TENON MEDICAL, INC. 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 Annual Report on Form 10-K. 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,U.S. Food and Drug Administration ("FDA") approved surgical implant-system, which we call The Catamaran TM SI Joint Fusion System ("The Catamaran System"). The Catamaran System offers a novel, less invasive inferior-posterior approach to the sacroiliac joint ("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 CT scans which is the gold standard widely accepted by the clinical community. We had our national launch of The Catamaran System inOctober 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. We had net losses of approximately$18.9 million and$7.1 million for the years endedDecember 31, 2022 and 2021, respectively. As ofDecember 31, 2022 , we had an accumulated deficit of approximately$39.5 million . To date, we have financed our operations primarily through 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.
Reverse Stock Split
OnApril 6, 2022 , we effected a 1:2 reverse stock split (the "Reverse Stock Split"). Any fractional shares that would have resulted from the Reverse Stock Split were rounded up to the nearest whole share. Our authorized common stock was not impacted by the Reverse Stock Split. Immediately after the Reverse Stock Split there were 989,954 shares of our common stock outstanding. Profit per share and share amounts for the consolidated financial statements as of and for the years endedDecember 31, 2022 and 2021 reflect the impact of the Reverse Stock Split. Further, we have retrospectively adjusted the 2021 financial statements for profit per share and share amounts as a result of 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 withUnited 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 Annual Report on Form 10-K, 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. 52 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 inthe 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 toOctober 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 sinceApril 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 theU.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.
53 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 theAmerican 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. TheMay 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. TheMay 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. TheAugust 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. TheAugust 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. TheOctober 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. TheOctober 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 theDecember 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 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.
54 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
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.
Financial Operations Overview
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 instrument 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 inMay 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, increased The Catamaran System 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. 55
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 IT 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 theSEC and those ofThe Nasdaq Capital Market LLC on which our securities will be 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.
56
Results of Operations (in thousands, except percentages)
Year
s
Ended
December 31,
Consolidated Statements of Operations Data in Dollars: 2022 2021
Revenue $ 691 $ 160
Cost of goods sold 1,332 55
Gross (loss) profit (641 ) 105
Operating expenses:
Research and development 2,828 1,718
Sales and marketing 7,833 2,141
General and administrative 7,423 2,707
Total operating expenses 18,084 6,566
Loss from operations (18,725 ) (6,461 )
Interest and other income (expense), net:
Gain on investments 180 2
Interest expense (354 ) (621 )
Other income (expense) (18 ) (1 )
Net loss (18,917 ) (7,081 )Loss attributable to non-controlling interest - (33 ) Net loss attributable to Tenon Medical, Inc.$ (18,917 ) $ (7,048 ) Year s Ended December 31, Consolidated Statements of Operations Data as a Percent of Revenue: 2022 2021 Revenue 100 % 100 % Cost of goods sold 193 34 Gross profit (93 ) 66 Operating expenses: Research and development 409 1,074 Sales and marketing 1,134 1,338 General and administrative 1,074 1,692 Total operating expenses 2,617 4,104 Loss from operations (2,710 ) (4,038 )
Interest and other income (expense), net:
Gain on investments 26 1 Interest expense (51 ) (388 ) Other expense (3 ) (1 ) Net loss (2,738 ) (4,426 )
Loss attributable to non-controlling interest - (21 ) Net loss attributable to Tenon Medical, Inc. (2,738 )% (4,405 )%
Comparison of the years ended
Revenue, Cost of Goods Sold, Gross Profit, and Gross Margin
Year
s
Ended December 31,
2022 2021 $ Change % Change
Revenue $ 691 $ 160 $ 531 332 %
Cost of goods sold 1,332 55 1,277 2,322 %
Gross (loss) profit $ (641 ) $ 105 $ (746 ) (710 )%
Gross (loss) profit percentage (93 )% 66 %
Revenue.
The increase in revenue for the year endedDecember 31, 2022 as compared to 2021 was primarily due to increases of 361% in the number of surgical procedures in which The Catamaran System was used, combined with lower revenue per procedure due to a national distribution agreement in effect for sales fromJuly 2020 through April of 2021 that decreased the amount of revenue that the Company was able to recognize per surgical procedure. Cost of Goods Sold, Gross Profit, and Gross Margin. The increase in cost of goods sold for the year endedDecember 31, 2022 as compared to 2021 was due to an increase in operations overhead spending as the Company progressed toward commercial launch of The Catamaran System, combined with a 361% year-over-year increase in the number of surgical procedures. Gross (loss) profit decreased due to the increases in overhead spending and the number of surgical procedures. Gross margin percentage decreased due to higher operations overhead spending, and partially offset by higher revenue per procedure from resulting from an amended and restated national distribution
agreement.
57
Operating Expenses
Year
s
Ended December 31,
2022 2021 $ Change % Change
Research and development $ 2,828 $ 1,718 $ 1,110 65 %
Sales and marketing 7,833 2,141 5,692 266 %
General and administrative 7,423 2,707 4,716 174 %
Total operating expenses $ 18,084 $ 6,566 $ 11,518
Research and Development Expenses.
Research and development expenses for the year ended December 31, 2022 increased
as compared to 2021 primarily due to increased stock-based compensation ($899 )
and payroll expenses ($344 ), partially offset by decreased professional fees
($212 ). The increase in payroll and stock-based compensation expenses in 2022
reflects the fact that we did not have any employees during the first three
months of 2021. The decrease in consulting expenses in 2022 relates to a
quality/regulatory consulting group hired in May 2021 to upgrade our quality
system.
Sales and Marketing Expenses.
Sales and marketing expenses for the year ended December 31, 2022 increased as
compared to 2021 primarily due to payments to SpineSource in association with
the termination of the Sales Agreement ($3,611 ), increased payroll expenses
($674 ), consulting fees ($509 ), sales commissions ($255 ), clinical and marketing
collateral expenses ($189 ), and sales training expenses ($157 ). The increase in
consulting fees in 2022 is primarily due to the common stock issued for services
in the second quarter of 2022.
General and Administrative Expenses
. General and administrative expenses for the year ended December 31, 2022
increased as compared to 2021 primarily due to the legal settlement accrual
($574 ), increased stock-based compensation ($1,459 ), payroll expenses ($756 ),
insurance expense ($1,052 ), consulting fees ($479 ), and legal fees ($208 ). The
significant increase in general and administrative expenses in 2022 was a result
of the Company's ongoing transition to an operating company with formalization
and amendment of consulting and sales representative agreements, an audit of our
2021 consolidated financial statements and reviews of our quarterly results by
our outside accounting firm and by legal representatives, and the creation of an
infrastructure to support future growth through the hiring of employees and
establishment of a facility lease.
Gain (Loss) on Investments, Interest Expense and Other Income (Expense), Net
Year
s
Ended December 31,
2022 2021 $ Change % Change
Gain on investments $ 180 $ 2 $ 178 8,900 %
Interest expense (354 ) (621 ) 267 (43 )%
Other expense, net (18 ) (1 ) (17 ) 1,700 %
Total operating expenses $ (192 ) $ (620 ) $ 428
Gain on Investments.
Gain on investments for the year ended December 31, 2022 increased as compared
to 2021 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 nine months of 2021.
Interest Expense.
Interest expense for the year ended December 31, 2022 decreased as compared to
2021 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, 2022 and 2021.
Liquidity and Capital Resources
As ofDecember 31, 2022 , we had cash and cash equivalents and short-term investments of$8.6 million . Since inception, we have financed our operations through private placements of preferred stock, debt financing arrangements, our initial public offering and the sale of our products. As ofDecember 31, 2022 , we had no outstanding debt. As ofDecember 31, 2022 , we had an accumulated deficit of$39.5 million . During the years endedDecember 31, 2022 and 2021, we incurred net losses of$18.9 million and$7.1 million , respectively, and expect to incur additional losses in the future. We have not achieved positive cash flow from operations to date. OnApril 29, 2022 , the Company closed an initial public offering of its common stock. Based upon our current operating plan, we believe that the net proceeds from this initial public offering, together with our existing cash and cash equivalents, will not be sufficient to fund our operating expenses and capital expenditure 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 or licensing arrangements. 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. 58 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 or licensing arrangements. 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.
Contractual Obligations
The following table summarizes our contractual obligations as ofDecember 31, 2022 : Payments Due By Period (In thousands) More Less than than Total 1 year 1-3 years 4-5 years 5 years Operating leases$ 1,048 $ 293 $ 611 $ 144 $ - Purchase obligations - - - - - Total$ 1,048 $ 293 $ 611 $ 144 $ -
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:
Year
s
Ended December 31,
2022 2021 $ Change % Change
Net cash (used in) provided by:
Operating activities $ (12,025 ) $ (4,292 ) $ (7,733 ) 180 %
Investing activities (2,884 ) (4,504 ) 1,620 (36 )%
Financing activities 14,114 11,469 2,645 23 %
Effect of foreign currency
translation on cash flow 7 (2 ) 9 (450 )%
Net (decrease) increase in cash and
cash equivalents $ (788 ) $ 2,671 $ (3,459 ) (130 )%
The increase in net cash used in operating activities for the year ended
December 31, 2022 as compared to 2021 was primarily attributable to our
increased net loss of $11.8 million as we continued to fund operations, adjusted
for increases in non-cash stock-based compensation expenses ($2,520 ) and common
stock issued for services ($333 ), in addition to increases in inventory ($82 )
and accrued expenses ($1,862 ) and decreases in accounts payable ($372 ).
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 used in investing activities for year ended December
31, 2021 consisted primarily of the purchase of short-term investments of $4.4
million and purchased of property and equipment of $0.1 million .
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. Cash provided by financing activities for
the year ended December 31, 2021 consisted primarily of the issuance of $12.1
million in convertible notes payable.
Off-Balance Sheet Arrangements
As ofDecember 31, 2022 and 2021, 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.
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