Tenon Medical, Inc. 10-K

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Tenon Medical, Inc. Consolidated Financial Statements December 31, 2024 and 2023 Contents Report of Independent Registered Public Accounting Firm (PCAOB ID No. 200 ) F-2 Audited Consolidated Financial Statements: Consolidated Balance Sheets F-3 Consolidated Statements of Operations and Comprehensive Loss F-4 Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity F-5 Consolidated Statements of Cash Flows F-6 Notes to Consolidated Financial Statements F-7 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors Tenon Medical, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Tenon Medical, Inc. (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2024 and 2023, and the consolidated results of its operations and its cash flows for each of the years then ended, in conformity with U.S. generally accepted accounting principles. Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 2 to the consolidated financial statements, the Company has experienced recurring losses, negative cash flows from operations, and has limited capital resources. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Haskell & White LLP We have served as the Company’s auditor since 2023. Irvine, California March 26, 2025 F- 2 Tenon Medical, Inc. Consolidated Balance Sheets (In thousands, except share data) December 31, December 31, 2024 2023 ASSETS Current assets: Cash and cash equivalents $ 6,535 $ 2,428 Accounts receivable, net 863 518 Inventory, net 606 554 Prepaid expenses and other current assets 206 389 Total current assets 8,210 3,889 Property and equipment, net 752 961 Deposits 51 51 Operating lease right-of-use asset 399 646 Deferred offering costs 431 798 TOTAL ASSETS $ 9,843 $ 6,345 Liabilities and Stockholders’ EQUITY Current liabilities: Accounts payable $ 369 $ 433 Accrued expenses 910 808 Current portion of accrued commissions 303 470 Current portion of operating lease liability 287 256 Convertible notes payable and accrued interest, net of debt discount of $ 0 and $ 77 at December 31, 2024 and 2023, respectively — 1,173 Total current liabilities 1,869 3,140 Accrued commissions, net of current portion 1,862 1,999 Operating lease liability, net of current portion 141 428 Total liabilities 3,872 5,567 Commitments and contingencies (Note 9) Stockholders’ equity: Series A convertible preferred stock, $ 0.001 par value; 4,500,000 shares authorized at December 31, 2024 and 2023; 256,968 and 0 shares issued and outstanding at December 31, 2024 and 2023, respectively 3,300 — Series B convertible preferred stock, $ 0.001 par value; 491,222 shares authorized at December 31, 2024 and 2023; 86,454 and 0 shares issued and outstanding at December 31, 2024 and 2023, respectively 452 — Common stock, $ 0.001 par value; 130,000,000 shares authorized at December 31, 2024 and 2023; 3,138,804 and 325,039 shares issued and outstanding at December 31, 2024 and 2023, respectively 3 — Additional paid-in capital 70,962 55,897 Accumulated deficit ( 68,746 ) ( 55,073 ) Accumulated other comprehensive loss — ( 46 ) Total stockholders’ equity 5,971 778 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 9,843 $ 6,345 The accompanying notes are an integral part of these consolidated financial statements. See Report of Independent Registered Public Accounting Firm. F- 3 Tenon Medical, Inc. Consolidated Statements of Operations and Comprehensive Loss (In thousands, except per share data) Years Ended December 31, 2024 2023 Revenue $ 3,277 $ 2,928 Cost of sales 1,566 1,687 Gross Profit 1,711 1,241 Operating Expenses General and administrative 7,765 7,027 Sales and marketing 5,109 6,778 Research and development 2,603 3,163 Total Operating Expenses 15,477 16,968 Loss from Operations ( 13,766 ) ( 15,727 ) Other Income (Expense) Gain on investments 183 167 Interest expense ( 34 ) ( 21 ) Other expense, net ( 56 ) — Total Other Income (Expense), net 93 146 Net Loss $ ( 13,673 ) $ ( 15,581 ) Net Loss Per Share of Common Stock Basic and diluted $ ( 11.26 ) $ ( 68.64 ) Weighted-Average Shares of Common Stock Outstanding Basic and diluted 1,214 227 Consolidated Statements of Comprehensive Loss: Net loss $ ( 13,673 ) $ ( 15,581 ) Unrealized loss on investments — 16 Foreign currency translation adjustment 46 38 Total Comprehensive Loss $ ( 13,627 ) $ ( 15,527 ) The accompanying notes are an integral part of these consolidated financial statements. See Report of Independent Registered Public Accounting Firm. F- 4 Tenon Medical, Inc. Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (In thousands, except share data) Series A Convertible Preferred Stock Series B Convertible Preferred Stock Common Stock Additional Paid-In Accumulated Accumulated Other Comprehensive Shares Amount Shares Amount Shares Amount Capital Deficit Loss Total Balance at December 31, 2022 — $ — — $ — 140,460 $ — $ 45,844 $ ( 39,492 ) $ ( 100 ) $ 6,252 Stock-based compensation expense — — — — — — 4,145 4,145 Release of restricted stock units — — — — 7,650 — — — Issuance of common stock and warrants, net of issuance costs — — — — 125,000 — 4,808 4,808 Issuance of common stock, net of issuance costs — — — — 29,013 — 495 495 Common stock issued for services — — — — 12,364 — 289 289 Issuance of common stock upon exercise of warrants — — — — 10,250 — 258 258 Warrants issued in connection with convertible debt — — — — — — 58 58 Shares issued for reverse stock split — — — — 303 — — — Other comprehensive income — — — — — — — 54 54 Net loss — — — — — — — ( 15,581 ) ( 15,581 ) Balance at December 31, 2023 — — — — 325,039 — 55,897 ( 55,073 ) ( 46 ) 778 Stock-based compensation expense — — — — — — 3,845 3,845 Release of restricted stock units — — — — 9,926 — — — Issuance of Series A preferred stock and warrants, net of issuance costs 256,968 3,300 — — — — 254 — — 3,554 Issuance of Series B preferred stock and warrants, net of issuance costs — — 86,454 452 — — 37 — — 489 Issuance of common stock, prefunded warrants, and warrants, net of issuance costs — — — — 55,000 — 3,846 — — 3,846 Issuance of common stock upon exercise of prefunded warrants — — — — 1,167,850 1 ( 1 ) — — — Issuance of common stock and warrants under inducement agreement, net of issuance costs — — — — 1,222,850 1 4,305 — — 4,306 Issuance of common stock upon exercise of warrants — — — — 32,266 — 812 — — 812 Issuance of common stock, net of issuance costs — — — — 178,048 — 1,968 — — 1,968 Issuance of common stock for reverse stock split — — — — 147,825 1 ( 1 ) — — — Other comprehensive income — — — — — — — — 46 46 Net loss — — — — — — — ( 13,673 ) ( 13,673 ) Balance at December 31, 2024 256,968 $ 3,300 86,454 $ 452 3,138,804 $ 3 $ 70,962 $ ( 68,746 ) $ — $ 5,971 The accompanying notes are an integral part of these consolidated financial statements. See Reports of Independent Registered Public Accounting Firms. F- 5 Tenon Medical, Inc. Consolidated Statements of Cash Flows (In thousands) Years Ended December 31, 2024 2023 Cash Flows from Operating Activities Net loss $ ( 13,673 ) $ ( 15,581 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation expense 3,845 4,145 Depreciation and amortization 408 199 Provision for losses on accounts receivable 41 — Amortization of operating right-of-use asset 247 227 Increase (decrease) in cash resulting from changes in: Accounts receivable ( 386 ) ( 290 ) Inventory ( 52 ) ( 139 ) Prepaid expenses and other assets 183 ( 301 ) Accounts payable ( 64 ) ( 117 ) Accrued expenses ( 171 ) ( 99 ) Operating lease liability ( 256 ) ( 227 ) Net cash used in operating activities ( 9,878 ) ( 12,183 ) Cash Flows from Investing Activities Sales of short-term investments — 6,996 Purchases of short-term investments — ( 493 ) Purchases of property and equipment ( 186 ) ( 361 ) Net cash (used in) provided by investing activities ( 186 ) 6,142 Cash Flows from Financing Activities Gross proceeds from issuance of Series A convertible preferred stock 2,605 — Gross proceeds from issuance of Series B convertible preferred stock 550 — Gross proceeds from issuance of common stock, prefunded warrants, and warrants 4,500 — Gross proceeds from exercise of warrants under inducement agreement 4,648 — Gross proceeds from issuance of common stock and warrants — 4,808 Gross proceeds from issuance of common stock 2,106 495 Gross proceeds from issuance of convertible notes payable — 1,250 Gross proceeds from exercise of warrants 812 258 Offering costs ( 1,096 ) ( 509 ) Net cash provided by financing activities 14,125 6,302 Effect of foreign currency translation on cash flow 46 38 Net Increase in Cash and Cash Equivalents 4,107 299 Cash and Cash Equivalents at Beginning of Year 2,428 2,129 Cash and Cash Equivalents at End of Year $ 6,535 $ 2,428 Cash at End of Year $ 6,535 $ 2,428 Cash Equivalents at End of Year $ — $ — Supplemental Disclosures of Cash Flow Information Non-cash investment and financing activities: Preferred stock issued upon conversion of debt and accrued interest, net of unamortized debt issuance costs $ 1,186 $ — Reclassification of deferred offering costs to additional paid-in capital $ 367 $ — Warrant modification costs $ 992 $ — The accompanying notes are an integral part of these consolidated financial statements. See Report of Independent Registered Public Accounting Firm. F- 6 Notes to Consolidated Financial Statements (in thousands, except share and per-share data) 1. Organization and Business Nature of operations Tenon Medical, Inc. (the “Company”) was incorporated in the State of Delaware on June 19, 2012 and was headquartered in San Ramon, California until June 2021 when it relocated to Los Gatos, California. The Company is a medical device company that has developed The Catamaran™ SI Joint Fusion System (“The Catamaran System”) that offers a novel, less invasive approach to the sacroiliac joint (the “SI Joint”) using a single, robust, titanium implant for treatment of the most common types of SI Joint disorders that cause lower back pain. The Company received U.S. Food and Drug Administration (“FDA”) clearance in 2018 for The Catamaran System and is currently focused on the US market. Since the national launch of The Catamaran System in October 2022, the Company is focused on three commercial opportunities: 1) Primary SI Joint procedures, 2) Revision procedures of failed SI Joint implants and 3) SI Joint fusion adjunct to a spine fusion construct. Basis of consolidation The consolidated financial statements of the Company for the year ended December 31, 2023 include the accounts of its wholly-owned subsidiary, Tenon Technology AG (“TTAG”), a Swiss company. All intercompany balances and transactions have been eliminated in consolidation. The financial statements of TTAG are prepared for the same reporting period as the parent, using consistent accounting policies in all material respects. In 2024, TTAG was dissolved and, as such, the financial statements for the year ended December 31, 2024 only include the accounts of the Company since the date of dissolution. TTAG had no substantial operations. 2. Summary of Significant Accounting Principles Basis of presentation The accompanying consolidated financial statements have been prepared on the accrual basis in accordance with generally accepted accounting principles as promulgated in the United States of America (“U.S. GAAP”). Going concern uncertainty and liquidity requirements The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. There is substantial doubt about the Company’s ability to continue as a going concern for one year after the date that these financial statements are issued. Since inception, the Company has incurred losses and negative cash flows from operations. Management expects to incur additional operating losses and negative cash flows from operations in the foreseeable future as the Company continues its product development programs and the commercialization of The Catamaran System. Based on the Company’s expected level of revenues and expenditures, the Company believes that its existing cash and cash equivalents as of December 31, 2024 will not provide sufficient funds to enable it to meet its obligations for a period of at least twelve months from the date of the filing of these consolidated financial statements. The Company plans to raise the necessary additional capital through one or a combination of public or private equity offerings, debt financings, and collaborations (see Note 13). The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Use of estimates The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Significant estimates made by management include, but are not limited to, realization of deferred tax assets, accrued liabilities, obsolescence of inventory, the fair value of accrued commissions and stock-based compensation. Reverse Stock Splits On November 2, 2023, the Company effected a 1-for-10 reverse stock split (the “2023 Reverse Stock Split”) by filing an amendment to the Company’s Amended and Restated Certificate of Incorporation, as amended, with the Delaware Secretary of State. The 2023 Reverse Stock Split combined every ten shares of our common stock issued and outstanding immediately prior to effecting the 2023 Reverse Stock Split into one share of common stock. No fractional shares were issued in connection with the 2023 Reverse Stock Split. On September 6, 2024, the Company effected a 1-for-8 reverse stock split (the “2024 Reverse Stock Split”) by filing an amendment to the Company’s 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. F- 7 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 the Company’s common stock were not affected by the 2023 Reverse Stock Split or the 2024 Reverse Stock Split. Segments The Company operates in one business segment. Although the Company’s Swiss subsidiary is located in a different geographical area, management uses one measurement of profitability and does not segregate its business for internal reporting. See Note 12. Cash and cash equivalents The Company considers all highly liquid investments with maturities of 90 days or less at the date of purchase to be cash equivalents. Investments The Company classifies its investments in marketable securities as available-for-sale and records them at fair value in its consolidated balance sheets. The 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. The Company determines any realized gains or losses on the sale of marketable debt securities on a specific identification method and records such gains and losses as a component of other income (expense) net. Accounts receivable and expected credit losses Accounts receivable are derived from products delivered to customers and are stated at their net realizable value. The Company records an allowance for estimated uncollectible accounts in an amount approximating anticipated losses. Individual uncollectible accounts are written off against the allowance when collection of the individual accounts appears doubtful. In determining the amount of the allowance, the Company considers its historical level of credit losses. The Company also makes judgments about the creditworthiness of significant customers based on ongoing credit evaluations, and the Company assesses current economic trends that might impact the level of credit losses in the future. Historically, the Company has had no significant write-offs of accounts receivable. However, since the Company cannot reliably predict future changes in the financial stability of its customers, it cannot guarantee that its allowances will continue to be adequate. If actual credit losses are significantly greater than the allowance, the Company would increase its general and administrative expenses and increase its reported net losses. The Company’s allowance for expected credit losses was $ 41 and $0 at December 31, 2024 and 2023, respectively. Inventory Inventory is stated at lower of cost or net realizable value. The Company establishes the inventory basis by determining the cost based on standard costs approximating the purchase costs on a first-in, first-out basis. The excess and obsolete inventory is estimated based on quantities on hand, expectations of future demand and market conditions. Inventory write-downs are charged to cost of goods sold. As of December 31, 2024 and 2023, inventory consisted of finished goods and raw materials. Deferred offering costs Deferred offering costs, which consist of direct incremental legal, consulting, banking, and accounting fees relating to the Company’s future offerings, are capitalized, and are offset against proceeds received upon the effectiveness of the offering or the closing of an equity transaction. In the event an anticipated offering is terminated, deferred offering costs will be expensed. Property and equipment, net Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Equipment, computers, software, and furniture and fixtures are depreciated over periods ranging from three to seven years , and leasehold improvements over the shorter of the lease term or the life of the asset. Construction in progress pertains to the cost of individual components of a custom instrument set used for surgical placement of the Company’s products that have not yet been placed into service. The cost of maintenance and repairs is charged to expense as incurred; significant renewals and betterments are capitalized. Deductions are made for retirements resulting from renewals or betterments. Leases The Company leases its headquarters in Los Gatos, California. At the inception of a contract, the Company assesses whether that contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the term, and (3) whether the Company has the right to direct the use of the asset. At inception of a lease, the Company allocates the consideration in the contract to each lease and non-lease component based on the component’s relative stand-alone price to determine the lease payments. Lease and non-lease components are accounted for separately. F- 8 Leases are classified as either finance leases or operating leases based on criteria in accordance with Accounting Standards Codification (“ASC”) 842, Leases . The Company’s facility lease is classified as an operating lease. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the lease’s commencement date based on the present value of lease payments over the lease term. When a lease did not provide an implicit rate, the Company used its estimated incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. The Company has elected not to recognize ROU assets and lease liabilities for short-term operating leases that have a term of 12 months or less. Lease expense for operating leases is recognized on a straight-line basis over the lease term and is included in operating expenses in the consolidated statements of operations and comprehensive loss. Long-lived assets The Company regularly reviews the carrying value and estimated lives of all of its long-lived assets, including property and equipment, to determine whether indicators of impairment may exist that warrant adjustments to carrying values or estimated useful lives. The determinants used for this evaluation include management’s estimate of the asset’s ability to generate positive income from operations and positive undiscounted cash flow in future periods as well as the strategic significance of the assets to the Company’s business objectives. Fair value measurements In accordance with ASC 820, Fair Value Measurement , fair value is the price that would be received from selling an asset or paid to transfer a liability (i.e., the exit price) in an orderly transaction between market participants at the measurement date. ASC 820 establishes a fair value hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability based on the best information available in the circumstances. The fair value hierarchy is categorized into three levels based on the inputs as follows: Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reported date. Level 2 – Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these financial instruments includes cash instruments for which quoted prices are available but are traded less frequently, derivative instruments whose fair values have been derived using a model where inputs to the model are directly observable in the market and instruments that are fair valued using other financial instruments, the parameters of which can be directly observed. Level 3 – Instruments that have little to no pricing observability as of the measurement date. These financial instruments are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. The degree of judgment exercised by the Company in determining fair value is greatest for assets categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined by the lowest level input that is significant to the fair value measurement. Income taxes Income taxes are recorded in accordance with ASC 740, Income Taxes , which provides for deferred taxes using an asset and liability approach. Under this method, the Company records deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates expected to be in effect when the differences are expected to reverse. Valuation allowances are provided when necessary to reduce net deferred tax assets to the amount that is more likely than not to be realized. Based on the available evidence, the Company is unable, at this time, to support the determination that it is more likely than not that its deferred tax assets will be utilized in the future. Accordingly, the Company recorded a full valuation allowance as of December 31, 2024 and 2023. The Company intends to maintain valuation allowances until sufficient evidence exists to support its reversal. Current income taxes are based upon the year’s income taxable for federal, state, and foreign tax reporting purposes. Deferred income taxes are provided for certain income and expenses, which are recognized in different periods for tax and financial reporting purposes. F- 9 The Company’s policy is not to record deferred income taxes on the undistributed earnings of foreign subsidiaries that are indefinitely reinvested in foreign operations. Revenue recognition The Company’s revenue is derived from the sale of its products to medical groups and hospitals in the 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. The Company generates revenue from the sale of products to hospitals or medical facilities where its 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. The Company accounts for rebates and price discounts as a reduction to revenue. 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. For direct sales to end-user customers, the Company’s standard payment terms are generally net 30 days. The Company offers its standard warranty to all customers and does not sell any warranties on a standalone basis. The Company’s warranty provides that its 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. The Company estimates warranty liabilities at the time of revenue recognition and records them as a charge to cost of goods sold. Contract modifications generally do not occur during the performance of the Company’s contracts. Payments received prior to satisfying the revenue recognition criteria are recorded as deferred revenue on the consolidated balance sheets. As of December 31, 2024 and 2023, there were no remaining performance obligations that would give rise to deferred revenue. Except as described in Note 9, sales commissions are recorded in sales and marketing expenses during the same period as the corresponding revenues. Research and development The Company engages in improving existing products and new product development efforts. Research and development expenses relating to these efforts are expensed as incurred. Stock-based compensation The Company accounts for all stock-based compensation awards using a fair-value method on the grant date and recognizes the fair value of each award as an expense over the requisite service period. The Company recognizes compensation costs related to stock-based awards granted to employees, directors, and consultants, including restricted stock units and stock options, based on the estimated fair value of the awards on the date of grant. For restricted stock units, the Company estimates grant date fair value based on the closing market price on the date of grant. For stock options, the company estimates the grant date fair value 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 as the Company does not have significant stock option exercises in its history. 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 the Company has only been publicly held since April 2022 and does not have any trading history for its common stock prior to that date, 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 the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of option. Expected Dividend s—The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock. Therefore, an expected dividend yield of zero is used. The Company accounts for forfeitures as they occur. F- 10 The Company’s 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. Foreign currency translation and other comprehensive income The functional currency of Tenon Technology AG is the Swiss franc. Accordingly, TTAG’s assets and liabilities are translated from their respective functional currency into U.S. Dollars at period-end rates, and TTAG’s revenue and expenses are translated at the weighted-average exchange rate for the period. Adjustments resulting from this translation process are classified as other comprehensive income or loss and shown as a separate component of equity. When intercompany foreign currency transactions between entities included in the consolidated financial statements are of a long-term investment nature (i.e., those for which settlement is not planned or anticipated in the foreseeable future) foreign currency translation adjustments resulting from those transactions are included in stockholders’ equity as accumulated other comprehensive loss or income. When intercompany transactions are deemed to be of a short-term nature, translation adjustments are required to be included in the consolidated statements of operations. Net loss per share Basic net loss per share is based upon the weighted-average number of common shares outstanding. Diluted net loss per share is based on the assumption that all potential common stock equivalents (convertible preferred stock, stock options, and warrants) are converted or exercised. The calculation of diluted net loss per share excludes potential common stock equivalents if the effect is anti-dilutive. For the periods presented, the Company’s weighted-average common shares outstanding for basic and diluted are the same because the effect of the potential common stock equivalents is anti-dilutive. The Company had the following dilutive common stock equivalents as of December 31, 2024 and 2023 which were excluded from the calculation because their effect was anti-dilutive. December 31, 2024 2023 Outstanding restricted stock units 20,224 9,615 Outstanding stock options 11,322 12,761 Outstanding warrants 2,728,160 240,950 Outstanding Convertible Preferred Shares 896,661 — Total 3,565,367 263,326 Adoption of New Accounting Pronouncements In November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures , which increases the disclosures about reportable segments including more detailed information about a reportable segment’s expenses. This guidance is effective for the Company for the fiscal year ended December 31, 2024 and the interim periods thereafter. Adoption of this guidance had no effect on the Company’s results of operations, as the changes are disclosure related. See Note 12. Recent Accounting Pronouncements Not Yet Adopted In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) – Improvements to Income Tax Disclosures , which requires additional tax disclosures about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. This guidance will be effective on a prospective basis, with the option to apply it retrospectively, for fiscal years beginning after December 15, 2024. We are currently evaluating the impact of adopting this new accounting guidance. In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses , which requires additional disclosure of specific types of expenses included in the expense captions presented on the face of the income statement as well as disclosures about selling expenses. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. The requirements will be applied prospectively with the option for retrospective application. Early adoption is permitted. We are currently evaluating the impact of adopting this new accounting guidance. F- 11 3. Inventory, net Inventory, net of reserves, consisted of the following: December 31, 2024 December 31, 2023 Raw materials $ 21 $ 22 Finished goods 585 532 Inventory $ 606 $ 554 4. Propety and Equipment, net Property and equipment, net, consisted of the following: December 31, 2024 December 31, 2023 Construction in progress $ 541 $ 602 Catamaran tray sets 785 538 IT equipment 56 56 Leasehold improvements 15 15 Lab equipment 14 14 Office furniture 9 9 Property and equipment, gross 1,420 1,234 Less: accumulated depreciation ( 668 ) ( 273 ) Property and equipment, net $ 752 $ 961 Construction in progress is made up of reusable components that are intended to be assembled into Catamaran Tray Sets. Depreciation expense was approximately $ 395 and $ 193 for the years ended December 31, 2024 and 2023, respectively. 5. Accrued Expenses Accrued expenses consisted of the following: December 31, 2024 December 31, 2023 Accrued compensation $ 416 $ 334 Accrued professional services fees 271 244 Other accrued expenses 223 230 Total accrued expenses $ 910 $ 808 6. Debt Convertible notes payable In November 2023, the Company entered into Securities Purchase Agreements with certain investors (the “Investors”), pursuant to which the Company sold to the Investors a total of $ 1,250 ,000 in secured notes (the “Convertible Notes”) and warrants to purchase 5,625 shares of the Company’s common stock at an exercise price equal to $ 15.52 per share. The Convertible Notes bear an interest rate of 10 % per annum with a default rate of 12 % per annum and have a maturity date of November 21, 2024 . All principal and accrued interest is payable at maturity. At any time during the term of the Convertible Notes, the principal amount together with all accrued interest thereon (the “Prepayment Amount”) may be paid in full, but not in part, by the Company. The Prepayment Amount may be paid by the Company in cash or by the issuance to the Investors of shares of Series A Preferred Stock, if prior to such payment with Series A Preferred Stock (i) certain stockholder proposals described in the Convertible Notes are approved by the Company’s stockholders; and (ii) the Company has commitments from investors other than the Investors to purchase shares of Series A Preferred Stock with a stated value of at least $ 3,750 ,000. The Convertible Notes are secured by a first priority security interest in all of the assets of the Company. The warrants expire five years from the issuance date. The warrants contain a “cashless exercise” feature and contain anti-dilution rights on subsequent issuances of equity or equity equivalents. On February 20, 2024, the Investors agreed to a complete prepayment of the Company’s obligations under the Convertible Notes, including accrued interest, in exchange for 84,729 shares of Series A Preferred Stock and warrants to purchase 19,637 shares of our common stock at $ 10.164 per share and the Convertible Notes were cancelled. See Note 8. F- 12 7. Leases In June 2021, the Company entered into a facility lease agreement for its company headquarters in Los Gatos, California. This non-cancellable operating lease expires in June 2026 . Operating lease costs for the facility lease were $ 292 and $ 292 for the years ended December 31, 2024 and 2023, respectively. Supplemental balance sheet information related to leases was as follows: December 31, December 31, 2024 2023 Operating lease right-of-use asset $ 399 $ 646 Operating lease liability, current $ ( 287 ) $ ( 256 ) Operating lease liability, noncurrent ( 141 ) ( 428 ) Total operating lease liabilities $ ( 428 ) $ ( 684 ) Future maturities of operating lease liabilities as of December 31, 2024 were as follows: 2025 $ 311 2026 144 Total lease payments 455 Less: imputed interest ( 27 ) Present value of operating lease liabilities $ 428 Other information: Cash paid for operating leases for the year ended December 31, 2024 $ 301 Cash paid for operating leases for the year ended December 31, 2023 $ 293 Remaining lease term - operating leases (in years) 1.50 Average discount rate - operating leases 8.0 % 8. Stockholders’ Equity The Company’s current Amended and Restated Certificate of Incorporation dated February 18, 2014 authorizes the issuance of 130,000,000 shares of common stock and 20,000,000 shares of preferred stock, both with a par value of $ 0.001 per share. With respect to the preferred stock, 4,500,000 shares are designated Series A Preferred Stock and 491,222 shares are designated Series B Preferred Stock. At-the-Market Offering Program On May 4, 2023, the Company entered into an Equity Distribution Agreement to establish an at-the-market offering program, under which the Company may sell from time to time, at its option, shares of its common stock having an aggregate gross sales price of $ 5.5 million. The Company is required to pay the Sales Agents a commission of 3 % of the gross proceeds from the sale of shares and has also agreed to provide the Sales Agents with customary indemnification rights. During the year ended December 31, 2023, 29,013 shares of the Company’s common stock were sold under the program at a weighted-average price of $ 18.16 per share with aggregate net proceeds of $ 495 . During the year ended December 31, 2024, 129,199 shares of the Company’s common stock were sold under the program at a weighted-average price of $ 14.63 per share with aggregate proceeds, net of issuance costs, of $ 1,709 . 2023 Registered Offering On June 16, 2023, the Company closed the Registered Offering of a total of 1,000,000 units (the “Units”) for proceeds, net of issuance costs, of $ 4,808 , with each Unit consisting of (i) one share of the Company’s common stock, and (ii) two warrants, each warrant to purchase one share of the Company’s common stock at an exercise price equal to $ 44.80 per share (the “Offering Warrants”). The Offering Warrants were exercisable upon issuance and will expire five years from the date of issuance. Per the terms of the Offering Warrants, the exercise price reset on July 16, 2023 to $ 25.168 per share. Equity Line of Credit On July 24, 2023, the Company entered into a purchase agreement (“Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”), under which, subject to specified terms and conditions, the Company may sell to Lincoln Park up to $ 10 million of shares of common stock from time to time during the term of the Purchase Agreement. On September 22, 2023 (the “Commencement Date”) and on May 10, 2024, the Company filed registration statements with the SEC covering the resale of shares of common stock issued to Lincoln Park under the Purchase Agreement. F- 13 Beginning on the Commencement Date and for a period of 24 months thereafter, under the terms and subject to the conditions of the Purchase Agreement, from time to time, at the Company’s discretion, the Company has the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase, up to $ 10 million of shares of common stock, subject to certain limitations set forth in the Purchase Agreement. Specifically, from time to time from and after the Commencement Date, the Company may, at its discretion, direct Lincoln Park to purchase on any single business day on which the closing price of its common stock on The Nasdaq Capital Market (“Nasdaq”) is equal to or greater than $ 1.50 up to 10,000 shares of common stock (a “Regular Purchase”); provided, that the Company may direct Lincoln Park to purchase in a Regular Purchase (i) up to 12,500 shares of common stock, if the closing sale price of its common stock on Nasdaq on such business day is at least $15.00 per share and (ii) up to 15,000 shares of common stock, if the closing sale price of its common stock on Nasdaq on such business day is at least $25.00 per share . In no case, however, will Lincoln Park’s commitment with respect to any single Regular Purchase exceed $ 500,000 ; provided, that the parties may mutually agree at any time to increase the maximum number of shares of common stock the Company may direct Lincoln Park to purchase in any single Regular Purchase to up to 100,000 shares or any number of shares that shall not exceed 4.99 % of the then outstanding shares of common stock. The foregoing share amounts and per share prices will be adjusted for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction occurring after the date of the Purchase Agreement with respect to our common stock. The purchase price per share for each such Regular Purchase will be based on prevailing market prices of the Company’s common stock immediately preceding the time of sale, as determined under the Purchase Agreement. During the year ended December 31, 2024, 48,849 shares of the Company’s common stock were sold under the program at a weighted-average price of $ 5.56 per share with aggregate net proceeds of $ 260 . Series A Preferred Stock On February 20, 2024, the Company entered into a Securities Purchase Agreement with certain investors, pursuant to which the Company agreed to sell, issue and deliver to these investors, in a private placement offering, a total of 172,239 shares of the Company’s Series A Preferred Stock and warrants (the “Series A Warrants”) to purchase 258,374 shares of Common Stock at an exercise price equal to $ 1.2705 per share for net proceeds of $ 2,437 after deducting offering costs. Additionally, on February 20, 2024, the Investors agreed to a complete prepayment of the Company’s obligations under the Convertible Notes, including accrued interest, in exchange for 84,729 shares of Series A Preferred Stock and warrants to purchase 157,094 shares of our common stock at $ 1.2705 per share and the Convertible Notes were cancelled. The Series A Warrants are immediately exercisable and expire five years from the date of issuance. The Series A Preferred Stock is convertible, at any time, at the option of the holder into shares of Common Stock. Each share of Series A Preferred Stock shall be convertible, at any time after the date of issuance, at the option of the holder thereof (or, upon a Required Conversion (as defined below), at the option of the Corporation), into that number of shares of Common Stock determined by dividing the Stated Value (as defined below) for such share of Series A Preferred Stock by the Conversion Price (as defined below). “Stated Value” means for any share of Series A Preferred Stock, an amount equal to the product of (x) $15.125 multiplied by (y) the sum of 1 plus the product of (A) 0.06 multiplied by (B) a fraction equal to the number of days that such share of Series A Preferred Stock has been issued divided by 365. “Conversion Price” means (i) for the shares of Series A Preferred Stock issued on the Closing Date, $1.5125 and (ii) for each share of Series A Preferred Stock issued thereafter, an amount equal to the greater of (x) $1.5125 and the average of the VWAPs for the 10 Trading Days prior the issuance date of such share of Series A Preferred Stock, in each case subject to adjustment as set forth herein. On any date that ten out of the last 15 daily VWAPs of the Common Stock is 250% higher than the Conversion Price on such date, then the Company will have the right to require 50% of the Preferred Stock to be converted into shares of Common Stock. Additionally, on and after the time on which the Company has $2.25 million in revenues in any single financial quarter, the Company will have the right to require 50% of the Preferred Stock to be converted into shares of Common Stock (a “Required Conversion”). No dividends are payable on the Series A Preferred Stock. The Series A Preferred Stock will vote together with the Common Stock on all matters other than as required by law; provided however that any additional shares underlying the Series A Preferred Stock as a result of the anti-dilution provision described below shall not vote on an “as converted” basis and shall only vote when issued upon conversion. Notwithstanding the foregoing, the vote of an individual holder of Series A Preferred Stock (and underlying Common Stock) shall be capped at 9.99% (or 4.99% if selected by the holder). The Conversion Price is subject to anti-dilution adjustment as the result of any subdivision, combination of shares or recapitalization, stock dividends, stock splits and similar transactions affecting the Common Stock. In addition, the Series A Preferred Stock will have weighted average anti-dilution protection providing for adjustment of the Conversion Price in the event of issuance of, or commitments to issue, Common Stock for less than the Conversion Price then in effect immediately prior to such issue or sale (a “Dilutive Issuance”), subject to customary exceptions; provided however the anti-dilution for Dilutive Issuances shall not be operative until the stockholders of the Company have approved the terms of the Series A Preferred Stock, which approval was granted at the annual shareholder meeting on July 23, 2024. Upon any liquidation or winding up of the Company (a “Liquidation”), the holders of Series A Preferred Stock will be entitled to receive in preference to any other class or series of the Company’s equity securities the greater of (i) the Stated Value plus accrued and unpaid dividends and (ii) what would be paid if the Series A Preferred Stock plus accrued and unpaid dividends had been converted into Common Stock. A consolidation or merger of the Company or sale or transfer of all or substantially all of its assets, or any transaction which results in the stockholders of the Company owning less than 50 % of the equity or voting power of the surviving entity (excluding the issuance of Common Stock in any financing transaction unless more than 50 % of the Company’s shares are issued to one stockholder or a number of stockholders who act as a one group) shall be deemed a Liquidation (a “Deemed Liquidation”) with respect to the shares of Series A Preferred Stock of any holder who opts to have such occurrence treated as a Deemed Liquidation; provided that if the liquidation preference payable on a Deemed Liquidation is less than 110 % of the stated value of the Series A Preferred Stock, the dividend rate on any accrued and unpaid dividends payable with respect to such Deemed Liquidation will increase to 10 %. All liquidation preferences payable in respect of a Deemed Liquidation will be payable in shares of Common Stock based on the closing price of the Common Stock on the date of such Deemed Liquidation. Consent of the majority of the holders will be required to (i) amend the Certificate of Incorporation or Bylaws of the Company so as to adversely alter the rights, preferences, privileges of the Series A Preferred Stock, (ii) create any new class of shares pari passu or senior to the Series A Preferred Stock or increase or decrease the number of authorized shares of Common Stock or preferred stock, (iii) pay or declare any dividend on Common Stock or other junior securities, or incur indebtedness in any single transaction in excess of $ 1 million or (iv) redeem, purchase or otherwise acquire any share or shares of preferred stock or Common Stock (other than (a) the repurchase of shares of Common Stock pursuant to a written benefit plan or employment or consulting agreement, or (b) the repurchase of any equity securities in connection with the Company’s right of first offer with respect to those securities contained in any written agreement with the Company). F- 14 Series B Preferred Stock On September 5, 2024, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain investors, pursuant to which the Company agreed to sell, issue and deliver to the Investors, in a private placement offering, a total of 86,454 shares of the Company’s Series B Preferred Stock (the “Series B Preferred Stock”) and warrants (the “Series B Warrants”) to purchase 16,214 shares of Common Stock at an exercise price equal to $ 4.2756 per share for net proceeds of $ 489,000 after deducting offering costs. The Series B Warrants are immediately exercisable and expire five years from the date of issuance. The Series B Preferred Stock is convertible, at any time, at the option of the holder into shares of Common Stock. Each share of Series B Preferred Stock shall be convertible, at any time after the date of issuance, at the option of the holder thereof (or, upon a Required Conversion (as defined below), at the option of the Corporation), into that number of shares of Common Stock determined by dividing the Stated Value (as defined below) for such share of Series B Preferred Stock by the Conversion Price (as defined below). “Stated Value” means for any share of Series B Preferred Stock, an amount equal to the product of (x) $6.3625 multiplied by (y) the sum of 1 plus the product of (A) 0.06 multiplied by (B) a fraction equal to the number of days that such share of Series B Preferred Stock has been issued divided by 365. “Conversion Price” means $5.09 per share, subject to adjustment as set forth herein. On any date that ten out the last 15 daily VWAPs of the Common Stock is 250% higher than the Conversion Price on such date, then the Company will have the right to require 50% of the Preferred Stock to be converted into shares of Common Stock. Additionally, on and after the time on which the Company has $2.25 million in revenues in any single financial quarter, the Company will have the right to require 50% of the Preferred Stock to be converted into shares of Common Stock (a “Required Conversion”). No dividends are payable on the Series B Preferred Stock. The Series B Preferred Stock will vote together with the Common Stock on all matters other than as required by law; provided however that any additional shares underlying the Series B Preferred Stock as a result of the anti-dilution provision described below shall not vote on an “as converted” basis and shall only vote when issued upon conversion. Notwithstanding the foregoing, the vote of an individual holder of Series B Preferred Stock (and underlying Common Stock) shall be capped at 9.99% (or 4.99% if selected by the holder). The Conversion Price is subject to anti-dilution adjustment as the result of any subdivision, combination of shares or recapitalization, stock dividends, stock splits and similar transactions affecting the Common Stock. In addition, the Series B Preferred Stock will have weighted average anti-dilution protection providing for adjustment of the Conversion Price in the event of issuance of, or commitments to issue, Common Stock for less than the Conversion Price then in effect immediately prior to such issue or sale (a “Dilutive Issuance”), subject to customary exceptions; provided however the anti-dilution for Dilutive Issuances shall not be operative until the stockholders of the Company have approved the terms of the Series B Preferred Stock. Upon any liquidation or winding up of the Company (a “Liquidation”), the holders of Series B Preferred Stock will be entitled to receive in preference to any other class or series of the Company’s equity securities the greater of (i) the Stated Value plus accrued and unpaid dividends and (ii) what would be paid if the Series B Preferred Stock plus accrued and unpaid dividends had been converted into Common Stock. A consolidation or merger of the Company or sale or transfer of all or substantially all of its assets, or any transaction which results in the stockholders of the Company owning less than 50 % of the equity or voting power of the surviving entity (excluding the issuance of Common Stock in any financing transaction unless more than 50 % of the Company’s shares are issued to one stockholder or a number of stockholders who act as a one group) shall be deemed a Liquidation (a “Deemed Liquidation”) with respect to the shares of Series B Preferred Stock of any holder who opts to have such occurrence treated as a Deemed Liquidation; provided that if the liquidation preference payable on a Deemed Liquidation is less than 110 % of the stated value of the Series B Preferred Stock, the dividend rate on any accrued and unpaid dividends payable with respect to such Deemed Liquidation will increase to 10 %. All liquidation preferences payable in respect of a Deemed Liquidation will be payable in shares of Common Stock based on the closing price of the Common Stock on the date of such Deemed Liquidation. Consent of the majority of the holders will be required to (i) amend the Certificate of Incorporation or Bylaws of the Company so as to adversely alter the rights, preferences, privileges of the Series B Preferred Stock, (ii) create any new class of shares pari passu or senior to the Series B Preferred Stock or increase or decrease the number of authorized shares of Common Stock or preferred stock, (iii) pay or declare any dividend on Common Stock or other junior securities, or incur indebtedness in any single transaction in excess of $ 1 million or (iv) redeem, purchase or otherwise acquire any share or shares of preferred stock or Common Stock (other than (a) the repurchase of shares of Common Stock pursuant to a written benefit plan or employment or consulting agreement, or (b) the repurchase of any equity securities in connection with the Company’s right of first offer with respect to those securities contained in any written agreement with the Company) 2024 Public Offering On September 12, 2024, the Company entered into a placement agency agreement (the “Placement Agency Agreement”) with A.G.P./Alliance Global Partners (the “Placement Agent”), and a securities purchase agreement (the “Purchase Agreement”) with a single health-care focused institutional investor pursuant to which the Company agreed to issue and sell, in a “reasonable best efforts” public offering (the “Offering”), (i) 55,000 shares (the “Shares”) of the Company’s common stock, par value $ 0.001 (the “Common Stock”), (ii) pre-funded warrants to purchase up to 1,167,850 shares of Common Stock (the “Pre-Funded Warrants”) and (iii) warrants to purchase up to 1,222,850 shares of Common Stock at an exercise price of $ 3.55 per share (the “Common Warrants”) at a combined offering price of $ 3.68 per Share and accompanying Common Warrant, and $ 3.68 , less $ 0.0001 per Pre-Funded Warrant and accompanying Common Warrant for net proceeds of $ 3,846 after deducting offering costs. The Common Warrants were exercisable upon issuance and will expire five years from the date of issuance. F- 15 2024 Warrant Inducement On September 16, 2024, the Company entered into an Inducement Letter with Armistice Capital, LLC (the “Selling Stockholder”) who held all of the Common Warrants. Pursuant to the Inducement Letter, the Selling Stockholder agreed to exercise the Common Warrants for cash at the exercise price of $ 3.55 per share in consideration for the Company’s agreement to issue, for an additional payment of $ 0.125 per New Warrant, (i) the Series A New Warrants to purchase up to an aggregate of 1,222,850 shares of Common Stock at an exercise price of $ 4.28 per share, which are exercisable for five years after issuance and (ii) the Series B New Warrants to purchase up to an aggregate of 1,222,850 shares of Common Stock at an exercise price of $ 4.28 per share, which are exercisable for three years after issuance. The Company received net proceeds of approximately $ 4,306 from the exercise of the Common Warrants and the placement of the New Warrants, after deducting financial advisor fees and other transaction expenses. The warrant inducement was accounted for as a modification of the Common Warrants. Voting rights The holders of vested shares of common stock are entitled to vote on any matter submitted to a vote of the stockholders and each such holder is entitled to one vote per share of common stock held. The holders of Series A and Series B Preferred Stock are entitled to vote together with the common stock as a single class on any matter submitted to a vote of the stockholders. Holders of Series A and Series B Preferred Stock are entitled to the number of votes equal to the number of common stock issuable upon conversion of their respective Series A and Series B Preferred Stock at the time such shares are voted. The holders of a majority of the preferred stock had additional voting rights as specified in the Company’s Amended and Restated Certificate of Incorporation, as amended. Equity awards In 2012, the Board of Directors of the Company (the “Board”) approved the Tenon Medical, Inc. 2012 Equity Incentive Plan (the “2012 Plan”). The 2012 Plan provides for the issuance of common stock options, appreciation rights, and other awards to employees, directors, and consultants. Options issued under the 2012 Plan generally vest over a period of two to four years and have a 10-year expiration date. In April 2021, the Board increased the number of shares of common stock reserved for issuance under the 2012 Plan to 662,516 . In July 2021, the Board increased the number of shares of common stock reserved for issuance under the 2012 Plan to 737,516 . In August 2021, the Board increased the number of shares of common stock reserved for issuance under the 2012 Plan from 737,516 shares to 799,266 shares and approved the form of a 2022 Equity Incentive Plan. On January 10, 2022 and February 2, 2022, the Board and stockholders, respectively, of the Company approved the Tenon Medical, Inc. 2022 Equity Incentive Plan (the “2022 Plan”), which was effective on April 25, 2022. The number of shares of common stock that may be subject to awards and sold under the 2022 Plan is equal to 1,600,000 . Automatic annual increases in number of shares available for issuance under the 2022 Plan is equal to the least of (a) 1,100,000 shares, (b) 4 % of the total number of shares of all classes of common stock outstanding on the last day of the immediately preceding fiscal year, or (c) such number determined by the 2022 Plan administrator no later than the last day of the immediately preceding fiscal year. Annual increases will continue until the tenth anniversary of the earlier of the Board or stockholder approval of the 2022 Plan, which is January 10, 2032. Upon the effective date of the 2022 Plan, the Board terminated the 2012 Plan such that no new equity awards will be issued by the 2012 Plan. Option Exchange On April 8, 2024, the Company issued an offer to holders of outstanding stock options to purchase an aggregate of 11,387 shares of the Company’s common stock to exchange their options for a lesser number of new restricted stock units (“RSUs”) to be granted under the 2022 Plan upon the terms and subject to the conditions set forth in the Offer to Exchange Certain Outstanding Stock Options for Restricted Stock Units (the “Offer to Exchange”). The Offer to Exchange expired on May 6, 2024. A total of 27 eligible participants participated in the exchange. The Company accepted for exchange options to purchase an aggregate of 10,436 shares of common stock of the Company. All surrendered options were cancelled effective as of the expiration of the Option Exchange, and immediately thereafter, in exchange therefor, the Company granted a total of 5,226 new RSUs under the 2022 Plan. The incremental fair value of the new RSUs that were vested at the issuance date was $ 32 and was immediately expensed. Compensation expense for the years ended December 31, 2024 and 2023 includes the portion of awards vested in the periods for all equity-based awards granted, based on the grant date fair value as estimated using a Black-Scholes option valuation model. Grant date fair value for restricted stock units is estimated using the fair value of the Company’s common stock on the date of grant. Grant date fair value for stock options is estimated using a Black-Scholes option valuation model using the weighted-average assumptions in the table below: Years ended December 31, 2024 2023 Expected volatility 68.37 % 63.89 % Dividend yield 0 % 0 % Risk-free interest rate 4.41 % 4.28 % Expected term in years 5.61 5.85 F- 16 Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive equity awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by the Company in accordance with authoritative guidance. A summary of the Company’s share option and restricted stock unit activity under its plans is as follows: Options RSUs Number of Options Weighted- Average Exercise Price per Share Weighted- Average Remaining Contractual Term (In Years) Number of RSUs Weighted Average Grant Date Fair Value per Share Balance as of December 31, 2022 11,252 $ 379.44 8.10 16,492 $ 634.20 Granted 1,882 $ 103.25 938 $ 23.28 Released — — ( 7,637 ) $ 656.51 Canceled ( 357 ) $ 319.39 ( 156 ) $ 708.80 Balance as of December 31, 2023 12,777 $ 340.44 7.41 9,637 $ 555.85 Granted 10,621 $ 5.59 21,309 $ 6.67 Released — — ( 10,072 ) $ 344.54 Canceled ( 12,076 ) $ 346.20 ( 650 ) $ 22.64 Balance as of December 31, 2024 11,322 $ 20.79 9.32 20,244 $ 99.58 Exercisable at December 31, 2024 2,733 $ 66.44 8.89 The weighted-average grant-date fair value of options granted during the years ended December 31, 2024 and 2023 was $ 3.95 and $ 61.00 , respectively. The aggregate intrinsic value of outstanding options at December 31, 2024 was $0 . The aggregate intrinsic value is equal to the difference between the exercise price of the underlying option and the fair value of the Company’s common stock for in-the-money options. As of December 31, 2024, total compensation cost not yet recognized related to unvested options was $ 29 , which is expected to be recognized over a weighted-average period of 1.57 years, and total compensation costs not yet recognized related to unvested RSUs was $ 1,443 , which is expected to be recognized over a weighted-average period of 0.48 years. The following table sets forth stock-based compensation expense recognized for the years ended December 31, 2024 and 2023: Years ended December 31, 2024 2023 Research and development $ 1,431 $ 1,504 Sales and marketing 137 217 General, and administrative 2,277 2,424 Total stock-based compensation expense $ 3,845 $ 4,145 At December 31, 2024, there were 135,971 shares available for issuance under the 2022 Plan. Warrants In April 2022, in association with the Company’s initial public offering, the Company granted to The Benchmark Company, LLC and Valuable Capital Limited warrants to purchase a total of 1,200 shares of Common Stock. The warrants were immediately exercisable at an exercise price of $ 400.00 per share and expire on the fifth anniversary of the commencement of sales under the IPO. The fair value of the warrants on the grant date was $ 220.00 per warrant, which was calculated using a Black-Scholes option valuation model with an expected term of 5.00 years, expected volatility of 62.55 %, dividend yield of 0 %, and risk-free interest rate of 2.92 %. The Company recorded the fair value of these warrants of $ 264 as an issuance cost to additional paid-in capital in 2022. F- 17 In June 2023, in connection with a registered offering of stock, the Company issued warrants to purchase a total of 250,000 shares of Common Stock (the “Offering Warrants”). The Offering Warrants were exercisable upon issuance and will expire five years from the date of issuance. Per the terms of the Offering Warrants, the exercise price of the Offering Warrants reset on July 16, 2023, to $ 25.168 per share. The fair value of the Offering Warrants on the grant date of $ 3,164 , or $ 12.64 per warrant, was calculated using a Monte-Carlo simulation to estimate the final exercise price, which is considered a Level 3 fair value measurement, using as inputs; the starting value of $ 24.00 per share, the Company’s VWAP on June 16; an assumed daily distribution of returns; a mean daily return of 5.18 %; a short-term annual volatility of 100 % and a standard deviation of 6.3 %. The model used Black-Scholes to then calculate the estimated fair value of the Offering Warrants, using an estimated time to maturity of 4.9 years, a risk-free interest rate of 3.99 % and a long-term volatility of 60 %. In November 2023, in connection with the issuance of the Convertible Notes, the Company issued warrants to purchase a total of 5,625 shares of Common Stock at an exercise price equal to $ 15.52 per share. The warrants expire five years from the issuance date. The fair value of the warrants on the grant date was $ 10.32 per warrant, which was calculated using a Black-Scholes option valuation model with an expected term of 5 .00 years, expected volatility of 68.89 %, dividend yield of 0 %, and risk-free interest rate of 4.41 %. The Company recorded the fair value of these warrants of approximately $ 58 as an issuance cost to additional paid-in capital in 2023. On February 20, 2024, in connection with the issuance of Series A Preferred Stock, the Company issued the Series A Warrants to purchase a total of 51,937 shares of Common Stock at an exercise price equal to $ 4.28 per share. The Series A Warrants are immediately exercisable and expire five years from the date of issuance. The fair value of the Series A Warrants on the grant date was $ 4.88 per warrant, which was calculated using a Black-Scholes option valuation model with an expected term of 5 .00 years, expected volatility of 68.24 %, dividend yield of 0 %, and risk-free interest rate of 4.3 %. The Company recorded the fair value of these warrants of $ 254 to additional paid-in capital in 2024. On September 5, 2024, in connection with the issuance of Series B Preferred Stock, the Company issued the Series B Warrants to purchase a total of 16,214 shares of Common Stock at an exercise price equal to $ 4.28 per share. The Series B Warrants are immediately exercisable and expire five years from the date of issuance. The fair value of the Series B Warrants on the grant date was $ 2.25 per warrant, which was calculated using a Black-Scholes option valuation model with an expected term of 5 .00 years, expected volatility of 68.40 %, dividend yield of 0 %, and risk-free interest rate of 3.5 %. The Company recorded the fair value of these warrants of $ 37 to additional paid-in capital in 2024. On September 16, 2024, in connection with the Warrant Inducement agreement, the Company issued Series A New Warrants to purchase a total of 1,222,850 shares of Common Stock at an exercise price of $ 4.28 per share, which are exercisable for five years after issuance and Series B New Warrants to purchase a total of 1,222,850 shares of Common Stock at an exercise price of $ 4.28 per share, which are exercisable for three years after issuance. The fair value of the Series A New Warrants on the grant date was $ 5.49 per warrant, which was calculated using a Black-Scholes option valuation model with an expected term of 5.00 years, expected volatility of 68.40 %, dividend yield of 0 %, and risk-free interest rate of 3.4 %.The fair value of the Series B New Warrants on the grant date was $ 4.87 per warrant, which was calculated using a Black-Scholes option valuation model with an expected term of 3.00 years, expected volatility of 68.40 %, dividend yield of 0 %, and risk-free interest rate of 3.4 %. The Company recorded the fair value of these warrants to additional paid-in capital in 2024. 9. Commitments and Contingencies Sales Representative Agreement In April 2020, the Company entered into an Exclusive Sales Representative Agreement, under which the counterparty to the agreement (the “Representative”) received exclusive rights to market, promote, and distribute The Catamaran System in the United States and Puerto Rico. The agreement is for an initial period of five years , and automatically renews for an additional five years unless written notice is given by either party prior to April 27, 2023. The agreement provides for a bonus to be paid to the Representative upon an acquisition or IPO. In May 2021, the Company entered into an Amended and Restated Exclusive Sales Representative Agreement (the “Restated Sales Agreement”). In connection with the amended agreement, the Company paid $ 500 cash and issued 53,757 shares of common stock to the Representative, for which the Company recorded a combined total of $ 880 as sales and marketing expense. In addition, the Representative received anti-dilution protections to maintain ownership of 3.0 % of the fully diluted equity of the Company through the date of an initial public offering. In October 2021, the Company issued 4,445 shares of common stock with a fair value of approximately $ 333 to the Representative in accordance with the anti-dilution provision. In April 2022, the Company issued 31,235 shares of common stock to the Representative in accordance with the anti-dilution provision, fully satisfying the Company’s obligations. The Restated Sales Agreement restructured the calculation of the bonus paid to the Representative upon an acquisition, removed the bonus payable upon an IPO, and allows the Company to terminate the Restated Sales Agreement as long as the bonus paid to the Representative is at least $ 6,000 . F- 18 On October 6, 2022, the Company entered into the Terminating Amended and Restated Exclusive Sales Representative Agreement (the “Termination Agreement”) with the Representative, which terminated the Restated Sales Agreement. In accordance with the Termination Agreement, (i) the Company paid the Representative $1,000 in cash; and (ii) the Company agreed to pay the Representative (a) $85 per month during the six months after the date of the Termination Agreement in return for efforts by the Representative to transition operations to the Company, (b) 20% of net sales of the product sold in the United States and Puerto Rico until December 31, 2023 and (c) after December 31, 2023, 10% of net sales until such time as the aggregate amount paid to the Representative under this clause (c) and clause (b) above equal $3,600. In the event of an acquisition of the Company, the Company will pay the Representative $3,600 less previous amounts paid pursuant to clause (b) and clause (c) above. The Company recorded a charge of $1,000 for the payment to the Representative in the fourth quarter of 2022 and expensed the $85 per month charges as incurred over the six-month period. For payments under clause (b) and clause (c) above, the Company estimated the fair value of the liability using level 3 hierarchy inputs based on a Monte Carlo simulation of future revenues with a 25% quarterly estimated standard deviation of growth rates and a 10% probability of dissolution, discounted at an estimated discount rate of 15.4%. Based on the Company’s fair value analysis, a total of $2,611 was charged to sales and marketing expense in the 2022 consolidated statements of operations and comprehensive loss and recorded as accrued commissions in the consolidated balance sheets. A reconciliation of the liability under clause (b) and clause (c) for the year ended December 31, 2024 is as follows: 2024 Balance at January 1, 2024 $ 2,377 Amounts paid during 2024 ( 324 ) Accretion 48 Balance at December 31, 2024 $ 2,101 Per the terms of the Termination Agreement, the Company ultimately expects to expense $ 3,600 under clause (b) and clause (c). Simultaneously with the execution of the Termination Agreement, the Company entered into a Consulting Agreement dated October 6, 2022, with the Representative (the “Consulting Agreement”). Under the terms and conditions of the Consulting Agreement, the Representative is tasked with organizing, recruiting, training, and coordinating the Company’s Clinical Specialist program, Physician Education program and Sales Education program as more specifically described in the Consulting Agreement. The term of the Consulting Agreement was from October 6, 2022, until October 5, 2023, when it terminated in accordance with the terms of the Consulting Agreement. In consideration for the services to be provided, the Company paid the Representative a base consulting fee of $ 700 per year, payable in monthly instalments, along with additional compensation of $ 62.5 per quarter, if certain sales targets were met, for four quarters; along with any travel and related out-of-pocket expenses incurred by the Representative in connection with the performance of the services. Litigation In the normal course of business, the Company may possibly be named as a defendant in various lawsuits. 10. Concentrations of Risk Credit risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company maintains cash balances at financial institutions located in California and Switzerland. Accounts at the U.S. financial institutions are secured by the Federal Deposit Insurance Corporation. At times, balances may exceed federally insured limits. The Company has not experienced any losses in such accounts. Management believes that the Company is not exposed to any significant credit risk with respect to its cash and cash equivalents. The Company grants unsecured credit to its customers based on an evaluation of the customer’s financial condition and a cash deposit is generally not required. Management believes its credit policies do not result in significant adverse risk and historically has not experienced significant credit-related losses. Currency risk The Company’s subsidiary, Tenon Technology AG, realizes a portion of its expenses in Swiss francs. Consequently, certain assets and liabilities are exposed to foreign currency fluctuations. At December 31, 2024 and 2023, approximately $0 and $ 741 , respectively, of the Company’s net monetary assets were denominated in Swiss francs. The Company has not entered into any hedging transactions to reduce the exposure to currency risk. F- 19 11. Income Taxes The components of loss before income taxes are as follows: Years ended December 31, 2024 2023 United States $ ( 13,673 ) $ ( 15,570 ) International — ( 11 ) Loss before income taxes $ ( 13,673 ) $ ( 15,581 ) The components of current income tax expense are as follows: Years ended December 31, 2024 2023 Federal $ — $ — State — — Foreign — — Total income tax expense $ — $ — A reconciliation of the expected tax computed at the U.S. statutory federal income tax rate to the total provision for income taxes for the years ended December 31, 2024 and 2023 is as follows: Years ended December 31, 2024 2023 Statutory rate ( 21 )% ( 21 )% State taxes, net of federal benefit ( 5 )% ( 7 )% Non-deductible differences 4 % 3 % Change in valuation allowance 22 % 25 % Provision for taxes — — Significant components of the Company’s net deferred tax assets at December 31, 2024 and 2023 are as follows: Years ended December 31, 2024 2023 Deferred tax assets: Net operating loss carryforwards $ 10,803 $ 9,504 Credit carryforwards 193 220 Property and equipment 114 52 Accruals and reserves 689 111 Stock-based compensation 1,274 1,802 Intangibles 124 220 Operating lease liability 114 188 Capitalized research and development 645 514 Total deferred tax assets 13,956 12,611 Valuation allowance ( 13,848 ) ( 12,433 ) Net deferred tax assets 108 178 Deferred tax liabilities: Unrecognized tax benefits ( 2 ) — Operating lease right of use ( 106 ) ( 178 ) Total deferred tax liabilities ( 108 ) ( 178 ) Net deferred tax assets $ — — F- 20 In assessing the realizability of deferred tax assets at December 31, 2024, management considered whether it is more likely than not that some portion or all of the deferred tax assets will be realized, and determined that a valuation allowance was required for those deferred tax assets that are not expected to provide future tax benefits. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. At December 31, 2024, the Company has available net operating loss carryforwards of approximately $ 41,551 for federal income tax purposes, of which approximately $ 41,239 was generated after 2017 and can be carried forward indefinitely under the Tax Cuts and Jobs Act. The remaining federal net operating loss of approximately $ 222 , which was generated prior to 2018, will start to expire in 2034 if not utilized. At December 31, 2024, the net operating loss carryforwards for state purposes are approximately $ 27,347 and will begin to expire in 2032 if not utilized. In addition, the Company had foreign net operating loss carryforwards of approximately $ 1,378 at December 31, 2024 that will start to expire in 2025 if not utilized. The Company had credit carryforwards of approximately $ 100 for federal income tax purposes. The federal tax credits will begin to expire in 2041. The Company also had credit carryforwards of approximately $ 30 for California income tax purposes. These credits have no expiration. The Company has not completed a study to determine whether any ownership change per the provisions of Section 382 of the Internal Revenue Code of 1986, as amended, as well as similar state provisions, has occurred; however, it believes that, given the equity transactions undertaken, such a change has most likely occurred. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders. Utilization of the Company’s net operating loss and income tax credit carryforwards may be subject to a substantial annual limitation due to ownership changes that may have occurred or that could occur in the future. These ownership changes may limit the amount of the net operating loss and income tax credit carryover that can be utilized annually to offset future taxable income. Uncertain tax positions In accordance with authoritative guidance, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50 % likelihood of being sustained. The following shows the changes in the gross amount of recognized tax benefits: Years ended December 31, 2024 2023 Unrecognized tax benefits, beginning of year $ 79 $ 38 Increases related to prior year tax positions — 5 Decreases related to prior year tax positions ( 35 ) — Increases related to current year tax positions — 36 Unrecognized tax benefits, end of year $ 44 $ 79 The Company recognizes interest and penalties related to unrecognized tax positions within the income tax expense line in the accompanying consolidated statements of operations and comprehensive loss. The Company does not anticipate that its total unrecognized tax benefits will significantly change due to settlement of examination or the expiration of statute of limitations during the next 12 months. Due to the full valuation allowance at December 31, 2024, current adjustments to the unrecognized tax benefit will have no impact on our effective income tax rate. The Company currently has no federal or state tax examinations in progress nor has it had any federal or state tax examinations since its inception. As a result of the Company’s net operating loss and credit carryforwards, all of its years are subject to federal and state examination. F- 21 12. Reportable Segment The Company operates in one business segment, the SI Joint segment. The SI Joint segment derives revenue from the sale of the Catamaran System for treatment of the most common types of SI Joint disorders that cause lower back pain, which is the Company’s only product. The accounting policies of the SI Joint segment are the same as those described in the summary of significant accounting principles in Note 2. The chief operating decision maker, which is the Company’s senior executive committee that includes the chief executive officer, the chief financial officer and the chief technology officer, assesses the performance of the SI Joint segment and decides how to allocate resources based on net income which is reported in the consolidated statements of operations as net loss. The measure of segment assests is reported on the balance sheet as total assets. The chief operating decision maker uses net loss to evaluate income generated from segment assets in deciding whether to continue investing in the segment. Net loss is used to monitor budget versus actual results, to prepare operating budgets, and to assess the performance of the segment and in establishing management compensation. The Company does not have intra-entity sales or transfers. The following table presents selected financial information for the Company’s single business segment for the year ended December 31, 2024: Year ended December 31, 2024 Revenue $ 3,277 Less: Cost of sales 1,566 Sales and marketing 5,109 Research and development 2,603 General and administrative 7,765 Other expenses, net 93 Net loss $ ( 13,673 ) 13. Subsequent Events On March 11, 2025, the Company entered into a warrant exercise inducement offer letter agreement (the “Inducement Letter”) with the holder (the “Holder”) of the Series A New Warrants and Series B New Warrants (the “Existing Warrants”), pursuant to which, the Holder agreed to exercise the Existing Warrants at a reduced exercise price of $ 1.25 per share in consideration for the Company’s agreement to issue (i) new unregistered five-year warrants (the “Series C-1 Warrants”) to purchase up to an aggregate of 2,445,700 shares of common stock at an exercise price of $1.25 per share and (ii) new unregistered three-year warrants (the “Series C-2 Warrants,” and together with the Series C-1 Warrants, the “New Warrants”) to purchase up to an aggregate of 1,222,850 shares of common stock at an exercise price of $1.25 per share (the “Inducement Transaction”). The New Warrants are not exercisable without approval by the Company’s stockholders (“Stockholder Approval”), which, pursuant to the Inducement Letter, the Company is required to obtain at a meeting of stockholders no later than 165 days after the consummation of the Inducement Transaction. The Series C-1 Warrants will be exercisable five years from the date on which Stockholder Approval is obtained, and the Series C-2 Warrants will be exercisable three years from the date on which Stockholder Approval is obtained. Pursuant to the Inducement Transaction, the Company received proceeds, net of financial advisor fees and other transaction expenses, of $ 2,727 . The Company has agreed to file a registration statement on Form S-3 (or other appropriate form, including on Form S-1, if it is not eligible to utilize Form S-3) providing for the resale of the shares of common stock issuable upon the exercise of the New Warrants within 30 calendar days following the date of the Inducement Letter. The Company has also agreed not to issue, enter into any agreement to issue or announce the issuance or proposed issuance of any common stock or common stock equivalents or file any registration statement or any amendment or supplement to any existing registration statement, subject to certain exceptions, for a period of 60 calendar days after the effectiveness of the Resale Registration Statement. Furthermore, the Company is also prohibited from entering into any agreement to issue common stock or common stock equivalents involving a variable rate transaction (as defined in the Inducement Letter), subject to certain exceptions, for a six-month period commencing on March 12, 2025. On March 25, 2025, the Company entered into a securities purchase agreement for the issuance of 733,500 shares of its common stock (or common stock equivalents in lieu thereof) in a registered direct offering at a purchase price of $ 2.00 per share. In a concurrent private placement, the Company also agreed to issue to the same investor warrants to purchase up to 733,500 shares of its common stock at an exercise price of $ 2.00 per share, which will be exercisable immediately, and will expire five years following the date of issuance. Pursuant to the agreements, the Company received proceeds, net of financial advisor fees and other transaction expenses, of $ 1,234 . Also on March 25, 2025, the Company entered into a securities purchase agreement for the issuance of 1,271,500 shares of its common stock (or common stock equivalents in lieu thereof) in a registered direct offering at a purchase price of $ 2.00 per share. In a concurrent private placement, the Company also agreed to issue to the same investor warrants to purchase up to 1,271,500 shares of its common stock at an exercise price of $ 2.00 per share, which will be exercisable immediately, and will expire five years following the date of issuance. Pursuant to the agreements, the Company received proceeds, net of financial advisor fees and other transaction expenses, of $ 2,290 . F- 22 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures None.