TNON 10-K Fiscal year ended Dec. 31, 2022

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Delaware		45-5574718
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Title of Each Class		Trading Symbol		Name of Each Exchange on Which Registered
Common stock, par value $0.001 per share		TNON		The Nasdaq Stock Market LLC

Large accelerated filer	¨		Accelerated filer	¨
Non-accelerated filer	x		Smaller reporting company	x
Emerging growth company	x

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Our ability to effectively operate our business segments;

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Our ability to manage our research, development, expansion, growth, and operating expenses;

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Changes or delays in government regulation relating to the healthcare and Life Sciences industries;

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Our ability to respond and adapt to changes in technology and customer behavior;

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Our ability to compete, directly and indirectly, and succeed in the highly competitive and evolving medical devices industry;

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Our ability to evaluate and measure our business, prospects and performance metrics;

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Our ability to protect our intellectual property and to develop, maintain and enhance a strong brand; and

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Other factors (including the risks contained in the section of this report entitled “ Risk Factors ”) relating to our industry, our operations, and results of operations.

	●	Except where the context otherwise requires and for the purposes of this report only:

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all references to the “Company,” “Tenon,” the “registrant” (whether capitalized or not), “we,” “our,” or “us” in this report mean Tenon Medical, Inc.;

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“year” or “fiscal year” means the year ending December 31 st ;

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all dollar or $ references, when used in this report, refer to United States dollars;

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“Exchange Act” refers the Securities Exchange Act of 1934, as amended;

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“SEC” refers to the Securities and Exchange Commission; and

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“Securities Act” refers to the Securities Act of 1933, as amended

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We have incurred losses in the past, our financial statements have been prepared on a going concern basis and we may be unable to achieve or sustain profitability in the future;

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Epidemic diseases including COVID 19, or the perception of their effects could have a material adverse effect on our business, financial condition, results of operations, or cash flows;

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If hospitals, clinicians, and other healthcare providers are unable to obtain and maintain coverage and reimbursement from third-party payors for procedures performed using our products, adoption of our products may be delayed, and it is unlikely that they will gain further acceptance;

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We may not be able to convince physicians that The CATAMARAN System is an attractive alternative to our competitors’ products and that our procedure is an attractive alternative to existing surgical and non-surgical treatments of the SI-Joint;

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Clinicians and payors may not find our clinical evidence to be compelling, which could limit our sales, and ongoing and future research may prove our products to be less safe and effective than initially anticipated;

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Pricing pressure from our competitors, changes in third-party coverage and reimbursement, healthcare provider consolidation, payor consolidation and the proliferation of “physician-owned distributorships” may impact our ability to sell our product at prices necessary to support our current business strategies;

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Practice trends or other factors, including the COVID-19 pandemic, may cause procedures to shift from the hospital environment to ambulatory surgical centers, or ASCs, where pressure on the prices of our products is generally more acute;

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We operate in a very competitive business environment and if we are unable to compete successfully against our existing or potential competitors, our sales and operating results may be negatively affected and we may not grow;

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We currently manufacture (through third parties) and sell products used in a single procedure, which could negatively affect our operations and financial condition;

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If we are unable to hire and train sales managers, clinical specialists, and expand our network of independent sales representatives, we may not be able to generate anticipated sales;

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We are dependent on a limited number of contract manufacturers, some of them single-source and some of them in single locations, for our product, and the loss of any of these contract manufacturers, or their inability to provide us with an adequate supply of products in a timely and cost-effective manner, could materially adversely affect our business;

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We and our contract manufacturers are subject to extensive governmental regulation both in the United States and abroad, and failure to comply with applicable requirements could cause our business to suffer;

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We and our independent sales representatives must comply with U.S. federal and state fraud and abuse laws, including those relating to physician kickbacks and false claims for reimbursement;

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If we are unable to protect the confidentiality of our trade secrets, our business and competitive position could be harmed;

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We may incur product liability losses, and insurance coverage may be inadequate or unavailable to cover these losses;

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We are increasingly dependent on information technology, and our systems and infrastructure face certain risks, including cybersecurity and data leakage risks;

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The medical device industry is characterized by patent litigation and we could become subject to litigation that could be costly, result in the diversion of management’s time and efforts, require us to pay damages, and/or prevent us from developing or marketing our existing or future products;

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Our business could suffer if we lose the services of key members of our senior management, key advisors or personnel;

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Various factors outside our direct control may adversely affect manufacturing and distribution of our product;

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We may seek to grow our business through acquisitions of or investments in new or complementary businesses, products or technologies, and the failure to manage acquisitions or investments, or the failure to integrate them with our existing business, could have a material adverse effect on us;

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Our ability to protect our intellectual property and proprietary technology is uncertain;

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The size and future growth in the market for the SI-Joint fixation market have not been established based on market reports and our estimates are based on our own review and analysis of public information and may be smaller than we estimate, possibly materially. In addition, our estimates of cost savings to the economy and healthcare system as a result of The CATAMARAN System procedure are based on our internal estimates and market research and could also be smaller than we estimate, possibly materially. If our estimates and projections overestimate the size of this market or cost savings, our sales growth may be adversely affected;

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We have a limited operating history and may face difficulties encountered by early-stage companies in new and rapidly evolving markets;

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Our failure to adequately protect personal information in compliance with evolving legal requirements could harm our business; and

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Geopolitical conditions, including trade disputes and direct or indirect acts of war or terrorism, could have an adverse effect on our operations and financial results.

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I tem 1.

Business

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Drug Therapy : including opiates and non-steroidal anti-inflammatory medications.

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Physical Therapy : which can involve exercises as well as massage.

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Intra-Articular Injections of Steroid Medications : which are typically performed by physicians who specialize in pain treatment or anesthesia.

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Radiofrequency Ablation : or the cauterizing of the lateral branches of the sacral nerve roots.

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1.

Designed for Safety: the approach trajectory and angle are away from the neural foramen.

2.

Focus on Efficiency: the approach is designed to be direct to the SI-Joint, which allows for visualization of the joint and is designed to pass through minimal muscle structures, which may result in a faster and more efficient surgical procedure and reduced post-op pain for the patient.

3.

Targeted Anatomy: the approach places the implant in the aspect of the SI-Joint with the densest bone, designed to provide maximum fixation and resistance to vertical shear. This is designed to provide a secure press fit of the implant, reducing the incidence of revision surgery due to implant loosening, which we believe is the reason for many competitive device failures as reported to the FDA Medical Device Reporting (MDR).

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•

product and clinical procedure effectiveness;

•

ease of surgical technique and use of associated instruments;

•

safety;

•

published clinical outcomes and evidence;

•

sales force knowledge and service levels;

•

product support and service, and customer service;

•

comprehensive training, including disease, anatomy, diagnosis, and treatment;

•

product innovation and the speed of innovation;

•

intellectual property;

•

accountability and responsiveness to customers’ demands;

•

pricing and reimbursement;

•

scientific (biomechanics) data; and

•

attracting and retaining key personnel.

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Transfixes the SI joint

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Inferior Posterior Sacroiliac Fusion Approach (PiSIF™)

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Reduced Approach Morbidity

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Direct And Visualized Approach to the SI-Joint

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Single Implant Technique

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Insertion Trajectory Away from the Neural Foramen

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Insertion Trajectory Away from Major Vascular Structures

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Autologous Bone Grafting in the Ilium, Sacrum and Bridge

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Radiographic Confirmation of Bridging Bone Fusion of the SI-Joint

Key Features “Pontoon” in the ilium “Pontoon” in the sacrum “Pontoons and Bridge” filled with autologous bone from drilling process Leading edge osteotome creates defect and facilitates ease of insertion

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		Surgical Plan Key: Yellow: Guidewire Purple: Lateral Pontoon (Ilium) Green: Medial Pontoon (Sacrum)
		Notes: Upper Right Quadrant: The green and purple pontoons represent the placement in the dense bone inferior – contrasted with the dorsal gap superiorly where competitive systems are most often placed. Lower Right Quadrant: The yellow and purple outlines represent The CATAMARAN System pontoons, illustrating the angle of insertion is away from the sacral neuro foramen providing for a much safter trajectory for device implantation.

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Post-Op fluoroscopic image of implant spanning the SI-Joint		6-Month CT-Scan showing clear bridging bone fusion

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Educate and inform physicians and other healthcare providers, payors, and patients about the growing body of evidence supporting what we believe is the safety, durable clinical effectiveness, economic benefit, and reduction in opioid use associated with SI-Joint fixation and The CATAMARAN System procedure.

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Utilize the most effective means of training via video and in-person labs demonstrating the ease of use with 2D and 3D navigation. Since many physicians have already been trained but have not incorporated SI-Joint fixation into their practices we will work with these physicians to reengage and train them on the Next Generation of an SI-Joint implant which incorporates a safer and simpler approach.

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Utilize the best approaches of direct-to-consumer outreach to educate patients that there is a safe solution to help them improve their quality of life. Additionally, to reach the broadest physician and patient audience on case study results from around the United States we plan to implement an active social media campaign incorporating Facebook, Instagram, YouTube, etc.

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Invest in our independent sales representative network to ensure that all Tenon representatives have the latest in marketing and education tools to reduce the time from training to adoption.

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Remain true to our next generation product development strategy by continually bringing out new advancements in and around the SI-Joint and pelvic region.

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Continue to grow our existing intellectual property portfolio.

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Execute post-market clinical research to confirm the benefits of the distinct approach and implant.

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Dual Pontoon implant that transfixes the targeted joint;

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Open cell design designed for utilizing the patient’s own autologous bone for promotion of fusion;

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Bridge design between the dual pontoons for enhanced strength;

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Leading edge of the implant designed to function as an osteotome providing a self-creating defect feature not available with competitive systems;

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Single implant designed with varying pontoon sizes to ensure a robust fixation based on anatomy; and

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Additional smaller Catamaran designed for smaller anatomy and/or revision surgery.

The CATAMARAN™ SIJ Fusion System Single Implant		SI Bone iFuse® Three Implants

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design, development, and manufacturing;

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testing, labeling, content, and language of instructions for use and storage;

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clinical trials;

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product safety;

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marketing, sales, and distribution;

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premarket clearance and approval;

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conformity assessment procedures;

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record keeping procedures;

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advertising and promotion;

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compliance with good manufacturing practices requirements;

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recalls and field safety corrective actions;

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post-market surveillance, including reporting of deaths or serious injuries and malfunctions that, if they were to recur, could lead to death or serious injury;

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post-market approval studies; and

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product import and export.

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we may not be able to demonstrate to the FDA’s satisfaction that our product is safe and effective for their intended users;

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the data from our pre-clinical studies and clinical trials may be insufficient to support clearance or approval, where required; and

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the manufacturing process or facilities we use may not meet applicable requirements.

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warning letters;

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fines;

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injunctions;

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civil penalties;

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termination of distribution;

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recalls or seizures of products;

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delays in the introduction of products into the market;

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total or partial suspension of production;

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facility closures;

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refusal of the FDA other regulators to grant future clearances or approvals; or

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in the most serious cases, criminal penalties.

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the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, items or services for which payment may be made, in whole or in part, under federal healthcare programs, such as the Medicare and Medicaid programs;

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the federal False Claims Act, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, false or fraudulent claims for payment of government funds; knowingly making, using, or causing to be made or used, a false record or statement to get a false claim paid or to avoid, decrease, or conceal an obligation to pay money to the federal government. A claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act. There are also criminal penalties for making or presenting a false or fictitious or fraudulent claim to the federal government;

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the federal Health Insurance Portability and Accountability Act of 1996, which imposes criminal and civil liability for, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program including private third-party payors, or knowingly and willfully falsifying, concealing, or covering up a material fact or making a materially false, fictitious, or fraudulent statement or representation, or making or using any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry in connection with the delivery of or payment for healthcare benefits, items, or services;

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the federal Physician Payment Sunshine Act, which requires manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to the Centers for Medicare & Medicaid Services information related to payments or other “transfers of value” made to physicians and teaching hospitals, and requires applicable manufacturers to report annually to CMS ownership and investment interests held by physicians and their immediate family members and payments or other “transfers of value” to such physician owners; and

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analogous state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws, which may apply to items or services reimbursed by any third-party payor, including commercial insurers; state laws that require device companies to comply with the industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state beneficiary inducement laws, and state laws that require device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.

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untitled letters, warning letters, fines, injunctions, consent, and civil penalties;

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unanticipated expenditures to address or defend such actions;

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customer notifications for repair, replacement, refunds;

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recall, detention, or seizure of our product;

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operating restrictions or partial suspension or total shutdown of production;

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refusing or delaying our requests for 510(k) clearance or premarket approval and conformity assessments of new products or modified products;

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limitations on the intended uses for which the product may be marketed;

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operating restrictions;

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withdrawing 510(k) clearances or PMA approvals that have already been granted; or

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criminal prosecution.

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actual or anticipated fluctuations in our financial condition and operating results;

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actual or anticipated changes in our growth rate relative to our competitors;

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commercial success and market acceptance of our product;

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success of our competitors in developing or commercializing products;

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ability to commercialize or obtain regulatory approvals for our product, or delays in commercializing or obtaining regulatory approvals;

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strategic transactions undertaken by us;

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additions or departures of key personnel;

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product liability claims;

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prevailing economic conditions;

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disputes concerning our intellectual property or other proprietary rights;

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FDA or other U.S. or foreign regulatory actions affecting us or the healthcare industry;

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healthcare reform measures in the United States;

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sales of our common stock by our officers, directors or significant stockholders;

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future sales or issuances of equity or debt securities by us;

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business disruptions caused by earthquakes, fires or other natural disasters;

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the exercise and sale of any outstanding warrants or options;

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issuance of new or changed securities analysts’ reports or recommendations regarding us; and

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Covid-19 restrictions on elective surgeries.

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faulty human judgment and simple errors, omissions or mistakes;

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fraudulent action of an individual or collusion of two or more people;

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inappropriate management override of procedures; and

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the possibility that any enhancements to controls and procedures may still not be adequate to assure timely and accurate financial information.

46

47

48

49

	●	Warrants to purchase up to 96,000 shares of our common stock at an exercise price equal to $5.00 per share issued to our underwriters in our initial public offering; and

●

Options and restricted stock units related to 2,217,374 shares of our common stock, 456,874 shares of which are vested.

(a)

Issuance of Capital Stock.

(b)

Option Grants.

(c)

Warrants.

(d)

Issuance of Notes.

50

Plan Category		Number of securities to be issued upon exercise of outstanding options, warrants and rights				Weighted- average exercise price of outstanding options, warrants and rights				Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
		(a)				(b)				(c)
Equity compensation plans approved by security holders		727,394			$	5.32				10,122
Equity compensation plans not approved by security holders		—			$	—				—
Total		727,394			$	5.32				10,122

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		Year s Ended December 31,
Consolidated Statements of Operations Data in Dollars:		2022				2021
Revenue		$	691			$	160
Cost of goods sold			1,332				55
Gross (loss) profit			(641	)			105
Operating expenses:
Research and development			2,828				1,718
Sales and marketing			7,833				2,141
General and administrative			7,423				2,707
Total operating expenses			18,084				6,566
Loss from operations			(18,725	)			(6,461	)
Interest and other income (expense), net:
Gain on investments			180				2
Interest expense			(354	)			(621	)
Other income (expense)			(18	)			(1	)
Net loss			(18,917	)			(7,081	)
Loss attributable to non-controlling interest			—				(33	)
Net loss attributable to Tenon Medical, Inc.		$	(18,917	)		$	(7,048	)

		Year s Ended December 31,
Consolidated Statements of Operations Data as a Percent of Revenue:		2022				2021
Revenue			100	%			100																																					%
Cost of goods sold			193				34
Gross profit			(93	)			66
Operating expenses:
Research and development			409				1,074
Sales and marketing			1,134				1,338
General and administrative			1,074				1,692
Total operating expenses			2,617				4,104
Loss from operations			(2,710	)			(4,038																																					)
Interest and other income (expense), net:
Gain on investments			26				1
Interest expense			(51	)			(388																																					)
Other expense			(3	)			(1																																					)
Net loss			(2,738	)			(4,426																																					)
Loss attributable to non-controlling interest			—				(21																																					)
Net loss attributable to Tenon Medical, Inc.			(2,738	)%			(4,405																																					)%

		Year s Ended December 31,
		2022				2021				$ Change				% Change
Revenue		$	691			$	160			$	531				332	%
Cost of goods sold			1,332				55				1,277				2,322	%
Gross (loss) profit		$	(641	)		$	105			$	(746	)			(710	)%
Gross (loss) profit percentage			(93	)%			66	%

57

		Year s Ended December 31,
		2022				2021				$ Change				% Change
Research and development		$	2,828			$	1,718			$	1,110				65	%
Sales and marketing			7,833				2,141				5,692				266	%
General and administrative			7,423				2,707				4,716				174	%
Total operating expenses		$	18,084			$	6,566			$	11,518

		Year s Ended December 31,
		2022				2021				$ Change				% Change
Gain on investments		$	180			$	2			$	178				8,900	%
Interest expense			(354	)			(621	)			267				(43	)%
Other expense, net			(18	)			(1	)			(17	)			1,700	%
Total operating expenses		$	(192	)		$	(620	)		$	428

58

		Payments Due By Period (In thousands)
						Less than												More than
		Total				1 year				1-3 years				4-5 years				5 years
Operating leases		$	1,048			$	293			$	611			$	144			$	—
Purchase obligations			—				—				—				—				—
Total		$	1,048			$	293			$	611			$	144			$	—

		Year s Ended December 31,
		2022				2021				$ Change				% Change
Net cash (used in) provided by:
Operating activities		$	(12,025	)		$	(4,292	)		$	(7,733	)			180	%
Investing activities			(2,884	)			(4,504	)			1,620				(36	)%
Financing activities			14,114				11,469				2,645				23	%
Effect of foreign currency translation on cash flow			7				(2	)			9				(450	)%
Net (decrease) increase in cash and cash equivalents		$	(788	)		$	2,671			$	(3,459	)			(130	)%

59

Report of Independent Registered Public Accounting Firm (PCAOB ID No. 32 )	F-2
Audited Consolidated Financial Statements:
Consolidated Balance Sheets	F-3
Consolidated Statements of Operations and Comprehensive Loss	F-4
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)	F-5
Consolidated Statements of Cash Flows	F-6
Notes to Consolidated Financial Statements	F-7

F-1

/s/ Armanino LLP
San Jose, California
March 10, 2023

F-2

Reverse Stock Split

On April 6, 2022, the Company effected a 1:2 reverse stock split (the “Reverse Stock Split”) by filing an amendment to the Company’s Amended and Restated Certificate Incorporation, as amended, with the Delaware Secretary of State. The Reverse Stock Split combined every two shares of our common stock issued and outstanding immediately prior to effecting the Reverse Stock Split into one share of common stock. Similarly, shares of Series A and Series B Preferred Stock became convertible into common stock at a conversion rate of one-to-0.5 , subject to adjustments for stock dividends, splits, combinations, and similar events. No fractional shares were issued in connection with the Reverse Stock Split. All historical and per share amounts reflected throughout this document have been adjusted to reflect the Reverse Stock Split. The authorized number of shares and the par value per share of the Company’s common stock were not affected by the Reverse Stock Split.

Impact of COVID-19

In March 2020, the World Health Organization declared the coronavirus (“COVID-19”) outbreak to be a pandemic. During the years ended December 31, 2022 and 2021, the Company’s financial results were not significantly affected by the COVID-19 outbreak. The Company has considered all information available as of the date of issuance of these consolidated financial statements and the Company is not aware of any specific events or circumstances that would require an update to its estimates or judgments, or a revision to the carrying value of its assets or liabilities. These estimates may change as new events occur and additional information becomes available. The extent to which the COVID-19 outbreak affects the Company’s future financial results and operations will depend on future developments which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the outbreak, and current or future domestic and international actions to contain and treat it.

Segments

The Company operates in one business segment. Although the Company’s Swiss subsidiary is located in a different geographical area, management uses one measurement of profitability and does not segregate its business for internal reporting.

Cash and cash equivalents

The Company considers all highly liquid investments with original maturities of 90 days or less at the date of purchase to be cash equivalents.

Investments

The Company classifies its investments in marketable securities as available-for-sale and records them at fair value in its consolidated balance sheets. The net unrealized gains and losses are recorded as a separate component of stockholders’ equity. Realized gains and losses are recorded in the consolidated statements of operations and comprehensive loss. The Company determines any realized gains or losses on the sale of marketable debt securities on a specific identification method and records such gains and losses as a component of other income (expense) net.

Accounts receivable and allowance for doubtful accounts

Accounts receivable are derived from products delivered to customers and are stated at their net realizable value. The Company records an allowance for estimated uncollectible accounts in an amount approximating anticipated losses. Individual uncollectible accounts are written off against the allowance when collection of the individual accounts appears doubtful. In determining the amount of the allowance, the Company considers its historical level of credit losses. The Company also makes judgments about the creditworthiness of significant customers based on ongoing credit evaluations, and the Company assesses current economic trends that might impact the level of credit losses in the future. Historically, the Company has had no significant write-offs of accounts receivable. However, since the Company cannot reliably predict future changes in the financial stability of its customers, it cannot guarantee that its allowances will continue to be adequate. If actual credit losses are significantly greater than the allowance, the Company would increase its general and administrative expenses and increase its reported net losses. Conversely, if actual credit losses are significantly less than the Company's reserve, this would eventually decrease the Company’s general and administrative expenses and decrease its reported net losses. Allowances are recorded primarily on a specific identification basis. As of December 31, 2022 and 2021, the Company’s allowance for doubtful accounts was $ 0 .

Inventory

Inventory is stated at lower of cost or net realizable value. The Company establishes the inventory basis by determining the cost based on standard costs approximating the purchase costs on a first-in, first-out basis. The excess and obsolete inventory is estimated based on future demand and market conditions. Inventory write-downs are charged to cost of goods sold. As of December 31, 2022 and 2021, inventory consisted of finished goods and raw materials.

F-8

Deferred offering costs

Deferred offering costs, which consist of direct incremental legal, consulting, banking, and accounting fees relating to the Company’s planned IPO in 2022 and future offerings in 2023, are capitalized, and are offset against proceeds upon the effectiveness of the offering. In the event an anticipated offering is terminated, deferred offering costs will be expensed.

Fixed assets, net

Fixed assets are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Equipment, computers, software, and furniture and fixtures are depreciated over periods ranging from three to seven years, and leasehold improvements over the shorter of the lease term or the life of the asset. Construction in progress pertains to the cost of individual components of a custom instrument set used for surgical placement of the Company’s products that have not yet been placed into service. The cost of maintenance and repairs is charged to expense as incurred; significant renewals and betterments are capitalized. Deductions are made for retirements resulting from renewals or betterments.

Long-lived assets

The Company regularly reviews the carrying value and estimated lives of all of its long-lived assets, including property and equipment, to determine whether indicators of impairment may exist that warrant adjustments to carrying values or estimated useful lives. The determinants used for this evaluation include management’s estimate of the asset’s ability to generate positive income from operations and positive cash flow in future periods as well as the strategic significance of the assets to the Company’s business objectives.

Fair value measurements

In accordance with Accounting Standards Codification (“ASC”) 820, Fair Value Measurement, fair value is the price that would be received from selling an asset or paid to transfer a liability (i.e., the exit price) in an orderly transaction between market participants at the measurement date. ASC 820 establishes a fair value hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.

Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability based on the best information available in the circumstances.

The fair value hierarchy is categorized into three levels based on the inputs as follows:

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level 2 – Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these financial instruments includes cash instruments for which quoted prices are available but are traded less frequently, derivative instruments whose fair values have been derived using a model where inputs to the model are directly observable in the market and instruments that are fair valued using other financial instruments, the parameters of which can be directly observed.

Level 3 – Instruments that have little to no pricing observability as of the measurement date. These financial instruments are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

The degree of judgment exercised by the Company in determining fair value is greatest for assets categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined by the lowest level input that is significant to the fair value measurement.

Convertible preferred stock

The Company records convertible preferred stock at fair value on the dates of issuance, net of issuance costs. Convertible preferred stock is recorded as temporary stockholders’ equity.

Income taxes

I

ncome taxes are recorded in accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. Under this method, the Company records deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates expected to be in effect when the differences are expected to reverse. Valuation allowances are provided when necessary to reduce net deferred tax assets to the amount that is more likely than not to be realized. Based on the available evidence, the Company is unable, at this time, to support the determination that it is more likely than not that its deferred tax assets will be utilized in the future. Accordingly, the Company recorded a full valuation allowance as of December 31, 2022 and 2021. The Company intends to maintain valuation allowances until sufficient evidence exists to support its reversal.

F-9

Current income taxes are based upon the year's income taxable for federal, state, and foreign tax reporting purposes. Deferred income taxes are provided for certain income and expenses, which are recognized in different periods for tax and financial reporting purposes.

The Company's policy is not to record deferred income taxes on the undistributed earnings of foreign subsidiaries that are indefinitely reinvested in foreign operations.

Revenue recognition

The Company’s revenue is derived from the sale of its products to medical groups and hospitals in the United States. Revenue is recognized when control is transferred to the customer, in an amount that reflects the consideration we expect to be entitled to in exchange for the goods or services, using the following five step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.

The Company generates revenue from the sale of products to hospitals or medical facilities where its products are delivered in advance of a procedure. The performance obligation is the delivery of the products along with the completion of the surgery and therefore, revenue is recognized upon delivery to the customers and completion of the surgery, net of rebates and price discounts. The Company accounts for rebates and price discounts as a reduction to revenue, calculated based on the terms agreed to with the customer. Historically, there have been no significant rebates or price discounts. 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. Prior to October 2022, the Company had an agreement in place with a national distributor, which included standard terms that did not allow for payment contingent on resale of the product, obtaining financing, or other terms that could impact the distributor’s payment obligation. The Company billed and collected directly with the end-user customers and recognized revenue based on the gross sales price. For direct sales to end-user customers, the Company's standard payment terms are generally net 30 days.

The Company offers its standard warranty to all customers and does not sell any warranties on a standalone basis. The Company’s warranty provides that its products are free of material defects and conform to specifications, and includes an offer to replace or refund the purchase price of defective products. This assurance does not constitute a service and is not considered a separate performance obligation. The Company estimates warranty liabilities at the time of revenue recognition and records them as a charge to cost of goods sold.

Contract modifications generally do not occur during the performance of the Company’s contracts.

Payments received prior to satisfying the revenue recognition criteria are recorded as deferred revenue on the consolidated balance sheets. As of December 31, 2022 and 2021, there were no remaining performance obligations that would give rise to deferred revenue.

Sales commissions are recorded in sales and marketing expenses during the same period as the corresponding revenues.

Research and development

The Company engages in improving existing products and new product development efforts. Research and development expenses relating to these efforts are expensed as incurred

.

F

or the years ended December 31, 2022 and 2021, the Company recognized research and development expense of approximately $ 2,828 and $ 1,718 , respectively.

Stock-based compensation

The Company accounts for all stock-based compensation awards using a fair-value method on the grant date and recognizes the fair value of each award as an expense over the requisite service period.

The Company recognizes compensation costs related to stock-based awards granted to employees, directors, and consultants including stock options, based on the estimated fair value of the awards on the date of grant. We estimate the grant date fair value, and the resulting stock-based compensation, 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.

F-10

Expected Volatility

—Since the Company has only been publicly held since April 2022 and does not have any trading history for its 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

s

—The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock. Therefore, an expected dividend yield of zero is used.

The Company account for forfeitures as they occur.

The Company’s board of directors intends all options granted to be exercisable at a price per share not less than the per share fair value of our common stock underlying those options on the date of grant.

Prior to the Company’s initial public offering, the estimated fair value of its common stock was determined at each valuation date by a third-party independent valuation firm in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. These valuations took into account numerous factors, including developments at our company and market conditions.

The May 21, 2021 valuation used a hybrid method which combines the Probability Weighted Expected Return Method (“PWERM”) with the OPM. The PWERM considers a set of discrete potential liquidity scenarios for the Company, the value common stock would receive in each scenario, and the time required and risk inherent in achieving those values. The May 21, 2021 valuation examined the following scenarios for the Company: (i) an IPO; (ii) remaining private and raising capital; and (iii) dissolution. Within the IPO scenario, 100 % weighting was placed on the Market Approach for determining the enterprise value. The Market Approach assumes that businesses operating in the same industry will share similar characteristics, and therefore a comparison of the business to similar businesses whose financial information is publicly available may provide a reasonable basis to estimate a subject business’s value. The equity value in the IPO scenario was estimated considering guideline IPOs, the anticipated size of the Company’s offering, and forecasted cash and debt. The estimated common stock value as of the IPO was present valued using a discount rate of 22.4 % based on Company’s WACC, less an adjustment of 2.0 % to reflect the risk reduction of an IPO event.

The August 31, 2021 valuation used a hybrid method which combines the Probability Weighted Expected Return Method (“PWERM”) with the OPM. The PWERM considers a set of discrete potential liquidity scenarios for the Company, the value common stock would receive in each scenario, and the time required and risk inherent in achieving those values. The August 31, 2021 valuation examined the following scenarios for the Company: (i) an IPO; (ii) remaining private and raising capital; and (iii) dissolution. Within the IPO scenario, 100 % weighting was placed on the Market Approach for determining the enterprise value. The Market Approach assumes that businesses operating in the same industry will share similar characteristics, and therefore a comparison of the business to similar businesses whose financial information is publicly available may provide a reasonable basis to estimate a subject business’s value. The equity value in the IPO scenario was estimated considering guideline IPOs, the anticipated size of the Company’s offering, and forecasted cash and debt. The estimated common stock value as of the IPO was present valued using a discount rate of 32.0 % based on Company’s WACC, less an adjustment of 5.0 % to reflect the risk reduction of an IPO event.

The October 28, 2021 valuation used a hybrid method which combines the Probability Weighted Expected Return Method (“PWERM”) with the OPM. The PWERM considers a set of discrete potential liquidity scenarios for the Company, the value common stock would receive in each scenario, and the time required and risk inherent in achieving those values. The October 28, 2021 valuation examined the following scenarios for the Company: (i) an IPO; (ii) remaining private and raising capital; and (iii) dissolution. Within the IPO scenario, 100 % weighting was placed on the Market Approach for determining the enterprise value. The Market Approach assumes that businesses operating in the same industry will share similar characteristics, and therefore a comparison of the business to similar businesses whose financial information is publicly available may provide a reasonable basis to estimate a subject business’s value. The equity value in the IPO scenario was estimated considering guideline IPOs, the anticipated size of the Company’s offering, and forecasted cash and debt. The estimated common stock value as of the IPO was present valued using a discount rate of 27.2 % based on Company’s WACC, less an adjustment of 5.0 % to reflect the risk reduction of an IPO event.

In determining the enterprise value within the remain private scenario, 100 % weighting was applied to the DCF Method under the income approach, in the same manner as in the December 31, 2018, 2019, and 2020 valuations. The discount rate in this scenario was determined to be 22.4 % based on Company’s WACC. Adjustments were made to the enterprise value for the Company’s cash and debt as of the valuation date to determine the equity value in this scenario. The OPM was used to allocate the equity value to our common stock. The equity volatility rate was determined to be 70.0 % based on the volatility rate of certain comparable public companies. DLOMs of (i) 10.0 % in the IPO scenario and (ii) 30.0 % in the remaining private scenario were applied to the common stock.

F-11

On April 29, 2022, the IPO closed, and the Company received approximately $ 13.8 million in net proceeds from the IPO after deducting the underwriting discount and commission and other estimated IPO expenses payable by the Company. As a result of the completion of the IPO and as required under the terms of the convertible notes payable described in Note 6, the Company converted the entirety of the related outstanding principal and accrued interest to 3,955,415 shares of the Company’s common stock at the conversion price detailed in Note 6 and issued the common stock to the noteholders, fully satisfying the Company’s obligations.

On April 29, 2022, as result of the completion of the IPO, the Company converted all shares of Series A and Series B Preferred Stock to 2,693,342 shares of the Company’s common stock at the conversion rate detailed below and issued the common stock to the preferred stockholders, fully satisfying the Company’s obligations. This includes 1,172,346 shares issued to TTAG’s minority shareholder in accordance with the anti-dilution protection provisions of the Exchange Agreement.

Concurrent with the completion of the IPO and in accordance with the Amended and Restated Exclusive Sales Representative Agreement executed in May 2021, the counterparty to the agreement received anti-dilution protections to maintain ownership of 3.0 % of the fully diluted equity of the Company through the date of an initial public offering and was issued 312,351 shares of the Company’s common stock to the Representative, fully satisfying the Company’s obligations. The value of these shares issued at the IPO price of $ 5.00 per share was charged to operating expenses in the Company’s consolidated statements of operations and comprehensive loss.

Also, as a result of the completion of the IPO, the Company issued 85,739 shares of its common stock to a consultant, which were treated as issuance costs and netted against IPO proceeds.

Preferred Stock

On October 28, 2021, the Company entered into an Agreement (the “Exchange Agreement”) with TTAG’s minority shareholder. Pursuant to the Exchange Agreement, TTAG’s minority shareholder agreed to exchange 574,033 shares of Series A Convertible Preferred Stock issued by TTAG, representing its entire ownership interest in TTAG, for the Company’s Series A Preferred Stock, representing a 24 % ownership interest in the Company’s fully-diluted capital, which includes the pro forma conversion of all outstanding convertible preferred stock and promissory notes, options, and warrants. Pursuant to the terms of the Exchange Agreement, the Company issued TTAG’s minority shareholder 2,550,763 shares of Series A Preferred Stock. These shares were subject to anti-dilution protection to maintain TTAG’s minority shareholder’s 24 % ownership interest in the Company, excluding any shares issued by the Company in an IPO or a qualified offering of at least $ 5,000 at a per share price of at least $ 3.3737 . Upon conversion of the Company’s convertible notes payable as described in Note 6, the Company issued 1,172,346 shares of its common stock to TTAG’s minority shareholder.

In accordance with ASC 810-10-45-23, the Company did no t recognize any gain or loss in the consolidated statements of operations and comprehensive loss in conjunction with the Exchange Agreement. The carrying value of the non-controlling interest in TTAG was reduced to zero , and the value of the Company’s investment in TTAG increased accordingly. The shares of Series A Preferred Stock issued were recorded at fair value. The difference between the increase in the Company’s investment and the fair value of the Series A Preferred Stock issued was recorded as a decrease in Additional Paid in Capital (“APIC”). The resulting negative APIC was then reclassified to accumulated deficit.

In a series of closings from 2012 through 2015, the Company issued an aggregate of 491,222 shares of Series B Convertible Preferred Stock (“Series B Preferred Stock”) at $ 2.795 per share for proceeds of $ 1,272 , net of stock issuance costs.

The Company classified the convertible preferred stock outside of total stockholders’ deficit because, in the event of certain deemed liquidation events that are not solely within the control of the Company, the shares would become redeemable at the option of the holders. The Company did not adjust the carrying values of the convertible preferred stock to the deemed liquidation values of such shares since a liquidation event was not probable of occurring.

Conversion

At the option of the holder, shares of Series A and Series B Preferred Stock were convertible into common stock at a conversion rate of one-to- 0.5 , subject to adjustments for stock dividends, splits, combinations, and similar events. Automatic conversion will occur in the event of a firmly underwritten public offering of common stock of the Company at a price of at least $ 4.00 per share, subject to appropriate adjustments for stock dividends, splits, combinations, and similar events, and with total gross proceeds to the Company of at least $ 15,000 , before deduction of underwriters’ commissions and expenses. As noted above, the Series A and Series B Preferred Stock were converted to common stock at the time of the Company’s IPO.

F-16

Redemption

The shares of the Series A and Series B Preferred Stock were redeemable only upon acquisition or liquidation of the Company.

Liquidation preference

With respect to any distributions in connection with a liquidation, dissolution or winding up of the Company, or in connection with the sale of voting control of all or substantially all of the assets of the Company, by way of merger, acquisition, consolidation or similar transaction, prior to any distribution to common stockholders, the holders of Series A and Series B Preferred Stock were entitled to receive $ 1.526 and $ 4.981 per share, respectively, plus any declared but unpaid dividends, adjusted to reflect any dividends previously paid. If, upon the occurrence of such event, the assets and funds distributed among the holders of Series A and Series B Preferred Stock shall be insufficient to permit the payment to such holders of the full liquidation preference amounts, the entire assets and funds of the Company legally available shall be distributed ratably among the preferred stockholders in proportion to the preferential amount to which each holder is entitled.

After payment of the liquidation preferences, the holders of common stock are entitled to receive the remaining assets of the Company available for distribution to its stockholders pro rata based on the number of shares of common stock held by each holder.

Voting rights

The holders of vested shares of common stock shall be entitled to vote on any matter submitted to a vote of the stockholders and each such holder shall be entitled to one vote per share of common stock held. The holders of Series A and Series B Preferred Stock were entitled to vote together with the common stock as a single class on any matter submitted to a vote of the stockholders. Holders of Series A and Series B Preferred Stock were entitled to the number of votes equal to the number of common stock issuable upon conversion of their respective Series A and Series B Preferred Stock at the time such shares are voted. The holders of a majority of the preferred stock had additional voting rights as specified in the Company’s Amended and Restated Certificate of Incorporation, as amended.

Equity awards

In 2012, the Board of Directors of the Company (the “Board”) approved the Tenon Medical, Inc. 2012 Equity Incentive Plan (the “2012 Plan”). The 2012 Plan provides for the issuance of common stock options, appreciation rights, and other awards to employees, directors, and consultants. Options issued under the 2012 Plan generally vest over a period of two to

four

years and have a 10 -year expiration date. In April 2021, the Board increased the number of shares of common stock reserved for issuance under the 2012 Plan to 662,516 . In July 2021, the Board increased the number of shares of common stock reserved for issuance under the 2012 Plan to 737,516 . In August 2021, the Board increased the number of shares of common stock reserved for issuance under the 2012 Plan from 737,516 shares to 799,266 shares and approved the form of a 2022 Equity Incentive Plan.

On January 10, 2022 and February 2, 2022, the Board and stockholders, respectively, of the Company approved the Tenon Medical, Inc. 2022 Equity Incentive Plan (the “2022 Plan”), which was effective on April 25, 2022. The number of shares of common stock that may be subject to awards and sold under the 2022 Plan is equal to 1,600,000 . Automatic annual increases in number of shares available for issuance under the 2022 Plan is equal to the least of (a) 1,100,000 shares, (b) 4 % of the total number of shares of all classes of common stock outstanding on the last day of the immediately preceding fiscal year, or (c) such number determined by the 2022 Plan administrator no later than the last day of the immediately preceding fiscal year. Annual increases will continue until the tenth anniversary of the earlier of the Board or stockholder approval of the 2022 Plan, which is January 10, 2032. Upon the effective date of the 2022 Plan, the Board terminated the 2012 Plan such that no new equity awards will be issued by the 2012 Plan and all outstanding options under the 2012 plan are administered under the 2022 Plan.

The Company adopted the fair value recognition provisions in accordance with authoritative guidance related to equity-based payments. Compensation expense in 2022 and 2021 includes the portion of awards vested in the periods for all equity-based awards granted, based on the grant date fair value. Grant date fair value for restricted stock units is estimated using the fair value of the Company’s common stock on the date of grant. Grant date fair value for stock options is estimated using a Black-Scholes option valuation model, consistent with authoritative guidance, using the weighted-average assumptions in the table below:

		Years ended December 31,
		2022				2021
Expected volatility			57.68	%			52.35	%
Dividend yield			0	%			0	%
Risk-free interest rate			3.34	%			0.99	%
Expected term in years			5.85				5.76

Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive equity awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by the Company in accordance with authoritative guidance.

F-17

A reconciliation of the expected tax computed at the U.S. statutory federal income tax rate to the total provision for income taxes for the years ended December 31, 2022 and 2021 is as follows:

		Years ended December 31,
		2022				2021
Statutory rate			( 21	)%			( 21	)%
State taxes, net of federal benefit			( 7	)%			( 7	)%
Non-deductible differences			1	%			2	%
Change in valuation allowance			27	%			26	%
Provision for taxes			—				—

Significant components of the Company's net deferred tax assets at December 31, 2022 and 2021 are as follows:

		Years ended December 31,
		2022				2021
Deferred tax assets:
Net operating loss carryforwards		$	7,001			$	2,642
Credit carryforwards			109				48
Accruals and reserves			126				242
Stock-based compensation			843				109
Intangibles			244				265
Operating lease liability			254				310
Capitalized research and development			274				—
Total deferred tax assets			8,851				3,616
Valuation allowance			( 8,564	)			( 3,315	)
Net deferred tax assets			287				301
Deferred tax liabilities:
Fixed assets			( 44	)			—
Operating lease right of use			( 243	)			( 301	)
Total deferred tax liabilities			( 287	)			( 301	)
Net deferred tax assets		$	—				—

In assessing the realizability of deferred tax assets at December 31, 2022, management considered whether it is more likely than not that some portion or all of the deferred tax assets will be realized, and determined that a valuation allowance was required for those deferred tax assets that are not expected to provide future tax benefits. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

At December 31, 2022, the Company has available net operating loss carryforwards of approximately $ 23,237 for federal income tax purposes, of which approximately $ 23,015 was generated after 2017 and can be carried forward indefinitely under the Tax Cuts and Jobs Act. The remaining federal net operating loss of approximately $ 222 , which was generated prior to 2018, will start to expire in 2034 if not utilized.

At December 31, 2022, the net operating losses for state purposes are approximately $ 24,146 and will begin to expire in 2032 if not utilized. In addition, the Company had foreign net operating losses of approximately $ 1,896 at December 31, 2022 that will start to expire in 202

3

if not utilized.

The Company had credit carryforwards of approximately $ 114 for federal income tax purposes. The federal tax credits will begin to expire in 2041 .

The Company also had credit carryforwards of approximately $ 41 for California income tax purposes. These credits have

no

expiration.

The Company has not completed a study to determine whether any ownership change per the provisions of Section 382 of the Internal Revenue Code of 1986, as amended, as well as similar state provisions, has occurred. Utilization of the Company's net operating loss and income tax credit carryforwards may be subject to a substantial annual limitation due to ownership changes that may have occurred or that could occur in the future. These ownership changes may limit the amount of the net operating loss and income tax credit carryover that can be utilized annually to offset future taxable income. In general, an "ownership change" as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders.

F-21

Coronavirus Aid, Relief and Economic Security Act

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted and signed into law in response to the market volatility and instability resulting from the COVID-19 pandemic. It includes a significant number of tax provisions and lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (the “2017 Act”). The changes are mainly related to: (1) the business interest expense disallowance rules for 2019 and 2020; (2) net operating loss rules; (3) charitable contribution limitations; (4) employee retention credit; and (5) the realization of corporate alternative minimum tax credits. The Company does not anticipate the application of the CARES Act provisions to materially impact the overall consolidated financial statements.

Uncertain tax positions

In accordance with authoritative guidance, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. The following shows the changes in the gross amount of recognized tax benefits:

		Years ended December 31,
		2022				2021
Unrecognized tax benefits, beginning of year		$	—			$	—
Increases related to prior year tax positions			12				—
Decreases related to prior year tax positions			—				—
Increases related to current year tax positions			26				—
Unrecognized tax benefits, end of year		$	38			$	—

The Company recognizes interest and penalties related to unrecognized tax positions within the income tax expense line in the accompanying consolidated statements of operations. The Company does not anticipate that its total unrecognized tax benefits will significantly change due to settlement of examination or the expiration of statute of limitations during the next 12 months. Due to the full valuation allowance at December 31, 2022, current adjustments to the unrecognized tax benefit will have no impact on our effective income tax rate.

The Company currently has no federal or state tax examinations in progress nor has it had any federal or state tax examinations since its inception. As a result of the Company's net operating loss and credit carryforwards all of its years are subject to federal and state examination.

13.

Related Party Transactions

During 2018 through 2020, the Company’s subsidiary issued convertible promissory notes to TTAG’s minority shareholder. In November 2020, these notes payable and accrued interest were converted into TTAG shares. In June 2021, the Company’s subsidiary issued a convertible promissory note for approximately $ 107 to TTAG’s minority shareholder. The Company purchased this note and accrued interest of $ 114 in October 2021 from TTAG’s minority shareholder. See Note

7

.

The Company had a consulting agreement with a company owned by the former Chief Executive Officer of the Company. Under this consulting agreement, the Chief Executive Officer was to provide services from 2015 through June 1, 2021. Total payments under the consulting agreement of $ 600 are to be paid as follows: (a) $ 300 paid upon closing of financing round of at least $ 5,000 , followed by twelve monthly payments of $ 25 per month; (b) $ 300 paid upon achieving at least $ 3,000 of annual revenue and a financing round of less than $ 5,000 ; or (c) the entire $600 payable immediately upon an acquisition of the Company. During the year ended December 31, 2022 and 2021, the Company recorded expense of $ 574 and $ 42 , respectively, related to this agreement. As of December 31, 2022 and 2021, approximately $ 0 and $ 600 , respectively, owed to this party was included in accrued expenses with respect of these services. See Note

10

.

During 2021, the Company issued convertible promissory notes totaling $ 620 to officers, directors, and their family members. See Note 6. In addition, a note was issued to the Chief Executive Officer of the Representative described in Note

10

.

On October 28, 2021, the Company entered into an agreement with TTAG’s minority shareholder. See Note 8. Pursuant to the terms of the Exchange Agreement, the Company purchased the convertible note and accrued interest between TTAG and Zuhlke Ventures AG (“ZVAG”), TTAG’s minority shareholder, in the amount of approximately $ 114 .

On December 31, 2021, the Company and TTAG entered into the IP Sale and Purchase Agreement, whereby TTAG transferred certain patents and trademarks to the Company. In connection with this transfer, the Company issued an unsecured promissory note to TTAG in the amount of $ 818 which eliminates in consolidation.

F-22

60

Name		Age		Position
Steven M. Foster		55		Chief Executive Officer and President, Director
Richard Ginn		57		Chief Technology Officer and Director
Steve Van Dick		68		EVP, Finance and Administration and Chief Financial Officer
Richard Ferrari		69		Executive Chairman of the Board
Ivan Howard		56		Director
Frank Fischer		81		Director
Robert K. Weigle		63		Director
Stephen H. Hochschuler, M.D.		80		Director

61

62

●

the director is, or at any time during the past three (3) years was, an employee of the company;

●

the director or a family member of the director accepted any compensation from the company in excess of $120,000 during any period of twelve (12) consecutive months within the three (3) years preceding the independence determination (subject to certain exemptions, including, among other things, compensation for board or board committee service);

●

the director or a family member of the director is a partner in, controlling shareholder of, or an executive officer of an entity to which the company made, or from which the company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exemptions);

●

the director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three (3) years, any of the executive officers of the company served on the compensation committee of such other entity; or

●

the director or a family member of the director is a current partner of the Company’s outside auditor, or at any time during the past three (3) years was a partner or employee of the Company’s outside auditor, and who worked on the company’s audit.

63

●

reviewing and discussing with management and the independent auditor the annual audited financial statements, and recommending to the board whether the audited financial statements should be included in our annual disclosure report;

●

discussing with management and the independent auditor significant financial reporting issues and judgments made in connection with the preparation of our financial statements;

●

discussing with management major risk assessment and risk management policies;

●

monitoring the independence of the independent auditor;

●

verifying the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law;

●

reviewing and approving all related-party transactions;

●

inquiring and discussing with management our compliance with applicable laws and regulations;

●

pre-approving all audit services and permitted non-audit services to be performed by our independent auditor, including the fees and terms of the services to be performed;

●

appointing or replacing the independent auditor;

●

determining the compensation and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work;

●

establishing procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or reports which raise material issues regarding our financial statements or accounting policies; and

●

approving reimbursement of expenses incurred by our management team in identifying potential target businesses.

64

·

reviews, approves and determines, or makes recommendations to our board of directors regarding, the compensation of our executive officers;

·

administers our equity compensation plans;

·

reviews and approves, or makes recommendations to our board of directors, regarding incentive compensation and equity compensation plans; and

·

establishes and reviews general policies relating to compensation and benefits of our employees.

·

identifying, reviewing and evaluating candidates to serve on our board of directors consistent with criteria approved by our board of directors;

·

evaluating director performance on our board of directors and applicable committees of our board of directors and determining whether continued service on our board of directors is appropriate

·

evaluating nominations by stockholders of candidates for election to our board of directors; and

·

corporate governance matters

·

been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

·

had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two (2) years prior to that time;

65

·

been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;

·

been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;

·

been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

·

been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

Name and Principal Position		(Salary $)				($)Bonus				Option/RSU Awards (1) ($)				Total ($)
Steven M. Foster, Chief Executive Officer
2022		$	300,000			$	70,000			$	1,926,634			$	2,296,634
2021		$	175,000			$				$	284,840			$	459,840
Steven Van Dick, Chief Financial Officer
2022		$	275,000				148,125			$	808,998			$	1,232,123
2021		$	160,417			$				$	261,182			$	421,599
Richard Ginn, Chief Technology Officer
2022			275,000				148,125			$	3,995,603				4,418,728
2021		$	160,417			$				$	161,836			$	322,253

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Option Awards																		Equity Awards (RSUs)
Name		Number of Securities Underlying Unexercised Options (#) Exercisable				Number of Securities Underlying Unexercised Options (#) Unexercisable				Option Exercise Price ($)				Option Expiration Date				Number of RSUs that have not Vested				Market Value of RSUs
Seven M. Foster
			34,375				78,125			$	5.20				May 1, 2031				217,453			$	1,926,633
Steven Van Dick
			20,403				36,098			$	5.20				May 1, 2031				91,309			$	808,998
			4,803				29,781			$	7.06				July 19, 2031
Richard Ginn
			12,556				43,945			$	5.20				May 1, 2031				450,971			$	3,995,603
			764				4,736			$	7.06				July 19, 2031

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Director		Cash Compensation 1				Equity Compensation (RSUs) 2				Total Compensation
Frank Fischer		$	55,000			$	165,000			$	220,000
Ivan Howard		$	60,000			$	165,000			$	225,000
Robert Weigle		$	67,500			$	165,000			$	232,500
Stephen Hochschuler		$	45,000			$	165,000			$	210,000
Total			227,500			$	660,000			$	227,500

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Name and Address of Beneficial Owner (1)		Title				Number of Shares Beneficially Owned				Beneficial Ownership Percentage
Officers and Directors
Steven M. Foster			Chief Executive Officer and President				90,372	(2)			*
Richard Ginn			Chief Technology Officer				613,041	(3)			5.4	%
Steven Van Dick			EVP, Finance and Admin and Chief Financial Officer				77,823	(4)			*
Richard Ferrari			Chairman of the Board				340,572	(5)			3.0	%
Frank Fischer			Director Nominee				191,966	(6)			1.7	%
Ivan Howard			Director				79,587	(7)			*
Robert K. Weigle			Director Nominee				—				—
Stephen H. Hochschuler, M.D.			Director Nominee				33,436	(8)			*
Officers and Directors as a Group (total of 8 persons)							1,426,797	(9)			12.7	%
5% Stockholders of a Class of Voting Stock
Zuhlke Ventures AG							2,447,728				21.8	%

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		2022				2021
Audit fees		$	338,253			$	298,810
Audit-related fees			72,640				60,809
All other fees			—				—
Total fees		$	410,893			$	359,619

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(1)

The consolidated financial statements are filed as part of this Annual Report under “Item 8. Financial Statements and Supplementary Data.”

(2)

The consolidated financial statement schedules are omitted because they are either not applicable or the information required is presented in the consolidated financial statements and notes thereto under “Item 8. Financial Statements and Supplementary Data.”

(3)

The exhibits listed in the following Exhibit Index are filed, furnished or incorporated by reference as part of this Annual Report.

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Exhibit No.		Description
3.1*		Amended and Restated Certificate of Incorporation of the Registrant.
3.2*		Bylaws of The Registrant.
3.3*		Amendment to Certificate of Incorporation of the Registrant
3.4*		Amendment to Certificate of Incorporation of the Registrant
3.5*		Amendment to Certificate of Incorporation of the Registrant
3.6*		Amendment to Certificate of Incorporation of the Registrant
3.7*		Amendment to Certificate of Incorporation of the Registrant
3.8*		Amendment to Certificate of Incorporation of the Registrant
4.1*		Form of Representative’s Warrant in connection with the Registrant’s Initial Public Offering
10.1*		Employment Agreement dated June 1, 2021 between Steven M. Foster and the Registrant
10.2*		Employment Agreement dated June 1, 2021 between Richard Ginn and the Registrant
10.3*		Consulting Agreement dated May 7, 2021 by and between Richard Ferrari and the Registrant
10.4*		Employment Agreement dated June 1, 2021 between Steven Van Dick and the Registrant
10.5*		Agreement and Consent of Director Nominee dated October 8, 2021 from Frank Fischer
10.6*		Agreement and Consent of Director Nominee dated October 8, 2021 from Ivan Howard
10.7*		Agreement and Consent of Director Nominee dated October 8, 2021 from Stephen H. Hochschuler
10.8*		Agreement and Consent of Director Nominee dated October 8, 2021 from Robert Weigle
10.9*		Exchange Agreement dated as of October 27, 2021 among Zuhlke Ventures AG, Tenon Technology AG and the Registrant
10.10*		Tennon Medical 2022 Equity Incentive Plan
10.11*		Exchange Agreement dated October 28, 2021 between the Registrant, Zuhlke Ventures AG and Tenon Technology AG
10.12*		IP Sale and Purchase Agreement dated January 21, 2022 between the Registrant and Tenon Technology AG
21.1*		List of Subsidiaries of the Registrant.
31.1**		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2**		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1***		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2***		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*

Incorporated by reference to the Registrant’s Registration Statement No. 333-260931, filed on April 20, 2022

**

Filed herewith

***

Exhibits 32.1 and 32.2 are being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall such exhibits be deemed to be incorporated by reference in any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as otherwise specifically stated in such filing.

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		T enon Medical , Inc.
Date:	March 10, 2023	By:	/s/ Steven M. Foster
			Steven M. Foster
			Chief Executive Officer and President
			(Principal Executive Officer)

Name		Position		Date
/s/Steven M. Foster		Chief Executive Officer and President, Director		March 10, 2023
Steven M. Foster		(Principal Executive Officer)
/s/Richard Ginn		Chief Technology Officer and Director		March 10, 2023
Richard Ginn
/s/Steven Van Dick		Chief Financial Officer		March 10, 2023
Steven Van Dick		(Principal Financial and Accounting Officer)
/s/Richard Ferrari		Director		March 10, 2023
Richard Ferrari
/s/Ivan Howard		Director		March 10, 2023
Ivan Howard
/s/Frank Fischer		Director		March 10, 2023
Frank Fischer
/s/Robert K. Weigle		Director		March 10, 2023
Robert K. Weigle
/s/Stephen H. Hochschuler, M.D		Director		March 10, 2023
Stephen H. Hochschuler, M.D

74