UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form
(Mark One)
FOR
THE QUARTERLY PERIOD ENDED
or
FOR THE TRANSITION PERIOD FROM _________ to __________
COMMISSION
FILE NUMBER
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| (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 | ||
| The |
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.
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).
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 | ☐ |
| ☒ | 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 November 14, 2024, the registrant had a total of
INDEX
i
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; | |
| ● | 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 distributors’ 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; and |
| ● | Our ability to protect our intellectual property and to develop, maintain and enhance a strong brand. |
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.
ii
PART I – FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements (Unaudited)
Tenon Medical, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except share data)
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Fixed assets, net | ||||||||
| Deposits | ||||||||
| Operating lease right-of-use asset | ||||||||
| Deferred offering costs | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| Liabilities and Stockholders’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Current portion of accrued commissions | ||||||||
| Current portion of operating lease liability | ||||||||
| Convertible notes payable and accrued interest, net of debt discount of $ | ||||||||
| Total current liabilities | ||||||||
| Accrued commissions, net of current portion | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 8) | ||||||||
| Stockholders’ equity: | ||||||||
| Series A convertible preferred stock, $ | ||||||||
| Series B convertible preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ||||||
| Total stockholders’ equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
Tenon Medical, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
(In thousands, except per share data)
| Three
Months Ended September 30, |
Nine
Months Ended September 30, |
|||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Operating Expenses | ||||||||||||||||
| Research and development | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Loss from Operations | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other Income (Expense) | ||||||||||||||||
| Gain on investments | ||||||||||||||||
| Interest expense | ( |
) | ( |
) | ( |
) | ||||||||||
| Other income (expense), net | ( |
) | ||||||||||||||
| Total Other Income (Expense), net | ||||||||||||||||
| Net Loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Net Loss Per Share of Common Stock | ||||||||||||||||
| Basic and diluted | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Weighted-Average Shares of Common Stock Outstanding | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
| Consolidated Statements of Comprehensive Loss: | ||||||||||||||||
| Net loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Unrealized gain on investments | ||||||||||||||||
| Foreign currency translation adjustment | ( |
) | ( |
) | ||||||||||||
| Total comprehensive loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
Tenon Medical, Inc.
Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Unaudited)
(In thousands, except share data)
Three months ended September 30, 2024 and 2023:
| 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 June 30, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | |||||||||||||||||||||||||||||||||||||
| Issuance of Series B preferred stock and warrants, net of issuance costs | — | — | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock, prefunded warrants, and warrants, net of issuance costs | — | — | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of prefunded warrants | — | — | ( | ) | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock and warrants under inducement agreement | — | — | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of warrants | — | — | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock, net of issuance costs | — | — | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for reverse stock split | — | — | ( | ) | ||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | |||||||||||||||||||||||||||||||||||||
| Release of restricted stock units | — | — | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock, net of issuance costs | — | — | ||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | — | — | ||||||||||||||||||||||||||||||||||||||
| Reclassification of warrant liability to equity | — | — | — | |||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
3
Nine months ended September 30, 2024 and 2023:
| 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, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | |||||||||||||||||||||||||||||||||||||
| Issuance of Series A preferred stock and warrants, net of issuance costs | — | — | ||||||||||||||||||||||||||||||||||||||
| Issuance of Series B preferred stock and warrants, net of issuance costs | — | — | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock, prefunded warrants, and warrants, net of issuance costs | — | — | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of prefunded warrants | — | — | ( | ) | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock and warrants under inducement agreement | — | — | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of warrants | — | — | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock, net of issuance costs | — | — | ||||||||||||||||||||||||||||||||||||||
| Release of restricted stock units | — | — | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for reverse stock split | — | — | ( | ) | ||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | |||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | |||||||||||||||||||||||||||||||||||||
| Release of restricted stock units | — | — | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock and warrants, net of issuance costs | — | — | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock, net of issuance costs | — | — | ||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | — | — | ||||||||||||||||||||||||||||||||||||||
| Reclassification of warrant liability to equity | — | — | — | |||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | — | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
Tenon Medical, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
| Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation expense | ||||||||
| Depreciation and amortization | ||||||||
| Provision for losses on accounts receivable | ||||||||
| Amortization of operating right-of-use asset | ||||||||
| Increase (decrease) in cash resulting from changes in: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaid expenses and other assets | ( | ) | ( | ) | ||||
| Accounts payable | ||||||||
| Accrued expenses | ( | ) | ||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Sales of short-term investments | ||||||||
| Purchases of short-term investments | ( | ) | ||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Net cash (used in) provided by investing activities | ( | ) | ||||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from issuance of Series A convertible preferred stock, net | ||||||||
| Proceeds from issuance of Series B convertible preferred stock, net | ||||||||
| Proceeds from issuance of common stock, prefunded warrants, and warrants, net | ||||||||
| Proceeds from exercise of warrants under inducement agreement, net | ||||||||
| Proceeds from issuance of common stock, net | ||||||||
| Proceeds from issuance of common stock upon exercise of warrants | ||||||||
| Proceeds from issuance of common stock and warrants, net of issuance costs | ||||||||
| Deferred offering costs | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Effect of foreign currency translation on cash flow | ( | ) | ||||||
| Net Increase in Cash and Cash Equivalents | ||||||||
| Cash and Cash Equivalents at Beginning of Period | ||||||||
| Cash and Cash Equivalents at End of Period | $ | $ | ||||||
| Supplemental Disclosures of Cash Flow Information | ||||||||
| Non-cash investing and financing activities: | ||||||||
| Preferred stock issued upon conversion of debt and accrued interest, net of unamortized debt issuance costs | $ | |||||||
| Reclassification of deferred offering costs to additional paid-in capital | $ | |||||||
| Warrant modification costs | $ | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
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 The Catamaran™ SI Joint Fusion System (“the Catamaran System”) that offers a novel, less 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 The Catamaran System and is currently focused on the U.S. market. Since the national launch of the Catamaran System in October 2022, the Company is focused on three commercial opportunities: 1) Primary SI Joint procedures, 2) Revision procedures of failed SI Joint implants and 3) SI Joint fusion adjunct to a spine fusion construct.
Principles of consolidation
The condensed consolidated financial statements of the Company for the three and six months ended June 30, 2023 and as of December 31, 2023 include the accounts of 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. In 2024, TTAG was dissolved and, as such, the financial statements for the three and nine months ended September 30, 2024 and as of September 30, 2024 only include the accounts of the Company.
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, 2023 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 29, 2024.
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, 2023 and 2022 included in its Annual Report on Form 10-K filed with the SEC on March 29, 2024.
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.
The Company’s significant accounting policies are disclosed in the audited consolidated financial statements as of and for the years ended December 31, 2023 and 2022. There have been no material changes in the Company’s significant accounting policies during the nine months ended September 30, 2024.
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 condensed consolidated financial statements are issued.
6
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. Based on the Company’s expected level of revenues and expenditures, the Company believes that its existing cash and cash equivalents as of September 30, 2024 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 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 consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Reverse Stock Splits
On
November 2, 2023, the Company effected a
On
September 6, 2024, the Company effected a
All historical share and per share amounts reflected throughout this document have been adjusted to reflect the 2023 Reverse Stock Split and the 2024 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 2023 Reverse Stock Split or the 2024 Reverse Stock Split.
Notice from Nasdaq
On
May 7, 2024, the Company received a letter from the Nasdaq Listing Qualifications Staff of The Nasdaq Stock Market LLC (“Nasdaq”)
stating that for the 30 consecutive business day period between March 25, 2024 and May 6, 2024, the common stock of the Company had not
maintained a minimum closing bid price of $
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, allowance for credit losses, and stock-based compensation.
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; however, such carry forwards
are likely to be limited by changes in the Company’s ownership (see Note 7). The Company has recorded a
7
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 certain 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.
| September 30, 2024 | September 30,
2023 | |||||||
| Outstanding restricted stock units | ||||||||
| Outstanding stock options | ||||||||
| Outstanding warrants | ||||||||
| Common shares convertible from preferred stock | ||||||||
| Total | ||||||||
Recent Accounting Pronouncements Not Yet Adopted
In November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which increases the disclosures about reportable segments including more detailed information about a reportable segment’s expenses. This guidance will be effective for the Company for the fiscal year ending December 31, 2024 and the interim periods thereafter, with early adoption permitted. The guidance will have no effect on the Company’s results of operations as the changes are disclosure related. The Company has elected not to early adopt.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures, which requires additional tax disclosures about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. This guidance will be effective on a prospective basis, with the option to apply it retrospectively, for fiscal years beginning after December 15, 2024. We are currently evaluating the impact of adopting this new accounting guidance.
In November, 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses, which requires additional disclosure of specific types of expenses included in the expense captions presented on the face of the income statement as well as disclosures about selling expenses. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. The requirements will be applied prospectively with the option for retrospective application. Early adoption is permitted. We are currently evaluating the impact of adopting this new accounting guidance.
3. Fixed Assets, Net
| September 30,
2024 | December 31,
2023 | |||||||
| Construction in progress | $ | $ | ||||||
| Catamaran tray sets | ||||||||
| IT equipment | ||||||||
| Leasehold improvements | ||||||||
| Lab equipment | ||||||||
| Office furniture | ||||||||
| Fixed assets, gross | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Fixed assets, net | $ | $ | ||||||
Construction
in progress is made up of reusable components that will become reusable Catamaran Tray Sets. Depreciation expense was approximately $
8
4. Accrued Expenses
| September 30,
2024 | December 31,
2023 | |||||||
| Accrued compensation | $ | $ | ||||||
| Other accrued expenses | ||||||||
| Total accrued expenses | $ | $ | ||||||
5. Debt
Convertible notes payable
In
November 2023, the Company entered into Securities Purchase Agreements with certain investors (the “Investors”), pursuant
to which the Company sold to the Investors a total of $
The
Convertible Notes bear an interest rate of
On
February 20, 2024, the Investors agreed to a complete prepayment of the Company’s obligations under the Convertible Notes, including
accrued interest, in exchange for
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
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Operating lease right-of-use assets | $ | $ | ||||||
| Operating lease liability, current | $ | ( | ) | $ | ( | ) | ||
| Operating lease liability, noncurrent | ( | ) | ( | ) | ||||
| Total operating lease liabilities | $ | ( | ) | $ | ( | ) | ||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Present value of operating lease liabilities | $ |
9
| Cash paid for operating leases for the nine months ended September 30, 2024 | $ | |||
| Cash paid for operating leases for the nine months ended September 30, 2023 | $ | |||
| Remaining lease term - operating leases (in years) | ||||
| Average discount rate - operating leases | % |
7. Stockholders’ Equity
The
Company’s current Amended and Restated Certificate of Incorporation dated February 18, 2014, authorizes the issuance of
2024 Public Offering
On
September 12, 2024, the Company entered into a placement agency agreement (the “Placement Agency Agreement”) with A.G.P./Alliance
Global Partners (the “Placement Agent”), and a securities purchase agreement (the “Purchase Agreement”) with
a single health-care focused institutional investor pursuant to which the Company agreed to issue and sell, in a “reasonable best
efforts” public offering (the “Offering”), (i)
Warrant Inducement
On September 16, 2024, the Company entered into an Inducement Letter with Armistice Capital, LLC (the “Selling Stockholder”)
who held all of the Common Warrants. Pursuant to the Inducement Letter, the Selling Stockholder agreed to exercise the Common Warrants
for cash at the exercise price of $
The Company estimated the fair value of the Common Warrants immediately before the modification and the fair value of the New Warrants
after the modification using the Black-Scholes valuation model with an expected term of
At-the-Market Offering Program
On
May 4, 2023, the Company entered into an Equity Distribution Agreement to establish an at-the-market offering program, under which the
Company may sell from time to time, at its option, shares of its common stock having an aggregate gross sales price of $
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
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 $
During
the three months ended September 30, 2024,
Series A Preferred Stock
On February 20, 2024, the Company entered into a Securities Purchase
Agreement with certain investors, pursuant to which the Company agreed to sell, issue and deliver to these investors, in a private placement
offering, a total of
Additionally,
on February 20, 2024, the Investors agreed to a complete prepayment of the Company’s obligations under the Convertible Notes, including
accrued interest, in exchange for
The
Series A Preferred Stock is convertible, at any time, at the option of the holder into shares of Common Stock. Each share of Series A
Preferred Stock shall be convertible, at any time after the date of issuance, at the option of the holder thereof (or, upon a Required
Conversion (as defined below), at the option of the Corporation), into that number of shares of Common Stock determined by dividing the
Stated Value (as defined below) for such share of Series A Preferred Stock by the Conversion Price (as defined below). “Stated
Value” means for any share of Series A Preferred Stock, an amount equal to
11
The
Conversion Price is subject to anti-dilution adjustment as the result of any subdivision, combination of shares or recapitalization,
stock dividends, stock splits and similar transactions affecting the Common Stock. In addition, the Series A Preferred Stock will have
weighted average anti-dilution protection providing for adjustment of the Conversion Price in the event of issuance of, or commitments
to issue, Common Stock for less than the Conversion Price then in effect immediately prior to such issue or sale (a “Dilutive Issuance”),
subject to customary exceptions; provided however the anti-dilution for Dilutive Issuances shall not be operative until the stockholders
of the Company have approved the terms of the Series A Preferred Stock. Upon any liquidation or winding up of the Company (a “Liquidation”),
the holders of Series A Preferred Stock will be entitled to receive in preference to any other class or series of the Company’s
equity securities the greater of (i) the Stated Value plus accrued and unpaid dividends and (ii) what would be paid if the Series A Preferred
Stock plus accrued and unpaid dividends had been converted into Common Stock. A consolidation or merger of the Company or sale or transfer
of all or substantially all of its assets, or any transaction which results in the stockholders of the Company owning less than
Series B Preferred Stock
On
September 5, 2024, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain investors,
pursuant to which the Company agreed to sell, issue and deliver to the Investors, in a private placement offering, a total of
The
Series B Preferred Stock is convertible, at any time, at the option of the holder into shares of Common Stock. Each share of Series B
Preferred Stock shall be convertible, at any time after the date of issuance, at the option of the holder thereof (or, upon a Required
Conversion (as defined below), at the option of the Corporation), into that number of shares of Common Stock determined by dividing the
Stated Value (as defined below) for such share of Series B Preferred Stock by the Conversion Price (as defined below). “Stated
Value” means for any share of Series B Preferred Stock, an amount equal to
12
The
Conversion Price is subject to anti-dilution adjustment as the result of any subdivision, combination of shares or recapitalization,
stock dividends, stock splits and similar transactions affecting the Common Stock. In addition, the Series B Preferred Stock will have
weighted average anti-dilution protection providing for adjustment of the Conversion Price in the event of issuance of, or commitments
to issue, Common Stock for less than the Conversion Price then in effect immediately prior to such issue or sale (a “Dilutive Issuance”),
subject to customary exceptions; provided however the anti-dilution for Dilutive Issuances shall not be operative until the stockholders
of the Company have approved the terms of the Series B Preferred Stock. Upon any liquidation or winding up of the Company (a “Liquidation”),
the holders of Series B Preferred Stock will be entitled to receive in preference to any other class or series of the Company’s
equity securities the greater of (i) the Stated Value plus accrued and unpaid dividends and (ii) what would be paid if the Series B Preferred
Stock plus accrued and unpaid dividends had been converted into Common Stock. A consolidation or merger of the Company or sale or transfer
of all or substantially all of its assets, or any transaction which results in the stockholders of the Company owning less than
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 are 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 are 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
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
13
Option Exchange
On
April 8, 2024, the Company issued an offer to holders of outstanding stock options to purchase an aggregate of
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 Unit | |||||||||||||
| Outstanding at December 31, 2023 | $ | $ | ||||||||||||||
| Granted | $ | $ | ||||||||||||||
| Released | ( | ) | $ | |||||||||||||
| Cancelled or forfeited | ( | ) | $ | ( | ) | $ | ||||||||||
| Outstanding at September 30, 2024 | $ | $ | ||||||||||||||
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||
| Sales and marketing | ||||||||||||||||
| General, and administrative | ||||||||||||||||
| Total stock-based compensation expense | $ | $ | $ | $ | ||||||||||||
At
September 30, 2024, there were
Warrants
In
April 2022, in association with the Company’s initial public offering, the Company granted to The Benchmark Company, LLC and Valuable
Capital Limited warrants to purchase a total of
In
June 2023, in connection with a registered offering of stock, the Company issued warrants to purchase a total of
14
In
November 2023, in connection with the issuance of the Convertible Notes, the Company issued warrants to purchase a total of
On
February 20, 2024, in connection with the issuance of Series A Preferred Stock, the Company issued the Series A Warrants to purchase
a total of
On
September 5, 2024, in connection with the issuance of Series B Preferred Stock, the Company issued the Series B Warrants to purchase
a total of
On
September 16, 2024, in connection with the Warrant Inducement agreement, the Company issued Series A New Warrants to purchase a total
of
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
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 $
15
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 $
| Balance at January 1, 2024 | $ | |||
| Amounts paid during 2024 | ( | ) | ||
| Accretion | ||||
| Balance at September 30, 2024 | $ |
Per
the terms of the Termination Agreement, the Company ultimately expects to expense $
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 was from October 6, 2022, until October 5, 2023, when it terminated in accordance with the terms of
the Consulting Agreement. In consideration for the services to be provided, the Company paid the Representative a base consulting fee
of $
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 and accounts receivable.
The Company maintains cash balances at financial institutions located in California. 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.
16
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and the other information set forth in our 2023 Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the Securities and Exchange Commission on March 29, 2024. In addition to historical financial information, this discussion and analysis contains forward-looking statements that reflect our plans, estimates and beliefs. You should not place undue reliance on these forward-looking statements, which involve risks and uncertainties. As a result of many factors, including but not limited to those set forth under “Risk Factors” in our 2023 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 29, 2024, our actual results may differ materially from those anticipated in these forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements.”
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 September 30, 2024, we had an accumulated deficit of approximately $65.7 million. To date, we have financed our operations primarily through public equity offerings, 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 Splits
On November 2, 2023, we effected a 1-for-10 reverse stock split (the “2023 Reverse Stock Split”), which combined every ten shares of our common stock issued and outstanding immediately prior to effecting the 2023 Reverse Stock Split into one share of common stock. No fractional shares were issued in connection with the 2023 Reverse Stock Split.
On September 6, 2024, we effected a 1-for-8 reverse stock split (the “2024 Reverse Stock Split”), which combined every eight shares of our common stock issued and outstanding immediately prior to effecting the 2024 Reverse Stock Split into one share of common stock. No fractional shares were issued in connection with the 2024 Reverse Stock Split.
All historical share and per share amounts reflected throughout this document have been adjusted to reflect the 2023 Reverse Stock Split and the 2024 Reverse Stock Split. The authorized number of shares and the par value per share of our common stock were not affected by the 2023 Reverse Stock Split or the 2024 Reverse Stock Split.
17
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 overhead related to operation personnel and facility costs, 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 certain of 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 salaries, commissions, stock-based compensation expense and travel and entertainment expenses of our sales and market personnel along with commissions paid to our independent distributors. We expect our sales and marketing expenses to increase in absolute dollars with the increased sales of The Catamaran System resulting in higher commissions and salaries, increased clinician and sales representative training, and the cost to complete our clinical study 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 activity 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 the development and refinement 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 Securities and Exchange Commission 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.
18
Gain on Investments, Interest Expense and Other Income (Expense), Net
Gain 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. 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 September 30, | Nine
Months Ended September 30, | |||||||||||||||
| Consolidated Statements of Operations Data: | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Revenue | $ | 887 | $ | 944 | $ | 2,507 | $ | 2,120 | ||||||||
| Cost of goods sold | 469 | 409 | 1,149 | 1,438 | ||||||||||||
| Gross profit | 418 | 535 | 1,358 | 682 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | 657 | 737 | 2,034 | 2,472 | ||||||||||||
| Sales and marketing | 1,212 | 1,527 | 4,041 | 5,436 | ||||||||||||
| General and administrative | 1,764 | 1,649 | 5,876 | 5,360 | ||||||||||||
| Total operating expenses | 3,633 | 3,913 | 11,951 | 13,268 | ||||||||||||
| Loss from operations | (3,215 | ) | (3,378 | ) | (10,593 | ) | (12,586 | ) | ||||||||
| Interest and other income (expense), net: | ||||||||||||||||
| Gain on investments | 31 | 50 | 97 | 143 | ||||||||||||
| Interest expense | — | (4 | ) | (34 | ) | (4 | ) | |||||||||
| Other income (expense) | — | — | (56 | ) | — | |||||||||||
| Net loss | $ | (3,184 | ) | $ | (3,332 | ) | $ | (10,586 | ) | $ | (12,447 | ) | ||||
The following table sets forth our results of operations as a percentage of revenue:
| Three
Months Ended September 30, | Nine
Months Ended September 30, | |||||||||||||||
| Consolidated Statements of Operations Data: | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Revenue | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||
| Cost of goods sold | 53 | 43 | 46 | 68 | ||||||||||||
| Gross profit | 47 | 57 | 54 | 32 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | 74 | 78 | 81 | 117 | ||||||||||||
| Sales and marketing | 137 | 162 | 161 | 256 | ||||||||||||
| General and administrative | 199 | 175 | 234 | 253 | ||||||||||||
| Total operating expenses | 410 | 415 | 477 | 626 | ||||||||||||
| Loss from operations | (362 | ) | (358 | ) | (423 | ) | (594 | ) | ||||||||
| Interest and other income (expense), net: | ||||||||||||||||
| Gain on investments | 3 | 5 | 4 | 7 | ||||||||||||
| Interest expense | — | — | (1 | ) | — | |||||||||||
| Other expense | — | — | (2 | ) | — | |||||||||||
| Net loss | (359 | )% | (353 | )% | (422 | )% | (587 | )% | ||||||||
19
Comparison of the Three and Nine Months Ended September 30, 2024 and 2023 (in thousands, except percentages)
Revenue, Cost of Goods Sold, Gross Profit, and Gross Margin
| Three Months
Ended September 30, | ||||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Revenue | $ | 887 | $ | 944 | $ | (57 | ) | (6 | )% | |||||||
| Cost of goods sold | 469 | 409 | 60 | 15 | % | |||||||||||
| Gross profit | $ | 418 | $ | 535 | $ | (117 | ) | (22 | )% | |||||||
| Gross profit percentage | 47 | % | 57 | % | ||||||||||||
| Nine Months
Ended September 30, | ||||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Revenue | $ | 2,507 | $ | 2,120 | $ | 387 | 18 | % | ||||||||
| Cost of goods sold | 1,149 | 1,438 | (289 | ) | (20 | )% | ||||||||||
| Gross profit | $ | 1,358 | $ | 682 | $ | 676 | 99 | % | ||||||||
| Gross profit percentage | 54 | % | 32 | % | ||||||||||||
Revenue. The fluctuations in revenue for the three and nine months ended September 30, 2024 as compared to the same periods in 2023 was primarily due to a decrease of 15% and an increase of 5%, respectively, in the number of surgical procedures in which the Catamaran System was used. The number of procedures in the third quarter was impacted by the longer timeline of implementation, training and development of our restructured sales operation, as well as unexpected reimbursement pre-authorization impacts, leading to fewer surgeries performed during the quarter.
Cost of Goods Sold, Gross Profit, and Gross Margin. The change in cost of goods sold for the three and nine months ended September 30, 2024 as compared to the same periods in 2023 was due to a decrease of 15% and an increase of 5%, respectively, in the number of surgical procedures performed. Gross profit and gross margin percentage for the three and nine month periods ended September 30, 2024 as compared to the same periods in 2023 varied due to the absorption of production overhead costs into our standard cost, operating leverage created due to lower relative fixed costs and fluctuations in revenue associated with the fluctuations in the number of surgical procedures.
Operating Expenses
| Three
Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Research and development | $ | 657 | $ | 737 | $ | (80 | ) | (11 | )% | |||||||
| Sales and marketing | 1,212 | 1,527 | (315 | ) | (21 | )% | ||||||||||
| General and administrative | 1,764 | 1,649 | 115 | 7 | % | |||||||||||
| Total operating expenses | $ | 3,633 | $ | 3,913 | $ | (280 | ) | (7 | )% | |||||||
| Nine
Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Research and development | $ | 2,034 | $ | 2,472 | $ | (438 | ) | (18 | )% | |||||||
| Sales and marketing | 4,041 | 5,436 | (1,395 | ) | (26 | )% | ||||||||||
| General and administrative | 5,876 | 5,360 | 516 | 10 | % | |||||||||||
| Total operating expenses | $ | 11,951 | $ | 13,268 | $ | (1,317 | ) | (10 | )% | |||||||
Research and Development Expenses. Research and development expenses for the three months ended September 30, 2024 decreased as compared to the same period in 2023 primarily due to decreased professional fees ($98) and stock-based compensation ($26), partially offset by increased payroll expenses ($52). Research and development expenses for the nine months ended September 30, 2024 decreased as compared to the same period in 2023 primarily due to decreased professional fees ($424), payroll expenses ($59) and stock-based compensation ($51).
20
Sales and Marketing Expenses. Sales and marketing expenses for the three months ended September 30, 2024 decreased as compared to the same period in 2023 primarily due to SpineSource transition fees in 2023 ($203), decreased commission expense ($207) and payroll and employee expenses ($49), partially offset by increased consulting and professional fees ($128). Sales and marketing expenses for the nine months ended September 30, 2024 decreased as compared to the same period in 2023 primarily due to SpineSource transition fees in 2023 ($893), decreased payroll and employee expenses ($316), consulting and professional fees ($76) and commission expense ($54).
General and Administrative Expenses. General and administrative expenses for the three months ended September 30, 2024 increased as compared to the same period in 2023 primarily due to increased payroll and employee expenses ($85), legal and professional service fees ($15), insurance costs ($35), partially offset by decreased stock-based compensation ($111). General and administrative expenses for the nine months ended September 30, 2024 increased as compared to the same period in 2023 primarily due to increased insurance costs ($226), payroll and employee expenses ($111), legal and professional service fees ($65) and bad debt expense ($46), partially offset by decreases in stock-based compensation ($89).
Gain on Investments, Interest Expense and Other Income (Expense), Net
Gain on investments for the three and nine months ended September 30, 2024 decreased as compared to the same periods ended September 30, 2023 due to interest on our investments in money market and corporate debt securities. Interest expense for the nine months ended September 30, 2024 related to our convertible debt. Other expense, net was related to foreign exchange losses on the liquidation of our Swiss subsidiary.
Liquidity and Capital Resources
As of September 30, 2024, we had cash and cash equivalents of $9.2 million. Since inception, we have financed our operations through private placements of preferred stock, debt financing arrangements, our initial public offering, additional stock offerings and the sale of our products. As of September 30, 2024, we had no outstanding debt.
As of September 30, 2024, we had an accumulated deficit of $65.7 million and expect to incur additional losses in the future. We have not achieved positive cash flow from operations to date. Based upon our current operating plan, our existing cash and cash equivalents will not be sufficient to fund our operating expenses and working capital 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.
21
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:
| Nine
Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Net cash (used in) provided by: | ||||||||||||||||
| Operating activities | $ | (7,100 | ) | $ | (9,905 | ) | $ | 2,805 | (28 | )% | ||||||
| Investing activities | (223 | ) | 6,234 | (6,457 | ) | (104 | )% | |||||||||
| Financing activities | 14,012 | 4,931 | 9,081 | 184 | % | |||||||||||
| Effect of foreign currency translation on cash flow | 46 | (18 | ) | 64 | 356 | % | ||||||||||
| Net increase in cash and cash equivalents | $ | 6,735 | $ | 1,242 | $ | 5,493 | 442 | % | ||||||||
The decrease in net cash used in operating activities for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 was primarily attributable to our decreased net loss of $1.9 million, adjusted for decreases in non-cash stock-based compensation expenses ($202), in addition to increased accounts payable ($660), partially offset by increases in accounts receivable ($404).
Cash provided by investing activities for the nine months ended September 30, 2024 consisted primarily of purchases of property and equipment ($223). Cash provided by investing activities for the nine months ended September 30, 2023 consisted primarily of the net sales of short-term investments ($6,503) to fund our operations, partially offset by purchases of property and equipment ($269).
Cash provided by financing activities for the nine months ended September 30, 2024 consisted primarily of net proceeds from the issuance of common stock and warrants ($3,862), the exercise of warrants under the inducement agreement ($4,306), the issuance of Series A Convertible Preferred Stock ($2,437) and Series B Convertible Preferred Stock ($489) and from issuances of common stock ($2,106). Cash provided by financing activities for the nine months ended September 30, 2023 consisted primarily of the $4.8 million, net of relevant expenses, received from our registered offering in June 2023.
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 nine months ended September 30, 2024, there were no significant changes to our existing critical accounting policies from those disclosed in our 2023 Annual Report on Form 10-K.
Off-Balance Sheet Arrangements
As of September 30, 2024, and December 31, 2023, 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.”
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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 President and Principal Accounting 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 September 30, 2024, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and President and Principal Accounting 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 President and Principal Accounting Officer concluded that our disclosure controls and procedures are not effective at the reasonable assurance level.
Our size has prevented us from being able to employ sufficient resources to enable us to have an adequate level of supervision and segregation of duties. Therefore, it is difficult to effectively segregate accounting duties which comprises a material weakness in internal controls. This lack of segregation of duties leads management to conclude that the Company’s disclosure controls and procedures are not effective to give reasonable assurance that the information required to be disclosed in reports that the Company files under the Exchange Act is recorded, processed, summarized and reported as and when required.
To the extent reasonably possible given our limited resources, we intend to take measures to cure the aforementioned weaknesses, including, but not limited to, increasing the capacity of our qualified financial personnel to ensure that accounting policies and procedures are consistent across the organization and that we have adequate control over our Exchange Act reporting disclosures.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control procedures over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our fiscal quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEDINGS
None.
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 2023 Annual Report on Form 10-K filed with the U.S. Securities and Securities Exchange Commission (“SEC”) on March 29, 2024.
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
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ITEM 6. EXHIBITS
EXHIBIT INDEX
| # | Incorporated by reference in the Company’s Current Report on Form 8-K/A filed with the Securities and Exchange Commission on September 10, 2024. |
| ## | Incorporated by reference in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 27, 2024. |
| ### | Incorporated by reference in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 16, 2024. |
| #### | Incorporated by reference in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 17, 2024. |
| * | Filed herewith. |
| ** | Exhibits 32.1 and 32.2 are being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall such exhibits be deemed to be incorporated by reference in any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as otherwise specifically stated in such filing. |
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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: November 14, 2024 | /s/ Steven M. Foster |
| Steven M. Foster | |
Chief Executive Officer and President, Director (Principal Executive Officer) | |
| Dated: November 14, 2024 | /s/ Kevin Williamson |
| Kevin Williamson | |
Chief Financial Officer (Principal Accounting Officer) |
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