Tenon Medical, Inc.

Previous wording

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and the other information set forth in our 2023 Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the Securities and Exchange Commission on March 29, 2024. 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” in our 2023 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 29, 2024, our actual results may differ materially from those anticipated in these forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements.”

Current wording

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and the other information set forth in our Annual Report of Form 10-K for the year ended December 31, 2024, filed with the Securities and Exchange Commission on March 26, 2025. 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” in our Annual Report of Form 10-K filed with the Securities and Exchange Commission on March 26, 2025, our actual results may differ materially from those anticipated in these forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements.”

Previous wording

We have incurred net losses since our inception in 2012. As of September 30, 2024, we had an accumulated deficit of approximately $65.7 million. To date, we have financed our operations primarily through public equity offerings, 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.

Current wording

We have incurred net losses since our inception in 2012. As of March 31, 2025, we had an accumulated deficit of approximately $72.4 million. To date, we have financed our operations primarily through public equity offerings, 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.

Previous wording

All historical share and per share amounts reflected throughout this document have been adjusted to reflect the 2023 Reverse Stock Split and the 2024 Reverse Stock Split. The authorized number of shares and the par value per share of our common stock were not affected by the 2023 Reverse Stock Split or the 2024 Reverse Stock Split.

Current wording

On September 6, 2024, we effected a 1-for-8 reverse stock split (the “2024 Reverse Stock Split”) by filing an amendment to our Amended and Restated Certificate of Incorporation, as amended, with the Delaware Secretary of State. The 2024 Reverse Stock Split combined every eight shares of our common stock issued and outstanding immediately prior to effecting the 2024 Reverse Stock Split into one share of common stock. No fractional shares were issued in connection with the 2024 Reverse Stock Split. All historical share and per share amounts reflected throughout this document have been adjusted to reflect the 2024 Reverse Stock Split. The authorized number of shares and the par value per share of our common stock were not affected by the 2024 Reverse Stock Split.

Previous wording

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.

Current wording

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, rebates, 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.

Previous wording

We utilize contract manufacturers for production of The Catamaran System implants and Catamaran Tray Sets. Cost of goods sold consists primarily of overhead related to operation personnel and facility costs, 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 certain of our cost of goods sold will increase in absolute dollars as case levels increase.

Current wording

We utilize contract manufacturers for production of The Catamaran System implants and Catamaran Tray Sets. Cost of goods sold consists primarily of costs of the components of The Catamaran System implants and instruments, overhead related to operation personnel and facility costs, quality inspection, packaging, scrap and inventory obsolescence, as well as distribution-related expenses such as logistics and shipping costs. We anticipate that certain of our cost of goods sold will increase in absolute dollars as case levels increase.

Previous wording

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.

Current wording

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, decisions with regard to the level of overhead we choose to maintain, and the factors described above impacting our revenue.

Previous wording

Sales and marketing expenses primarily consist of salaries, commissions, stock-based compensation expense and travel and entertainment expenses of our sales and market personnel along with commissions paid to our independent distributors. We expect our sales and marketing expenses to increase in absolute dollars with the increased sales of The Catamaran System resulting in higher commissions and salaries, increased clinician and sales representative training, and the cost to complete our clinical study 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 activity of our product.

Current wording

Sales and marketing expenses primarily consist of salaries, commissions, stock-based compensation expense and travel and entertainment expenses of our sales and market personnel along with commissions paid to our independent distributors. We expect our sales and marketing expenses to increase in absolute dollars with the increased sales of The Catamaran System resulting in higher commissions and salaries, increased clinician and sales representative training, and the cost to complete our clinical study to gain wider clinician adoption of The Catamaran System. Our sales and marketing expenses may fluctuate from period to period due to the timing of sales and marketing activities related to the commercial activity of our product.

Previous wording

General and administrative expenses primarily consist of salaries, consultants’ compensation, stock-based compensation expense, and other costs for finance, accounting, legal, compliance, and administrative matters. We expect our general and administrative expenses to increase in absolute dollars as we add personnel and information technology infrastructure to support the growth of our business. We also expect to incur additional general and administrative expenses as a result of operating as a public company, including but not limited to: expenses related to compliance with the rules and regulations of the Securities and Exchange Commission and those of The Nasdaq Stock Market LLC on which our securities are traded; additional insurance expenses; investor relations activities; and other administrative and professional services. While we expect the general and administrative expenses to increase in absolute dollars, we anticipate that it will decrease as a percentage of revenue over time.

Current wording

General and administrative expenses primarily consist of salaries, consultants’ compensation, stock-based compensation expense, and other costs for finance, accounting, legal, compliance, and administrative matters. We expect our general and administrative expenses to increase in absolute dollars as we add personnel and information technology infrastructure to support the growth of our business. We also expect to incur additional general and administrative expenses as a result of operating as a public company, including but not limited to: expenses related to compliance with the rules and regulations of the SEC and those of The Nasdaq Stock Market LLC on which our securities are traded; additional insurance expenses; investor relations activities; and other administrative and professional services. While we expect the general and administrative expenses to increase in absolute dollars, we anticipate that it will decrease as a percentage of revenue over time.

Previous wording

Gain 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 is related to borrowings. Other income and expenses have not been significant to date.

Current wording

Gain 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 is related to borrowings, when applicable. Other income and expenses have not been significant to date.

Previous wording

Comparison of the Three and Nine Months Ended September 30, 2024 and 2023 (in thousands, except percentages)

Current wording

Comparison of the Three Months Ended March 31, 2025 and 2024 (in thousands, except percentages)

Previous wording

*Revenue.*The fluctuations in revenue for the three and nine months ended September 30, 2024 as compared to the same periods in 2023 was primarily due to a decrease of 15% and an increase of 5%, respectively, in the number of surgical procedures in which the Catamaran System was used. The number of procedures in the third quarter was impacted by the longer timeline of implementation, training and development of our restructured sales operation, as well as unexpected reimbursement pre-authorization impacts, leading to fewer surgeries performed during the quarter.

Current wording

*Revenue.*The increase in revenue for the three months ended March 31, 2025 as compared to 2024 was primarily due to an increase in revenue per surgical procedure on a consistent number of surgical procedures in which The Catamaran System was used.

Previous wording

Cost of Goods Sold, Gross Profit, and Gross Margin. The change in cost of goods sold for the three and nine months ended September 30, 2024 as compared to the same periods in 2023 was due to a decrease of 15% and an increase of 5%, respectively, in the number of surgical procedures performed. Gross profit and gross margin percentage for the three and nine month periods ended September 30, 2024 as compared to the same periods in 2023 varied due to the absorption of production overhead costs into our standard cost, operating leverage created due to lower relative fixed costs and fluctuations in revenue associated with the fluctuations in the number of surgical procedures.

Current wording

Cost of Goods Sold, Gross Profit, and Gross Margin. The change in cost of goods sold for the three months ended March 31, 2025 as compared to 2024 was due to the absorption of production overhead costs into our standard cost in 2024 and operating leverage created due to lower relative fixed costs.

Previous wording

Research and Development Expenses. Research and development expenses for the three months ended September 30, 2024 decreased as compared to the same period in 2023 primarily due to decreased professional fees ($98) and stock-based compensation ($26), partially offset by increased payroll expenses ($52). Research and development expenses for the nine months ended September 30, 2024 decreased as compared to the same period in 2023 primarily due to decreased professional fees ($424), payroll expenses ($59) and stock-based compensation ($51).

Current wording

Research and Development Expenses. Research and development expenses for the three months ended March 31, 2025 increased as compared to 2024 primarily due to increased payroll and employee expenses ($87), partially offset by decreased professional fees ($55) and stock-based compensation ($18).

Previous wording

Gain on investments for the three and nine months ended September 30, 2024 decreased as compared to the same periods ended September 30, 2023 due to interest on our investments in money market and corporate debt securities. Interest expense for the nine months ended September 30, 2024 related to our convertible debt. Other expense, net was related to foreign exchange losses on the liquidation of our Swiss subsidiary.

Current wording

Gain on investments for the three months ended March 31, 2025 increased as compared to 2024 due to interest on our increased cash and cash equivalent balances. Interest expense for the three months ended March 31, 2024 related to our convertible debt. Other expense, net in 2024 was related to foreign exchange losses on the liquidation of our Swiss subsidiary.

Previous wording

As of September 30, 2024, we had cash and cash equivalents of $9.2 million. Since inception, we have financed our operations through private placements of preferred stock, debt financing arrangements, our initial public offering, additional stock offerings and the sale of our products. As of September 30, 2024, we had no outstanding debt.

Current wording

As of March 31, 2025, we had cash and cash equivalents of $10.3 million. Since inception, we have financed our operations through private placements of preferred stock, debt financing arrangements, our initial public offering, additional stock offerings and the sale of our products. As of March 31, 2025, we had no outstanding debt.

Previous wording

As of September 30, 2024, we had an accumulated deficit of $65.7 million and expect to incur additional losses in the future. We have not achieved positive cash flow from operations to date. Based upon our current operating plan, our existing cash and cash equivalents will not be sufficient to fund our operating expenses and working capital requirements through at least the next 12 months from the date these consolidated financial statements were available to be released. We plan to raise the necessary additional capital through one or a combination of public or private equity offerings, debt financings, and collaborations. We continue to face challenges and uncertainties and, as a result, our available capital resources may be consumed more rapidly than currently expected due to (a) the uncertainty of future revenues from The Catamaran System; (b) changes we may make to the business that affect ongoing operating expenses; (c) changes we may make in our business strategy; (d) regulatory developments affecting our existing products; (e) changes we may make in our research and development spending plans; and (f) other items affecting our forecasted level of expenditures and use of cash resources.

Current wording

As of March 31, 2025, we had an accumulated deficit of $72.4 million and we expect to incur additional losses in the future. We have not achieved positive cash flow from operations to date. Based upon our current operating plan, our existing cash and cash equivalents will not be sufficient to fund our operating expenses and working capital requirements through at least the next 12 months from the date these financial statements were available to be released. We plan to raise the necessary additional capital through one or a combination of public or private equity offerings, debt financings, and collaborations. We continue to face challenges and uncertainties and, as a result, our available capital resources may be consumed more rapidly than currently expected due to (a) the uncertainty of future revenues from The Catamaran System; (b) changes we may make to the business that affect ongoing operating expenses; (c) changes we may make in our business strategy; (d) regulatory developments affecting our existing products; (e) changes we may make in our research and development spending plans; and (f) other items affecting our forecasted level of expenditures and use of cash resources.

Previous wording

As we attempt to raise additional capital to fund our operations, funding may not be available to us on acceptable terms, or at all. If we are unable to obtain adequate financing when needed, we may have to delay, reduce the scope of or suspend one or more of our sales and marketing efforts, research and development activities, or other operations. We may seek to raise any necessary additional capital through a combination of public or private equity offerings, debt financings, and collaborations. If we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. If we are unable to raise capital, we will need to delay, reduce, or terminate planned activities to reduce costs. Doing so will likely harm our ability to execute our business plans. Due to the uncertainty in our ability to raise capital, management believes that there is substantial doubt in our ability to continue as a going concern for the next twelve months from the issuance of these consolidated financial statements.

Current wording

As we attempt to raise additional capital to fund our operations, funding may not be available to us on acceptable terms, or at all. If we are unable to obtain adequate financing when needed, we may have to delay, reduce the scope of or suspend one or more of our sales and marketing efforts, research and development activities, or other operations. We may seek to raise any necessary additional capital through a combination of public or private equity offerings, debt financings, and collaborations. If we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. If we are unable to raise capital, we will need to delay, reduce, or terminate planned activities to reduce costs. Doing so will likely harm our ability to execute our business plans. Due to the uncertainty in our ability to raise capital, management believes that there is substantial doubt in our ability to continue as a going concern for the next twelve months from the issuance of these condensed financial statements.

Previous wording

The decrease in net cash used in operating activities for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 was primarily attributable to our decreased net loss of $1.9 million, adjusted for decreases in non-cash stock-based compensation expenses ($202), in addition to increased accounts payable ($660), partially offset by increases in accounts receivable ($404).

Current wording

The decrease in net cash used in operating activities for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 was primarily attributable to our increased net loss ($40), adjusted for decreases in non-cash stock-based compensation expenses ($146), in addition to increased accounts payable ($294), partially offset by decreases in accrued expenses ($303).

Previous wording

Cash provided by investing activities for the nine months ended September 30, 2024 consisted primarily of purchases of property and equipment ($223). Cash provided by investing activities for the nine months ended September 30, 2023 consisted primarily of the net sales of short-term investments ($6,503) to fund our operations, partially offset by purchases of property and equipment ($269).

Current wording

Cash used in investing activities for the three months ended March 31, 2024 consisted of purchases of property and equipment ($119).

Previous wording

Cash provided by financing activities for the nine months ended September 30, 2024 consisted primarily of net proceeds from the issuance of common stock and warrants ($3,862), the exercise of warrants under the inducement agreement ($4,306), the issuance of Series A Convertible Preferred Stock ($2,437) and Series B Convertible Preferred Stock ($489) and from issuances of common stock ($2,106). Cash provided by financing activities for the nine months ended September 30, 2023 consisted primarily of the $4.8 million, net of relevant expenses, received from our registered offering in June 2023.

Current wording

Cash provided by financing activities for the three months ended March 31, 2025 consisted primarily of proceeds from the issuance of common stock from our securities purchase agreements ($4,010) and proceeds from the exercise of warrants under the inducement agreement ($3,057), partially offset by offering costs ($808). Cash provided by financing activities for the three months ended March 31, 2024 consisted primarily of proceeds from the issuance of Series A Convertible Preferred Stock ($2,437) and from the issuance of common stock ($1,934).

Previous wording

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported results of operations during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from three other sources. Actual results could differ from these estimates under different assumptions or conditions. For the nine months ended September 30, 2024, there were no significant changes to our existing critical accounting policies from those disclosed in our 2023 Annual Report on Form 10-K.

Current wording

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported results of operations during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from three other sources. Actual results could differ from these estimates under different assumptions or conditions. For the three months ended March 31, 2025, there were no significant changes to our existing critical accounting policies from those disclosed in our Annual Report on Form 10-K.