Filed Pursuant to Rule 424(b)(3)
Registration No. 333-279336
PROSPECTUS
Up to 5,000,000 Shares of Common Stock
Tenon Medical, Inc.
This prospectus relates
to the resale, from time to time, of up to 5,000,000 shares of our common stock, par value $0.001 per share, by the selling stockholder, Lincoln
Park Capital Fund, LLC (“Lincoln Park” or the “Selling Stockholder”). Such shares of our common stock to
which this prospectus relates may be issued to Lincoln Park pursuant to a Purchase Agreement between us and Lincoln Park dated as of
July 24, 2023 (the “Purchase Agreement”).
We previously filed a registration statement
on Form S–1 (File No. 333-274451) with the Securities and Exchange Commission (“SEC”) on September 11, 2023, which
was declared effective on September 21, 2023 (the “Original Registration Statement”). The Original Registration Statement
registered up to 598,909 shares of common stock, including (i) 98,909 shares of common stock as commitment shares in consideration for
the Lincoln Park’s commitment to purchase shares of our common stock at our discretion under the Purchase Agreement shares and
(ii) up to 500,000 shares that have been or may be issued to Lincoln Park pursuant to the Purchase Agreement, of which 424,807 shares
of common stock have not been resold thereunder as of July 3, 2024.
We are not selling
any securities under this prospectus and will not receive any proceeds from the sale of our shares of common stock by Lincoln Park. We
have sold an aggregate of 89,847 shares of common stock to Lincoln Park under the Purchase Agreement for total gross proceeds of approximately
$100,000 pursuant to the Original Registration Statement. We may receive an additional aggregate gross proceeds of up to approximately
$9.9 million from any sale of our common stock to Lincoln Park under the Purchase Agreement. See “Lincoln Park Transaction”
herein.
Lincoln Park is deemed an “underwriter”
within the meaning of Section 2(a)(11) of the Securities Act of 1933, as amended, or the Securities Act.
Lincoln Park may sell the shares
of common stock described in this prospectus in a number of different ways and at varying prices. See “Plan of Distribution”
on page 108 for more information about how Lincoln Park may sell the shares of common stock being registered pursuant to this prospectus.
We have agreed to bear all of the
expenses incurred in connection with the registration of the shares to which this prospectus relates. Lincoln Park will pay or assume
discounts, commissions, and fees of underwriters, selling brokers or dealer managers, if any, incurred in connection with the sale of
shares of our common stock.
Our common stock is listed
on The Nasdaq Capital Market under the symbol “TNON.” On July 2, 2024, the closing sale price of our common stock as reported
on The Nasdaq Capital Market was $0.7084. You are urged to obtain current market quotations for the common stock.
We are an “emerging growth
company” and a “smaller reporting company” under applicable Securities and Exchange Commission rules and, as such, have
elected to comply with certain reduced public company disclosure requirements for this prospectus and future filings. See “Prospectus
Summary—Implications of Being an Emerging Growth Company and a Smaller Reporting Company.”
Our business and investment in
our common stock involve significant risks. These risks are described in the section titled “Risk Factors” beginning
on page 10 of this prospectus.
Neither the SEC nor
any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
The date of this prospectus is July 3, 2024.
TABLE OF CONTENTS
We have not, and the Selling Stockholder has not,
authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free
writing prospectus prepared by or on behalf of us or to which we have referred you. We take no responsibility for, and can provide no
assurance as to the reliability of, any other information that others may give to you. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of our common stock.
You should rely only on the information contained in this
prospectus. No dealer, salesperson or other person is authorized to give information that is not contained in this prospectus. This prospectus
is not an offer to sell nor is it seeking an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus
or of any sale of these securities.
ABOUT
THIS PROSPECTUS
Throughout this prospectus, unless otherwise designated
or the context suggests otherwise,
| ● | all
references to the “Tenon,” the “Company,” the “registrant,” “we,” “our,”
or “us” in this prospectus mean Tenon Medical, Inc.; |
| ● | “year”
or “fiscal year” means the year ending December 31st; and |
| ● | all
dollar or $ references, when used in this prospectus, refer to United States dollars. |
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assumes
all 410,153 Original Purchase Shares covered by the Original Registration Statement have been purchased by Lincoln
Park. |
Market
Data
Market data and certain industry data and forecasts
used throughout this prospectus were obtained from internal company surveys, market research, consultant surveys, publicly available information,
reports of governmental agencies and industry publications and surveys. Industry surveys, publications, consultant surveys and forecasts
generally state that the information contained therein has been obtained from sources believed to be reliable, but the accuracy and completeness
of such information is not guaranteed. To our knowledge, certain third-party industry data that includes projections for future periods
does not consider the effects of any future coronavirus outbreaks or any geopolitical conflicts. Accordingly, those third-party projections
may be overstated and should not be given undue weight. We have not independently verified any of the data from third party sources, nor
have we ascertained the underlying economic assumptions relied upon therein. Similarly, internal surveys, industry forecasts and market
research, which we believe to be reliable based on our management’s knowledge of the industry, have not been independently verified.
Forecasts are particularly likely to be inaccurate, especially over long periods of time. In addition, we do not necessarily know what
assumptions regarding general economic growth were used in preparing the forecasts we cite. Statements as to our market position are based
on the most currently available data. While we are not aware of any misstatements regarding the industry data presented in this prospectus,
our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the
heading “Risk Factors” in this prospectus. We are, however, liable for the information in the prospectus related to
the market and industry data.
PROSPECTUS
SUMMARY
This summary provides a brief overview of the
key aspects of our business and our securities. The reader should read the entire prospectus carefully, especially the risks of investing
in our common stock discussed under “Risk Factors.” Some of the statements contained in this prospectus, including statements
under “Summary” and “Risk Factors” as well as those noted in the documents incorporated herein by reference, are
forward-looking statements and may involve a number of risks and uncertainties. Our actual results and future events may differ significantly
based upon a number of factors. The reader should not put undue reliance on the forward-looking statements in this document, which speak
only as of the date on the cover of this prospectus.
Unless the context otherwise requires, references
in this prospectus to “Tenon,” “Tenon Medical,” “the Company,” “our Company,” “we,”
“us” and “our” refer to Tenon Medical, Inc.
Introduction
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 US 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.
The Opportunity
We estimate that over 30 million American adults
have chronic lower back pain. Published clinical studies have shown that 15% to 30% of all chronic lower back pain is associated with
the SI-Joint. For patients whose chronic lower back pain stems from the Sacroiliac Joint (“SI-Joint”), our experience in both
clinical trials and commercial settings indicates the system to be introduced by Tenon could be beneficial for patients who are properly
diagnosed and screened for surgery by trained healthcare providers.
In 2019, approximately 475,000 patients in the
United States were estimated to have received an aesthetic injection to temporarily alleviate pain emanating from the SI-Joint and/or
to diagnose SI-Joint pain. Additionally, several non-surgical technologies have been introduced in the past 10 years to address patients
who do not respond to conservative options, including systemic oral medications, opioids, physical therapy and injection therapy.
To date, the penetration of a surgical solution
for this market has been relatively low (5-7%). We believe this is due to complex surgical approaches and suboptimal implant design of
existing options. The penetration of this market with an optimized surgical solution is Tenon’s focus.
We believe the SI-Joint is the last major joint
to be successfully addressed by the spine implant industry. Studies have shown that disability resulting from disease of the SI-Joint
is comparable to the disability associated with a number of other serious spine conditions, such as knee and hip arthritis and degenerative
disc disease, each of which has surgical solutions where an implant is used, and a multi-billion-dollar market exists.
The SI-Joint
The SI-Joint is a strong weight bearing synovial
joint situated between the lumbar spine and the pelvis and is aligned along the longitudinal load bearing axis of the human spine when
in an upright posture. It functions as a force transfer conduit where it transfers axial loads bi-directionally from the spine to the
pelvis and lower extremities and allows forces to be transmitted from the extremities to the spine. It also provides load sharing between
the hip and spine to contribute towards attenuation of impact shock and stress from activities of daily living.
The SI-Joint is a relatively immobile joint that
connects the sacrum (the spinal segment that is attached to the base of the lumbar spine at the L5 vertebra) and the ilium of the pelvis.
Each SI-Joint is approximately 2-4mm wide and irregularly shaped.
Motion of the SI-Joint features vertical shear
and rotation. Although the rotational forces about the SI-Joint are relatively low, repetitive motions created by daily activities such
as walking, jogging, twisting at the hips, and jumping can increase the stresses on the SI-Joint. If the SI-Joint is compromised through
injury or degeneration, the load bearing and motion restraints from the surrounding anatomical structures of the SI-Joint will be compromised
resulting in abnormal stress transfers across the joint to these structures, thereby further augmenting the degenerative cascade of the
SI-Joint. Eventual pain and cessation of an individual’s normal activities due to a painful and unstable SI-Joint have led to an
increase in the recent development of SI-Joint stabilization devices.
Non-Surgical Treatment of Sacroiliac Joint Disease
Several non-surgical treatments exist
for suspected sacroiliac joint pain. These conservative steps often provide desired relief for the patient. Non-surgical treatments include:
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Drug Therapy: including opiates and non-steroidal anti-inflammatory medications. |
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Physical Therapy: which can involve exercises as well as massage. |
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Intra-Articular Injections of Steroid Medications: which are typically performed by physicians who specialize in pain treatment or anesthesia. |
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Radiofrequency Ablation: or the cauterizing of the lateral branches of the sacral nerve roots. |
When conservative steps fail to deliver sustained
pain relief and return to quality of life, specific diagnostic protocols are utilized to explore if a surgical option should be considered.
Diagnosis
Historically, diagnosing pain from the SI-Joint
was not routinely a focus of orthopedic or neurosurgery training during medical school or residency programs. Due to its invasiveness,
post-operative pain, and muscle disruption along with a difficult procedure overall, the open SI-Joint fusion procedure was rarely taught
in these settings.
The emergence of various SI-Joint surgical technologies
has generated a renewed discussion of SI-Joint issues. Of particular focus is the diagnostic protocol utilized to properly select patients
for SI-Joint surgery. Patients with low back pain typically start with primary care physicians who often refer to pain specialists. Here,
the patient will undergo traditional physical therapy combined with oral medications (anti-inflammatory, narcotic, etc.). If the patient
fails to respond to these steps the pain specialist may move to therapeutic injections of the SI-Joint. These injections may serve to
lessen inflammation to the point that the patient is satisfied. However, the impact from these injections is often transient. In this
case the patient is often referred to a clinician to determine if the patient may be a candidate for surgical intervention. A series of
provocative tests in clinic, combined with a specific injection protocol to isolate the SI-Joint as the pain generator is then utilized
to confirm the need for surgical intervention. Published literature has shown this technique to be a very effective step to determine
the best treatment to alleviate pain.
Limitations of Existing Treatment Options
Surgical fixation and fusion of the SI-Joint with
an open surgical technique was first reported in 1908, with further reports in the 1920s. The open procedure uses plates and screws, requires
a 6 to 12-inch incision and is extremely invasive. Due to the high invasiveness and associated morbidity, the use
of this procedure is limited to cases involving significant trauma, tumor, etc.
Less invasive surgical options along with implant
design began to emerge over the past 15 years. These options feature a variety of approaches and implant designs and have been met with
varying degrees of adoption. Lack of a standard and accepted diagnostic approach, complexity of approach, high morbidity of approach,
abnormally high complication rates and inability to radiographically confirm fusion have all been cited as reasons for low adoption of
these technologies.
Commercialization
Tenon
initiated its national commercial launch of The Catamaran System in October 2022 to address
what we believe is a large market opportunity. The Catamaran System includes instruments
and implants designed to prepare and fixate the SI-Joint for fusion. The Catamaran System
is distinct from other competitive offerings in the following ways:
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Transfixes the SI-Joint |
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Inferior / Posterior Sacroiliac Fusion Approach |
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Reduced Approach Morbidity |
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Direct And Visualized Approach to the SI-Joint |
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Single Implant Technique |
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Insertion Trajectory Away from the Neural Foramen |
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Insertion Trajectory Away from Major Lateral Vascular Structures |
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Autologous Bone Grafting in the Ilium, Sacrum and Bridge |
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Radiographic Confirmation of Bridging Bone Fusion of the SI-Joint |
The fixation device and its key features are shown
below:
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Key Features
“Pontoon” in the ilium
“Pontoon” in the sacrum
“Pontoons and Bridge” filled with autologous bone from
drilling process
Leading edge osteotome creates defect and facilitates ease of insertion
|
The Catamaran System is a singular implant
designed with several proprietary components which allow for it to be explicitly formatted to address the SI-Joint with a single approach
and implant. This contrasts with several competitive implant systems that require multiple approach pathways and implants to achieve
fixation. In addition, the inferior-posterior approach is designed to be direct to the joint and through limited anatomical structures
which may minimize the morbidity of the approach. The implant features a patented dual pontoon open cell design which enables the clinician
to pack the pontoons with the patient’s own autologous bone designed to promote bone fusion across the joint. The Catamaran System
is designed specially to resist vertical shear and rotation of the joint in which it was implanted, helping stabilize the joint in preparation
for eventual fusion.
The instruments we have developed are proprietary
to The Catamaran System and specifically designed to transfix the SI-Joint and facilitate an inferior-posterior approach that is unique
to the system.
Tenon also has developed a proprietary 2D placement
protocol as well as a protocol for 3D navigation utilizing the latest techniques in spine surgery. These Tenon advancements are intended
to further enhance the safety of the procedure and encourage more physicians to adopt the procedure.
In October 2022, we received Institutional
Review Board (“IRB”) approval from WCG IRB for two separate Tenon-sponsored post market clinical studies of The Catamaran
System. The approval by WCG allows designated Catamaran study centers to begin recruiting and enrolling patients into the clinical studies.
The first approval from WCG IRB will support a prospective, multi-center, single arm post market study that will evaluate the clinical
outcomes of patients with sacroiliac joint disruptions or degenerative sacroiliitis treated with The Catamaran System. Patients will
be followed out to 24 months assessing various patient reported outcomes, radiographic assessments, and adverse events. The second prospective,
multi-center, Catamaran study will evaluate 6-to-12-month radiographic outcomes to assess fusion of patients that have already undergone
treatment with The Catamaran System. In addition, retrospective and prospective clinical outcomes will be evaluated. We anticipate completing
enrollment by the end of the second quarter of 2024.
For a description of the challenges, we face and
the risks and limitations that could harm our prospects, see “Summary Risk Factors” and “Risk Factors.”
Recent Developments
Retirement of the Company’s Chief
Financial Officer
On May 20, 2024, Steven Van Dick the Company
of his decision to retire from his positions as Executive Vice President, Finance and Administration, Chief Financial Officer and Assistant
Secretary effective as of July 31, 2024. The Company is actively searching for a qualified candidate to fill the role of Chief Financial
Officer. Subsequent to July 31, 2024, Mr. Van Dick will consult with the Company to continue to assist with the transition of his responsibilities
and provide strategic advice as requested.
Nasdaq Notice of Failure to Comply with
Continued Listing Standards
On May 7, 2024, we 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, our common stock had not maintained a minimum closing bid price of $1.00 per share
required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”).
Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), we were provided an initial period of 180 calendar days, or until November 4, 2024 (the
“Compliance Period”), to regain compliance with the Bid Price Rule.
To regain compliance, the closing bid price of
our common stock must meet or exceed $1.00 per share for a minimum of 10 consecutive trading days, unless extended by Nasdaq under
Nasdaq Rule 5810(c)(3)(H), prior to November 4, 2024.
If we do not regain compliance with the Bid Price
Rule by November 4, 2024, we may be eligible for an additional 180-day period to regain compliance if we meet all of the other Nasdaq
listing criteria and if Nasdaq does not believe we will not be able to regain compliance within such 180-day period. If we cannot regain
compliance during the Compliance Period or any subsequently granted compliance period, our common stock will be subject to delisting.
Our common stock continues to be listed on The
Nasdaq Capital Market under the symbol “TNON”. We are currently evaluating our options for regaining compliance.
The notice from Nasdaq has no immediate effect
on the listing or trading of our common stock on The Nasdaq Capital Market and does not affect our business, operations or reporting requirements
with the SEC.
Exchange Offer
On April 8, 2024, we launched a one-time stock
option exchange program (the “Option Exchange”) pursuant to which eligible participants were able to exchange outstanding
stock options for a lesser amount of new restricted stock units (“RSUs”). Our executive officers, non-employee directors and
consultants were eligible to participate in the Option Exchange. Employees, non-employee directors and consultants received one RSU for
every two shares of our common stock underlying the eligible options surrendered. This “exchange ratio” (2-for-1) was applied
on a grant-by-grant basis. The Option Exchange expired on May 6, 2024 at 11:59 p.m., Eastern Time. At that time, stock options to purchase
83,391 shares of our common stock were surrendered and 41,698 new RSUs were issued under the Tenon Medical, Inc. 2022 Equity Incentive
Plan (the “2022 Plan”).
2024 Series A Offering
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 “Series A Warrants”) to purchase 258,374 shares of common stock, par value $0.001 per share, of the Company
(“Common Stock”) 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. In addition, each investor
received Series A Warrants to purchase a number of shares of our common stock equal to 15% of the number of shares of our common stock
underlying the shares of Series A Preferred Stock purchased by such investor. 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 July 3, 2024.
2023 Note Offering
On November 21, 2023, we entered into securities
purchase agreements with certain investors (the “Note Investors”), pursuant to which we agreed to sell, issue and deliver
to the Note Investors, in a private placement offering (the “Note Offering”), a total of $1,250,000 in secured notes (the
“Notes”) and warrants (the “Note Warrants”) to purchase 45,000 shares of our common stock at an exercise price
equal to $1.94 per share. The Company received $1,125,000 from the Note Offering after payment of investor expenses. As described above,
the Notes have been repaid in full and are no longer outstanding.
The Note Warrants expire five (5) years from
the issuance date of the Note Warrants. The Note Warrants contain a “cashless exercise” feature and contain anti-dilution
rights on subsequent issuances of equity or equity equivalents.
Summary Risk Factors
Our business is subject to numerous risks and
uncertainties, any one of which could materially adversely affect our results of operations, financial condition or business. These risks
include, but are not limited to, those listed below. This list is not complete, and should be read together with the section titled “Risk
Factors” below:
| ● | We
have incurred losses in the past, our financial statements have been prepared on a going concern basis and we may be unable to achieve
or sustain profitability in the future; |
| ● | Practice
trends or other factors, including the COVID-19 pandemic, may cause procedures to shift from the hospital environment to ambulatory surgical
centers (“ASCs”), where pressure on the prices of our products is generally more acute; |
| ● | If
hospitals, clinicians, and other healthcare providers are unable to obtain and maintain coverage and reimbursement from third-party payors
for procedures performed using our products, adoption of our products may be delayed, and it is unlikely that they will gain further
acceptance; |
| ● | We
may not be able to convince physicians that The Catamaran System is an attractive alternative
to our competitors’ products and that our procedure is an attractive alternative to
existing surgical and non-surgical treatments of the SI-Joint; |
| ● | Clinicians
and payors may not find our clinical evidence to be compelling, which could limit our sales, and ongoing and future research may prove
our products to be less safe and effective than initially anticipated; |
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Pricing pressure from our competitors, changes in third-party coverage and reimbursement, healthcare provider consolidation, payor consolidation and the proliferation of “physician-owned distributorships” may impact our ability to sell our product at prices necessary to support our current business strategies; |
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We operate in a very competitive business environment and if we are unable to compete successfully against our existing or potential competitors, our sales and operating results may be negatively affected and we may not grow; |
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We currently manufacture (through third parties) and sell products used in a single procedure, which could negatively affect our operations and financial condition; |
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Our sales volumes and our operating results may fluctuate over the course of the year; |
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Various factors outside our direct control may adversely affect manufacturing and distribution of our product; |
| ● | We
are dependent on a limited number of contract manufacturers, some of them single-source and some of them in single locations, for our
product, and the loss of any of these contract manufacturers, or their inability to provide us with an adequate supply of products in
a timely and cost-effective manner, could materially adversely affect our business; |
| ● | As
our sales grow, our contract manufacturers may encounter problems or delays in the manufacturing of our product or fail to meet certain
regulatory requirements which could result in an adverse effect on our business and financial results; |
| ● | The
size and future growth in the market for the SI-Joint fixation market have not been established
based on market reports and our estimates are based on our own review and analysis of public
information and may be smaller than we estimate, possibly materially. In addition, our estimates
of cost savings to the economy and healthcare system as a result of The Catamaran System
procedure are based on our internal estimates and market research and could also be smaller
than we estimate, possibly materially. If our estimates and projections overestimate the
size of this market or cost savings, our sales growth may be adversely affected; |
| ● | If
we experience significant disruptions in our information technology systems, our business, results of operations, and financial condition
could be adversely affected; |
| ● | We
may seek to grow our business through acquisitions of or investments in new or complementary businesses, products or technologies, and
the failure to manage acquisitions or investments, or the failure to integrate them with our existing business, could have a material
adverse effect on us; |
| ● | We
may enter into collaborations, in-licensing arrangements, joint ventures, strategic alliances, or partnerships with third-parties that
may not result in the development of commercially viable products or the generation of significant future revenue; |
| ● | We
are increasingly dependent on information technology, and our systems and infrastructure face certain risks, including cybersecurity
and data leakage risks; |
| ● | Geopolitical
conditions, including trade disputes and direct or indirect acts of war or terrorism, could have an adverse effect on our operations
and financial results; |
| ● | Inflation
may adversely affect our operations and financial results; |
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We and our contract manufacturers are subject to extensive governmental regulation both in the United States and abroad, and failure to comply with applicable requirements could cause our business to suffer; |
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Our employees, independent contractors, consultants, contract manufacturers, and our independent sales representatives may engage in misconduct or other improper activities, relating to regulatory standards and requirements; |
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We are subject to environmental laws and regulations that can impose significant costs and expose us to potential financial liabilities; |
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Our ability to protect our intellectual property and proprietary technology is uncertain; |
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We may not be able to protect our intellectual property rights throughout the world; |
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The sale or issuance of our common stock to Lincoln Park may cause dilution and the sale of the shares of common stock acquired by Lincoln Park, or the perception that such sales may occur, could cause the price of our common stock to fall; and |
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Our management will have broad discretion over the use of the net proceeds from our sale of shares of common stock to Lincoln Park, and you may not agree with how we use the proceeds and the proceeds may not be invested successfully. |
Corporate Information
Our principal executive offices are located at
104 Cooper Court, Los Gatos, CA 95032. Our website address is www.tenonmed.com. The information included on our website is not
part of this prospectus.
Implications of Being an Emerging Growth Company
and a Smaller Reporting Company
We are an “emerging growth company,” as defined in the
Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). We will remain an emerging growth company until the earlier
of (i) the last day of the fiscal year following the fifth anniversary of the date of the first sale of our common stock pursuant to an
effective registration statement under the Securities Act; (ii) the last day of the fiscal year in which we have total annual gross revenues
of $1.235 billion or more; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three
years; or (iv) the date on which we are deemed to be a large accelerated filer under applicable SEC rules. We expect that we will remain
an emerging growth company for the foreseeable future, but cannot retain our emerging growth company status indefinitely and will no longer
qualify as an emerging growth company on or before the last day of the fiscal year following the fifth anniversary of the date of the
first sale of our common stock pursuant to an effective registration statement under the Securities Act. For so long as we remain an emerging
growth company, we are permitted and intend to rely on exemptions from specified disclosure requirements that are applicable to other
public companies that are not emerging growth companies.
These exemptions include:
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being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure; |
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not being required to comply with the requirement of auditor attestation of our internal controls over financial reporting; |
| ● | not
being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory
audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial
statements; |
| ● | reduced
disclosure obligations regarding executive compensation; and |
| ● | not
being required to hold a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments
not previously approved. |
We have taken advantage of certain reduced reporting
requirements in this prospectus. Accordingly, the information contained herein may be different than the information you receive from
other public companies in which you hold stock.
An emerging growth company can take advantage
of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.
This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply
to private companies. We have irrevocably elected to avail ourselves of this extended transition period and, as a result, we will not
be required to adopt new or revised accounting standards on the dates on which adoption of such standards is required for other public
reporting companies.
We are also a “smaller reporting company”
as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and have elected to take
advantage of certain of the scaled disclosure available for smaller reporting companies.
SUMMARY
OF THE OFFERING
Common stock offered by the Selling Stockholder |
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Up to 5,000,000 shares of our common stock, that we may sell to Lincoln Park pursuant
to the Purchase Agreement from time to time after the registration statement of which this prospectus forms a part is declared effective
and all of the other conditions set forth in the Purchase Agreement are satisfied (the “Purchase Shares”). As of July 3, 2024, there are also 410,153 shares of our common stock, that we may sell to Lincoln Park pursuant to the Purchase Agreement
from time to time that are covered by the Original Registration Statement (the “Original Purchase Shares”). The Original
Purchase Shares are not being offered pursuant to this prospectus. |
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Selling Stockholder |
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Lincoln Park Capital Fund, LLC. See “Selling Stockholder” on page 54 of this prospectus.
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Use of Proceeds |
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We will receive no proceeds from the sale of shares
of common stock by Lincoln Park in this offering. We may receive up to approximately $9.9 million in gross proceeds that remains available
under the Purchase Agreement that we may sell to Lincoln Park pursuant to the Purchase Agreement from time to time after the registration
statement of which this prospectus forms a part is declared effective. Any proceeds from Lincoln Park that we receive under the Purchase
Agreement are expected to be used for general corporate purposes, capital expenditures, working capital and general and administrative
expenses.
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Risk Factors |
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See “Risk Factors” on page 10 and other information included in this prospectus for a discussion of factors to consider carefully before deciding to invest in shares of our common stock.
|
Listing |
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Our common stock and tradeable warrants (“Tradeable Warrants”) trade on The Nasdaq Capital Market under the symbols “TNON” and “TNONW,” respectively. |
RISK
FACTORS
Our business is subject to many risks and uncertainties,
which may affect our future financial performance. If any of the events or circumstances described below occur, our business and financial
performance could be adversely affected, our actual results could differ materially from our expectations, and the price of our stock
could decline. The risks and uncertainties discussed below are not the only ones we face. There may be additional risks and uncertainties
not currently known to us or that we currently do not believe are material that may adversely affect our business and financial performance.
You should carefully consider the risks described below, together with all other information included in this prospectus including our
financial statements and related notes, before making an investment decision. The statements contained in this prospectus that are not
historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially
from those set forth in or implied by forward-looking statements. If any of the following risks actually occurs, our business, financial
condition or results of operations could be harmed. In that case, the trading price of our common stock could decline, and investors in
our securities may lose all or part of their investment.
Risks Related to Our Business and Operations
We have incurred losses in the past, our
financial statements have been prepared on a going concern basis and we may be unable to achieve or sustain profitability in the future.
To date, we have financed our operations primarily
through the issuance of public and private equity and convertible notes. We have devoted substantially all of our resources to research
and development, creating the infrastructure for a publicly traded medical device company, preparing for our national commercial launch,
and clinical and regulatory matters for our products. There can be no assurances that we will be able to generate sufficient revenue from
our existing products or from any future product candidates to transition to profitability and generate consistent positive cash flows.
We expect that our operating expenses will continue to increase as we continue to build our commercial infrastructure, develop, enhance,
and commercialize our existing and new products and incur additional operating and reporting costs associated with being a public company.
As a result, we expect to continue to incur operating losses for the foreseeable future and may never achieve profitability. Furthermore,
even if we do achieve profitability, we may not be able to sustain or increase profitability on an ongoing basis. If we do not achieve
profitability, it will be more difficult for us to finance our business and accomplish our strategic objectives.
Our recurring losses from operations and negative
cash flows raise substantial doubt about our ability to continue as a going concern. As a result, our independent registered public accounting
firm included an explanatory paragraph in its report on our financial statements for the fiscal year ended, December 31, 2023, describing
the existence of substantial doubt about our ability to continue as a going concern. Our expected future capital requirements may depend
on many factors including expanding our clinician base, increasing the rate at which we train clinicians, the number of additional clinical
papers initiated, and the timing and extent of spending on the development of our technology to increase our product offerings. We may
need additional funding to fund our operations but additional funds may not be available to us on acceptable terms on a timely basis,
if at all. We may seek funds through borrowings or through additional rounds of financing, including private or public equity or debt
offerings. If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Any future debt financing
into which we enter may impose upon us additional covenants that restrict our operations, including limitations on our ability to incur
liens or additional debt, pay dividends, repurchase our common stock, make certain investments, and engage in certain merger, consolidation
or asset sale transactions. Any future debt financing or additional equity that we raise may contain terms that are not favorable to us
or our stockholders. Furthermore, we cannot be certain that additional funding will be available on acceptable terms, if at all. If we
are unable to raise additional capital or generate sufficient cash from operations to adequately fund our operations, we will need to
curtail planned activities to reduce costs, which will likely harm our ability to execute on our business plan and continue operations.
Practice trends or other factors, including
the COVID-19 pandemic, may cause procedures to shift from the hospital environment to ambulatory surgical centers (“ASCs”),
where pressure on the prices of our products is generally more acute.
To protect health care professionals involved
in surgical care and their patients, we anticipate that more outpatient eligible procedures will be performed in ASCs during the COVID-19
pandemic, and as its acuity declines and the healthcare system returns to a more normalized state. Since patients do not stay overnight
in ASCs and COVID-19 patients would not otherwise be treated in ASCs, it is likely that the ASC will be viewed as a safer site of service
for patients and health care providers, where the risk of transmission of COVID-19 can be more effectively controlled. Because ASC facility
fee reimbursement is typically less than facility fee reimbursement for hospitals, we typically experience more pressure on the pricing
of our products by ASCs than by hospitals, and the average price for which we sell our products to ASCs is less than the average prices
we charge to hospitals. An accelerated shift of procedures using our products to ASCs as a result of any future COVID-19 outbreak could
adversely impact the average selling prices of our products and our revenues could suffer as a result.
If hospitals, clinicians, and other healthcare
providers are unable to obtain coverage and reimbursement from third-party payors for procedures performed using our products, adoption
of our products may be delayed, and it is unlikely that they will gain further acceptance.
Growing sales of our product depends on the availability
of adequate coverage and reimbursement from third-party payors, including government programs such as Medicare and Medicaid, private insurance
plans, and managed care programs. Hospitals, clinicians, and other healthcare providers that purchase or use medical devices generally
rely on third-party payors to pay for all or part of the costs and fees associated with the procedures performed with these devices.
Adequate coverage and reimbursement for procedures
performed with our products is central to the acceptance of our current and future products. We may be unable to sell our products on
a profitable basis if third-party payors deny coverage, continue to deny coverage or reduce their current levels of payment, or if our
costs for the product increase faster than increases in reimbursement levels.
Many private payors refer to coverage decisions
and payment amounts determined by the Centers for Medicare and Medicaid Services, or CMS, which administers the Medicare program, as guidelines
for setting their coverage and reimbursement policies. By June 30, 2016, all Medicare Administrative Contractors were regularly reimbursing
for minimally invasive and/or open SI-Joint fusion. Private payors that do not follow the Medicare guidelines may adopt different coverage
and reimbursement policies for procedures performed with our products. Private commercial payors have been slower to adopt positive coverage
policies for minimally invasive and/or open SI-Joint fusion, and many private payors still have policies that treat the procedure as experimental
or investigational and do not regularly reimburse for the procedure. Future action by CMS or third-party payors may further reduce the
availability of payments to physicians, outpatient surgery centers, and/or hospitals for procedures using our products.
The healthcare industry in the United States has
experienced a trend toward cost containment as government and private insurers seek to control healthcare costs. Payors are imposing lower
payment rates and negotiating reduced contract rates with service providers and being increasingly selective about the technologies and
procedures they choose to cover. There can be no guarantee that we will be able to provide the scientific and clinical data necessary
to overcome these policies. Payors may adopt policies in the future restricting access to medical technologies like ours and/or the procedures
performed using such technologies. Therefore, we cannot be certain that the procedures performed with each of our products will be reimbursed.
There can be no guarantee that, should we introduce additional products in the future, payors will cover those products or the procedures
in which they are used.
If the reimbursement provided by third-party
payors to hospitals, clinicians, and other healthcare providers for procedures performed using our products is insufficient, adoption
and use of our products and the prices paid for our implants may decline.
When a Tenon procedure utilizing The Catamaran
System is performed, both the clinician and the healthcare facility, a hospital (inpatient or outpatient clinic), submit claims for reimbursement
to the patient’s insurer. Generally, the facility obtains a lump sum payment, or facility fee, for SI-Joint fusions. Our products
are purchased by the facility, along with other supplies used in the procedure. The facility must also pay for its own fixed costs of
operation, including certain operating room personnel involved in the procedure, and other medical services care. If these costs exceed
the facility reimbursement, the facility’s managers may discourage or restrict clinicians from performing the procedure in the
facility or using certain technologies, such as The Catamaran System, to perform the procedure.
The Medicare 2022 national average hospital inpatient
payment ranges from approximately $25,000 to approximately $59,000 depending on the procedural approach and the presence of Complication
and Comorbidity (CC)/Major Complication and Comorbidity (MCC).
The Medicare 2022 national average hospital
outpatient clinic payment is $21,897. We believe that insurer payments to facilities are generally adequate for these facilities to offer
The Catamaran System. However, there can be no guarantee that these facility payments will not decline in the future. The number
of procedures performed, and the prices paid for our implants may in the future decline if payments to facilities for SI-Joint fusions
decline.
Clinicians
are reimbursed separately for their professional time and effort to perform a surgical procedure.
Depending on the surgical approach, the incision size, type and extent of imaging guidance,
indication for procedure, and the insurer, The Catamaran System procedure may be reported
by the clinician using any one of the applicable following CPT® codes 27279, 27280, 27299.
The Medicare 2022 national average payment for CPT® 27279 is $807 and $1,325 for 27280.
CPT® 27299 has no national valuation. Clinicians, however, can present a crosswalk to
another procedure believed to be fairly equivalent and/or comparison to a code for which
there is an existing valuation.
For some governmental programs, such as Medicaid,
coverage and reimbursement differ from state to state, and some state Medicaid programs may not pay an adequate amount for the procedures
performed with our products, if any payment is made at all. Similar to Medicaid, many private payors’ coverage and payment may differ
from one payer to another as well.
We believe that some clinicians view the current
Medicare reimbursement amount as insufficient for the procedure, given the work effort involved with the procedure, including the time
to diagnose the patient and obtain prior authorization from the patient’s health insurer when necessary. Many private payors require
extensive documentation of a multi-step diagnosis before authorizing SI-Joint fusion for a patient. We believe that some private payors
apply their own coverage policies and criteria inconsistently, and clinicians may experience difficulties in securing approval and coverage
for sacroiliac fusion procedures. Additionally, many private payors limit coverage for open SI-Joint fusion to trauma, tumors or extensive
spine fusion procedures involving multiple levels. The perception by physicians that the reimbursement for SI-Joint fusion is insufficient
to compensate them for the work required, including diagnosis, documentation, obtaining payor approval for the procedure, and burden on
their office staff, may negatively affect the number of procedures performed and may therefore impede the growth of our revenues or cause
them to decline.
We may not be able to convince physicians
that The Catamaran System is an attractive alternative to our competitors’ products and that our procedure is an attractive alternative
to existing surgical and non-surgical treatments of the SI-Joint.
Clinicians play the primary role in determining
the course of treatment in consultation with their patients and, ultimately, the product that will be used to treat a patient. In order
for us to sell The Catamaran System successfully, we must convince clinicians through education and training that treatment with The
Catamaran System is beneficial, safe, and cost-effective for patients as compared to our competitors’ products. If we are not successful
in convincing clinicians of the merits of The Catamaran System, they may not use our product, and we will be unable to increase our sales
and achieve or grow profitability.
Historically, most spine clinicians did not
include SI-Joint pain in their diagnostic work-up because they did not have an adequate surgical procedure to perform for patients diagnosed
with the condition. As a result, some patients with lower back pain resulting from SI-Joint dysfunction are misdiagnosed. We believe
that educating clinicians and other healthcare professionals about the clinical merits and patient benefits of The Catamaran System is
an important element of our growth. If we fail to effectively educate clinicians and other medical professionals, they may not include
a SI-Joint evaluation as part of their diagnosis and, as a result, those patients may continue to receive unnecessary or only non-surgical
treatment.
Clinicians may also hesitate to change their medical treatment practices
for other reasons, including the following:
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lack of experience with minimally invasive procedures; |
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perceived liability risks generally associated with the use of new products and procedures; |
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costs associated with the purchase of new products; and |
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time commitment that may be required for training. |
Furthermore,
we believe clinicians may not widely adopt The Catamaran System unless they determine, based
on experience, clinical data, and published peer-reviewed publications, that surgical intervention
provides benefits or is an attractive alternative to non-surgical treatments of SI-Joint
dysfunction. In addition, we believe support of our products relies heavily on long-term
data showing the benefits of using our product. If we are unable to provide that data, clinicians
may not use our product. In such circumstances, we may not achieve expected sales and may
be unable to achieve profitability.
Clinicians and payors may not find our clinical
evidence to be compelling, which could limit our sales, and on-going and future research may prove our product to be less safe and effective
than initially anticipated.
All
of the component parts of The Catamaran System have either received premarket clearance under
Section 510(k) of the U.S. federal Food, Drug, and Cosmetic Act, or FDCA, or are exempt
from premarket review. The 510(k) clearance process of the U.S. Food and Drug Administration,
or FDA, requires us to document that our product is “substantially equivalent”
to another 510(k) -cleared product. The 510(k) process is shorter and typically requires
the submission of less supporting documentation than other FDA approval processes, such as
a premarket approval, or PMA, and does not usually require pre-clinical or clinical studies.
Additionally, to date, we have not been required to complete clinical studies in connection
with the sale of our product. For these reasons, clinicians may be slow to adopt our product,
third-party payors may be slow to provide coverage, and we may be subject to greater regulatory
and product liability risks. Further, future patient studies or clinical experience may indicate
that treatment with our product does not improve patient outcomes. Such results would slow
the adoption of our product by clinicians, significantly reduce our ability to achieve expected
sales, and could prevent us from achieving profitability. Moreover, if future results and
experience indicate that our product causes unexpected or serious complications or other
unforeseen negative effects, we could be subject to mandatory product recalls, suspension,
or withdrawal of FDA clearance.
Pricing pressure from our competitors, changes
in third-party coverage and reimbursement, healthcare provider consolidation, payor consolidation and the proliferation of “physician-owned
distributorships” may impact our ability to sell our product at prices necessary to support our current business strategies.
If competitive forces drive down the prices we
are able to charge for our product, our profit margins will shrink, which will adversely affect our ability to invest in and grow our
business. The SI-Joint fusion market has attracted numerous new companies and technologies. As a result of this increased competition,
we believe there will be continued and increased pricing pressure, resulting in lower gross margins, with respect to our product.
Even to the extent our product and procedures
using our product are currently covered and reimbursed by third-party private and public payors, adverse changes in coverage and reimbursement
policies that affect our product, discounts, and number of implants used may also drive our prices down and harm our ability to market
and sell our product.
We
are unable to predict what changes will be made to the reimbursement methodologies used by
third-party payors. We cannot be certain that under current and future payment systems, in
which healthcare providers may be reimbursed a set amount based on the type of procedure
performed, such as those utilized by Medicare and in many privately managed care systems,
the cost of our product will be justified and incorporated into the overall cost of the procedure.
In addition, to the extent there is a shift from inpatient setting to outpatient settings,
we may experience pricing pressure and a reduction in the number of The Catamaran System
procedures performed.
Consolidation in the healthcare industry, including
both third-party payors and healthcare providers, could lead to demands for price concessions or to the exclusion of some suppliers from
certain of our markets, which could have an adverse effect on our business, results of operations, or financial condition. Because healthcare
costs have risen significantly over the past several years, numerous initiatives and reforms initiated by legislators, regulators, and
third-party payors to curb these costs have resulted in a consolidation trend in the healthcare industry to aggregate purchasing power.
As the healthcare industry consolidates, competition to provide products and services to industry participants has become and will continue
to become more intense. This in turn has resulted and will likely continue to result in greater pricing pressures and the exclusion of
certain suppliers from important market segments as group purchasing organizations, independent delivery networks, and large single accounts
continue to use their market power to consolidate purchasing decisions for hospitals. We expect that market demand, government regulation,
third-party coverage, and reimbursement policies and societal pressures will continue to change the worldwide healthcare industry, resulting
in further business consolidations and alliances among our customers, which may reduce competition, exert further downward pressure on
the price of our product, and adversely impact our business, results of operations, or financial condition. As we continue to expand into
international markets, we will face similar risks relating to adverse changes in coverage and reimbursement procedures and policies in
those markets.
We operate in a very competitive business
environment and if we are unable to compete successfully against our existing or potential competitors, our sales and operating results
may be negatively affected and we may not grow.
The
Catamaran System is subject to intense competition. Many of our competitors are major medical
device companies that have substantially greater financial, technical, and marketing resources
than we do, and they may succeed in developing products that would render our product obsolete
or non-competitive. In addition, many of these competitors have significantly longer operating
histories and more established reputations than we do. Our field is intensely competitive,
subject to rapid change and highly sensitive to the introduction of new products or other
market activities of industry participants. Our ability to compete successfully will depend
on our ability to develop proprietary products that reach the market in a timely manner,
receive adequate coverage and reimbursement from third-party payors, and are safer, less
invasive, and more effective than alternatives available for similar purposes as demonstrated
in peer-reviewed clinical publications. Because of the size of the potential market, we anticipate
that other companies will dedicate significant resources to developing competing products.
In the United States, we believe that our primary
competitors are currently SI-bone, Inc., Globus Medical, Inc., Medtronic plc, XTant Medical Holdings, Inc., and RTI Surgical, Inc. At
any time, these or other industry participants may develop alternative treatments, products or procedures for the treatment of the SI-Joint
that compete directly or indirectly with our product. If alternative treatments are, or are perceived to be, superior to our product,
sales of our product and our results of operations could be negatively affected. Some of our larger competitors are either publicly traded
or divisions or subsidiaries of publicly traded companies. These competitors may enjoy several competitive advantages over us, including:
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greater financial, human, and other resources for product research and development, sales and marketing, and legal matters; |
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significantly greater name recognition; |
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established relationships with clinicians, hospitals, and other healthcare providers; |
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large and established sales and marketing and distribution networks; |
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greater experience in obtaining and maintaining domestic and international regulatory clearances or approvals, or CE Certificates of Conformity for products and product enhancements; |
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more expansive portfolios of intellectual property rights; and |
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greater ability to cross-sell their products or to incentivize hospitals or clinicians to use their products. |
New participants have increasingly entered the
medical device industry. Many of these new competitors specialize in a specific product or focus on a particular market segment, making
it more difficult for us to increase our overall market position. The frequent introduction by competitors of products that are or claim
to be superior to our product or that are alternatives to our existing or planned products may make it difficult to differentiate the
benefits of our product over competing products. In addition, the entry of multiple new products and competitors may lead some of our
competitors to employ pricing strategies that could adversely affect the pricing of our product and pricing in the market generally.
As a result, without the timely introduction of
new products and enhancements, our product may become obsolete over time. If we are unable to develop innovative new products, maintain
competitive pricing, and offer products that clinicians and other physicians perceive to be as reliable as those of our competitors, our
sales or margins could decrease, thereby harming our business.
We currently manufacture (through third
parties) and sell products used in a single procedure, which could negatively affect our operations and financial condition.
Presently
we do not sell any products other than The Catamaran System and related tools and instruments.
Therefore, we are solely dependent on widespread market adoption of The Catamaran System
and we will continue to be dependent on the success of this single product for the foreseeable
future. There can be no assurance that The Catamaran System will gain a substantial degree
of market acceptance among clinicians, patients or healthcare providers. Our failure to successfully
increase sales of The Catamaran System or any other event impeding our ability to sell The
Catamaran System would result in a material adverse effect on our results of operations,
financial condition and continuing operations.
We have a limited operating history and
may face difficulties encountered by early-stage companies in new and rapidly evolving markets.
Even
though we were formed in 2012 we have just built the infrastructure necessary to commercially
launch The Catamaran System. Accordingly, we have a limited operating history upon which
to base an evaluation of our business and prospects. In assessing our prospects, you must
consider the risks and difficulties frequently encountered by early-stage companies in new
and rapidly evolving markets, particularly companies engaged in the development and sales
of medical devices. These risks include our inability to:
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obtain coverage by third-party, private, and government payors; |
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establish and increase awareness of our brand and strengthen customer loyalty; |
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attract and retain qualified personnel; |
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find and develop relationships with contract manufacturers that can manufacture the necessary volume of product; |
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manage our independent sales representatives to achieve our sales growth objectives; |
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commercialize new products and enhance our existing product; |
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manage rapidly changing and expanding operations; |
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implement and successfully execute our business and marketing strategy; |
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respond effectively to competitive pressures and developments. |
We can also be negatively affected by general
economic conditions. Because of our limited operating history, we may not have insight into trends that could emerge and negatively affect
our business. As a result of these or other risks, our business strategy might not be successful.
Our sales volumes and our operating results
may fluctuate over the course of the year.
Since
we had our first sales in April 2021 and our official national launch commenced in October
2022, we have limited history with respect to how rapidly adoption of The Catamaran System
will occur. Sales growth could be slower than we have projected. Our sales and results of
operations will be affected by numerous factors, including, among other things:
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payor coverage and reimbursement; |
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maintaining our training schedule with clinicians; |
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the number of procedures performed in the quarter and our ability to drive increased sales of our product; |
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our ability to identify and sign-up independent sales representatives and their performance; |
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pricing pressure applicable to our product, including adverse third-party coverage and reimbursement outcomes; |
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timing of new product offerings, acquisitions, licenses or other significant events by us or our competitors; |
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our ability to find and develop relationships with contract manufacturers and their ability to timely provide us with an adequate supply of products; |
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the evolving product offerings of our competitors; |
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the demand for, and pricing of, our product and the products of our competitors; |
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factors that may affect the sale of our product, including seasonality and budgets of our customers; |
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ability of clinicians to do our procedure given possible COVID restrictions; |
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interruption in the manufacturing or distribution of our product; |
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the effect of competing technological, industry and market developments; |
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our ability to expand the geographic reach of our sales and marketing efforts; |
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the costs of maintaining adequate insurance coverage, including product liability insurance; |
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the availability and cost of components and materials needed by our contract manufacturers; |
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the number of selling days in the quarter; and |
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impairment and other special charges. |
Some of the products we may seek to develop and
introduce in the future will require FDA clearance or approval before commercialization in the United States. As a result, it will be
difficult for us to forecast demand for these products with any degree of certainty. In addition, we will be increasing our operating
expenses as we expand our commercial capabilities. Accordingly, we may experience significant, unanticipated quarterly losses. If our
quarterly or annual operating results fall below the expectations of investors or securities analysts, the price of our common stock could
decline substantially. Furthermore, any quarterly or annual fluctuations in our operating results may, in turn, cause the price of our
common stock to fluctuate substantially. Quarterly comparisons of our financial results may not always be meaningful and should not be
relied upon as an indication of our future performance.
If we do not successfully implement our
business strategy, our business and results of operations will be adversely affected.
Our business strategy was based on assumptions
about the market that might prove wrong. We believe that various demographics and industry-specific trends will help drive growth in the
market and our business, but these demographics and trends have been and will continue to be uncertain. Actual demand for our product
could differ materially from projected demand if our assumptions regarding these factors prove to be incorrect or do not materialize,
or if alternative treatments to those offered by our product gains widespread acceptance. Also, our strategy of focusing exclusively on
the SI-Joint market may limit our ability to grow. In addition, in order to increase our sales, we will need to identify and contract
with independent sales representatives in existing and new regions as well, and in the future, commercialize new products. Moreover, we
may decide to alter or discontinue aspects of our business strategy and may adopt different strategies due to business or competitive
factors not currently foreseen, such as new medical technologies that would make our product obsolete. Any failure to implement our business
strategy may adversely affect our business, results of operations, and financial condition.
Our business could suffer if we lose the
services of key members of our senior management, key advisors or personnel.
We are dependent upon the continued services of
key members of our senior management and a number of key advisors and personnel. The loss of members of our senior management team, key
advisors or personnel, or our inability to attract or retain other qualified personnel or advisors, could have a material adverse effect
on our business, results of operations, and financial condition. We do not maintain “key person” insurance for any of our
executives or employees. In addition, several of the members of our executive management team are not subject to non-competition agreements
that restrict their ability to compete with us. Accordingly, the adverse effect resulting from the loss of certain executives could be
compounded by our inability to prevent them from competing with us.
Various factors outside our direct control
may adversely affect manufacturing and distribution of our product.
The manufacture and distribution of our product
is challenging. Changes that our contract manufacturers may make outside the purview of our direct control can have an impact on our processes,
quality of our product, and the successful delivery of products to our customers. Mistakes and mishandling are not uncommon and can affect
supply and delivery. Some of these risks include:
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failure to manufacture in compliance with the required regulatory standards; |
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the cost and availability of components and supplies required by our contract manufacturers to manufacture our products; |
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delays in analytical results or failure of analytical techniques that we will depend on for quality control and release of products; |
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natural disasters, labor disputes, financial distress, raw material availability, issues with facilities and equipment, or other forms of disruption to business operations affecting our manufacturers or their suppliers; and |
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latent defects that may become apparent after products have been released and that may result in a recall of such products. |
If any of these risks were to materialize, our
ability to provide our product to customers on a timely basis would be adversely impacted.
We are dependent on a limited number of
contract manufacturers, some of them single-source and some of them in single locations, for our product, and the loss of any of these
contract manufacturers, or their inability to provide us with an adequate supply of products in a timely and cost-effective manner, could
materially adversely affect our business.
We rely on contract manufacturers to supply our
product. For us to be successful, our contract manufacturers must be able to provide us with product in substantial quantities, in compliance
with regulatory requirements, in accordance with agreed upon specifications, at acceptable prices, and on a timely basis. We have a limited
history with our current contract manufacturers and do not have long-term supply contracts with them. We are in the process of identifying
and evaluating new contract manufacturers for our product. The inability to find the required contract manufacturers or the time required
to switch contract manufacturers could adversely affect sales.
In addition, our anticipated growth could strain
the ability of our contract manufacturers to deliver an increasingly large supply of product. Contract manufacturers often experience
difficulties in scaling up production, including financial issues, or problems with production yields and quality control and assurance.
We use a small number of contract manufacturers
for our instruments. Our dependence on such a limited number of contract manufacturers exposes us to risks, including, among other things:
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contract manufacturers may fail to comply with regulatory requirements or make errors in manufacturing that could negatively affect the safety or effectiveness of our product or cause delays in shipments of our product; |
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some of our contract manufacturers have long lead times of 12 to 16 weeks and we may not be able to respond to unanticipated changes in customer orders, and if orders do not match forecasts, we or our contract manufacturers may have excess or inadequate inventory of materials and components; |
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our contract manufacturers may be subject to price fluctuations due to a lack of long-term supply arrangements for key components; |
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our contract manufacturers may lose access to critical services and components, resulting in an interruption in the manufacture, assembly and shipment of our product; |
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we may experience delays in delivery by our contract manufacturers due to changes in demand from us or their other customers; |
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fluctuations in demand for products that our contract manufacturers manufacture for others may affect their ability or willingness to deliver our product to us in a timely manner; |
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our contract manufacturers may wish to discontinue supplying products or services to us for risk management reasons; |
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we may not be able to find new or alternative contract manufacturers in a timely manner if our current contract manufacturers stop producing products; and |
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our contract manufacturers may encounter financial hardships unrelated to our demand, which could inhibit their ability to fulfil our orders and meet our requirements. |
If any one or more of these risks materialize,
it could significantly increase our costs and impact our ability to meet demand for our product. If we are unable to satisfy commercial
demand for our product in a timely manner, our ability to generate revenue would be impaired, market acceptance of our product could be
adversely affected, and customers may instead purchase or use our competitors’ products. Additionally, we could be forced to seek
alternative sources of supply.
Because of the nature of our internal quality
control requirements, regulatory requirements, and the custom and proprietary nature of our product, we may not be able to quickly engage
additional or replacement contract manufacturers for our product and accessories. We may also be required to assess any potential new
contract manufacturer’s compliance with all applicable regulations and guidelines, which could further impede our ability to obtain
our product in a timely manner. As a result, we could incur increased product costs, experience delays in deliveries of our product, suffer
damage to our reputation, and experience an adverse effect on our business and financial results. Failure of any of our contract manufacturers
to meet our product demand level would limit our ability to meet our sales commitments to our customers and could have a material adverse
effect on our business.
We may also have difficulty obtaining similar
product from other contract manufacturers that are acceptable to the FDA and the failure of our contract manufacturers to comply with
strictly enforced regulatory requirements could expose us to delays in obtaining clearances or approvals, regulatory action including
warning letters, product recalls, termination of distribution, product seizures, civil, administrative, or criminal penalties. We could
incur delays while we locate and engage qualified alternative contract manufacturers, and we may be unable to engage alternative contract
manufacturers on favorable terms or at all. Any such disruption or increased expenses could harm our commercialization efforts and adversely
affect our ability to generate sales.
In addition, we expect that most of our contract
manufacturers will operate at a facility in a single location and substantially all their inventory of component supplies and finished
goods will be held at these locations. We, and our contract manufacturers, will take precautions to safeguard facilities, including acquiring
insurance, adopting health and safety protocols, and utilizing off-site storage of computer data. However, vandalism, terrorism, or a
natural or other disaster, such as an earthquake, fire, or flood, could damage or destroy equipment or component supplies or finished
product, cause substantial delays in our operations, result in the loss of key information, and cause us to incur additional expenses.
Our insurance may not cover our losses in any particular case. In addition, regardless of the level of insurance coverage, damage to our
or our contract manufacturers’ facilities could harm our business, financial condition, and operating results.
As our sales grow, our contract manufacturers
may encounter problems or delays in the manufacturing of our product or fail to meet certain regulatory requirements which could result
in an adverse effect on our business and financial results.
To become profitable, our contract manufactures
must manufacture our product in adequate quantities in compliance with regulatory requirements and at an acceptable cost. Increasing their
capacity to manufacture and inspect our product may require them to improve internal efficiencies or require us to re-design or change
the specifications of our product. Our contract manufacturers may encounter several difficulties in increasing this capacity, including:
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managing production yields; |
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maintaining quality control and assurance; |
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providing component and service availability; |
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maintaining adequate control policies and procedures; |
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hiring and retaining qualified personnel; and |
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complying with state, federal, and foreign regulations. |
If we are unable to satisfy commercial demand
for The Catamaran System due to our contract manufacturer’s inability to manufacture and inspect our product, our ability to generate
revenue would be impaired, market acceptance of our product could be adversely affected and customers may instead purchase or use our
competitors’ products.
The size and future growth in the market
for the SI-Joint fixation market have not been established based on market reports and our estimates are based on our own review and
analysis of public information and may be smaller than we estimate, possibly materially. In addition, our estimates of cost savings to
the economy and healthcare system as a result of The Catamaran System procedure are based on our internal estimates and market research
and could also be smaller than we estimate, possibly materially. If our estimates and projections overestimate the size of this market
or cost savings, our sales growth may be adversely affected.
We are not aware of an independent third-party
study that reliably reports the potential market size for the SI-Joint fixation market. Therefore, our estimates of the size and future
growth in the market for The Catamaran System product, including cost savings to the economy overall, including patients and employers,
and to the healthcare system and the number of people currently suffering from lower back pain who may benefit from and be amenable to
our procedure, is based on a number of internal and third-party studies, surveys, reports, and estimates. While we believe these factors
have historically provided and may continue to provide us with effective tools in estimating the total market for our product and procedures
and health cost savings, these estimates may not be correct and the conditions supporting our estimates may change at any time, thereby
reducing the predictive accuracy of these underlying factors. For example, we have consulted with our clinical advisors and utilized
public information as the basis for our market projections. Additionally, the surveys we have conducted are based on a small number of
respondents and are not statistically significant and may have other limitations. The actual incidence of lower back pain, and the actual
demand for our product or competitive products, could differ materially from our projections if our assumptions and estimates are incorrect.
As a result, our estimates of the size and future growth in the market for our product may prove to be incorrect. In addition, actual
health cost savings to the healthcare system as a result of The Catamaran System procedure may materially differ from those presented
in this report. If the actual number of people with lower back pain who would benefit from The Catamaran System and the size and future
growth in the market and related costs savings to the healthcare system is smaller than we have estimated, it may impair our projected
sales growth and have an adverse impact on our business.
In the future our product may become obsolete,
which would negatively affect operations and financial condition.
The
medical device industry is characterized by rapid and significant change. There can be no
assurance that other companies will not succeed in developing or marketing devices, and products
that are more effective than The Catamaran System or that would render The Catamaran System
obsolete or non-competitive. Additionally, new surgical procedures, medications and other
therapies could be developed that replace or reduce the importance of our product. Accordingly,
our success will depend in part on our ability to respond quickly to medical and changes
through the development and introduction of new products. Product development involves a
high degree of risk and there can be no assurance that our new product development efforts
will result in any commercially successful products.
If we experience significant disruptions
in our information technology systems, our business, results of operations, and financial condition could be adversely affected.
The efficient operation of our business depends
on our information technology systems. We will rely on our information technology systems to effectively manage:
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sales and marketing, accounting, and financial functions; |
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engineering and product development tasks; and |
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our research and development data. |
Our information technology systems are vulnerable
to damage or interruption from:
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earthquakes, fires, floods, and other natural disasters; |
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terrorist attacks and attacks by computer viruses or hackers; |
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computer systems, or Internet, telecommunications, or data network failures. |
The failure of our information technology systems
to perform as we anticipate or our failure to effectively implement new systems could disrupt our entire operation and could result in
decreased sales, increased overhead costs, excess inventory and product shortages, and legal liability issues, all of which could have
a material adverse effect on our reputation, business, results of operations, and financial condition.
We may seek to grow our business through
acquisitions of or investments in new or complementary businesses, products or technologies, and the failure to manage acquisitions or
investments, or the failure to integrate them with our existing business, could have a material adverse effect on us.
From time to time, we expect to consider opportunities
to acquire or make investments in other technologies, products, and businesses that may enhance our capabilities, complement our current
product, or expand the breadth of our markets or customer base. Potential and completed acquisitions and strategic investments involve
numerous risks, including:
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problems assimilating the purchased technologies, products, or business operations; |
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issues maintaining uniform standards, procedures, controls, and policies; |
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unanticipated costs and liabilities associated with acquisitions; |
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diversion of management’s attention from our core business; |
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adverse effects on existing business relationships with suppliers and customers; |
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risks associated with entering new markets in which we have limited or no experience; |
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potential loss of key employees of acquired businesses; and |
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increased legal and accounting compliance costs. |
We have no current commitments with respect to
any acquisition or investment. We do not know if we will be able to identify acquisitions, we deem suitable, whether we will be able to
successfully complete any such acquisitions on favorable terms or at all, or whether we will be able to successfully integrate any acquired
business, product, or technology into our business or retain any key personnel, suppliers, or distributors. Our ability to successfully
grow through acquisitions depends upon our ability to identify, negotiate, complete, and integrate suitable target businesses and to obtain
any necessary financing. These efforts could be expensive and time consuming and may disrupt our ongoing business and prevent management
from focusing on our operations. If we are unable to successfully integrate any acquired businesses, products, or technologies effectively,
our business, results of operations, and financial condition will be materially adversely affected.
We may enter into collaborations, in-licensing
arrangements, joint ventures, strategic alliances, or partnerships with third-parties that may not result in the development of commercially
viable products or the generation of significant future revenue.
In the ordinary course of our business, we may
enter into collaborations, in-licensing arrangements, joint ventures, strategic alliances, partnerships, or other arrangements to develop
products and to pursue new markets. We have not entered into any collaboration arrangements to date. Proposing, negotiating, and implementing
collaborations, in-licensing arrangements, joint ventures, strategic alliances, or partnerships may be a lengthy and complex process.
Other companies, including those with substantially greater financial, marketing, sales, technology, or other business resources, may
compete with us for these opportunities or arrangements. We may not identify, secure, or complete any such transactions or arrangements
in a timely manner, on a cost-effective basis, on acceptable terms or at all. We have limited institutional knowledge and experience with
respect to these business development activities, and we may also not realize the anticipated benefits of any such transaction or arrangement.
These collaborations may not result in the development of products that achieve commercial success or result in significant revenue and
could be terminated prior to developing any products.
Additionally, we may not be able to exercise sole
decision-making authority regarding the transaction or arrangement, which could create the potential risk of creating impasses on decisions,
and our future collaborators may have economic or business interests or goals that are, or that may become, inconsistent with our business
interests or goals. It is possible that conflicts may arise with our collaborators, such as conflicts concerning the achievement of performance
milestones, or the interpretation of significant terms under any agreement, such as those related to financial obligations or the ownership
or control of intellectual property developed during the collaboration. If any conflicts arise with any future collaborators, they may
act in their self- interest, which may be adverse to our best interest, and they may breach their obligations to us. In addition, we may
have limited control over the amount and timing of resources that any future collaborators devote to our or their future products.
Disputes between us and our collaborators may
result in litigation or arbitration which would increase our expenses and divert the attention of our management. Further, these transactions
and arrangements will be contractual in nature and will generally be terminable under the terms of the applicable agreements and, in such
event, we may not continue to have rights to the products relating to such transaction or arrangement or may need to purchase such rights
at a premium. If we enter into in-bound intellectual property license agreements, we may not be able to fully protect the licensed intellectual
property rights or maintain those licenses. Future licensors could retain the right to prosecute and defend the intellectual property
rights licensed to us, in which case we would depend on the ability of our licensors to obtain, maintain and enforce intellectual property
protection for the licensed intellectual property. These licensors may determine not to pursue litigation against other companies or may
pursue such litigation less aggressively than we would. Further, entering into such license agreements could impose various diligence,
commercialization, royalty, or other obligations on us. Future licensors may allege that we have breached our license agreement with them,
and accordingly seek to terminate our license, which could adversely affect our competitive business position and harm our business prospects.
We are increasingly dependent on information
technology, and our systems and infrastructure face certain risks, including cybersecurity and data leakage risks.
Significant disruptions to our information technology
systems or breaches of information security could adversely affect our business. In the ordinary course of business, we will collect,
store and transmit large amounts of confidential information, and it is critical that we do so in a secure manner to maintain the confidentiality
and integrity of such information. We have also outsourced significant elements of our information technology infrastructure; as a result,
we manage independent vendor relationships with third parties who are responsible for maintaining significant elements of our information
technology systems and infrastructure and who may or could have access to our confidential information. The size and complexity of our
information technology systems, and those of our third-party vendors, make such systems potentially vulnerable to service interruptions
and security breaches from inadvertent or intentional actions by our employees, partners or vendors. These systems are also vulnerable
to attacks by malicious third parties and may be susceptible to intentional or accidental physical damage to the infrastructure maintained
by us or by third parties. Maintaining the secrecy of confidential, proprietary and/or trade secret information is important to our competitive
business position. While we have taken steps to protect such information and have invested in systems and infrastructures to do so, there
can be no guarantee that our efforts will prevent service interruptions or security breaches in our systems or the unauthorized or inadvertent
wrongful use or disclosure of confidential information that could adversely affect our business operations or result in the loss, dissemination
or misuse of critical or sensitive information. The increasing sophistication and frequency of cybersecurity threats, including targeted
data breaches, ransomware attacks designed to encrypt our data for ransom and other malicious cyber activities, pose a significant risk
to the integrity and confidentiality of our data systems. A breach our security measures or the accidental loss, inadvertent disclosure,
unapproved dissemination, misappropriation or misuse of trade secrets, proprietary information or other confidential information, whether
as a result of theft, hacking, fraud, trickery or other forms of deception, or for any other cause, could enable others to produce competing
products, use our proprietary technology or information, and/or adversely affect our business position. Further, any such interruption,
security breach, loss or disclosure of confidential information could result in financial, legal, business and reputational harm to us
and could have a material adverse effect on our business, financial position, results of operations and/or cash flow.
Geopolitical conditions,
including trade disputes and direct or indirect acts of war or terrorism, could have an adverse effect on our operations and financial
results.
Our operations could be disrupted by geopolitical
conditions, political and social instability, acts of war, terrorist activity or other similar events. In February 2022, Russia initiated
significant military action against Ukraine. In response, the U.S. and certain other countries imposed significant sanctions and export
controls against Russia, Belarus and certain individuals and entities connected to Russian or Belarusian political, business, and financial
organizations, and the U.S. and certain other countries could impose further sanctions, trade restrictions, and other retaliatory actions
should the conflict continue or worsen. It is not possible to predict the broader consequences of the conflict, including related geopolitical
tensions, and the measures and retaliatory actions taken by the U.S. and other countries in respect thereof as well as any counter measures
or retaliatory actions by Russia or Belarus in response, including, for example, potential cyberattacks or the disruption of energy exports,
is likely to cause regional instability, geopolitical shifts, and could materially adversely affect global trade, currency exchange rates,
regional economies and the global economy. In addition, the ongoing conflicts in the Middle East may further impact global economic conditions
and market sentiments. This, in turn, could adversely affect the trading price of our shares of common stock and investor interest in
us. The outcome of the Russia-Ukraine war and conflicts in the Middle East remain uncertain, and while it is difficult to predict the
impact of any of the foregoing, the conflict and actions taken in response to the conflict could increase our costs, disrupt our supply
chain, reduce our sales and earnings, impair our ability to raise additional capital when needed on acceptable terms, if at all, or otherwise
adversely affect our business, financial condition, and results of operations.
Inflation may adversely
affect our operations and financial results.
In
periods of rising inflation, the cost of raw materials, components and labor essential for
manufacturing The Catamaran System may increase and as a consequence, our overall profit
margin may be adversely affected. In addition, inflation may result in limitations on healthcare
spending, specifically for procedures that are deemed elective or non-critical, which may
include treatments utilizing The Catamaran System. A decrease in demand for these procedures
may significantly impact our financial condition and results of operations.
Risks Related to Our Legal and Regulatory Environment
We and our contract manufacturers are subject
to extensive governmental regulation both in the United States and abroad, and failure to comply with applicable requirements could cause
our business to suffer.
The medical device industry is regulated extensively
by governmental authorities, principally the FDA and corresponding state and foreign regulatory agencies. The FDA and other U.S. and foreign
governmental agencies regulate, among other things, with respect to medical devices:
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design, development, and manufacturing; |
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testing, labeling, content, and language of instructions for use and storage; |
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marketing, sales, and distribution; |
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premarket clearance and approval; |
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conformity assessment procedures; |
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record keeping procedures; |
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advertising and promotion; |
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compliance with good manufacturing practices requirements; |
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recalls and field safety corrective actions; |
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post-market surveillance, including reporting of deaths or serious injuries and malfunctions that, if they were to recur, could lead to death or serious injury; |
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post-market approval studies; and |
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product import and export. |
The regulations to which we are subject are complex
and have tended to become more stringent over time. Regulatory changes could result in restrictions on our ability to carry on or expand
our operations, difficulties achieving new product clearances, higher than anticipated costs or lower than anticipated sales.
Before we can market or sell a new regulated product
or make a significant modification to an existing product in the United States, with very limited exception, we must obtain either clearance
under Section 510(k) of the FDCA for Class II devices or approval of a premarket approval application from the FDA for a Class III
device. In the 510(k) clearance process, the FDA must determine that a proposed device is “substantially equivalent” to a
device legally on the market, known as a “predicate” device, with respect to intended use, technology, and safety and effectiveness,
in order to clear the proposed device for marketing. Clinical data is sometimes required to support substantial equivalence. The PMA pathway
requires an applicant to demonstrate the safety and effectiveness of the device based, in part, on extensive data, including, but not
limited to, technical, preclinical, clinical trial, manufacturing, and labeling data. The PMA process is typically required for devices
that are deemed to pose the greatest risk, such as life-sustaining, life-supporting, or implantable devices. Products that are approved
through a PMA application generally need FDA approval before they can be modified. Similarly, some modifications made to products cleared
through a 510(k) may require a new 510(k). Both the 510(k) and PMA processes can be expensive and lengthy and require the payment of significant
fees, unless exempt. The FDA’s 510(k) clearance process usually takes from three to 12 months but may last longer. The process of
obtaining a PMA is much more costly and uncertain than the 510(k) clearance process and generally takes from one to three years, or even
longer, from the time the application is submitted to the FDA until an approval is obtained. The process of obtaining domestic and international
regulatory clearances or approvals to market a medical device can be costly and time consuming, and we may not be able to obtain these
clearances or approvals on a timely basis, if at all.
In
the United States, all of the components to The Catamaran System have either received premarket
clearance under Section 510(k) of the FDCA or are exempt from premarket review. If the
FDA requires us to go through a lengthier, more rigorous examination for future products
or modifications to existing products than we had expected, our product introductions or
modifications could be delayed or canceled, which could cause our sales to decline. In addition,
the FDA may determine that future products will require the more costly, lengthy, and uncertain
PMA process. Although we do not currently market any devices under PMA, the FDA may demand
that we obtain a PMA prior to marketing certain of our future products. In addition, if the
FDA disagrees with our determination that a product, we currently market is subject to an
exemption from premarket review, the FDA may require us to submit a 510(k) or PMA in order
to continue marketing the product. Further, even with respect to those future products where
a PMA is not required, we cannot assure you that we will be able to obtain the 510(k) clearances
with respect to those products.
The FDA can delay, limit or deny clearance or
approval of a device for many reasons, including:
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we may not be able to demonstrate to the FDA’s satisfaction that our product is safe and effective for their intended users; |
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the data from our pre-clinical studies and clinical trials may be insufficient to support clearance or approval, where required; and |
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the manufacturing process or facilities we use may not meet applicable requirements. |
In addition, the FDA may change its clearance
and approval policies, adopt additional regulations or revise existing regulations, or take other actions which may prevent or delay clearance
or approval of our product under development or impact our ability to modify our currently approved or cleared product on a timely basis.
Any delay in, or failure to receive or maintain,
clearance or approval for our product under development could prevent us from generating revenue from these products or achieving profitability.
In addition, even after we have obtained the proper
regulatory clearance or approval to market a product, the FDA has the power to require us to conduct post-market surveillance on our product.
These studies can be very expensive and time consuming to conduct. Failure to comply with those studies in a timely manner could result
in the revocation of the 510(k) clearance for a product that is subject to such surveillance and the recall or withdrawal of the product,
which could prevent us from generating sales from that product in the United States.
Additionally, as part of the conformity assessment
process, medical device manufacturers must carry out a clinical evaluation of their medical devices to verify that they comply with the
relevant Essential Requirements covering safety and performance. A clinical evaluation includes an assessment of whether a medical device’s
performance is in accordance with its intended use and that the known and foreseeable risks linked to the use of the device under normal
conditions are minimized and acceptable when weighed against the benefits of its intended purpose. The clinical evaluation conducted by
the manufacturer must also address any clinical claims, the adequacy of the device labeling and information (particularly claims, contraindications,
precautions/ warnings) and the suitability of related Instructions for Use. This assessment must be based on clinical data, which can
be obtained from (i) clinical studies conducted on the devices being assessed; (ii) scientific literature from similar devices
whose equivalence with the assessed device can be demonstrated; or (iii) both clinical studies and scientific literature.
The FDA and other regulatory authorities have
broad enforcement powers. Regulatory enforcement or inquiries, or other increased scrutiny on us, could dissuade some clinicians from
using our product and adversely affect our reputation and the perceived safety and effectiveness of our product.
Failure to comply with applicable regulations
could jeopardize our ability to sell our product and result in enforcement actions such as:
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termination of distribution; |
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recalls or seizures of products; |
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delays in the introduction of products into the market; |
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total or partial suspension of production; |
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refusal of the FDA other regulators to grant future clearances or approvals; or |
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in the most serious cases, criminal penalties. |
Adverse action by an applicable regulatory agency
the FDA could result in inability to produce our product in a cost-effective and timely manner, or at all, decreased sales, higher prices,
lower margins, additional unplanned costs or actions, damage to our reputation, and could have material adverse effect on our reputation,
business, results of operations, and financial condition.
We and our independent sales representatives
must comply with U.S. federal and state fraud and abuse laws, including those relating to physician kickbacks and false claims for reimbursement.
Healthcare providers, distributors, physicians,
and third-party payors play a primary role in the distribution, recommendation, ordering, and purchasing of any implant or other medical
device for which we have or obtain marketing clearance or approval. Through our arrangements with customers and third-party payors, we
are exposed to the risk that our employees, independent contractors, principal investigators, consultants, vendors, or independent sales
representatives may engage in fraudulent or other illegal activity. Misconduct by these parties could include, among other infractions
or violations, intentional, reckless and/or negligent conduct or unauthorized activity that violates FDA regulations, manufacturing standards,
federal and state healthcare fraud and abuse laws and regulations, laws that require the true, complete, and accurate reporting of financial
information or data, other commercial or regulatory laws or requirements, and equivalent foreign rules. We plan to implement a compliance
program, code of conduct, and associated policies and procedures, but it is not always possible to identify and deter misconduct by our
employees and other third parties, and the precautions we plan to take to detect and prevent this activity may not be effective in controlling
unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a
failure to be in compliance with such laws or regulations, and government authorities may conclude that our business practices do not
comply with applicable fraud and abuse or other healthcare laws and regulations or guidance despite our good faith efforts to comply.
There are numerous U.S. federal and state laws
pertaining to healthcare fraud and abuse, including anti-kickback and false claims laws. Our relationships with clinicians, other healthcare
professionals, and hospitals are subject to scrutiny under these laws.
Healthcare fraud and abuse laws and related regulations
are complex, and even minor irregularities can potentially give rise to claims that a statute or prohibition has been violated. The laws
that may affect our ability to operate include:
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federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering or paying
remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase,
order or recommendation of, items or services for which payment may be made, in whole or in part, under federal healthcare programs,
such as the Medicare and Medicaid programs; |
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federal False Claims Act, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented,
false or fraudulent claims for payment of government funds; knowingly making, using, or causing to be made or used, a false record or
statement to get a false claim paid or to avoid, decrease, or conceal an obligation to pay money to the federal government. A claim including
items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes
of the False Claims Act. There are also criminal penalties for making or presenting a false or fictitious or fraudulent claim to the
federal government; |
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federal Health Insurance Portability and Accountability Act of 1996, which imposes criminal and civil liability for, among other actions,
knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program including private third-party
payors, or knowingly and willfully falsifying, concealing, or covering up a material fact or making a materially false, fictitious, or
fraudulent statement or representation, or making or using any false writing or document knowing the same to contain any materially false,
fictitious, or fraudulent statement or entry in connection with the delivery of or payment for healthcare benefits, items, or services; |
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federal Physician Payment Sunshine Act, which requires manufacturers of drugs, devices, biologics and medical supplies for which payment
is available under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to the Centers for Medicare &
Medicaid Services information related to payments or other “transfers of value” made to physicians and teaching hospitals,
and requires applicable manufacturers to report annually to CMS ownership and investment interests held by physicians and their immediate
family members and payments or other “transfers of value” to such physician owners; and |
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state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws, which may apply to items or services
reimbursed by any third-party payor, including commercial insurers; state laws that require device companies to comply with the industry’s
voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government or otherwise restrict payments
that may be made to healthcare providers and other potential referral sources; state beneficiary inducement laws, and state laws that
require device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare
providers or marketing expenditures, many of which differ from each other in significant ways and may not have the same effect, thus
complicating compliance efforts. |
If we or our employees are found to have violated
any of the above laws we may be subjected to administrative, civil and criminal penalties, including imprisonment, exclusion from participation
in federal healthcare programs, such as Medicare and Medicaid, and significant fines, monetary penalties and damages, and damage to our
reputation. Additional information about these laws is provided in “Business—Regulation.”
We have entered into consulting agreements with
clinicians who are also customers. We anticipate entering into additional agreements with clinicians who use our product as we continue
to commercialize our product. The primary mission of these clinician advisors is research and development and clinician education. Medical
device technology development requires thoughtful clinician input from experienced healthcare professionals. Medical device clinician
education requires experienced faculty for didactic and anatomic lab activities in a peer-to-peer setting. We believe these engagements
will allow us to successfully meet the expectations of the physician community. In addition, a small number of clinicians (which are or
may become customers) own less than 1.0% of our stock, or were granted stock options which they either purchased in an arm’s length
transaction on terms identical to those offered to others or received from us as fair market value consideration for consulting services
performed. While all of these transactions were structured with the intention of complying with all applicable laws, including the federal
Anti-Kickback Statute, state anti-kickback laws and other applicable laws, to the extent applicable, it is possible that regulatory agencies
may view these transactions as prohibited arrangements that must be restructured, or discontinued, or for which we could be subject to
significant penalties. We would be materially and adversely affected if regulatory agencies interpret our financial relationships with
clinicians who order our product to be in violation of applicable laws and we were unable to comply with such laws, which could subject
us to, among other things, monetary penalties for non-compliance, the cost of which could be substantial.
In certain cases, federal and state authorities
pursue actions for false claims on the basis that manufacturers and distributors are promoting unapproved, or “off-label”
uses of their products. Pursuant to FDA regulations, we can only market our product for cleared or approved uses. Although clinicians
are permitted to use medical devices for indications other than those cleared or approved by the FDA, we are prohibited from promoting
products for “off-label” uses. We market our product and provide promotional materials and training programs to clinicians
regarding the use of our product. If it is determined that our marketing, promotional materials or training programs constitute promotion
of unapproved uses, we could be subject to significant fines in addition to regulatory enforcement actions, including the issuance of
a warning letter, injunction, seizure, criminal penalty, and damage to our reputation. Federal and state authorities also pursue actions
for false claims based upon improper billing and coding advice or recommendations, as well as decisions related to the medical necessity
of procedures, including the site-of-service where procedures are performed. Actions under the federal False Claims Act may also be brought
by whistleblowers under its qui tam provisions.
To enforce compliance with the federal laws, the
U.S. Department of Justice has increased its scrutiny of interactions between healthcare companies and healthcare providers, which has
led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Dealing with investigations can
be time and resource consuming and can divert management’s attention from the business. Additionally, if a healthcare company settles
an investigation with the Department of Justice or other law enforcement agencies, it may need to agree to additional onerous compliance
and reporting requirements as part of a consent decree or corporate integrity agreement. Any such investigation or settlement could increase
our costs or otherwise have an adverse effect on our business. Even if we are not determined to have violated these laws, government investigations
into these issues typically require the expenditure of significant resources and generate negative publicity, which could harm our financial
condition and divert resources and the attention of our management from operating our business.
The scope and enforcement of these laws is uncertain
and subject to rapid change. The shifting compliance environment and the need to build and maintain robust and expandable systems to comply
with different compliance and/or reporting requirements in multiple jurisdictions increase the possibility that we may run afoul of one
or more of the requirements or that federal or state regulatory authorities might challenge our current or future activities under these
laws. Additionally, we cannot predict the impact of any changes in these laws, whether or not retroactive.
Our failure to adequately protect personal
information in compliance with evolving legal requirements could harm our business.
In
the ordinary course of our business, we plan to collect and store sensitive data, including
legally protected personally identifiable information. We may collect this kind of information
during the course of future clinical trials and for possible post-marketing safety vigilance,
helping enable clinicians and their patients to pursue claims for reimbursement for procedures
using The Catamaran System and servicing potential warranty claims.
There are a number of state, federal, and international
laws protecting the privacy and security of health information and personal data. These data protection and privacy-related laws and regulations
are evolving and may result in ever-increasing regulatory and public scrutiny of companies’ data practices and escalating levels
of enforcement and sanctions. As part of the American Recovery and Reinvestment Act 2009, or ARRA, Congress amended the privacy and security
provisions of the Health Insurance Portability and Accountability Act, or HIPAA. HIPAA imposes certain requirements regarding the privacy,
security, use, and disclosure of an individual’s protected health information, or PHI, by certain health care providers, health
care clearinghouses, and health insurance plans, collectively referred to as “covered entities,” and their “business
associates,” or subcontractors who provide services to covered entities that involve the creation, use, maintenance, or disclosure
of PHI. ARRA included significant increases in the penalties for improper use or disclosure of an individual’s PHI under HIPAA and
extended enforcement authority to state attorneys general. The amendments also created notification requirements applicable to covered
entities and business associates in certain cases when PHI in their control has been inappropriately accessed or disclosed. In the case
of a breach of unsecured PHI, covered entities may be required to provide notification to individuals affected by the breach, federal
regulators, and, in some cases, local and national media. In addition to HIPAA, most states have laws requiring notification of affected
individuals and state regulators in the event of a breach of “personal information,” which is a broader class of information
than the PHI protected by HIPAA. Certain states also have data privacy requirements applicable to individually identifiable health information.
Privacy laws in different states may contain different requirements, and such laws may not be pre-empted by HIPAA, which could complicate
our efforts to comply.
In addition, even when HIPAA does not apply, according
to the FTC, failing to take appropriate steps to keep consumers’ personal information secure constitutes unfair acts or practices
in or affecting commerce in violation of Section 5(a) of the FTCA, 15 U.S.C § 45(a). The FTC expects a company’s data
security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and
complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities. Medical data is considered
sensitive data that merits stronger safeguards. The FTC’s guidance for appropriately securing consumers’ personal information
is similar to what is required by the HIPAA Security Rule.
Our failure to comply with applicable laws and
regulations, or to protect such data, could result in enforcement actions against us, including fines, imprisonment of company officials
and public censure, claims for damages by end-customers, and other affected individuals, and the imposition of integrity obligations and
agency oversight, damage to our reputation, and loss of goodwill, any of which could harm on our operations, financial performance, and
business. Evolving and changing definitions of personal data and personal information, within the United States, and elsewhere, may limit
or inhibit our ability to operate or expand our business, including limiting strategic partnerships that may involve the sharing of data.
Moreover, if the relevant laws and regulations change, or are interpreted and applied in a manner that is inconsistent with our data practices
or the operation of our product, or if we expand into new regions and are required to comply with new requirements, we may need to expend
resources in order to change our business operations, data practices, or the manner in which our product operates. Even the perception
of privacy concerns, whether or not valid, may harm our reputation and inhibit adoption of our product.
Even if our product is
approved by regulatory authorities if our contract manufacturers fail to comply with ongoing FDA, or if we experience unanticipated problems
with our products, these products could be subject to restrictions or withdrawal from the market.
Any product for which we obtain regulatory clearance
or approval, and the manufacturing processes, reporting requirements, post-approval clinical data, and promotional activities for such
product, will be subject to continued regulatory review, oversight and periodic inspections by the FDA and other domestic bodies. In particular,
we and our contract manufacturers are required to comply with FDA’s Quality System Regulations (“QSR”) for the manufacture
of our product and other regulations which cover the methods and documentation of the design, testing, production, control, quality assurance,
labeling, packaging, storage, and shipping of any product for which we obtain regulatory clearance or approval.
The failure by us or one of our contract manufacturers
to comply with applicable statutes and regulations, or the failure to timely and adequately respond to any adverse inspectional observations
or product safety issues, could result in, among other things, any of the following enforcement actions:
| ● | untitled
letters, warning letters, fines, injunctions, consent, and civil penalties; |
| ● | unanticipated
expenditures to address or defend such actions; |
| ● | customer
notifications for repair, replacement, refunds; |
| ● | recall,
detention, or seizure of our product; |
| ● | operating
restrictions or partial suspension or total shutdown of production; |
| ● | refusing
or delaying our requests for 510(k) clearance or premarket approval and conformity assessments of new products or modified products; |
| ● | limitations
on the intended uses for which the product may be marketed; |
| ● | withdrawing
510(k) clearances or PMA approvals that have already been granted; or |
In addition, we may be required to conduct costly
post-market testing and surveillance to monitor the safety or effectiveness of our product, and we must comply with medical device reporting
requirements, including the reporting of adverse events and malfunctions related to our product. Later discovery of previously unknown
problems with our product, including unanticipated adverse events or adverse events of unanticipated severity or frequency, manufacturing
problems, or failure to comply with regulatory requirements such as QSR, may result in changes to labeling, restrictions on such products
or manufacturing processes, withdrawal of the products from the market, voluntary or mandatory recalls, a requirement to repair, replace,
or refund the cost of any medical device we manufacture or distribute, fines, suspension, variation, or withdrawal of regulatory approvals
product seizures, injunctions, or the imposition of civil, administrative, or criminal penalties which would adversely affect our business,
operating results, and prospects.
If the FDA determines that our promotional materials,
labeling, training or other marketing or educational activities constitute promotion of an unapproved use, it could request that we cease
or modify our training or promotional materials or subject us to regulatory enforcement actions. It is also possible that other federal,
state or foreign enforcement authorities might take action if they consider our training or other promotional materials to constitute
promotion of an unapproved use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting
false or fraudulent claims for payment of government funds.
If any of these actions were to occur it would
harm our reputation and cause our product sales and profitability to suffer and may prevent us from generating revenue. Furthermore, our
key component suppliers may not currently be or may not continue to be in compliance with all applicable regulatory requirements, which
could result in our failure to produce our product on a timely basis and in the required quantities, if at all.
The FDA has not yet inspected our facility, but
we expect an inspection in the future.
Our employees, independent contractors,
consultants, contract manufacturers, and our independent sales representatives may engage in misconduct or other improper activities,
relating to regulatory standards and requirements.
We are exposed to the risk that our employees,
independent contractors, consultants, contract manufacturers, and our independent sales representatives may engage in fraudulent conduct
or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized
activities to us that violates FDA regulations, including those laws requiring the reporting of true, complete and accurate information
to the FDA, manufacturing standards, federal and state healthcare laws and regulations, and laws that require the true, complete and accurate
reporting of financial information or data. These laws and regulations may restrict or prohibit a wide range of pricing, discounting,
marketing and promotion, sales commission, customer incentive programs, and other business arrangements. Misconduct by these parties could
also involve the improper use of individually identifiable information, including, without limitation, information obtained in the course
of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We plan to implement a compliance program,
code of conduct and associated policies and procedures, but it is not always possible to identify and deter misconduct, and the precautions
we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting
us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations.
If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions
could have a significant impact on our business, including the imposition of significant civil, criminal, and administrative penalties,
including, without limitation, damages, fines, disgorgement of profits, imprisonment, exclusion from participation in government healthcare
programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations.
We may be subject to enforcement action,
including fines, penalties or injunctions, if we are determined to be engaging in the off-label promotion of our product.
Our
promotional materials and training methods must comply with FDA and other applicable laws
and regulations, including the prohibition of the promotion of off-label use. Physicians
may use our product off-label, as the FDA does not restrict or regulate a physician’s
choice of treatment within the practice of medicine. In the United States, the full indication
for The Catamaran System is: “The Tenon Catamaran Sacroiliac Joint Fixation System
(CAT SIJ Fixation System) is intended for sacroiliac joint fusion for conditions including
sacroiliac joint disruptions and degenerative sacroiliitis.” Contraindications are
patients with the following conditions: skeletally immature spines; deformities; severe osteoporosis;
morbid obesity, tumor resection and active infection at treatment site.
We believe that the specific surgical procedures
for which our product are marketed fall within the scope of the surgical applications that have been cleared by the FDA. However, if the
FDA determines that our promotional materials or training constitutes promotion of an off-label use, it could request that we modify our
training or promotional materials, require us to stop promoting our product for those specific procedures until we obtain FDA clearance
or approval for them, or subject us to regulatory or enforcement actions, including the issuance of an untitled letter, a warning letter,
injunction, seizure, civil fines, and criminal penalties. It is also possible that other federal, state or foreign enforcement authorities
might take action if they consider our promotional or training materials to constitute promotion of an unapproved use, which could result
in significant fines or penalties under other statutory authorities, such as laws prohibiting false or fraudulent claims for payment of
government fund. In that event, our reputation could be damaged, and adoption of the product would be impaired. Although our policy is
to refrain from statements that could be considered off-label promotion of our product, the FDA or another regulatory agency could disagree
and conclude that we have engaged in off-label promotion. In addition, the off-label use of our product may increase the risk of injury
to patients, and, in turn, the risk of product liability claims. Product liability claims are expensive to defend and could divert our
management’s attention, result in substantial damage awards against us and harm our reputation.
We are required to report certain malfunctions,
deaths, and serious injuries associated with our product, which can result in voluntary corrective actions or agency enforcement actions.
Further, under the FDA’s medical device
reporting regulations, we are required to report to the FDA any information that our product may have caused or contributed to a death
or serious injury or in which our product malfunctioned and, if the malfunction were to recur, would likely cause or contribute to death
or serious injury. If we fail to report these events to the FDA within the required timeframes, or at all, FDA could take enforcement
action against us. Any such adverse event involving our product or repeated product malfunctions may result in a voluntary or involuntary
corrective actions, such as recalls or customer notifications, or agency action, such as inspection or enforcement action. Any corrective
action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit could divert managerial and financial resources,
impair our ability to manufacture our product in a cost-effective and timely manner, and have an adverse effect on our reputation, results
of operations, and financial condition.
Any adverse event involving our product in the
United States could result in future voluntary corrective actions, such as recalls, including corrections, or customer notifications,
or agency action, such as inspection or enforcement actions. If malfunctions do occur, we may be unable to correct the malfunctions adequately
or prevent further malfunctions, in which case we may need to cease manufacture and distribution of the affected products, initiate voluntary
recalls, and redesign the products. Regulatory authorities may also take actions against us, such as ordering recalls, imposing fines,
or seizing the affected products. Any corrective action, whether voluntary or involuntary, will require the dedication of our time and
capital, distract management from operating our business, and may harm our reputation and financial results.
A recall of our product, either voluntarily
or at the direction of the FDA or the discovery of serious safety issues or malfunctions with our product, can result in voluntary corrective
actions or agency enforcement actions, which could have a significant adverse impact on us.
The FDA has the authority to require the recall
of commercialized products in the event of material deficiencies or defects in design or manufacture or in the event that a product poses
an unacceptable risk to health. Manufacturers may, under their own initiative, recall a product if any material deficiency in a device
is found.
In the case of the FDA, the authority to require
a recall must be based on an FDA finding that there is an unreasonable risk of substantial public harm. In addition, foreign governmental
bodies have the authority to require the recall of our product in the event of material deficiencies or defects in design or manufacture.
A government-mandated or voluntary recall by us or one of the independent sales representatives could occur as a result of an unacceptable
risk to health, component failures, manufacturing errors, design or labeling defects, or other deficiencies and issues. Recalls of any
of our product would divert managerial and financial resources and have an adverse effect on our reputation, results of operations, and
financial condition, which could impair our ability to produce our product in a cost-effective and timely manner in order to meet our
customers’ demands. We may also be required to bear other costs or take other actions that may have a negative impact on our future
sales and our ability to generate profits.
The FDA requires that certain classifications
of recalls be reported to FDA within 10 working days after the recall is initiated. Companies are required to maintain certain records
of recalls, even if they are not reportable to the FDA. We may initiate voluntary recalls involving our product in the future that we
determine do not require notification of the FDA. If the FDA disagrees with our determinations, they could require us to report those
actions as recalls. A future recall announcement could harm our reputation with customers and negatively affect our sales. In addition,
the FDA could take enforcement action for failing to report the recalls when they were conducted.
Modifications to our product may require
new 510(k) clearances or premarket approvals may require us to cease marketing or recall the product until clearances
Any modification to a 510(k)-cleared device that
could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, design, or manufacture,
requires a new 510(k) clearance or, possibly, a PMA. The FDA requires every manufacturer make and document this determination in the first
instance. A manufacturer may determine that a modification could not significantly affect safety or effectiveness and does not represent
a major change in its intended use, so that no new 510(k) clearance is necessary. FDA may review any manufacturer’s decision and
may not agree with our decisions regarding whether new clearances or approvals are necessary. The FDA may also on its own initiative determine
that a new clearance or approval is required.
We have modified our product and have determined
based on our review of the applicable FDA guidance that a new 510(k) clearances or PMAs is not required. If the FDA disagrees with our
determination and requires us to submit new 510(k) clearances or PMAs for modifications to our previously cleared products for which we
have concluded that new clearances or approvals are unnecessary, we may be required to cease marketing or to recall the modified product
until we obtain clearance or approval, and we may be subject to significant enforcement action, regulatory fines, or penalties.
If a manufacturer determines that a modification
to an FDA-cleared device could significantly affect its safety or effectiveness or would constitute a major change in its intended use,
then the manufacturer must file for a new 510(k) clearance or possibly a premarket approval application. Where we determine that modifications
to our product require a new 510(k) clearance or premarket approval application, we may not be able to obtain those additional clearances
or approvals for the modifications or additional indications in a timely manner, or at all. FDA’s ongoing review of the 510(k) programs
may make it more difficult for us to make modifications to our previously cleared products, either by imposing more strict requirements
on when a new 510(k) for a modification to a previously cleared product must be submitted or applying more onerous review criteria to
such submissions.
Clinical trials necessary to support a 510(k)
or reimbursement may require the enrollment of large numbers of patients, and suitable patients may be difficult to identify and recruit.
Delays or failures in our clinical trials could affect third party reimbursement as many of the payors want to see peer reviewed articles
to maintain coverage and lack of changes in reimbursement could materially slow down our commercial efforts and affect our revenue projections.
The results of our clinical
trials may not support our product candidate claims or may result in the discovery of adverse side effects.
If our clinical trials are completed as planned,
we cannot be certain that their results will support our product marketing claims or third party reimbursors will agree with our conclusions
regarding them. The clinical trial process may fail to demonstrate efficacy and cost effectiveness of our product and may hinder the adoption
of our product or ability to obtain payor coverage. It is also possible that patients enrolled in clinical trials will experience adverse
side effects that are not currently part of the product candidate’s profile.
We may incur product liability losses, and
insurance coverage may be inadequate or unavailable to cover these losses.
Our business exposes us to potential product liability
claims that are inherent in the testing, design, manufacture, and sale of medical devices for SI-Joint surgery procedures. SI-Joint surgery
involves significant risk of serious complications, including bleeding, nerve injury, paralysis, and even death. In addition, if longer-term
patient results and experience indicates that our product or any component of such product cause tissue damage, motor impairment, or other
adverse effects, we could be subject to significant liability. Clinicians may misuse or ineffectively use our product, which may result
in unsatisfactory patient outcomes or patient injury. We could become the subject of product liability lawsuits alleging that component
failures, manufacturing flaws, design defects, or inadequate disclosure of product-related risks or product-related information resulted
in an unsafe condition or injury to patients. Product liability lawsuits and claims, safety alerts, or product recalls, regardless of
their ultimate outcome, could have a material adverse effect on our business and reputation, our ability to attract and retain customers
and our results of operations or financial condition.
Although we maintain third-party product liability
insurance coverage, it is possible that claims against us may exceed the coverage limits of our insurance policies or cause us to record
a self-insured loss. Even if any product liability loss is covered by an insurance policy, these policies typically have substantial retentions
or deductibles that we are responsible for. Product liability claims in excess of applicable insurance coverage could have a material
adverse effect on our business, results of operations, and financial condition.
In addition, any product liability claim brought
against us, with or without merit, could result in an increase of our product liability insurance rates. Insurance coverage varies in
cost and can be difficult to obtain, and we cannot guarantee that we will be able to obtain insurance coverage in the future on terms
acceptable to us or at all.
We are subject to environmental laws and
regulations that can impose significant costs and expose us to potential financial liabilities.
Our business and facility and those of our contract
manufacturer are subject to foreign, federal, state, and local laws and regulations relating to the protection of human health and the
environment, including those governing the use, manufacture, storage, handling, and disposal of, and exposure to, such materials and wastes.
In addition, under some environmental laws and regulations, we could be held responsible for costs relating to any contamination at our
past or present facilities and at third-party waste disposal sites even if such contamination was not caused by us. A failure to comply
with current or future environmental laws and regulations could result in severe fines or penalties. Any such expenses or liability could
have a significant negative impact on our business, results of operations, and financial condition.
U.S. tax legislation may materially affect
our financial condition, results of operations and cash flows.
The Tax Cuts and Jobs Act (the “Tax Act”)
has significantly changed the U.S. federal income taxation of U.S. businesses, including by reducing the U.S. corporate income tax rate,
limiting interest deductions, permitting immediate expensing of certain capital expenditures, modifying or repealing many business deductions
and credits.
The Coronavirus Aid, Relief, and Economic Security
Act (the “CARES Act”) modifies certain provisions of the Tax Act, including increasing the amount of interest expense that
may be deducted.
The Tax Act as modified by the CARES Act is unclear
in many respects and could be subject to potential amendments and technical corrections, as well as interpretations and implementing regulations
by the Treasury and IRS, any of which could lessen or increase certain adverse impacts of the legislation. In addition, it is unclear
how these U.S. federal income tax changes will affect state and local taxation, which often uses federal taxable income as a starting
point for computing state and local tax liabilities. Our analysis and interpretation of this legislation is preliminary and ongoing and
there may be material adverse effects resulting from the legislation that we have not yet identified. While some of the changes made by
the tax legislation may adversely affect us, other changes may be beneficial. We continue to work with our tax advisors and auditors to
determine the full impact that the recent tax legislation as a whole will have on us. We urge our investors to consult with their legal
and tax advisors with respect to such legislation and its potential effect on an investment in our common stock.
Risks Related to Our Intellectual Property
Our ability to protect our intellectual
property and proprietary technology is uncertain.
We rely primarily on patent, copyright, trademark
and trade secret laws, as well as confidentiality and non- disclosure agreements and other methods, to protect our proprietary technologies
and know-how. As of July 3, 2024, we owned eight issued patents (four domestic and four foreign), 20 pending patent applications (18
domestic and two foreign), thirteen registered trademarks (seven domestic and six foreign) and twelve pending domestic trademark applications.
We have applied for patent protection relating
to certain existing and proposed products and processes. While we generally apply for patents in those countries where we intend to make,
have made, use, or sell patented products, we may not accurately predict all the countries where patent protection will ultimately be
desirable. If we fail to timely file a patent application in any such country, we may be precluded from doing so later. Furthermore, we
cannot assure you that any of our patent applications will be approved. The rights granted to us under our patents, including prospective
rights sought in our pending patent applications, may not be meaningful or provide us with any commercial advantage. In addition, those
rights could be opposed, contested, or circumvented by our competitors or be declared invalid or unenforceable in judicial or administrative
proceedings. The failure of our patents to adequately protect our technology might make it easier for our competitors to offer the same
or similar products or technologies. Competitors may be able to design around our patents or develop products that provide outcomes which
are comparable to ours without infringing on our intellectual property rights. Due to differences between foreign and U.S. patent laws,
our patented intellectual property rights may not receive the same degree of protection in foreign countries as they would in the United
States. Even if patents are granted outside the United States, effective enforcement in those countries may not be available. Since most
of our issued patents are for the United States only, we lack a corresponding scope of patent protection in other countries. In countries
where we do not have significant patent protection, we may not be able to stop a competitor from marketing products in such countries
that are the same as or similar to our product.
We plan to rely on our trademarks, trade names
and brand names to distinguish our product from the products of our competitors and have registered or applied to register many of these
trademarks. We cannot assure you that our trademark applications will be approved. Third parties may also oppose our trademark applications,
or otherwise challenge our use of the trademarks. In the event that our trademarks are successfully challenged, we could be forced to
rebrand our product, which could result in loss of brand recognition, and could require us to devote resources to advertising and marketing
new brands. Further, we cannot assure you that competitors will not infringe upon our trademarks, or that we will have adequate resources
to enforce our trademarks.
We also rely on trade secrets, know-how, and technology,
which are not protected by patents, to maintain our competitive position. We try to protect this information by entering into confidentiality
and intellectual property assignment agreements with parties that develop intellectual property for us and/or have access to it, such
as our officers, employees, consultants, contract manufacturers and advisors. However, in the event of unauthorized use or disclosure
or other breaches of such agreements, we may not be provided with meaningful protection for our trade secrets or other proprietary information.
In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our commercial
partners, collaborators, employees, and consultants use intellectual property owned by others in their work for us, disputes may arise
as to the rights in related or resulting know-how and inventions. If any of our trade secrets, know-how or other technologies not protected
by a patent were to be disclosed to or independently developed by a competitor, our business, financial condition, and results of operations
could be materially adversely affected.
In the future, we may enter into licensing agreements
to maintain our competitive position. If we enter into in-bound intellectual property license agreements, we may not be able to fully
protect the licensed intellectual property rights or maintain those licenses. Future licensors could retain the right to prosecute and
defend the intellectual property rights licensed to us, in which case we would depend on the ability of our licensors to obtain, maintain,
and enforce intellectual property protection for the licensed intellectual property. These licensors may determine not to pursue litigation
against other companies or may pursue such litigation less aggressively than we would. Further, entering into such license agreements
could impose various diligence, commercialization, royalty, or other obligations on us. Future licensors may allege that we have breached
our license agreement with them, and accordingly seek damages or to terminate our license, which could adversely affect our competitive
business position and harm our business prospects.
If a competitor infringes upon one of our patents,
trademarks, or other intellectual property rights, enforcing those patents, trademarks, and other rights may be difficult and time consuming.
Even if successful, litigation to defend our patents and trademarks against challenges or to enforce our intellectual property rights
could be expensive and time consuming and could divert management’s attention from managing our business. Moreover, we may not have
sufficient resources to defend our patents or trademarks against challenges or to enforce our intellectual property rights. In addition,
if third parties infringe any intellectual property that is not material to the products that we make, have made, use, or sell, it may
be impractical for us to enforce this intellectual property against those third parties.
We may be subject to damages resulting from
claims that we, our employees, or independent distributors along with their independent sales representatives have wrongfully used or
disclosed alleged trade secrets of our competitors or are in breach of non-competition or non-solicitation agreements with our competitors.
Many of our employees were previously employed
at other medical device companies, including our competitors or potential competitors, in some cases until recently. Some independent
distributors and their independent sales representatives sell, or in the past have sold, products of our competitors. We may be subject
to claims that we, our employees or independent sales personnel have inadvertently or otherwise used or disclosed trade secrets or other
proprietary information of these former employers or competitors. In addition, we have been and may in the future be subject to claims
that we caused an employee to breach the terms of his or her non-competition or non-solicitation agreement. Even if we are successful
in defending against these claims, litigation could result in substantial costs, divert the attention of management from our core business
and harm our reputation. If our defense to those claims fails, in addition to paying monetary damages, we may lose valuable intellectual
property rights or personnel. There can be no assurance that this type of litigation will not continue, and any future litigation or the
threat thereof may adversely affect our ability to hire additional direct sales representatives. A loss of key personnel or their work
product could hamper or prevent our ability to commercialize product candidates, which could have an adverse effect on our business, results
of operations, and financial condition.
The medical device industry is characterized
by patent litigation, and we could become subject to litigation that could be costly, result in the diversion of management’s time
and efforts, require us to pay damages, and/or prevent us from developing or marketing our existing or future products.
Our commercial success will depend in part on
not infringing the patents or violating the other proprietary rights of third parties. Significant litigation regarding patent rights
exists in our industry. Our competitors in both the United States and abroad, many of which have substantially greater resources and have
made substantial investments in competing technologies, may have applied for or obtained or may in the future apply for and obtain, patents
that will prevent, limit, or otherwise interfere with our ability to make and sell our product. We have conducted a limited review of
patents issued to third parties. The large number of patents, the rapid rate of new patent issuances, the complexities of the technology
involved, and the uncertainty of litigation increase the risk of business assets and management’s attention being diverted to patent
litigation. Any litigation or claim against us, even those without merit, may cause us to incur substantial costs, and could place a significant
strain on our financial resources, divert the attention of management from our core business, and harm our reputation. Further, as the
number of participants in the medical device industry grows, the possibility of intellectual property infringement claims against us increases.
If we are found to infringe the intellectual property rights of third parties, we could be required to pay substantial damages, including
treble, or triple, damages if an infringement is found to be willful, and/or royalties and could be prevented from selling our product
unless we obtain a license or are able to redesign our product to avoid infringement. Any such license may not be available on reasonable
terms, if at all, and there can be no assurance that we would be able to redesign our product in a way that would not infringe the intellectual
property rights of others. If we fail to obtain any required licenses or make any necessary changes to our product or technologies, we
may have to withdraw our existing product from the market or may be unable to commercialize one or more of our future products, all of
which could have a material adverse effect on our business, results of operations, and financial condition. If passed into law, patent
reform legislation currently pending in the U.S. Congress could significantly change the risks associated with bringing or defending a
patent infringement lawsuit. For example, fee shifting legislation could require a non-prevailing party to pay the attorney fees of the
prevailing party in some circumstances.
Patent terms are limited, and we may not
be able to effectively protect our product and business.
Patents have a limited lifespan. In the U.S.,
the natural expiration of a patent is generally 20 years after it is filed. Although various extensions may be available, the life of
a patent, and the protection it affords, is limited. In addition, upon issuance in the U.S., the patent term may be extended based on
certain delays caused by the applicant(s) or the USPTO. Even if we obtain effective patent rights for all our current patent applications,
we may not have sufficient patent terms or regulatory exclusivity to protect our product, and our business and results of operations would
be adversely affected.
Changes in U.S. patent law could diminish
the value of patents in general, thereby impairing our ability to protect our product.
As is the case with other medical devices companies,
our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the medical devices
industry involves both technological and legal complexity. Therefore, obtaining and enforcing patents is costly, time-consuming, and inherently
uncertain. In addition, the U.S. has recently enacted and is currently implementing wide-ranging patent reform legislation. Recent U.S.
Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent
owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination
of events has created uncertainty with respect to the value of patents, once obtained. Depending on future actions by the U.S. Congress,
the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our
ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.
We may not be able to protect our intellectual
property rights throughout the world.
Filing, prosecuting, and defending patents on
product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some
countries outside the U.S. can be less extensive than those in the U.S. In addition, the laws of some foreign countries do not protect
intellectual property rights to the same extent as federal and state laws in the U.S. Competitors may use our technologies in jurisdictions
where we have not obtained patent protection to develop their own products and may also export otherwise infringing products to territories
where we have patent protection, but enforcement is not as strong as that in the U.S. These products may compete with our product and
our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems
in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly
certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly
those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of
competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions,
whether or not successful, could result in substantial costs and divert our efforts and attention from other aspects of our business,
could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could
provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies
awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world
may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
If we are unable to protect the confidentiality
of our trade secrets, our business and competitive position could be harmed.
In addition to patent protection, we also rely
upon copyright and trade secret protection, as well as non-disclosure agreements and invention assignment agreements with our employees,
consultants, contract manufacturers and third parties, to protect our confidential and proprietary information. In addition to contractual
measures, we try to protect the confidential nature of our proprietary information using commonly accepted physical and technological
security measures. Such measures may not, for example, in the case of misappropriation of a trade secret by an employee or third party
with authorized access, provide adequate protection for our proprietary information. Our security measures may not prevent an employee
or consultant from misappropriating our trade secrets and providing them to a competitor, and recourse we take against such misconduct
may not provide an adequate remedy to protect our interests fully. Unauthorized parties may also attempt to copy or reverse engineer certain
aspects of our product that we consider proprietary. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret
can be difficult, expensive, and time-consuming, and the outcome is unpredictable. Even though we use commonly accepted security measures,
trade secret violations are often a matter of state law, and the criteria for protection of trade secrets can vary among different jurisdictions.
In addition, trade secrets may be independently developed by others in a manner that could prevent legal recourse by us. If any of our
confidential or proprietary information, such as our trade secrets, were to be disclosed or misappropriated, or if any such information
was independently developed by a competitor, our business and competitive position could be harmed.
Third parties may assert that our employees
or consultants have wrongfully used or disclosed confidential information or misappropriated trade secrets.
We employ individuals who previously worked with
other companies, including our competitors or potential competitors. Although we try to ensure that our employees and consultants do not
use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants
or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary
information, of a former employer or other third party. Litigation may be necessary to defend against these claims. If we fail in defending
any such claims or settling those claims, in addition to paying monetary damages or a settlement payment, we may lose valuable intellectual
property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs
and be a distraction to management and other employees.
Risks Related to the Offering and the Ownership
of our Common Stock
The sale or issuance of our common stock
to Lincoln Park may cause dilution and the sale of the shares of common stock acquired by Lincoln Park, or the perception that such sales
may occur, could cause the price of our common stock to decrease.
On July 24, 2023, we entered into the Purchase Agreement with Lincoln
Park, pursuant to which Lincoln Park has committed to purchase up to $10.0 million of our common stock. Upon the execution of the Purchase
Agreement, we issued 98,909 Commitment Shares to Lincoln Park as a fee for its commitment to purchase shares of our common stock under
the Purchase Agreement (the “Commitment Shares”). The shares of our common stock that may be issued under the Purchase Agreement
may be sold by us to Lincoln Park at our sole discretion from time to time over a 24-month period commencing after the satisfaction of
certain conditions set forth in the Purchase Agreement. The purchase price for the shares that we may sell to Lincoln Park under the Purchase
Agreement will fluctuate based on the trading price of our common stock. Depending on market liquidity at the time, sales of such shares
may cause the trading price of our common stock to decrease. We generally have the right to control the timing and amount of any future
sales of our shares to Lincoln Park. Additional sales of our common stock, if any, to Lincoln Park will depend upon market conditions
and other factors to be determined by us. We may ultimately decide to sell to Lincoln Park all, some or none of the additional shares
of our common stock that may be available for us to sell pursuant to the Purchase Agreement. If and when we do sell shares to Lincoln
Park, after Lincoln Park has acquired the shares, Lincoln Park may resell all, some or none of those shares at any time or from time to
time in its discretion. Therefore, sales to Lincoln Park by us could result in substantial dilution to the interests of other holders
of our common stock. Additionally, the sale of a substantial number of shares of our common stock to Lincoln Park, or the anticipation
of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price
that we might otherwise wish to effect sales.
It is not possible to predict the actual number
of shares we will sell under the Purchase Agreement to the Selling Stockholder, or the actual gross proceeds resulting from those sales.
On July 24, 2023, we entered into the Purchase
Agreement with Lincoln Park, pursuant to which Lincoln Park has committed to purchase up to $10.0 million in shares of our common stock,
subject to certain limitations and conditions set forth in the Purchase Agreement. The shares of our common stock that may be issued under
the Purchase Agreement may be sold by us to Lincoln Park at our discretion from time to time over an approximately 24-month period commencing
on the Commencement Date.
We generally have the right to control the timing
and amount of any sales of our shares of common stock to Lincoln Park under the Purchase Agreement. Sales of our common stock, if any,
to Lincoln Park under the Purchase Agreement will depend upon market conditions and other factors to be determined by us. We may ultimately
decide to sell to Lincoln Park all, some or none of the shares of our common stock that may be available for us to sell to Lincoln Park
pursuant to the Purchase Agreement.
Because the purchase price per share to be paid
by Lincoln Park for the shares of common stock that we may elect to sell to Lincoln Park under the Purchase Agreement, if any, will fluctuate
based on the market prices of our common stock at the time we elect to sell shares to Lincoln Park pursuant to the Purchase Agreement,
if any, it is not possible for us to predict, as of the date of this prospectus and prior to any such sales, the number of shares of common
stock that we will sell to Lincoln Park under the Purchase Agreement, the purchase price per share that Lincoln Park will pay for shares
purchased from us under the Purchase Agreement, or the aggregate gross proceeds that we will receive from those purchases by Lincoln Park
under the Purchase Agreement.
Moreover,
although the Purchase Agreement provides that we may sell up to an aggregate of $10.0 million
of our common stock to Lincoln Park, only approximately $9.9 million remains available to
us under the Purchase Agreement, and only 410,153 Original Purchase Shares are covered by
the Original Registration Statement and 5,000,000 Purchase Shares are being registered for
resale by Lincoln Park under the registration statement that includes this prospectus that
we may elect to sell to Lincoln Park, in our sole discretion, from time to time from and
after the date of this prospectus. If after the date of this prospectus and for the remaining
duration of the 24 month period after the Commencement Date we elect to sell to Lincoln Park
all of the 410,153 Original Purchase Shares registered pursuant to the Original Registration
Statement and 5,000,000 Purchase Shares being registered for resale under this prospectus
that are available for sale by us to Lincoln Park in Regular Purchases under the Purchase
Agreement, depending on the market prices of our common stock during the applicable Regular
Purchase valuation period for each Regular Purchase made pursuant to the Purchase Agreement,
the actual gross proceeds from the sale of all such shares may be substantially less than
the approximately $9.9 million total purchase commitment that remains available to us under
the Purchase Agreement, which could materially adversely affect our liquidity.
Furthermore, if we elect to issue and sell
to Lincoln Park more than the 410,153 Original Purchase Shares and 5,000,000 Purchase Shares, we must first file with the SEC one or
more additional registration statements to register under the Securities Act for resale by Lincoln Park such additional shares of our
common stock we wish to sell from time to time under the Purchase Agreement, which the SEC must declare effective, in each case before
we may elect to sell any additional shares of our common stock to Lincoln Park under the Purchase Agreement.
The Purchase Agreement also prohibits us from
directing Lincoln Park to purchase any shares of our common stock if those shares of our common stock, when aggregated with all other
shares of our common stock then beneficially owned by Lincoln Park and its affiliates, would result in Lincoln Park having beneficial
ownership of more than 4.99% of the total outstanding shares of our common stock, as calculated pursuant to Section 13(d) of the
Exchange Act and Rule 13d-3 thereunder (the “Beneficial Ownership Cap”).
Any issuance and sale by us under the Purchase
Agreement of a substantial amount of shares of common stock in excess of the 410,153 Original Purchase Shares registered pursuant to
the Original Registration Statement and 5,000,000 Purchase Shares that are being registered for resale by Lincoln Park hereunder that
we may elect to issue and sell to Lincoln Park under the Purchase Agreement could cause additional substantial dilution to our stockholders.
The number of shares of our common stock ultimately offered for resale by Lincoln Park is dependent upon the number of shares of our
common stock we ultimately decide to sell to Lincoln Park under the Purchase Agreement.
Investors who buy shares at different times
will likely pay different prices, and the sale of the shares of common stock acquired by Lincoln Park could cause the price of our common
stock to decline.
Pursuant to the Purchase Agreement, we will have
discretion, subject to market demand, to vary the timing, prices, and numbers of shares sold to Lincoln Park. If and when we do elect
to sell shares of our common stock to Lincoln Park pursuant to the Purchase Agreement, after Lincoln Park has acquired such shares, Lincoln
Park may resell all, some or none of such shares at any time or from time to time in its discretion and at different prices. As a result,
investors who purchase shares from Lincoln Park in this offering at different times will likely pay different prices for those shares,
and so may experience different levels of dilution and in some cases substantial dilution and different outcomes in their investment results.
Investors may experience a decline in the value of the shares they purchase from Lincoln Park in this offering as a result of future sales
made by us to Lincoln Park at prices lower than the prices such investors paid for their shares in this offering. Further, the sale of
a substantial number of shares of our common stock by Lincoln Park, or anticipation of such sales, could cause the trading price of our
common stock to decline or make it more difficult for us to sell equity or equity-related securities in the future at a time and at a
price that we might otherwise desire.
We may require additional financing to sustain
our operations, without which we may not be able to continue operations, and the terms of subsequent financings may adversely impact our
stockholders.
We
may direct Lincoln Park to purchase up to $10.0 million worth of shares of our common stock, of which approximately $9.9 million remains
available under the Purchase Agreement in a Regular Purchase from time to time under the Purchase Agreement after the date of this prospectus
and over the remaining duration of the 24-month period generally in amounts up to 100,000 shares of our common stock, which may be increased
to up to 150,000 shares of our common stock depending on the closing sale price of our common stock on Nasdaq at the time of sale; provided,
however that Lincoln Park’s maximum purchase obligation under any single Regular Purchase shall not exceed $500,000; provided,
further, however, that we and Lincoln Park may mutually agree at any time to increase the maximum number of shares of common stock the
Company may direct Lincoln Park to purchase in any single Regular Purchase to up to 1,000,000 shares or any number of shares that shall
not exceed 4.99% of the then outstanding shares of common stock. Moreover, under certain circumstances as set forth in the Purchase Agreement,
we may, in our sole discretion, also direct Lincoln Park to purchase additional shares of common stock in Accelerated Purchases and Additional
Accelerated Purchases as set forth in the Purchase Agreement.
Depending on the prevailing market price of our common
stock, we may not be able to sell shares to Lincoln Park for the maximum $10.0 million over the term of the Purchase Agreement, of which
approximately $9.9 million is available under the Purchase Agreement from the date of this prospectus. In addition, Lincoln Park will
not be required to purchase any shares of our common stock if such sale would result in Lincoln Park’s beneficial ownership of our
common stock exceeding the Beneficial Ownership Cap of 4.99% of the outstanding shares of our common stock. Our inability to access a
portion or the full amount available under the Purchase Agreement, in the absence of any other financing sources, could have a material
adverse effect on our business.
The extent we rely on Lincoln Park as a source
of funding will depend on a number of factors including the prevailing market price of our common stock and the extent to which we are
able to secure working capital from other sources. Assuming a purchase price of $0.7084 per share (which represents the closing price
of our common stock on July 2, 2024), the purchase by Lincoln Park of the entire 410,153 Original Purchase Shares registered pursuant
to the Original Registration Statement and 5,000,000 Purchase Shares issuable under the Purchase Agreement being registered for resale
by Lincoln Park hereunder would result in gross proceeds to us of only $3,832,552.39. If obtaining sufficient funding from Lincoln Park
were to prove unavailable or prohibitively dilutive, we will need to secure another source of funding in order to satisfy our working
capital needs. Even if we sell all $10.0 million of shares of our common stock to Lincoln Park under the Purchase Agreement, of which
approximately $9.9 million remains available under the Purchase Agreement, we may still need additional capital to finance our future
commercialization plans and working capital needs, and we may have to raise funds through the issuance of equity or debt securities.
Depending on the type and the terms of any
financing we pursue, stockholders’ rights and the value of their investment in our common stock could be reduced. A financing could
involve one or more types of securities including common stock, convertible debt or warrants to acquire common stock. These securities
could be issued at or below the then prevailing market price for our common stock. In addition, if we issue secured debt securities,
the holders of the debt would have a claim to our assets that would be prior to the rights of stockholders until the debt is paid. Interest
on these debt securities would increase costs and negatively impact operating results. If the issuance of new securities results in diminished
rights to holders of our common stock, the market price of our common stock could be negatively impacted.
Should the financing we require to sustain
our working capital needs be unavailable or prohibitively expensive when we require it, the consequences could be a material adverse
effect on our business, operating results, financial condition and prospects.
Our management will have broad discretion
over the use of the net proceeds from our sale of shares of common stock to Lincoln Park, and you may not agree with how we use the proceeds
and the proceeds may not be invested successfully.
Our management will have broad discretion
as to the use of the net proceeds from our sale of shares of common stock to Lincoln Park, and we could use them for purposes other than
those contemplated at the time of commencement of this offering. Accordingly, you will be relying on the judgment of our management with
regard to the use of those net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether
the proceeds are being used appropriately. It is possible that, pending their use, we may invest those net proceeds in a way that does
not yield a favorable, or any, return for us. The failure of our management to use such funds effectively could have a material adverse
effect on our business, financial condition, operating results and cash flows.
We may not be able to satisfy listing requirements
of Nasdaq to maintain a listing of our common stock.
We must meet certain financial and liquidity criteria
to maintain the listing of our common stock on Nasdaq. If we violate the maintenance requirements for continued listing of our common
stock, our common stock may be delisted.
As initially disclosed on the Current Report on
Form 8-K filed on May 8, 2024 with the SEC, we received written notification from Nasdaq notifying us that we had failed to comply with
Nasdaq Listing Rule 5550(a)(2) because the bid price for our common stock for 30 consecutive business days prior to such date had closed
below the minimum $1.00 per share requirement for continued listing. Nasdaq initially granted us 180 calendar days, or until November
4, 2024, to regain compliance with the Minimum Bid Price Requirement.
The notice had no immediate effect on the listing
or trading of the common stock on The Nasdaq Capital Market. If, at any time before November 4, 2024, the bid price of our common stock
closes at or above $1.00 per share for a minimum of 10 consecutive business days, Nasdaq will provide written notification that we have
achieved compliance with the Minimum Bid Price Requirement. If compliance with the Minimum Bid Price Requirement cannot be demonstrated
by November 4, 2024, we may be eligible for an additional 180 calendar days to comply with Nasdaq Listing Rule 5550(a)(2), subject to
us satisfying the continued listing requirement for the market value of publicly held shares and all other initial listing standards for
The Nasdaq Capital Market, with the exception of the Minimum Bid Price Requirement, subject to Nasdaq’s approval.
Upon delisting from The Nasdaq Capital Market,
our stock would be traded over-the-counter in the inter-dealer quotation system, more commonly known as the OTC. OTC transactions involve
risks in addition to those associated with transactions in securities traded on the securities exchanges, such as The Nasdaq Capital Market
(together, “Exchange-listed Stocks”). Many OTC stocks trade less frequently and in smaller volumes than Exchange-listed Stocks.
Accordingly, our stock would be less liquid than it would be otherwise. Also, the values of OTC stocks are often more volatile than Exchange-listed
Stocks. Additionally, institutional investors are usually prohibited from investing in OTC stocks, and it might be more challenging to
raise capital when needed.
Future sales and issuances of our securities
could result in additional dilution of the percentage ownership of our stockholders and could cause our share price to fall.
We expect that significant additional capital
will be needed in the future to continue our planned operations. To the extent we raise additional capital by issuing equity securities,
our shareholders may experience substantial dilution. We may sell common stock, convertible securities or other equity securities in one
or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other
equity securities in more than one transaction, investors may be materially diluted by subsequent sales. Such sales may also result in
material dilution to our existing shareholders, and new investors could gain rights superior to our existing shareholders.
If securities or industry analysts do not
publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our common stock will depend
in part on the research and reports that securities or industry analysts publish about us or our business. If too few securities or industry
analysts provide coverage or if one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research
about our business, the price of our stock would likely decline. If one or more of these analysts cease coverage of us or fail to publish
reports on us regularly, demand for our stock could decrease, which might cause the price of our stock and trading volume to decline.
The price of our common stock may be volatile,
and you may be unable to resell your shares at or above the price paid.
The trading price of our common stock may fluctuate
substantially. The market price of our common stock may fluctuate higher or lower, depending on many factors, some of which are beyond
our control and may not be related to our operating performance. These fluctuations could cause you to lose all or part of your investment
in our common stock. Factors that could cause fluctuations in the trading price of our common stock include the following:
| ● | actual
or anticipated fluctuations in our financial condition and operating results; |
| ● | actual
or anticipated changes in our growth rate relative to our competitors; |
| ● | commercial
success and market acceptance of our product; |
| ● | success
of our competitors in developing or commercializing products; |
| ● | ability
to commercialize or obtain regulatory approvals for our product, or delays in commercializing or obtaining regulatory approvals; |
| ● | strategic
transactions undertaken by us; |
| ● | additions
or departures of key personnel; |
| ● | product
liability claims; |
| ● | prevailing
economic conditions; |
| ● | disputes
concerning our intellectual property or other proprietary rights; |
| ● | FDA
or other U.S. or foreign regulatory actions affecting us or the healthcare industry; |
| ● | healthcare
reform measures in the United States; |
|
● |
sales of our common stock by our officers, directors or significant stockholders; |
| ● | future
sales or issuances of equity or debt securities by us; |
| ● | business
disruptions caused by earthquakes, fires or other natural disasters; |
| ● | the
exercise and sale of any outstanding warrants or options; |
| ● | issuance
of new or changed securities analysts’ reports or recommendations regarding us; |
| ● | changes
in our capital structure, such as future issuances of debt or equity securities; |
| ● | short
sales, hedging and other derivative transactions involving our capital stock; and |
|
● |
general
economic and geopolitical conditions, including the current or anticipated impact of military conflict and related sanctions imposed
on Russia by the United States and other countries due to Russia’s invasion of Ukraine. |
In addition, if the market for medical device
or healthcare stocks or the stock market, in general, experience a loss of investor confidence, the trading price of our common stock
could decline for reasons unrelated to our business, results of operations, or financial condition. The trading price of our common stock
might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us. In
the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has
often been brought against that company. If our stock price is volatile, we may become the target of securities litigation. Securities
litigation could result in substantial costs and divert our management’s attention and resources from our business. This could have
a material adverse effect on our business, results of operations, and financial condition.
Our failure to maintain effective internal controls over financial
reporting could have an adverse impact on us.
We are required to establish and maintain appropriate
internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once established, could
adversely impact our public disclosures regarding our business, financial condition, or results of operations. In addition, management’s
assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in our internal
controls over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions
that need to be addressed in our internal control over financial reporting, disclosure of management’s assessment of our internal
controls over financial reporting or disclosure of our public accounting firm’s attestation to or report on management’s assessment
of our internal controls over financial reporting may have an adverse impact on the price of our common stock.
A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the
design of a control system must reflect the fact that there are resource constraints, and the benefit of controls must be relative to
their costs. Because of the inherent limitations in all control systems, no system of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Further, controls can
be circumvented by individual acts of some persons, by collusion of two or more persons, or by management override of the controls. The
design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may
become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate. Because of
inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.
At present, management has identified a material
weakness due to lack of segregation of duties. The lack of segregation of duties existed as a result of the Company having no employees
until June 2021. Management has taken initial steps to remedy this weakness by hiring a Chief Financial Officer, a director of SEC reporting
and compliance, a senior accountant, a cost accountant and external financial consultants, and plans to continue to add additional resources,
technology and headcount as warranted by the growth of the Company. Management has taken initial steps to remedy this weakness by hiring
a Chief Financial Officer as well as a Chief Executive Officer, and we are in the process of putting proper policies and procedures in
place to ensure proper documentation is established and maintained for transactions that the Company enters into. While we believe these
efforts will improve our internal controls and address the underlying causes of the material weakness, such material weakness will not
be remediated until our remediation plan has been fully implemented and we have concluded that our controls are operating effectively
for a sufficient period of time. We cannot be certain that the steps we are taking will be sufficient to remediate the control deficiencies
that led to our material weakness in our internal control over financial reporting or prevent future material weaknesses or control deficiencies
from occurring. While we are working to remediate the material weakness as timely and efficiently as possible, at this time we cannot
provide an estimate of costs expected to be incurred in connection with the implementation of this remediation plan, nor can we provide
an estimate of the time it will take to complete this remediation plan. Even if management does establish effective remedial measures,
we cannot guarantee that those internal controls and disclosure controls that we put in place will prevent all possible errors, mistakes,
or all fraud.
Our financial controls and procedures may
not be sufficient to ensure timely and reliable reporting of financial information, which, as a public company, could materially harm
our stock price.
We will require significant financial resources
to maintain our public reporting status. We cannot assure you we will be able to maintain adequate resources to ensure that we will not
have any future material weakness in our system of internal controls. The effectiveness of our controls and procedures may in the future
be limited by a variety of factors including:
|
● |
faulty human judgment and simple errors, omissions or mistakes; |
|
|
|
|
● |
fraudulent action of an individual or collusion of two or more people; |
|
|
|
|
● |
inappropriate management override of procedures; and |
|
|
|
|
● |
the possibility that any enhancements to controls and procedures may still not be adequate to assure timely and accurate financial information. |
Our internal control over financial reporting
will be a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Our internal
control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and
directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Despite these anticipated controls, because of
its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems
determined to be effective can provide only reasonable assurance of achieving their control objectives. Furthermore, smaller reporting
companies like us face additional limitations. Smaller reporting companies employ fewer individuals and can find it difficult to employ
resources for complicated transactions and effective risk management. Additionally, smaller reporting companies tend to utilize general
accounting software packages that lack a rigorous set of software controls.
If we fail to have effective controls and procedures
for financial reporting in place, we could be unable to provide timely and accurate financial information and be subject to investigation
by the SEC and civil or criminal sanctions.
We must implement additional and expensive
procedures and controls in order to grow our business and organization and to satisfy reporting requirements, which will increase our
costs and require additional management resources.
As a public company, we are required to comply
with the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and the related rules and regulations of the SEC, including
the requirements that we maintain disclosure controls and procedures and adequate internal control over financial reporting. Compliance
with the Sarbanes-Oxley Act and other SEC and national exchange requirements will increase our costs and require additional management
resources. We have begun the process of upgrading our procedures and controls and will need to begin implementing additional procedures
and controls as we grow our business and organization and to satisfy new reporting requirements. If we are unable to complete the required
assessment as to the adequacy of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act or
if we fail to establish and maintain internal control over financial reporting, our ability to produce timely, accurate and reliable periodic
financial statements could be impaired.
If we do not establish and maintain adequate internal
control over financial reporting, investors could lose confidence in the accuracy of our periodic reports filed under the Exchange Act.
Additionally, our ability to obtain additional financing could be impaired or a lack of investor confidence in the reliability and accuracy
of our public reporting could cause our stock price to decline.
We may be subject to securities litigation,
which is expensive and could divert our management’s attention.
The market price of our securities may be volatile,
and in the past companies that have experienced volatility in the market price of their securities have been subject to securities class
action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial
costs and divert our management’s attention from other business concerns.
We are an “emerging growth company”
under the JOBS Act of 2012 and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will
make our common stock less attractive to investors.
We are an “emerging growth company,”
as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we may take advantage of certain exemptions
from various reporting requirements that are applicable to other public companies that are not “emerging growth companies”
including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley
Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from
the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments
not previously approved. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions.
If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and
our stock price may be more volatile.
In addition, Section 107 of the JOBS Act also
provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B)
of the Securities Act of 1933 (the “Securities Act”) for complying with new or revised accounting standards. In other words,
an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise
apply to private companies. We are choosing to take advantage of the extended transition period for complying with new or revised accounting
standards.
We will remain an “emerging growth company”
until the last day of the fiscal year following the fifth anniversary of the date of the first sale of our common stock pursuant to an
effective registration statement under the Securities Act, although we will lose that status sooner if our revenues exceed $1.235 billion,
if we issue more than $1 billion in non-convertible debt in a three year period, or we are deemed to be a large accelerated filer under
applicable SEC rules.
Our status as an “emerging growth
company” under the JOBS Act may make it more difficult to raise capital as and when we need it.
Because of the exemptions from various reporting
requirements provided to us as an “emerging growth company” and because we will have an extended transition period for complying
with new or revised financial accounting standards, we may be less attractive to investors, and it may be difficult for us to raise additional
capital as and when we need it. Investors may be unable to compare our business with other companies in our industry if they believe that
our financial accounting is not as transparent as other companies in our industry. If we are unable to raise additional capital as and
when we need it, our financial condition and results of operations may be materially and adversely affected.
We have not paid dividends in the past and
do not expect to pay dividends in the future, and any return on investment may be limited to the value of our stock.
We have never paid cash dividends on our common
stock and do not anticipate paying cash dividends on our common stock in the foreseeable future. We currently intend to retain any future
earnings to support the development of our business and do not anticipate paying cash dividends in the foreseeable future. Our payment
of any future dividends will be at the discretion of our Board after taking into account various factors, including, but not limited to,
our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to
at the time. In addition, our ability to pay dividends on our common stock may be limited by Delaware state law. Accordingly, investors
must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize a return on their
investment. Investors seeking cash dividends should not purchase our common stock.
The elimination of personal liability against
our directors and officers under Delaware law and the existence of indemnification rights held by our directors, officers and employees
may result in substantial expenses.
Our amended and restated certificate of incorporation,
as amended (“Certificate of Incorporation”), and our bylaws (“Bylaws”) eliminate the personal liability of our
directors and officers to us and our stockholders for damages for breach of fiduciary duty as a director or officer to the extent permissible
under Delaware law. Further, our Certificate of Incorporation allows for us to and our Bylaws provide that we are obligated to indemnify
each of our directors or officers to the fullest extent authorized by Delaware law and, subject to certain conditions, advance the expenses
incurred by any director or officer in defending any action, suit or proceeding prior to its final disposition. Those indemnification
obligations could expose us to substantial expenditures to cover the cost of settlement or damage awards against our directors or officers,
which we may be unable to afford. Further, those provisions and resulting costs may discourage us or our stockholders from bringing a
lawsuit against any of our current or former directors or officers for breaches of their fiduciary duties, even if such actions might
otherwise benefit our stockholders.
Our Certificate of Incorporation will designate
the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation that may be initiated by our stockholders,
which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.
Our Certificate of Incorporation specifies that,
unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole
and exclusive forum for (a) any derivative action or proceeding brought on behalf of the Company, (b) any action asserting a claim of
breach of a fiduciary duty owed by any director, officer, employee or agent of the Company to the Company or the Company’s stockholders,
(c) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our Certificate of Incorporation
or Bylaws, or (d) any action asserting a claim governed by the internal affairs doctrine, in each case subject to said Court of Chancery
having personal jurisdiction over the indispensable parties named as defendants therein. However, prior to the effectiveness of the registration
statement related to this prospectus, we will amend our Certificate of Incorporation to include a statement that this exclusive forum
provision does not apply to claims arising under federal securities laws. Any person or entity purchasing or otherwise acquiring any interest
in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of our Certificate of Incorporation
as described above.
This choice of forum provision may limit a stockholder’s
ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other employees
or stockholders, which may discourage lawsuits with respect to such claims. As such, stockholders of the Company seeking to bring a claim
regarding the internal affairs of the Company may be subject to increased costs associated with litigating in Delaware as opposed to their
home state or other forum, precluded from bringing such a claim in a forum they otherwise consider to be more favorable, and discouraged
from bringing such claims as a result of the foregoing or other factors related to forum selection. Alternatively, if a court were to
find the choice of forum provision contained in our Certificate of Incorporation to be inapplicable or unenforceable in an action, we
may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results
and financial condition.
We believe these provisions benefit us by providing
increased consistency in the application of Delaware law by chancellors particularly experienced in resolving corporate disputes, efficient
administration of cases on a more expedited schedule relative to other forums and protection against the burdens of multi-forum litigation.
However, the provision may have the effect of discouraging lawsuits against our directors, officers, employees, and agents as it may limit
any stockholder’s ability to bring a claim in a judicial forum that such stockholder finds favorable for disputes with us or our
directors, officers, employees or agents. The enforceability of similar choice of forum provisions in other companies’ certificates
of incorporation has been challenged in legal proceedings, and it is possible that, in connection with any applicable action brought against
us, a court could find the choice of forum provisions contained in our Certificate of Incorporation to be inapplicable or unenforceable
in such action. If a court were to find the choice of forum provision contained in our Certificate of Incorporation to be inapplicable
or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could
adversely affect our business, financial condition or results of operations.
IN ADDITION TO THE ABOVE RISKS, BUSINESSES
ARE OFTEN SUBJECT TO RISKS NOT FORESEEN OR FULLY APPRECIATED BY MANAGEMENT. IN REVIEWING THIS FILING, POTENTIAL INVESTORS SHOULD KEEP
IN MIND THAT OTHER POSSIBLE RISKS MAY ADVERSELY IMPACT THE COMPANY’S BUSINESS OPERATIONS AND THE VALUE OF THE COMPANY’S SECURITIES.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains “forward-looking
statements.” Forward-looking statements reflect the current view about future events. When used in this prospectus, the words “anticipate,”
“believe,” “estimate,” “expect,” “future,” “intend,” “plan” or
the negative of these terms and similar expressions, as they relate to us or our management, identify forward-looking statements. Such
statements, include, but are not limited to, statements contained in this prospectus relating to our business strategy, our future operating
results and liquidity and capital resources outlook. Forward-looking statements are based on our current expectations and assumptions
regarding our business, the economy and other future conditions. Because forward–looking statements relate to the future, they are
subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially
from those contemplated by the forward-looking statements. They are neither statements of historical fact nor guarantees of assurance
of future performance. We caution you therefore against relying on any of these forward-looking statements. Important factors that could
cause actual results to differ materially from those in the forward-looking statements include, without limitation:
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Our ability to effectively operate our business segments; |
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Our ability to manage our research, development, expansion, growth, and operating expenses; |
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Our ability to evaluate and measure our business, prospects, and performance metrics; |
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Our ability to compete, directly and indirectly, and succeed in the highly competitive medical devices industry; |
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Our ability to respond and adapt to changes in technology and customer behavior; |
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Our ability to protect our intellectual property and to develop, maintain and enhance a strong brand; and |
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Other factors (including the risks contained in the section of this prospectus entitled “Risk Factors”) relating to our industry, our operations and results of operations. |
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. Except as required by applicable law, including the securities laws of the United States,
we do not intend to update any of the forward-looking statements to conform these statements to actual results.
USE
OF PROCEEDS
This
prospectus relates to shares of our common stock that may be offered and sold from time to time by Lincoln Park. We will receive no proceeds
from the sale of shares of common stock by Lincoln Park in this offering. We may receive up to $10 million in gross proceeds under the
Purchase Agreement from any sales we make to Lincoln Park pursuant to the Purchase Agreement after the date of this prospectus.
Any net proceeds from the sale of our common stock
to Lincoln Park that we receive under the Purchase Agreement are expected to be used for general corporate purposes, including working
capital. As we are unable to predict the timing or amount of potential issuances of all of the additional shares issuable to the Purchase
Agreement, we cannot specify with certainty all of the particular uses for the net proceeds that we will have from the sale of such shares.
Accordingly, our management will have broad discretion in the application of the net proceeds. We may use the proceeds for purposes that
are not contemplated at the time of this offering. It is possible that no additional shares will be issued under the Purchase Agreement.
DIVIDEND POLICY
We have not declared any cash dividends since
inception and we do not anticipate paying any dividends in the foreseeable future. Instead, we anticipate that all of our earnings will
be used to provide working capital, to support our operations, and to finance the growth and development of our business, including potentially
the acquisition of, or investment in, businesses, technologies or products that complement our existing business. The payment of dividends
is within the discretion of the Board and will depend on our earnings, capital requirements, financial condition, prospects, applicable
Delaware law, which provides that dividends are only payable out of surplus or current net profits, and other factors our Board might
deem relevant. There are no restrictions that currently limit our ability to pay dividends on our common stock other than those generally
imposed by applicable state law.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our
common stock and Tradeable Warrants are listed on The Nasdaq Capital Market under the symbols
“TNON” and “TNONW,” respectively. As of July 3, 2024, we have issued
and outstanding 3,780,827 shares of common stock issued and outstanding held by 62 stockholders
of record.
We also have outstanding:
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171,389 shares of our common stock issuable pursuant to options and restricted
stock units granted pursuant to our equity incentive plan; |
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9,600 shares of our common stock issuable upon the exercise of warrants issued to the underwriters in our initial public offering that closed on April 29, 2022; |
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Warrants to purchase up to 1,918,000 shares of our common stock at an exercise price equal to $3.146 per share issued to investors in our June 2023 public offering; |
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Warrants to purchase up to 45,000 shares of our common stock at an exercise price equal to $1.94 per share issued to investors in our November 2023 private placement; and |
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Warrants to purchase up to 415,468 shares of our common stock at an exercise price equal to $1.2705 per share issued to investors in our February 2024 private placement. |
Securities Authorized for Issuance under Equity Incentive Plan
On October 1, 2012, the Board adopted the 2012
Plan. The 2012 Plan terminated in April 2022. There are 1,175 options issued and outstanding under the 2012 Plan that have not been exercised.
These options are administered under the 2022 Plan.
In January and February 2022, our Board and our
shareholders approved our 2022 Equity Incentive Plan (the “2022 Plan,” together with the 2012 Plan, the “Plans”).
The 2022 Plan governs equity awards to our employees, directors, officers, consultants and other eligible participants. Initially, the
maximum number of shares of our common stock that may be subject to awards under the 2022 Plan is equal to (i) 160,000 plus (ii) the lesser
of (a) 75,000 shares of our common stock and (b) the number of shares of our common stock subject to awards granted under the 2012 Plan
that after the 2012 Plan is terminated are canceled, expired or otherwise terminated without having been exercised in full, are tendered
to or withheld by the Company for payment of an exercise price or for tax withholding obligations, or are forfeited to or repurchased
by the Company due to failure to vest. The maximum number of shares that are subject to awards under the 2022 Plan is subject to an annual
increase equal to the lesser of (i) 110,000 shares of our common stock, (ii) a number of shares of our common stock equal to 4% of the
prior year’s maximum number and (iii) such number of shares of our common stock as determined by the 2022 Plan administrator. For
a more detailed description of the 2022 Plan see “Description of Securities—2022 Equity Incentive Plan.”
The types of awards permitted under the Plans
include nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, performance
shares, performance units and other awards. Each option shall be exercisable at such times and subject to such terms and conditions as
the Board may specify.
The Board has the power to amend, suspend or terminate
the Plans without stockholder approval or ratification at any time or from time to time. No change may be made that increases the total
number of shares of our common stock reserved for issuance pursuant to incentive awards or reduces the minimum exercise price for options
or exchange of options for other incentive awards, unless such change is authorized by our stockholders within one year.
THE
LINCOLN PARK TRANSACTION
General
On July 24, 2023, we entered into the Purchase Agreement
with Lincoln Park pursuant to which Lincoln Park has agreed to purchase from us up to an aggregate of $10.0 million of our common stock
(subject to certain limitations) from time to time over the term of the Purchase Agreement. We have sold an aggregate of 89,847 shares
of common stock to Lincoln Park under the Purchase Agreement for total gross proceeds of approximately $100,000. We may receive
an additional aggregate gross proceeds of up to approximately $9.9 million from any sale of our commons tock to Lincoln Park
under the Purchase Agreement after the date of this prospectus.
Also on July 24, 2023, we entered into the
Registration Rights Agreement, pursuant to which we filed the Original Registration Statement with the SEC. Under the Original
Registration Statement, we registered 598,909 shares of our common stock comprised of: (i) 98,909 Commitment Shares that we issued
to Lincoln Park as consideration for making its irrevocable commitment to purchase shares of our common stock under the Purchase
Agreement at our direction, and (ii) up to 500,000 that we have issued and may issue and sell to Lincoln Park under the Purchase
Agreement from time to time from thereafter at our determination, of which 424,807 shares of common stock have not been resold
thereunder as of July 3, 2024. As of July 3, 2024, we have issued and sold an aggregate of 89,847 shares of common stock for total
gross proceeds of approximately $100,000 pursuant to the Purchase Agreement and under the Original Registration Statement.
Also, pursuant to the Registration Rights
Agreement, the registration statement of which this prospectus forms a part registers under the Securities Act for resale by Lincoln
Park up to an additional 5,000,000 Purchase Shares that we may elect to sell to Lincoln Park, in our sole discretion, from time to time
from and after the date of this prospectus. For the avoidance of confusion, none of the 424,807 shares of common stock, including the
410,153 Original Purchase Shares registered under the Original Registration Statement are covered under this prospectus.
We did not have the right to commence sales of
our common stock to Lincoln Park under the Purchase Agreement until the Commencement Date and for a period of 24 months thereafter, under
the terms and subject to the conditions of the Purchase Agreement, from time to time, at the Company’s discretion, the Company has
the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase, up to $10 million of shares of
common stock, subject to certain limitations set forth in the Purchase Agreement. Specifically, from time to time from and after the Commencement
Date, the Company may, at its discretion, direct Lincoln Park to purchase on any single business day on which the closing price of its
common stock on Nasdaq is equal to or greater than $0.15 up to 100,000 shares of common stock in a Regular Purchase, which share limit
may be increased to up to 150,000 shares of common stock, depending on the closing sale price of our common stock on Nasdaq on the applicable
purchase date for such Regular Purchase. In no case, however, will Lincoln Park’s commitment with respect to any single Regular
Purchase exceed $500,000; provided, that the parties may mutually agree at any time to increase the maximum number of shares of common
stock the Company may direct Lincoln Park to purchase in any single Regular Purchase to up to 1,000,000 shares or any number of shares
that shall not exceed 4.99% of the then outstanding shares of common stock. We will control the timing and amount of any sales of our
common stock to Lincoln Park. The purchase price per share for each such Regular Purchase will be based on prevailing market prices of
the Company’s common stock immediately preceding the time of sale, as determined under the Purchase Agreement.
If the Company directs Lincoln Park to purchase
the maximum number of shares of common stock that the Company may sell in a Regular Purchase, then in addition to such Regular Purchase,
and subject to certain conditions and limitations in the Purchase Agreement, the Company may direct Lincoln Park to purchase additional
shares of common stock in an Accelerated Purchase and an Additional Accelerated Purchase (including multiple Additional Accelerated Purchases
on the same trading day) as provided in the Purchase Agreement. The purchase price per share for each Accelerated Purchase and Additional
Accelerated Purchase will be based on market prices of the common stock on the applicable purchase date for such Accelerated Purchases
and such Additional Accelerated Purchases. Lincoln Park has no right to require the Company to sell any common stock to Lincoln Park,
but Lincoln Park is obligated to make purchases as the Company directs, subject to conditions and limitations set forth in the Purchase
Agreement.
In accordance with applicable Nasdaq rules, initially
we were not allowed to issue or sell to Lincoln Park under the Purchase Agreement shares of our common stock in excess of 432,260 shares
(including the Commitment Shares), which represents 19.99% of the shares of our common stock outstanding immediately prior to the execution
of the Purchase Agreement. However, on September 13, 2023 shareholder approval of the transactions contemplated by the Purchase Agreement
became effective and we no longer are limited by Nasdaq rules on the amount of the shares we may sell to Lincoln Park under the Purchase
Agreement.
However, the Purchase Agreement does prohibit us from
directing Lincoln Park to purchase any shares of our common stock if those shares of our common stock, when aggregated with all other
shares of our common stock then beneficially owned by Lincoln Park and its affiliates, would result in Lincoln Park having beneficial
ownership of more than the Beneficial Ownership Cap of 4.99% of the outstanding shares of our common stock.
We will control the timing and amount of any sales
of our common stock to Lincoln Park. We may at any time in our sole discretion terminate the Purchase Agreement without fee, penalty or
cost upon one business day notice. There are no restrictions on future financings, rights of first refusal, participation rights, penalties
or liquidated damages in the Purchase Agreement or Registration Rights Agreement, other than restrictions on entering into committed equity
financing facility transactions or transactions that are similar thereto with third parties as set forth in the Purchase Agreement. Lincoln
Park may not assign or transfer its rights and obligations under the Purchase Agreement.
As
consideration for Lincoln Park’s commitment to purchase shares of common stock from us at our direction from time to time from
and after the Commencement Date pursuant to the Purchase Agreement, promptly following our execution of the Purchase Agreement and the
Registration Rights Agreement, we issued 98,909 Commitment Shares to Lincoln Park on July 24, 2023. All 98,909 Commitment Shares that
we issued to Lincoln Park were included in the Original Registration Statement and have been resold by Lincoln Park pursuant to the Original
Registration Statement.
As of July 3, 2024, there were 3,780,827
shares of our common stock outstanding, of which 3,603,794 shares of our common stock were held by non-affiliates, including the 98,909
Commitment Shares that we previously issued to Lincoln Park and the 89,847 shares of our common stock that we previously issued and sold
to Lincoln Park pursuant to the Purchase Agreement (of which 14,654 are currently held by Lincoln Park). Although the Purchase Agreement
provides that we may sell up to an additional aggregate gross proceeds of approximately $9.9 million of our common stock to Lincoln Park
after the date of this prospectus, only 410,153 Original Purchase Shares are covered by the Original Registration Statement and 5,000,000
shares of our common stock are being registered for resale under this prospectus, which together represents an additional 5,410,153 shares
of our common stock that we may issue and sell to Lincoln Park as Purchase Shares in the future under the Purchase Agreement, if and
when we sell shares of our common stock to Lincoln Park under the Purchase Agreement. If all of the 5,000,000 Purchase Shares that may
be sold to Lincoln Park in the future under the Purchase Agreement that are being registered for resale hereunder were issued and outstanding
as of the date of this prospectus without taking into consideration the Beneficial Ownership Cap, such shares of our common stock, would
represent approximately 57.3% of the total number of shares of our common stock outstanding and approximately 58.1% of the total number
of outstanding shares of our common stock held by non-affiliates, in each case as of the date of this prospectus.
Purchase of Shares Under the Purchase Agreement
Regular Purchases
Under the terms and subject to satisfaction of
the conditions in the Purchase Agreement, beginning on the Commencement Date and from time to time for a period of up to 24 months thereafter,
the Company may, at its discretion, direct Lincoln Park to purchase on any single business day on which the closing price of our common
stock on Nasdaq is equal to or greater than $0.15 up to 100,000 shares of common stock in a Regular Purchase; provided, that the Company
may direct Lincoln Park to purchase in a Regular Purchase (i) up to 125,000 shares of common stock, if the closing sale price of our common
stock on Nasdaq on such business day is at least $1.50 per share and (ii) up to 150,000 shares of common stock, if the closing sale price
of our common stock on Nasdaq on such business day is at least $2.50 per share (each share amount limitation applicable to a Regular Purchase,
the “Regular Purchase Share Limit”). The foregoing share amounts and per share prices used to determine the applicable Regular
Purchase Share Limit are subject to proportionate adjustment in the event of a reorganization, recapitalization, non-cash dividend, stock
split or other similar transaction; provided, that if after giving effect to such full proportionate adjustment, the adjusted Regular
Purchase Share Limit would preclude us from requiring Lincoln Park to purchase shares of our common stock at an aggregate purchase price
equal to or greater than $100,000 in any single Regular Purchase, then the Regular Purchase Share Limit will not be fully adjusted, but
rather the Regular Purchase Share Limit for such Regular Purchase shall be adjusted as specified in the Purchase Agreement, such that,
after giving effect to such adjustment, the Regular Purchase Share Limit will be equal to (or as close as can be derived from such adjustment
without exceeding) $100,000.
In no case, however, will Lincoln Park’s
commitment with respect to any single Regular Purchase exceed $500,000; provided, that we and Lincoln Park may mutually agree at any time
to increase the maximum number of shares of common stock the Company may direct Lincoln Park to purchase in any single Regular Purchase
to up to 1,000,000 shares or any number of shares that shall not exceed 4.99% of the then outstanding shares of common stock.
The purchase price per share for each such Regular
Purchase will be equal to the lower of:
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the lowest sale price for our common stock on the purchase date of such shares; and |
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the arithmetic average of the three lowest closing sale prices for our common stock during the 10 consecutive business days ending on the business day immediately preceding the purchase date of such shares. |
Accelerated Purchases
In addition to Regular Purchases described above,
we may also direct Lincoln Park, on any business day on which we have properly submitted a Regular Purchase notice directing Lincoln Park
to purchase the maximum number of shares of our common stock that we are then permitted to include in a single Regular Purchase notice,
to purchase on the next following business day an additional amount of our common stock (each, an “Accelerated Purchase”),
not to exceed the lesser of:
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25% of the aggregate number of shares of our common stock traded during all or, if certain trading volume or market price thresholds specified in the Purchase Agreement are crossed on the applicable Accelerated Purchase date, which is defined as the next business day following the purchase date for the corresponding Regular Purchase, the portion of the normal trading hours on the applicable Accelerated Purchase date prior to such time that any one of such thresholds is crossed, which period of time on the applicable Accelerated Purchase date we refer to as the Accelerated Purchase Measurement Period; and |
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300% of the number of purchase shares purchased pursuant to the corresponding Regular Purchase. |
Notwithstanding the foregoing, we and Lincoln
Park may mutually agree at any time to increase the maximum number of shares of our common stock the Company may direct Lincoln Park to
purchase in any single Accelerated Purchase to up to 1,000,000 shares or any number of shares that shall not exceed 4.99% of the then
outstanding shares of common stock.
The purchase price per share for each such Accelerated
Purchase will be equal to 95% of the lower of:
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the volume weighted average price of our common stock during the applicable Accelerated Purchase Measurement Period on the applicable Accelerated Purchase date; and |
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the closing sale price of our common stock on the applicable Accelerated Purchase date. |
Additional Accelerated Purchases
We may also direct Lincoln Park, not later than
1:00 p.m., Eastern time, on a business day on which an Accelerated Purchase has been completed and all of the shares to be purchased thereunder
(and under the corresponding Regular Purchase) have been properly delivered to Lincoln Park in accordance with the Purchase Agreement
prior to such time on such business day, to purchase an additional amount of our common stock on the same business day (each, an “Additional
Accelerated Purchase), of up to the lesser of:
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25% of the aggregate shares of our common stock traded during a certain portion of the normal trading hours on such Accelerated Purchase date as determined in accordance with the Purchase Agreement, which period of time we refer to as the Additional Accelerated Purchase Measurement Period; and |
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three times the number of purchase shares purchased pursuant to the Regular Purchase corresponding to the Accelerated Purchase that was completed on such Accelerated Purchase date on which an Additional Accelerated Purchase notice was properly received. |
Notwithstanding the foregoing, we and Lincoln
Park may mutually agree at any time to increase the maximum number of shares of our common stock the Company may direct Lincoln Park to
purchase in any single Additional Accelerated Purchase to up to 1,000,000 shares or any number of shares that shall not exceed 4.99% of
the then outstanding shares of common stock.
We may, in our sole discretion, submit multiple
Additional Accelerated Purchase notices to Lincoln Park prior to 1:00 p.m., Eastern time, on a single Accelerated Purchase date, provided
that all prior Accelerated Purchases and Additional Accelerated Purchases (including those that have occurred earlier on the same day)
have been completed and all of the shares to be purchased thereunder (and under the corresponding Regular Purchase) have been properly
delivered to Lincoln Park in accordance with the Purchase Agreement.
The purchase price per share for each such Additional
Accelerated Purchase will be equal to 95% of the lower of:
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the volume weighted average price of our common stock during the applicable Additional Accelerated Purchase Measurement Period for such Additional Accelerated Purchase on the applicable Additional Accelerated Purchase date; and |
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the closing sale price of our common stock on the applicable Additional Accelerated Purchase date. |
In the case of Accelerated Purchases and Additional
Accelerated Purchases, the purchase price per share will be equitably adjusted for any reorganization, recapitalization, non-cash dividend,
stock split, reverse stock split or other similar transaction occurring during the business days used to compute the purchase price.
Other than as described above, there are no trading
volume requirements or restrictions under the Purchase Agreement, and we will control the timing and amount of any sales of our common
stock to Lincoln Park.
Suspension Events
Suspension events under the Purchase Agreement
include the following:
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the effectiveness of the registration statement of which this prospectus forms a part lapses for any reason (including, without limitation, the issuance of a stop order), or any required prospectus supplement and accompanying prospectus are unavailable for the resale by Lincoln Park of our common stock offered hereby, and such lapse or unavailability continues for a period of 10 consecutive business days or for more than an aggregate of 30 business days in any 365-day period; |
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suspension by our principal market of our common stock from trading for a period of one business day; |
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the delisting of the common stock from The Nasdaq Capital Market (or nationally recognized successor thereto), provided, however, that our common stock is not immediately thereafter trading on the New York Stock Exchange; The Nasdaq Global Market, The Nasdaq Global Select Market, the NYSE American, the NYSE Arca, or the OTCQX Best Market or the OTCQB Venture Market operated by OTC Markets Group Inc. (or nationally recognized successor to any of the foregoing); |
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the failure of our transfer agent to issue to Lincoln Park shares of our common stock within two business days after the applicable date on which Lincoln Park is entitled to receive such shares; |
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any breach of the representations or warranties or covenants contained in the Purchase Agreement or the Registration Rights Agreement that has or could have a material adverse effect on us and, in the case of a breach of a covenant that is reasonably curable, that is not cured within five business days; |
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any person commences a proceeding against us pursuant to or within the meaning of Title 11, U.S. Code, or any similar federal or state law for the relief of debtors (“Bankruptcy Law”); |
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a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that (i) is for relief against us in an involuntary case, (ii) appoints a custodian for us or for all or substantially
all of our property or (iii) orders the liquidation of us or our subsidiaries; or |
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if at any time we are not eligible to transfer our common stock electronically
as Deposit Withdrawal At Custodian shares. |
Lincoln Park does not have the right to terminate
the Purchase Agreement upon any of the suspension events set forth above. During a suspension event, all of which are outside of Lincoln
Park’s control, we may not direct Lincoln Park to purchase any shares of our common stock under the Purchase Agreement.
Our Termination Rights
We have the unconditional right, at any time,
for any reason and without any payment or liability to us, to give notice to Lincoln Park to terminate the Purchase Agreement. In the
event of bankruptcy proceedings by or against us, the Purchase Agreement will automatically terminate without action of any party.
No Short-Selling or Hedging by Lincoln Park
Lincoln Park has agreed that neither it nor any
of its affiliates shall engage in any direct or indirect short-selling or hedging of our common stock during any time prior to the termination
of the Purchase Agreement.
Prohibitions on Similar Transactions
There are no restrictions on future financings,
rights of first refusal, participation rights, penalties or liquidated damages in the Purchase Agreement or Registration Rights Agreement
other than a prohibition on our entering into other committed equity financing facility transactions or transactions that are similar
thereto, except for certain Exempt Issuances (as defined by the Purchase Agreement).
Effect of Performance of the Purchase Agreement
on Our Stockholders
All 5,000,000 shares of our common stock being
registered for resale by Lincoln Park under the registration statement that includes this prospectus which have been or may be issued
or sold by us to Lincoln Park under the Purchase Agreement are expected to be freely tradable. It is anticipated that shares registered
in this offering will be sold after the date of this prospectus and over the remainder duration of a period of up to 24 months that began
on the Commencement Date.
The sale by Lincoln Park of a significant amount
of shares registered in this offering at any given time could cause the market price of our common stock to decline and to be highly volatile.
Sales of our common stock to Lincoln Park, if any, will depend upon market conditions and other factors to be determined by us. We may
ultimately decide to sell to Lincoln Park all, some or none of the additional shares of our common stock that may be available for us
to sell pursuant to the Purchase Agreement. If and when we do sell shares to Lincoln Park, after Lincoln Park has acquired the shares,
Lincoln Park may resell all, some or none of those shares at any time or from time to time in its discretion. Therefore, sales to Lincoln
Park by us under the Purchase Agreement may result in substantial dilution to the interests of other holders of our common stock. In addition,
if we sell a substantial number of shares to Lincoln Park under the Purchase Agreement, or if investors expect that we will do so, the
actual sales of shares or the mere existence of our arrangement with Lincoln Park may make it more difficult for us to sell equity or
equity-related securities in the future at a time and at a price that we might otherwise wish to effect such sales. However, we have the
right to control the timing and amount of any additional sales of our shares to Lincoln Park and the Purchase Agreement may be terminated
by us at any time at our discretion without any cost to us.
If and when we do elect to sell shares of our
common stock to Lincoln Park pursuant to the Purchase Agreement, after Lincoln Park has acquired such shares, Lincoln Park may resell
all, some or none of such shares at any time or from time to time in its discretion and at different prices. As a result, investors who
purchase shares from Lincoln Park in this offering at different times will likely pay different prices for those shares, and so may experience
different levels of dilution and in some cases substantial dilution and different outcomes in their investment results. Investors may
experience a decline in the value of the shares they purchase from Lincoln Park in this offering as a result of future sales made by us
to Lincoln Park at prices lower than the prices such investors paid for their shares in this offering.
Pursuant to the Purchase Agreement, we will have
discretion, subject to market demand, to vary the timing, prices, and numbers of shares sold to Lincoln Park. Sales of our common stock,
if any, to Lincoln Park under the Purchase Agreement will depend upon market conditions and other factors to be determined by us. We
may ultimately decide to sell to Lincoln Park all, some or none of the shares of our common stock that may be available for us to sell
to Lincoln Park pursuant to the Purchase Agreement. Because the purchase price per share to be paid by Lincoln Park for the shares of
common stock that we may elect to sell to Lincoln Park under the Purchase Agreement, if any, will fluctuate based on the market prices
of our common stock at the time we elect to sell shares to Lincoln Park pursuant to the Purchase Agreement, if any, it is not possible
for us to predict, as of the date of this prospectus and prior to any such sales, the number of shares of common stock that we will sell
to Lincoln Park under the Purchase Agreement, the purchase price per share that Lincoln Park will pay for shares purchased from us under
the Purchase Agreement, or the aggregate gross proceeds that we will receive from those purchases by Lincoln Park under the Purchase
Agreement.
Moreover, although the Purchase Agreement provides that we may, in our discretion, from time to time after the date of this
prospectus and during the term of the Purchase Agreement, direct Lincoln Park to purchase shares of our common stock from us in one or
more purchases under the Purchase Agreement, for a maximum aggregate purchase price of up to $10.0 million, of which we have sold approximately
$100,000 in shares of our common stock and may only receive an additional aggregate gross proceeds of approximately $9.9 million from
any sale of our common stock to Lincoln Park as of the date of this prospectus, only 5,000,000 shares of common stock are being
registered for resale under the registration statement of which this prospectus forms a part. If after the date of this prospectus we
elect to sell to the Selling Stockholder all of the 5,000,000 shares of common stock being registered for resale under this prospectus
that are available for sale by us to the Selling Stockholder in purchases under the Purchase Agreement, depending on the market prices
of our common stock at the time of such sales, the actual gross proceeds from the sale of all such shares may be substantially less than
approximately $9.9 million purchase commitment remains available to us under the Purchase Agreement, which could materially adversely
affect our liquidity. Furthermore, if we elect to issue and sell to Lincoln Park more than the 410,153 Original Purchase Shares registered
pursuant to the Original Registration Statement and the 5,000,000 shares of our common stock that are being registered for resale by
Lincoln Park hereunder that we may elect to issue and sell to Lincoln Park under the Purchase Agreement, which we have the right, but
not the obligation, to do, we must first file with the SEC one or more additional registration statements to register under the Securities
Act for resale by Lincoln Park such additional shares of our common stock we wish to sell from time to time under the Purchase Agreement,
which the SEC must declare effective, in each case before we may elect to sell any additional shares of our common stock to Lincoln Park
under the Purchase Agreement. Any issuance and sale by us under the Purchase Agreement of a substantial amount of shares of common stock
in addition to the 410,153 Original Purchase Shares being registered for resale pursuant the Original Registration Statement and 5,000,000
shares of common stock that are being registered for resale by Lincoln Park hereunder that we may elect to issue and sell to Lincoln
Park under the Purchase Agreement could cause additional substantial dilution to our stockholders.
The number of shares of common stock ultimately
resold by Lincoln Park through this prospectus is dependent upon the total number of shares of common stock, if any, we elect to issue
and sell to Lincoln Park under the Purchase Agreement from and after Commencement and during the term of the Purchase Agreement. Issuances
of our common stock to Lincoln Park under the Purchase Agreement will not affect the rights or privileges of our existing stockholders,
except that the economic and voting interests of each of our existing stockholders will be diluted as a result of any such issuance. Although
the number of shares of our common stock that our existing stockholders own will not decrease, the shares of our common stock owned by
our existing stockholders will represent a smaller percentage of our total outstanding shares of our common stock after any such issuance
of shares of our common stock to Lincoln Park under the Purchase Agreement.
The
following table sets forth the amount of gross proceeds we would receive from Lincoln Park from our sale of up to 5,000,000 Purchase
Shares that we are registering hereby that we may issue and sell to Lincoln Park in the future under the Purchase Agreement at varying
purchase prices from and after the date of this prospectus:
Assumed Average Purchase
Price Per Share | | |
Number
of Registered Shares to be Issued if Full Purchase(1) | | |
Percentage
of Outstanding Shares After Giving Effect to the Issuance to Lincoln Park(2) | | |
Proceeds
from the Sale of Shares to Lincoln Park Under the Purchase Agreement(1) | |
$ | 0.25 | | |
| 5,000,000 | | |
| 57.3 | % | |
$ | 1,250,000 | |
$ | 0.50 | | |
| 5,000,000 | | |
| 57.3 | % | |
| 2,500,000 | |
$ | 0.7084 | (3) | |
| 5,000,000 | | |
| 57.3 | % | |
$ | 3,542,000 | |
$ | 1.00 | | |
| 5,000,000 | | |
| 57.3 | % | |
$ | 5,000,000 | |
$ | 1.25 | | |
| 5,000,000 | | |
| 57.3 | % | |
$ | 6,250,000 | |
$ | 1.50 | | |
| 5,000,000 | | |
| 57.3 | % | |
$ | 7,500,000 | |
(1) |
Although we may sell
up to approximately $9.9 million in aggregate gross proceeds of our common stock that remains available under the Purchase Agreement
and for resale under the registration statement of which this prospectus forms a part, we are only registering 5,000,000 shares of
common stock. Therefore, only 5,000,000 of such shares represent Purchase Shares that we may issue and sell to Lincoln Park for cash
consideration in purchases under the Purchase Agreement from time to time, at our sole discretion, after the date of this prospectus
and for the remaining duration of the 24-month period that began on the Commencement Date, which may or may not cover all the shares
of our common stock we ultimately sell to Lincoln Park under the Purchase Agreement, if any, depending on the purchase price per
share. We have included in this column only the 5,000,000 Purchase Shares that we may issue and sell to Lincoln Park for cash consideration
in purchases under the Purchase Agreement that are being registered for resale in the offering made by this prospectus, without giving
effect to the Beneficial Ownership Cap. Accordingly, depending on the assumed average price per share, we may or may not
be able to ultimately sell to Lincoln Park a number of shares of our common stock with a total value of approximately $9.9 million
remains available under the Purchase Agreement. |
(2) |
The denominator is based
on 8,780,827 shares of our common stock outstanding as of July 3, 2024 (which includes the 98,909 shares of our common stock that we previously
issued to Lincoln Park and 89,847 shares of our common stock that we previously issued and sold to Lincoln Park pursuant to the Purchase
Agreement (of which 14,654 are currently held by Lincoln Park), adjusted to include the number of shares of our common stock set
forth in the adjacent column. The numerator is based on the number of shares of our common stock set forth in the adjacent column. |
(3) |
The closing sale price
of our shares on July 3, 2024. |
SELLING
STOCKHOLDER
This prospectus relates to the possible resale by the Selling Stockholder, Lincoln Park, of up to 5,000,000
shares of our common stock that we have reserved for issuance and sale to Lincoln Park as Purchase Shares under the Purchase Agreement
from time to time from and after the date of this prospectus, if and when we determine to sell shares of our common stock to Lincoln
Park under the Purchase Agreement.
We are filing the registration statement of which
this prospectus forms a part pursuant to the provisions of the Registration Rights Agreement, which we entered into with Lincoln Park
on July 24, 2023 concurrently with our execution of the Purchase Agreement, in which we agreed to provide certain registration rights
with respect to resales by Lincoln Park of the shares of our common stock that have been or may be issued to Lincoln Park under the Purchase
Agreement. The Selling Stockholder may sell some, all or none of the shares of common stock included in this prospectus. We do not know
how long the Selling Stockholder will hold the shares of our common stock before selling them, and we currently have no agreements, arrangements
or understandings with the Selling Stockholder regarding the sale of any of the shares of common stock. See “Plan of Distribution.”
The table below sets forth, to our knowledge,
information concerning the beneficial ownership of shares of our common stock by the Selling Stockholder as of July 3, 2024. The percentages
of shares owned before and after the offering are based on 8,780,827 shares of common stock outstanding as of July 3, 2024 (which includes
14,654 shares that are currently held by Lincoln Park). The information in the table below with respect to the Selling Stockholder has
been obtained from the Selling Stockholder.
Beneficial ownership is determined in accordance
with the rules of the SEC and includes voting or investment power with respect to shares. The inclusion of any shares in this table does
not constitute an admission of beneficial ownership for the person named below.
|
|
Number
of Shares of
Common Stock Owned
Prior to Offering |
|
|
Maximum
Number of Shares of Common Stock to be Offered Pursuant to this Prospectus(1) |
|
|
Number
of Shares of
Common Stock
Owned After
Offering(2) |
|
Name
of Selling Stockholder |
|
Number |
|
|
Percent |
|
|
|
|
|
Number |
|
|
Percent |
|
Lincoln Park Capital Fund, LLC(3) |
|
|
14,654 |
(4) |
|
|
* |
% |
|
|
5,000,000 |
|
|
|
14,654 |
|
|
|
* |
% |
* Less than 1%.
(1) |
Although we may sell
up to approximately $9.9 million in aggregate gross proceeds of our common stock to Lincoln Park that remains available under the
Purchase Agreement, we are only registering 5,000,000 shares of our common stock for resale under this prospectus. Therefore, only
410,153 Original Purchase Shares and 5,000,000 Purchase Shares represent shares that we may issue and sell to Lincoln Park for cash
consideration in purchases under the Purchase Agreement from time to time, at our sole discretion, after the date of this prospectus
and for the remaining duration of the 24-month period that began on the Commencement Date. Depending on the price per share at which
we sell our common stock to Lincoln Park pursuant to the Purchase Agreement, we may need to sell to Lincoln Park under the Purchase
Agreement more shares of our common stock than are offered under this prospectus in order to receive aggregate gross proceeds equal
to the full $10.0 million available to us under the Purchase Agreement. If we choose to do so, we must first register for resale
under the Securities Act such additional shares. The number of shares ultimately offered for resale by Lincoln Park is dependent
upon the number of shares we sell to Lincoln Park under the Purchase Agreement. |
(2) |
Assumes the sale of all shares of common stock registered pursuant to the registration statement that includes this prospectus, although the Selling Stockholder is under no obligation known to us to sell any shares of common stock at this time. |
(3) |
Joshua Scheinfeld and Jonathan Cope, the Managing Members of Lincoln Park Capital, LLC, the manager of the Selling Stockholder, are deemed to be beneficial owners of all of the shares of our common stock owned by the Selling Stockholder. Messrs. Cope and Scheinfeld have shared voting and investment power over the shares of our common stock being offered under this prospectus. Neither Lincoln Park Capital, LLC, nor the Selling Stockholder, is a licensed broker-dealer or an affiliate of a licensed broker-dealer. |
(4) |
Represents the 14,654
shares of our common stock previously issued and sold to Lincoln Park pursuant to the Purchase Agreement, all of which have been
registered under the Original Registration Statement. In accordance with Rule 13d-3(d) under the Exchange Act, we have excluded
from the number of shares of our common stock beneficially owned prior to the offering all of the shares of our common stock that
we may issue and sell to Lincoln Park pursuant to the Purchase Agreement from and after the date of this prospectus, because the
issuance and sale of such shares of our common stock to Lincoln Park under the Purchase Agreement is solely at our discretion and
is subject to certain conditions, the satisfaction of all of which are outside of Lincoln Park’s control, including the registration
statement of which this prospectus is a part becoming and remaining effective under the Securities Act. Furthermore, under the terms
of the Purchase Agreement, issuances and sales of shares of our common stock to Lincoln Park under the Purchase Agreement are subject
to certain limitations on the amounts we may sell to Lincoln Park at any time, including the Beneficial Ownership Cap. See “The
Lincoln Park Transaction” for more information about the Purchase Agreement. |
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 financial statements and the notes to those statements
included elsewhere in this Registration Statement on Form S-1. 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,” our actual results may differ materially from those anticipated in these forward-looking statements. See “Cautionary
Note Regarding Forward-Looking Statements.”
Overview
Tenon Medical, Inc., a medical device company
formed in 2012, has developed a proprietary, FDA approved surgical implant-system, which we call The Catamaran System. The Catamaran
System offers a novel, less invasive inferior-posterior approach to the 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 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.
2024 Series A Offering
On February 20, 2024, we entered into the
Series A Purchase Agreement, pursuant to which the Company engaged in the Series A Offering, which included a total of 172,239 shares
of Series A Preferred Stock and 258,374 Series A Warrants 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 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 July 3, 2024.
Reverse Stock Split
On November 2, 2023, the Company effected
a 1-for-10 reverse stock split by filing an amendment to the Company’s Amended and Restated Certificate of Incorporation, as amended,
with the Delaware Secretary of State. The reverse stock split combined every ten shares of our common stock issued and outstanding immediately
prior to effecting the reverse stock split into one share of common stock. No fractional shares were issued in connection with the 2023
Reverse Stock Split. All historical share and per share amounts reflected throughout this document have been adjusted to reflect the
split. The authorized number of shares and the par value per share of the Company’s common stock were not affected by the reverse
stock split.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis
of our financial condition and results of operations is based on our audited consolidated financial statements, which have been prepared
in accordance with United States generally accepted accounting principles (“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 other sources. Actual results could differ from these estimates under different assumptions or conditions. While
our significant accounting policies are described in more detail in the notes to our consolidated financial statements included elsewhere
in this prospectus, we believe that the accounting policies discussed below are those that are most critical to understanding our historical
and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates. For
more detail on our critical accounting policies, see Note 2 to our consolidated financial statements.
Investments
We classify our investments in marketable debt
securities as available-for-sale and record them at fair value in our consolidated balance sheets. Net unrealized gains and losses are
recorded as a separate component of stockholders’ equity. Realized gains and losses are recorded in the consolidated statements
of operations and comprehensive loss. We determine realized gains or losses on the sale of marketable debt securities on a specific identification
method and record such gains and losses as a component of other income (expense), net.
Revenue Recognition
Our revenue is derived from the sale of our products
to medical groups and hospitals in the United States. Revenue is recognized when control is transferred to the customer, in an amount
that reflects the consideration we expect to be entitled to in exchange for the goods or services, using the following five step approach:
(1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price,
(4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation
is satisfied.
We generate our revenue from the sale of products
to hospitals or medical facilities where our products are delivered in advance of a procedure. The performance obligation is the delivery
of the products along with the completion of the surgery and therefore, revenue is recognized upon delivery to the customers and completion
of the surgery, net of rebates and price discounts. We account for rebates and price discounts as a reduction to revenue, calculated based
on the terms agreed to with the customer. Historically, there have been no significant rebates or price discounts. Sales prices are specified
prior to the transfer of control to the customer, via either the customer contract, agreed price list, purchase order, or written communication
with the customer. Prior to October 2022, we had an agreement in place with a national distributor, which included standard terms that
did not allow for payment contingent on resale of the product, obtaining financing, or other terms that could impact the distributor’s
payment obligation. We billed and collected directly with the end-user customers and recognized revenue based on the gross sales price.
For direct sales to end-user customers, our standard payment terms are generally net 30 days.
We offer our standard warranty to all customers.
We do not sell any warranties on a standalone basis. Our warranty provides that our products are free of material defects and conform
to specifications, and includes an offer to replace or refund the purchase price of defective products. This assurance does not constitute
a service and is not considered a separate performance obligation. We estimate warranty liabilities at the time of revenue recognition
and record them as a charge to cost of goods sold.
Stock-Based Compensation
We account for all stock-based compensation awards
using a fair-value method on the grant date and recognize the fair value of each award as an expense over the requisite service period.
We recognize compensation costs related to stock-based
awards granted to employees, directors, and consultants including stock options, based on the estimated fair value of the awards on the
date of grant. We estimate the grant date fair value, and the resulting stock-based compensation, using the Black-Scholes option-pricing
model. The grant date fair value of the stock-based awards is generally recognized on a straight-line basis over the requisite service
period, which is generally the vesting period of the respective awards.
The Black-Scholes option-pricing model requires
the use of subjective assumptions to determine the fair value of stock-based awards. These assumptions include:
Expected Term—The expected term represents
the period that stock-based awards are expected to be outstanding. The expected term for option grants is determined using the simplified
method. The simplified method deems the expected term to be the midpoint between the vesting date and the contractual life of the stock-based
awards.
Expected Volatility—Since we have only
been publicly held since April 2022 and do not have any trading history for our common stock, the expected volatility was estimated based
on the average volatility for comparable publicly traded companies over a period equal to the expected term of the stock option grants.
The comparable companies were chosen based on their similar size, stage in the life cycle, or area of specialty.
Risk-Free Interest Rate—The risk-free interest
rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term
of option.
Expected Dividend—We have never paid dividends
on our common stock and have no plans to pay dividends on our common stock. Therefore, we used an expected dividend yield of zero.
We account for forfeitures as they occur.
Our board of directors intends all options granted
to be exercisable at a price per share not less than the per share fair value of our common stock underlying those options on the date
of grant.
Prior to our initial public offering, the estimated
fair value of our common stock was determined at each valuation date by a third-party independent valuation firm in accordance with the
guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity
Securities Issued as Compensation. These valuations took into account numerous factors, including developments at our company and market
conditions.
The May 21, 2021 valuation used a hybrid method
which combines the Probability Weighted Expected Return Method (“PWERM”) with the OPM. The PWERM considers a set of discrete
potential liquidity scenarios for the Company, the value common stock would receive in each scenario, and the time required and risk inherent
in achieving those values. The May 21, 2021 valuation examined the following scenarios for the Company: (i) an IPO; (ii) remaining private
and raising capital; and (iii) dissolution. Within the IPO scenario, 100% weighting was placed on the Market Approach for determining
the enterprise value. The Market Approach assumes that businesses operating in the same industry will share similar characteristics, and
therefore a comparison of the business to similar businesses whose financial information is publicly available may provide a reasonable
basis to estimate a subject business’s value. The equity value in the IPO scenario was estimated considering guideline IPOs, the
anticipated size of the Company’s offering, and forecasted cash and debt. The estimated common stock value as of the IPO was present
valued using a discount rate of 22.4% based on Company’s WACC, less an adjustment of 2.0% to reflect the risk reduction of an IPO
event.
The August 31, 2021 valuation used a hybrid method
which combines the Probability Weighted Expected Return Method (“PWERM”) with the OPM. The PWERM considers a set of discrete
potential liquidity scenarios for the Company, the value common stock would receive in each scenario, and the time required and risk inherent
in achieving those values. The August 31, 2021 valuation examined the following scenarios for the Company: (i) an IPO; (ii) remaining
private and raising capital; and (iii) dissolution. Within the IPO scenario, 100% weighting was placed on the Market Approach for determining
the enterprise value. The Market Approach assumes that businesses operating in the same industry will share similar characteristics, and
therefore a comparison of the business to similar businesses whose financial information is publicly available may provide a reasonable
basis to estimate a subject business’s value. The equity value in the IPO scenario was estimated considering guideline IPOs, the
anticipated size of the Company’s offering, and forecasted cash and debt. The estimated common stock value as of the IPO was present
valued using a discount rate of 32.0% based on Company’s WACC, less an adjustment of 5.0% to reflect the risk reduction of an IPO
event.
The October 28, 2021 valuation used a hybrid method
which combines the Probability Weighted Expected Return Method (“PWERM”) with the OPM. The PWERM considers a set of discrete
potential liquidity scenarios for the Company, the value common stock would receive in each scenario, and the time required and risk inherent
in achieving those values. The October 28, 2021 valuation examined the following scenarios for the Company: (i) an IPO; (ii) remaining
private and raising capital; and (iii) dissolution. Within the IPO scenario, 100% weighting was placed on the Market Approach for determining
the enterprise value. The Market Approach assumes that businesses operating in the same industry will share similar characteristics, and
therefore a comparison of the business to similar businesses whose financial information is publicly available may provide a reasonable
basis to estimate a subject business’s value. The equity value in the IPO scenario was estimated considering guideline IPOs, the
anticipated size of the Company’s offering, and forecasted cash and debt. The estimated common stock value as of the IPO was present
valued using a discount rate of 27.2% based on Company’s WACC, less an adjustment of 5.0% to reflect the risk reduction of an IPO
event.
In determining the enterprise value within the
remain private scenario, 100% weighting was applied to the DCF Method under the income approach, in the same manner as in the December
31, 2018, 2019, and 2020 valuations. The discount rate in this scenario was determined to be 22.4% based on Company’s WACC. Adjustments
were made to the enterprise value for the Company’s cash and debt as of the valuation date to determine the equity value in this
scenario. The OPM was used to allocate the equity value to our common stock. The equity volatility rate was determined to be 70.0% based
on the volatility rate of certain comparable public companies. DLOMs of (i) 10.0% in the IPO scenario and (ii) 30.0% in the remaining
private scenario were applied to the common stock.
Following the closing of the initial public offering,
the fair value of our common stock was determined based on the closing price of our common stock on the Nasdaq Capital Market.
Common Stock Warrants
We account for warrants for shares of common stock
as equity or liabilities in accordance with the accounting guidance for derivatives. The accounting guidance provides a scope exception
from classifying and measuring as a financial liability a contract that would otherwise meet the definition of a derivative if the contract
is both (i) indexed to the entity’s own stock and (ii) classified in the stockholders’ deficit section of the consolidated
balance sheet. We estimate the fair value of our warrants for shares of common stock by using the Black-Scholes option pricing model.
Warrants classified as equity are recorded as additional paid-in capital on the consolidated balance sheet and no further adjustments
to their valuation are made after the issuance of the warrants.
Income Taxes
We account for income taxes under the asset and
liability method, whereby deferred tax assets and liabilities are determined based on the difference between the financial statement and
tax bases of assets and liabilities using the enacted tax rates in effect for the year in which the differences are expected to affect
taxable income. We assess the likelihood that the resulting deferred tax assets will be realized. A valuation allowance is provided when
it is more likely than not that some portion or all of a deferred tax asset will not be realized.
We did not record a provision or benefit for income
taxes during the twelve months ended December 31, 2023 or 2022. We continue to maintain a full valuation allowance against our net deferred
tax assets.
We assess all material positions taken in any
income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by
relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position’s sustainability
and is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement.
As of each balance sheet date, unresolved uncertain tax positions must be reassessed, and we will determine whether (i) the factors underlying
the sustainability assertion have changed and (ii) the amount of the recognized tax benefit is still appropriate. The recognition and
measurement of tax benefits requires significant judgment. Judgments concerning the recognition and measurement of a tax benefit may change
as new information becomes available.
The Tax Reform Act of 1986 limits the use of net
operating loss and tax credit carryforwards in certain situations where changes occur in the stock ownership of a company. We have not
completed a study to determine whether any ownership changes per the provisions of Section 382 of the Tax Reform Act of 1986, as amended,
as well as similar state provisions, have occurred.
Components of Results of Operations
Revenue
We derive substantially all our revenue from
sales of The Catamaran System to a limited number of clinicians. Revenue from sales of The Catamaran System fluctuates based on volume
of cases (procedures performed), discounts, and the number of implants used for a particular patient. Similar to other orthopedic companies,
our revenue can also fluctuate from quarter to quarter due to a variety of factors, including reimbursement, changes in independent sales
representatives and physician activities.
Cost of Goods Sold, Gross Profit, and Gross
Margin
We utilize contract manufacturers for production
of The Catamaran System implants and Catamaran Tray Sets. Cost of goods sold consists primarily of costs of the components of The Catamaran
System implants and instruments, quality inspection, packaging, scrap and inventory obsolescence, as well as distribution-related expenses
such as logistics and shipping costs. We anticipate that our cost of goods sold will increase in absolute dollars as case levels increase.
Our gross margins have been and will continue
to be affected by a variety of factors, including the cost to have our product manufactured for us, pricing pressure from increasing competition,
and the factors described above impacting our revenue.
Operating Expenses
Our operating expenses consist of sales and marketing,
research and development, and general and administrative expenses. Personnel costs are the most significant component of operating expenses
and consist of consulting expenses, salaries, sales commissions and other cash and stock-based compensation related expenses. We expect
operating expenses to increase in absolute dollars as we continue to invest and grow our business.
Sales and Marketing Expenses
Sales and marketing expenses primarily consist
of independent sales representative training and commissions in addition to salaries and stock-based compensation expense. Starting in
May 2021, commissions to our national distributor have been based on a percentage of sales and we anticipate that these commissions will
make up a significant portion of our sales and marketing expenses. We expect our sales and marketing expenses to increase in absolute
dollars with the commercial launch of The Catamaran System resulting in higher commissions and salaries, increased clinician and sales
representative training, and the start of clinical studies to gain wider clinician adoption of The Catamaran System. Our sales and marketing
expenses may fluctuate from period to period due to timing of sales and marketing activities related to the commercial launch of our
product.
Research and Development Expenses
Our research and development expenses primarily
consist of engineering, product development, regulatory expenses, and consulting services, outside prototyping services, outside research
activities, materials, and other costs associated with development of our product. Research and development expenses also include related
personnel and consultants’ compensation and stock-based compensation expense. We expense research and development costs as they
are incurred. We expect research and development expense to increase in absolute dollars as we improve The Catamaran System, develop
new products, add research and development personnel, and undergo clinical activities that may be required for regulatory clearances
of future products.
General and Administrative Expenses
General and administrative expenses primarily
consist of salaries, consultants’ compensation, stock-based compensation expense, and other costs for finance, accounting, legal,
compliance, and administrative matters. We expect our general and administrative expenses to increase in absolute dollars as we add personnel
and information technology infrastructure to support the growth of our business. We also expect to incur additional general and administrative
expenses as a result of operating as a public company, including but not limited to: expenses related to compliance with the rules and
regulations of the 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.
Gain (Loss) on Investments
Gain (loss) on investments consists of interest
income and realized gains and losses from the sale of our investments in money market and corporate debt securities.
Interest Expense
Interest expense is related to borrowings and
includes deemed interest derived from the beneficial conversion prices of notes payable.
Other Income (Expense), Net
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 March 31, | |
Consolidated Statements of Operations Data: | |
2024 | | |
2023 | |
Revenue | |
$ | 719 | | |
$ | 433 | |
Cost of goods sold | |
| 249 | | |
| 480 | |
Gross profit (loss) | |
| 470 | | |
| (47 | ) |
Operating expenses: | |
| | | |
| | |
Research and development | |
| 669 | | |
| 834 | |
Sales and marketing | |
| 1,381 | | |
| 2,026 | |
General and administrative | |
| 1,926 | | |
| 1,979 | |
Total operating expenses | |
| 3,976 | | |
| 4,839 | |
Loss from operations | |
| (3,506 | ) | |
| (4,886 | ) |
Interest and other income (expense), net: | |
| | | |
| | |
Gain on investments | |
| 27 | | |
| 56 | |
Interest expense | |
| (34 | ) | |
| — | |
Other income (expense) | |
| (63 | ) | |
| — | |
Net loss | |
$ | (3,576 | ) | |
$ | (4,830 | ) |
| |
Three Months Ended March
31, | |
Consolidated Statements of Operations Data
as a Percent of Revenue: | |
2024 | | |
2023 | |
Revenue | |
| 100 | % | |
| 100 | % |
Cost of goods sold | |
| 35 | | |
| 111 | |
Gross profit (loss) | |
| 65 | | |
| (11 | ) |
Operating expenses: | |
| | | |
| | |
Research and development | |
| 93 | | |
| 193 | |
Sales and marketing | |
| 192 | | |
| 468 | |
General and administrative | |
| 268 | | |
| 457 | |
Total operating expenses | |
| 553 | | |
| 1,118 | |
Loss from operations | |
| (488 | ) | |
| (1,128 | ) |
Interest and other income (expense), net: | |
| | | |
| | |
Gain on investments | |
| 4 | | |
| 13 | |
Interest expense | |
| (5 | ) | |
| — | |
Other expense | |
| (9 | ) | |
| — | |
Net loss | |
| (497 | )% | |
| (1,115 | )% |
| |
Years Ended December 31, | |
Consolidated Statements of Operations Data in Dollars: | |
2023 | | |
2022 | |
Revenue | |
$ | 2,928 | | |
$ | 691 | |
Cost of goods sold | |
| 1,687 | | |
| 1,332 | |
Gross profit (loss) | |
| 1,241 | | |
| (641 | ) |
Operating expenses: | |
| | | |
| | |
Research and development | |
| 3,163 | | |
| 2,828 | |
Sales and marketing | |
| 6,778 | | |
| 7,833 | |
General and administrative | |
| 7,027 | | |
| 7,423 | |
Total operating expenses | |
| 16,968 | | |
| 18,084 | |
Loss from operations | |
| (15,727 | ) | |
| (18,725 | ) |
Interest and other income (expense), net: | |
| | | |
| | |
Gain on investments | |
| 167 | | |
| 180 | |
Interest expense | |
| (21 | ) | |
| (354 | ) |
Other expense | |
| — | | |
| (18 | ) |
Net loss | |
$ | (15,581 | ) | |
$ | (18,917 | ) |
| |
Years Ended December 31, | |
Consolidated Statements of Operations Data as a Percent of Revenue: | |
2023 | | |
2022 | |
Revenue | |
| 100 | % | |
| 100 | % |
Cost of goods sold | |
| 58 | | |
| 193 | |
Gross profit (loss) | |
| 42 | | |
| (93 | ) |
Operating expenses: | |
| | | |
| | |
Research and development | |
| 108 | | |
| 409 | |
Sales and marketing | |
| 231 | | |
| 1,134 | |
General and administrative | |
| 240 | | |
| 1,074 | |
Total operating expenses | |
| 580 | | |
| 2,617 | |
Loss from operations | |
| (537 | ) | |
| (2,710 | ) |
Interest and other income (expense), net: | |
| | | |
| | |
Gain on investments | |
| 6 | | |
| 26 | |
Interest expense | |
| (1 | ) | |
| (51 | ) |
Other expense | |
| — | | |
| (3 | ) |
Net loss | |
| (532 | )% | |
| (2,738 | )% |
Comparison of the Three Months Ended March 31, 2024 and 2023
(in thousands, except percentages)
Revenue, Cost of Goods Sold, Gross Profit, and Gross Margin
| |
Three Months Ended March
31, | | |
| | |
| |
| |
2024 | | |
2023 | | |
$ Change | | |
% Change | |
Revenue | |
$ | 719 | | |
$ | 433 | | |
$ | 286 | | |
| 66 | % |
Cost of goods sold | |
| 249 | | |
| 480 | | |
| (231 | ) | |
| (48 | )% |
Gross profit (loss) | |
$ | 470 | | |
$ | (47 | ) | |
$ | 517 | | |
| (1,100 | )% |
Gross profit (loss) percentage | |
| 65 | % | |
| (11 | )% | |
| | | |
| | |
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.
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.
Operating Expenses
| |
Three Months Ended March
31, | | |
| | |
| |
| |
2024 | | |
2023 | | |
$ Change | | |
% Change | |
Research and development | |
$ | 669 | | |
$ | 834 | | |
$ | (165 | ) | |
| (20 | )% |
Sales and marketing | |
| 1,381 | | |
| 2,026 | | |
| (645 | ) | |
| (32 | )% |
General and administrative | |
| 1,926 | | |
| 1,979 | | |
| (53 | ) | |
| (3 | )% |
Total operating expenses | |
$ | 3,976 | | |
$ | 4,839 | | |
$ | (863 | ) | |
| (18 | )% |
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).
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).
General and Administrative Expenses.
General and administrative expenses for the three months ended March 31, 2024 increased as compared to the same period in 2023 primarily
due to decreased professional service fees ($159) and stock-based compensation ($3), partially offset by increased insurance costs ($98)
and payroll and employee expenses ($11).
Gain on Investments, Interest Expense
and Other Income (Expense), Net
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.
Comparison of the years ended December 31, 2023 and 2022 (in
thousands, except percentages)
Revenue, Cost of Goods Sold, Gross Profit, and Gross Margin
| |
Years Ended
December 31, | | |
| | |
| |
| |
2023 | | |
2022 | | |
$ Change | | |
% Change | |
Revenue | |
$ | 2,928 | | |
$ | 691 | | |
$ | 2,237 | | |
| 324 | % |
Cost of goods sold | |
| 1,687 | | |
| 1,332 | | |
| 355 | | |
| 27 | % |
Gross profit (loss) | |
$ | 1,241 | | |
$ | (641 | ) | |
$ | 1,882 | | |
| (294 | )% |
Gross profit (loss) percentage | |
| 42 | % | |
| (93 | )% | |
| | | |
| | |
Revenue. The increase in revenue
for the year ended December 31, 2023 as compared to 2022 was primarily due to an increase of 312% in the number of surgical procedures
in which The Catamaran System was used.
Cost of Goods Sold, Gross Profit, and Gross
Margin. The increase in cost of goods sold for the year ended December 31, 2023 as compared to 2022 was due to an increase of 312%
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 overhead into our standard cost.
Operating Expenses
| |
Years Ended December 31, | | |
| | |
| |
| |
2023 | | |
2022 | | |
$ Change | | |
% Change | |
Research and development | |
$ | 3,163 | | |
$ | 2,828 | | |
$ | 335 | | |
| 12 | % |
Sales and marketing | |
| 6,778 | | |
| 7,833 | | |
| (1,055 | ) | |
| (13 | )% |
General and administrative | |
| 7,027 | | |
| 7,423 | | |
| (396 | ) | |
| (5 | )% |
Total operating expenses | |
$ | 16,968 | | |
$ | 18,084 | | |
$ | (1,116 | ) | |
| | |
Research and Development Expenses. Research
and development expenses for the year ended December 31, 2023 increased as compared to 2022 primarily due to increased stock-based compensation
($509) and payroll expenses ($49), partially offset by decreased professional fees ($137).
Sales and Marketing Expenses. Sales
and marketing expenses for the year ended December 31, 2023 decreased as compared to 2022 primarily due to payments in 2022 in association
with the termination of the SpineSource sales agreement ($3,611) and decreased consulting and professional fees ($1,190), partially offset
by increased payroll expenses ($2,388), sales commissions ($1,388) and stock-based compensation ($100). The increase in payroll and payroll
related expenses is primarily due to the increased number of sales and marketing employees as we build out our sales function.
General and Administrative Expenses. General
and administrative expenses for the year ended December 31, 2023 decreased as compared to 2022 primarily due to a legal settlement accrual
in 2022 ($574) and decreased professional service fees ($852), partially offset by increased stock-based compensation ($639) and payroll
expenses ($271).
Gain (Loss) on Investments, Interest Expense
and Other Income (Expense), Net
| |
Years Ended December 31, | | |
| | |
| |
| |
2023 | | |
2022 | | |
$ Change | | |
% Change | |
Gain on investments | |
$ | 167 | | |
$ | 180 | | |
$ | (13 | ) | |
| 7 | % |
Interest expense | |
| (21 | ) | |
| (354 | ) | |
| 333 | | |
| (94 | )% |
Other expense, net | |
| — | | |
| (18 | ) | |
| 18 | | |
| 100 | % |
Total operating expenses | |
$ | 146 | | |
$ | (192 | ) | |
$ | 338 | | |
| | |
Gain on Investments. Gain on investments
for the year ended December 31, 2023 decreased as compared to 2022 due to interest on our lower amounts of investments in money market
and corporate debt securities.
Interest Expense. Interest expense for
the year ended December 31, 2023 decreased as compared to 2022 primarily due to the conversion of our convertible debt in association
with our initial public offering in April 2022.
Other Expense, Net. Other income and expenses
were not significant during the twelve months ended December 31, 2023 and 2022.
Liquidity and Capital Resources
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.
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.
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.
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.
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:
| |
Three Months Ended March 31, | | |
| | |
| |
| |
2024 | | |
2023 | | |
$ Change | | |
% Change | |
Net cash (used in) provided by: | |
| | |
| | |
| | |
| |
Operating activities | |
$ | (2,338 | ) | |
$ | (3,576 | ) | |
$ | 1,238 | | |
| (35 | )% |
Investing activities | |
| (119 | ) | |
| 4,669 | | |
| (4,788 | ) | |
| (103 | )% |
Financing activities | |
| 4,371 | | |
| (42 | ) | |
| 4,413 | | |
| (10,507 | )% |
Effect of foreign currency translation on cash flow | |
| 46 | | |
| (1 | ) | |
| 47 | | |
| (4,700 | )% |
Net increase in cash and cash equivalents | |
$ | 1,960 | | |
$ | 1,050 | | |
$ | 910 | | |
| 87 | % |
| |
Years Ended December 31, | | |
| | |
| |
| |
2023 | | |
2022 | | |
$ Change | | |
% Change | |
Net cash (used in) provided by: | |
| | |
| | |
| | |
| |
Operating activities | |
$ | (12,183 | ) | |
$ | (12,025 | ) | |
$ | (158 | ) | |
| 1 | % |
Investing activities | |
| 6,142 | | |
| (2,884 | ) | |
| 9,026 | | |
| (313 | )% |
Financing activities | |
| 6,302 | | |
| 14,114 | | |
| (7,812 | ) | |
| (55 | )% |
Effect of foreign currency translation on cash flow | |
| 38 | | |
| 7 | | |
| 31 | | |
| (443 | )% |
Net increase (decrease) in cash and cash equivalents | |
$ | 299 | | |
$ | (788 | ) | |
$ | 1,087 | | |
| (138 | )% |
Contractual Obligations
The following table summarizes our contractual obligations as of December 31,
2023:
| |
Payments
Due By Period (In thousands) | |
| |
| | |
Less than | | |
| | |
| | |
More than | |
| |
Total | | |
1 year | | |
1-3 years | | |
4-5 years | | |
5 years | |
Operating leases | |
$ | 756 | | |
$ | 302 | | |
$ | 454 | | |
$ | — | | |
$ | — | |
Convertible debt (1) | |
| 1,260 | | |
| 1,260 | | |
| — | | |
| — | | |
| — | |
Total | |
$ | 2,016 | | |
$ | 1,562 | | |
$ | 454 | | |
$ | — | | |
$ | — | |
(1) | Amount
represents the principal and accrued interest on the convertible debt as of December 31, 2023. Per the terms of the convertible debt,
the entire amount was converted to preferred stock in February 2024. |
Obligations under Terminated Sales Representative
Agreement: On October 6, 2022, we entered into the Terminating Amended and Restated Exclusive Sales Representative Agreement (the
“Termination Agreement”). In accordance with the Termination Agreement, (i) we paid the Representative $1,000 in cash; and
(ii) we agreed to pay the Representative (a) $85 per month during the six months after the date of the Termination Agreement in return
for efforts by the Representative to transition operations to us, (b) 20% of net sales of the Product sold in the United States and Puerto
Rico until December 31, 2023 and (c) after December 31, 2023, 10% of net sales until such time as the aggregate amount paid to the Representative
under this clause (c) and clause (b) above equal $3,600. In the event of an acquisition, we will pay the Representative $3,600 less previous
amounts paid pursuant to clause (b) and clause (c) above. The timing of the payments under clause (b) and (c) is variable depending on
the timing of our sales.
The increase in net cash used in operating activities
for the year ended December 31, 2023 as compared to 2022 was primarily attributable to decreases in our accrued expenses ($2,387) and
accounts payable ($189) and increases in prepaid expenses ($244) and accounts receivable ($138), partially offset by our decreased net
loss ($3,336), adjusted for increases in non-cash stock-based compensation expenses ($1,248) and a decrease in common stock issued for
services ($1,561).
Cash provided by investing activities for the
year ended December 31, 2023 consisted primarily of the net sales of short-term investments of approximately $6.5 million as used those
amounts to fund operations, partially offset by purchases of property and equipment of $0.4 million as we acquired the components for
our surgical tray sets. Cash used in investing activities for the year ended December 31, 2022 consisted primarily of the net purchase
of short-term investments of approximately $2.0 million as we invested a portion of our IPO proceeds, in addition to purchases of property
and equipment of $0.8 million as we acquired the components for our surgical tray sets.
Cash provided by financing activities for the
year ended December 31, 2023 consisted of the $5.3 million, net of relevant expenses, received from our offerings of stock in 2023 in
addition to $1.2 million from the issuance of the Convertible Notes. Cash provided by financing activities for the year ended December
31, 2022 consisted of the $14.1 million cash received from our initial public offering in April 2022, net of relevant expenses.
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).
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).
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.
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 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.
Off-Balance Sheet Arrangements
As of March 31, 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.
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 Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure. Because of the inherent limitations to the effectiveness of any
system of disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that
all control issues and instances of fraud, if any, with a company have been prevented or detected on a timely basis. Even disclosure
controls and procedures determined to be effective can only provide reasonable assurance that their objectives are achieved.
As of March 31, 2024, we carried out an evaluation,
under the supervision and with the participation of our management, including our Chief Executive Officer and President and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule
13a-15(e)) pursuant to Rule 13a-15 of the Exchange Act. Based upon that evaluation, our Chief Executive Officer and President and Chief
Financial Officer concluded that our disclosure controls and procedures are not effective at the reasonable assurance level.
Our size has prevented us from being able
to employ sufficient resources to enable us to have an adequate level of supervision and segregation of duties. Therefore, it is
difficult to effectively segregate accounting duties which comprises a material weakness in internal controls. This lack of
segregation of duties leads management to conclude that the Company’s disclosure controls and procedures are not effective to
give reasonable assurance that the information required to be disclosed in reports that the Company files under the Exchange Act is
recorded, processed, summarized and reported as and when required.
To the extent reasonably possible given our
limited resources, we intend to take measures to cure the aforementioned weaknesses, including, but not limited to, increasing the capacity
of our qualified financial personnel to ensure that accounting policies and procedures are consistent across the organization and that
we have adequate control over our Exchange Act reporting disclosures.
Changes in Internal Control over Financial
Reporting
There have been no changes in our internal
control procedures over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our fiscal quarter
ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
BUSINESS
Introduction
Tenon Medical, Inc. 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 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 US 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.
The Opportunity
We estimate that over 30 million American adults
have chronic lower back pain. Published clinical studies have shown that 15% to 30% of all chronic lower back pain is associated with
the SI-Joint. For patients whose chronic lower back pain stems from the Sacroiliac Joint (“SI-Joint”), our experience in both
clinical trials and commercial settings indicates the system to be introduced by Tenon could be beneficial for patients who are properly
diagnosed and screened for surgery by trained healthcare providers.
In 2019, approximately 475,000 patients in the
United States were estimated to have received an aesthetic injection to temporarily alleviate pain emanating from the SI-Joint and/or
to diagnose SI-Joint pain. Additionally, several non-surgical technologies have been introduced in the past 10 years to address patients
who do not respond to conservative options, including systemic oral medications, opioids, physical therapy and injection therapy.
To date, the penetration of a surgical solution
for this market has been relatively low (5-7%). We believe this is due to complex surgical approaches and suboptimal implant design of
existing options. The penetration of this market with an optimized surgical solution is Tenon’s focus.
We believe the SI-Joint is the last major joint
to be successfully addressed by the spine implant industry. Studies have shown that disability resulting from disease of the SI-Joint
is comparable to the disability associated with a number of other serious spine conditions, such as knee and hip arthritis and degenerative
disc disease, each of which has surgical solutions where an implant is used, and a multi-billion-dollar market exists.
The SI-Joint
The SI-Joint is a strong weight bearing synovial
joint situated between the lumbar spine and the pelvis and is aligned along the longitudinal load bearing axis of the human spine when
in an upright posture. It functions as a force transfer conduit where it transfers axial loads bi-directionally from the spine to the
pelvis and lower extremities and allows forces to be transmitted from the extremities to the spine. It also provides load sharing between
the hip and spine to contribute towards attenuation of impact shock and stress from activities of daily living.
The SI-Joint is a relatively immobile joint that
connects the sacrum (the spinal segment that is attached to the base of the lumbar spine at the L5 vertebra) and the ilium of the pelvis.
Each SI-Joint is approximately 2-4mm wide and irregularly shaped.
Motion of the SI-Joint features vertical shear
and rotation. Although the rotational forces about the SI-Joint are relatively low, repetitive motions created by daily activities such
as walking, jogging, twisting at the hips, and jumping can increase the stresses on the SI-Joint. If the SI-Joint is compromised through
injury or degeneration, the load bearing and motion restraints from the surrounding anatomical structures of the SI-Joint will be compromised
resulting in abnormal stress transfers across the joint to these structures, thereby further augmenting the degenerative cascade of the
SI-Joint. Eventual pain and cessation of an individual’s normal activities due to a painful and unstable SI-Joint have led to an
increase in the recent development of SI-Joint stabilization devices.
Non-Surgical Treatment of Sacroiliac Joint
Disease
Several non-surgical treatments exist for suspected sacroiliac
joint pain. These conservative steps often provide desired relief for the patient. Non-surgical treatments include:
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Drug Therapy: including opiates and non-steroidal anti-inflammatory medications. |
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Physical Therapy: which can involve exercises as well as massage. |
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Intra-Articular Injections of Steroid Medications: which are typically performed by physicians who specialize in pain treatment or anesthesia. |
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Radiofrequency Ablation: or the cauterizing of the lateral branches of the sacral nerve roots. |
When conservative steps fail to deliver sustained
pain relief and return to quality of life, specific diagnostic protocols are utilized to explore if a surgical option should be considered.
Diagnosis
Historically, diagnosing pain from the SI-Joint
was not routinely a focus of orthopedic or neurosurgery training during medical school or residency programs. Due to its invasiveness,
post-operative pain, and muscle disruption along with a difficult procedure overall, the open SI-Joint fusion procedure was rarely taught
in these settings.
The emergence of various SI-Joint surgical technologies
has generated a renewed discussion of SI-Joint issues. Of particular focus is the diagnostic protocol utilized to properly select patients
for SI-Joint surgery. Patients with low back pain typically start with primary care physicians who often refer to pain specialists. Here,
the patient will undergo traditional physical therapy combined with oral medications (anti-inflammatory, narcotic, etc.). If the patient
fails to respond to these steps the pain specialist may move to therapeutic injections of the SI-Joint. These injections may serve to
lessen inflammation to the point that the patient is satisfied. However, the impact from these injections is often transient. In this
case the patient is often referred to a clinician to determine if the patient may be a candidate for surgical intervention. A series of
provocative tests in clinic, combined with a specific injection protocol to isolate the SI-Joint as the pain generator is then utilized
to confirm the need for surgical intervention. Published literature has shown this technique to be a very effective step to determine
the best treatment to alleviate pain.
Limitations of Existing Treatment Options
Surgical fixation and fusion of the SI-Joint with
an open surgical technique was first reported in 1908, with further reports in the 1920s. The open procedure uses plates and screws, requires
a 6 to 12-inch incision and is extremely invasive. Due to the high invasiveness and associated morbidity, the use
of this procedure is limited to cases involving significant trauma, tumor, etc.
Less invasive surgical options along with implant
design began to emerge over the past 15 years. These options feature a variety of approaches and implant designs and have been met with
varying degrees of adoption. Lack of a standard and accepted diagnostic approach, complexity of approach, high morbidity of approach,
abnormally high complication rates and inability to radiographically confirm fusion have all been cited as reasons for low adoption of
these technologies.
The Market
Based on market research and internal estimates,
we believe the potential market for surgical intervention of the SI-Joint to be 279,000 procedures annually in the U.S. alone, for a potential
annual market of more than $2.2 billion. These estimates are driven by coding data for SI-Joint injections to treat pain and informed
assumptions relative to surgical intervention candidacy.
Based on public information, we believe that the
largest clinical device supplier in this market does approximately 10-11,000 SI-Joint fixations a year representing the largest market
share. The other competitive devices that are offered are all products generally part of much larger companies with a variety of orthopedic
devices and as such do not specifically call out the number of specific SI-Joint procedures performed with their products. It is our belief
that all other competitive devices represent approximately another 5,000 potential SI-Joint procedures.
Based on this analysis we believe the market is
vastly underserved and only penetrated 5-7%, leaving tremendous upside for a next generation device that meets the needs of this market.
Competitive Landscape
We believe we are the first company to develop
and manufacture a novel Inferior Posterior approach featuring a dual pontoon fixation technology cleared by the FDA expressly for SI-Joint
fusion. The approach, referred to as Inferior Posterior Sacroiliac Fusion is focused on these critical aspects of the surgical procedure:
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Designed for Safety: the approach trajectory and angle are away from the neural foramen. |
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Focus on Efficiency: the approach is designed to be direct to the SI-Joint, which allows for visualization of the joint and is designed to pass through minimal muscle structures, which may result in a faster and more efficient surgical procedure and reduced post-op pain for the patient. |
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Targeted Anatomy: the approach places the implant in the aspect of the SI-Joint with the densest bone, designed to provide maximum fixation and resistance to vertical shear. This is designed to provide a secure press fit of the implant, reducing the incidence of revision surgery due to implant loosening, which we believe is the reason for many competitive device failures as reported to the FDA Medical Device Reporting (MDR). |
Note the trajectory used in the Inferior Posterior
approach:
Over
the past several years, other companies have recognized the opportunity and have entered
the minimally invasive SI-Joint fixation market. However, these products are either screw/triangular
rod-based or allograft products, which we believe have disadvantages when compared to The
Catamaran System.
In the United States, we believe that our primary
competitors will be SI-Bone, Inc., Globus Medical, Inc., Medtronic plc and RTI Surgical, Inc. We also compete against non-hardware products,
such as allograft bone implants. These allograft products are comprised of human cells or tissues and are regulated by the FDA differently
from implantable medical devices made of metallic or other non-tissue-based materials. The following chart is a comparison of specifications
and features among the various available clinical devices:
Current Clinical Device Comparison – SI-Joint
We believe from our study of the market that many
physicians who have been trained to use one of the existing clinical devices have not adopted the procedure for a variety of reasons.
Complexity of approach, high morbidity of approach, abnormally high complication rates and inability to radiographically confirm fusion
have all been cited as reasons for low adoption of these technologies.
The following are the primary factors on which companies compete in
our industry:
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product and clinical procedure effectiveness; |
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ease of surgical technique and use of associated instruments; |
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safety; |
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published clinical outcomes and evidence; |
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sales force knowledge and service levels; |
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product support and service, and customer service; |
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comprehensive training, including disease, anatomy, diagnosis, and treatment; |
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product innovation and the speed of innovation; |
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intellectual property; |
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accountability and responsiveness to customers’ demands; |
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pricing and reimbursement; |
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scientific (biomechanics) data; and |
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attracting and retaining key personnel. |
We believe that refined approaches and improved
implant design will open the door to enhanced adoption and further penetration of this important market.
The Catamaran™ SI-Joint Fusion System
Solution
Until October 2022, we sold The Catamaran™
SI-Joint Fusion System to a limited number of clinician advisors to refine the product for a full commercial launch. In October 2022,
we initiated a full commercial launch at the NASS meeting in Chicago. The Catamaran System includes instruments and implants designed
to prepare and fixate the SI-Joint for fusion. We believe The Catamaran System will address a large market opportunity with a superior
product and is distinct from other competitive offerings in the following ways:
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Transfixes the SI joint |
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Inferior Posterior Sacroiliac Fusion Approach (PiSIF™) |
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Reduced Approach Morbidity |
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Direct And Visualized Approach to the SI-Joint |
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Single Implant Technique |
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Insertion Trajectory Away from the Neural Foramen |
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Insertion Trajectory Away from Major Vascular Structures |
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Autologous Bone Grafting in the Ilium, Sacrum and Bridge |
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Radiographic Confirmation of Bridging Bone Fusion of the SI-Joint |
The fixation device and its key features are shown
below:
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Key Features
“Pontoon” in the ilium
“Pontoon” in the sacrum
“Pontoons and Bridge” filled with autologous bone
from drilling process
Leading edge osteotome creates defect and facilitates ease of
insertion |
The
Catamaran System is a singular implant designed with several proprietary components which
allow for it to be explicitly formatted to transfix the SI-Joint with a single approach and
implant. This contrasts with several competitive implant systems that require multiple approach
pathways and implants to achieve fixation. In addition, the Inferior Posterior approach is
designed to be direct to the joint and through limited anatomical structures which may minimize
the morbidity of the approach. The implant features a patented dual pontoon open cell design
which enables the clinician to pack the pontoons with the patient’s own autologous
bone designed to promote bone fusion across the joint. The Catamaran System is designed specially
to resist vertical shear and rotation of the joint in which it was implanted, helping stabilize
the joint in preparation for eventual fusion.
The instruments we have developed are proprietary
to The Catamaran System and specifically designed to facilitate an Inferior Posterior approach that is unique to the system.
We also have developed a proprietary 2D placement
protocol as well as a protocol for 3D navigation utilizing the latest techniques in spine surgery. These Tenon advancements are intended
to further enhance the safety of the procedure and encourage more physicians to adopt the procedure.
The Catamaran System, as mentioned previously,
is placed in the densest aspect of the SI-Joint as confirmed by the pre-op planning images below:
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Surgical Plan Key:
Yellow: Guidewire
Purple: Lateral Pontoon (Ilium)
Green: Medial Pontoon (Sacrum)
Notes:
Upper Right Quadrant: The green and purple pontoons
represent the placement in the dense bone inferior – contrasted with the dorsal gap superiorly where competitive systems are most
often placed.
Lower Right Quadrant: The yellow and purple
outlines represent The Catamaran System pontoons, illustrating the angle of insertion is away from the sacral neuro foramen
providing for a much safter trajectory for device implantation. |
The Procedure
We
believe The Catamaran System and its differentiated characteristics allow for an efficient
and effective procedure designed to deliver short-term stabilization and long-term fusion
that can be confirmed radiographically. Shown below is an illustration demonstrating the
unique placement of The Catamaran System inserted Inferior Posterior and coming directly
down to and transfixing the joint.
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The Catamaran System procedure is typically
performed under general anesthesia using a specially designed instrument set we provide to prepare for the Inferior Posterior access
to the SI-Joint. Specially designed imaging and navigation protocols are designed to ensure the clinician has the proper Entry Point,
Trajectory, Angle and Depth (ETAD™) so that the pontoons of The Catamaran System are placed for maximum fixation. The Catamaran
System incorporates two pontoons and is designed so that when the system is impacted into the bone one pontoon is on the Illum side and
the other is in the Sacrum side with the bridge spanning the joint, preventing shear and rotation of the joint. The device also features
an open cell design where the patient’s own (autologous) bone is packed into the pontoons and the bridge to facilitate fusion across
the joint. The leading edge of the bridge is designed to act as an osteotome, providing a self-created deficit upon insertion. These
features are designed to create an ideal environment for bone ingrowth and fusion. Below is a fluoroscopic image of an implanted Catamaran
Fixation Device spanning the SI-Joint.
We believe the surgical approach and implant
design it has 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. Our initial clinical results indicate that The Catamaran System is promoting fusion
across the joint as evidenced by post-op CT scans (the recognized gold standard widely accepted by the Clinical community).
Post-Op fluoroscopic image of
implant spanning the SI-Joint |
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6-Month CT-Scan showing clear
bridging bone fusion |
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A
preliminary 18 case series (Michael Joseph Chaparro, MD, F.A.A.N.S., F.A.C.S.) has documented
that The Catamaran System does in fact promote fusion across the SI-Joint, which many of
our competitors have not been able to demonstrate. While products from some of our competitors
use screws and triangular wedges to treat the SI-Joint, most do not effectively resist the
vertical shear and twisting within the joint. This 18 patient series was presented at the
North American Spine Society Annual Meeting in Chicago, IL in October 2022.
An independent biomechanical study (Lisa Ferrara,
Ph.D. OrthoKinetic Technologies, LLC now part of Element) demonstrated that a single Catamaran SIJ Fixation Device was superior to predicate
device in the areas of Fixation Strength, Shear Stiffness, Dynamic Endurance and Pullout Strength. We hold issued patents on The Catamaran
System and its unique features including the dual pontoons and the open cell structure for bone graft packing. We also hold an issued
patent for the method of placing The Catamaran System into the SI-Joint where one pontoon is in the ilium and the other in the sacrum.
The Catamaran System’s unique design
has already demonstrated radiographically confirmed fusion in initial patients. We believe that this beneficial advantage along with
a simpler, safer, and less painful procedure will make this the procedure of choice for most physicians. We have initiated post market,
IRB controlled clinical trials to demonstrate this technology delivers on these advantages.
Coverage and Reimbursement
When a Tenon procedure utilizing The Catamaran
System is performed, the healthcare facility, either a hospital (inpatient or outpatient clinic), and the clinician submit claims
for reimbursement to the patient’s insurer. Generally, the facility obtains a lump sum payment, or facility fee, for SI-Joint fusions.
Our products are purchased by the facility, along with other supplies used in the procedure. The facility must also pay for its own fixed
costs of operation, including certain operating room personnel involved in the procedure, ICD and other medical services care. If these
costs exceed the facility reimbursement, the facility’s managers may discourage or restrict clinicians from performing the procedure
in the facility or using certain technologies, such as The Catamaran System, to perform the procedure.
The Medicare 2023 national average hospital inpatient
payment for SI-Joint procedures ranges from approximately $25,661 to approximately $46,437 depending on the procedural approach and the
presence of Complication and Comorbidity/Major Complication and Comorbidity.
The Medicare 2023 national average hospital
outpatient clinic payment is $17,756. We believe that insurer payments to facilities are generally adequate for these facilities to offer
The Catamaran System procedure.
Physicians are reimbursed separately for their
professional time and effort to perform a surgical procedure. Depending on the surgical approach, the incision size, type and extent
of imaging guidance, indication for procedure, and the insurer, The Catamaran System procedure may be reported by the physician using
any one of the applicable following CPT® codes 27279, 27280, 27299. The Medicare 2022 national average payment for CPT® 27279
is $807 and $1,352 for 27280. CPT® 27299 has no national valuation. Clinicians, however, can present a crosswalk to another procedure
believed to be fairly equivalent and/or comparison to a code for which there is an existing valuation.
For some governmental programs, such as Medicaid,
coverage and reimbursement differ from state to state, and some state Medicaid programs may not pay an adequate amount for the procedures
performed with our products, if any payment is made at all. Similar to Medicaid, many private payors’ coverage and payment may differ
from one payer to another.
We believe that some clinicians view the current
Medicare reimbursement amount as insufficient for current SI-Joint procedures, given the work effort involved with the procedure, including
the time to diagnose the patient and obtain prior authorization from the patient’s health insurer when necessary. Many private payors
require extensive documentation of a multi-step diagnosis before authorizing SI-Joint fusion for a patient. We believe that some private
payors apply their own coverage policies and criteria inconsistently, and clinicians may experience difficulties in securing approval
and coverage for sacroiliac fusion procedures. Additionally, many private payors limit coverage for open SI-Joint fusion to trauma, tumors
or extensive spine fusion procedures involving multiple levels.
We believe the unique design of The Catamaran
System and the fact The Catamaran System may be placed both via an open procedure based on the clinician’s determination of trauma
induced SI-Joint pain or as a minimally invasive approach provides a unique and differentiated approach for the clinician to determine
the reimbursement code that best fits the clinical problem. We believe this is a significant advantage over competitive devices by providing
the clinician the clinical flexibility of offering the best clinical solution and approach for patients.
Sales and Marketing
We will market and sell The Catamaran System
primarily through independent distributors and sales representatives specializing in orthopedics and spine sales. Our target customer
base includes approximately 12,000 physicians who perform spine and/or pelvic surgical procedures.
We will provide general sales and marketing
training to our independent sales representative along with comprehensive, hands-on cadaveric and dry-lab training sessions focusing
on the clinical benefits of The Catamaran System and the importance of using the 2D and 3D protocols we have developed. We believe many
clinicians have already been trained using one of the alternative products but have not been satisfied with the approach and technology.
This provides us with an opportunity to demonstrate to an already-trained-clinician the unique attributes of The Catamaran System.
Our business objective is to introduce the Next
Generation Implant for SI-Joint Fixation. The past 10 years has seen an acceleration in recognition and discussion of the SI-Joint as
a cause of pain that can be treated. However, adoption has been hindered by complexity of the procedure as evidenced by the significant
number of reported Medical Device Records (MDR’s). The need for multiple implants and resulting post-op pain has also contributed
to low adoption numbers. Our strategy is to provide a safer, faster, and better surgical experience and a significant pain reduction benefit
for the patient. Our goals are simple but impactful and as such we plan on the following:
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Educate and inform physicians
and other healthcare providers, payors, and patients about the growing body of evidence supporting what we believe is the safety,
durable clinical effectiveness, economic benefit, and reduction in opioid use associated with SI-Joint fixation and The Catamaran
System procedure. |
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Utilize the most effective means of training via video and in-person labs demonstrating the ease of use with 2D and 3D navigation. Since many physicians have already been trained but have not incorporated SI-Joint fixation into their practices we will work with these physicians to reengage and train them on the Next Generation of an SI-Joint implant which incorporates a safer and simpler approach. |
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Utilize the best approaches of direct-to-consumer outreach to educate patients that there is a safe solution to help them improve their quality of life. Additionally, to reach the broadest physician and patient audience on case study results from around the United States we plan to implement an active social media campaign incorporating Facebook, Instagram, YouTube, etc. |
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Invest in our independent sales representative network to ensure that all Tenon representatives have the latest in marketing and education tools to reduce the time from training to adoption. |
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Remain true to our next generation product development strategy by continually bringing out new advancements in and around the SI-Joint and pelvic region. |
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Continue to grow our existing intellectual property portfolio. |
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Execute post-market clinical research to confirm the benefits of the distinct approach and implant. |
Regulatory Status
We have received FDA 510(k) clearance to market
and sell The Catamaran System for sacroiliac joint fusion for conditions including sacroiliac joint disruptions and degenerative sacroiliitis.
Research & Development
Our
initial development of The Catamaran System has incorporated several differentiating features
which we believe will make an important contribution for many patients suffering from SI-Joint
pain. To our knowledge no other competitive product incorporates these Next Generation features:
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Dual Pontoon implant that transfixes the targeted joint; |
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Open cell design designed for utilizing the patient’s own autologous bone for promotion of fusion; |
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Bridge design between the dual pontoons for enhanced strength; |
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Leading edge of the implant designed to function as an osteotome providing a self-creating defect feature not available with competitive systems; |
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Single implant designed with varying pontoon sizes to ensure a robust fixation based on anatomy; and |
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Additional smaller Catamaran designed for smaller anatomy and/or revision surgery. |
The Tenon development plan is to expand The
Catamaran System offering by introducing a series of progressively longer pontoons so that the clinician has a full complement of sized
implants to choose from depending on the patient’s anatomy. These product enhancements will enable the clinician to optimize the
size of each implant to ensure full fixation based on anatomy. We believe, based on literature searches of prior SI-Joint fixation technologies,
that adverse event incidence where the implant has loosened or been misplaced thereby requiring a revision surgery could reach 20%. We
believe that our ability to make The Catamaran System a specifically sized fixation device will benefit many patients requiring a revision
surgery.
The Catamaran System shown below has been
cleared by the FDA for commercialization. This patented titanium implant incorporates The Catamaran SI-Joint Fixation Device pontoon
design and the open cell configuration which we believe, when filled with the patient’s autologous bone, promotes fusion. The two
images below show a comparison of a competitive implant requiring three implants and The Catamaran System unique pontoon design showing
the need of only one implant to cover the same amount of the SI-Joint.
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The Catamaran™ SIJ Fusion
System Single Implant |
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SI Bone iFuse® Three Implants
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Our mission will be to continue developing
enhancements to The Catamaran System to meet our customers’ changing needs and to improve the surgery’s effectiveness. This
includes revision surgery options as well as options as an adjunct to long fusion constructs in the lumbar spine.
Additionally, we will initiate various post
marketing clinical studies in accordance with FDA cleared indications for use. Since we have already received FDA 510(k) clearance to
market The Catamaran System, our clinical study activities will be focused on capturing post-market safety and efficacy data. Tenon has
received IRB approval for two post-market trials, including a 50 patient, 10 center multi-center trial and a prospective CT trial to
demonstrate fusion in patient who have already been treated with The Catamaran System. Clinical study endpoints may include but are not
limited to; pain scoring, length of surgical procedure, blood loss, post-op pain, length of stay, duration of non-weight-bearing post-op,
radiographic confirmation of fusion and surgical complication rates. Statistical analysis plans may be designed to demonstrate non-inferiority
to historical control, as reported in published literature, which may be used for submission to peer reviewed articles/posters/presentations
and the like.
Intellectual Property
Developing and maintaining a strong intellectual
property position is an important element of our business. We maintain the intellectual property through a combination of patent protection,
trademarks, and trade secrets. We have sought, and will continue to seek, patent protection for our technology, for improvements to our
technology, as well as for any of our other technologies where we believe such protection will be advantageous.
As of July 3, 2024, we own four (4) issued
U.S. utility patents, eighteen (18) pending U.S. utility patent applications, four (4) issued foreign utility patents in Australia, Canada,
Japan and Israel, and two (2) pending foreign utility patent applications in the European Community, Brazil and Japan. We also have thirteen
(13) registered trademarks (seven (7) U.S. and six (6) foreign) and twelve (12) pending trademark applications in the U.S.
Our utility patents and patent applications are
directed to several different aspects of our sacroiliac (SI) joint stabilization technology and related patent platform. By way of example,
our granted patents and pending patent applications cover various structural features of our unique Catamaran SI-Joint prosthesis and
means for employing same to stabilize a dysfunctional SI-Joint.
The term of individual patents depends on the
legal term for patents in the countries in which they are granted. In most countries, including the United States, the patent term for
a utility patent is generally 20 years from the earliest claimed filing date of a nonprovisional patent application in the applicable
country. Our issued U.S. and foreign utility patents are anticipated to naturally expire around 2031, and our U.S. pending utility patent
applications, if issued into patents, are similarly anticipated to naturally expire around 2031, excluding any additional patent term
adjustment(s) or extension(s), and assuming payment of all applicable maintenance or annuity fees. Once a patent expires, patent protection
ends and an invention enters the public domain allowing anyone to commercially exploit the invention without infringing the patent.
We cannot guarantee that patents will be issued
from any of our pending applications or that issued patents will be of sufficient scope or strength to provide meaningful protection for
our technology. Notwithstanding the scope of the patent protection available to us, a competitor could develop methods or devices that
are not covered by our patents or circumvent these patents. Furthermore, although, at present, we are unaware of any patent applications
that may result in one or more issued patents that our existing products or technologies may be alleged to infringe, since U.S. and foreign
applications can take many months to publish, there may be applications unknown to us that may result in one or more issued patents that
our existing products or technologies may be alleged to infringe.
As of July 3, 2024, we also have priority
rights in and to several significant trademarks that support our products and brand, including seven (7) registered U.S. trademarks,
twelve (12) U.S. trademark applications and six (6) foreign trademark applications in the European Community (excluding the United Kingdom),
Australia and Japan.
Regulation
Domestic Regulation of Our Products and
Business. Our research, development and clinical programs, as well as our manufacturing and marketing operations, are subject
to extensive regulation in the United States and other countries. Most notably, all of our products sold in the United States are subject
to the federal Food, Drug and Cosmetic Act (the “FDCA”), as implemented and enforced by the FDA. The FDA governs the following
activities that we perform or that are performed on our behalf, to ensure that medical products distributed domestically or exported internationally
are safe and effective for their intended uses:
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product design, development, and manufacture; |
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product safety, testing, labeling, and storage; |
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record keeping procedures; |
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product marketing, sales, distribution and export; and |
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post-marketing surveillance, complaint handling, medical device reporting, reporting of deaths, serious injuries or device malfunctions, and repair or recall of products. |
There are numerous FDA regulatory requirements
governing the clearance or approval and marketing of our products. These include:
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product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action; |
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investigational device exemptions to conduct premarket clinical trials, which include extensive monitoring, recordkeeping, and reporting requirements; |
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QSR, which requires manufacturers, including contract manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the manufacturing process; |
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labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or off-label use or indication; |
|
● |
clearance of product modifications that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of our cleared devices; |
|
● |
approval of product modifications that affect the safety or effectiveness of one of our approved devices; |
|
● |
medical device reporting regulations, which require that manufacturers comply with FDA requirements to report if their device may have caused or contributed to a death or serious injury, or has malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction of the device or a similar device were to recur; |
|
● |
post-approval restrictions or conditions, including post-approval study commitments; |
|
● |
post-market surveillance regulations, which apply when necessary to protect the public health or to provide additional safety and effectiveness data for the device; |
|
● |
the FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is in violation of governing laws and regulations; |
|
● |
regulations pertaining to voluntary recalls; and |
|
● |
notices of corrections or removals. |
The FDA has broad post-market and regulatory enforcement
powers. We and our contract manufacturers are subject to announced and unannounced inspections by the FDA to determine our compliance
with the QSR and other regulations and these inspections may include the manufacturing facilities of our suppliers. Tenon has a robust
Supplier Qualification and Audit process as part of our quality system that ensures contract manufacturers, and their suppliers meet all
requirements.
An
FDA pre-approval inspection is not required for The Catamaran System due to its lower device
classification, class II versus the higher class III. As is the case for most medical
device firms, Tenon is subject to routine and “for cause” FDA inspections. Routine
inspections are mandated by law every 2 years for class II and class III device
manufacturers and make up the majority of FDA’s inspections. If a serious public health
risk is identified during a routine inspection, the inspection may convert to a “for
cause” inspection. In the current environment, FDA has limited compliance resources
and has not been able to perform routine inspections in accordance with the 2-year mandate. Therefore,
FDA uses a risk-based approach when deciding which firms should be selected for a routine
inspection. Using the Establishment Registration and Device Listing databases, FDA identifies
who manufactures and/or distributes which devices. The firms are then prioritized by risk,
class III > class II > class I. Firms that have recently introduced a new device to
the market also are given higher priority, as well as those that have had significant prior
violations and complaints. At present, Tenon has not been selected for an FDA inspection. Tenon
uses best practices to secure and maintain regulatory compliance by engaging with suppliers
and contract manufacturing firms that are ISO 13485 (or equivalent) compliant and by periodically
performing internal, external, and third-party inspections and audits of the facilities and
systems to assess compliance.
FDA Premarket Clearance and Approval Requirements.
Unless an exemption applies, each medical device we wish to commercially distribute in the United States will require either premarket
notification, or 510(k), clearance or approval of a PMA from the FDA. The FDA classifies medical devices into one of three classes. Devices
deemed to pose lower risks are placed in either Class I or II, which typically requires the manufacturer to submit to the FDA a premarket
notification requesting permission to commercially distribute the device. This process is generally known as 510(k) clearance. Some low-risk
devices are exempted from this requirement. Devices deemed by the FDA to pose the greatest risks, such as life-sustaining, life- supporting
or implantable devices, or devices deemed not substantially equivalent to a previously cleared 510(k) device, are placed in Class III,
requiring a PMA. If the FDA agrees that the device is substantially equivalent to a predicate device currently on the market, it will
grant 510(k) clearance to commercially market the device. If the FDA determines that the device is “not substantially equivalent”
to a previously cleared device, the device is automatically designated as a Class III device. The device sponsor must then fulfill
more rigorous PMA requirements or can request a risk-based classification determination for the device in accordance with the “de
novo” process, which is a route to market for novel medical devices that are low to moderate risk and are not substantially equivalent
to a predicate device. All of our currently marketed products are Class II devices, subject to 510(k) clearance.
After a device receives 510(k) marketing clearance,
any modification that could significantly affect its safety or effectiveness, or that would constitute a major change or modification
in its intended use, will require a new 510(k) marketing clearance or, depending on the modification, PMA approval. The determination
as to whether or not a modification could significantly affect the device’s safety or effectiveness is initially left to the manufacturer
using available FDA guidance. Many minor modifications today are accomplished by a “letter to file” in which the manufacture
documents the rationale for the change and why a new 510(k) is not required. However, the FDA may review such letters to file to evaluate
the regulatory status of the modified product at any time and may require the manufacturer to cease marketing and recall the modified
device until 510(k) clearance or PMA approval is obtained. The manufacturer may also be subject to significant regulatory fines or penalties.
Clinical Trials. Clinical trials
are generally required to support a PMA application and are sometimes required for 510(k) clearance. Such trials for implanted devices
such as The Catamaran SIJ Fixation Device generally require an investigational device exemption application, or IDE, approved in advance
by the FDA for a specified number of subjects and study sites, unless the product is deemed a nonsignificant risk device eligible for
more abbreviated IDE requirements. Clinical trials are subject to extensive monitoring, recordkeeping, and reporting requirements. Clinical
trials must be conducted under the oversight of an institutional review board, or IRB, for the relevant clinical trial sites and must
comply with FDA regulations, including but not limited to those relating to good clinical practices. To conduct a clinical trial, we
also are required to obtain the subjects’ informed consent in form and substance that complies with both FDA requirements and state
and federal privacy and human subject protection regulations. We, the FDA, or the institutional review board, or IRB, could suspend a
clinical trial at any time for various reasons, including a belief that the risks to study subjects outweigh the anticipated benefits.
Even if a trial is completed, the results of clinical testing may not adequately demonstrate the safety and effectiveness of the device
or may otherwise not be sufficient to obtain FDA clearance or approval to market the product in the United States.
Pervasive and Continuing Regulation. After
a device is placed on the market, numerous regulatory requirements continue to apply. These include:
|
● |
Product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action; |
|
● |
QSR, which requires manufacturers, including contract manufacturers, to follow stringent design, testing, control, documentation, and other quality assurance procedures during all aspects of the manufacturing process; |
|
● |
labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved, or off-label use or indication; |
|
● |
clearance of product modifications that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of our cleared devices; |
|
● |
approval of product modifications that affect the safety or effectiveness of one of our approved devices; |
|
● |
post-approval restrictions or condition, including post-approval study commitments; |
|
● |
post-market surveillance regulations, which apply when necessary to protect the public health or to provide additional safety and effectiveness data for the device; |
|
● |
the FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is in violation of governing laws and regulations; |
|
● |
regulations pertaining to voluntary recalls; and |
|
● |
notices of corrections or removals. |
The FDA has broad post-market and regulatory enforcement
powers. We are subject to unannounced inspections by the FDA to determine our compliance with the QSR and other regulations, and these
inspections may include the manufacturing facilities of some of our subcontractors. Failure by us or by our suppliers to comply with applicable
regulatory requirements can result in enforcement action by the FDA or other regulatory authorities, which may result in sanctions including,
but not limited to:
|
● |
untitled letters, warning letters, fines, injunctions, consent decrees, and civil penalties; |
|
● |
unanticipated expenditures to address or defend such actions |
|
● |
customer notifications for repair, replacement, refunds; |
|
● |
Recall, detention, or seizure of our products; |
|
● |
operating restrictions or partial suspension or total shutdown of production; |
|
● |
refusing or delaying our requests for 510(k) clearance or PMA approval of new products or modified products; |
|
● |
operating restrictions; |
|
● |
withdrawing 510(k) clearances or PMA approvals that have already been granted: |
|
● |
refusal to grant export approval for our products; or |
The FDA has not yet inspected our contract manufacturer’s manufacturing
facilities.
Promotional Materials “Off-Label”
Promotion. Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the
Federal Trade Commission and by state regulatory and enforcement authorities. If the FDA determines that our promotional materials or
training constitutes promotion of an unapproved use, it could request that we modify our training or promotional materials or subject
us to regulatory or enforcement actions, including the issuance of an untitled letter, a warning letter, injunction, seizure, civil fine,
or criminal penalties. It is also possible that other federal, state, or foreign enforcement authorities might take action if they consider
our promotional or training materials to constitute promotion of an unapproved use, which could result in significant fines or penalties
under other statutory authorities, such as laws prohibiting false claims for reimbursement. In that event, our reputation could be damaged,
and adoption of the products would be impaired.
In addition, under the federal Lanham Act and
similar state laws, competitors, and others can initiate litigation relating to advertising claims.
Healthcare Fraud and Abuse
Federal and state governmental agencies and equivalent
foreign authorities subject the healthcare industry to intense regulatory scrutiny, including heightened civil and criminal enforcement
efforts. These laws constrain the sales, marketing and other promotional activities of medical device manufacturers by limiting the kinds
of financial arrangements we may have with hospitals, physicians and other potential purchases of our products. Federal healthcare fraud
and abuse laws apply to our business when a customer submits a claim for an item or service that is reimbursed under Medicare, Medicaid,
or other federally funded healthcare programs. Descriptions of some of the laws and regulations that may affect our ability to operate
follows.
The federal Anti-Kickback Statute prohibits, among
other things, persons from knowingly and willfully soliciting, receiving, offering, or paying remuneration, directly or indirectly, in
cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, items or services
for which payment may be made, in whole or in part, under federal healthcare programs. The term “remuneration” has been broadly
interpreted to include anything of value, and the government can establish a violation of the Anti-Kickback Statute without proving that
a person or entity had actual knowledge of, or a specific intent to violate, the law. The Anti-Kickback Statute is subject to evolving
interpretations and has been applied by government enforcement officials to a number of common business arrangements in the medical device
industry. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution; however,
those exceptions and safe harbors are drawn narrowly, and there is no exception or safe harbor for many common business activities. Failure
to meet all of the requirements of a particular statutory exception or regulatory safe harbor does not make the conduct per se illegal
under the Anti-Kickback Statute, but the legality of the arrangement will be evaluated on a case-by-case basis based on the totality of
the facts and circumstances. A number of states also have anti-kickback laws that establish similar prohibitions that may apply to items
or services reimbursed by government programs, as well as by any third-party payors, including commercial payors.
The civil False Claims Act prohibits, among other
things, knowingly presenting or causing the presentation of a false or fraudulent claim for payment of federal funds, or knowingly making,
or causing to be made, a false record or statement material to a false or fraudulent claim to avoid, decrease or conceal an obligation
to pay money to the federal government. A claim including items or services resulting from a violation of the Anti- Kickback Statute constitutes
a false or fraudulent claim for purposes of the False Claims Act. Actions under the False Claims Act may be brought by the government
or as a qui tam action by a private individual in the name of the government. Qui tam actions are filed under seal and impose
a mandatory duty on the U.S. Department of Justice to investigate such allegations. Most private citizen actions are declined by the Department
of Justice or dismissed by federal courts. However, the investigation costs for a company can be significant and material even if the
allegations are without merit. There are also criminal penalties, including imprisonment and criminal fines, for making or presenting
a false or fictitious or fraudulent claim to the federal government.
False Claims Act liability is potentially significant
in the healthcare industry because the statute provides for treble damages and mandatory penalties of $11,181 to $22,363 per claim (adjusted
annually for inflation). Because of the potential for large monetary exposure, healthcare companies often resolve allegations without
admissions of liability for significant and sometimes material amounts to avoid the uncertainty of treble damages and per claim penalties
that may awarded in litigation proceedings. Moreover, to avoid the risk of exclusion from federal healthcare programs as a result of a
False Claims Act settlement, companies may enter into corporate integrity agreements with the government, which may impose substantial
costs on companies to ensure compliance.
In addition, HIPAA created federal criminal statutes
that prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit
program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully
obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material
fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits,
items or services.
The federal Physician Payment Sunshine Act, implemented
by CMS as the Open Payments program, requires manufacturers of drugs, devices, biologics and medical supplies for which payment is available
under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to CMS information related to payments or
other “transfers of value” made to physicians and teaching hospitals, and requires applicable manufacturers to report annually
to CMS ownership and investment interests held by physicians and their immediate family members and payments or other “transfers
of value” to such physician owners.
Certain states also mandate implementation of
corporate compliance programs, impose restrictions on device manufacturer marketing practices, and/or require tracking and reporting of
gifts, compensation, and other remuneration to healthcare professionals and entities.
The Foreign Corrupt Practices Act and similar
anti-bribery laws in other countries, such as the UK Bribery Act, generally prohibit companies and their intermediaries from making improper
payments to government officials and/or other persons for the purpose of obtaining or retaining business. Our policies mandate compliance
with these anti-bribery laws.
Violations of these federal and state fraud abuse
laws can subject us to administrative, civil, and criminal penalties, including imprisonment, substantial fines, penalties, damages, and
exclusion from participation in federal healthcare programs, including Medicare and Medicaid.
Data Privacy and Security Laws
HIPAA requires the notification of patients, and
other compliance actions, in the event of a breach of unsecured PHI. If notification to patients of a breach is required, such notification
must be provided without unreasonable delay and in no event later than 60 calendar days after discovery of the breach. In addition, if
the PHI of 500 or more individuals is improperly used or disclosed, we could be required to report the improper use or disclosure to the
U.S. Department of Health and Human Services, or HHS, which would post the violation on its website, and to the media. Failure to comply
with the HIPAA privacy and security standards can result in civil monetary penalties up to $55,910 per violation, not to exceed $1.68 million
per calendar year for non-compliance of an identical provision, and, in certain circumstances, criminal penalties with fines up to $250,000
per violation and/or imprisonment.
In addition, even when HIPAA does not apply, according
to the FTC, failing to take appropriate steps to keep consumers’ personal information secure constitutes unfair acts or practices
in or affecting commerce in violation of Section 5(a) of the FTCA, 15 U.S.C § 45(a). The FTC expects a company’s data
security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and
complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities. Medical data is considered
sensitive data that merits stronger safeguards. The FTC’s guidance for appropriately securing consumers’ personal information
is similar to what is required by the HIPAA Security Rule.
We are subject to the supervision of local data
protection authorities in those jurisdictions where we are established or otherwise subject to applicable law. We depend on a number of
third parties in relation to our provision of our services, a number of which process personal data on our behalf. With each such provider
we enter into contractual arrangements to ensure that they only process personal data according to our instructions, and that they have
sufficient technical and organizational security measures in place. Where we transfer personal data outside the EEA, we do so in compliance
with the relevant data export requirements. We take our data protection obligations seriously, as any improper disclosure, particularly
with regard to our customers’ sensitive personal data, could negatively impact our business and/or our reputation.
Manufacturing and Supply
We do not manufacture any products or component
parts and currently use five contract manufacturers to produce all of our instruments, implants and sterilization cases. The majority
of our instruments have a secondary manufacturing supplier, and we continually work with additional manufacturers to establish secondary
manufacturing suppliers. Our contract manufacturers source and purchase all raw materials used in the manufacture of The Catamaran System
which includes mainly stainless steel and aluminum for our instruments and sterilization cases and titanium for our implants.
We do not currently have manufacturing agreements
with any of our contract manufacturers and orders are controlled through purchase orders. The Company does not believe its relationship
with any one contract manufacturer is material to its business.
We believe the manufacturing operations of our
contract manufacturers, and those of the suppliers of our manufacturers, comply with regulations mandated by the FDA, as well as Medical
Devices Directive regulations in the EEA. Manufacturing facilities that produce medical devices or component parts intended for distribution
world-wide are subject to regulation and periodic planned and unannounced inspection by the FDA and other domestic and international regulatory
agencies.
In the United States, the product we sell is required
to be manufactured in compliance with the QSR, which covers the methods used in, and the facilities used for, the design, testing, control,
manufacturing, labelling, quality assurance, packaging, storage, and shipping.
We are required to demonstrate continuing compliance
with applicable regulatory requirements and will be subject to FDA inspections. Further, we and certain of our contract manufacturers
are required to comply with all applicable regulations and current good manufacturing practices. As set forth above, these FDA regulations
cover, among other things, the methods and documentation of the design, testing, production, control, quality assurance, labeling, packaging,
sterilization, storage, and shipping of our products. Compliance with applicable regulatory requirements is subject to continual review
and is monitored rigorously through periodic inspections. If we or our manufacturers fail to adhere to current good manufacturing practice
requirements, this could delay production of our products and lead to fines, difficulties in obtaining regulatory approvals, recalls,
enforcement actions, including injunctive relief or consent decrees, or other consequences, which could, in turn, have a material adverse
effect on our financial condition or results of operations.
Product Liability and Insurance
The manufacture and sale of our products subjects
us to the risk of financial exposure to product liability claims. Our products are used in situations in which there is a risk of serious
injury or death. We carry insurance policies which we believe to be customary for similar companies in our industry. We cannot assure
you that these policies will be sufficient to cover all or substantially all losses that we experience.
We endeavor to maintain executive and organization
liability insurance in a form and with aggregate coverage limits that we believe are adequate for our business purposes.
Legal Proceedings
We may also from time to time be, party to litigation
and subject to claims incident to the ordinary course of business. As our growth continues, we may become party to an increasing number
of litigation matters and claims. The outcome of litigation and claims cannot be predicted with certainty, and the resolution of these
matters could materially affect our future results of operations, cash flow or financial position.
Employees
As of July 3, 2024, we had a total of 23
employees, all of whom are full-time, and three senior consulting advisors of various specialty including product development, clinical
affairs reimbursement. None of our employees is subject to a collective bargaining agreement, and we consider our relationship with our
employees to be good.
Property
We lease and maintain our primary offices at 104
Cooper Court, Los Gatos, CA 95032. We do not currently own any real estate.
Corporate Information
We were incorporated on June 6, 2012, in Delaware.
Our principal executive offices are located at 104 Cooper Court, Los Gatos, CA 95032 and our telephone number is (408) 649-5760. Our
website address is www.tenonmed.com. The information on, or that can be accessed through, our website is not part of
this prospectus. We have included our website address as an inactive textual reference only.
MANAGEMENT
The following are our executive officers and
directors and their respective ages and positions as of July 3, 2024.
Name |
|
Age |
|
Position |
Steven M. Foster |
|
56 |
|
Chief Executive Officer and President, Director |
Richard Ginn |
|
58 |
|
Chief Technology Officer and Director |
Steve Van Dick |
|
69 |
|
EVP, Finance and Administration and Chief Financial Officer |
Richard Ferrari |
|
70 |
|
Executive Chairman of the Board |
Ivan Howard |
|
57 |
|
Director |
Kristine M. Jacques |
|
57 |
|
Director |
Robert K. Weigle |
|
64 |
|
Director |
Stephen H. Hochschuler, M.D. |
|
81 |
|
Director |
Steven M. Foster is our Chief Executive
Officer and President, and is also a director of the Company. Mr Foster has over 30 years of marketing, sales, operations and general
management experience. From 2015 to present Mr. Foster has been a principal with CTB Advisors, LLC in Brentwood, Tennessee. CTB Advisors
was founded as a single member limited liability company for the purpose of providing medical device organizations and physicians with
consultative assistance on commercialization focused projects. Projects included: CRM based clinician engagement program design, training
and implementation for NuVasive (NUVA). Valuation assessment / business plan development of early-stage spine technology including IP
assessment and regulatory pathway definition. M&A (SafeOp Surgical) integration project, Alphatec Spine (ATEC). Current Status: Exclusive
to ATEC. From 2012 to 2014 Mr. Foster was Global Commercialization President of Safe Orthopedics SAS, Paris, FR (based in Michigan): There
Mr Foster worked on early-stage commercialization of a novel single-use / sterile / traceable surgical kit for lumbar spine fusion. His
focus included pre-clinical design, clinician advisor team development, early marketing, web design, convention presence and P&L preparation
and management. Technology reached 200 global surgeries in first 12 months of commercialization. From 1992 to 2012 Mr. Foster was part
of the Danek Group Inc., Sofamor Danek, Medtronic Spine organization where he held a variety of marketing, sales administration and general
management roles, including as VP / GM of Medtronic Spine’s Western Europe operations from 2007-2010. Mr. Foster received a Bachelor
of Science, Business Administration with a concentration in Marketing and Management from Central Michigan University in 1990.
Richard Ginn is a founder, the Chief Technology
Officer and a director of the Company. Mr. Ginn’s focus is primarily on intellectual property and product development, he has travelled
throughout the world to train physicians and participated in multiple FIH trials and is a named inventor on more than 300 patents for
medical devices. Over the course of his career, he has helped raise more than $100 million in venture capital and has provided an average
10x return to his investors. Mr. Ginn is the founder of TransAortic Medical, an embolic protection device company, and is its President,
CEO and a director from 2013 to present. At TransAortic, Mr. Ginn Managed all corporate operations, raised capital to support company
needs; managed acquisition of technology by strategic partner; managed all Intellectual Property; and set up European distribution for
CE Marked device. Mr. Ginn is the founder of Promed, a large hole femoral closure device company and was the CEO, President and a director
from 2012 to 2019. At Promed he managed all corporate operations; raised capital to support company needs; and managed all intellectual
property.
Steven Van Dick is our Executive Vice President,
Finance and Administration and Chief Financial Officer. Mr. Van Dick has been the Chief Financial Officer for the Company since June 1,
2021. Mr. Van Dick is a strategic financial and accounting executive with a record of transitioning early-stage companies to commercialization
through astute financial management. Respected in the medical device startup community, he develops and leads comprehensive, world-class
financial and accounting groups credited for propelling startup companies forward. Across his career Steve has played a key role on the
Executive Leadership Teams that successfully completed three separate Initial Public Offering (IPOs) and three mergers/integrations. From
2016 to 2017 Mr. Van Dick was the Chief Financial Officer for Benvenue Medical Inc., a minimally invasive spine company in Santa Clara,
California. At Benvenue, Mr. Van Dick was responsible for all accounting, finance and IT functions with his primary focus on developing
a long-range financial model and reducing cash burn. From 2010 to 2016, Mr Van Dick was the Vice President, Finance Administration—Chief
Financial Officer for Spiracur Inc., a disposable/portable negative pressure wound therapy company in Sunnyvale California. At Spiracur,
Mr. Van Dick was responsible for all accounting, finance and IT functions. He managed growth of company from initial commercialization
to $12 million annualized run rate, lead the conversion to fully integrated ERP system and developed controls to become Hipaa compliant.
Mr Van Dick received a Bachelor of Science, Business Administration with a concentration in Accounting from San Jose University in 1977
and an MBA from Santa Clara University in 1984.
Richard Ferrari is a founder, a director
and Executive Chairman of the Company. Since 2000, Mr. Ferrari has been and currently is a Managing Director of Denovo Ventures a $650Mill
venture firm specializing in Medical Devices and Biotechnology. From January 2019 until April 2021 Mr. Ferrari was employed as CEO
and Chairman of the Board of Directors of PQ Bypass which culminated is a successful acquisition by Endologix. During the last five years
Mr. Ferrari has been and currently is a board member (Executive Chairman) of Medlumics, S.L., a medical device company founded in 2011;
a board member (Vice Chairman) of ABS Interventional; a board member (Executive Chairman) of Heart Beam Inc.; a board member of Biomodex
Corporation; a board member of Retriever Medical Inc.; a board member of RMx Medical; a board member of Hawthorne Effect, Inc.; a board
member and co-founder of TransAortic acquired by Medtronic; Executive Chairman of Sentreheart acquired by Atricure, a board member of
Spinal Modualtion sold to St Jude and a board member of Hands of Hope. Mr. Ferrari has raised over $1billion for the companies he has
been involved with and been a key member of the various boards M&A teams achieving over $2Bill in Acquisitions. Mr. Ferrari
continues to mentor and advise a number of CEO’s and start-up companies on strategy and building organizations dedicated to delivering
excellence. Mr. Ferrari is the creator of Excellence by Choice a series of lectures and presentations to help early-stage companies perform
at the highest level of execution. Mr. Ferrari received a Bachelor’s Degree in Education from Ashland University and a MBA from
University of South Florida.
Ivan Howard is a director of the Company.
Mr. Howard has been since 2019 and currently is a Vice President and Sr. Specialist in Alternative Investment Fiduciary Risk for Banco
Santander, a multinational financial services company. From 2020 Mr. Howard has been and currently serves as Director on the Collier County
Farm Bureau board of directors. From 2016, Mr. Howard has been and currently serves as Chairman of the Hendry/Glades County Farm Service
Agency. From 2020 Mr. Howard has been and currently serves on the U.S. Department of Agriculture Advisory Committee on Minority Farmers.
From 2018 Mr. Howard has been and is currently a member of the University of Florida College of Biomedical Engineering External Advisory
board. Mr. Howard holds an MBA from Mercer University and a Master’s Degree in Biomedical Engineering from the University of Florida.
We believe that Mr. Howard is well qualified to
serve as a Director on our Board with his financial services and board membership experience.
Kristine M. Jacques was appointed as a
director of the Company on March 25, 2024. From 2017 until 2023, Ms. Jacques was Vice President and General Manager, Interventional Pain
Therapies at Vivex Biologics, Inc., a medical device company where she implemented a comprehensive strategic plan of a disruptive technology
in the interventional spine market serving a significant unmet clinical need and potential $38 billion plus total addressable market,
non-surgical treatment for chronic low back pain. From 2007 to 2017 Ms. Jacques was a Vice President at Alphatec Spine, Inc (Nasdaq:ATEC),
a medical device company where she led the development and execution of a 3-year portfolio strategy to grow market share through identifying
opportunities for innovation, maximizing product positioning and differentiation and delivering high quality products to meet the clinical
and unmet needs of surgeons and their patients. From 1995 until 2007, Ms. Jacques served in various management positions at General Electric
Corporation, prior to which she served from 1991 until 1994 at various management positions at Smith & Nephew, PLC, both of which
are publicly traded. Previously, she was an Account Manager, Senior Investment Analyst for General Electric Capital Corporation from 1988
until 1991. Ms. Jacques received a Bachelor of Arts degree in Finance Administration from Michigan State University.
We believe that Ms. Jacques is well qualified
to serve as a Director on our Board with her experience as a senior executive in the spine and medical device industries.
Robert K. Weigle currently is and has been
since October 2020, the CEO of Prime Genomics, a saliva-based diagnostics company utilizing Genomics. Mr Weigle is also currently an executive
in residence with DigitalDX, a venture capital firm. Mr. Weigle was CEO and a director of Benvenue Medical from May 2009 until August
2020. Benvenue was a Silicon Valley based medical device company, which raised over $200 million in funding. At Benvenue Mr. Weigle led
growth from pre-clinical to successful clinical trials to commercial launch of first-generation devices in two distinct markets, one for
the treatment of compression fractures in the spine and the second for the treatment of degenerative disc disease, resulting in a first
full-year run rate exceeding $1 million per month. Mr. Weigle oversaw all early aspects of corporate strategy, including defining, communicating
and executing the company’s overall business model; and represented Benvenue to the investment community. Mr. Weigle was also a
senior executive at numerous healthcare/medical device companies, including TherOx, Inc, Cardiac Pathways, Baxter Healthcare and Cardima
Corporation. Mr. Weigle also has relevant experience at Johnson & Johnson. Mr. Weigle holds a BA in Political Science from University
of California, Berkeley.
We believe that Mr. Weigle is well qualified to
serve as a Director on our Board with his experience in leading medical device companies both as a senior executive and as a member of
the board of directors.
Stephen H. Hochschuler, M.D. is a world-renowned
orthopedic spine surgeon. Dr. Hochschuler is the co-founder of the Texas Back Institute and founder of Back Systems, Inc., and founding
Chairman of Innovative Spinal Technologies, Dr. Hochschuler has severed on numerous boards of directors and advisory boards for medical
and scientific institutions. Dr. Hochschuler is a member of numerous national and international professional organizations including the
American Academy of Orthopedic Surgeons; the American Pain Society; North American Spine Society; and the Southwest Chapter of the Society
of International Business Fellows. Internationally, he is a member of the International Intradiscal Therapy Society; the International
Society for Minimal Intervention in Spinal Surgery; the International Society for the Study of the Lumbar Spine; and is a founding board
member of the Spinal Arthroplasty Society. He has also been a founding board member of The American Board of Spine Surgery and The American
College of Spine Surgery. He is published in a wide range of professional journals, and has delivered numerous presentations worldwide.
Dr. Hochschuler holds a BA from Columbia College and his medical degree from Harvard Medical School.
We believe that Dr. Hochschuler is well qualified
to serve as a Director on our Board with his experience in as an orthopedic spine surgeon and his service on boards of directors and advisory
boards of medical and scientific institutions as a member of the board of directors.
Board Composition
Our business and affairs are managed under the
direction of our Board. Our Board currently consists of seven members, four of whom qualify as “independent” under the listing
standards of Nasdaq.
Directors serve until the next annual meeting
and until their successors are elected and qualified. Officers are appointed to serve for one year until the meeting of the Board following
the annual meeting of shareholders and until their successors have been elected and qualified.
Director Independence
Our Board is composed of a majority of “independent
directors” as defined under the rules of Nasdaq. We use the definition of “independence” applied by Nasdaq to
make this determination. Nasdaq Listing Rule 5605(a)(2) provides that an “independent director” is a person other than
an officer or employee of the company or any other individual having a relationship which, in the opinion of the Board, would interfere
with the exercise of independent judgment in carrying out the responsibilities of a director. The Nasdaq listing rules provide that a
director cannot be considered independent if:
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the director is, or at any time during the past three (3) years was, an employee of the company; |
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the director or a family member of the director accepted any compensation from the company in excess of $120,000 during any period of twelve (12) consecutive months within the three (3) years preceding the independence determination (subject to certain exemptions, including, among other things, compensation for board or board committee service); |
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the director or a family member of the director is a partner in, controlling shareholder of, or an executive officer of an entity to which the company made, or from which the company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exemptions); |
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the director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three (3) years, any of the executive officers of the company served on the compensation committee of such other entity; or |
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the director or a family member of the director is a current partner of the company’s outside auditor, or at any time during the past three (3) years was a partner or employee of the company’s outside auditor, and who worked on the company’s audit. |
Under such definitions, our Board has undertaken
a review of the independence of each director. Based on the information provided by each director concerning his or her background, employment,
and affiliations, our Board has determined that Ivan Howard, Robert K. Weigle, Stephen H. Hochschuler, M.D. and Kristine Jacques are independent
directors of the Company.
Board Committees
The Board has established three standing committees:
(i) audit committee (the “Audit Committee”); (ii) compensation committee (the “Compensation Committee”); and (iii)
nominating and corporate governance committee (the “Nominating and Corporate Governance Committee”). Each of the committees
operates pursuant to its charter. The committee charters will be reviewed annually by the Nominating and Corporate Governance Committee.
If appropriate, and in consultation with the chairs of the other committees, the Nominating and Corporate Governance Committee may propose
revisions to the charters. The responsibilities of each committee are described in more detail below.
Audit Committee. The Audit Committee
consists of three directors, Ivan Howard, Robert Weigle and Kristine Jacques, all of which are currently “independent” as
defined by Nasdaq and includes an audit committee financial expert, Mr. Howard, within the meaning of Item 407(d) of Regulation S-K under
the Securities Act of 1933, as amended, or the Securities Act. The audit committee’s duties are specified in a charter and include,
but not be limited to:
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reviewing and discussing with management and the independent auditor the annual audited financial statements, and recommending to the board whether the audited financial statements should be included in our annual disclosure report; |
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discussing with management and the independent auditor significant financial reporting issues and judgments made in connection with the preparation of our financial statements; |
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discussing with management major risk assessment and risk management policies; |
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monitoring the independence of the independent auditor; |
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verifying the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law; |
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reviewing and approving all related-party transactions; |
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inquiring and discussing with management our compliance with applicable laws and regulations; |
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pre-approving all audit services and permitted non-audit services to be performed by our independent auditor, including the fees and terms of the services to be performed; |
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appointing or replacing the independent auditor; |
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determining the compensation and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work; |
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establishing procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or reports which raise material issues regarding our financial statements or accounting policies; and |
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approving reimbursement of expenses incurred by our management team in identifying potential target businesses. |
The Audit Committee is composed exclusively of
“independent directors” who are “financially literate” as defined under the Nasdaq listing standards. The Nasdaq
listing standards define “financially literate” as being able to read and understand fundamental financial statements, including
a company’s balance sheet, income statement and cash flow statement.
Compensation Committee. The Compensation
Committee consists of three directors, Ivan Howard, Robert Weigle and Kristine Jacques, who are “independent” as defined by
Nasdaq. The Compensation Committee’s duties are specified in a charter and include, but not be limited to:
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reviews, approves and determines, or makes recommendations to our Board regarding, the compensation of our executive officers; |
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administers our equity compensation plans; |
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reviews and approves, or makes recommendations to our Board, regarding incentive compensation and equity compensation plans; and |
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establishes and reviews general policies relating to compensation and benefits of our employees. |
Nominating and Corporate Governance Committee.
The Nominating and Corporate Governance Committee consists of two directors, Robert Weigle and Stephen Hochschuler, both of which
are “independent” as defined by Nasdaq. The nominating and corporate governance committee’s duties are specified in
a charter and include, but not be limited to:
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identifying, reviewing and evaluating candidates to serve on our Board consistent with criteria approved by our Board; |
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evaluating director performance on our Board and applicable committees of our Board and determining whether continued service on our Board is appropriate; |
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evaluating nominations by stockholders of candidates for election to our Board; and |
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corporate governance matters. |
Role of Board in Risk Oversight Process
Our Board has responsibility for the oversight
of our risk management processes and, either as a whole or through its committees, regularly discusses with management our major risk
exposures, their potential impact on our business and the steps we take to manage them. The risk oversight process includes receiving
regular reports from board committees and members of senior management to enable our Board to understand our risk identification, risk
management, and risk mitigation strategies with respect to areas of potential material risk, including operations, finance, legal, regulatory,
cybersecurity, strategic and reputational risk.
Code of Ethics
Our Board adopted a written code of business conduct
and ethics (“Code”) that applies to our directors, officers and employees, including our principal executive officer, principal
financial officer and principal accounting officer or controller, or persons performing similar functions. Our website has a current copy
of the Code and all disclosures that are required by law in regard to any amendments to, or waivers from, any provision of the Code.
Family Relationships
There are no family relationships among any of
our executive officers or directors.
Involvement in Certain Legal Proceedings
To our knowledge, none of our current directors
or executive officers has, during the past ten (10) years:
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been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
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had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two (2) years prior to that time; |
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been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan or insurance activities, or to be associated with persons engaged in any such activity; |
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been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated; |
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been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or |
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been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
EXECUTIVE COMPENSATION
The following summary compensation table provides
information regarding the compensation paid during our fiscal years ended December 31, 2023 and December 31, 2022 to our Chief Executive
Officer (principal executive officer), our Chief Financial Officer and Chief Technology Officer. We refer to these individuals as our
“named executive officers.”
Summary Compensation Table
Name and Principal Position | |
(Salary $) | | |
($)Bonus | | |
Option/RSU Awards(1) ($) | | |
Total ($) | |
Steven M. Foster, Chief Executive Officer | |
| | |
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2023 | |
$ | 400,000 | | |
$ | 87,600 | | |
$ | — | | |
$ | 487,600 | |
2022 | |
$ | 300,000 | | |
$ | 70,000 | | |
$ | 1,926,634 | | |
$ | 2,296,634 | |
Steven Van Dick, Chief Financial Officer | |
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| | | |
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2023 | |
$ | 325,000 | | |
$ | 60,225 | | |
$ | — | | |
$ | 385,225 | |
2022 | |
$ | 275,000 | | |
$ | 148,125 | | |
$ | 808,998 | | |
$ | 1,232,123 | |
Richard Ginn, Chief Technology Officer | |
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2023 | |
$ | 290,000 | | |
$ | 60,225 | | |
$ | — | | |
$ | 350,225 | |
2022 | |
$ | 275,000 | | |
$ | 148,125 | | |
$ | 3,995,603 | | |
$ | 4,418,728 | |
(1) |
In 2022 the named executives received restricted stock units (“RSUs”). |
Employment Agreements
We have executed the following employment agreements
with our executive officers. The material terms of each of those arrangements are summarized below. The summaries are not a complete description
of all provisions of the employment arrangements and are qualified in their entirety by reference to the written employment arrangements,
each filed as an exhibit to the registration statement of which this prospectus is a part.
Foster Employment Agreement.
Steven M. Foster, our Chief Executive Officer and President and a member of our Board, and the Company entered into an Employment Agreement
dated as of June 1, 2021 (the “Foster Employment Agreement”). The Foster Employment Agreement provides Mr. Foster an annual
base salary of $300,000, an annual bonus of up to $120,000 based upon achievement of mutually agreed upon milestones, options to purchase
shares of our common stock in an amount sufficient to maintain Mr. Foster’s equity ownership at 4%, which were granted at the closing
of our initial public offering and employee benefits that are generally given to our senior executives.
Under the Foster Employment Agreement, in the
event that Mr. Foster’s employment is terminated by us without cause (as described in the Foster Employment Agreement) or by Mr.
Foster for good reason (as described in the Foster Employment Agreement), Mr. Foster would be entitled to (1) severance equal to
his base salary at termination, payable in instalments over the 12-month period following termination and (2) payments in respect
of continuing health care coverage for up to twelve months following termination. In addition, upon a change in control of the Company,
Mr. Foster would be entitled to (1) vesting of his options granted prior to the date of the Foster Employment Agreement and (2) a lump
sum cash payment of one year of his base salary and bonus opportunity then in effect.
If Mr. Foster is terminated for cause or because
of death or disability or resigns without good reason, then all vesting of Mr. Foster’s equity awards and payments of compensation
will immediately terminate and any severance benefits will be paid in accordance with established policies, if any, then in effect.
The Foster Employment Agreement contains restrictive
covenants and other obligations relating to non-solicitation of our employees, non-disclosure of our proprietary information
and assignment of inventions.
Ginn Employment Agreement.
Richard Ginn, our founder, Chief Technology Officer and a director of the Company, and the Company entered into an Employment Agreement
dated as of June 1, 2021 (the “Ginn Employment Agreement”). The Ginn Employment Agreement provides Mr. Ginn an annual base
salary of $275,000, an annual bonus of up to 30% of base salary based upon achievement of mutually agreed upon milestones, a second bonus
of up to $200,000 based on certain milestones determined by our Board and employee benefits that are generally given to our senior executives.
Under the Ginn Employment Agreement, in the event
that Mr. Ginn’s employment is terminated by us without cause (as described in the Ginn Employment Agreement) or by Mr. Ginn for
good reason (as described in the Foster Employment Agreement), Mr. Ginn would be entitled to (1) severance equal to his base salary
at termination, payable in instalments over the 12-month period following termination and (2) payments in respect of continuing
health care coverage for up to twelve months following termination. In addition, upon a change in control of the Company, Mr. Ginn would
be entitled to (1) vesting of his options granted prior to the date of the Ginn Employment Agreement and (2) a lump sum cash payment of
one year of his base salary and bonus opportunity.
If Mr. Ginn is terminated for cause or because
of death or disability or resigns without good reason, then all vesting of Mr. Ginn’s equity awards and payments of compensation
will immediately terminate and any severance benefits will be paid in accordance with established policies, if any, then in effect.
The Ginn Employment Agreement contains restrictive
covenants and other obligations relating to non-solicitation of our employees, non-disclosure of our proprietary information
and assignment of inventions.
Van Dick Employment Agreement.
Steven Van Dick, our Executive Vice President, Finance and Administration and Chief Financial Officer, and the Company entered into
that certain Employment Agreement dated as of June 1, 2021 (the “Van Dick Employment Agreement”). The Van Dick Employment
Agreement provides Mr. Van Dick an annual base salary of $275,000, an annual bonus of up to 30% of base salary based upon achievement
of mutually agreed upon milestones and employee benefits that are generally given to our senior executives.
Under the Van Dick Employment Agreement, in the
event that Mr. Van Dick’s employment is terminated by us without cause (as described in the Van Dick Employment Agreement) or by
Mr. Van Dick for good reason (as described in the Van Dick Employment Agreement), Mr. Van Dick would be entitled to (1) severance
equal to his base salary at termination, payable in instalments over the 12-month period following termination and (2) payments
in respect of continuing health care coverage for up to twelve months following termination. In addition, upon a change in control of
the Company, Mr. Van Dick would be entitled to (1) vesting of his options granted prior to the date of the Van Dick Employment Agreement
and (2) a lump sum cash payment of one year of his base salary and bonus opportunity.
If Mr. Van Dick is terminated for cause or because
of death or disability or resigns without good reason, then all vesting of Mr. Van Dick’s equity awards and payments of compensation
will immediately terminate and any severance benefits will be paid in accordance with established policies, if any, then in effect.
The Van Dick Employment Agreement contains restrictive
covenants and other obligations relating to non-solicitation of our employees, non-disclosure of our proprietary information
and assignment of inventions.
The above summary description of the named
executives’ employment agreement includes some of the general terms and provisions of those agreements. For a more detailed description
of those employment agreements, you should refer to such agreements, which are included as exhibits to the registration statement of which
this prospectus forms a part.
Outstanding Equity Awards at Fiscal Year-End
The following table summarizes the number of RSUs
and shares of common stock underlying outstanding equity incentive plan awards for each named executive officer as of December 31, 2023.
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Option Awards | |
Equity Awards (RSUs) | |
Name | |
Number of Securities Underlying Unexercised Options (#) Exercisable | | |
Number of Securities Underlying Unexercised Options (#) Unexercisable | | |
Option Exercise Price ($) | | |
Option Expiration Date | |
Number of RSUs that have not Vested | | |
Market
Value of
RSUs | |
Steven M. Foster(1) | |
| 9,687 | | |
| 1,563 | | |
$ | 52.00 | | |
May 1, 2031 | |
| 10,874 | | |
$ | 17,181 | |
Steven Van Dick(2) | |
| 4,865 | | |
| 785 | | |
$ | 52.00 | | |
May 1, 2031 | |
| 4,566 | | |
$ | 7,214 | |
| |
| 2,786 | | |
| 673 | | |
$ | 70.60 | | |
July 19, 2031 | |
| | | |
| | |
Richard Ginn(3) | |
| 4,865 | | |
| 785 | | |
$ | 52.00 | | |
May 1, 2031 | |
| 22,551 | | |
$ | 35,631 | |
| |
| 443 | | |
| 107 | | |
$ | 70.60 | | |
July 19, 2031 | |
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(1) | 11,250
option shares were exchanged for 5,625 restricted stock units on May 6, 2024. |
(2) | 9,109
option shares were exchanged for 4,555 restricted stock units on May 6, 2024. |
(3) | 6,200
option shares were exchanged for 3,100 restricted stock units on May 6, 2024. |
Stock Options
We granted Steven M. Foster (i) an option to purchase
11,250 shares of common stock at an exercise price of $52.00 per share with a grant date of May 1, 2021, subject to monthly equal vesting
over a three-year period and adjustment in certain circumstances as provided therein (9,687 shares of which are vested), and (ii) a restricted
stock unit consisting of 21,746 shares of common stock with a grant date of May 12, 2022, subject to semi-annual vesting over a three-year
period commencing May 22, 2022, with a one-year cliff.
We granted Steven Van Dick (i) an option to purchase
5,650 shares of common stock at an exercise of $52.00 per share with a grant date of May 1, 2021, subject to monthly equal vesting over
a three-year period that commenced on November 1, 2020 (4,865 shares of which are vested), (ii) an option to purchase 3,459 shares of
common stock at an exercise price of $70.60 per share with a grant date of July 19, 2021, subject to monthly equal vesting over a three-year
period commencing July 19, 2021 (2,786 shares of which are vested), and (iii) a restricted stock unit consisting of 9,131 shares of common
stock with a grant date of May 12, 2022, subject to semi-annual vesting over a three-year period commencing May 22, 2022, with a one-year
cliff.
We granted Richard Ginn (i) an option to purchase
5,650 shares of common stock at an exercise price of $52.00 per share with a grant date of May 1, 2021, subject to monthly equal vesting
over a three-year period commencing April 1, 2021 (4,865 shares of which are vested), (ii) an option to purchase 550 shares of common
stock at an exercise price of $70.60 per share with a grant date of July 19, 2021, subject to monthly equal vesting over a three-year
period commencing July 19, 2021 (443 shares of which are vested) and (iii) a restricted stock unit consisting of 45,098 shares of common
stock with a grant date of May 12, 2022, subject to semi-annual vesting over a three-year period commencing May 22, 2022, with a one-year
cliff.
RSUs
All of the RSUs were granted on May 12, 2022 and
have the following vesting schedule: one-third vest on May 22, 2023 and the remaining two thirds vesting equally every six months over
the following two years.
Board Compensation
The following summary board compensation table
provides information regarding the board compensation paid during our fiscal year ended December 31, 2023 to our board members. Only our
independent directors received compensation for being directors during fiscal year 2023.
Director | |
Cash Compensation1 | | |
Equity Compensation2 | | |
Total Compensation | |
Frank Fischer | |
$ | 60,000 | | |
$ | — | | |
$ | 60,000 | |
Ivan Howard | |
$ | 60,000 | | |
$ | — | | |
$ | 60,000 | |
Kristine M. Jacques3 | |
$ | — | | |
$ | — | | |
$ | — | |
Robert Weigle | |
$ | 67,500 | | |
$ | — | | |
$ | 67,500 | |
Stephen Hochschuler | |
$ | 45,000 | | |
$ | — | | |
$ | 45,000 | |
Total | |
| 232,500 | | |
$ | — | | |
$ | 232,500 | |
1 |
Frank Fischer received $40,000 as a board retainer and $20,000 for being Compensation Committee Chairman; Ivan Howard received $40,000 as a board retainer and $20,000 for being Audit Committee Chairman; Robert Weigle received $40,000 as a board retainer, $10,000 for being Nominating and Corporate Governance Committee Chairman, $7,500 for being a member of the Compensation Committee and $10,000 for being a member of the Audit Committee; and Stephen Hochschuler received $40,000 as a board retainer and $5,000 for being a member of the Nominating and Corporate Governance Committee. |
2 |
No equity compensation was issued to board members in 2023. |
3 |
Appointed as a director on March 25, 2024. |
Executive Chairman
On May 7, 2021, the Company entered into a Consulting
Agreement (the “Ferrari Consulting Agreement”) with Richard Ferrari, a founder of the Company and its Executive Chairman,
pursuant to which Mr. Ferrari was to assume the role of Executive Chairman of the Company in exchange for compensation of $22,500 per
month starting September 1, 2021. Under this consulting agreement Mr. Ferrari was paid a bonus of $350,000, as a result of the closing
of our initial public offering in April 2022. In May of 2022 Mr. Ferrari was granted RSUs which had a grant date fair value of $2,427,020
and vest over three years, with one-third vesting in May of 2023 and the remaining two thirds vesting equally every six months over the
following two years. The compensation paid to Mr. Ferrari during the fiscal year ended December 31, 2023, totaled $247,500. On May 8,
2024, the Compensation Committee approved a two year extension to the Ferrari Consulting Agreement on the same terms.
2012 Equity Incentive Plan
On October 1, 2012, the Board adopted the 2012 Plan. The 2012 Plan
terminated in April 2022. There are 727,394 options issued under the 2012 Plan that have not been exercised upon the 2012 Plan’s
termination, these options will remain outstanding pursuant to the terms thereof.
2022 Equity Incentive Plan
Overview
On January 10, 2022,
our Board approved the 2022 Plan and on February 2, 2020, our stockholders approved the 2022 Plan. The 2022 Plan governs equity awards
to our employees, directors, officers, consultants and other eligible participants. Initially, the maximum number of shares of our common
stock that may be subject to awards under the 2022 Plan is equal to (i) 160,000 plus (ii) the lesser of (a) 75,000 and (b) the number
of shares of our common stock subject to awards granted under the 2012 Plan that after the 2012 Plan is terminated are cancelled, expired
or otherwise terminated without having been exercised in full, are tendered to or withheld by the Company for payment of an exercise price
or for tax withholding obligations, or are forfeited to or repurchased by the Company due to failure to vest. The maximum number of shares
that are subject to awards under the 2022 is subject to an annual increase equal to the lesser of (i) 110,000 shares of our common stock,
(ii) a number of shares of our common stock equal to 4% of the prior year’s maximum number and (iii) such number of shares of our
common stock as determined by the 2022 Plan administrator.
The purpose of 2022 Plan
is to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to
employees, directors and consultants, and to promote the success of our business. The administrator of the 2022 Plan may, in its sole
discretion, amend, alter, suspend or terminate the 2022 Plan, or any part thereof, at any time and for any reason. We will obtain stockholder
approval of any Plan amendment to the extent necessary and desirable to comply with legal and regulatory requirements relating to the
administration of equity-based awards. Unless earlier terminated by the administrator, the 2022 Plan will terminate ten years from the
date it is adopted by our Board.
Authorized Shares
Initially, the maximum
number of shares of our common stock that may be subject to awards under the 2022 Plan is equal to (i) 160,000 plus (ii) the lesser of
(a) 75,000 and (b) the number of shares of our common stock subject to awards granted under the 2012 Plan that after the 2012 Plan is
terminated are cancelled, expired or otherwise terminated without having been exercised in full, are tendered to or withheld by the Company
for payment of an exercise price or for tax withholding obligations, or are forfeited to or repurchased by the Company due to failure
to vest. The maximum number of shares that are subject to awards under the 2022 is subject to an annual increase equal to the lesser of
(i) 110,000 shares of our common stock, (ii) a number of shares of our common stock equal to 4% of the prior year’s maximum number
and (iii) such number of shares of our common stock as determined by the 2022 Plan administrator.
Additionally, if any
award issued pursuant to the 2022 Plan expires or becomes unexercisable without having been exercised in full, is surrendered pursuant
to an exchange program, as provided in the 2022 Plan, or, with respect to restricted stock, restricted stock units, performance units
or performance shares, is forfeited to or repurchased by us due to the failure to vest, the unpurchased shares (or for awards other than
stock options or stock appreciation rights the forfeited or repurchased shares) which were subject thereto will become available for future
grant or sale under the 2022 Plan (unless the 2022 Plan has terminated). With respect to stock appreciation rights, only shares actually
issued pursuant to a stock appreciation right will cease to be available under the 2022 Plan; all remaining shares under stock appreciation
rights will remain available for future grant or sale under the 2022 Plan (unless the 2022 Plan has terminated). Shares that have actually
been issued under the 2022 Plan under any award will not be returned to the 2022 Plan and will not become available for future distribution
under the 2022 Plan; provided, however, that if shares issued pursuant to awards of restricted stock, restricted stock units, performance
shares or performance units are repurchased by us or are forfeited to us due to the failure to vest, such shares will become available
for future grant under the 2022 Plan. Shares used to pay the exercise price of an award or to satisfy the tax withholdings related to
an award will become available for future grant or sale under the 2022 Plan. To the extent an award under the 2022 Plan is paid out in
cash rather than shares, such cash payment will not result in reducing the number of shares available for issuance under the 2022 Plan.
Notwithstanding the foregoing and, subject to adjustment as provided in the 2022 Plan, the maximum number of shares that may be issued
upon the exercise of incentive stock options will equal the aggregate share number stated above, plus, to the extent allowable under Section
422 of the Code and regulations promulgated thereunder, any shares that become available for issuance under the 2022 Plan in accordance
with the foregoing.
Plan Administration
One or more committees
appointed by our Board will administer the 2022 Plan. Initially, the Compensation Committee shall administer the 2022 Plan. In addition,
if we determine it is desirable to qualify transactions under the 2022 Plan as exempt under Rule 16b-3 of the Exchange Act, such transactions
will be structured with the intent that they satisfy the requirements for exemption under Rule 16b-3. Subject to the provisions of the
2022 Plan, the administrator has the power to administer the 2022 Plan and make all determinations deemed necessary or advisable for administering
the 2022 Plan, including the power to determine the fair market value of our common stock, select the service providers to whom awards
may be granted, determine the number of shares covered by each award, approve forms of award agreements for use under the 2022 Plan, determine
the terms and conditions of awards (including the exercise price, the time or times at which the awards may be exercised, any vesting
acceleration or waiver or forfeiture restrictions and any restriction or limitation regarding any award or the shares relating thereto),
construe and interpret the terms of the 2022 Plan and awards granted under it, prescribe, amend and rescind rules relating to the 2022
Plan, rules and regulations relating to sub-plans established for the purpose of facilitating compliance with applicable non-U.S. laws,
easing the administration of the 2022 Plan and/or for qualifying for favorable tax treatment under applicable non-U.S. laws, in each case
as the administrator may deem necessary or advisable and modify or amend each award (subject to the provisions of the 2022 Plan), including
the discretionary authority to extend the post-termination exercisability period of awards and to extend the maximum term of an option
or stock appreciation right (subject to the provisions of the 2022 Plan), to allow Participants to satisfy withholding tax obligations
in a manner permissible under the 2022 Plan, to authorize any person to execute on behalf of us any instrument required to effect the
grant of an award previously granted by the administrator and to allow a participant to defer the receipt of payment of cash or the delivery
of shares that would otherwise be due to such participant under an award. The administrator also has the authority to allow participants
the opportunity to transfer outstanding awards to a financial institution or other person or entity selected by the administrator and
to institute an exchange program by which outstanding awards may be surrendered or cancelled in exchange for awards of the same type which
may have a higher or lower exercise price or different terms, awards of a different type or cash, or by which the exercise price of an
outstanding award is increased or reduced. The administrator’s decisions, interpretations and other actions are final and binding
on all participants.
Eligibility
Awards under the 2022
Plan, other than incentive stock options, may be granted to our employees (including officers and directors) or a parent or subsidiary,
members of our Board or consultants engaged to render bona fide services to us or a parent or subsidiary. Incentive stock options may
be granted only to our employees or a subsidiary, provided the services (a) are not in connection with the offer or sale of securities
in a capital-raising transaction, and (b) do not directly promote or maintain a market for our securities, in each case, within the meaning
of Form S-8 promulgated under the Securities Act, and provided further, that a consultant will include only those persons to whom the
issuance of Shares may be registered under Form S-8 promulgated under the Securities Act.
Stock Options
Stock options may be
granted under the 2022 Plan. The exercise price of options granted under the 2022 Plan generally must at least be equal to the fair market
value of our common stock on the date of grant. The term of each option will be as stated in the applicable award agreement; provided,
however, that the term may be no more than 10 years from the date of grant. The administrator will determine the methods of payment of
the exercise price of an option, which may include cash, shares or other property acceptable to the administrator, as well as other types
of consideration permitted by applicable law. After the termination of service of an employee, director or consultant, they may exercise
their option for the period of time stated in their option agreement. In the absence of a specified time in an award agreement, if termination
is due to death or disability, the option will remain exercisable for six months. In all other cases, in the absence of a specified time
in an award agreement, the option will remain exercisable for three months following the termination of service. An option may not be
exercised later than the expiration of its term. Subject to the provisions of the 2022 Plan, the administrator determines the other terms
of options.
Stock Appreciation
Rights
Stock appreciation rights
may be granted under the 2022 Plan. Stock appreciation rights allow the recipient to receive the appreciation in the fair market value
of our common stock between the exercise date and the date of grant. Stock appreciation rights may not have a term exceeding 10 years.
After the termination of service of an employee, director or consultant, they may exercise their stock appreciation right for the period
of time stated in their stock appreciation right agreement. In the absence of a specified time in an award agreement, if termination is
due to death or disability, the stock appreciation rights will remain exercisable for six months. In all other cases, in the absence of
a specified time in an award agreement, the stock appreciation rights will remain exercisable for three months following the termination
of service. However, in no event may a stock appreciation right be exercised later than the expiration of its term. Subject to the provisions
of the 2022 Plan, the administrator determines the other terms of stock appreciation rights, including when such rights become exercisable
and whether to pay any increased appreciation in cash or with shares of our common stock, or a combination thereof, except that the per
share exercise price for the shares to be issued pursuant to the exercise of a stock appreciation right will be no less than 100% of the
fair market value per share on the date of grant.
Restricted Stock
Restricted stock may
be granted under the 2022 Plan. Restricted stock awards are grants of shares of our common stock that vest in accordance with terms and
conditions established by the administrator. The administrator will determine the number of shares of restricted stock granted to any
employee, director or consultant and, subject to the provisions of the 2022 Plan, will determine the terms and conditions of such awards.
The administrator may impose whatever conditions to vesting it determines to be appropriate (for example, the administrator may set restrictions
based on the achievement of specific performance goals or continued service to us); provided, however, that the administrator, in its
sole discretion, may accelerate the time at which any restrictions will lapse or be removed. Recipients of restricted stock awards generally
will have voting and dividend rights with respect to such shares upon grant without regard to vesting, unless the administrator provides
otherwise. Shares of restricted stock that do not vest are subject to our right of repurchase or forfeiture.
Restricted Stock
Units
RSUs may be granted under
the 2022 Plan. RSUs are bookkeeping entries representing an amount equal to the fair market value of one share of our common stock. Subject
to the provisions of the 2022 Plan, the administrator determines the terms and conditions of RSUs, including the vesting criteria and
the form and timing of payment. The administrator may set vesting criteria based upon the achievement of Company-wide, divisional, business
unit or individual goals (including continued employment or service), applicable federal or state securities laws or any other basis determined
by the administrator in its discretion. The administrator, in its sole discretion, may pay earned RSUs in the form of cash, in shares
of our common stock or in some combination thereof. Notwithstanding the foregoing, the administrator, in its sole discretion, may accelerate
the time at which any vesting requirements will be deemed satisfied.
Performance Awards
Performance awards may
be granted under the 2022 Plan. Performance awards are awards that will result in a payment to a participant only if performance goals
established by the administrator are achieved or the awards otherwise vest. The administrator will set objectives or vesting provisions,
that, depending on the extent to which they are met, will determine the value the payout for the performance awards. The administrator
may set vesting criteria based on the achievement of company-wide, divisional, business unit, or individual goals (including, but not
limited to, continued employment or service), or any other basis determined by the administrator in its discretion. Each performance award’s
threshold, target, and maximum payout values are established by the administrator on or before the grant date. After the grant of a performance
award, the administrator, in its sole discretion, may reduce or waive any performance objectives or other vesting provisions for such
performance award. The administrator, in its sole discretion, may pay earned performance awards in the form of cash, in shares, or in
some combination thereof.
Non-Employee Directors
The 2022 Plan provides
that all non-employee directors will be eligible to receive all types of awards (except for incentive stock options) under the 2022 Plan.
The 2022 Plan includes a maximum limit of $500,000 of equity awards that may be granted to a non-employee director in any fiscal year,
increased to $750,000 in connection with his or her initial service. For purposes of this limitation, the value of equity awards is based
on the grant date fair value (determined in accordance with accounting principles generally accepted in the United States). Any equity
awards granted to a person for their services as an employee, or for their services as a consultant (other than as a non-employee director),
will not count for purposes of the limitation. The maximum limit does not reflect the intended size of any potential compensation or equity
awards to the Company’s non-employee directors.
Non-transferability
of Awards
Unless the administrator
provides otherwise, the 2022 Plan generally does not allow for the transfer of awards other than by will or by the laws of descent and
distribution and only the recipient of an award may exercise an award during their lifetime. If the administrator makes an award transferrable,
such award will contain such additional terms and conditions as the administrator deems appropriate.
Certain Adjustments
In the event of certain
changes in the Company’s capitalization, to prevent diminution or enlargement of the benefits or potential benefits available under
the 2022 Plan, the administrator will adjust the number and class of shares that may be delivered under the 2022 Plan or the number, and
price of shares covered by each outstanding award and the numerical share limits set forth in the 2022 Plan.
Dissolution or
Liquidation
In the event of the Company’s
proposed liquidation or dissolution, the administrator will notify participants as soon as practicable and all awards will terminate immediately
prior to the consummation of such proposed transaction.
Merger or Change
in Control
The 2022 Plan provides
that in the event of the Company’s merger with or into another corporation or entity or a “change in control” (as defined
in the 2022 Plan), each outstanding award will be treated as the administrator determines, including, without limitation, that (i) awards
will be assumed, or substantially equivalent awards will be substituted, by the acquiring or succeeding corporation (or an affiliate thereof)
with appropriate adjustments as to the number and kind of shares and prices; (ii) upon written notice to a participant, that the participant’s
awards will terminate upon or immediately prior to the consummation of such merger or change in control; (iii) outstanding awards will
vest and become exercisable, realizable or payable, or restrictions applicable to an award will lapse, in whole or in part, prior to or
upon consummation of such merger or change in control and, to the extent the administrator determines, terminate upon or immediately prior
to the effectiveness of such merger or change in control; (iv) (A) the termination of an award in exchange for an amount of cash or property,
if any, equal to the amount that would have been attained upon the exercise of such award or realization of the participant’s rights
as of the date of the occurrence of the transaction (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction
the administrator determines in good faith that no amount would have been attained upon the exercise of such award or realization of the
participant’s rights, then such award may be terminated by the Company without payment) or (B) the replacement of such award with
other rights or property selected by the administrator in its sole discretion; or (v) any combination of the foregoing. The administrator
will not be obligated to treat all awards, all awards a participant holds, or all awards of the same type, similarly. In the event that
awards (or portion thereof) are not assumed or substituted for in the event of a merger or change in control, the participant will fully
vest in and have the right to exercise all of their outstanding options and stock appreciation rights, including shares as to which such
awards would not otherwise be vested or exercisable, all restrictions on restricted stock and RSUs or performance awards will lapse and,
with respect to awards with performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at 100%
of target levels and all other terms and conditions met, in all cases, unless specifically provided otherwise under the applicable award
agreement or other written agreement between the participant and the Company or any of the Company’s subsidiaries or parents, as
applicable. If an option or stock appreciation right is not assumed or substituted in the event of a merger or change in control, the
administrator will notify the participant in writing or electronically that the option or stock appreciation right will be exercisable
for a period of time determined by the administrator in its sole discretion and the vested option or stock appreciation right will terminate
upon the expiration of such period.
For awards granted to
an outside director, the outside director will fully vest in and have the right to exercise options and/or stock appreciation rights as
to all of the shares underlying such award, including those shares which would not be vested or exercisable, all restrictions on restricted
stock and RSUs will lapse, and, with respect to awards with performance-based vesting, all performance goals or other vesting criteria
will be deemed achieved at one hundred percent (100%) of target levels and all other terms and conditions met, unless specifically provided
otherwise under the applicable award agreement or other written agreement between the participant and the Company or any of its subsidiaries
or parents, as applicable.
Clawback
Awards will be subject
to any Company clawback policy that the Company is required to adopt pursuant to the listing standards of any national securities exchange
or association on which the Company’s securities are listed or as is otherwise required by the Dodd-Frank Wall Street Reform and
Consumer Protection Act or other applicable laws. The administrator also may specify in an award agreement that the participant’s
rights, payments or benefits with respect to an award will be subject to reduction, cancellation, forfeiture or recoupment upon the occurrence
of certain specified events. The administrator may require a participant to forfeit, return or reimburse the Company all or a portion
of the award or shares issued under the award, any amounts paid under the award and any payments or proceeds paid or provided upon disposition
of the shares issued under the award in order to comply with such clawback policy or applicable laws.
Amendment and Termination
The administrator has
the authority to amend, suspend or terminate the 2022 Plan provided such action does not impair the existing rights of any participant.
The 2022 Plan automatically will terminate on January 10, 2032, unless it is terminated sooner.
Equity Compensation
Plan Information
The table below sets forth information as of December 31, 2023.
Plan Category | |
Number of securities
to be issued upon exercise of outstanding options, warrants and rights | | |
Weighted-average exercise
price of outstanding options, warrants and rights | | |
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |
| |
(a) | | |
(b) | | |
(c) | |
Equity compensation plans approved by security holders | |
| 179,005 | | |
$ | 42.54 | | |
| 37,486 | |
Equity compensation plans not approved by security holders | |
| — | | |
$ | — | | |
| — | |
Total | |
| 179,005 | | |
$ | 42.54 | | |
| 37,486 | |
Policies and Practices for Granting Certain
Equity Awards
Our policies and practices regarding the granting
of equity awards are carefully designed to ensure compliance with applicable securities laws and to maintain the integrity of our executive
compensation program. The Compensation Committee is responsible for the timing and terms of equity awards to executives and other eligible
employees.
The timing of equity award grants is determined
with consideration to a variety of factors, including but not limited to, the achievement of pre-established performance targets, market
conditions and internal milestones. The Company does not follow a predetermined schedule for the granting of equity awards; instead, each
grant is considered on a case-by-case basis to align with the Company’s strategic objectives and to ensure the competitiveness of
our compensation packages.
In determining the timing and terms of an equity
award, the Board or the Compensation Committee may consider material nonpublic information to ensure that such grants are made in compliance
with applicable laws and regulations. The Board’s or the Compensation Committee’s procedures to prevent the improper use of
material nonpublic information in connection with the granting of equity awards include oversight by legal counsel and, where appropriate,
delaying the grant of equity awards until the public disclosure of such material nonpublic information.
The Company is committed to maintaining transparency
in its executive compensation practices and to making equity awards in a manner that is not influenced by the timing of the disclosure
of material nonpublic information for the purpose of affecting the value of executive compensation. The Company regularly reviews its
policies and practices related to equity awards to ensure they meet the evolving standards of corporate governance and continue to serve
the best interests of the Company and its shareholders.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information,
as of July 3, 2024 with respect to the holdings of (1) each person who is the beneficial owner of more than 5% of a class of Company
voting stock, (2) each of our directors, (3) each executive officer, and (4) all of our current directors and executive officers as a
group.
Beneficial ownership of a class of voting stock
is determined in accordance with the rules of the SEC and includes any shares of such class of the Company’s voting stock over which
a person exercises sole or shared voting or investment power, or of which a person has a right to acquire ownership at any time within
60 days. Except as otherwise indicated, we believe that the persons named in this table have sole voting and investment power with respect
to all shares of voting stock held by them. Applicable percentage ownership in the following table is based on 3,780,827 shares of common
stock and 256,968 shares of Series A Preferred Stock (which are entitled to vote with our common stock on a 1:1 as converted basis), in
each case, issued and outstanding on July 3, 2024, plus, for each individual, any common stock that individual has the right to acquire
within 60 days of July 3, 2024.
To the best of our knowledge, except as otherwise
indicated, each of the persons named in the table has sole voting and investment power with respect to the shares of our common stock
beneficially owned by such person, except to the extent such power may be shared with a spouse. To our knowledge, none of the shares listed
below are held under a voting trust or similar agreement, except as noted. To our knowledge, there is no arrangement, including any pledge
by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the Company.
| |
Number
of Shares Beneficially Owned | | |
Beneficial
Ownership Percentages | |
Name
and Address of Beneficial Owner(1) | |
Common
Stock | | |
Series
A Preferred Stock(2) | | |
Percent
of Common Stock | | |
Percent
of Series A Preferred
Stock | | |
Percent
of Voting Stock(3) | |
Officers
and Directors | |
| | |
| | |
| | |
| | |
| |
Steven
M. Foster, Chief Executive Officer and President | |
| 16,196 | | |
| — | | |
| * | | |
| — | | |
| * | |
Richard
Ginn, Chief Technology Officer | |
| 80,405 | (4) | |
| — | | |
| 2.1 | % | |
| — | | |
| 1.3 | % |
Steven
Van Dick, EVP, Finance and Admin and Chief Financial Officer | |
| 17,642 | (5) | |
| — | | |
| * | | |
| — | | |
| * | |
Richard
Ferrari, Chairman of the Board | |
| 48,421 | (6) | |
| — | | |
| 1.3 | % | |
| — | | |
| * | |
Ivan
Howard, Director | |
| 8,517 | (7) | |
| — | | |
| * | | |
| — | | |
| * | |
Robert
K. Weigle, Director | |
| 1,242 | | |
| — | | |
| * | | |
| — | | |
| * | |
Stephen
H. Hochschuler, M.D., Director | |
| 6,133 | (8) | |
| — | | |
| * | | |
| — | | |
| * | |
Kristine
M. Jacques, Director | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| |
| &nbs |