Quarterly Report for Quarter Ending JUNE 30, 2026 (Form 10-Q)

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

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and the other information set forth in our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the U.S. Securities and Exchange Commission (the "SEC") on March 27, 2026. In addition to historical financial information, this discussion and analysis contains forward-looking statements that reflect our plans, estimates and beliefs. You should not place undue reliance on these forward-looking statements, which involve risks and uncertainties. As a result of many factors, including but not limited to those set forth under "Risk Factors" in our Annual Report on Form 10-K filed with the SEC on March 27, 2026, our actual results may differ materially from those anticipated in these forward-looking statements. See "Cautionary Statement Regarding Forward-Looking Statements."

Overview

Tenon Medical, Inc. 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. We are a medical device company dedicated to transforming care for patients with certain sacro-pelvic disorders. We currently offer two systems to treat a diseased SI Joint. We 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. We received U.S. Food and Drug Administration ("FDA") clearance in 2018 for The Catamaran System and are currently focused on the U.S. market.

In August 2025, we 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 a 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.

In February 2026, we announced an expansion of our U.S. intellectual property portfolio following receipt of Notices of Allowance from the United States Patent and Trademark Office (USPTO) for multiple patent applications expected to issue in 2026. These newly allowed claims will further strengthen our growing patent portfolio and build upon the 10 patents issued in 2025, including 5 issued by the USPTO and 5 issued internationally.

We have incurred net losses since our inception in 2012. As of June 30, 2026, we had an accumulated deficit of approximately $88.8 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.

Recent Developments

Bylaws Amendment

On June 10, 2026, the Board of Directors approved and adopted Amendment No. 1 (the "Amendment") to our Bylaws, effective as of that date. The Amendment amended and restated Sections 1.5 and 1.8 of Article I of the Bylaws to change the quorum requirements for meetings of stockholders from a majority to not less than 33 1/3% of the votes entitled to be cast at the meeting, in accordance with Nasdaq Listing Rule 5620, and to provide that holders of a majority of the votes present at a meeting (rather than a majority of all outstanding shares) may determine that voting at meetings of stockholders be conducted by written ballot.

Notices from Nasdaq and Reverse Stock Split

As previously disclosed, on February 25, 2026, we received a letter (the "Notification Letter") from the Nasdaq Listing Qualifications Staff of Nasdaq stating that for the 30 consecutive business day period between January 9, 2026 and February 24, 2026, our common stock had not maintained a minimum closing bid price of $1.00 per share which is required for continued listing on Nasdaq. We were provided an initial period of 180 calendar days, or until August 24, 2026 (the "Compliance Period"), to regain compliance with the Bid Price Rule. To regain compliance, the closing bid price of our common stock must be at least $1.00 per share for a minimum of 10 consecutive business days during the Compliance Period. On August 10, 2026 we effected a reverse stock split of our issued and outstanding common stock at a ratio of 1-for-35. On August 12, 2026, the closing bid price of our common stock was $5.64. We expect to regain compliance with the Bid Price Rule on or about August 21, 2026. If we do not regain compliance during the Compliance Period, our common stock will be subject to delisting. At that time, we may appeal the delisting determination to a Nasdaq hearings panel.

In addition, on May 21, 2026, we received a written notice from Nasdaq, notifying us that we are no longer in compliance with the minimum stockholders' equity requirement for continued listing on The Nasdaq Capital Market. Nasdaq Listing Rule 5550(b)(1) requires listed companies to maintain stockholders' equity of at least $2,500,000 ("Stockholders' Equity Rule"). Subsequently, we were informed by Nasdaq that we comply with the Stockholders' Equity Rule, however if we fail to evidence compliance in our Quarterly Report on Form 10-Q for the period ended September 30, 2026, we may be we may be subject to delisting.

The notices from Nasdaq have no immediate effect on the listing of our common stock, which will continue to be listed on Nasdaq under the symbol "TNON." There is no assurance that we will regain compliance with the Bid Price Rule, the Stockholders' Equity Rule, or maintain compliance with any of the other Nasdaq continued listing requirements.

2026 Offering

On July 1, 2026, we consummated a best efforts public offering (the "2026 Offering") of an aggregate of (i) 157,895 shares of common stock and pre-funded warrants to purchase up to 157,895 shares of common stock and (ii) common stock purchase warrants (the "Offering Warrants") to purchase up to 378,948 shares of common stock. Each share of common stock issued (or pre-funded warrant in lieu thereof) and accompanying Offering Warrants were sold at a combined public offering price of $13.30 per share (inclusive of the pre-funded warrant exercise price of $0.035). Per the terms of the 2026 Offering, the number of shares issuable under the Offering Warrants increased to 473,685 on August 10, 2026, due to the Reverse Stock Split.

Each Offering Warrant is immediately exercisable for one share of common stock at an exercise price of $13.30 per share and will expire on the fifth anniversary of the initial exercise date. The number of shares of common stock underlying the Offering Warrants equals 150%of the number of shares of common stock purchased by each purchaser. Each pre-funded warrant is immediately exercisable for one share of common stock at an exercise price of $0.035 per share (or on a cashless basis) and will remain exercisable until the pre-funded warrants are exercised in full.

In connection with the 2026 Offering, we paid WallachBeth Capital, LLC, a placement agent in the 2026 Offering, a cash fee equal to 6.5% of the gross proceeds of the 2026 Offering and a non-accountable expense allowance equal to 1% of gross proceeds, reimbursed certain of the placement agent's expenses, and issued the placement agent warrants to purchase shares of common stock equal to 3% of the aggregate number of shares sold in the 2026 Offering, at an exercise price equal to 120% of the public offering price per share.

The proceeds from the 2026 Offering, net of placement agent fees and offering expenses were $3,620. We intend to use the net proceeds for partial repayment of outstanding convertible notes, expansion of the commercial footprint of our product portfolio including training clinicians on current procedures, hiring additional direct sales reps, expansion of our external distribution network, continuing clinical research studies to support reimbursement and coverage efforts, funding research and development including upcoming future launches, and increases to inventory and instrumentation capacities, as well as other marketing activities, working capital and general corporate purposes.

Components of Results of Operations

Revenue

We 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.

Cost of Goods Sold, Gross Profit, and Gross Margin

We utilize contract manufacturers for production of The Catamaran System and The SImmetry+ System implants and tray sets. Cost 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, depreciation of tray sets, 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 products 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 expenses. We expect operating expenses to increase in absolute dollars as we continue to invest and grow our business.

Sales and Marketing Expenses

Sales and marketing expenses primarily consist of salaries, commissions, stock-based compensation expense and travel and entertainment expenses of our sales and market personnel along with commissions paid to our independent distributors. We expect our sales and marketing expenses to increase in absolute dollars with the increased sales 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.

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 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.

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

Gain on investments consists of interest income and realized gains and losses from the sale of our investments in money market and corporate debt securities. Interest expense is related to borrowings, when applicable. Other income and expenses have not been significant to date and, since March 2026, include changes in the fair value of derivative liabilities.

Results of Operations

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

		Three Months Ended June 30,								Six Months Ended June 30,
Statements of Operations Data:		2026				2025				2026				2025
Revenue		$	1,279			$	564			$	2,658			$	1,290
Cost of sales			465				319				899				722
Gross profit			814				245				1,759				568
Operating expenses:
Research and development			768				503				1,430				1,194
Sales and marketing			1,869				1,119				3,727				2,766
General and administrative			1,531				1,480				3,236				3,142
Total operating expenses			4,168				3,102				8,393				7,102
Loss from operations			(3,354	)			(2,857	)			(6,634	)			(6,534	)
Other income (expense), net:
Gain on investments			24				88				49				149
Interest expense			(852	)			-				(1,028	)			-
Other income			132				-				87				-
Net loss		$	(4,050	)		$	(2,769	)		$	(7,526	)		$	(6,385	)

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

		Three Months Ended June 30,								Six Months Ended June 30,
Statements of Operations Data:		2026				2025				2026				2025
Revenue			100	%			100	%			100	%			100	%
Cost of sales			36				57				34				56
Gross profit			64				43				66				44
Operating expenses:
Research and development			60				89				54				93
Sales and marketing			146				198				140				214
General and administrative			120				262				122				244
Total operating expenses			326				550				316				551
Loss from operations			(262	)			(507	)			(250	)			(507	)
Other income (expense), net:
Gain on investments			2				16				2				12
Interest expense			(67	)			-				(39	)			-
Other income			10				-				3				-
Net loss			(317	)%			(491	)%			(283	)%			(495	)%

Comparison of the Three and Six Months Ended June 30, 2026 and 2025 (in thousands, except percentages)

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

		Three Months Ended June 30,
		2026				2025				$ Change				% Change
Revenue		$	1,279			$	564			$	715				127	%
Cost of sales			465				319				146				46	%
Gross profit		$	814			$	245			$	569				232	%
Gross profit percentage			64	%			43	%

		Six Months Ended June 30,
		2026				2025				$ Change				% Change
Revenue		$	2,658			$	1,290			$	1,368				106	%
Cost of sales			899				722				177				25	%
Gross profit		$	1,759			$	568			$	1,191				210	%
Gross profit percentage			66	%			44	%

Revenue. The increase in revenue for both the three and six months ended June 30, 2026 as compared to 2025 was primarily due to a significant increase in the number of surgical procedures, including the addition of revenue related to The SImmetry+ System.

Cost of Sales, Gross Profit, and Gross Margin. The change in cost of sales for the three and six months ended June 30, 2026 as compared to 2025 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.

Operating Expenses

		Three Months Ended June 30,
		2026				2025				$ Change				% Change
Research and development		$	768			$	503			$	265				53	%
Sales and marketing			1,869				1,119				750				67	%
General and administrative			1,531				1,480				51				3	%
Total operating expenses		$	4,168			$	3,102			$	1,066				34	%

		Six Months Ended June 30,
		2026				2025				$ Change				% Change
Research and development		$	1,430			$	1,194			$	236				20	%
Sales and marketing			3,727				2,766				961				35	%
General and administrative			3,236				3,142				94				3	%
Total operating expenses		$	8,393			$	7,102			$	1,291				18	%

Research and Development Expenses. Research and development expenses for the three months ended June 30, 2026 increased as compared to 2025 primarily due to increased professional fees ($273) and payroll and employee expenses ($74), partially offset by decreased stock-based compensation ($107). Research and development expenses for the six months ended June 30, 2026 increased as compared to 2025 primarily due to increased professional fees ($501) and payroll and employee expenses ($32), partially offset by decreased stock-based compensation ($360).

Sales and Marketing Expenses. Sales and marketing expenses for the three months ended June 30, 2026 increased as compared to the same period in 2025 primarily due to increased commission expenses ($369), payroll and employee expenses ($309) and stock-based compensation ($8), partially offset by decreased consulting and professional fees ($2). Sales and marketing expenses for the six months ended June 30, 2026 increased as compared to the same period in 2025 primarily due to increased commission expense ($417) and payroll and employee expenses ($408), partially offset by decreased consulting and professional fees ($72) and stock-based compensation ($16).

General and Administrative Expenses. General and administrative expenses for the three months ended June 30, 2026 increased as compared to the same period in 2025 primarily due to increased stock-based compensation ($92) and payroll and employee expenses ($66), partially offset by decreased professional service fees ($111). General and administrative expenses for the six months ended June 30, 2026 increased as compared to the same period in 2025 primarily due to increased payroll and employee expenses ($255) and insurance costs ($25), partially offset by decreased stock-based compensation ($170) and professional service fees ($23).

Gain on Investments, Interest Expense and Other Income

Gain on investments for the three and six months ended June 30, 2026 decreased as compared to 2025 due to interest on lower average cash and cash equivalent balances. Interest expense for the three and six months ended June 30, 2026 related to interest on our convertible notes. Other income for the three and six months ended June 30, 2026 related to gains on the change in fair value of our derivative liability.

Liquidity and Capital Resources

As of June 30, 2026, we had cash and cash equivalents of $1.7 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 June 30, 2026, we had an accumulated deficit of $88.8 million, and we expect to incur additional losses in the future. We have not achieved positive cash flow from operations to date.

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

On July 1, 2026, we consummated a public offering of an aggregate of (i) 157,895 shares of common stock and pre-funded warrants to purchase up to 157,895 shares of common stock, and (ii) common stock purchase warrants to purchase up to 473,685 shares of common stock. Each share of common stock, pre-funded warrant and accompanying common stock purchase warrants was sold at a combined public offering price of $13.30 per share, for proceeds, net of placement fees and offering expenses, of approximately $3,620.

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

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:

		Six Months Ended June 30,
		2026				2025				$ Change				% Change
Net cash (used in) provided by:
Operating activities		$	(5,718	)		$	(4,697	)		$	(1,021	)			22	%
Investing activities			(228	)			(192	)			(36	)			19
Financing activities			3,867				6,200				(2,333	)			(38	)
Net (decrease) increase in cash and cash equivalents		$	(2,079	)		$	1,311			$	(3,390	)			(259	)%

The increase in net cash used in operating activities for the six months ended June 30, 2026 as compared to 2025 was primarily attributable to our increased net loss adjusted for increased non-cash expenses ($460) in addition to decreased accounts payable ($742) and increased accounts receivable ($348), partially offset by decreases in inventory ($598).

Cash used in investing activities for the six months ended June 30, 2026 and 2025 consisted of purchases of property and equipment ($228 and $192, respectively).

Cash provided by financing activities for the six months ended June 30, 2026 consisted of the net proceeds from the issuance of convertible notes ($3,867). Cash provided by financing activities for the six months ended June 30, 2025 consisted primarily of gross proceeds from the issuance of common stock from our securities purchase agreements ($4,010) and gross proceeds from the exercise of warrants under the inducement agreement ($3,057), net of total offering costs ($867).

Critical Accounting Policies, Significant Judgments, and Use of Estimates

Our management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported results of operations during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates under different assumptions or conditions. For the six months ended June 30, 2026, there were no significant changes to our existing critical accounting policies and estimates from those disclosed in our Annual Report on Form 10-K with the exception of our policy for derivative liabilities which is included in Note 2 to our condensed financial statements.

Off-Balance Sheet Arrangements

As of June 30, 2026, and December 31, 2025, 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.