| Stockholders' Equity | 7. Stockholders’ Equity The Amended and Restated Certificate of Incorporation
dated February 18, 2014 authorized the issuance of 3,937,550 shares of common stock and 2,099,525 shares of preferred stock, with a par
value of $0.001 per share. In April 2021 the Company increased the number of authorized shares to 7,000,000 shares of common stock and
2,460,802 shares of preferred stock, and increased the number of authorized shares of Series A Preferred Stock to 1,798,905. In October
2021 the Company increased the number of authorized shares to 10,487,904 shares of common stock and 3,297,061 shares of preferred stock.
In February 2022, the Company increased the number of authorized shares to 130,000,000 shares of common stock and 20,000,000 shares of
preferred stock. With respect to the preferred stock, 4,500,000 shares are designated Series A Preferred Stock and 491,222 shares are
designated Series B Preferred Stock. As of June 30, 2023 and December 31, 2022, there were no shares of Series A Preferred stock or Series
B Preferred Stock issued and outstanding. Reverse Stock Split On April 6, 2022, the Company effected a 1:2 reverse
stock split (the “Reverse Stock Split”) by filing an amendment to the Company’s Amended and Restated Certificate of
Incorporation, as amended, with the Delaware Secretary of State. The Reverse Stock Split combined every two shares of our common stock
issued and outstanding immediately prior to effecting the Reverse Stock Split into one share of common stock. Similarly, shares of Series
A and Series B Preferred Stock became convertible into common stock at a conversion rate of one-to-0.5, subject to adjustments for stock
dividends, splits, combinations, and similar events. No fractional shares were issued in connection with the Reverse Stock Split. All
historical and per share amounts reflected throughout this document have been adjusted to reflect the Reverse Stock Split. The authorized
number of shares and the par value per share of the Company’s common stock were not affected by the Reverse Stock Split. Initial Public Offering On April 26, 2022, the Company’s Registration
Statement relating to the IPO was declared effective by the SEC. The IPO consisted of 3,200,000 shares of common stock, par value $0.001
per share at a public offering price of $5.00 per share. Pursuant to the Underwriting Agreement dated April 26, 2022, between the Company,
The Benchmark Company, LLC (“Benchmark”) and Valuable Capital Limited (together with Benchmark, the “Underwriters”),
the Company granted the Underwriters warrants to purchase a total of 96,000 shares of the Company’s common stock at an exercise
price of $5.00 per share. The warrants expire on the fifth anniversary of the commencement of sales under the IPO. On April 27, 2022,
the shares of the Company’s common stock began trading on the Nasdaq Capital Market LLC under the symbol “TNON.” On April 29, 2022, the IPO closed, and the Company
received approximately $13.8 million in net proceeds from the IPO after deducting the underwriting discount and commission and other estimated
IPO expenses payable by the Company. As a result of the completion of the IPO, the Company converted the entirety of the outstanding principal
and accrued interest of the convertible notes payable to 3,955,415 shares of the Company’s common stock. On April 29, 2022, as result of the completion
of the IPO, the Company converted all shares of Series A and Series B Preferred Stock to 2,693,342 shares of the Company’s common
stock at the conversion rate detailed below and issued the common stock to the preferred stockholders. Concurrent with the completion of the IPO and
in accordance with the Amended and Restated Exclusive Sales Representative Agreement executed in May 2021, the counterparty to the agreement
received anti-dilution protections to maintain ownership of 3.0% of the fully diluted equity of the Company through the date of an initial
public offering and was issued 312,351 shares of the Company’s common stock to the Representative, fully satisfying the Company’s
obligations. Also, as a result of the completion of the IPO, the Company issued 85,739 shares of its common stock to a consultant. The
value of these shares issued at the IPO price of $5.00 per share was charged to operating expenses in the Company’s consolidated
financial statements. Registered Offering On June 16, 2023, the Company closed the Registered
Offering of a total of 10,000,000 units (the “Units”) for proceeds, net of issuance costs, of $4,808, with each Unit consisting
of (i) one share of the Company’s common stock, and (ii) two warrants, each warrant to purchase one share of the Company’s
common stock at an exercise price equal to $0.56 per share (the “Offering Warrants”). The Offering Warrants were exercisable
upon issuance and will expire five years from the date of issuance. Per the terms of the Offering Warrants, the exercise price reset subsequent
to quarter end on July 16, 2023 to $0.3146 per share. Voting rights The holders of vested shares of common stock are
entitled to vote on any matter submitted to a vote of the stockholders and each such holder is entitled to one vote per share of common
stock held. The holders of Series A and Series B Preferred Stock were entitled to vote together with the common stock as a single class
on any matter submitted to a vote of the stockholders. Holders of Series A and Series B Preferred Stock were entitled to the number of
votes equal to the number of common stock issuable upon conversion of their respective Series A and Series B Preferred Stock at the time
such shares are voted. The holders of a majority of the preferred stock had additional voting rights as specified in the Company’s
Amended and Restated Certificate of Incorporation, as amended. Equity awards In 2012, the Board of Directors of the Company
(the “Board”) approved the Tenon Medical, Inc. 2012 Equity Incentive Plan (the “2012 Plan”). The 2012 Plan provides
for the issuance of common stock options, appreciation rights, and other awards to employees, directors, and consultants. Options issued
under the 2012 Plan generally vest over a period of two to four years and have a 10-year expiration date. In April 2021, the Board increased
the number of shares of common stock reserved for issuance under the 2012 Plan to 662,516. In July 2021, the Board increased the number
of shares of common stock reserved for issuance under the 2012 Plan to 737,516. In August 2021, the Board increased the number of shares
of common stock reserved for issuance under the 2012 Plan from 737,516 shares to 799,266 shares and approved the form of a 2022 Equity
Incentive Plan. On January 10, 2022 and February 2, 2022, the
Board and stockholders, respectively, of the Company approved the Tenon Medical, Inc. 2022 Equity Incentive Plan (the “2022 Plan”),
which was effective on April 25, 2022. The number of shares of common stock that may be subject to awards and sold under the 2022 Plan
is equal to 1,600,000. Automatic annual increases in number of shares available for issuance under the 2022 Plan is equal to the least
of (a) 1,100,000 shares, (b) 4% of the total number of shares of all classes of common stock outstanding on the last day of the immediately
preceding fiscal year, or (c) such number determined by the 2022 Plan administrator no later than the last day of the immediately preceding
fiscal year. Annual increases will continue until the tenth anniversary of the earlier of the Board or stockholder approval of the 2022
Plan, which is January 10, 2032. Upon the effective date of the 2022 Plan, the Board terminated the 2012 Plan such that no new equity
awards will be issued by the 2012 Plan. Compensation expense for the three and six months
ended June 30, 2023 and 2022 includes the portion of awards vested in the periods for all equity-based awards granted, based on the grant
date fair value estimated using a Black-Scholes option valuation model. A summary of the Company’s stock option
and restricted stock unit activity under its plans is as follows:
Stock Options Restricted Stock Units
Number of Weighted Number of Weighted
Outstanding at December 31, 2022 898,844 $ 4.74 1,318,530 $ 7.93
Granted 75,500 $ 2.32 — —
Released — — (386,968 ) $ 8.63
Canceled/Forfeited (5,000 ) $ 7.50 — —
Outstanding at June 30, 2023 969,344 $ 4.55 931,562 $ 7.64 The following table sets forth stock-based compensation
expense recognized for the three and six months ended June 30, 2023 and 2022:
Three months ended Six months ended
2023 2022 2023 2022
Research and development $ 378 $ 178 $ 750 $ 207
Sales and marketing 58 12 116 24
General, and administrative 618 362 1,228 490
Total stock-based compensation expense $ 1,054 $ 552 $ 2,094 $ 721 At June 30, 2023, there were 488,992 shares available
for issuance under the 2022 Plan. Warrants In April 2022, as noted above, the Company granted
the Underwriters warrants to purchase a total of 96,000 shares of the Company’s common stock. The warrants are immediately exercisable
at an exercise price of $5.00 per share and expire on the fifth anniversary of the commencement of sales under the IPO. The fair value
of the warrants on the grant date was $2.75 per warrant, which was calculated based on the following weighted average assumptions, using
a Black-Scholes option valuation model: expected term of 5.00 years; expected volatility of 62.55%; dividend yield of 0%; and risk-free
interest rate of 2.92%. The Company recorded the fair value of these warrants of approximately $264 as an issuance cost to additional
paid-in capital in 2022. As the IPO issuance costs were also recorded to additional paid-in capital, the net impact was $0. In June 2023, as noted above, in connection with
the Registered Offering, the Company issued Offering Warrants to purchase a total of 20,000,000 shares of the Company’s common stock.
The Offering Warrants were exercisable upon issuance at an exercise price of $0.56 per share and will expire five years from the date
of issuance. Per the terms of the Offering Warrants, the exercise price of the Offering Warrants reset on July 16, 2023, to a price equal
to the greater of (i) $0.28 per share and (ii) 100% of the last VWAP (as defined in the Warrants) on July 14, 2023. The fair value of
the Offering Warrants on the grant date was approximately $3,164, or $0.16 per warrant, which was calculated using a Monte-Carlo simulation
to estimate the final exercise price, which is considered a Level 3 fair value measurement, using as inputs; the starting value of $0.30
per share, the Company’s VWAP on June 16; an assumed daily distribution of returns; a mean daily return of 5.18%; a short-term annual
volatility of 100% and a standard deviation of 6.3%. The model used Black-Scholes to then calculate the estimated fair value of the Offering
Warrants, using an estimated time to maturity of 4.9 years, a risk-free interest rate of 3.99% and a long-term volatility of 60%. The
change in fair value at June 30, 2023 was immaterial and there were no unrealized gains or losses. Based on the accounting guidance under
ASC 815, the Company determined that the Offering Warrants did not meet the criteria for classification as equity as of June 30, 2023.
Accordingly, the Company classified the fair value of the Offering Warrants as a liability. The total of the Company’s stockholders’
equity plus the warrant liability at June 30, 2023 was $4,067. See Note 10. | 9. Stockholders’ Equity The Amended and Restated Certificate of Incorporation
dated February 18, 2014 authorized the issuance of 3,937,550 shares of common stock and 2,099,525 shares of preferred stock, with a par
value of $0.001 per share. In April 2021 the Company increased the number of authorized shares to 7,000,000 shares of common stock and
2,460,802 shares of preferred stock, and increased the number of authorized shares of Series A Convertible Preferred Stock (“Series
A Preferred Stock”) to 1,798,905. In October 2021 the Company increased the number of authorized shares to 10,487,904 shares of
common stock and 3,297,061 shares of preferred stock. In February 2022, the Company increased the number of authorized shares to 130,000,000
shares of common stock and 20,000,000 shares of preferred stock, of which 4,500,000 are designated “Series A Preferred Stock”
and 491,222 are designated "Series B Preferred Stock”. Initial Public Offering On April 26, 2022, the Company’s Registration
Statement relating to the IPO was declared effective by the SEC. The IPO consisted of 3,200,000 shares of common stock, par value $0.001
per share at a public offering price of $5.00 per share. Pursuant to the Underwriting Agreement dated April 26, 2022, between the Company,
The Benchmark Company, LLC (“Benchmark”) and Valuable Capital Limited (together with Benchmark, the “Underwriters”),
the Company granted the Underwriters warrants to purchase a total of 96,000 shares of the Company’s common stock at an exercise
price of $5.00 per share. The warrants expire on the fifth anniversary of the commencement of sales under the IPO. On April 27, 2022,
the shares of the Company’s common stock began trading on the Nasdaq Capital Market LLC under the symbol “TNON.” On April 29, 2022, the IPO closed, and the Company
received approximately $13.8 million in net proceeds from the IPO after deducting the underwriting discount and commission and other estimated
IPO expenses payable by the Company. As a result of the completion of the IPO and as required under the terms of the convertible notes
payable described in Note 6, the Company converted the entirety of the related outstanding principal and accrued interest to 3,955,415
shares of the Company’s common stock at the conversion price detailed in Note 6 and issued the common stock to the noteholders,
fully satisfying the Company’s obligations. On April 29, 2022, as result of the completion
of the IPO, the Company converted all shares of Series A and Series B Preferred Stock to 2,693,342 shares of the Company’s common
stock at the conversion rate detailed below and issued the common stock to the preferred stockholders, fully satisfying the Company’s
obligations. This includes 1,172,346 shares issued to TTAG’s minority shareholder in accordance with the anti-dilution protection
provisions of the Exchange Agreement. Concurrent with the completion of the IPO and
in accordance with the Amended and Restated Exclusive Sales Representative Agreement executed in May 2021, the counterparty to the agreement
received anti-dilution protections to maintain ownership of 3.0% of the fully diluted equity of the Company through the date of an initial
public offering and was issued 312,351 shares of the Company’s common stock to the Representative, fully satisfying the Company’s
obligations. The value of these shares issued at the IPO price of $5.00 per share was charged to operating expenses in the Company’s
consolidated statements of operations and comprehensive loss. Also, as a result of the completion of the IPO, the Company issued 85,739
shares of its common stock to a consultant, which were treated as issuance costs and netted against IPO proceeds. Preferred Stock On October 28, 2021, the Company entered into
an Agreement (the “Exchange Agreement”) with TTAG’s minority shareholder. Pursuant to the Exchange Agreement, TTAG’s
minority shareholder agreed to exchange 574,033 shares of Series A Convertible Preferred Stock issued by TTAG, representing its entire
ownership interest in TTAG, for the Company’s Series A Preferred Stock, representing a 24% ownership interest in the Company’s
fully-diluted capital, which includes the pro forma conversion of all outstanding convertible preferred stock and promissory notes, options,
and warrants. Pursuant to the terms of the Exchange Agreement, the Company issued TTAG’s minority shareholder 2,550,763 shares of
Series A Preferred Stock. These shares were subject to anti-dilution protection to maintain TTAG’s minority shareholder’s
24% ownership interest in the Company, excluding any shares issued by the Company in an IPO or a qualified offering of at least $5,000
at a per share price of at least $3.3737. Upon conversion of the Company’s convertible notes payable as described in Note 6, the
Company issued 1,172,346 shares of its common stock to TTAG’s minority shareholder. In accordance with ASC 810-10-45-23, the Company
did not recognize any gain or loss in the consolidated statements of operations and comprehensive loss in conjunction with the Exchange
Agreement. The carrying value of the non-controlling interest in TTAG was reduced to zero, and the value of the Company’s investment
in TTAG increased accordingly. The shares of Series A Preferred Stock issued were recorded at fair value. The difference between the increase
in the Company’s investment and the fair value of the Series A Preferred Stock issued was recorded as a decrease in Additional Paid
in Capital (“APIC”). The resulting negative APIC was then reclassified to accumulated deficit. In a series of closings from 2012 through 2015,
the Company issued an aggregate of 491,222 shares of Series B Convertible Preferred Stock (“Series B Preferred Stock”) at
$2.795 per share for proceeds of $1,272, net of stock issuance costs. The Company classified the convertible preferred
stock outside of total stockholders’ deficit because, in the event of certain deemed liquidation events that are not solely within
the control of the Company, the shares would become redeemable at the option of the holders. The Company did not adjust the carrying values
of the convertible preferred stock to the deemed liquidation values of such shares since a liquidation event was not probable of occurring. Conversion At the option of the holder, shares of Series
A and Series B Preferred Stock were convertible into common stock at a conversion rate of one-to-0.5, subject to adjustments for stock
dividends, splits, combinations, and similar events. Automatic conversion will occur in the event of a firmly underwritten public offering
of common stock of the Company at a price of at least $4.00 per share, subject to appropriate adjustments for stock dividends, splits,
combinations, and similar events, and with total gross proceeds to the Company of at least $15,000, before deduction of underwriters’
commissions and expenses. As noted above, the Series A and Series B Preferred Stock were converted to common stock at the time of the
Company’s IPO. Redemption The shares of the Series A and Series B Preferred
Stock were redeemable only upon acquisition or liquidation of the Company. Liquidation preference With respect to any distributions in connection
with a liquidation, dissolution or winding up of the Company, or in connection with the sale of voting control of all or substantially
all of the assets of the Company, by way of merger, acquisition, consolidation or similar transaction, prior to any distribution to common
stockholders, the holders of Series A and Series B Preferred Stock were entitled to receive $1.526 and $4.981 per share, respectively,
plus any declared but unpaid dividends, adjusted to reflect any dividends previously paid. If, upon the occurrence of such event, the
assets and funds distributed among the holders of Series A and Series B Preferred Stock shall be insufficient to permit the payment to
such holders of the full liquidation preference amounts, the entire assets and funds of the Company legally available shall be distributed
ratably among the preferred stockholders in proportion to the preferential amount to which each holder is entitled. After payment of the liquidation preferences,
the holders of common stock are entitled to receive the remaining assets of the Company available for distribution to its stockholders
pro rata based on the number of shares of common stock held by each holder. Voting rights The holders of vested shares of common stock shall
be entitled to vote on any matter submitted to a vote of the stockholders and each such holder shall be entitled to one vote per share
of common stock held. The holders of Series A and Series B Preferred Stock were entitled to vote together with the common stock as a single
class on any matter submitted to a vote of the stockholders. Holders of Series A and Series B Preferred Stock were entitled to the number
of votes equal to the number of common stock issuable upon conversion of their respective Series A and Series B Preferred Stock at the
time such shares are voted. The holders of a majority of the preferred stock had additional voting rights as specified in the Company’s
Amended and Restated Certificate of Incorporation, as amended. Equity awards In 2012, the Board of Directors of the Company
(the “Board”) approved the Tenon Medical, Inc. 2012 Equity Incentive Plan (the “2012 Plan”). The 2012 Plan provides
for the issuance of common stock options, appreciation rights, and other awards to employees, directors, and consultants. Options issued
under the 2012 Plan generally vest over a period of two to four years and have a 10-year expiration date. In April 2021, the Board increased
the number of shares of common stock reserved for issuance under the 2012 Plan to 662,516. In July 2021, the Board increased the number
of shares of common stock reserved for issuance under the 2012 Plan to 737,516. In August 2021, the Board increased the number of shares
of common stock reserved for issuance under the 2012 Plan from 737,516 shares to 799,266 shares and approved the form of a 2022 Equity
Incentive Plan. On January 10, 2022 and February 2, 2022, the
Board and stockholders, respectively, of the Company approved the Tenon Medical, Inc. 2022 Equity Incentive Plan (the “2022 Plan”),
which was effective on April 25, 2022. The number of shares of common stock that may be subject to awards and sold under the 2022 Plan
is equal to 1,600,000. Automatic annual increases in number of shares available for issuance under the 2022 Plan is equal to the least
of (a) 1,100,000 shares, (b) 4% of the total number of shares of all classes of common stock outstanding on the last day of the immediately
preceding fiscal year, or (c) such number determined by the 2022 Plan administrator no later than the last day of the immediately preceding
fiscal year. Annual increases will continue until the tenth anniversary of the earlier of the Board or stockholder approval of the 2022
Plan, which is January 10, 2032. Upon the effective date of the 2022 Plan, the Board terminated the 2012 Plan such that no new equity
awards will be issued by the 2012 Plan and all outstanding options under the 2012 plan are administered under the 2022 Plan. The Company adopted the fair value recognition
provisions in accordance with authoritative guidance related to equity-based payments. Compensation expense in 2022 and 2021 includes
the portion of awards vested in the periods for all equity-based awards granted, based on the grant date fair value. Grant date fair value
for restricted stock units is estimated using the fair value of the Company’s common stock on the date of grant. Grant date fair
value for stock options is estimated using a Black-Scholes option valuation model, consistent with authoritative guidance, using the weighted-average
assumptions in the table below:
Years ended December 31,
2022 2021
Expected volatility 57.68 % 52.35 %
Dividend yield 0 % 0 %
Risk-free interest rate 3.34 % 0.99 %
Expected term in years 5.85 5.76 Estimates of fair value are not intended to predict
actual future events or the value ultimately realized by employees who receive equity awards, and subsequent events are not indicative
of the reasonableness of the original estimates of fair value made by the Company in accordance with authoritative guidance. A summary of the Company’s share option
and restricted stock unit activity under its plans is as follows:
Options RSUs
Number of Weighted- Average Exercise Price per Share Weighted- Average Remaining Contractual Term (In Years) Number of Weighted
Balance as of January 1, 2021 90,991 $ 0.62 4.93 —
Granted 658,903 $ 5.96 —
Cancelled/forfeited/expired (22,500 ) $ 5.20 —
Balance as of December 31, 2021 727,394 $ 5.32 7.12 —
Granted 171,450 $ 2.30 1,318,530 $ 7.93
Balance as of December 31, 2022 898,844 $ 4.74 8.10 1,318,530 $ 7.93
Exercisable at December 31, 2022 456,874 $ 4.89 7.34 The weighted-average grant-date fair value of
options granted during the years ended December 31, 2022 and 2021 was $1.29 and $1.47, respectively. The aggregate intrinsic value of
outstanding options at December 31, 2022 was $87. The aggregate intrinsic value is calculated as the difference between the exercise price
of the option and the estimated fair value of the Company’s common stock for in-the-money options at December 31, 2022. As of December
31, 2022, total compensation cost not yet recognized related to unvested share options was $9,389, which is expected to be recognized
over a weighted-average period of 2.30 years. The following table sets forth stock-based compensation
expense recognized for the years ended December 31, 2022 and 2021:
Years ended December 31,
2022 2021
Research and development $ 995 $ 65
Sales and marketing 117 30
General, and administrative 1,785 282
Total stock-based compensation expense $ 2,897 $ 377 At December 31, 2022, there were 110,020 shares
available for issuance under the 2022 Plan. Warrants During 2020, the Company issued warrants to purchase
25,000 shares of common stock to a consultant. The warrants, which are equity-classified, are immediately exercisable at an exercise price
of $5.20 per share. The fair value of the warrants on the grant date was $2.30 per warrant, which was calculated based on the following
weighted-average assumptions, using a Black-Scholes option valuation model: expected term of 5.00 years; expected volatility of 51.88%;
dividend yield of 0%, and risk-free interest rate of 0.30%. The Company recorded deferred offering costs of approximately $58 associated
with these warrants during 2020 which was recorded in additional paid-in capital in 2022. These warrants expired immediately prior to
the IPO per the original terms of the warrants. In April 2022, as noted above, the Company granted
the Underwriters warrants to purchase a total of 96,000 shares of the Company’s common stock. The warrants are immediately exercisable
at an exercise price of $5.00 per share and expire on the fifth anniversary of the commencement of sales under the IPO. The fair value
of the warrants on the grant date was $2.75 per warrant, which was calculated based on the following weighted-average assumptions, using
a Black-Scholes option valuation model: expected term of 5.00 years; expected volatility of 62.55%; dividend yield of 0%, and risk-free
interest rate of 2.92%. The Company recorded the fair value of these warrants of approximately $264 as an issuance cost to additional
paid-in capital in 2022. As the IPO issuance costs were also recorded to additional paid-in capital, the net impact was $0. |
