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Item 7. Management’s Discussion and Analysis

2026-03-27 compared with 2025-03-26 · 313 added, 366 removed, 31 unchanged (96% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

You should read the following

discussion and analysis of our financial condition and results of operations together with our financial statements and the notes to those

statements included elsewhere in this Annual Report on Form 10-K.

In addition to historical financial information, this discussion

and analysis contains forward-looking statements that reflect our plans, estimates and beliefs.

You should not place undue reliance on

these forward-looking statements, which involve risks and uncertainties.

As a result of many factors, including but not limited to those

set forth under “Risk Factors,” our actual results may differ materially from those anticipated in these forward-looking

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

should read the following discussion and analysis of our financial condition and results of operations together with our financial statements

and the notes to those statements included elsewhere in this Annual Report on Form 10-K.

In addition to historical financial information,

this discussion and analysis contains forward-looking statements that reflect our plans, estimates and beliefs.

You should not place

undue reliance on these forward-looking statements, which involve risks and uncertainties.

As a result of many factors, including but

not limited to those set forth under ‘‘Risk Factors,’’ our actual results may differ materially from those anticipated

in these forward-looking statements.

See “Cautionary Note Regarding Forward-Looking Statements.”

Tenon Medical, Inc., a

medical device company formed in 2012, has developed a proprietary, U.S.

Food and Drug Administration (“FDA”) approved

surgical implant-system, which we call The Catamaran™ SI Joint Fusion System (“The Catamaran System”).

Catamaran System offers a novel, less invasive inferior-posterior approach to the sacroiliac joint (“SI Joint”) using a

single, robust titanium implant to treat SI Joint dysfunction that often causes severe lower back pain.

The system features the

Catamaran™ Fixation Device which passes through both the axial and sagittal planes of the ilium and sacrum, transfixing the SI

Joint along its longitudinal axis.

Published clinical studies have shown that 15% to 30% of all chronic lower back pain is

associated with the SI Joint.

With an entry similar

to the SI Joint injection, the surgical approach is direct to the joint.

The angle and trajectory of the inferior-posterior approach

is designed to point away from critical neural and vascular structures and into the strongest cortical bone.

Joined by a patented

osteotome bridge, the implant design consists of two hollow fenestrated pontoons with an open framework to facilitate bony in-growth

through the SI Joint.

One pontoon fixates into the ilium and the other into the sacrum.

The osteotome is designed to disrupt the

articular portion of the joint to help facilitate a fusion response.

Our initial clinical results

indicate that the Catamaran System implant is promoting fusion across the joint as evidenced by computerized tomography (CT) scans which

is the gold standard widely accepted by the clinical community.

We had our national launch of The Catamaran System in October 2022 and

are building a sales and marketing infrastructure to market our product and address the greatly underserved market opportunity that exists.

We believe that the implant

design and procedure we have developed, along with the 2D and 3D protocols for proper implantation will be received well by the clinician

community who have been looking for a next generation device.

We have incurred net losses

since our inception in 2012.

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 dedicated to transforming

care for patients with certain sacro-pelvic disorders.

The Company currently offers two systems to treat a diseased SI Joint.

has developed The Catamaran®™ SI Joint Fusion System (“The Catamaran System”) that offers a novel, less invasive

approach to 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.

August 2025, the Company acquired substantially all of the assets of SiVantage, Inc.

and SIMPL Medical, LLC, including the SImmetry +®

SI Joint Fusion System (“The SImmetry + System”) that treats disorders of the SI Joint through minimally invasive

lateral access solution that incorporates well-established orthopedic fusion principles-including joint decortication, bone graft placement,

and rigid fixation-with the goal of achieving a true biological fusion across the SI Joint.

have incurred net losses since our inception in 2012.

As of December 31, 2025, we had an accumulated deficit of approximately $81.3 million.

To date, we have financed

our operations primarily through public equity offerings, private placements of equity securities, certain debt-related financing arrangements,

and sales of our product.

We have devoted substantially all of our resources to research and development, regulatory matters and sales

and marketing of our product.

Reverse Stock Splits

On November 2, 2023, we effected

a 1-for-10 reverse stock split (the “2023 Reverse Stock Split”) by filing an amendment to our 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, we

effected a 1-for-8 reverse stock split (the “2024 Reverse Stock Split”) by filing an amendment to the our Amended and Restated

Certificate of Incorporation, as amended, with the Delaware Secretary of State.

The 2024 Reverse Stock Split combined every eight shares

of our common stock issued and outstanding immediately prior to effecting the 2024 Reverse Stock Split into one share of common stock.

To date, we have financed our operations primarily through public equity offerings, private placements of equity securities, certain

debt-related financing arrangements, and sales of our product.

We have devoted substantially all of our resources to research and development,

regulatory matters and sales and marketing of our product.

September 6, 2024, we effected a 1-for-8 reverse stock split (the “2024 Reverse Stock Split”) by filing an amendment to the

our Amended and Restated Certificate of Incorporation, as amended, with the Delaware Secretary of State.

The 2024 Reverse Stock Split

combined every eight shares of our common stock issued and outstanding immediately prior to effecting the 2024 Reverse Stock Split into

one share of common stock.

No fractional shares were issued in connection with the 2024 Reverse Stock Split.

All historical share and

per share amounts reflected throughout this document have been adjusted to reflect the 2023 Reverse Stock Split and the 2024 Reverse Stock

The authorized number of shares and the par value per share of our common stock were not affected by the 2023 Reverse Stock Split

or the 2024 Reverse Stock Split.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion

and analysis of our financial condition and results of operations is based on our audited consolidated financial statements, which have

been prepared in accordance with United States generally accepted accounting principles (“U.S.

The preparation of

these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and

the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported results of operations

per share amounts reflected throughout this document have been adjusted to reflect the 2024 Reverse Stock Split.

The authorized number

of shares and the par value per share of our common stock were not affected by the 2024 Reverse Stock Split.

Accounting Policies and Significant Judgments and Estimates

management’s discussion and analysis of our financial condition and results of operations is based on our audited financial statements,

which have been prepared in accordance with United States generally accepted accounting principles (“U.S.

The preparation

of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities

and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported results of operations

during the reporting periods.

3 unchanged sentences

Actual results could differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in the notes to our consolidated financial statements included

elsewhere in this Annual Report on Form 10-K, we believe that the accounting policies discussed below are those that are most critical

to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s

judgments and estimates.

For more detail on our critical accounting policies, see Note 2 to our consolidated financial statements.

Revenue Recognition

Our revenue is derived from

the sale of our 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.

We generate our revenue from

the sale of products to hospitals or medical facilities where our 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.

While our significant accounting policies are described in more detail in the notes to our financial statements included elsewhere in

this Annual Report on Form 10-K, we believe that the accounting policies discussed below are those that are most critical to understanding

our historical and future performance, as these policies relate to the more significant areas involving management’s judgments

and estimates.

For more detail on our critical accounting policies, see Note 2 to our financial statements.

revenue is derived from the sale of our 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.

generate our revenue from the sale of products to hospitals or medical facilities where our products are delivered in advance of a procedure.

The performance obligation is the completion of the surgery and therefore, revenue is recognized upon completion of the surgery, net

of rebates and price discounts.

We account 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, our standard payment terms are generally net

We offer our standard warranty

to all customers.

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, our standard payment terms are generally net 30 days.

offer our standard warranty to all customers.

We do not sell any warranties on a standalone basis.

Our warranty provides that our 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.

We estimate warranty liabilities at the time of revenue

recognition and record them as a charge to cost of goods sold.

Stock-Based Compensation

We account for all stock-based

compensation awards using a fair-value method on the grant date and recognize the fair value of each award as an expense over the requisite

service period.

We recognize 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, we estimate grant date

fair value based on the closing market price on the date of grant.

For stock options, we estimate 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.

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

we have only been publicly held since April 2022 and do not have any trading history for our common stock, 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 —We

have never paid dividends on our common stock and have no plans to pay dividends on our common stock.

Therefore, we used an expected dividend

yield of zero.

We account for forfeitures

as they occur.

Our 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.

Common Stock Warrants

We account for warrants for shares

of common stock as equity or liabilities in accordance with the accounting guidance for derivatives.

The accounting guidance provides

a scope exception from classifying and measuring as a financial liability a contract that would otherwise meet the definition of a derivative

if the contract is both (i) indexed to the entity’s own stock and (ii) classified in the stockholders’ deficit section of

the consolidated balance sheet.

We estimate the fair value of our warrants for shares of common stock by using the Black-Scholes option

pricing model.

Warrants classified as equity are recorded as additional paid-in capital on the consolidated balance sheet and no further

adjustments to their valuation are made after the issuance of the warrants.

Financial Operations Overview

We derive substantially all

our revenue from sales of The Catamaran System to a limited number of clinicians.

Revenue from sales of The Catamaran System fluctuates

based on volume of cases (procedures performed), discounts, rebates, and the number of implants used for a particular patient.

to other orthopedic companies, our revenue can also fluctuate from quarter to quarter due to a variety of factors, including reimbursement,

changes in independent sales representatives and physician activities.

Cost of Goods Sold, Gross Profit, and Gross Margin

We utilize contract manufacturers

for production of The Catamaran System implants and Catamaran Tray Sets.

Cost of goods sold consists primarily of costs of the components

of The Catamaran System implants and instruments, overhead related to operation personnel and facility costs, quality inspection, packaging,

scrap and inventory obsolescence, as well as distribution-related expenses such as logistics and shipping costs.

We anticipate that certain

of our cost of goods sold will increase in absolute dollars as case levels increase.

Our gross margins have been

and will continue to be affected by a variety of factors, including the cost to have our product manufactured for us, pricing pressure

from increasing competition, and the factors described above impacting our revenue.

Operating Expenses

Our operating expenses consist

of sales and marketing, research and development, and general and administrative expenses.

Personnel costs are the most significant component

of operating expenses and consist of consulting expenses, salaries, sales commissions and other cash and stock-based compensation related

We expect operating expenses to increase in absolute dollars as we continue to invest and grow our business.

Sales and Marketing Expenses

Sales and marketing expenses

primarily consist of salaries, commissions, stock-based compensation expense and travel and entertainment expenses of our sales and market

personnel along with commissions paid to our independent distributors.

We expect our sales and marketing expenses to increase in absolute

dollars with the increased sales of The Catamaran System resulting in higher commissions and salaries, increased clinician and sales representative

training, and the cost to complete our clinical study to gain wider clinician adoption of The Catamaran System.

Our sales and marketing

expenses may fluctuate from period to period due to the timing of sales and marketing activities related to the commercial activity of

Research and Development Expenses

Our research and development

expenses primarily consist of engineering, product development, regulatory expenses, and consulting services, outside prototyping services,

outside research activities, materials, and other costs associated with the development and refinement of our product.

Research and development

expenses also include related personnel and consultants’ compensation and stock-based compensation expense.

We expense research

and development costs as they are incurred.

We expect research and development expense to increase in absolute dollars as we improve The

Catamaran System, develop new products, add research and development personnel, and undergo clinical activities that may be required for

regulatory clearances of future products.

General and Administrative Expenses

General and administrative

expenses primarily consist of salaries, consultants’ compensation, stock-based compensation expense, and other costs for finance,

accounting, legal, compliance, and administrative matters.

We expect our general and administrative expenses to increase in absolute dollars

as we add personnel and information technology infrastructure to support the growth of our business.

We also expect to incur additional

general and administrative expenses as a result of operating as a public company, including but not limited to:

expenses related to compliance

with the rules and regulations of the SEC and those of The Nasdaq Stock Market LLC on which our securities are traded;

additional insurance

Our warranty provides that our products

are free of material defects and conform to specifications, and includes an offer to replace or refund the purchase price of defective

This assurance does not constitute a service and is not considered a separate performance obligation.

We estimate warranty

liabilities at the time of revenue recognition and record them as a charge to cost of goods sold.

account for all stock-based compensation awards using a fair-value method on the grant date and recognize the fair value of each award

as an expense over the requisite service period.

recognize 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, we estimate

grant date fair value based on the closing market price on the date of grant.

For stock options, we estimate 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.

Black-Scholes option-pricing model requires the use of subjective assumptions to determine the fair value of stock-based awards.

assumptions include:

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.

The simplified method deems the expected term to be the midpoint between the

vesting date and the contractual life of the stock-based awards.

Volatility —Since we have only been publicly held since April 2022 and did not have any trading history for our 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.

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.

Dividend —We have never paid dividends on our common stock and have no plans to pay dividends on our common stock.

we used an expected dividend yield of zero.

account for forfeitures as they occur.

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.

Stock Warrants

account for warrants for shares of common stock as equity or liabilities in accordance with the accounting guidance for derivatives.

The accounting guidance provides a scope exception from classifying and measuring as a financial liability a contract that would otherwise

meet the definition of a derivative if the contract is both (i) indexed to the entity’s own stock and (ii) classified in the stockholders’

deficit section of the balance sheet.

We estimate the fair value of our warrants for shares of common stock by using the Black-Scholes

option pricing model.

Warrants classified as equity are recorded as additional paid-in capital on the balance sheet and no further adjustments

to their valuation are made after the issuance of the warrants.

account for business combinations in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations ,

which requires that assets acquired and liabilities assumed be recorded at their respective fair values on the date of acquisition.

fair value of the consideration paid is assigned to the underlying net assets of the acquired business based on their respective fair

Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded to goodwill.

assets acquired are amortized over the expected life of the asset.

Fair value determinations and useful life estimates are based on,

among other factors, estimates of expected future cash flows, estimates of appropriate discount rates, estimated useful lives of the

intangible assets acquired and other factors.

Although we believe the assumptions and estimates made have been reasonable and appropriate,

actual results may vary significantly from estimated results.

Our assumptions and estimates are subject to refinement and, as a result,

during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and

liabilities assumed with the corresponding offset to goodwill.

Operations Overview

derive substantially all our revenue from sales of The Catamaran System and The SImmetry + System to a limited number of clinicians.

Revenue from sales of The Catamaran System and The SImmetry + System fluctuates based on volume of cases (procedures performed),

discounts, rebates, and the number of implants used for a particular patient.

Similar to other orthopedic companies, our revenue can

also fluctuate from quarter to quarter due to a variety of factors, including reimbursement, changes in independent sales representatives

and physician activities.

Goods Sold, Gross Profit, and Gross Margin

utilize contract manufacturers for production of The Catamaran System and The SImmetry + System implants and tray sets.

of goods sold consists primarily of costs of the components of The Catamaran System and The SImmetry + System implants and

instruments, overhead related to operations personnel and facility costs, quality inspection, packaging, scrap and inventory obsolescence,

as well as distribution-related expenses such as logistics and shipping costs.

We anticipate that certain of our cost of goods sold will

increase in absolute dollars as case levels increase.

gross margins have been and will continue to be affected by a variety of factors, including the cost to have our products manufactured

for us, pricing pressure from increasing competition, and the factors described above impacting our revenue.

operating expenses consist of sales and marketing, research and development, and general and administrative expenses.

Personnel costs

are the most significant component of operating expenses and consist of consulting expenses, salaries, sales commissions and other cash

and stock-based compensation related expenses.

We expect operating expenses to increase in absolute dollars as we continue to invest

and grow our business.

and Marketing Expenses

and marketing expenses primarily consist of salaries, commissions, stock-based compensation expense and travel and entertainment expenses

of our sales and market personnel along with commissions paid to our independent distributors.

We expect our sales and marketing expenses

to increase in absolute dollars with the increased sales of The Catamaran System and The SImmetry + System resulting in higher

commissions and salaries, increased clinician and sales representative training, and the cost to complete our clinical study to gain

wider clinician adoption of The Catamaran System.

Our sales and marketing expenses may fluctuate from period to period due to the timing

of sales and marketing activities related to the commercial activity of our product.

and Development Expenses

research and development expenses primarily consist of engineering, product development, regulatory expenses, and consulting services,

outside prototyping services, outside research activities, materials, and other costs associated with the development and refinement

of our product.

Research and development expenses also include related personnel and consultants’ compensation and stock-based

compensation expense.

We expense research and development costs as they are incurred.

We expect research and development expense to increase

in absolute dollars as we improve The Catamaran System and The SImmetry + System, develop new products, add research and development

personnel, and undergo clinical activities that may be required for regulatory clearances of future products.

and Administrative Expenses

and administrative expenses primarily consist of salaries, consultants’ compensation, stock-based compensation expense, and other

costs for finance, accounting, legal, compliance, and administrative matters.

We expect our general and administrative expenses to increase

in absolute dollars as we add personnel and information technology infrastructure to support the growth of our business.

We also expect

to incur additional general and administrative expenses as a result of operating as a public company, including but not limited to:

related to compliance with the rules and regulations of the SEC and those of The Nasdaq Stock Market LLC on which our securities are

additional insurance expenses;

investor relations activities;

and other administrative and professional services.

While we expect the general and administrative

expenses to increase in absolute dollars, we anticipate that it will decrease as a percentage of revenue over time.

Gain (Loss) on Investments

Gain (loss) on investments

consists of interest income and realized gains and losses from the sale of our investments in money market and corporate debt securities.

Interest Expense

Interest expense is related

to borrowings and includes deemed interest derived from the beneficial conversion prices of notes payable.

Other Income (Expense), Net

Other income and expenses

have not been significant to date.

Results of Operations (in thousands, except percentages)

Consolidated Statements of Operations Data in Dollars:

Cost of goods sold

While we expect

the general and administrative expenses to increase in absolute dollars, we anticipate that it will decrease as a percentage of revenue

on Investments

(loss) on investments consists of interest income and realized gains and losses from the sale of our investments in money market and

corporate debt securities.

expense is related to borrowings and includes deemed interest derived from the beneficial conversion prices of notes payable.

Income (Expense), Net

income and expenses have not been significant to date.

of Operations (in thousands, except percentages)

Ended December 31,

of Operations Data in Dollars:

of goods sold

and development

and marketing

and administrative

operating expenses

Research and development

Sales and marketing

General and administrative

Total operating expenses

Loss from operations

Interest and other income (expense), net:

Gain on investments

Interest expense

Other expense

Consolidated Statements of Operations Data as a Percent of Revenue:

from operations

and other income (expense), net:

on investments

Ended December 31,

of Operations Data as a Percent of Revenue:

Cost of goods sold

2 unchanged sentences

Sales and marketing

General and administrative

Total operating expenses

and administrative

operating expenses

Loss from operations

2 unchanged sentences

Interest expense

Other expense

Comparison of the years ended December 31, 2024 and 2023 (in

thousands, except percentages)

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

Years Ended December 31,

of the years ended December 31, 2025 and 2024 (in thousands, except percentages)

Cost of Goods Sold, Gross Profit, and Gross Margin

Ended December 31,

Cost of goods sold

Gross profit percentage

The increase in revenue for

the year ended December 31, 2024 as compared to 2023 was primarily due to an increase in revenue per surgical procedure on a 0% change

in the number of surgical procedures in which The Catamaran System was used.

Cost of Goods Sold, Gross Profit, and Gross

The change in cost of goods sold for the year ended December 31, 2024 as compared to 2023 was due to the absorption of

production overhead costs into our standard cost and operating leverage created due to lower relative fixed costs.

Operating Expenses

Years Ended December 31,

increase in revenue for the year ended December 31, 2025 as compared to 2024 was primarily due to an increase in the number of surgical

procedures and the addition of revenue related to The SImmetry + System.

of Goods Sold, Gross Profit, and Gross Margin.

The change in cost of goods sold for the year ended December 31, 2025 as compared

to 2024 was due to the absorption of production overhead costs into our standard cost and operating leverage created due to lower relative

fixed costs and increased revenue volume.

Ended December 31,

Research and development

1 unchanged sentence

General and administrative

Total operating expenses

Research and Development Expenses.

and development expenses for the year ended December 31, 2024 decreased as compared to 2023 primarily due to decreased professional fees

($528), stock-based compensation ($73) and payroll expenses ($39) as we move our focus from research to sustaining our Catamaran portfolio.

Sales and Marketing Expenses.

and marketing expenses for the year ended December 31, 2024 decreased as compared to 2023 primarily due to SpineSource transition fees

in 2023 ($932), decreased payroll and employee expenses ($499), and consulting and professional fees ($178), partially offset by increased

commission expense ($21) due to restructuring of our sales operations.

General and Administrative Expenses .

and administrative expenses for the year ended December 31, 2024 increased as compared to 2023 primarily due to increased insurance costs

($331), legal and professional service fees ($289), payroll and employee expenses ($146), and bad debt expense ($41), partially offset

by decreases in stock-based compensation ($147) due to continued operating expenses.

Gain on Investments, Interest Expense

and Other Expense, Net

Years Ended December 31,

Gain on investments

Interest expense

Other expense, net

Total operating expenses

Gain on Investments.

operating expenses

and Development Expenses.

Research and development expenses for the year ended December 31, 2025 decreased as compared to 2024

primarily due to decreased stock-based compensation ($772) and payroll expenses ($1), partially offset by increased professional fees

and Marketing Expenses.

Sales and marketing expenses for the year ended December 31, 2025 increased as compared to 2024 primarily

due to increased commission expense ($544) related to our increased revenue and increased payroll and employee expenses ($174) and consulting

and professional fees ($174), partially offset by decreased stock-based compensation ($13).

and Administrative Expenses .

General and administrative expenses for the year ended December 31, 2025 decreased as compared to 2024

primarily due to decreased stock-based compensation ($1,367), insurance costs ($614) and professional service fees ($87), partially offset

by acquisition expenses ($778) and increases in employee expenses ($321) and other fees and expenses ($206).

on Investments, Interest Expense and Other Expense, Net

Ended December 31,

Gain on investments

for the year ended December 31, 2024 increased as compared to 2023 due to interest on our higher amounts of investments in money market

and corporate debt securities.

Interest expense

Interest expense for

the year ended December 31, 2024 increased as compared to 2023 primarily due to the convertible debt.

Other expense, net

for the year ended December 31, 2024 was related to foreign exchange losses on the liquidation of our Swiss subsidiary.

Liquidity and Capital Resources

As of December 31, 2024, we had cash and cash

equivalents of $6.5 million.

Since inception, we have financed our operations through private placements of preferred stock, debt

financing arrangements, our initial public offering, additional stock offerings and the sale of our products.

As of December 31, 2024,

we had no outstanding debt.

In March 2025, we raised net proceeds of $2.7 million from the exercise of warrants under an inducement agreement.

Under the inducement agreement, the holder of the existing warrants to purchase an aggregate of 2,445,700 agreed to exercise the warrants

at a reduced exercise price of $1.25 per share in consideration for our agreement to issue new unregistered five-year 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 new unregistered three-year warrants

to purchase up to an aggregate of 1,222,850 shares of common stock at an exercise price of $1.25 per share.

On March 25, 2025, we entered into a securities

purchase agreement for the issuance of 733,500 shares of our 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, we also agreed to issue to the same investor

warrants to purchase up to 733,500 shares of our 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, we received proceeds, net of financial advisor

fees and other transaction expenses, of $1,234.

Also on March 25, 2025, we entered into a securities

purchase agreement for the issuance of 1,271,500 shares of our 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, we also agreed to issue to the same investor

warrants to purchase up to 1,271,500 shares of our 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, we received proceeds, net of financial advisor

fees and other transaction expenses, of $2,290.

As of December 31, 2024, we had an accumulated

deficit of $68.7 million and we expect to incur additional losses in the future.

We have not achieved positive cash flow from operations

Based upon our current operating plan, our existing cash and cash equivalents will not be sufficient to fund our operating expenses

and working capital requirements through at least the next 12 months from the date these consolidated financial statements were available

to be released.

We plan to raise the necessary additional capital through one or a combination of public or private equity offerings,

debt financings, and collaborations.

We continue to face challenges and uncertainties and, as a result, our available capital resources

may be consumed more rapidly than currently expected due to (a) the uncertainty of future revenues from The Catamaran System;

we may make to the business that affect ongoing operating expenses;

(d) regulatory developments

affecting our existing products;

(e) changes we may make in our research and development spending plans;

and (f) other items affecting

our forecasted level of expenditures and use of cash resources.

As we attempt to raise additional capital to fund

our operations, funding may not be available to us on acceptable terms, or at all.

If we are unable to obtain adequate financing when

needed, we may have to delay, reduce the scope of or suspend one or more of our sales and marketing efforts, research and development

activities, or other operations.

We may seek to raise any necessary additional capital through a combination of public or private equity

offerings, debt financings, and collaborations.

If we do raise additional capital through public or private equity offerings, the ownership

interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences

that adversely affect our stockholders’ rights.

If we raise additional capital through debt financing, we may be subject to covenants

limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring

If we are unable to raise capital, we will need to delay, reduce, or terminate planned activities to reduce costs.

will likely harm our ability to execute our business plans.

Due to the uncertainty in our ability to raise capital, management believes

that there is substantial doubt in our ability to continue as a going concern for the next twelve months from the issuance of these consolidated

financial statements.

Cash Flows (in thousands, except percentages)

The following table sets forth the primary sources

and uses of cash for each of the periods presented below:

Years Ended December 31,

Net cash (used in) provided by:

Operating activities

Investing activities

Financing activities

Effect of foreign currency translation on cash flow

Net increase in cash and cash equivalents

The decrease in net cash used in operating activities

for the year ended December 31, 2024 as compared to 2023 was primarily attributable to our decreased net loss ($1,908) and decreased prepaid

expenses ($484) and increased depreciation and amortization ($209), partially offset increases in accounts receivable ($96) and decreases

in non-cash stock-based compensation expenses ($300).

Cash used in investing activities for the year

ended December 31, 2024 related to purchases of property and equipment ($186).

Cash provided by investing activities for the year ended

December 31, 2023 consisted primarily of the net sales of short-term investments ($6,503) to fund operations, partially offset by purchases

of property and equipment ($361) as we acquired the components for our surgical tray sets.

Cash provided by financing activities for the

year ended December 31, 2024 consisted primarily of net proceeds from the issuance of common stock and warrants ($3,846), the exercise

of warrants under the inducement agreement ($4,306), the issuance of Series A Convertible Preferred Stock ($2,567) and Series B Convertible

Preferred Stock ($489) and from issuances of common stock ($2,105).

operating expenses

on Investments.

Gain on investments for the year ended December 31, 2025 increased as compared to 2024 due to interest on our higher

amounts of investments in money market and corporate debt securities.

Interest expense for the year ended December 31, 2024 related to convertible debt, whose outstanding principal and interest

were converted to common stock in 2024.

Expense, Net .

Other expense, net for the year ended December 31, 2024 was related to foreign exchange losses on the liquidation of

our Swiss subsidiary.

and Capital Resources

of December 31, 2025, we had cash and cash equivalents of $3.8 million.

Since inception, we have financed our operations through

private placements of preferred stock, debt financing arrangements, our initial public offering, additional stock offerings and the sale

of our products.

As of December 31, 2025, we had no outstanding debt.

As of December 31, 2025, we had an accumulated deficit of $81.3 million

and we expect to incur additional losses in the future.

We have not achieved positive cash flow from operations to date.

On March 11, 2026, we entered into securities purchase agreements with

certain accredited investors pursuant to which the Company issued and sold in a private placement 20% original issue discount senior convertible

promissory notes in an aggregate principal amount of approximately $5.2 million for aggregate gross proceeds of approximately $4.3 million

(the “Convertible Promissory Notes”).

The Convertible Promissory Notes have a maturity date of September 11, 2026, which at

the option of the Company can be extended to December 11, 2026.

Following the 6-month anniversary of the issuance date, the Convertible

Promissory Notes will be convertible any time at the option of the holder into shares of our common stock at a conversion price per share

equal to the greater of 80% of the VWAP for the three trading days immediately prior to the date of conversion and $0.1567, subject to

adjustment for stock splits and pro rata distributions as provided in the Convertible Promissory Notes.

If the maturity date of the Convertible

Promissory Notes is extended their outstanding principal amount will be increased by 5%.

Any prepayment of the Convertible Promissory

Notes will be paid at 102.5% of the principal amount being prepaid.

In addition, we are required to prepay the Convertible Promissory

Notes from 15% of the net proceeds we may receive from future securities financing transactions less certain amounts attributable to the

original issue discount.

upon our current operating plan, our existing cash and cash equivalents will not be sufficient to fund our operating expenses and working

capital requirements through at least the next 12 months from the date these financial statements were filed.

We plan to raise the necessary

additional capital through one or a combination of public or private equity offerings, debt financings, and collaborations.

to face challenges and uncertainties and, as a result, our available capital resources may be consumed more rapidly than currently expected

due to (a) the uncertainty of future revenues;

(b) changes we may make to the business that affect ongoing operating expenses;

we may make in our business strategy;

(d) regulatory developments affecting our existing products;

(e) changes we may make in our research

and development spending plans;

and (f) other items affecting our forecasted level of expenditures and use of cash resources.

we attempt to raise additional capital to fund our operations, funding may not be available to us on acceptable terms, or at all.

we are unable to obtain adequate financing when needed, we may have to delay, reduce the scope of or suspend one or more of our sales

and marketing efforts, research and development activities, or other operations.

We may seek to raise any necessary additional capital

through a combination of public or private equity offerings, debt financings, and collaborations.

If we do raise additional capital through

public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities

may include liquidation or other preferences that adversely affect our stockholders’ rights.

If we raise additional capital through

debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional

debt, making capital expenditures, or declaring dividends.

If we are unable to raise capital, we will need to delay, reduce, or terminate

planned activities to reduce costs.

Doing so will likely harm our ability to execute our business plans.

Due to the uncertainty in our

ability to raise capital, management believes that there is substantial doubt in our ability to continue as a going concern for the next

twelve months from the issuance of these financial statements.

(in thousands, except percentages)

following table sets forth the primary sources and uses of cash for each of the periods presented below:

Ended December 31,

cash (used in) provided by:

of foreign currency translation on cash flow

change in cash and cash equivalents

increase in net cash used in operating activities for the year ended December 31, 2025 as compared to 2024 was primarily attributable

to decreases in stock-based compensation ($2,154) and increased accounts receivable ($465) and prepaid expenses ($218), partially offset

by a decrease in net loss ($1,117) and increases in accrued expenses ($819) and accounts payable ($550).

used in investing activities for the year ended December 31, 2025 consisted of the cash payment for the SI Acquisition ($750) and purchases

of property and equipment ($273).

Cash used in investing activities for the year ended December 31, 2024 related to purchases of property

and equipment ($186).

provided by financing activities for the year ended December 31, 2025 consisted of gross proceeds from the issuance of common stock from

our securities purchase agreements ($4,010), the exercise of warrants under the inducement agreement ($3,057) and the issuance of common

stock and warrants ($2,850), net of total cash offering costs ($928).

Cash provided by financing activities for the year ended December

31, 2023 consisted of the net proceeds received from our offerings of stock in 2023 ($5,303) in addition to proceeds from the issuance

of the Convertible Notes ($1,250).

Off-Balance Sheet Arrangements

As of December 31, 2024 and 2023, we did not have

any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities

that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow

or limited purposes.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET

The Company is a smaller reporting company as

defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.

31, 2024 consisted of gross proceeds from the issuance of common stock and warrants ($4,500), the exercise of warrants under the inducement

agreement ($4,648), the issuance of Series A Convertible Preferred Stock ($2,605) and Series B Convertible Preferred Stock ($550) and

from issuances of common stock ($2,106) and the exercise of warrants ($812), net of total cash offering costs ($1,096).

Off-Balance Sheet

of December 31, 2025 and 2024, we did not have any relationships with organizations or financial partnerships, such as structured finance

or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements

or other contractually narrow or limited purposes.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required

under this item.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis