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Tenon Medical(TNON) - 2022 Q2 - Quarterly Report
2022-08-12 20:23
[Cautionary Statement Regarding Forward-Looking Statements](index=3&type=section&id=CAUTIONARY%20STATEMENT%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This statement clarifies that the report contains forward-looking statements based on current expectations, which are subject to risks and uncertainties that could cause actual results to differ materially - This Quarterly Report on Form 10-Q contains 'forward-looking statements' based on current expectations and projections, subject to risks and uncertainties that could cause actual results to differ materially[9](index=9&type=chunk) - Forward-looking statements are not guarantees of future performance and include terms such as 'may,' 'will,' 'expect,' 'intend,' 'believe,' 'estimate,' 'project,' and similar expressions[9](index=9&type=chunk)[10](index=10&type=chunk) - Key areas of forward-looking statements include the company's ability to effectively operate business segments, manage expenses, compete in the medical devices industry, respond to technology changes, and protect intellectual property[13](index=13&type=chunk) [Part I. Financial Information](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The company's balance sheet as of June 30, 2022, shows a significant increase in total assets and a shift from a stockholders' deficit to positive equity, primarily driven by an increase in cash, short-term investments, and additional paid-in capital following the IPO, while total liabilities decreased substantially due to the conversion of convertible notes Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2022 | December 31, 2021 | Change ($) | Change (%) | | :-------------------------------- | :------------ | :---------------- | :--------- | :--------- | | Cash and cash equivalents | $7,875 | $2,917 | $4,958 | 170.0% | | Short-term investments | $8,141 | $4,404 | $3,737 | 84.9% | | Total current assets | $16,858 | $7,672 | $9,186 | 119.7% | | TOTAL ASSETS | $18,131 | $9,272 | $8,859 | 95.5% | | Total current liabilities | $2,236 | $15,274 | $(13,038) | -85.4% | | Total liabilities | $3,018 | $16,185 | $(13,167) | -81.3% | | Total stockholders' equity (deficit) | $15,113 | $(20,552) | $35,665 | N/A (from deficit to equity) | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) For the three and six months ended June 30, 2022, Tenon Medical, Inc. experienced substantial revenue growth but also significantly increased net losses due to higher cost of sales and operating expenses, particularly in research and development, sales and marketing, and general and administrative functions as the company scaled operations and incurred IPO-related costs Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | Change ($) | Change (%) | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change ($) | Change (%) | | :--------------------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Revenue | $135 | $22 | $113 | 513.6% | $206 | $37 | $169 | 456.8% | | Cost of sales | $271 | $9 | $262 | 2911.1% | $546 | $20 | $526 | 2630.0% | | Gross (Loss) Profit | $(136) | $13 | $(149) | -1146.2% | $(340) | $17 | $(357) | -2100.0% | | Total Operating Expenses | $5,320 | $1,626 | $3,694 | 227.2% | $7,195 | $1,819 | $5,376 | 295.6% | | Loss from Operations | $(5,456) | $(1,613) | $(3,843) | 238.2% | $(7,535) | $(1,802) | $(5,733) | 318.1% | | Net Loss Attributable to Tenon Medical, Inc. | $(5,488) | $(1,665) | $(3,823) | 229.6% | $(7,841) | $(1,865) | $(5,976) | 320.4% | | Basic and diluted Net Loss Per Share | $(0.65) | $(2.01) | $1.36 | -67.7% | $(1.66) | $(2.21) | $0.55 | -24.9% | [Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Convertible%20Preferred%20Stock%20and%20Stockholders'%20Equity%20(Deficit)) The statements reflect a significant transformation in the company's equity structure, moving from a substantial accumulated deficit to positive stockholders' equity by June 30, 2022. This change was primarily driven by the conversion of all Series A and Series B convertible preferred stock and convertible notes payable into common stock, along with the issuance of new common stock and warrants, largely as a result of the Initial Public Offering (IPO) in April 2022 Changes in Stockholders' Equity (Deficit) (in thousands) | Metric | December 31, 2021 | June 30, 2022 | Change ($) | | :-------------------------------- | :---------------- | :------------ | :--------- | | Series A Convertible Preferred Stock | $12,367 | $0 | $(12,367) | | Series B Convertible Preferred Stock | $1,272 | $0 | $(1,272) | | Common Stock (Amount) | $1 | $11 | $10 | | Additional Paid-In Capital | $113 | $43,657 | $43,544 | | Accumulated Deficit | $(20,575) | $(28,416) | $(7,841) | | Total Stockholders' Equity (Deficit) | $(20,552) | $15,113 | $35,665 | - The company converted all outstanding Series A and Series B Preferred Stock to **2,693,342 shares of common stock** on April 29, 2022, following the IPO[70](index=70&type=chunk) - All outstanding principal and accrued interest of convertible notes payable were converted to **3,955,415 shares of common stock** on April 29, 2022, upon completion of the IPO[60](index=60&type=chunk)[69](index=69&type=chunk) - The company issued **3,200,000 shares of common stock** in its IPO, generating approximately **$13.8 million in net proceeds** after deducting underwriting discounts and other expenses[68](index=68&type=chunk)[69](index=69&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2022, the company experienced a significant increase in cash used in operating activities, while cash provided by financing activities surged due to the IPO proceeds. Investing activities shifted to a net cash outflow, primarily driven by purchases of short-term investments and property and equipment Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change ($) | Change (%) | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Net cash used in operating activities | $(5,227) | $(1,191) | $(4,036) | 338.9% | | Net cash used in investing activities | $(3,906) | $0 | $(3,906) | N/A | | Net cash provided by financing activities | $14,139 | $7,862 | $6,277 | 79.8% | | Net Increase in Cash and Cash Equivalents | $4,958 | $6,667 | $(1,709) | -25.6% | | Cash and Cash Equivalents at End of Period | $7,875 | $6,912 | $963 | 13.9% | - Cash provided by financing activities in H1 2022 was primarily from **$14.1 million in net proceeds** from the initial public offering[139](index=139&type=chunk) - Cash used in investing activities in H1 2022 included **$3.7 million net purchase of short-term investments** and **$0.2 million in purchases of property and equipment**[138](index=138&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed disclosures on the company's financial statements, covering its organization, significant accounting policies, and specific accounts such as investments, fixed assets, accrued expenses, debt, leases, stockholders' equity, commitments, contingencies, and related party transactions. It highlights the impact of the recent IPO, the conversion of debt and preferred stock, and the settlement of a legal claim [Note 1. Organization and Business](index=9&type=section&id=1.%20Organization%20and%20Business) Tenon Medical, Inc., a Delaware medical device company, is in the early commercial launch phase of its FDA-cleared Catamaran™ SI Joint Fusion System in the US, with consolidated financials including its wholly-owned Swiss subsidiary - Tenon Medical, Inc. is a medical device company incorporated in Delaware, headquartered in Los Gatos, California[29](index=29&type=chunk) - The company developed The Catamaran™ SI Joint Fusion System, which received U.S. FDA clearance in 2018, and is in the early stages of commercial launch focused on the US market[29](index=29&type=chunk) - The consolidated financial statements include Tenon Medical, Inc. and its wholly-owned Swiss subsidiary, Tenon Technology AG (TTAG), which became wholly-owned in October 2021[30](index=30&type=chunk) [Note 2. Summary of Significant Accounting Principles](index=9&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Principles) The unaudited condensed financial statements, prepared under U.S. GAAP, confirm the company's ability to fund operations for at least twelve months post-IPO despite historical losses, while maintaining a full valuation allowance on deferred tax assets - The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP and SEC rules, with certain information condensed or omitted compared to annual statements[31](index=31&type=chunk) - The company has incurred losses and negative cash flows since inception, but believes existing cash and IPO proceeds will provide sufficient funds for at least twelve months from the filing date, addressing going concern uncertainty[36](index=36&type=chunk)[38](index=38&type=chunk) - The company has recorded a **100% valuation allowance** against net deferred tax assets due to uncertainty of their ultimate realization[40](index=40&type=chunk) [Note 3. Investments](index=11&type=section&id=3.%20Investments) The company's investments primarily consist of corporate debt securities, which generated net gains of approximately $35,000 and $36,000 for the three and six months ended June 30, 2022, respectively Investments at Fair Value (in thousands) | Investment Type | June 30, 2022 | December 31, 2021 | | :----------------------------- | :------------ | :---------------- | | Corporate debt securities (Fair Value) | $8,141 | $4,404 | | Corporate debt securities (Amortized Cost) | $8,168 | $4,404 | - The company recognized net gains of approximately **$35,000** and **$36,000** from investments for the three and six months ended June 30, 2022, respectively, with no significant gains in the prior year[48](index=48&type=chunk) [Note 4. Fixed Assets](index=11&type=section&id=4.%20Fixed%20Assets) The company's net fixed assets, primarily comprising reusable products and IT equipment, increased significantly by June 30, 2022, with associated depreciation expense of approximately $19,000 and $29,000 for the three and six months ended June 30, 2022 Fixed Assets, Net (in thousands) | Fixed Asset Category | June 30, 2022 | December 31, 2021 | | :---------------------------------- | :------------ | :---------------- | | Reusable Product | $211 | $77 | | IT Equipment | $38 | $17 | | Lab Equipment | $14 | $0 | | Office Furniture | $9 | $9 | | Fixed assets, gross | $272 | $103 | | Less: accumulated depreciation | $(31) | $(2) | | Fixed assets, net | $241 | $101 | - Depreciation expense was approximately **$19,000** and **$29,000** for the three and six months ended June 30, 2022, respectively, compared to **$0** for the same periods in 2021[49](index=49&type=chunk) [Note 5. Accrued Expenses](index=11&type=section&id=5.%20Accrued%20Expenses) Total accrued expenses increased to $1,657,000 by June 30, 2022, primarily driven by a rise in accrued compensation Accrued Expenses (in thousands) | Accrued Expense Category | June 30, 2022 | December 31, 2021 | | :-------------------------------------- | :------------ | :---------------- | | Accrued compensation | $1,441 | $846 | | Accrued commissions | $20 | $14 | | Other accrued expenses | $196 | $228 | | Total accrued expenses | $1,657 | $1,088 | [Note 6. Debt](index=12&type=section&id=6.%20Debt) All outstanding convertible notes payable, including those totaling approximately $12.2 million issued in 2021, were fully converted into common stock upon the completion of the IPO on April 29, 2022, eliminating all related debt obligations - On April 29, 2022, all outstanding principal and accrued interest of convertible notes payable were converted into **3,955,415 shares of the Company's common stock** due to the completion of the IPO, fully satisfying obligations[60](index=60&type=chunk) - Prior to the IPO, the company had various convertible promissory notes, including those issued to consultants, vendors, former CEO, and other investors, with aggregate proceeds of approximately **$12.2 million** from May-July 2021[51](index=51&type=chunk)[59](index=59&type=chunk) - Accrued interest on convertible notes payable was approximately **$0** at June 30, 2022, down from **$527,000** at December 31, 2021, reflecting the conversion[59](index=59&type=chunk) [Note 7. Leases](index=13&type=section&id=7.%20Leases) The company maintains a non-cancelable operating lease for its headquarters, with associated right-of-use assets and liabilities, and incurred significantly higher operating lease costs of $73,000 and $146,000 for the three and six months ended June 30, 2022, respectively - The company entered into a non-cancelable operating lease for its Los Gatos headquarters in June 2021, expiring in June 2026[62](index=62&type=chunk) Lease-Related Balance Sheet Information (in thousands) | Lease Metric | June 30, 2022 | December 31, 2021 | | :-------------------------- | :------------ | :---------------- | | Operating lease right-of-use assets | $981 | $1,084 | | Total operating lease liabilities | $1,016 | $1,113 | - Operating lease costs were **$73,000** and **$146,000** for the three and six months ended June 30, 2022, respectively, significantly higher than the **$12,000** for the same periods in 2021[63](index=63&type=chunk) [Note 8. Stockholders' Equity](index=14&type=section&id=8.%20Stockholders'%20Equity) Following a 1:2 reverse stock split, the company completed its IPO in April 2022, issuing 3.2 million common shares for $13.8 million net proceeds, and converted all preferred stock into common shares, while also incurring increased stock-based compensation expenses - On April 6, 2022, the company effected a **1:2 reverse stock split**, combining every two shares of common stock into one[67](index=67&type=chunk) - The company completed its IPO on April 29, 2022, issuing **3,200,000 shares of common stock** at **$5.00 per share**, generating approximately **$13.8 million in net proceeds**[68](index=68&type=chunk)[69](index=69&type=chunk) - All Series A and Series B Preferred Stock were converted to **2,693,342 shares of common stock** upon IPO completion, including **1,172,346 shares** issued to TTAG's minority shareholder due to anti-dilution protection[70](index=70&type=chunk)[72](index=72&type=chunk) Stock-based Compensation Expense (in thousands) | Stock-based Compensation Expense | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :-------------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Research and development | $178 | $13 | $207 | $13 | | Sales and marketing | $12 | $4 | $24 | $8 | | General and administrative | $362 | $44 | $490 | $44 | | Total stock-based compensation expense | $552 | $61 | $721 | $65 | [Note 9. Commitments and Contingencies](index=17&type=section&id=9.%20Commitments%20and%20Contingencies) The company has an amended Exclusive Sales Representative Agreement with anti-dilution protections and recently settled an arbitration claim with its former CEO for $1,200,000, recording a $574,000 charge in Q2 2022 - The company has an Exclusive Sales Representative Agreement for The Catamaran System in the US and Puerto Rico, which was amended in May 2021, providing anti-dilution protections to the Representative[88](index=88&type=chunk) - On July 21, 2022, the company settled an arbitration claim with its former CEO, Khalid Mentak, and Key Medical, agreeing to pay Key Medical **$1,200,000**. An additional charge of **$574,000** was recorded in Q2 2022 for this settlement, fully accrued as of June 30, 2022[92](index=92&type=chunk)[103](index=103&type=chunk) [Note 10. Concentrations of Risk](index=18&type=section&id=10.%20Concentrations%20of%20Risk) The company faces credit risk from cash balances exceeding insured limits and currency risk due to its Swiss subsidiary's expenses and net monetary assets denominated in Swiss francs - The company's financial instruments are primarily exposed to credit risk through cash and cash equivalents held at financial institutions, with balances sometimes exceeding federally insured limits[93](index=93&type=chunk)[94](index=94&type=chunk) - The company is exposed to currency risk as its Swiss subsidiary (TTAG) incurs expenses in Swiss francs, with approximately **$14,000 of net monetary assets** denominated in Swiss francs at June 30, 2022[96](index=96&type=chunk) [Note 11. Related Party Transactions](index=18&type=section&id=11.%20Related%20Party%20Transactions) Related party transactions include the purchase of a $114,000 convertible note from TTAG's minority shareholder, significant consulting expenses of $574,000 with a former CEO's company, and the conversion of $620,000 in convertible notes issued to officers and directors into common stock post-IPO - The company purchased a convertible promissory note and accrued interest of approximately **$114,000** from TTAG's minority shareholder in October 2021[97](index=97&type=chunk)[101](index=101&type=chunk) - Consulting expense related to an agreement with a company owned by the former CEO was **$574,000** for both the three and six months ended June 30, 2022, significantly higher than the prior year[98](index=98&type=chunk) - During 2021, the company issued convertible promissory notes totaling **$620,000** to officers, directors, and their family members, which were subsequently converted to common stock upon the IPO[100](index=100&type=chunk) [Note 12. Subsequent Events](index=19&type=section&id=12.%20Subsequent%20Events) On July 21, 2022, the company formally settled claims with Key Medical and Mr. Mentak for $1,200,000, resulting in an additional $574,000 charge recorded in Q2 2022 - On July 21, 2022, the company formally entered into a Settlement Agreement with Key Medical and Mr. Mentak, confirming the payment of **$1,200,000** to settle all claims and counterclaims, with an additional charge of **$574,000** recorded in Q2 2022[103](index=103&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, including an overview of its business, a detailed comparison of financial performance for the three and six months ended June 30, 2022 and 2021, and an analysis of liquidity and capital resources. Key areas of discussion include revenue, cost of goods sold, operating expenses, and cash flow activities, along with the impact of the recent IPO and ongoing legal matters [Overview](index=20&type=section&id=Overview) Tenon Medical, Inc. developed the FDA-approved Catamaran™ SI Joint Fusion System, a less invasive surgical implant, and despite an accumulated deficit of approximately $28.4 million, finances its operations through equity, debt, and product sales - Tenon Medical, Inc. is a medical device company that developed The Catamaran™ SI Joint Fusion System, an FDA-approved surgical implant system for treating SI Joint dysfunction[106](index=106&type=chunk) - The Catamaran System offers a novel, less invasive inferior-posterior approach, with initial clinical results indicating fusion across the joint[106](index=106&type=chunk)[108](index=108&type=chunk) - The company has incurred net losses since its inception in 2012, with an accumulated deficit of approximately **$28.4 million** as of June 30, 2022, and finances operations primarily through equity, debt, and product sales[110](index=110&type=chunk) [Reverse Stock Split](index=20&type=section&id=Reverse%20Stock%20Split) On April 6, 2022, the company executed a 1:2 reverse stock split, resulting in 989,954 shares of common stock outstanding and retrospective adjustment of all historical per-share amounts - On April 6, 2022, the company effected a **1:2 reverse stock split**, combining every two shares of common stock into one, with fractional shares rounded up[111](index=111&type=chunk) - Immediately after the reverse stock split, there were **989,954 shares of common stock** outstanding, and all historical per-share amounts in the financial statements have been retrospectively adjusted[111](index=111&type=chunk) [Components of Results of Operations](index=20&type=section&id=Components%20of%20Results%20of%20Operations) Revenue from Catamaran System sales is influenced by case volume and distribution agreements, while cost of goods sold and operating expenses, primarily personnel-related, are expected to increase proportionally with business growth and commercialization efforts - Revenue is primarily derived from sales of The Catamaran System, fluctuating based on case volume, discounts, and implant usage, and can be affected by reimbursement, sales representatives, and physician activities[112](index=112&type=chunk) - Cost of goods sold consists of implant/instrument costs, quality inspection, packaging, scrap, obsolescence, and distribution expenses, expected to increase in absolute dollars as case levels increase[114](index=114&type=chunk) - Operating expenses (sales & marketing, R&D, G&A) are primarily personnel costs and are expected to increase in absolute dollars with business growth and commercial launch activities[116](index=116&type=chunk) [Results of Operations](index=22&type=section&id=Results%20of%20Operations) The company experienced substantial revenue growth driven by increased surgical procedures, but this was significantly outpaced by rising cost of goods sold and operating expenses, particularly general and administrative costs due to a legal settlement and public company transition, resulting in a gross loss and increased interest expense Revenue, Cost of Goods Sold, and Gross Profit (in thousands) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | Change ($) | Change (%) | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change ($) | Change (%) | | :---------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Revenue | $135 | $22 | $113 | 514% | $206 | $37 | $169 | 457% | | Cost of goods sold | $271 | $9 | $262 | 2911% | $546 | $20 | $526 | 2630% | | Gross (loss) profit | $(136) | $13 | $(149) | (1146)% | $(340) | $17 | $(357) | (2100)% | - Revenue increased due to **433% (3-month)** and **733% (6-month) increases in surgical procedures**, partially offset by lower revenue per procedure from a national distribution agreement[125](index=125&type=chunk) - Cost of goods sold increased significantly due to a **7,844% year-over-year increase in operations overhead spending** and a **733% increase in surgical procedures**, leading to a decrease in gross profit and gross margin percentage[126](index=126&type=chunk) Operating Expenses (in thousands) | Operating Expense | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | Change ($) | Change (%) | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change ($) | Change (%) | | :------------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Research and development | $657 | $237 | $420 | 177% | $1,219 | $324 | $895 | 276% | | Sales and marketing | $1,943 | $913 | $1,030 | 113% | $2,219 | $917 | $1,302 | 142% | | General and administrative | $2,720 | $476 | $2,244 | 471% | $3,757 | $578 | $3,179 | 550% | | Total operating expenses | $5,320 | $1,626 | $3,694 | 227% | $7,195 | $1,819 | $5,376 | 296% | - General and administrative expenses saw the largest percentage increase, driven by a legal settlement accrual (**$574,000**), increased stock-based compensation, insurance, consulting, payroll, and legal fees, reflecting the transition to a public operating company[129](index=129&type=chunk) - Interest expense increased by **$289,000 (396%)** for the six months ended June 30, 2022, primarily due to a **$12.2 million increase in borrowings** from a convertible debt offering in May-July 2021[131](index=131&type=chunk) [Liquidity and Capital Resources](index=24&type=section&id=Liquidity%20and%20Capital%20Resources) With $16 million in cash and short-term investments, the company expects its IPO proceeds to fund operations for at least 12 months despite an accumulated deficit of $28.4 million and recent net losses, though additional capital may be required, potentially leading to dilution or restrictive covenants Liquidity and Capital Resources Highlights (in thousands) | Metric | June 30, 2022 | | :------------------------------------------ | :------------ | | Cash and cash equivalents and short-term investments | $16,000 | | Accumulated deficit | $28,400 | | Net losses (6 months ended June 30, 2022) | $7,800 | - The company had **no outstanding debt** as of June 30, 2022, following the conversion of convertible notes[132](index=132&type=chunk) - The net proceeds from the April 2022 IPO, combined with existing cash, are expected to fund operating expenses and capital expenditures for at least the next **12 months**[133](index=133&type=chunk) - The company may need to raise additional capital through equity offerings, debt financings, or collaborations, which could dilute existing stockholders or impose restrictive covenants[134](index=134&type=chunk) [Contractual Obligations](index=24&type=section&id=Contractual%20Obligations) As of June 30, 2022, the company's primary contractual obligation is $1,192,000 in operating leases, with no significant purchase obligations Contractual Obligations as of June 30, 2022 (in thousands) | Obligation | Total | Less than 1 year | 1-3 years | 4-5 years | More than 5 years | | :------------------------ | :---- | :--------------- | :-------- | :-------- | :---------------- | | Operating leases | $1,192 | $144 | $594 | $454 | $0 | | Purchase obligations | $0 | $0 | $0 | $0 | $0 | | Total | $1,192 | $144 | $594 | $454 | $0 | [Cash Flows](index=25&type=section&id=Cash%20Flows) Net cash used in operating activities increased significantly by $4.0 million due to higher net losses, while investing activities consumed $3.9 million, and financing activities provided $14.1 million, primarily from IPO proceeds - Net cash used in operating activities increased by **$4.0 million (339%)** for the six months ended June 30, 2022, primarily due to an increased net loss of **$6.0 million**[137](index=137&type=chunk) - Cash used in investing activities was **$3.9 million** for the six months ended June 30, 2022, mainly for **net purchases of short-term investments ($3.7 million)** and **property and equipment ($0.2 million)**[138](index=138&type=chunk) - Cash provided by financing activities increased by **$6.3 million (80%)** to **$14.1 million** for the six months ended June 30, 2022, driven by net proceeds from the IPO[139](index=139&type=chunk) [Critical Accounting Policies, Significant Judgments, and Use of Estimates](index=25&type=section&id=Critical%20Accounting%20Policies%2C%20Significant%20Judgments%2C%20and%20Use%20of%20Estimates) There were no significant changes to the company's critical accounting policies during the six months ended June 30, 2022 - There were **no significant changes** to the company's critical accounting policies during the six months ended June 30, 2022[140](index=140&type=chunk) [Off-Balance Sheet Arrangements](index=25&type=section&id=Off-Balance%20Sheet%20Arrangements) The company did not have any off-balance sheet arrangements with unconsolidated organizations or financial partnerships as of June 30, 2022, or December 31, 2021 - As of June 30, 2022, and December 31, 2021, the company did not have any off-balance sheet arrangements with unconsolidated organizations or financial partnerships[141](index=141&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=25&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Tenon Medical, Inc. is exempt from providing detailed quantitative and qualitative disclosures about market risk under Regulation S-K - The company is not required to provide quantitative and qualitative disclosures about market risk under Regulation S-K as it is a 'smaller reporting company'[142](index=142&type=chunk) [Item 4. Controls and Procedures](index=25&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were not effective as of June 30, 2022, primarily due to insufficient resources preventing adequate supervision and segregation of accounting duties. The company plans to address these material weaknesses by increasing qualified financial personnel and enhancing control over Exchange Act reporting disclosures - The company's disclosure controls and procedures were deemed **not effective** at the reasonable assurance level as of June 30, 2022[144](index=144&type=chunk) - A material weakness in internal controls exists due to the company's size, which prevents employing sufficient resources for adequate supervision and segregation of accounting duties[145](index=145&type=chunk) - The company intends to remediate these weaknesses by increasing qualified financial personnel and improving control over Exchange Act reporting disclosures[146](index=146&type=chunk) - There have been **no changes** in internal control over financial reporting during the quarter ended June 30, 2022, that materially affected or are reasonably likely to materially affect internal control over financial reporting[147](index=147&type=chunk) [Part II. Other Information](index=27&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=27&type=section&id=Item%201.%20Legal%20Proceedings) The company settled an arbitration claim filed by its former CEO, Khalid Mentak, and Key Medical Technologies, Inc., agreeing to pay Key Medical a total of $1,200,000. This settlement resolves claims for alleged unpaid wages, defamation, and other matters - On September 2, 2021, former CEO Khalid Mentak filed an arbitration claim against the company for over **$3 million** in alleged unpaid wages, defamation, and other claims[149](index=149&type=chunk) - On July 21, 2022, the company entered into a Settlement Agreement with Key Medical and Mr. Mentak, agreeing to pay Key Medical **$1,200,000** to settle all claims and counterclaims[149](index=149&type=chunk) [Item 1A. Risk Factors](index=27&type=section&id=Item%201A.%20Risk%20Factors) As a smaller reporting company, Tenon Medical, Inc. is not required to provide updated risk factors in this report, and there have been no material changes to the risk factors previously disclosed in its Form S-1 Registration Statement - The company is a smaller reporting company and is electing scaled disclosure reporting obligations, thus not required to provide information for this item[150](index=150&type=chunk) - There have been **no material changes** in the company's risk factors as previously disclosed in its Registration Statement on Form S-1[150](index=150&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=27&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities and stated that the use of proceeds section is not applicable for this period - **No unregistered sales** of equity securities occurred during the period[151](index=151&type=chunk) - The use of proceeds section is **not applicable**[151](index=151&type=chunk) [Item 3. Defaults Upon Senior Securities](index=27&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during the period - There were **no defaults** upon senior securities[151](index=151&type=chunk) [Item 4. Mine Safety Disclosures](index=27&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine safety disclosures are not applicable to the company's operations - Mine safety disclosures are **not applicable**[152](index=152&type=chunk) [Item 5. Other Information](index=27&type=section&id=Item%205.%20Other%20Information) The company reported no other information for this item - **No other information** is reported for this item[153](index=153&type=chunk) [Item 6. Exhibits](index=28&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q, including corporate governance documents, employment agreements, a consulting agreement, the 2022 Equity Incentive Plan, and the recent legal settlement agreement. It also includes certifications from the CEO and CFO and XBRL interactive data files - Exhibits include Amended and Restated Certificate of Incorporation, Bylaws, Employment Agreements, Consulting Agreement, 2022 Equity Incentive Plan, and the Settlement Agreement and General Release of All Claims dated July 21, 2022[156](index=156&type=chunk) - Certifications from the President/CEO and CFO (Rule 13a-14(a)/15d-14(a) and Section 1350) are filed herewith[156](index=156&type=chunk) - Inline XBRL Instance Document and Taxonomy Extension documents are included as exhibits[156](index=156&type=chunk)[157](index=157&type=chunk) [Signatures](index=30&type=section&id=SIGNATURES) The report is signed by Steven M. Foster, Chief Executive Officer and President, and Steven Van Dick, Chief Financial Officer, on August 12, 2022 - The report is signed by Steven M. Foster, Chief Executive Officer and President, Director (Principal Executive Officer), and Steven Van Dick, Chief Financial Officer (Principal Financial and Accounting Officer) on August 12, 2022[162](index=162&type=chunk)
Tenon Medical(TNON) - 2022 Q1 - Quarterly Report
2022-06-09 20:55
UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-Q (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022 or ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ to __________ COMMISSION FILE NUMBER 001-41364 (Exact name of registrant as specified in its charter) Delaware 45-5574718 (State or other jurisdicti ...