Shareholder Update 2020 & Q1 Recap

Robot Strategy:

You may have noticed that the frequency and detail of development updates on the robot side have slowed. With our progress and exposure, we are indeed "on the radar." We operate in a highly competitive environment, and we think it's important to be cautious about what we share publicly until the appropriate time. We assure you that we are working extremely hard and making progress. We very much appreciate your continued patience and support as we move forward more covertly with our development efforts for strategic reasons.

The biggest technical challenge that any surgical robotics company in ortho faces is two-fold. Robots need to prepare patient bones very quickly to be competitive with current manual and existing robotic methods, and we need to be highly accurate, safe, and reliable. We are "actively" milling and automating many workflows to achieve this.

Our current workflow can take a patient CT scan and auto-identify the patient's bone and key anatomical landmarks using Artificial Intelligence algorithms. We have trained these algorithms on a dataset of over 8,000 patient images. We reconstruct these images into a 3D representation that is the input to our pre-operative planning and case management applications. Surgeons can fully update execution in real-time, but we have a highly scalable infrastructure that will help us driving operating and capital efficiencies. Our robot will execute high-accuracy navigated cuts in a closed-loop control architecture.

There is an essential balance between "human interaction" and automation that we believe we are striking. We have architected our workflow to minimize the risk of careless human errors without compromising the value of thoughtful human judgment.

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Many critical mechanical components of our system have been through several design iterations and are currently getting fabricated for advanced testing. We believe that using near-production equivalent tightly designed components and executing an end-to-end integrated workflow for demonstrations makes a difference. We soon intend to start demoing the system under restrictive NDA's for select interested parties for which we see potential synergies.
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Implant Strategy:

We get asked a lot of questions about implant strategy. In April 2020, we applied for funding from the National Institute of Arthritis and Musculoskeletal and Skin Diseases, an NIH institute. We are proud of the application, which does a good job explaining what we are trying to accomplish with our total knee design and why we believe it's truly a novel approach to orthopedics. You can read our submission here.

As a recap, in March 2020, Monogram entered into a strategic license agreement for an FDA-approved total knee implant. It is important to emphasize that this is not a strategy pivot - these are required components we would have otherwise had to develop ourselves. Orthopedic implants are constructs with multiple parts, not all of which require customization for clinical function. A total knee consists of a femur, a patella, an insert, and a tibial component. Monogram's patent filings and innovation are on the tibial component, which is approximately twelve times more likely to fail than the femoral component. Similarly, for hip implants, our innovation is on the stem side.

In July 2020, Monogram management identified an opportunity to lock in long-term pricing to supply our licensed total knee construct components. For reference, the tibial component typically only represents approximately 1/3rd of the aggregate cost of a total knee. Therefore pricing on the non-custom components of the Monogram knee construct is significant to margins. We were able to reduce our long-term supply cost by approximately 25-30% with these agreements. As part of the agreement to secure long-term pricing, the supplier required Monogram to place an opening order.

As a management team, we focus on the long-term. We determined that negotiating a long-term supply agreement at favorable pricing is critical to our success over time. As a secondary objective, management believed we could leverage the inventory purchase to force our maturation as a company. With FDA-approved implants to sell, it has pushed the organization to implement necessary procedures and infrastructure for long-term growth. We can now execute a multi-generational product release strategy that will be proactive versus reactive.

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In December 2020, Monogram similarly secured licenses for FDA-approved partial knee (UKA) and total hip (THA) implant systems. We were likewise able to secure highly favorable long-term pricing of such components. These agreements put us in a position to compete as we upgrade our broad implant portfolio with our customization technology as quickly as possible. Like total knees, we do not believe all of the components of these constructs require customization for clinical benefit. We intend to combine components that already work well with our novel components designed to address real clinical problems.

In summary, we have secured licenses to critical components and locked in favorable supply pricing for the long term. We have observed other startups struggle with implant margins in the past - we believe we have set the company up for healthy and sustainable margins if our strategy materializes. We want to emphasize that none of these items are diversions or dilution of our product or differentiation - we have always needed all the components of a total knee implant system to commercialize. We want to solve real clinical problems without marketing gimmicks.

Fundraising:

Firstly we would like to thank all of our shareholders for their tremendous support. We are honored to serve you as a management team and to share this journey with all of you. We are also incredibly grateful for the JOBS Act, which has established crowdfunding provisions that allow early-stage businesses like Monogram to offer and sell securities.

We get many questions from shareholders and potential investors alike that demonstrate many people misunderstand, in our view, the power and potential of crowdfunding. Crowdfunding gives Monogram incredible strategic options that are rare for startups to have.

Firstly, it is essential to understand that many startups need access to capital. Startups often raise money in incremental steps called funding rounds (series-A, series-B, Series-C, etc.). With institutional capital, all of the funding comes in at once. With crowdfunding, the funding comes in over a more extended period - it also may tend to be back-end loaded, which adds further nuance to funding strategy and planning.

Many investors fail to understand how much control management and the board have over the crowdfunding raise dynamics. For example, if we deem the valuation to no longer reflect our intrinsic value, we can turn off the raise at any time. As such, we view crowdfunding much more like a shelf offering where the motto "always be raising" applies. As long as management and the board believe the valuation of the active round is reflective of the company's intrinsic value, we see no compelling reason not to be actively de-risking future capital needs and raising at all times. We believe it to be in the best interest of our shareholders for the company to have constant access to capital at valuations we deem appropriate, especially when we can "throttle" the raise as we deem appropriate.

Monogram now has established relationships with two prominent equity crowdfunding platforms. We think this is incredibly valuable. Given the flexibility afforded by reg-A fundraising and the broad market exposure it gives our company in the marketplace, we believe it to be of strategic interest to our shareholders to continue doing what's working and raising capital through these channels. We are undoubtedly always exploring conventional capital sources and strategic collaborations, but the benefits of our current approach are pretty significant. We believe our current approach puts us, in our view, in a solid and unique negotiating position to pursue what we deem best for shareholders.

In summary, on the fundraising side, we are very pleased with this approach to raising capital, and we expect to continue maintaining access to capital as we advance our technology. To that end, we appreciate your patience - a lot is happening behind the scenes that is not in the company's best strategic interest to publicize at this time.

Thank you again for your support. While our mission to transform the orthopaedic market with novel technology will certainly not be an easy one, we remain confident and dedicated to our mission. We very much appreciate your continued support and commitment.