Tenon Medical(TNON) - 2024 Q4 - Annual Report

Part I Business Tenon Medical focuses on its FDA-cleared Catamaran™ SI Joint Fusion System for sacroiliac joint disorders, launched nationally in October 2022, targeting a $2.0 billion U.S. market Introduction and Opportunity Tenon Medical developed The Catamaran™ SI Joint Fusion System for SI joint disorders, launched nationally in October 2022, targeting a significantly underserved market - The company developed The Catamaran™ SI Joint Fusion System, a novel, less invasive approach for treating SI Joint disorders, which cause 15% to 30% of all chronic lower back pain[20][21] - Tenon estimates the potential U.S. market for surgical intervention of the SI-Joint to be 279,000 procedures annually, representing an approximate $2.0 billion market[42] - The company believes the current market is only 5-7% penetrated, indicating significant upside for a next-generation device[23][44] The Catamaran™ System and Commercialization The Catamaran™ System features a unique single, dual-pontoon titanium implant designed for an inferior-posterior approach to the SI-Joint, aiming to minimize morbidity and enhance safety, with national commercial launch in October 2022 - The Catamaran System uses a single implant with a patented dual pontoon design, contrasting with competitive systems that may require multiple implants[37][52] - The system utilizes an inferior-posterior approach, designed to be direct to the joint, pass through minimal muscle, and maintain a trajectory away from neural and vascular structures for enhanced safety[37][45][47] - An independent biomechanical study demonstrated that a single Catamaran device was superior to a predicate device in fixation strength, shear stiffness, dynamic endurance, and pullout strength[70] - The company initiated its national commercial launch in October 2022 and markets its system through independent distributors to a target base of approximately 12,000 physicians[36][80] Coverage and Reimbursement Reimbursement for Catamaran System procedures involves separate payments to facilities and physicians, with Medicare rates ranging from $17,756 to $46,437 for facilities and $807 to $1,352 for physicians 2023 Medicare National Average Reimbursement | Payer/Provider | Reimbursement Type | Amount (USD) | | :--- | :--- | :--- | | Hospital (Inpatient) | Facility Fee (depending on complexity) | $25,661 - $46,437 | | Hospital (Outpatient) | Facility Fee | $17,756 | | Physician (CPT® 27279) | Professional Fee | $807 (2022 rate) | | Physician (CPT® 27280) | Professional Fee | $1,352 (2022 rate) | - The company believes some clinicians view current Medicare reimbursement as insufficient given the work involved, and that private payors can be inconsistent in approving SI-Joint fusion procedures[78] Intellectual Property and Regulation As of March 26, 2025, Tenon holds 8 issued U.S. utility patents and 21 pending applications, with products regulated by the FDA as Class II medical devices and subject to extensive fraud and abuse laws - As of March 26, 2025, the company owns 8 issued U.S. utility patents, 21 pending U.S. utility patent applications, and 13 registered trademarks (7 U.S. and 6 foreign)[93][97] - The Catamaran System has received FDA 510(k) clearance as a Class II medical device for sacroiliac joint fusion[83][103] - The company is subject to extensive regulation by the FDA, including Quality System Regulation (QSR), and must comply with federal and state healthcare fraud and abuse laws such as the Anti-Kickback Statute and the Physician Payment Sunshine Act[98][111][112] Manufacturing and Human Capital Tenon Medical outsources all manufacturing to five contract manufacturers without long-term agreements and, as of March 26, 2025, employed 27 full-time employees - The company does not manufacture any products and uses five contract manufacturers for all instruments and implants, managed through purchase orders without long-term agreements[125][126] - As of March 26, 2025, Tenon had 27 full-time employees and four senior consulting advisors[132] Risk Factors The company faces significant risks including recurring net losses, going concern doubt, dependence on third-party reimbursement, intense competition, and reliance on a single product line Risks Related to Business and Operations The company has a history of losses and a going concern warning, with success dependent on third-party payor reimbursement, facing intense competition and reliance on a single product - The company has a history of recurring losses and negative cash flows, and its independent auditor's report expresses substantial doubt about its ability to continue as a going concern[136][137] - Successful commercialization depends on adequate coverage and reimbursement from third-party payors; if providers cannot obtain sufficient reimbursement, adoption of the product will be limited[138][139] - The company is solely dependent on its single product, The Catamaran System, and its failure to gain market acceptance would materially harm financial results[161] - Tenon operates in a very competitive environment against major medical device companies with greater financial, technical, and marketing resources, such as SI-bone, Inc., Globus Medical, Inc., and Medtronic plc[157][158] - The company is dependent on a limited number of contract manufacturers, some of which are single-source, and the loss of any could materially adversely affect the business[172] Risks Related to Legal and Regulatory Environment Tenon is subject to extensive FDA and government regulations, with non-compliance or off-label promotion risking enforcement actions, fines, and product recalls - The medical device industry is extensively regulated by the FDA, and failure to comply with complex and stringent requirements could harm the business[202][203] - The company must comply with U.S. federal and state fraud and abuse laws, including the Anti-Kickback Statute, which prohibits improper payments to induce referrals or purchases of items covered by federal healthcare programs[213][214] - Promoting products for "off-label" uses (indications not cleared by the FDA) is prohibited and could lead to significant fines, regulatory enforcement, and reputational damage[217][232] - Modifications to the product may require new 510(k) clearances, and if the FDA disagrees, the company may have to cease marketing or recall the modified product[240][241] Risks Related to Intellectual Property Protecting intellectual property through patents, trademarks, and trade secrets is critical but uncertain, with risks from litigation, limited patent lifespans, and less effective foreign IP laws - The company relies on patents, trademarks, and trade secrets to protect its technology, but cannot guarantee that patents will be issued, be of sufficient scope, or that competitors will not circumvent them[252][253] - The medical device industry is characterized by significant patent litigation; a lawsuit, even without merit, could be costly, divert management resources, and potentially prevent the company from selling its product[259] - Patents have a limited lifespan, generally 20 years from filing; the company's patents may not provide protection for a sufficient duration to secure its market position[260] - Protecting intellectual property rights throughout the world is expensive and may be less effective in foreign countries, allowing competitors to market similar products in those jurisdictions[262] Risks Related to Ownership of Common Stock and Warrants Tenon's common stock faces high volatility, dilution risk from future sales, delisting risk due to reverse stock splits, and reduced disclosure as an "emerging growth company" - The trading price of the company's common stock has been and is likely to continue to be highly volatile[270] - Future sales of common stock, including up to approximately $9.7 million available under an equity financing facility with Lincoln Park Capital, could cause significant dilution to existing stockholders[267] - The company has effected two reverse stock splits (1-for-10 and 1-for-8) in the last two years and may be unable to cure a future Nasdaq bid price deficiency if the stock price falls below $0.32 per share before November 3, 2025[268] - The company is an "emerging growth company" and a "smaller reporting company," which allows for reduced public company reporting and disclosure requirements, potentially making the stock less attractive to investors[291] - Management has identified a material weakness in internal controls over financial reporting due to a lack of segregation of duties[280][523] Unresolved Staff Comments The company reports no unresolved staff comments - The company reports no unresolved staff comments[300] Cybersecurity The company maintains a cyber-risk management program overseen by the Board of Directors and has not experienced any significant cybersecurity attacks to date - The company has a cyber-risk management program overseen by the Board of Directors to manage threats to its data and information systems[301][303] - As of the report date, the company has not experienced any significant cybersecurity attacks, and these risks have not materially affected the business[304] Properties The company leases its primary office space at 104 Cooper Court, Los Gatos, CA 95032 and does not own any real estate - The company's principal executive offices are leased and located at 104 Cooper Court, Los Gatos, CA 95032[305] Legal Proceedings The company reports no legal proceedings - The company reports no legal proceedings[306] Mine Safety Disclosures This item is not applicable - This item is not applicable to the company[307] Part II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "TNON", with 5,584,965 shares outstanding as of March 26, 2025, and no cash dividends expected in the foreseeable future - The company's common stock trades on the Nasdaq Capital Market under the symbol "TNON"[309] - As of March 26, 2025, there were 5,584,965 shares of common stock outstanding held by 61 stockholders of record[309] - The company has never declared or paid a cash dividend and does not expect to in the foreseeable future[310] Equity Compensation Plan Information as of December 31, 2024 | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (c) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 31,546 | $20.79 | 135,971 | | Total | 31,546 | $20.79 | 135,971 | Reserved This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations For FY2024, revenue increased 12% to $3.3 million, net loss decreased to $13.7 million, and the company raised $6.2 million in March 2025, but substantial doubt about going concern remains Overview Tenon Medical, commercializing its Catamaran™ SI Joint Fusion System, has incurred significant net losses since 2012, with an accumulated deficit of $68.7 million as of December 31, 2024 - The company has incurred net losses since its 2012 inception and had an accumulated deficit of approximately $68.7 million as of December 31, 2024[334] - The company executed a 1-for-10 reverse stock split in November 2023 and a 1-for-8 reverse stock split in September 2024, with all historical share and per-share data adjusted[335][336][337] Results of Operations In 2024, revenue increased 12% to $3.3 million, gross margin improved to 52%, and total operating expenses decreased 9%, leading to a reduced loss from operations of $13.8 million Comparison of Operations for Years Ended December 31, (in thousands) | | 2024 | 2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $3,277 | $2,928 | $349 | 12% | | Cost of goods sold | $1,566 | $1,687 | ($121) | (7)% | | Gross Profit | $1,711 | $1,241 | $470 | 38% | | Gross Margin | 52% | 42% | | | | Research and development | $2,603 | $3,163 | ($560) | (18)% | | Sales and marketing | $5,109 | $6,778 | ($1,669) | (25)% | | General and administrative | $7,765 | $7,027 | $738 | 11% | | Total operating expenses | $15,477 | $16,968 | ($1,491) | (9)% | | Loss from operations | ($13,766) | ($15,727) | $1,961 | (12)% | | Net loss | ($13,673) | ($15,581) | $1,908 | (12)% | - The 12% increase in revenue was primarily due to an increase in revenue per surgical procedure[360] - Sales and marketing expenses decreased by $1.7 million (25%) mainly due to the absence of 2023 SpineSource transition fees and lower payroll expenses[363] - General and administrative expenses increased by $0.7 million (11%) due to higher insurance, legal, and payroll costs[364] Liquidity and Capital Resources As of December 31, 2024, the company had $6.5 million in cash and an accumulated deficit of $68.7 million, raising substantial doubt about going concern, despite raising $6.2 million in March 2025 - As of December 31, 2024, the company had cash and cash equivalents of $6.5 million and an accumulated deficit of $68.7 million[367][372] - Management believes existing cash is not sufficient to fund operations for at least the next 12 months, raising substantial doubt about the company's ability to continue as a going concern[372][373] - In March 2025, the company raised net proceeds of $2.7 million from a warrant inducement agreement and an additional $3.5 million from two registered direct offerings[368][369][370] Net Cash Flow Summary (in thousands) | | Years Ended December 31, | | :--- | :--- | | | 2024 | 2023 | | Net cash used in operating activities | $(9,878) | $(12,183) | | Net cash (used in) provided by investing activities | $(186) | $6,142 | | Net cash provided by financing activities | $14,125 | $6,302 | Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, Tenon Medical, Inc. is not required to provide the information for this item - The Company is a smaller reporting company and is not required to provide the information under this item[378] Financial Statements and Supplementary Data Audited consolidated financial statements for 2024 and 2023 are presented, with the auditor's report highlighting going concern doubt due to recurring losses and limited capital Report of Independent Registered Public Accounting Firm The independent auditor issued an unqualified opinion but included a "Going Concern" paragraph due to recurring losses, negative cash flows, and limited capital resources - The auditor's report contains a "Going Concern" paragraph, noting that the company's recurring losses, negative cash flows, and limited capital resources raise substantial doubt about its ability to continue as a going concern[385] Key Financial Data For FY2024, the company reported a net loss of $13.7 million on revenues of $3.3 million, with total assets of $9.8 million and total liabilities of $3.9 million as of December 31, 2024 Consolidated Balance Sheet Data (in thousands) | | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $6,535 | $2,428 | | Total current assets | $8,210 | $3,889 | | Total Assets | $9,843 | $6,345 | | Liabilities & Equity | | | | Total current liabilities | $1,869 | $3,140 | | Total Liabilities | $3,872 | $5,567 | | Total Stockholders' Equity | $5,971 | $778 | Consolidated Statement of Operations Data (in thousands) | | Year Ended Dec 31, 2024 | Year Ended Dec 31, 2023 | | :--- | :--- | :--- | | Revenue | $3,277 | $2,928 | | Gross Profit | $1,711 | $1,241 | | Loss from Operations | $(13,766) | $(15,727) | | Net Loss | $(13,673) | $(15,581) | | Net Loss Per Share (Basic & Diluted) | $(11.26) | $(68.64) | Selected Notes to Financial Statements Key notes highlight going concern uncertainty, $41.6 million in federal NOL carryforwards, a $2.1 million termination liability, and significant capital raised in March 2025 - The financial statements were prepared assuming the company will continue as a going concern, but management notes there is substantial doubt due to recurring losses and negative cash flows; the company plans to raise additional capital to fund operations (Note 2)[401][402] - The company has federal net operating loss carryforwards of approximately $41.6 million and state NOLs of $27.3 million, but a full valuation allowance has been recorded against the resulting deferred tax assets (Note 11)[501][502] - In March 2025, the company raised net proceeds of $2.7 million from a warrant exercise inducement transaction and a total of $3.5 million from two separate registered direct offerings (Note 13)[510][512][513] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - The company reports no changes in or disagreements with its accountants on accounting and financial disclosure[515] Controls and Procedures Management concluded disclosure controls were not effective as of December 31, 2024, due to a material weakness in internal control over financial reporting from lack of segregation of duties - Management concluded that the company's disclosure controls and procedures were not effective as of December 31, 2024[517] - A material weakness was identified in internal control over financial reporting due to a lack of segregation of duties, stemming from the company's limited size and resources[518][519][523] - The company plans to remediate the weakness by increasing the capacity of its qualified financial personnel[520][524] Other Information The company reports no other information - The company reports no other information[527] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections The company reports no disclosures regarding foreign jurisdictions that prevent inspections - The company reports no disclosures regarding foreign jurisdictions that prevent inspections[528] Part III Directors, Executive Officers and Corporate Governance As of March 26, 2025, the board consists of seven directors, four independent, with three standing committees, and the company has adopted a code of ethics and related policies - The Board of Directors consists of seven members, with four determined to be independent: Ivan Howard, Kristine M. Jacques, Robert K. Weigle, and Stephen H. Hochschuler, M.D[546][548] - The Board has established an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee, each with a defined charter[549] - The company has adopted a Code of Ethics, an executive compensation clawback policy, and an insider trading policy[555][556][557] Executive Compensation For FY2024, total compensation for CEO Steven M. Foster was $368,521, CFO Kevin Williamson $123,942, and CTO Richard Ginn $285,333, with independent directors receiving $243,915 2024 Summary Compensation Table | Name and Principal Position | Salary ($) | Bonus ($) | Option/RSU Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | Steven M. Foster, CEO | 363,784 | — | 4,737 | 368,521 | | Kevin Williamson, CFO | 102,127 | — | 21,815 | 123,942 | | Steven Van Dick, former CFO | 318,128 | — | 3,842 | 321,970 | | Richard Ginn, CTO | 282,716 | — | 2,617 | 285,333 | - The company has employment agreements with its named executive officers (Foster, Ginn, Williamson) that include provisions for base salary, annual bonus, and severance upon termination without cause or for good reason[571][575][578] - Independent directors received a total of $243,915 in compensation for fiscal year 2024, primarily in cash retainers and committee fees[585][586] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of March 26, 2025, officers and directors as a group beneficially owned less than 1% of common stock, while key 5%+ stockholders include The Beckham-Shufeldt Family Trust and Ascent Special Ventures LLC - As of March 26, 2025, all officers and directors as a group beneficially owned 25,442 shares of common stock, representing less than 1% of the class[598] 5%+ Stockholders as of March 26, 2025 | Name of Beneficial Owner | Class of Stock | Percent of Class | | :--- | :--- | :--- | | The Beckham-Shufeldt Family Trust | Series A Preferred | 25.7% | | Ascent Special Ventures LLC | Series A Preferred | 26.4% | | Dr. James Chappuis | Series B Preferred | 9.1% | | Norton Capital LLC | Series B Preferred | 9.1% | | MNAZ Investment Properties | Series B Preferred | 9.1% | | Vantage FBO Jonathan Fitzhugh Beneficiary IRA | Series B Preferred | 9.1% | | Vantage FBO Todd Douma IRA | Series B Preferred | 9.1% | | The 2017 Theresa A Lungwitz Rev Trust | Series B Preferred | 9.1% | Certain Relationships and Related Party Transactions, and Director Independence The company has a consulting agreement with Richard Ferrari, its Executive Chairman, under which he receives compensation for his role - The company has a consulting agreement with Richard Ferrari, its Executive Chairman, for which he received compensation of $270,000 and $247,500 in fiscal years 2024 and 2023, respectively[600][590] Principal Accountant Fees and Services For FY2024, total fees from Haskell & White LLP were $384,600, while in 2023, fees were $158,500 from Haskell & White LLP and $234,083 from Armanino LLP Accountant Fees (Haskell & White LLP) | Fee Type | 2024 | 2023 | | :--- | :--- | :--- | | Audit fees | $210,600 | $158,500 | | Audit-related fees | $174,000 | — | | Total fees | $384,600 | $158,500 | Accountant Fees (Armanino LLP) | Fee Type | 2023 | | :--- | :--- | | Audit fees | $179,102 | | Audit-related fees | $54,981 | | Total fees | $234,083 | Part IV Exhibits, Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed with the Form 10-K, including corporate documents and officer certifications - This item provides a list of all financial statements, schedules, and exhibits filed with the Form 10-K[605] Form 10-K Summary This item is not applicable - This item is not applicable[609]