| Stockholders' Equity | 7. Stockholders’
Equity The
Company’s current Amended and Restated Certificate of Incorporation dated February 18, 2014, authorizes the issuance of 130,000,000
shares of common stock and 20,000,000 shares of preferred stock, both with a par value of $0.001 per share. 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. 2024
Public Offering On
September 12, 2024, the Company entered into a placement agency agreement (the “Placement Agency Agreement”) with A.G.P./Alliance
Global Partners (the “Placement Agent”), and a securities purchase agreement (the “Purchase Agreement”) with
a single health-care focused institutional investor pursuant to which the Company agreed to issue and sell, in a “reasonable best
efforts” public offering (the “Offering”), (i) 55,000 shares (the “Shares”) of the Company’s common
stock, par value $0.001 (the “Common Stock”), (ii) pre-funded warrants to purchase up to 1,167,850 shares of Common Stock
(the “Pre-Funded Warrants”) and (iii) warrants to purchase up to 1,222,850 shares of Common Stock at an exercise price of
$3.55 per share (the “Common Warrants”) at a combined offering price of $3.68 per Share and accompanying Common Warrant,
and $3.68, less $0.0001 per Pre-Funded Warrant and accompanying Common Warrant. The Common Warrants were exercisable upon issuance and
will expire five years from the date of issuance. Warrant
Inducement On September 16, 2024, the Company entered into an Inducement Letter with Armistice Capital, LLC (the “Selling Stockholder”)
who held all of the Common Warrants. Pursuant to the Inducement Letter, the Selling Stockholder agreed to exercise the Common Warrants
for cash at the exercise price of $3.55 per share in consideration for the Company’s agreement to issue, for an additional payment
of $0.125 per New Warrant, (i) the Series A New Warrants to purchase up to an aggregate of 1,222,850 shares of Common Stock at an exercise
price of $4.28 per share, which are exercisable for five years after issuance and (ii) the Series B New Warrants to purchase up to an
aggregate of 1,222,850 shares of Common Stock at an exercise price of $4.28 per share, which are exercisable for three years after issuance.
The Company received net proceeds of approximately $4.3 million from the exercise of the Common Warrants and the placement of the New
Warrants, after deducting financial advisor fees and other transaction expenses. The warrant inducement was accounted for as a modification
of the Common Warrants. The Company estimated the fair value of the Common Warrants immediately before the modification and the fair value of the New Warrants
after the modification using the Black-Scholes valuation model with an expected term of 5.00 years, expected volatility of 68.40%, dividend
yield of 0%, and risk-free interest rate of 3.4%. The incremental increase in fair value less cash received was $992 and was accounted
for as an additional equity issuance cost under the warrant inducement, which was recorded to additional paid-in capital. At-the-Market
Offering Program On
May 4, 2023, the Company entered into an Equity Distribution Agreement to establish an at-the-market offering program, under which the
Company may sell from time to time, at its option, shares of its common stock having an aggregate gross sales price of $5.5 million.
The Company is required to pay the Sales Agents a commission of 3% of the gross proceeds from the sale of shares and has also agreed
to provide the Sales Agents with customary indemnification rights. During the nine months ended September 30, 2024, 129,199 shares of
the Company’s common stock were sold under the program at a weighted-average price of $14.63 per share with aggregate proceeds,
net of issuance costs, of $1,834. No shares were sold under the program during the three months ended September 30, 2024. As of the date
of this report, the Company may not sell additional shares under this program. Equity
Line of Credit On
July 24, 2023, the Company entered into a purchase agreement (“Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln
Park”), under which, subject to specified terms and conditions, the Company may sell to Lincoln Park up to $10 million of shares
of common stock from time to time during the term of the Purchase Agreement. On September 22, 2023 (the “Commencement Date”)
and on May 10, 2024, the Company filed registration statements with the SEC covering the resale of shares of common stock issued to Lincoln
Park under the Purchase Agreement. Beginning
on the Commencement Date and for a period of 24 months thereafter, under the terms and subject to the conditions of the Purchase Agreement,
from time to time, at the Company’s discretion, the Company has the right, but not the obligation, to sell to Lincoln Park, and
Lincoln Park is obligated to purchase, up to $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 The Nasdaq Capital Market (“Nasdaq”)
is equal to or greater than $1.50 up to 10,000 shares of common stock (a “Regular Purchase”); provided, that the Company
may direct Lincoln Park to purchase in a Regular Purchase (i) up to 12,500 shares of common stock, if the closing sale price of its common
stock on Nasdaq on such business day is at least $15.00 per share and (ii) up to 15,000 shares of common stock, if the closing sale price
of its common stock on Nasdaq on such business day is at least $25.00 per share. 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 100,000
shares or any number of shares that shall not exceed 4.99% of the then outstanding shares of common stock. The foregoing share amounts
and per share prices will be adjusted for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or
other similar transaction occurring after the date of the Purchase Agreement with respect to our common stock. 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. During
the three months ended September 30, 2024, 37,618 shares of the Company’s common stock were sold under the program at a weighted-average
price of $4.56 per share with aggregate net proceeds of $164. During the nine months ended September 30, 2024, 48,849 shares of the Company’s
common stock were sold under the program at a weighted-average price of $5.56 per share with aggregate net proceeds of $260. Series
A Preferred Stock On February 20, 2024, the Company entered into a Securities Purchase
Agreement with certain investors, pursuant to which the Company agreed to sell, issue and deliver to these investors, in a private placement
offering, a total of 172,239 shares of the Company’s Series A Preferred Stock and warrants (the “Series A Warrants”)
to purchase 258,374 shares of Common Stock at an exercise price equal to $1.2705 per share for net proceeds of 2,437 after deducting offering
costs. Additionally,
on February 20, 2024, the Investors agreed to a complete prepayment of the Company’s obligations under the Convertible Notes, including
accrued interest, in exchange for 84,729 shares of Series A Preferred Stock and warrants to purchase 157,094 shares of our common stock
at $1.2705 per share and the Convertible Notes were cancelled. The Series A Warrants are immediately exercisable and expire five years
from the date of issuance. The
Series A Preferred Stock is convertible, at any time, at the option of the holder into shares of Common Stock. Each share of Series A
Preferred Stock shall be convertible, at any time after the date of issuance, at the option of the holder thereof (or, upon a Required
Conversion (as defined below), at the option of the Corporation), into that number of shares of Common Stock determined by dividing the
Stated Value (as defined below) for such share of Series A Preferred Stock by the Conversion Price (as defined below). “Stated
Value” means for any share of Series A Preferred Stock, an amount equal to the product of (x) $15.125 multiplied by (y) the sum
of 1 plus the product of (A) 0.06 multiplied by (B) a fraction equal to the number of days that such share of Series A Preferred Stock
has been issued divided by 365. “Conversion Price” means (i) for the shares of Series A Preferred Stock issued on the Closing
Date, $1.5125 and (ii) for each share of Series A Preferred Stock issued thereafter, an amount equal to the greater of (x) $1.5125 and
the average of the VWAPs for the 10 Trading Days prior the issuance date of such share of Series A Preferred Stock, in each case subject
to adjustment as set forth herein. On any date that ten out of the last 15 daily VWAPs of the Common Stock is 250% higher than the Conversion
Price on such date, then the Company will have the right to require 50% of the Preferred Stock to be converted into shares of Common
Stock. Additionally, on and after the time on which the Company has $2.25 million in revenues in any single financial quarter, the Company
will have the right to require 50% of the Preferred Stock to be converted into shares of Common Stock (a “Required Conversion”).
No dividends are payable on the Series A Preferred Stock. The Series A Preferred Stock will vote together with the Common Stock on all
matters other than as required by law; provided however that any additional shares underlying the Series A Preferred Stock as a result
of the anti-dilution provision described below shall not vote on an “as converted” basis and shall only vote when issued
upon conversion. Notwithstanding the foregoing, the vote of an individual holder of Series A Preferred Stock (and underlying Common Stock)
shall be capped at 9.99% (or 4.99% if selected by the holder). The
Conversion Price is subject to anti-dilution adjustment as the result of any subdivision, combination of shares or recapitalization,
stock dividends, stock splits and similar transactions affecting the Common Stock. In addition, the Series A Preferred Stock will have
weighted average anti-dilution protection providing for adjustment of the Conversion Price in the event of issuance of, or commitments
to issue, Common Stock for less than the Conversion Price then in effect immediately prior to such issue or sale (a “Dilutive Issuance”),
subject to customary exceptions; provided however the anti-dilution for Dilutive Issuances shall not be operative until the stockholders
of the Company have approved the terms of the Series A Preferred Stock. Upon any liquidation or winding up of the Company (a “Liquidation”),
the holders of Series A Preferred Stock will be entitled to receive in preference to any other class or series of the Company’s
equity securities the greater of (i) the Stated Value plus accrued and unpaid dividends and (ii) what would be paid if the Series A Preferred
Stock plus accrued and unpaid dividends had been converted into Common Stock. A consolidation or merger of the Company or sale or transfer
of all or substantially all of its assets, or any transaction which results in the stockholders of the Company owning less than 50% of
the equity or voting power of the surviving entity (excluding the issuance of Common Stock in any financing transaction unless more than
50% of the Company’s shares are issued to one stockholder or a number of stockholders who act as a one group) shall be deemed a
Liquidation (a “Deemed Liquidation”) with respect to the shares of Series A Preferred Stock of any holder who opts to have
such occurrence treated as a Deemed Liquidation; provided that if the liquidation preference payable on a Deemed Liquidation is less
than 110% of the stated value of the Series A Preferred Stock, the dividend rate on any accrued and unpaid dividends payable with respect
to such Deemed Liquidation will increase to 10%. All liquidation preferences payable in respect of a Deemed Liquidation will be payable
in shares of Common Stock based on the closing price of the Common Stock on the date of such Deemed Liquidation. Consent of the majority
of the holders will be required to (i) amend the Certificate of Incorporation or Bylaws of the Company so as to adversely alter the rights,
preferences, privileges of the Series A Preferred Stock, (ii) create any new class of shares pari passu or senior to the Series A Preferred
Stock or increase or decrease the number of authorized shares of Common Stock or preferred stock, (iii) pay or declare any dividend on
Common Stock or other junior securities, or incur indebtedness in any single transaction in excess of $1 million or (iv) redeem, purchase
or otherwise acquire any share or shares of preferred stock or Common Stock (other than (a) the repurchase of shares of Common Stock
pursuant to a written benefit plan or employment or consulting agreement, or (b) the repurchase of any equity securities in connection
with the Company’s right of first offer with respect to those securities contained in any written agreement with the Company). Series
B Preferred Stock On
September 5, 2024, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain investors,
pursuant to which the Company agreed to sell, issue and deliver to the Investors, in a private placement offering, a total of 86,454
shares of the Company’s Series B Preferred Stock (the “Series B Preferred Stock”) and warrants (the “Series B
Warrants”) to purchase 16,214 shares of Common Stock at an exercise price equal to $4.2756 per share for an aggregate offering
price of $550,000. The Series B Warrants are immediately exercisable and expire five years from the date of issuance. The
Series B Preferred Stock is convertible, at any time, at the option of the holder into shares of Common Stock. Each share of Series B
Preferred Stock shall be convertible, at any time after the date of issuance, at the option of the holder thereof (or, upon a Required
Conversion (as defined below), at the option of the Corporation), into that number of shares of Common Stock determined by dividing the
Stated Value (as defined below) for such share of Series B Preferred Stock by the Conversion Price (as defined below). “Stated
Value” means for any share of Series B Preferred Stock, an amount equal to the product of (x) $6.3625 multiplied by (y) the sum
of 1 plus the product of (A) 0.06 multiplied by (B) a fraction equal to the number of days that such share of Series B Preferred Stock
has been issued divided by 365. “Conversion Price” means $5.09 per share, subject to adjustment as set forth herein. On any
date that ten out the last 15 daily VWAPs of the Common Stock is 250% higher than the Conversion Price on such date, then the Company
will have the right to require 50% of the Preferred Stock to be converted into shares of Common Stock. Additionally, on and after the
time on which the Company has $2.25 million in revenues in any single financial quarter, the Company will have the right to require 50%
of the Preferred Stock to be converted into shares of Common Stock (a “Required Conversion”). No dividends are payable on
the Series B Preferred Stock. The Series B Preferred Stock will vote together with the Common Stock on all matters other than as required
by law; provided however that any additional shares underlying the Series B Preferred Stock as a result of the anti-dilution provision
described below shall not vote on an “as converted” basis and shall only vote when issued upon conversion. Notwithstanding
the foregoing, the vote of an individual holder of Series B Preferred Stock (and underlying Common Stock) shall be capped at 9.99% (or
4.99% if selected by the holder). The
Conversion Price is subject to anti-dilution adjustment as the result of any subdivision, combination of shares or recapitalization,
stock dividends, stock splits and similar transactions affecting the Common Stock. In addition, the Series B Preferred Stock will have
weighted average anti-dilution protection providing for adjustment of the Conversion Price in the event of issuance of, or commitments
to issue, Common Stock for less than the Conversion Price then in effect immediately prior to such issue or sale (a “Dilutive Issuance”),
subject to customary exceptions; provided however the anti-dilution for Dilutive Issuances shall not be operative until the stockholders
of the Company have approved the terms of the Series B Preferred Stock. Upon any liquidation or winding up of the Company (a “Liquidation”),
the holders of Series B Preferred Stock will be entitled to receive in preference to any other class or series of the Company’s
equity securities the greater of (i) the Stated Value plus accrued and unpaid dividends and (ii) what would be paid if the Series B Preferred
Stock plus accrued and unpaid dividends had been converted into Common Stock. A consolidation or merger of the Company or sale or transfer
of all or substantially all of its assets, or any transaction which results in the stockholders of the Company owning less than 50% of
the equity or voting power of the surviving entity (excluding the issuance of Common Stock in any financing transaction unless more than
50% of the Company’s shares are issued to one stockholder or a number of stockholders who act as a one group) shall be deemed a
Liquidation (a “Deemed Liquidation”) with respect to the shares of Series B Preferred Stock of any holder who opts to have
such occurrence treated as a Deemed Liquidation; provided that if the liquidation preference payable on a Deemed Liquidation is less
than 110% of the stated value of the Series B Preferred Stock, the dividend rate on any accrued and unpaid dividends payable with respect
to such Deemed Liquidation will increase to 10%. All liquidation preferences payable in respect of a Deemed Liquidation will be payable
in shares of Common Stock based on the closing price of the Common Stock on the date of such Deemed Liquidation. Consent of the majority
of the holders will be required to (i) amend the Certificate of Incorporation or Bylaws of the Company so as to adversely alter the rights,
preferences, privileges of the Series B Preferred Stock, (ii) create any new class of shares pari passu or senior to the Series B Preferred
Stock or increase or decrease the number of authorized shares of Common Stock or preferred stock, (iii) pay or declare any dividend on
Common Stock or other junior securities, or incur indebtedness in any single transaction in excess of $1 million or (iv) redeem, purchase
or otherwise acquire any share or shares of preferred stock or Common Stock (other than (a) the repurchase of shares of Common Stock
pursuant to a written benefit plan or employment or consulting agreement, or (b) the repurchase of any equity securities in connection
with the Company’s right of first offer with respect to those securities contained in any written agreement with the Company) Voting
rights The
holders of vested shares of common stock are entitled to vote on any matter submitted to a vote of the stockholders and each such holder
is entitled to one vote per share of common stock held. The holders of Series A and Series B Preferred Stock are entitled to vote together
with the common stock as a single class on any matter submitted to a vote of the stockholders. Holders of Series A and Series B Preferred
Stock are entitled to the number of votes equal to the number of common stock issuable upon conversion of their respective Series A and
Series B Preferred Stock at the time such shares are voted. The holders of a majority of the preferred stock had additional voting rights
as specified in the Company’s Amended and Restated Certificate of Incorporation, as amended. Equity
awards In
2012, the Board of Directors of the Company (the “Board”) approved the Tenon Medical, Inc. 2012 Equity Incentive Plan (the
“2012 Plan”). The 2012 Plan provides for the issuance of common stock options, appreciation rights, and other awards to employees,
directors, and consultants. Options issued under the 2012 Plan generally vest over a period of two to four years and have a 10-year expiration
date. In April 2021, the Board increased the number of shares of common stock reserved for issuance under the 2012 Plan to 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. Option
Exchange On
April 8, 2024, the Company issued an offer to holders of outstanding stock options to purchase an aggregate of 11,387 shares of the Company’s
common stock to exchange their options for a lesser number of new restricted stock units (“RSUs”) to be granted under the
2022 Plan upon the terms and subject to the conditions set forth in the Offer to Exchange Certain Outstanding Stock Options for Restricted
Stock Units (the “Offer to Exchange”). The Offer to Exchange expired on May 6, 2024. A total of 27 eligible participants
participated in the exchange. The Company accepted for exchange options to purchase an aggregate of 10,436 shares of common stock of
the Company. All surrendered options were cancelled effective as of the expiration of the Option Exchange, and immediately thereafter,
in exchange therefor, the Company granted a total of 5,226 new RSUs under the 2022 Plan. The incremental fair value of the new RSUs that
were vested at the issuance date was $32 and was immediately expensed. A
summary of the Company’s stock option and restricted stock unit activity under its plans is as follows:
Number
of Shares Subject to Outstanding
Stock
Options Weighted
Number
of Outstanding
Restricted
Stock Units Weighted Average
Grant Date
Fair Value
per Unit
Outstanding at December 31, 2023 12,777 $ 340.44 9,637 $ 555.85
Granted 8,621 $ 6.89 15,059 $ 7.99
Released — — (7,232 ) $ 252.91
Cancelled or forfeited (12,076 ) $ 346.20 (625 ) $ 23.28
Outstanding at September 30, 2024 9,322 $ 24.50 16,839 $ 215.78 The
following table sets forth stock-based compensation expense recognized for the three and nine months ended September 30, 2024 and 2023:
Three
months ended September
30, Nine
months ended September
30,
2024 2023 2024 2023
Research and development $ 355 $ 380 $ 1,080 $ 1,130
Sales and marketing 31 55 108 171
General, and administrative 524 635 1,774 1,863
Total stock-based compensation
expense $ 910 $ 1,070 $ 2,962 $ 3,164 At
September 30, 2024, there were 144,196 shares available for issuance under the 2022 Plan. Warrants In
April 2022, in association with the Company’s initial public offering, the Company granted to The Benchmark Company, LLC and Valuable
Capital Limited warrants to purchase a total of 1,200 shares of Common Stock. The warrants were immediately exercisable at an exercise
price of $400.00 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 $220.00 per warrant, which was calculated using a Black-Scholes option valuation model with an 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 $264 as an issuance cost to additional paid-in capital in 2022. In
June 2023, in connection with a registered offering of stock, the Company issued warrants to purchase a total of 250,000 shares of Common
Stock (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 of the Offering Warrants reset on July 16, 2023, to $25.168
per share. The fair value of the Offering Warrants on the grant date of $3,164, or $12.64 per warrant, 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 $24.00 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%. In
November 2023, in connection with the issuance of the Convertible Notes, the Company issued warrants to purchase a total of 5,625 shares
of Common Stock at an exercise price equal to $15.52 per share. The warrants expire five years from the issuance date. The fair value
of the warrants on the grant date was $10.32 per warrant, which was calculated using a Black-Scholes option valuation model with an expected
term of 5.00 years, expected volatility of 68.89%, dividend yield of 0%, and risk-free interest rate of 4.41%. The Company recorded the
fair value of these warrants of approximately $58 as an issuance cost to additional paid-in capital in 2023. On
February 20, 2024, in connection with the issuance of Series A Preferred Stock, the Company issued the Series A Warrants to purchase
a total of 51,937 shares of Common Stock at an exercise price equal to $4.28 per share. The Series A Warrants are immediately exercisable
and expire five years from the date of issuance. The fair value of the Series A Warrants on the grant date was $4.88 per warrant, which
was calculated using a Black-Scholes option valuation model with an expected term of 5.00 years, expected volatility of 68.24%, dividend
yield of 0%, and risk-free interest rate of 4.3%. The Company recorded the fair value of these warrants of $254 to additional paid-in
capital in 2024. On
September 5, 2024, in connection with the issuance of Series B Preferred Stock, the Company issued the Series B Warrants to purchase
a total of 16,214 shares of Common Stock at an exercise price equal to $4.28 per share. The Series B Warrants are immediately exercisable
and expire five years from the date of issuance. The fair value of the Series B Warrants on the grant date was $2.25 per warrant, which
was calculated using a Black-Scholes option valuation model with an expected term of 5.00 years, expected volatility of 68.40%, dividend
yield of 0%, and risk-free interest rate of 3.5%. The Company recorded the fair value of these warrants of $37 to additional paid-in
capital in 2024. On
September 16, 2024, in connection with the Warrant Inducement agreement, the Company issued Series A New Warrants to purchase a total
of 1,222,850 shares of Common Stock at an exercise price of $4.28 per share, which are exercisable for five years after issuance and
Series B New Warrants to purchase a total of 1,222,850 shares of Common Stock at an exercise price of $4.28 per share, which are exercisable
for three years after issuance. The fair value of the Series A New Warrants on the grant date was $5.49 per warrant, which was calculated
using a Black-Scholes option valuation model with an expected term of 5.00 years, expected volatility of 68.40%, dividend yield of 0%,
and risk-free interest rate of 3.4%.The fair value of the Series B New Warrants on the grant date was $4.87 per warrant, which was calculated
using a Black-Scholes option valuation model with an expected term of 3.00 years, expected volatility of 68.40%, dividend yield of 0%,
and risk-free interest rate of 3.4%. The Company recorded the fair value of these warrants to additional paid-in capital in 2024. |
