Quarterly Report for Quarter Ending SEPTEMBER 30, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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."

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™ 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. In August 2025, the Company purchased substantially all of the assets of SiVantage, Inc., including the SImmetry SI Joint Fusion System that treats disorders of the SI Joint using a single, robust, titanium implant.

We have incurred net losses since our inception in 2012. As of September 30, 2025, we had an accumulated deficit of approximately $78.5 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.

Reverse Stock Split

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.

Components of Results of Operations

Revenue

We derive substantially all our revenue from sales of The Catamaran System and, since August 2025, the SImmetry SI Joint Fusion System. Revenue from sales of The Catamaran System and the SImmetry SI Joint Fusion 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.

Cost of Goods Sold, Gross Profit, and Gross Margin

We utilize contract manufacturers for production of The Catamaran System implants, SImmetry implants and the instrument tray sets. Cost of goods sold consists primarily of costs of the components of the implants and instruments, depreciation of instrument tray sets, overhead related to operations 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.

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, sales volumes to absorb fixed production costs, 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 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 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 our products. 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.

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 the development and refinement 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 our existing products, develop new products, add research and development personnel, and undergo clinical activities that may be required for regulatory clearances of future products.

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 information technology infrastructure to support the growth of our business. We also expect to continue to incur 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. We also may incur acquisition-related expenses at the discretion of management and the Board of Directors. 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 on Investments, Interest Expense and Other Income (Expense), Net

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.

Results of Operations

The following table sets forth our results of operations for the periods presented (in thousands):

		Three Months Ended September 30,								Nine Months Ended September 30,
Statements of Operations Data:		2025				2024				2025				2024
Revenue		$	1,173			$	887			$	2,463			$	2,507
Cost of goods sold			400				469				1,122				1,149
Gross profit			773				418				1,341				1,358
Operating expenses:
Research and development			428				657				1,622				2,034
Sales and marketing			1,538				1,212				4,304				4,041
General and administrative			2,199				1,764				5,341				5,876
Total operating expenses			4,165				3,633				11,267				11,951
Loss from operations			(3,392	)			(3,215	)			(9,926	)			(10,593	)
Interest and other income (expense), net:
Gain on investments			53				31				202				97
Interest expense			-				-				-				(34	)
Other expense, net			-				-				-				(56	)
Net loss		$	(3,339	)		$	(3,184	)		$	(9,724	)		$	(10,586	)

The following table sets forth our results of operations as a percentage of revenue:

		Three Months Ended September 30,								Nine Months Ended September 30,
Statements of Operations Data:		2025				2024				2025				2024
Revenue			100	%			100	%			100	%			100	%
Cost of goods sold			34				53				46				46
Gross profit			66				47				54				54
Operating expenses:
Research and development			36				74				66				81
Sales and marketing			131				137				175				161
General and administrative			187				199				217				234
Total operating expenses			355				410				457				477
Loss from operations			(289	)			(362	)			(403	)			(423	)
Interest and other income (expense), net:
Gain on investments			5				3				8				4
Interest expense			-				-				-				(1	)
Other expense			-				-				-				(2	)
Net loss			(285	)%			(359	)%			(395	)%			(422	)%

Comparison of the Three and Nine Months Ended September 30, 2025 and 2024 (in thousands, except percentages)

Revenue, Cost of Goods Sold, Gross Profit, and Gross Margin

		Three Months Ended September 30,
		2025				2024				$ Change				% Change
Revenue		$	1,173			$	887			$	286				32	%
Cost of goods sold			400				469				(69	)			(15	)%
Gross profit		$	773			$	418			$	355				(85	)%
Gross profit percentage			66	%			47	%

		Nine Months Ended September 30,
		2025				2024				$ Change				% Change
Revenue		$	2,463			$	2,507			$	(44	)			(2	)%
Cost of goods sold			1,122				1,149				(27	)			(2	)%
Gross profit		$	1,341			$	1,358			$	(17	)			(1	)%
Gross profit percentage			54	%			54	%

Revenue. The changes in revenue for the three and nine months ended September 30, 2025 as compared to the same periods in 2024 was primarily due to changes in the number of surgical procedures in which The Catamaran System was used and the addition of sales of the SImmetry SI Joint Fusion System, while implants per procedure remained relatively constant.

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, 2025 as compared to the same periods in 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. The gross margin for the three months ended September 30, 2025 benefitted from increased sales volumes that reduced per unit fixed production costs.

Operating Expenses

		Three Months Ended September 30,
		2025				2024				$ Change				% Change
Research and development		$	428			$	657			$	(229	)			(35	)%
Sales and marketing			1,538				1,212				326				27	%
General and administrative			2,199				1,764				435				25	%
Total operating expenses		$	4,165			$	3,633			$	532				15	%

		Nine Months Ended September 30,
		2025				2024				$ Change				% Change
Research and development		$	1,622			$	2,034			$	(412	)			(20	)%
Sales and marketing			4,304				4,041				263				7	%
General and administrative			5,341				5,876				(535	)			(9	)%
Total operating expenses		$	11,267			$	11,951			$	(684	)			(6	)%

Research and Development Expenses. Research and development expenses for the three months ended September 30, 2025 decreased as compared to 2024 primarily due to decreased stock-based compensation ($339) and payroll and employee expenses ($46), partially offset by increased professional fees ($106). Research and development expenses for the nine months ended September 30, 2025 decreased as compared to 2024 primarily due to decreased stock-based compensation ($507) and professional fees ($32), partially offset by increased payroll and employee expenses ($54).

Sales and Marketing Expenses. Sales and marketing expenses for the three months ended September 30, 2025 increased as compared to the same period in 2024 primarily due to increased commission expenses ($410) and consulting and professional fees ($38), partially offset by decreases in payroll and employee expenses ($84), and stock-based compensation ($5). Sales and marketing expenses for the nine months ended September 30, 2025 increased as compared to the same period in 2024 primarily due to increased commission expenses ($262) and professional fees ($45), partially offset by decreases in payroll and employee expenses ($27) and stock-based compensation ($18).

General and Administrative Expenses. General and administrative expenses for the three months ended September 30, 2025 increased as compared to the same period in 2024 primarily due to acquisition expenses ($779) and increases in professional service fees ($190) and payroll and employee expenses ($135), partially offset by decreased stock-based compensation ($508) and insurance costs ($146). General and administrative expenses for the nine months ended September 30, 2025 decreased as compared to the same period in 2024 primarily due to decreased stock-based compensation ($1,090) and insurance costs ($471), partially offset by acquisition expenses ($779) and increases in employee expenses ($221) and professional service fees ($96).

Gain on Investments, Interest Expense and Other Income (Expense), Net

Gain on investments for the three and nine months ended September 30, 2025 increased as compared to the same periods in 2024 due to interest on our increased cash and cash equivalent balances. Interest expense for the nine months ended September 30, 2024 related to our convertible debt. Other income (expense), net in 2024 was related to foreign exchange losses on the liquidation of our Swiss subsidiary.

Liquidity and Capital Resources

As of September 30, 2025, we had cash and cash equivalents of $3.4 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, 2025, we had no outstanding debt. As of September 30, 2025, we had an accumulated deficit of $78.5 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 filed. 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; (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.

On November 11, 2025, we announced the pricing of an at-the-market private investment in public equity (the "PIPE") financing with several accredited investors for total gross proceeds of $2,850,000. Under the terms of securities purchase agreements, dated November 10, 2025 between us and the applicable investors, we will issue an aggregate of 2,217,904 shares of common stock (the "Issued Shares") and warrants (the "PIPE Warrants") to purchase 2,217,904 shares of common stock at a combined offering price of $1.285 per share of common stock and warrant to purchase one share of common stock. The PIPE Warrants have a strike price of $1.16 per share, with an expiration date of 3 years from the date of issuance. The Issued Shares and the shares underlying PIPE Warrants will be entitled to customary resale registration rights. The closing of the PIPE is subject to customary closing conditions for financing of this nature. The PIPE is expected to close on November 14, 2025.

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.

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:

		Nine Months Ended September 30,
		2025				2024				$ Change				% Change
Net cash (used in) provided by:
Operating activities		$	(8,521	)		$	(7,101	)		$	1,361				(19	)%
Investing activities			(831	)			(223	)			(608	)			273	%
Financing activities			6,259				14,012				(7,812	)			(56	)%
Effect of foreign currency translation on cash flow			-				46				(46	)			(100	)%
Net increase (decrease) in cash and cash equivalents		$	(3,039	)		$	6,734			$	(9,827	)			(385	)%

The decrease in net cash used in operating activities for the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024 was primarily attributable to our decreased net loss ($862), adjusted for decreases in non-cash stock-based compensation expenses ($1,615), in addition to increased inventory levels ($501) and decreased accounts payable ($394), partially offset by increases in accrued expenses ($498).

Cash used in investing activities for the nine months ended September 30, 2025 consisted of the cash payment for the SI Acquisition ($750) and purchases of property and equipment ($81). Cash used in investing activities for the nine months ended September 30, 2024 consisted of purchases of property and equipment ($223).

Cash provided by financing activities for the nine months ended September 30, 2025 consisted primarily of gross proceeds from the issuance of common stock from our securities purchase agreements ($4,010) and from the exercise of warrants under the inducement agreement ($3,057), net of total cash offering costs ($867). Cash provided by financing activities for the nine months ended September 30, 2024 consisted primarily of gross proceeds from the issuance of common stock and warrants ($4,500), the exercise of warrants under the inducement agreement ($4,647), the issuance of Series A Convertible Preferred Stock ($2,605) and Series B Convertible Preferred Stock ($550) and from issuances of common stock ($2,163), net of total cash offering costs ($1,265).

Critical Accounting Policies, Significant Judgments, and Use of Estimates

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, 2025, the only significant change to our existing critical accounting policies from those disclosed in our Annual Report on Form 10-K was related to accounting for business combinations, as described below.

Business Combinations

We account for business combinations in accordance with Accounting Standards Codification 805, Business Combinations, which requires that assets acquired and liabilities assumed be recorded at their respective fair values on the date of acquisition. The fair value of the consideration paid is assigned to the underlying net assets of the acquired business based on their respective fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded to goodwill. Intangible assets acquired are amortized over the expected life of the asset. Fair value determinations and useful life estimates are based on, among other factors, estimates of expected future cash flows, estimates of appropriate discount rates, estimated useful lives of the intangible assets acquired and other factors. Although we believe the assumptions and estimates we have made have been reasonable and appropriate, actual results may vary significantly from estimated results. Our assumptions and estimates are subject to refinement and, as a result, during the measurement period, which may be up to one year from the acquisition date, We record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.

Off-Balance Sheet Arrangements

As of September 30, 2025, and December 31, 2024, 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.