of the lease commencement date. Right-of-use 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 right-of-use 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 were $73 and $73 for the three months ended June 30, 2023 and 2022, respectively, and were $146 and $146 for the six months ended June 30, 2023 and 2022, respectively. Lease costs are included in general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss.

 

Supplemental balance sheet information related to leases was as follows:

 

		June 30,				December 31,
		2023				2022
Operating lease right-of-use assets		$	762			$	873
Operating lease liability, current		$	(242	)		$	(228	)
Operating lease liability, noncurrent			(560	)			(683	)
Total operating lease liabilities		$	(802	)		$	(911	)

 

Future maturities of operating lease liabilities as of June 30, 2023 were as follows:

 

2023		$	150
2024			301
2025			310
2026			144
Total lease payments			905
Less: imputed interest			(103	)
Present value of operating lease liabilities		$	802

 

Other information:

 

Cash paid for operating leases for the six months ended June 30, 2023		$	144
Cash paid for operating leases for the six months ended June 30, 2022		$	140
Remaining lease term - operating leases (in years)			3.00
Average discount rate - operating leases			8.0	%

 

 

7. 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 per share. In April 2021 the Company increased the number of authorized shares to 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 Preferred Stock to 1,798,905. In 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. In 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. With respect to the preferred stock, 4,500,000 shares are designated Series A Preferred Stock and 491,222 shares are designated Series B Preferred Stock. As of June 30, 2023 and December 31, 2022, there were no shares of Series A Preferred stock or Series B Preferred Stock issued and outstanding.

 

Reverse Stock Split

 

On April 6, 2022, the Company effected a 1:2 reverse stock split (the “Reverse Stock Split”) by filing an amendment to the Company’s Amended and Restated Certificate of 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 became 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 the Company’s common stock were not affected by the Reverse Stock Split.

 

Initial Public Offering

 

On April 26, 2022, the Company’s Registration Statement relating to the 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”), the Company granted the Underwriters warrants to purchase a total of 96,000 shares of the Company’s common stock at an exercise price of $5.00 per share. 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 LLC under the symbol “TNON.”

 

On April 29, 2022, the IPO closed, and the Company received approximately $13.8 million 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, the Company converted the entirety of the outstanding principal and accrued interest of the convertible notes payable to 3,955,415 shares of the Company’s common stock.

 

On April 29, 2022, as 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 below and issued the common stock to the preferred stockholders.

 

Concurrent with the completion of the IPO and 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 3.0% of the fully diluted equity of the Company through the date of an initial public offering and was issued 312,351 shares of the Company’s common stock to the Representative, fully satisfying the Company’s obligations. Also, as a result of the completion of the IPO, the Company issued 85,739 shares of its common stock to a consultant. The value of these shares issued at the IPO price of $5.00 per share was charged to operating expenses in the Company’s consolidated financial statements.

 

 

Registered Offering

 

On June 16, 2023, the Company closed the Registered Offering of a total of 10,000,000 units (the “Units”) for proceeds, net of issuance costs, of $4,808, with each Unit consisting of (i) one share of the Company’s common stock, and (ii) two warrants, each warrant to purchase one share of the Company’s common stock at an exercise price equal to $0.56 per share (the “Offering Warrants”). The Offering Warrants were exercisable upon issuance and will expire five years from the date of issuance. Per the terms of the Offering Warrants, the exercise price reset subsequent to quarter end on July 16, 2023 to $0.3146 per share.

 

Voting rights

 

The holders of vested shares of common stock are entitled to vote on any matter submitted to a vote of the stockholders and each such holder is entitled to one vote per share of common stock held. The holders of Series A and Series B Preferred Stock were 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 were 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 had 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 two 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.

 

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 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. Upon the effective date of the 2022 Plan, the Board terminated the 2012 Plan such that no new equity awards will be issued by the 2012 Plan.

 

Compensation expense for the three and six months ended June 30, 2023 and 2022 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.

 

A summary of the Company’s stock option and restricted stock unit activity under its plans is as follows:

 

		Stock Options								Restricted Stock Units
		Number of Shares Subject to Outstanding Stock Options				Weighted Average Exercise Price per Share				Number of Outstanding Restricted Stock Units				Weighted Average Grant Date Fair Value per Share
Outstanding at December 31, 2022			898,844			$	4.74				1,318,530			$	7.93
Granted			75,500			$	2.32				—				—
Released			—				—				(386,968	)		$	8.63
Canceled/Forfeited			(5,000	)		$	7.50				—				—
Outstanding at June 30, 2023			969,344			$	4.55				931,562			$	7.64

 

 

The following table sets forth stock-based compensation expense recognized for the three and six months ended June 30, 2023 and 2022:

 

		Three months ended June 30,								Six months ended June 30,
		2023				2022				2023				2022
Research and development		$	378			$	178			$	750			$	207
Sales and marketing			58				12				116				24
General, and administrative			618				362				1,228				490
Total stock-based compensation expense		$	1,054			$	552			$	2,094			$	721

 

At June 30, 2023, there were 488,992 shares available for issuance under the 2022 Plan.

 

Warrants

 

In April 2022, as noted above, the Company granted the Underwriters warrants to purchase a total of 96,000 shares of the Company’s common stock. The warrants are immediately exercisable at an exercise price of $5.00 per share and expire on the fifth anniversary of the commencement of sales under the IPO. The fair value of the warrants on the grant date was $2.75 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 62.55%; dividend yield of 0%; and risk-free interest rate of 2.92%. The Company recorded the fair value of these warrants of approximately $264 as an issuance cost to additional paid-in capital in 2022. As the IPO issuance costs were also recorded to additional paid-in capital, the net impact was $0.

 

In June 2023, as noted above, in connection with the Registered Offering, the Company issued Offering Warrants to purchase a total of 20,000,000 shares of the Company’s common stock. The Offering Warrants were exercisable upon issuance at an exercise price of $0.56 per share and will expire five years from the date of issuance. Per the terms of the Offering Warrants, the exercise price of the Offering Warrants reset on July 16, 2023, to a price equal to the greater of (i) $0.28 per share and (ii) 100% of the last VWAP (as defined in the Warrants) on July 14, 2023. The fair value of the Offering Warrants on the grant date was approximately $3,164, or $0.16 per warrant, which was calculated using a Monte-Carlo simulation to estimate the final exercise price, which is considered a Level 3 fair value measurement, using as inputs; the starting value of $0.30 per share, the Company’s VWAP on June 16; an assumed daily distribution of returns; a mean daily return of 5.18%; a short-term annual volatility of 100% and a standard deviation of 6.3%. The model used Black-Scholes to then calculate the estimated fair value of the Offering Warrants, using an estimated time to maturity of 4.9 years, a risk-free interest rate of 3.99% and a long-term volatility of 60%. The change in fair value at June 30, 2023 was immaterial and there were no unrealized gains or losses. Based on the accounting guidance under ASC 815, the Company determined that the Offering Warrants did not meet the criteria for classification as equity as of June 30, 2023. Accordingly, the Company classified the fair value of the Offering Warrants as a liability. The total of the Company’s stockholders’ equity plus the warrant liability at June 30, 2023 was $4,067. See Note 10.

 

8. 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 Catamaran System in the United States and Puerto Rico. The agreement is for an initial period of five years, and automatically renews for an additional five years unless written notice is given by either party prior to April 27, 2023. The agreement provides for a bonus to be paid to the Representative upon an acquisition or IPO. In May 2021, the Company entered into an Amended and Restated Exclusive Sales Representative Agreement (the “Restated Sales Agreement”). In connection with the amended agreement, the Company paid $500 cash and issued 53,757 shares of common stock to the Representative, for which the Company recorded a combined total of approximately $880 as sales and marketing expense. In addition, 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. In October 2021, the Company issued 44,447 shares of common stock with a fair value of approximately $333 to the Representative in accordance with the anti-dilution provision. In April 2022, the Company issued 312,351 shares of common stock to the Representative in accordance with the anti-dilution provision, fully satisfying the Company’s obligations.

 

The Restated Sales Agreement restructured the calculation of the bonus paid to the Representative upon an acquisition, removed the bonus payable upon an IPO, and allows the Company to terminate the Restated Sales Agreement as long as the bonus paid to the Representative is at least $6,000.

 

 

On October 6, 2022, the Company entered into the Terminating Amended and Restated Exclusive Sales Representative Agreement (the “Termination Agreement”) with the Representative, which terminated the Restated Sales Agreement. In accordance with the Termination Agreement, (i) the Company paid the Representative $1,000 in cash; and (ii) the Company agreed to pay the Representative (a) $85 per month during the six months after the date of the Termination Agreement in return for efforts by the Representative to transition operations to the Company, (b) 20% of net sales of the product sold in the United States and Puerto Rico until December 31, 2023 and (c) after December 31, 2023, 10% of net sales until such time as the aggregate amount paid to the Representative under this clause (c) and clause (b) above equal $3,600. In the event of an acquisition of the Company, the Company will pay the Representative $3,600 less previous amounts paid pursuant to clause (b) and clause (c) above. The Company recorded a charge of $1,000 for the payment to the Representative in the fourth quarter of 2022 and is expensing the $85 per charges as incurred over the six-month period. For payments under clause (b) and clause (c) above, the Company estimated the fair value of the liability using level 3 hierarchy inputs based on a Monte Carlo simulation of future revenues with a 25% quarterly estimated standard deviation of growth rates and a 10% probability of dissolution, discounted at an estimated discount rate of 15.4%. Based on the Company’s fair value analysis, a total of $2,611 was charged to sales and marketing expense in the consolidated statements of operations and comprehensive loss and recorded as accrued commissions in the consolidated balance sheets. A reconciliation of the liability under clause (b) and clause (c) for the six months ended June 30, 2023 is as follows:

 

		2023
Balance at December 31, 2022		$	2,560
Amounts paid during 2023			(205	)
Accretion			293
Balance at June 30, 2023		$	2,648

 

Per the terms of the Termination Agreement, the Company ultimately expects to expense $3,600 under clause (b) and clause (c).

 

Simultaneously with the execution of the Termination Agreement, the Company entered into a Consulting Agreement dated October 6, 2022, with the Representative (the “Consulting Agreement”). Under the terms and conditions of the Consulting Agreement, the Representative is tasked with organizing, recruiting, training, and coordinating the Company’s Clinical Specialist program, Physician Education program and Sales Education program as more specifically described in the Consulting Agreement.

 

The term of the Consulting Agreement is from October 6, 2022, until October 05, 2023, unless extended by mutual agreement of the parties in writing for additional one-year terms, or terminated in accordance with the terms of the Consulting Agreement. In consideration for the services to be provided, the Company shall pay the Representative a base consulting fee of $700 per year, payable in monthly installments, along with additional compensation of up to $62.5 per quarter, if certain sales targets are met, for four quarters; along with any travel and related out-of-pocket expenses incurred by the Representative in connection with the performance of the services.

 

Litigation

 

In the normal course of business, the Company may possibly be named as a defendant in various lawsuits.

 

9. Concentrations of Risk

 

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 June 30, 2023 and December 31, 2022, approximately $18 and $8, 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.

 

10. Subsequent Events

 

Offering Warrant Reset

 

As noted in Note 7 above, in June 2023, in connection with the Registered Offering, the Company issued Offering Warrants to purchase a total of 20,000,000 shares of the Company’s common stock. The Offering Warrants were exercisable upon issuance at an exercise price of $0.56 per share and will expire five years from the date of issuance. Based on the accounting guidance under ASC 815, the Company determined that the Offering Warrants did not meet the criteria for classification as equity as of June 30, 2023. Accordingly, the Company classified the fair value of the Offering Warrants as a liability on its consolidated balance sheet as of that date. Per the terms of the Offering Warrants, the exercise price was reset on July 16, 2023 to $0.3146 per share. There will be no further mandatory price resets. As of July 16, 2023, with the resolution of the reset value, the Company has determined that the Offering Warrants do meet the criteria for classification as equity and the fair value of the Offering Warrants has been reclassified to additional paid-in capital on the Company’s consolidated balance sheet as of that date. As a result of this reclassification, the Company believes that its Shareholder Equity will exceed $2.5 million and will therefore meet the minimum shareholder equity amount required by the Nasdaq Stock Market LLC (“Nasdaq”).

 

Notice from Nasdaq

 

On July 20, 2023, the Company received a letter from the Nasdaq Listing Qualifications Staff of Nasdaq therein stating that for the 30 consecutive business day period between June 6, 2023 through July 19, 2023, the common stock of the Company had not maintained a minimum closing bid price of $1.00 per share required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”). Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), the Company was provided an initial period of 180 calendar days, or until January 16, 2024 (the “Compliance Period”), to regain compliance with the Bid Price Rule.

 

To regain compliance, the closing bid price of the Company’s common stock must meet or exceed $1.00 per share for a minimum of 10 consecutive trading days, unless extended by Nasdaq under Nasdaq Rule 5810(c)(3)(H), prior to January 16, 2024.

 

If the Company does not regain compliance with the Bid Price Rule by January 16, 2024, the Company may be eligible for an additional 180-day period to regain compliance. To qualify, the Company would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the Bid Price Rule, and would need to provide written notice of its intention to cure the bid price deficiency during the second compliance period, by effecting a reverse stock split, if necessary.

 

If the Company cannot regain compliance during the Compliance Period or any subsequently granted compliance period, the common stock of the Company will be subject to delisting. At that time, the Company may appeal the delisting determination to a Nasdaq hearings panel.

 

The notice from Nasdaq has no immediate effect on the listing of the Company’s common stock and its common stock will continue to be listed on The Nasdaq Capital Market under the symbol “TNON.” The Company is currently evaluating its options for regaining compliance. There can be no assurance that the Company will regain compliance with the Bid Price Rule or maintain compliance with any of the other Nasdaq continued listing requirements.

 

 

Equity Line of Credit

 

On July 24, 2023, the Company entered into a purchase agreement (“Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”), under which, subject to specified terms and conditions, the Company may sell to Lincoln Park up to $10 million of shares of common stock from time to time during the term of the Purchase Agreement. Additionally, on July 24, 2023, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with Lincoln Park, pursuant to which the Company agreed to file a registration statement with the Securities and Exchange Commission (the “SEC”), covering the resale of shares of common stock issued to Lincoln Park under the Purchase Agreement.

 

The Company cannot sell any shares to Lincoln Park until the date that a registration statement covering the resale of shares of common stock that have been and may in the future be issued to Lincoln Park under the Purchase Agreement, which the Company agreed to file with the SEC pursuant to the Registration Rights Agreement, is declared effective by the SEC and a final prospectus in connection therewith is filed and all of the other conditions set forth in the Purchase Agreement are satisfied (such date, the “Commencement Date”).

 

Beginning on the Commencement Date and for a period of 24 months thereafter, under the terms and subject to the conditions of the Purchase Agreement, from time to time, at the Company’s discretion, the Company has the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase, up to $10 million of shares of common stock, subject to certain limitations set forth in the Purchase Agreement. Specifically, from time to time from and after the Commencement Date, the Company may, at its discretion, direct Lincoln Park to purchase on any single business day on which the closing price of its common stock on The Nasdaq Capital Market (“Nasdaq”) is equal to or greater than $0.15 up to 100,000 shares of common stock (a “Regular Purchase”); provided, that the Company may direct Lincoln Park to purchase in a Regular Purchase (i) up to 125,000 shares of common stock, if the closing sale price of its common stock on Nasdaq on such business day is at least $1.50 per share and (ii) up to 150,000 shares of common stock, if the closing sale price of its common stock on Nasdaq on such business day is at least $2.50 per share. In no case, however, will Lincoln Park’s commitment with respect to any single Regular Purchase exceed $500,000; provided, that the parties may mutually agree at any time to increase the maximum number of shares of common stock the Company may direct Lincoln Park to purchase in any single Regular Purchase to up to 1,000,000 shares or any number of shares that shall not exceed 4.99% of the then outstanding shares of common stock. The foregoing share amounts and per share prices will be adjusted for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction occurring after the date of the Purchase Agreement with respect to our common stock. The purchase price per share for each such Regular Purchase will be based on prevailing market prices of the Company’s common stock immediately preceding the time of sale, as determined under the Purchase Agreement.

 

If the Company directs Lincoln Park to purchase the maximum number of shares of common stock that the Company may sell in a Regular Purchase, then in addition to such Regular Purchase, and subject to certain conditions and limitations in the Purchase Agreement, the Company may direct Lincoln Park to purchase additional shares of common stock in an “accelerated purchase” (each, an “Accelerated Purchase”) and an “additional accelerated purchase” (each, an “Additional Accelerated Purchase”) (including multiple Additional Accelerated Purchases on the same trading day) as provided in the Purchase Agreement. The purchase price per share for each Accelerated Purchase and Additional Accelerated Purchase will be based on market prices of the common stock on the applicable purchase date for such Accelerated Purchases and such Additional Accelerated Purchases. Lincoln Park has no right to require the Company to sell any common stock to Lincoln Park, but Lincoln Park is obligated to make purchases as the Company directs, subject to conditions and limitations set forth in the Purchase Agreement.

 

The Purchase Agreement also prohibits the Company from directing Lincoln Park to purchase any shares of common stock if those shares, when aggregated with all other shares of common stock then beneficially owned by Lincoln Park and its affiliates, would result in Lincoln Park and its affiliates having beneficial ownership, at any single point in time, of more than 4.99% of the then total outstanding shares of common stock.

 

The Company’s net proceeds under the Purchase Agreement will depend on the frequency of sales and the number of shares sold to Lincoln Park and the prices at which the Company sells shares to Lincoln Park. The Company expects that any net proceeds it receives from such sales to Lincoln Park will be used for general corporate purposes, including working capital. As consideration for Lincoln Park’s commitment to purchase up to $10 million of shares of common stock under the Purchase Agreement, the Company issued 989,087 shares of common stock to Lincoln Park (the “Commitment Shares”).

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

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™ SI Joint Fusion System (“The Catamaran System”). The Catamaran System offers a novel, less invasive inferior-posterior approach to the sacroiliac joint (“SI Joint”) using a single, robust titanium implant to treat SI Joint dysfunction that often causes severe lower back pain. The system features the Catamaran™ Fixation Device which passes through both the axial and sagittal planes of the ilium and sacrum, transfixing the SI Joint along its longitudinal axis. Published clinical studies have shown that 15% to 30% of all chronic lower back pain is associated with the SI Joint.

 

With an entry similar to the SI Joint injection, the surgical approach is direct to the joint. The angle and trajectory of the inferior-posterior approach is designed to point away from critical neural and vascular structures and into the strongest cortical bone. Joined by a patented osteotome bridge, the implant design consists of two hollow fenestrated pontoons with an open framework to facilitate bony in-growth through the SI Joint. One pontoon fixates into the ilium and the other into the sacrum. The osteotome is designed to disrupt the articular portion of the joint to help facilitate a fusion response.

 

Our initial clinical results indicate that The Catamaran System implant is promoting fusion across the joint as evidenced by computerized tomography (CT) scans which is the gold standard widely accepted by the clinical community. We had our national launch of The Catamaran System in October 2022 and are building a sales and marketing infrastructure to market our product and address the greatly underserved market opportunity that exists.

 

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.

 

We have incurred net losses since our inception in 2012. As of June 30, 2023, we had an accumulated deficit of approximately $48.6 million. To date, we have financed our operations primarily through an initial public offering, 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 June 30, 2022 reflect the impact 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 Catamaran Tray 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.

 

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 independent sales representative training and commissions in addition to salaries and stock-based compensation expense. 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 and salaries, increased 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 information technology 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 Stock Market LLC on which our securities are 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.

 

 

Results of Operations

 

The following table sets forth our results of operations for the periods presented (in thousands):

 

		Three Months Ended June 30,								Six Months Ended June 30,
Consolidated Statements of Operations Data:		2023				2022				2023				2022
Revenue		$	743			$	135			$	1,176			$	206
Cost of goods sold			549				271				1,029				546
Gross (loss) profit			194				(136	)			147				(340	)
Operating expenses:
Research and development			901				657				1,735				1,219
Sales and marketing			1,883				1,943				3,909				2,219
General and administrative			1,732				2,720				3,711				3,757
Total operating expenses			4,516				5,320				9,355				7,195
Loss from operations			(4,322	)			(5,456	)			(9,208	)			(7,535	)
Interest and other income (expense), net:
Gain on investments			37				35				93				36
Interest expense			—				(88	)			—				(362	)
Other income (expense)			—				21				—				20	)
Net loss		$	(4,285	)		$	(5,488	)		$	(9,115	)		$	(7,841	)

 

The following table sets forth our results of operations as a percentage of revenue:

 

		Three Months Ended June 30,								Six Months Ended June 30,
Consolidated Statements of Operations Data:		2023				2022				2023				2022
Revenue			100	%			100	%			100	%			100	%
Cost of goods sold			74				201				88				265
Gross profit			26				(101	)			12				(165	)
Operating expenses:
Research and development			121				487				148				592
Sales and marketing			253				1,439				332				1,077
General and administrative			233				2,015				316				1,824
Total operating expenses			608				3,941				795				3,493
Loss from operations			(582	)			(4,041	)			(783	)			(3,658
Interest and other income (expense), net:
Gain on investments			5				26				8				17
Interest expense			—				(65	)			—				(176	)
Other expense			—				16				—				10
Net loss			(577	)%			(4,065	)%			(775	)%			(3,806	)%

 

Comparison of the Three and Six Months Ended June 30, 2023 and 2022 (in thousands, except percentages)

 

Revenue, Cost of Goods Sold, Gross Profit, and Gross Margin

 

		Three Months Ended  June 30,
		2023				2022				$ Change				% Change
Revenue		$	743			$	135			$	608				450	%
Cost of goods sold			549				271				278				103	%
Gross (loss) profit		$	194			$	(136	)		$	330				(243	)%
Gross (loss) profit percentage			26	%			(101	)%

 

 

		Six Months Ended June 30,
		2023				2022				$ Change				% Change
Revenue		$	1,176			$	206			$	970				471	%
Cost of goods sold			1,029				546				483				88	%
Gross (loss) profit		$	147			$	(340	)		$	487				(143	)%
Gross (loss) profit percentage			12	%			(165	)%

 

Revenue. The increase in revenue for the three and six months ended June 30, 2023 as compared to the same periods in 2022 was primarily due to increases of 463% and 433%, respectively, in the number of surgical procedures in which The Catamaran System was used.

 

Cost of Goods Sold, Gross Profit, and Gross Margin. The increase in cost of goods sold for the three and six months ended June 30, 2023 as compared to the same periods in 2022 was due to increases of 463% and 433%, respectively, in the number of surgical procedures performed. Gross loss and gross margin percentage improved due to higher revenue associated with the increase in the number of surgical procedures.

 

Operating Expenses

 

		Three Months Ended June 30,
		2023				2022				$ Change				% Change
Research and development		$	901			$	657			$	244				37	%
Sales and marketing			1,883				1,943				(60	)			(3	)%
General and administrative			1,732				2,720				(988	)			(36	)%
Total operating expenses		$	4,516			$	5,320			$	(804	)			(15	)%

 

		Six Months Ended June 30,
		2023				2022				$ Change				% Change
Research and development		$	1,735			$	1,219			$	516				42	%
Sales and marketing			3,909				2,219				1,690				76	%
General and administrative			3,711				3,757				(46	)			(1	)%
Total operating expenses		$	9,355			$	7,195			$	2,160				30	%

 

Research and Development Expenses. Research and development expenses for the three months ended June 30, 2023 increased as compared to the same period in 2022 primarily due to increased stock-based compensation ($200) and payroll expenses ($100), partially offset by decreased professional fees ($37).

 

Research and development expenses for the six months ended June 30, 2023 increased as compared to the same period in 2022 primarily due to increased stock-based compensation ($543) and payroll expenses ($116), partially offset by decreased professional fees ($45).

 

Sales and Marketing Expenses. Sales and marketing expenses for the three months ended June 30, 2023 decreased as compared to the same period in 2022 primarily due to decreased consulting and professional fees ($1,340), partially offset by increased payroll expenses ($670), SpineSource transition expenses ($260), sales commissions ($278), and stock-based compensation ($46) The increase in payroll and payroll related expenses is primarily due to the increased number of sales and marketing employees as we build out our sales function.

 

Sales and marketing expenses for the six months ended June 30, 2023 increased as compared to the same period in 2022 primarily due to increased payroll expenses ($1,330), SpineSource transition expenses ($690), sales commissions ($610) and stock-based compensation ($92), partially offset by decreased consulting and professional fees ($1,129). The increase in payroll and payroll related expenses is primarily due to the increased number of sales and marketing employees as we build out our sales function.

 

General and Administrative Expenses. General and administrative expenses for the three months ended June 30, 2023 decreased as compared to the same period in 2022 primarily due to a legal settlement accrual in 2022 ($574) and decreased professional service fees ($517) partially offset by increased stock-based compensation ($256), and payroll expenses ($62).

 

General and administrative expenses for the six months ended June 30, 2023 decreased as compared to the same period in 2022 primarily due to a legal settlement accrual in 2022 ($574) and decreased professional service fees ($489), partially offset by increased stock-based compensation ($738) and payroll expenses ($245). The increase in general and administrative expenses in 2023 exclusive of the legal settlement accrual was primarily due to the Company’s ongoing transition to an operating company and the creation of an infrastructure to support future growth through the hiring of employees.

 

 

Gain (Loss) on Investments, Interest Expense and Other Income (Expense), Net

 

Gain on investments for the three and six months ended June 30, 2023 increased approximately $2 and $57, respectively, as compared to the three and six months ended June 30, 2022 due to interest on our investments in money market and corporate debt securities. We had no interest expense for the three and six months ended June 30, 2023 and interest expense for the three and six months ended June 30, 2022 of $88 and $362 related to our convertible debt.

 

Liquidity and Capital Resources; Going Concern

 

As of June 30, 2023, we had cash and cash equivalents and short-term investments of approximately $6.3 million. Since inception, we have financed our operations through private placements of preferred stock, debt financing arrangements, our initial public offering and the sale of our products. As of June 30, 2023, we had no outstanding debt.

 

As of June 30, 2023, we had an accumulated deficit of approximately $48.6 million and expect to incur additional losses in the future. We have not achieved positive cash flow from operations to date. On April 29, 2022, we closed an initial public offering of our common stock. On June 16, 2023, we closed a registered public offering. Based upon our current operating plan, we believe that our existing cash and cash equivalents will not be sufficient 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 plan to raise the necessary additional capital through one or a combination of public or private equity offerings, debt financings, and collaborations. 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.

 

As we attempt 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. 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. Due to the uncertainty in our ability to raise capital, management believes that there is substantial doubt in our ability to continue as a going concern for the next twelve months from the issuance of these consolidated financial statements.

 

We plan to use our cash within the twelve months from June 30, 2023 and beyond for working capital and research and development.

 

Contractual Obligations

 

The following table summarizes our contractual obligations as of June 30, 2023:

 

		Payments Due By Period (In thousands)
						Less than												More than
		Total				1 year				1-3 years				4-5 years				5 years
Operating leases		$	905			$	150			$	611			$	144			$	—
Purchase obligations			—				—				—				—				—
Total		$	905			$	150			$	611			$	144			$	—

 

 

Obligations under Terminated Sales Representative Agreement: On October 6, 2022, we entered into the Terminating Amended and Restated Exclusive Sales Representative Agreement (the “Termination Agreement”). In accordance with the Termination Agreement, (i) we paid the Representative $1,000 in cash; and (ii) we agreed to pay the Representative (a) $85 per month during the six months after the date of the Termination Agreement in return for efforts by the Representative to transition operations to us, (b) 20% of net sales of the Product sold in the United States and Puerto Rico until December 31, 2023 and (c) after December 31, 2023, 10% of net sales until such time as the aggregate amount paid to the Representative under this clause (c) and clause (b) above equal $3,600. In the event of an acquisition, we will pay the Representative $3,600 less previous amounts paid pursuant to clause (b) and clause (c) above. The timing of the payments under clause (b) and (c) is variable depending on the timing of our sales.

 

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:

 

		Six Months Ended June 30,
		2023				2022				$ Change				% Change
Net cash (used in) provided by:
Operating activities		$	(6,752	)		$	(5,227	)		$	(1,525	)			29	%
Investing activities			5,798				(3,906	)			9,704				(248	)%
Financing activities			4,665				14,139				(9,474	)			(67	)%
Effect of foreign currency translation on cash flow			12				(48	)			60				(125	)%
Net increase in cash and cash equivalents		$	3,723			$	4,958			$	(1,235	)			(25	)%

 

The decrease in net cash used in operating activities for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022 was primarily attributable to our increased net loss of $1.3 million, adjusted for increases in non-cash stock-based compensation expenses ($1,373) and a decrease in common stock issued for services (1,561), in addition to increases in inventory ($285) and accounts payable ($495).

 

Cash provided by investing activities for the six months ended June 30, 2023 consisted primarily of the net sales of short-term investments of approximately $6.0 million to use to fund our operations, partially offset by purchases of property and equipment of $0.2 million. Cash used in investing activities for the six months ended June 30, 2022 consisted primarily of the net purchases of short-term investments of $3.7 million and purchases of property and equipment of $0.2 million.

   

Cash provided by financing activities for the six months ended June 30, 2023 consisted primarily of the $4.8 million, net of relevant expenses, received from our registered offering in June 2023. Cash provided by financing activities for the six months ended June 30, 2022 consisted of the $14.1 million cash received from our initial public offering in April 2022, net of relevant expenses.

 

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 three other sources. Actual results could differ from these estimates under different assumptions or conditions. For the six months ended June 30, 2023, there were no significant changes to our existing critical accounting policies from those disclosed on our Annual Report on Form 10-K.

 

Off-Balance Sheet Arrangements

 

As of June 30, 2023, and December 31, 2022, 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.

 

 

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not required under Regulation S-K for “smaller reporting companies.”

 

ITEM 4. Controls and Procedures. Disclosure Controls and Procedures

 

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 June 30, 2023, 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 the six months ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEDINGS

 

ITEM 1A. RISK FACTORS

 

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 our Annual Report on Form 10-K filed with the U.S. Securities and Securities Exchange Commission (“SEC”) on March 10, 2023.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

(A) Unregistered Sales of Equity Securities

 

None.

 

(B) Use of Proceeds

 

Not applicable.

 

(C) Issuer Purchases of Equity Securities

 

None

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not Applicable.

 

ITEM 5. OTHER INFORMATION

 

As previously reported by the Company on a Current Report on Form 8-K filed with the Securities and Exchange Commission on July 21, 2023, on July 20, 2023, the Company received written notice from The Nasdaq Stock Market LLC (“Nasdaq”) stating that the Company failed to maintain a minimum bid price of at least $1.00 per share for the prior 30 consecutive trading day period from June 6, 2023 to July 19, 2023, based upon the closing bid price for its common stock as required by Nasdaq Listing Rule 5550(a)(2).

 

Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), the Company has 180 calendar days, or until January 16, 2024, to regain compliance with the minimum bid requirement under Nasdaq Listing Rule 5550(a)(2). During the compliance period, the Company’s common stock will continue to be listed and traded on The Nasdaq Capital Market. To regain compliance, the closing bid price of the Company’s common stock must meet or exceed $1.00 per share for a minimum of 10 consecutive trading days, unless extended by Nasdaq under Nasdaq Rule 5810(c)(3)(H), prior to January 16, 2024.

 

In the event the Company does not regain compliance during the compliance period, the Company may be eligible for additional 180 calendar days to comply with Nasdaq Listing Rule 5550(a)(2), subject to the Company satisfying the continued listing requirement for the market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market with the exception of the bid price requirement, subject to Nasdaq’s approval.

 

As previously reported by the Company on a Current Report on Form 8-K filed with the Securities and Exchange Commission on May 19, 2023, the Company received a written notice from Nasdaq dated May 17, 2023, notifying the Company that it is no longer in compliance with Nasdaq Rule 5550(b)(1), the minimum stockholders’ equity requirement of $2,500,000 for continued listing on The Nasdaq Capital Market (the “Minimum Equity Requirement”).

 

On June 16, 2023, the Company consummated a public offering (the “Public Offering”) of 10,000,000 units, each unit consisting of one share of the Company’s common stock and two warrants, each to purchase one share of the Company’s common stock in which it received net proceeds of $4,866,000. As of July 10, 2023, the Company believes it is in compliance with the Minimum Equity Requirement as a result of the Public Offering.

 

Nasdaq will continue to monitor the Company’s ongoing compliance with the Minimum Equity Requirement and, if at the time of its next periodic report the Company does not evidence compliance, it may be subject to delisting.

 

 

ITEM 6. EXHIBITS

 

EXHIBIT INDEX

 

Exhibit Number		Description
3.1#		Second Amended and Restated Certificate of Incorporation of the Registrant.
3.2#		Bylaws of the Registrant.
4.1##		Form of Warrant.
4.2#		Form of Pre-funded Warrant.
4.3#		Form of Warrant Agency Agreement.
4.4##		Form of Securities Purchase Agreement
10.1#		Employment Agreement dated June 1, 2021 between Steven M. Foster and the Registrant.
10.2#		Employment Agreement dated June 1, 2021 between Richard Ginn and the Registrant.
10.3#		Consulting Agreement dated May 7, 2021 by and between Richard Ferrari and the Registrant.
10.4#		Employment Agreement dated June 1, 2021 between Steven Van Dick and the Registrant.
10.5#		Tenon Medical 2022 Equity Incentive Plan.
10.6###		Purchase Agreement dated as of July 24, 2023, by and between Tenon Medical, Inc. and Lincoln Park Capital Fund, LLC
10.7###		Registration Rights Agreement dated as of July 24, 2023, by and between Tenon Medical, Inc. and Lincoln Park Capital Fund, LLC
21.1#		List of Subsidiaries of the Registrant.
31.1		Rule 13a-14(a)/15d-14(a) Certification of the President and Chief Executive Officer of Tenon Medical, Inc.
31.2		Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer of Tenon Medical, Inc.
32.1*		Section 1350 Certification of the President and Chief Executive Officer of Tenon Medical, Inc.
32.2*		Section 1350 Certification of the Chief Financial Officer of Tenon Medical, Inc.
101.INS*		Inline XBRL Instance Document
101.SCH*		Inline XBRL Taxonomy Extension Schema Document
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		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. 333-272488, filed with the Securities and Exchange Commission on June 7, 2023.

 

##	Incorporated by reference to the same exhibit number in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 20, 2023, as amended by the Form 8-K/A filed with the Securities and Exchange Commission on July 18, 2023.

 

###

Incorporated by reference to the same exhibit number in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 28, 2023.

 

*

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.

 

 

SIGNATURES

 

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.

 

	TENON MEDICAL, INC.
Dated: August 11, 2023	/s/ Steven M. Foster
	Steven M. Foster
	Chief Executive Officer and President, Director (Principal Executive Officer)
Dated: August 11, 2023	/s/ Steven Van Dick
	Steven Van Dick
	Chief Financial Officer (Principal Financial and Accounting Officer)

 

 

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