Tenon Medical Inc

Previous wording

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 Annual Report of Form 10-K for the 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 Annual Report of 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.”

Current wording

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 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 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.”

Previous wording

We have incurred net losses since our inception in 2012. As of March 31, 2024, we had an accumulated deficit of approximately $58.6 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.

Current wording

We have incurred net losses since our inception in 2012. As of June 30, 2024, we had an accumulated deficit of approximately $62.5 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.

Previous wording

On February 20, 2024, we entered into a Securities Purchase Agreement (the “Series A Purchase Agreement”) with certain investors (the “Series A Investors”), pursuant to which the Company agreed to sell, issue and deliver to the Series A Investors, in a private placement offering (the “Series A Offering”), a total of 172,239 shares of the Company’s Series A Preferred Stock (the “Series A Preferred Stock”) and warrants (the “Warrants”) to purchase 258,374 shares of our common stock, par value $0.001 per share, of the Company, at an exercise price equal to $1.2705 per share for an aggregate offering price of $2,605,000. Under the Series A Purchase Agreement, each Series A Investor paid $15.125 for each share of Series A Preferred Stock and along with their shares of Series A Preferred Stock, received Warrants equal to 15% of the number of shares of our common stock initially underlying such shares of Series A Preferred Stock. In connection with the offering of the Series A Preferred Stock the Company exchanged the Notes (as defined below) for 84,729 shares of Series A Preferred Stock and Series A Warrants to purchase 157,094 shares of our common stock. There are a total of 256,968 shares of Series A Preferred Stock outstanding as of May 10, 2024.

Current wording

On February 20, 2024, we entered into a Securities Purchase Agreement (the “Series A Purchase Agreement”) with certain investors (the “Series A Investors”), pursuant to which the Company agreed to sell, issue and deliver to the Series A Investors, in a private placement offering (the “Series A Offering”), a total of 172,239 shares of the Company’s Series A Preferred Stock (the “Series A Preferred Stock”) and warrants (the “Warrants”) to purchase 258,374 shares of our common stock, par value $0.001 per share, at an exercise price equal to $1.2705 per share for an aggregate offering price of $2,605,000. Under the Series A Purchase Agreement, each Series A Investor paid $15.125 for each share of Series A Preferred Stock and along with their shares of Series A Preferred Stock, received Warrants equal to 15% of the number of shares of our common stock initially underlying such shares of Series A Preferred Stock. In connection with the offering of the Series A Preferred Stock, the Company exchanged the Notes (as defined below) for 84,729 shares of Series A Preferred Stock and Series A Warrants to purchase 157,094 shares of our common stock. There are a total of 256,968 shares of Series A Preferred Stock outstanding as of June 30, 2024.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

Comparison of the Three Months Ended March 31, 2024 and 2023 (in thousands, except percentages)

Current wording

Comparison of the Three and Six Months Ended June 30, 2024 and 2023 (in thousands, except percentages)

Previous wording

*Revenue.*The increase in revenue for the three months ended March 31, 2024 as compared to the same period in 2023 was primarily due to increases of 42% in the number of surgical procedures in which the Catamaran System was used.

Current wording

*Revenue.*The increase in revenue for the three and six months ended June 30, 2024 as compared to the same periods in 2023 was primarily due to increases of 7% and 19%, respectively, in the number of surgical procedures in which the Catamaran System was used.

Previous wording

Cost of Goods Sold, Gross Profit, and Gross Margin. The change in cost of goods sold for the three months ended March 31, 2024 as compared to the same period in 2023 was due to a 42% increase in the number of surgical procedures performed. Gross profit (loss) and gross margin percentage improved due to higher revenue associated with the increase in the number of surgical procedures, operating leverage created due to lower relative fixed costs and the absorption of more production overhead costs into our standard cost.

Current wording

Cost of Goods Sold, Gross Profit, and Gross Margin. The change in cost of goods sold for the three and six months ended June 30, 2024 as compared to the same periods in 2023 was due to increases of 7% and 19%, respectively, in the number of surgical procedures performed. Gross profit and gross margin percentage for the three and six month periods ended June 30, 2024 as compared to the same periods in 2023 improved due to the absorption of more production overhead costs into our standard cost, operating leverage created due to lower relative fixed costs and higher revenue associated with the increase in the number of surgical procedures.

Previous wording

Research and Development Expenses. Research and development expenses for the three months ended March 31, 2024 decreased as compared to 2023 primarily due to decreased professional fees ($110), payroll expenses ($82) and stock-based compensation ($5).

Current wording

Research and Development Expenses. Research and development expenses for the three months ended June 30, 2024 decreased as compared to the same period in 2023 primarily due to decreased professional fees ($141), payroll expenses ($29) and stock-based compensation ($19). Research and development expenses for the six months ended June 30, 2024 decreased as compared to the same period in 2023 primarily due to decreased professional fees ($279), payroll expenses ($111) and stock-based compensation ($25).

Previous wording

*Sales and Marketing Expenses.*Sales and marketing expenses for the three months ended March 31, 2024 decreased as compared to the same period in 2023 primarily due to SpineSource transition fees in 2023 ($430), decreased payroll and employee expenses ($147) and consulting and professional fees ($53) partially offset by increased commission expense ($45).

Current wording

*Sales and Marketing Expenses.*Sales and marketing expenses for the three months ended June 30, 2024 decreased as compared to the same period in 2023 primarily due to SpineSource transition fees in 2023 ($260), decreased payroll and employee expenses ($165) and consulting and professional fees ($102) partially offset by increased commission expense ($108). Sales and marketing expenses for the six months ended June 30, 2024 decreased as compared to the same period in 2023 primarily due to SpineSource transition fees in 2023 ($690), decreased payroll and employee expenses ($312) and consulting and professional fees ($197) partially offset by increased commission expense ($153).

Previous wording

Gain on investments for the three months ended March 31, 2024 decreased approximately $29 as compared to the three months ended March 31, 2023 due to interest on our investments in money market and corporate debt securities. We did not have significant investments in corporate debt securities during the first three months of 2024. Interest expense for the three months ended March 31, 2024 related to our convertible debt. Other expense, net was related to foreign exchange losses on the liquidation of our Swiss subsidiary.

Current wording

Gain on investments for the six months ended June 30, 2024 decreased approximately $28 as compared to the six months ended June 30, 2023 due to interest on our investments in money market and corporate debt securities. We did not have significant investments in corporate debt securities during the first six months of 2024. Interest expense for the six months ended June 30, 2024 related to our convertible debt. Other expense, net was related to foreign exchange losses on the liquidation of our Swiss subsidiary.

Previous wording

As of March 31, 2024, we had cash and cash equivalents of $4.4 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 March 31, 2024, we had no outstanding debt.

Current wording

As of June 30, 2024, we had cash and cash equivalents of $2.0 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 June 30, 2024, we had no outstanding debt.

Previous wording

As of March 31, 2024, we had an accumulated deficit of $58.6 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.

Current wording

As of June 30, 2024, we had an accumulated deficit of $62.5 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.

Previous wording

On February 20, 2024, we entered into the Series A Purchase Agreement with certain investors, pursuant to which we agreed to sell, issue and deliver to these investors, in a private placement offering, a total of 172,239 shares of our Series A Preferred Stock and warrants to purchase 258,374 shares of our common stock, par value $0.001 per share, at an exercise price equal to $1.2705 per share for an aggregate offering price of $2,605,000. Additionally, on February 20, 2024, the Series A Investors agreed to a complete prepayment of our obligations under convertible notes (the “Convertible Notes”), including accrued interest, in exchange for 84,729 shares of Series A Preferred Stock and warrants to purchase 157,094 shares of our common stock at $1.2705 per share and the Convertible Notes were canceled. The Series A Warrants are immediately exercisable and expire five years from the date of issuance. There are a total of 256,968 shares of Series A Preferred Stock outstanding as of May 14, 2024.

Current wording

On February 20, 2024, we entered into the Series A Purchase Agreement with certain investors, pursuant to which we agreed to sell, issue and deliver to these investors, in a private placement offering, a total of 172,239 shares of our Series A Preferred Stock and warrants to purchase 258,374 shares of our common stock, par value $0.001 per share, at an exercise price equal to $1.2705 per share for an aggregate offering price of $2,605,000. Additionally, on February 20, 2024, the Series A Investors agreed to a complete prepayment of our obligations under convertible notes (the “Convertible Notes”), including accrued interest, in exchange for 84,729 shares of Series A Preferred Stock and warrants to purchase 157,094 shares of our common stock at $1.2705 per share and the Convertible Notes were cancelled. The Series A Warrants are immediately exercisable and expire five years from the date of issuance. There are a total of 256,968 shares of Series A Preferred Stock outstanding as of May 14, 2024.

Previous wording

The decrease in net cash used in operating activities for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 was primarily attributable to our decreased net loss of $1.3 million, adjusted for decreases in non-cash stock-based compensation expenses ($22), in addition to increased accounts payable ($545), partially offset by decreases in accrued expenses ($396).

Current wording

The decrease in net cash used in operating activities for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 was primarily attributable to our decreased net loss of $1.7 million, adjusted for decreases in non-cash stock-based compensation expenses ($42), in addition to increased accounts payable ($316), partially offset by decreases in accrued expenses ($313).

Previous wording

Cash provided by investing activities for the three months ended March 31, 2024 consisted primarily purchases of property and equipment ($119). Cash provided by investing activities for the three months ended March 31, 2023 consisted primarily of the net sales of short-term investments ($4,753) to fund our operations, partially offset by purchases of property and equipment ($84).

Current wording

Cash provided by investing activities for the six months ended June 30, 2024 consisted primarily purchases of property and equipment ($119). Cash provided by investing activities for the six months ended June 30, 2023 consisted primarily of the net sales of short-term investments ($6,010) to fund our operations, partially offset by purchases of property and equipment ($212).

Previous wording

Cash provided by financing activities for the three months ended March 31, 2024 consisted primarily of proceeds from the issuance of Series A Convertible Preferred Stock ($2,437) and from the issuance of common stock ($1,934). Cash used in financing activities for the three months ended March 31, 2023 consisted primarily of spending for deferred offering costs.

Current wording

Cash provided by financing activities for the six months ended June 30, 2024 consisted primarily of net proceeds from the issuance of Series A Convertible Preferred Stock ($2,437) and from the issuance of common stock ($1,934). 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.

Previous wording

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 three months ended March 31, 2024, there were no significant changes to our existing critical accounting policies from those disclosed on our Annual Report on Form 10-K.

Current wording

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, 2024, there were no significant changes to our existing critical accounting policies from those disclosed on our Annual Report on Form 10-K.