TNON

Business Context and Reporting Period

Tenon Medical, Inc. (TNON) is a medical device company focused on the commercialization of The Catamaran™ SI Joint Fusion System, a single-implant solution for sacroiliac joint disorders. The filing covers the fiscal year ended December 31, 2024. The Company is classified as a non-accelerated filer, a smaller reporting company, and an emerging growth company. It operates in a single business segment and relies on contract manufacturers for production.

Key Financial Metrics

Liquidity Note: As of December 31, 2024, the Company had no outstanding debt. However, management has raised substantial doubt about the Company's ability to continue as a going concern for the next 12 months due to recurring losses and negative cash flows from operations.

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased 12% year-over-year to $3.28 million, driven by higher revenue per surgical procedure despite a flat volume of procedures.
• Margin Expansion: Gross margin improved to 52% from 42%, attributed to the absorption of production overhead costs and operating leverage.
• Expense Reduction: Total operating expenses decreased 9% to $15.48 million. Research and Development (R&D) expenses fell 18% as the focus shifted from development to sustaining the portfolio. Sales and Marketing expenses dropped 25% due to the absence of one-time transition fees incurred in 2023.
• Debt Elimination: The Company fully prepaid its convertible notes in February 2024, converting the obligation into Series A Preferred Stock.
• Stock Splits: The Company effected a 1-for-10 reverse stock split in November 2023 and a 1-for-8 reverse stock split in September 2024.

Guidance, Outlook, Risks, and Unusual Items

Outlook and Capital Needs: The Company does not provide specific forward-looking financial guidance. Management states that existing cash resources are insufficient to fund operations for the next 12 months. The Company plans to raise additional capital through equity offerings, debt financing, or collaborations. Failure to secure funding may require curtailing planned activities.

Subsequent Events (Post-Year End):

• March 2025 Financing: The Company raised approximately $2.7 million via a warrant exercise inducement and approximately $3.5 million through two registered direct offerings of common stock and warrants.

Key Risks:

• Going Concern: Substantial doubt exists regarding the ability to continue operations without additional financing.
• Reimbursement: Adoption depends on third-party payor coverage; insufficient reimbursement could limit sales.
• Single Product Dependence: The Company relies entirely on The Catamaran System; failure to gain market acceptance would be material.
• Internal Controls: A material weakness in internal controls over financial reporting was identified due to a lack of segregation of duties.
• Competition: The market is competitive with larger companies possessing greater resources.

Investor Verification Checklist

• Cash Runway: Verify the sufficiency of the $6.5 million cash balance (plus subsequent March 2025 proceeds) against the burn rate to confirm the timeline for the next capital raise.
• Revenue Drivers: Confirm the sustainability of the increased revenue per procedure and monitor procedure volume trends.
• Internal Controls: Review the remediation plan for the material weakness regarding segregation of duties and its impact on financial reporting reliability.
• Dilution Risk: Assess the impact of outstanding warrants (Series C-1, C-2, and others) and preferred stock on future equity dilution.
• Reimbursement Status: Monitor updates on Medicare and private payor reimbursement policies for SI-Joint fusion procedures.