CapsoVision, Inc

CONDENSED BALANCE SHEETS (UNAUDITED) (continued)

(in thousands, except par value and share amounts)

CONDENSED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS (UNAUDITED)

CONDENSED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) (UNAUDITED)

UNAUDITED CONDENSED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)

UNAUDITED CONDENSED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

1. DESCRIPTION OF BUSINESS AND ORGANIZATIONAL STRUCTURE

CapsoVision, Inc. (“CapsoVision” or the “Company”), a commercial stage medical technology enterprise, that innovates, manufactures, and markets endoscopic video imaging devices focused on internal imaging of the gastrointestinal (“GI”) system. Internal GI imaging facilitates earlier detection of colorectal cancer and other diseases, enabling more timely and effective treatment regimens for patients. The Company is based in Saratoga, California. Its customers include, in the U.S., gastrointestinal medical practices, clinics, and hospitals; outside of the U.S., the Company sells to distributor customers who resell products.

The Company’s core technology platform is an orally ingestable capsule including multiple cameras facilitating 360 degree imaging, light-emitting diodes for measurement, onboard memory storage, and battery life permitting recording and onboard storage of video images. This platform obviates the need for external data transmission or for a patient to remain in a medical facility throughout the digestive cycle. The Company’s products consist of (i) the on-market CapsoCam Plus®, directed at the small intestines, and (ii) the in-development CapsoColon 3D® directed at the large intestines (colon). Stored video imagery is downloaded from capsules with a data access device, CapsoAccess® and enabling software, CapsoView®. This video access solution permits on-site, on-demand video download and viewing by customers. The Company operates the CapsoCloud® cloud-based software-as-a-service ecosystem as an off-premise video access and download solution. Using CapsoCloud®, retrieved capsules are sent by customers to a centralized processing center for video downloading; patient video content is then made available via web portal or dedicated app access for customers to view, download, and generate patient reports. The Company’s services also include video reading; pursuant to this offering, physician customers may purchase a video reading and generation of patient report carried out by a second physician.

Since its 2005 formation, the Company’s organizational structure has comprised a single Delaware corporation with a branch office in Taiwan, Republic of China, the location of certain suppliers and Company personnel.

CapsoCam Plus® was cleared by the U.S. Food and Drug Administration ("FDA") in 2016 and has since been approved in various other countries. CapsoColon 3D® is completing the second arm of our pivotal clinical study with planned submission for regulatory clearance, starting with the FDA, and we anticipate filing with the FDA in the second quarter of 2026. The Company is subject to risks and uncertainties common to life sciences companies including, but not limited to, risks associated with the success of research and development, risks associated with contract manufacturing, competition from other companies, protection of intellectual property and the risk of litigation related thereto, compliance with government regulations, and the ability to secure additional capital to fund operations and research & development. Current and future programs, including for products focused on other areas of the GI system, will require significant research and development efforts, extensive clinical testing, and submissions for regulatory approval prior to commercialization.

Initial Public Offering

On July 3, 2025, the Company completed its initial public offering ("IPO") of 5,500,000 shares of its common stock, that was followed by the issuance of 129,978 shares of common stock on July 18, 2025 in connection with the partial exercise by the underwriters of their option to purchase up to an additional 825,000 shares (the “Over-allotment Exercise”) as further described in Note 11. COMMON STOCK), each at a price to the public of $5.00 per share. The Company received net proceeds of approximately $23.37 million after deducting underwriting discounts and commissions of approximately $1.59 million and offering expenses of approximately $3.18 million which were recognized in additional paid-in capital as a reduction of the proceeds generated from the offering.

The gross proceeds to the Company from the IPO was approximately $28.14 million, before deducting underwriting discounts and commissions and estimated offering expenses payable by the Company.

In connection to the IPO, the Company amended and restated its certificate of incorporation (the “Restated Certificate”), under which authorized capital stock consists of 300,000,000 and 190,000,000 shares of common stock as of September 30, 2025 and December 31, 2024, respectively. Authorized common stock is reserved for future issuance, including pursuant to outstanding equity awards and future equity awards under the 2005 Plan and the 2025 Plan as further described in Note 11. COMMON STOCK.

On July 2, 2025, immediately prior to the completion of the Company’s IPO and upon the receipt by the Company of a written request consented to by holders of a majority of the Preferred Stock, all shares of the Company’s convertible preferred stock converted into shares of the Company’s common stock.

2. GOING CONCERN

The Company has incurred operating losses and negative cash flows from operations since its inception. Since the launch of CapsoCam Plus® in 2016, the Company has been able to fund increasing portions of its operating expenses from sales. However, the Company has continued to incur operating losses, net losses, and negative operating cash flows. The Company expects to continue to experience similar circumstances until existing and future products’ sales yield further growth in revenues, achievement of break-even, and realization of future operating income, net income, and positive operating cash flows. As of September 30, 2025, the Company had cash and cash equivalents of $17,787. For the nine months ended September 30, 2025, the Company had an operating loss of $18,052, a net loss and comprehensive loss of $17,921, and net cash used in operating activities of $15,178. The Company, having evaluated the extant facts and circumstances, concluded that the facts and circumstances raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date of issuance of these financial statements. While the Company completed the IPO in July 2025 and raised approximately $23.4 million in net proceeds, it is not probable that these funds are sufficient to fund expenditures necessary to achieve sales growth and innovation objectives. The Company intends to consummate additional capital raising activities, there is no certainty as to such capital raising activities occurring at all, or occurring with sufficient timing or magnitude, sufficient to alleviate such substantial doubt.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These unaudited interim condensed financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC"). Any reference in these notes as it concerns U.S. GAAP is meant to refer to authoritative pronouncements as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) issued by the Financial Accounting Standards Board (“FASB”).

These unaudited interim condensed financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to effect fair presentation of financial position as of September 30, 2025, the results of operations for the three and nine months ended September 30, 2025 and 2024, and cash flows for the nine months ended September 30, 2025 and 2024. The condensed balance sheet at December 31, 2024 was derived from the audited annual financial statements but does not contain all of the footnote disclosures from the audited annual financial statements. These interim financial results are not necessarily indicative of results expected for the full fiscal year or for any subsequent interim period and should be read in conjunction with the audited annual financial statements.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business.

Reverse Stock Split

On July 2, 2025, the Company amended and restated its amended and restated certificate of incorporation to effect a 1-for-3.33 reverse stock split of the Company's common stock, which automatically resulted in reciprocal adjustments (reductions) to the conversion ratios of each of the Company's series of convertible preferred stock (the "Reverse Stock Split"). The par values per share of the common and convertible preferred stock were not adjusted as a result of the Reverse Stock Split. All amounts for issued and outstanding common stock, convertible preferred stock, options to purchase common stock, warrants on common stock, and reserves related to common stock, as well as related per-share amounts, contained in the financial statements have been retroactively adjusted to give effect to the Reverse Stock Split for all periods presented. No fractional shares were issued as a result of the reverse stock split. In lieu of fractional shares, the Company rounded down to the next whole share and made a cash-in-lieu payment of $1 for 108 shares.

Foreign Currency

The reporting currency for the financial statements of the Company is the United States Dollar. The functional currency of the U.S. corporation, and its foreign branch which is an extension of the U.S. corporation, is the U.S. Dollar. The assets, liabilities, and expenses of the Company’s foreign branch recorded in local currency are remeasured into the U.S. Dollar each period, with associated gains and losses included in operating expenses (as a component of general and administrative expenses). Monetary assets and liabilities denominated in currencies other than the functional currency are translated at exchange rates in effect at the balance sheet date with associated gains and losses included in operating expenses (as a component of general and administrative expenses). For the three months ended September 30, 2025 and 2024, the Company recorded $20 and $33, respectively, and, for the nine months ended September 30, 2025 and 2024, the Company recorded $191 and $27, respectively, of net foreign exchange gains as components of general and administrative expenses.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires the making and usage of estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosure of contingent assets and liabilities, if any. The Company bases its estimates on historical experience when available and on other assumptions that management believes are reasonable under the circumstances. The Company seeks to moderate the influence of subjectivity and estimation uncertainty through reliance on useful information from market participants and peers wherever possible. Estimates and assumptions affect various financial statement amounts and their related disclosures, including, but not limited to, the recognition of revenue, underwriters' warrants, stock based compensation, research and development expenses, income tax-related amounts, lease-related amounts, and allowances for credit losses. Actual results could materially differ from estimates.

Segments

The Company is organized as, and managed as, one operating (and reportable) segment. Its chief operating decision maker is its Chief Executive Officer.

Fair Value Measurements

Where required, certain assets and liabilities are carried at fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. A framework is used for measuring fair value utilizing a three-tier hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the three levels of the hierarchy:

•Level 1 - defined as observable inputs, such as quoted prices unadjusted in active markets for identical assets or liabilities

•Level 2 - defined as inputs other than quoted prices included in Level 1 that are either directly or indirectly observable

•Level 3 - defined as significant unobservable inputs for which little or no market data exists, therefore necessitating entity-specific assumptions

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. An asset or liability’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value.

The carrying amounts of the Company’s financial assets (which include cash and accounts receivable) and liabilities (which include accounts payable) approximate fair value due to their insensitivity to interest rates and/or close proximity to maturity and qualify as Level 1 measurements.

Concentration Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of demand deposits at well-known financial institutions and accounts receivable. At times, the Company’s cash deposits may exceed U.S. Federal deposit insurance limits.

The Company's sales to customers are typically originated with trade credit terms and receivables are uncollateralized, with limited exceptions for prepayments required for certain customers or credit card sales. The Company historically has experienced insignificant levels of bad debt; allowances for credit losses on accounts receivable were insignificant for all periods presented.

The Company’s concentration risk related to revenues relates primarily to its product revenues being derived from a single product. With respect to customers, for the three and nine months ended September 30, 2025, the same customer represented 10% and 10% of our revenue, respectively, and represented 25% of our accounts receivable as of September 30, 2025. For the three and nine months ended September 30, 2024, that same customer represented 11% and 9% of revenue, respectively. As of December 31, 2024 accounts receivables with that same customer represented 21% of accounts receivable balance.

The Company’s supply concentration risk relates primarily to its materials procurement and contract manufacturing being substantially concentrated with vendors located in Asia.

Comprehensive Income (Loss)

Comprehensive income (loss) comprises net income (loss) and other comprehensive income (loss), which is defined as all changes in stockholders’ equity (deficit) other than net income (loss) and those resulting from investments by and distributions to stockholders. Historically, and for all periods presented, there are no differences between net loss and comprehensive loss.

Revenue Recognition

Revenue is recognized in accordance with ASC 606, Revenue from Contracts with Customers. The core principle is that an entity should recognize revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company recognizes revenue using a five-step model resulting in revenue being recognized as performance obligations within a contract are satisfied. The steps within that model include: (i) identifying the existence of a contract with a customer; (ii) identifying the performance obligations within the contract; (iii) determining the contract’s transaction price; (iv) allocating the transaction price to the contract’s performance obligations; and (v) recognizing revenue as the contract’s performance obligations are satisfied. Judgment is required to apply the model and make certain estimates and assumptions about the Company’s contracts with its customers, including, among others, the nature and extent of its performance obligations, its transaction price amounts and any allocations thereof (including estimates of standalone selling prices), the events which constitute satisfaction of its performance obligations, and when control of any promised goods or services is transferred to customers. The guidance also requires certain incremental costs incurred to obtain or fulfill a contract to be deferred and amortized on a systematic basis consistent with the transfer of goods or services to a customer.

The Company generates (i) product revenue from the sale of capsule medical devices, (ii) service revenue from the provision of reading services for videos, and (iii) product or service revenue depending on which video delivery option is utilized by the customer to download and view capsule videos. The customer’s delivery options include (1) a capsule data reading device shipped to the customer which works together with downloadable software installed locally on a customer’s computer (classified as product revenue), or (2) a software-as-a-service offering which involves the customer mailing capsule devices to an off-site Company-operated facility which processes uploads of video content to a cloud platform the customer can access via a web browser or a smart device application in order to view videos and generate reports (classified as service revenue).

The Company’s contracts with customers contain fixed consideration reflecting prices negotiated with customers and immaterial variable consideration. For contracts with variable consideration, the Company uses the most likely amount method to estimate the transaction price. Variable consideration is constrainedto the extent that it is deemed probable that a significant reversal of the amount of revenue recognized will not occur. Where products or services are not sold separately or experience a range of selling prices, the Company estimates standalone selling prices using a cost-plus-expected margin approach and utilizes the resultant standalone selling prices to allocate transaction prices at transaction inception on a relative standalone selling price basis. The Company recognizes revenue for its product and reading service performance obligations at a point in time, that being when the performance obligations are satisfied and control is transferred to the customer (generally upon shipment for products, or conveyance of final deliverable for services). For the software-as-a-service video delivery offering performance obligation, the associated revenue is recognized over time, typically less than one fiscal quarter, representing the estimate of the typical period of time in which customers derive utility from the cloud-based service.

The Company does not have any significant financing components as payment is received at or shortly after sale. Standard trade credit terms are typically 30 to 60 days from invoice date. Costs incurred to obtain or fulfill a contract are expensed as incurred when the amortization period is less than one year, which is the case for the Company. The Company considers all shipping and handling to be fulfillment activities and not a separate performance obligation. Shipping and handling costs are recorded as costs of revenue. The Company has elected an accounting policy to exclude sales taxes and other similar taxes from the measurement of the transaction price.

The Company has certain U.S. customers characterized as group purchasing organizations that function as procurement agents for their underlying medical practice, clinic, or hospital members; these group purchasing organizations typically charge the Company percentage-based fees in exchange for the right to do business with the group purchasing organization. Such fees, which do not provide a distinct separate benefit to the Company, are recorded as reductions to revenue in the same period as the recognition of the related revenue.

The Company’s products are sold with the same limited quality assurance warranties offered to all customers; the Company typically does not allow returns of products, except for cases of damage or defect, whereby products would be replaced. Actual product returns have historically been immaterial given the one-time-use nature of capsule devices; estimated product returns (periodically adjusted to reflect actual experience), if warranted, are accounted for as reductions to revenue with offsets to a product return liability included within accrued expenses and other current liabilities in the balance sheet.

Contract Assets and Contract Liabilities; Accounts Receivable and Related Allowance

The Company records contract assets when it has completed performance obligations prior to receiving consideration from the customer and where such amounts are unbilled; where billed, amounts are reflected as trade accounts receivable. The Company promptly invoices its accounts receivable; therefore, the Company’s contract assets were zero for all periods presented.

Contract liabilities, portrayed as deferred revenue, reflect (i) obligations to provide goods for which the Company has already received consideration (generally arising from up-front payments received) and (ii) performance obligations to provide services which are not yet satisfied in the context of a particular contract (principally consisting of video delivery obligations related to the Company’s off-premise cloud-based video delivery offering).

Trade accounts receivable are recorded at invoiced amounts and do not bear interest. The Company grants trade credit to most of its customers in the normal course of business and generally does not require collateral. An allowance for credit losses arises subsequent to the origination of a sale for estimated uncollectible receivables based on the Company's assessment of the collectability of customer accounts. A provision (or a reversal of the allowance) is recorded as a component of general and administrative expenses. In determining the amount of the allowance, the Company considers aging of accounts, historical credit losses, customer-specific information, the current economic environment, supportable forecasts, and other relevant factors. Uncollectible receivables are written off against the allowance when all attempts to collect have been exhausted. Allowances for credit losses were insignificant for all periods presented.

Costs of revenue include materials, direct labor, and manufacturing overhead costs related to sold products, as well as certain period costs such as non-allocated overhead, scrap, and outbound freight costs, fees paid to physicians for providing reading services, and the costs of operating the Company’s cloud-based software-as-a-service offering for video delivery such as shipping costs, processing costs, and data storage costs. Shipping and handling costs directly related to bringing products to their final point of sale are included in costs of revenue and were $28 and $15 for the three months ended September 30, 2025 and 2024, respectively, and $71 and $35 for the nine months ended September 30, 2025 and 2024, respectively.

Selling, General and Administrative Expenses

Selling and marketing expenses include costs directly attributable to actively marketing the Company’s products and services using both direct employees and outside contractors or vendors. These costs include, but are not limited to, salaries, bonuses, benefits, stock-based compensation, sales commissions, travel costs and expense reimbursements, and the costs of sponsoring programs, events, and conferences. Advertising costs werenil for all periods presented.

General and administrative expenses consist primarily of salaries, bonuses, benefits, and stock-based compensation related to the Company’s executive, administrative, finance, human resources, and other supporting functions. Also included are professional fees for legal services, consulting services, tax matters and audits, information technology, office expenses, rent, insurance, and foreign exchange gains (losses).

Research and Development Expenses (including Clinical Trial Expenses)

Research and development costs are expensed as incurred in accordance with ASC 730, Research and Development. Research and development expenses include costs directly attributable to the conduct of research and development programs, including salaries, bonuses, benefits, and stock-based compensation for employees focused on research and development or clinical trials, costs of independent contractors and outside vendors, costs of supplies consumed in or product inventory utilized in clinical trials, and the costs of clinical trial activities as charged within the negotiated budgets by trial sites or vendors responsible for multiple trial sites.

The Company capitalizes prepayments for goods or services, including trial device inventory, that will be used, consumed, or rendered for future research and development activities and recognizes expense as the related goods are delivered or services are performed. The Company also records expenses and accruals for estimated costs of research and development activities, including third party services for clinical trials. The Company bases its estimates on information available at the time. Costs for certain clinical trial activities are recognized based on the pattern of performance of the individual arrangements, which may differ from the pattern of billings incurred, and are reflected in the balance sheet as prepaid expenses or as accrued expenses.

For the three months ended September 30, 2025 and 2024, the Company incurred $2,351 and $2,291, respectively, and the nine months ended September 30, 2025 and 2024, the Company incurred $4,102 and $6,310, respectively, of expenses related to ongoing clinical trial activities which are included within research and development expenses.

Net Loss Per Share

Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period without consideration of potentially dilutive securities. Diluted net loss per share reflects the potential dilution that could occur if options on common stock were exercised or convertible preferred stock shares were converted into common stock. Diluted net loss per share is the same as basic net loss per common share since the effect of the potentially dilutive securities are anti-dilutive. Potential dilutive common share equivalents consist of incremental common shares issuable upon exercise of vested stock options, common stock warrants, and the Company’s various series of convertible preferred stock. Upon completion of the IPO in July 2025, all outstanding shares of preferred stock were converted into shares of Company's common stock (after giving effect to the 1-for-3.33 reverse stock split). Subsequent to the conversion, only common stock remains outstanding. Accordingly, the two-class method is no longer applicable for periods after the IPO

Cash and cash equivalents

Cash and cash equivalents comprises demand deposits in the form of checking accounts and money market accounts (which may be deposited into and withdrawn at will with no restrictions as to investment or redemption) and includes cash balances denominated in the Euro and New Taiwan Dollar, for which fluctuations in exchange rates result in gains or losses reported within operating expenses as a component of general and administrative expenses.

Inventory

Inventories, consisting of materials, direct labor and manufacturing overhead, are subdivided into raw materials, work-in-process, and finished goods and are stated at the lower of cost (average cost) or net realizable value.

The Company evaluates inventories as to (i) net realizable value and (ii) circumstances or indicators of loss, damage, insufficient time to expiry (determined by battery life), excess quantities, or obsolescence and provisions accordingly via direct charges against the carrying value of inventory.

Long-Lived Assets

Property and equipment is recorded at historical cost, less accumulated depreciation. The Company capitalizes major improvements and expenses repairs and maintenance as incurred. Depreciation is recorded using the straight-line method based on the estimated useful lives of the depreciable property or, for leasehold improvements, the remaining term of the lease, whichever is shorter. Useful lives are as follows.

Upon disposal (retirement or sale) of property and equipment, as applicable, the cost and related accumulated depreciation are removed and any resulting gain or loss is reflected within operating expenses. Such amounts were insignificant for all periods presented.

Long-lived assets are evaluated for impairment as warranted by triggering events related to changes in facts and circumstances. There have historically been no impairments and there were none for all periods presented.

Leases

The Company has operating leases for office and storage space in California and office space in Taiwan, Republic of China. The Company determines if an arrangement is a lease at inception and classifies its leases at commencement. Operating leases are presented as right-of-use (“ROU”) assets and the corresponding lease liabilities are depicted in operating lease liabilities, current and operating lease liabilities, non-current in the balance sheet. ROU assets represent the right to use an underlying asset, and lease liabilities represent the obligation for lease payments in exchange for the ability to use the asset for the duration of the lease term.

ROU assets and lease liabilities are recognized at commencement date and determined using the present value of the future minimum lease payments over the lease term. The Company utilizes an incremental borrowing rate when assessing lease classification and measuring lease liabilities. The estimated incremental borrowing rate considers credit rating practices applied by well known statistical rating organizations to borrowers, Company-specific factors, and the actual lease term at commencement date. The lease term may include options to extend when it is reasonably certain that the Company will exercise that option. The Company recognizes operating lease expense on a straight-line basis over a lease's term.

The Company has lease agreements which contain both lease and non-lease components, which it has elected to account for as a single lease component. Variable lease payments that are not dependent on an index or rate are not included in lease measurements and are accounted for as incurred.

Convertible Preferred Stock

The Company’s primary means of financing from start-up through development and into the commercial stage has historically been the issuance of convertible preferred stock in various series; these series share similar rights and obligations and contain similar qualifications as to the requirements an equity initial public offering would have to meet in order for the stock to convert to common stock. Convertible preferred stock is recorded at fair value on the date of issuance (historically, the same as the issue price), net of issuance costs. Application of the guidance contained in ASC 480-10-S99-3A, SEC Staff Announcement: Classification and Measurement of Redeemable Securitieshas led the Company to present each of the series of convertible preferred stock as mezzanine equity due to the similar features of the series concerning liquidation preferences and other rights and privileges inuring to the respective series’ holders, one or more of which may result in a settlement in cash not entirely within the Company’s control.

On July 2, 2025, immediately prior to the completion of the Company’s IPO and upon the receipt by the Company of a written request consented to by holders of a majority of the Preferred Stock, all shares of the Company’s convertible preferred stock converted into shares of the Company’s common stock.

Stock-Based Compensation

The Company accounts for employee and nonemployee equity compensation awards in accordance with ASC 718, Compensation - Stock Compensation (“ASC 718”). In accordance therewith, the Company accounts for stock-based compensation for awards granted to nonemployees in a similar fashion to stock-based compensation awards to employees. ASC 718 requires the recognition of stock-based compensation expense, using a fair-value based method, for costs related to all stock-based compensation awards.

Stock-based compensation awards issued under the Company’s 2005 Stock Plan (the “2005 Plan”) and the Company’s 2025 Equity Incentive Plan (the “2025 Plan”) take the form of stock options (non-qualified or incentive stock options), restricted stock or restricted stock units (the "RSUs"). The 2025 Plan also provides for the grant of stock appreciation rights, stock bonuses, stock units and other forms of awards including cash awards to the Company’s officers, directors, employees, consultants and advisors. The Black-Scholes option-pricing model is used to determine the fair value of options; application of the model requires judgment to develop assumptions input into the model, some of which are more subjective, including: (i) the fair value of the underlying common stock on the date of grant; (ii) the expected term of the award; (iii) the expected volatility of the underlying common stock; (iv) the risk-free interest rate; and (v) expected dividends. Income and market approaches to valuation are judgmentally weighted and combined to determine a composite value representing the fair value of the underlying common stock. In estimating the fair value of the underlying common stock prior to IPO, the Company utilized a third party professional valuation firm whose analyses supported management's concluded estimate. Post IPO the the fair value of the underlying common stock is based on the Company’s closing stock price on the date of grant. An expected volatility assumption is based on stock price volatility of a peer group of comparable public companies over a similar expected term. The risk-free rate is based on U.S. Treasury yields in effect at the time of grant for periods corresponding with the expected term; no dividends are assumed.

The Company’s employee and nonemployee stock-based compensation awards granted on or before September 30, 2025 contain only service conditions for vesting. The Company recognizes stock-based compensation cost as a component of the related functional expense (costs of revenue or category of operating expenses) on a straight-line basis over the requisite service period, which is explicitly stated in the case of awards issued to employees and implicitly understood to be the period over which services are provided for nonemployees. The Company recognizes forfeitures as they occur and reverses any previously recognized compensation cost associated with pre-vesting forfeitures.

Stock-based compensation awards in the form of the restricted stock units (the "RSUs) are issued to the Directors of CapsoVision, Inc, who are not employed by the Company or any of its subsidiaries ("Non-Employee Directors"). These RSUs are issued in lieu of annual cash compensation (annual base retainer). Each RSU granted to the Non-Employee Directors represents a right to receive one share of the Company common stock when the RSU vests. The Company estimates compensation cost based on the grant date fair value and recognizes the expense on a graded vesting basis over the vesting period of the award. Please, see Note 12. STOCK-BASED COMPENSATION for details.

Warrants

In connection with the IPO, offering costs related to legal, accounting, and underwriting costs were net with the proceeds and recorded as a reduction in additional paid in capital, in the stockholders’ equity section of the balance sheet. The Company also issued Underwriters Warrants (as defined in Note 11. COMMON STOCK) for services provided during the IPO to purchase 168,898 shares of common stock. The Underwriters Warrants are accounted for as equity instruments and are included in the Stockholders’ Equity section of the balance sheet. The fair value of the Underwriters Warrants has been estimated using the Black-Scholes option pricing model.

Income Taxes

The Company accounts for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”), which requires that the asset and liability method be used. Deferred tax assets and liabilities are determined based on the differences between financial reporting (book basis) and the tax reporting (tax basis) amounts of assets and liabilities; these pre-tax differences are measured and reflected after-tax using the enacted tax rates and law that will be in effect when the differences are expected to reverse.

ASC 740 requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax assets will not be realized. The Company evaluates the realizability of its deferred tax assets at least annually and more frequently as warranted by changes in facts and circumstances and adjusts the amount of the valuation allowance accordingly. Factors considered include the presence of reversing taxable temporary differences as a source of taxable income, forecasts of future taxable income, and available tax planning strategies that could be implemented and are both prudent and feasible. The Company has recorded a full valuation allowance with respect to all of its deferred tax assets based upon the significant negative evidence presented by its accumulated deficit position, its operating losses and negative operating cash flows, and the uncertainty associated with the timing and amount of future profits and therefore taxable income that enable realization. In future periods, if the Company generates book income and taxable income, changes in judgment may reduce or eliminate the valuation allowance.

The Company accounts for uncertain tax positions in accordance with a two-step model. Firstly, a recognition threshold must be met; a tax benefit from an uncertain tax position may only be recognized if the tax position would, more likely than not, be sustained by the taxing authority assuming an examination and the application of typical practices and precedents. Secondly, a measurement rule is applied; the amount of tax benefit that can be recognized is the portion that is greater than 50% likely of being realized upon a settlement. The determination as to whether a tax benefit will, more likely than not, be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances, without consideration of detection risk. As of September 30, 2025 and 2024 the Company’s uncertain tax positions were principally related to the non-recognition of a portion of Federal and U.S. state research and development tax credits. The Company recognizes any interest and penalties associated with its income tax positions in the provision for income taxes.

Accounting Standards Issued and Recently Adopted

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"). This guidance requires disclosure on an annual and interim basis of the following: (i) significant segment expenses regularly provided to the chief operating decision maker ("CODM") and a measure of segment profit or loss; (ii) an amount for other segment items by reportable segment and a description of its composition; (iii) all annual disclosures about a reportable segment's profit and loss and assets as currently required by ASC Topic 280; (iv) clarifying if the CODM uses more than one measure of a segment's profit or loss in assessing segment performance and deciding how to allocate resources; and (v) disclosing the title and position of the CODM and how the CODM uses the reported measures. Public entities with a single reportable segment are required to provide all the disclosures required by this amendment. ASU 2023-07 is effective for annual periods beginning after December 15, 2023, and for quarters in the years beginning after December 15, 2024; early adoption is permitted. The Company, a single reportable segment entity, early adopted ASU 2023-07 with effect from January 1, 2023; the related disclosures are included in Note 13. SEGMENTS.

Accounting Pronouncements Issued and Not Yet Adopted

In March 2024, the FASB issued ASU 2023-09, Income Taxes (Topic 740) — Improvements to Income Tax Disclosures ("ASU 2023-09"). The new guidance provides for disclosure on an annual basis of the following: (i) specific categories in the rate reconciliation, and (ii) additional information for reconciling items that meet a quantitative threshold of greater than 5% of the amount computed by multiplying pretax income (or loss) by the applicable statutory income tax rate. ASU 2023-09 is effective for public business entities for annual periods beginning after December 15, 2024; early adoption is permitted. The impact will be limited to the Company's income tax disclosures only and the Company is evaluating the effect thereon.

In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses ("ASU 2024-03"). The new guidance requires more detailed information about specified categories of expenses (purchases of inventory, employee compensation, depreciation, amortization, and depletion) included in certain expense captions presented on the face of the statement of operations. ASU is effective for public business entities for annual periods beginning after December 15, 2026, and for quarters in the years beginning after December 15, 2027; early adoption is permitted. The new guidance may be applied either (1) prospectively to financial statements issued for reporting periods after the effective date or (2) retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact ASU 2024-03 will have on its disclosures.

4. FAIR VALUE MEASUREMENTS

The Company’s demand deposit accounts include money market demand deposits which constitute cash, not cash equivalents, given the lack of investment restrictions or redemption conditions and the ability to immediately withdraw funds. The carrying amounts of the Company’s financial assets (which include cash and accounts receivable) and liabilities (which include accounts payable) approximate fair value due to their insensitivity to interest rates and/or close proximity to their maturities and qualify as Level 1 measurements. There were no transfers between Level 1, 2 or 3 during any periods presented.

5. BALANCE SHEET COMPONENTS

Inventory

Inventory comprised the following amounts:

For the three and nine months ended September 30, 2025 and September 30, 2024, there were no provisions to write down inventories.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets comprised the following amounts:

Deferred initial public offering costs are specific incremental costs directly attributable to an initial public offering of equity securities that were reclassified from current assets to stockholders' equity and recorded as reductions to the gross proceeds from the offering.

Property and Equipment, Net

Property and equipment comprised the following amounts:

Depreciation and amortization expenses of $54 and $52 for the three months ended September 30, 2025 and 2024, respectively, and of $161 and $155 for the nine months ended September 30, 2025 and 2024, respectively, were recorded within costs of revenue and components of operating expenses.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities comprised the following:

6. REVENUE AND DEFERRED REVENUE

Total revenue disaggregated by geographic source, type of customer, and products or services was as follows.

For the three months ended September 30, 2025 and 2024, U.S. service revenue included (i) $169 and $132, respectively, from the Company’s cloud-based software-as-a-service video delivery offering (recognized over time commencing with the shipment of capsules) and (ii) $65 and $77, respectively, of revenue from the provision of video reading to customers (recognized at a point in time upon provision of deliverables).

For the nine months ended September 30, 2025 and 2024, U.S. service revenues included (i) $455 and $375, respectively, from the Company’s cloud-based software-as-a-service video delivery offering (recognized over time commencing with the shipment of capsules) and (ii) $211 and $193, respectively, of revenue from the provision of video reading to customers (recognized at a point in time upon provision of deliverables).

Deferred revenue (contract liabilities, all of which are current in nature) consists of upfront purchases by customers related to the cloud-based software-as-a-service video delivery offering and prepaid video reading services. Deferred revenue represents the excess of amounts invoiced over amounts recognized as revenues. For each component of deferred revenue, the recognition of deferrals as revenue occurred within three months.

The Company's deferred revenue balance was $106, $132 and $96 as of September 30, 2025, December 31, 2024 and December 31, 2023, respectively. During the nine month period ended September 30, 2025, the Company recognized $132 of revenue that was included in deferred revenue as of December 31, 2024. During the nine months ended September 30, 2024, the Company recognized $96 of revenue that was included in deferred revenue as of December 31, 2023.

Fees paid to group purchasing organizations and recorded as reductions to revenue were $33 and $27 for the three months ended September 30, 2025 and 2024, respectively.

Fees paid to group purchasing organizations and recorded as reductions to revenue were $78 and $71 for the nine months ended September 30, 2025 and 2024, respectively.

7. NOTE PAYABLE

On May 27, 2025, the Company entered into a promissory note with Ching-Hang Shen, one of the beneficial owners of more than 5% of the Company's outstanding common stock, pursuant to which Mr. Shen provided to the Company a promissory note in a principal amount of $1,000 (such note, the “Investor Loan”) on May 28, 2025. The Investor Loan (i) had an interest rate equal to one percent (1%) per month, assuming a month of thirty (30) days and (ii) had maturity not later than ten (10) business days following the IPO, which was completed on July 3, 2025.

On July 7, 2025, in connection with the repayment of the promissory note, the Company issued to Mr. Shen 7,508 shares of common stock at a fair value of $31 on the date of issuance pursuant to Section 4(a)(2) of the Securities Act and/or Rule 506 as a transaction not involving a public offering. The promissory note principal amount of $1,000 and accrued interest were repaid in cash on July 11, 2025. After repayment, there were no outstanding liabilities or obligations in connection with the promissory note.

8. LEASES

The Company has operating leases for office and manufacturing space in California and office space in Taiwan, Republic of China, with remaining lease terms ranging from underone year to approximately 2.3 years as of September 30, 2025.

Leases with an initial term of twelve months or less are not accounted for in the balance sheet; these are limited to minor leases in Taiwan, which are excluded from amounts presented in the following tables. The operating leases include certain variable payments related to operating expenses, which are billed by the landlord, as is customary with these types of charges for office space.

The Company’s existing leases contain escalation clauses and renewal options. The Company has evaluated several factors in assessing whether it is reasonably certain that the Company will exercise a contractual renewal option. For leases with renewal options that are reasonably certain to be exercised, the Company includes the renewal term in the total lease term used in deriving the right-of-use asset and lease liability. The Company’s main office lease includes a renewal option ofthree years, which was excluded after evaluation of those factors.

Amounts comprising total lease expense, reflected in general and administrative expenses and costs of revenue (including amounts capitalized as overhead to inventory), were as follows.

Lease-related amounts reflected in the balance sheet and data related thereto were as follows.

Future minimum lease payments under non-cancellable leases are as follows as of September 30, 2025.

9. COMMITMENTS AND CONTINGENCIES

Purchase Commitments

The Company, post-acquisition of raw materials, relies significantly upon third-party contract manufacturers located in Taiwan, Republic of China. Management believes that supply risks related to dependence on fewer key suppliers or contract manufacturers, and political risk, can potentially be hedged with the use of more than one supplier and a readiness to quickly adjust the supply chain (and geographic sourcing within Asia).

On July 15, 2025, the Company entered into a development agreement with Canon Inc., a Japanese corporation, for the development of complementary metal-oxide-semiconductor (“CMOS”) image sensor samples to allow the Company to evaluate functionality and performance, conduct clinical evaluation of capsule endoscopies that incorporate Canon image sensors and obtain FDA 510(k) clearance thereof. Under the Agreement, the Company agreed to pay Canon a fee of approximately $4.1 million for Canon’s development efforts, which is comprised of (a) an initial fee of $1.0 million that was paid in cash on July 31, 2025 upon the Agreement’s effectiveness and (b) following delivery of a specified number of CMOS image sensors meeting agreed specifications within the required timeframe, a remaining development fee of approximately $3.1 million. For the three and nine months ended September 30, 2025 we recognized $1.6 million in R&D expenses. The outstanding balance due to Canon was $0.6 million and included in Accrued Expenses and Other Current Liabilities in the condensed balance sheet as of September 30, 2025. The outstanding purchase commitment for this agreement as of September 30, 2025 is $2.5 million.

Litigation and Legal Matters

The Company may be the subject of adverse litigation as a defendant, arbitration, claims, or proceedings related to things such as intellectual property infringement or disputes, commercial contract breaches or disputes, employment matters, or other matters in the ordinary course of business. Such matters are subject to many uncertainties and outcomes may be unpredictable. Such matters may be fully or partially mitigated by the effect of insurance coverage in place or counter-party indemnitors. The Company provides for liabilities via a charge to operating expenses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company is not a party to any material litigation, arbitration, claims or proceedings and therefore did not have any contingency-related liabilities as of September 30, 2025 and December 31, 2024.

10. PREFERRED STOCK

Convertible Preferred Stock – Financing History

Historically, the Company has issued several Series of convertible preferred stock to investors (A, B, C, C-1, D, D-1, D-2, E, F-1, F-2, G, G-1, and H) as its primary financing vehicle to fund research and development and commercial stage maturity. For descriptions and discussion of Series preceding Series H, refer to the Capital Stock footnote in the Company's annual financial statements for the year ended December 31, 2024 contained in the prospectus filed on July 3, 2025 with the Securities and Exchange Commission, as part of the Company's Registration Statement (File No. 333-287148).

As of December 31, 2024, the Company had 14,461,804 shares of Series H Preferred Stock (“Series H”), par value $0.001 per share, for an original issue price of $4.83 per share. These shares were issued to various investors in the period of November 2019 to December 31, 2024 pursuant to the original financing round and subsequent extensions thereof, resulting in proceeds of $69,829 (net of issuance costs ofzero) as of December 31, 2024. There wereno issuances of Series H in the nine months ended September 30, 2025.

Immediately prior to the closing of the Company’s IPO on July 3, 2025 and upon the receipt by the Company of a written request consented to by holders of a majority of the Preferred Stock on July 2, 2025, all shares of the Company’s then-outstanding convertible preferred stock converted into shares of the Company’s common stock. Under the Company’s Amended and Restated Certificate of Incorporation, the Company is authorized to issue none and 153,682,280 shares of $0.001 par value convertible preferred stock as of September 30, 2025, and December 31, 2024, respectively.

Convertible preferred stock outstanding as of December 31, 2024 consisted of the following (in thousands, except share amounts.)

• Liquidation preference includes two times the original issue price per share.

All Series of preferred stock are collectively referred to as the “Preferred Stock”.

Convertible Preferred Stock - Conversion Rights

Preferred Stock shares might converted into shares of common stock at a ratio determined by dividing the original issuance price by the conversion price (the “Conversion Rate”). The conversion price was initially set at the original issuance price and might be adjusted downward, or upward, thereby reciprocally adjusting the Conversion Rate, for capital stock events such as stock splits, stock dividends, reorganizations, or other events where the consideration received relative to the number of shares issued would imperil or dilute holders of Preferred Stock. Thus, the Conversion Rate was 1:1 at original issuance. As further described in Note 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, under the caption "Reverse Stock Split", the Company effectuated a reverse split of its issued and outstanding common stock which resulted in an automatic adjustment (reduction) to the Conversion Rates on all Series of Preferred Stock; there were no adjustments to Conversion Rates on any Series of Preferred Stock since original issuance and prior to the Reverse Stock Split.

Preferred Stock shares converted to shares of common stock (i) electively, upon the receipt by the Company of a written request consented to by holders of at least a majority of the Preferred Stock then outstanding at the effective date specified in the request (provided further that such conversion should not occur for either of Series G-1 and Series H unless a majority of holders within each of those series so consents), or (ii) automatically, upon the closing of a firm commitment underwritten initial public offering pursuant to an effective registration statement filed under the Securities Act of 1933, as amended, provided that the offering price per share of common stock is not less than $9.66 or $9.99, depending on the Series (as adjusted for recapitalizations) and the aggregate gross proceeds to the Company are $25 million or greater. In connection with and prior to the amendment and restatement of the Company's amended and restated certificate of incorporation described in Note 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, under the caption "Reverse Stock Split", the holders of all Series of the Company's Preferred Stock elected, via written action, to convert all issued and outstanding Preferred Stock to common stock contingent upon the Company completing a planned initial public offering of its common stock.

Convertible Preferred Stock - Liquidation Preferences

Liquidation, for purposes of liquidation preferences that favor holders of Preferred Stock, meant a liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, an acquisition of the Company by another entity (other than a transaction which does not result in a change in the holders of at least 50% of voting stock outstanding before and after the transaction), or the sale, lease, exclusive license, or conveyance of all or substantially all of the Company’s assets.

The liquidation preference for each series of Preferred Stockwas the sum of(i) the original issuance price per share (as adjusted for recapitalizations) – that is, one times the original issue price, and (ii) all declared but unpaid dividends, with the exception of Series D-2, where the liquidation preference includes two times the original issue price per share.

Liquidation preferences were rank-ordered by priority group - first: Series E, F-1, F-2, G, G-1 and H; second: Series D-2; third: Series D and D-1; fourth and last: Series A, B, C, and C-1. Should distributable assets upon liquidation be insufficient to satisfy respective liquidation preferences within a priority group, the distributable assets were to be distributed to the stockholders within the priority group pro rata and in relationship to the proportion of available distributable assets to the full liquidation preferences that would otherwise be due. When distributable assets were sufficient for a priority group, the remaining distributable assets cascaded to the next priority group, and so on and so forth in descending order of priority group. Should remaining distributable assets exist, after satisfying the liquidation preferences of all Preferred Stock, such remainder were distributable to the holders of the Preferred Stock and common stock in proportion to the number of shares of common stock held by them on a combined basis, with the shares of Preferred Stock being treated as if converted.

Convertible Preferred Stock – Dividends

Outstanding shares of Preferred Stock were entitled to receive dividends, when, as and if declared by the Board of Directors at a dividend rate of 8.00% payable in preference and priority to any declaration or payment of any distribution related to common stock. The dividends were not cumulative and Preferred Stockholders did not acquire rights to dividends because they were not declared or paid in any given year. The Company has never declared or paid any dividends.

Convertible Preferred Stock - Voting Rights

The holders of Preferred Stock had the same voting rights as the holders of common stock, on an as-converted basis at the then-prevailing Conversion Rate.

As of December 31, 2024, the Board of Directors of the Company comprised eight members. Each holder of convertible preferred stock was entitled to the number of votes equal to the number of common stock shares into which the referred shares held by such holder converted. The holders of a majority of the voting shares were able to elect all of the directors.

Convertible Preferred Stock - Protective Provisions

As long as any Preferred Stock was issued and outstanding, the Company should not, without first obtaining the approval (by vote or written consent) of the holders of a majority of outstanding shares of Preferred Stock, voting together as a single class:

•Amend, alter or repeal any provision of the certificate of incorporation or bylaws (including pursuant to a merger) if such action would adversely affect the Preferred Stock;

•Increase or decrease the authorized number of shares of Preferred Stock (including any series thereof) or common stock;

•Authorize or create any new class or series of shares having rights, preferences or privileges senior to or on parity with any series of Preferred Stock;

•Voluntarily liquidate or dissolve, or enter into any transaction or series of related transactions deemed to be a liquidation, dissolution or any disposition of the Company’s property;

•Effect a firm commitment underwritten initial public offering pursuant to an effective registration statement filed under the Securities Act of 1933;

•Enter into any transaction (other than customary service or employment agreements) with any officer or director of the Company, or any party related thereto or affiliated therewith, unless approved by a majority of the Board of Directors;

•Issue any indebtedness that is convertible into any equity security, or incur any other indebtedness other than loans, leases and similar transactions in the ordinary course of business; and

•Redeem, repurchase or otherwise acquire any shares of Preferred Stock or common stock, except for the repurchase of shares of common stock from employees, officers, directors, consultants or other persons performing services pursuant to agreements granting the Company option or repurchase rights upon the occurrence of certain events.

11. COMMON STOCK

Historically and prior to the IPO, the Company had several Series of Preferred stock (A, B, C, C-1, D, D-1, D-2, E, F-1, F-2, G, G-1, and H) issued to investors as its primary financing vehicle to fund research and development and commercial stage maturity. For detailed information of the Company’s Preferred stock, please see Note 10. PREFERRED STOCK. Immediately prior to the closing of the Company’s IPO on July 3, 2025 and upon the receipt by the Company of a written request consented to by holders of a majority of the Preferred Stock on July 2, 2025, all shares of the Company’s then-outstanding convertible preferred stock converted into shares of the Company’s common stock.

On July 3, 2025, the Company completed its IPO of 5,500,000 shares of its common stock at a price to the public of $5.00 per share.

The Company granted to the IPO underwriters an overallotment option (the “Over-Allotment Option”) to purchase up to an additional 825,000 shares of Common Stock, which is equal to 15% of the number of shares of Common Stock sold in the Public Offering. Under the Over-Allotment Option the underwriters had the right to exercise this option, in whole or in part, for our common stock, any time during the 30-day period from the date of the closing of the IPO.

On July 18, 2025, a total of 129,978 shares of common stock were issued in connection with the partial exercise by the IPO underwriters of their Over-Allotment Option at a price to the public of $5.00 per share.

Common Stock Warrants

In connection with the IPO share issuances, as described in this Note above and in Note 1. DESCRIPTION OF BUSINESS AND ORGANIZATIONAL STRUCTURE, the Company issued to the IPO underwriters warrants to purchase an aggregate of 168,898 shares of Common Stock (including 3,898 shares of Common Stock issued in connection with the Over-allotment Exercise (the "Over-allotment Exercise Underwriters' Warrants"), collectively referred to as the “Underwriters' Warrants”. The Underwriters' Warrants are exercisable at a per share exercise price equal to $6.25 and are exercisable at any time and from time to time, in whole or in part, for a term offive years commencing from the first day of the seventh month after July 3, 2025 (the “Original Closing Date”), and terminating on July 1, 2030.

All of the Underwriters’ Warrants were outstanding as of September 30, 2025. The warrants were classified as equity and the fair value of $519 is reflected as additional paid-in capital. The Black-Scholes option-pricing model was used to estimate the fair value of the warrants with the following assumptions:

The fair value of the underlying common stock for the valuation of the Initial Placement Underwriters' Warrants was equal to the IPO price of $5.00 per share as of July 1, 2025, when the Company’s registration statement related to the IPO was declared effective. The fair value of the underlying common stock for the valuation of the Over-allotment exercise Underwriters' Warrants is based on the Company’s closing stock price on July 18, 2025.

Common Stock

Pursuant to the Company’s certificate of incorporation, as amended and restated, for its $0.001 par value common stock, the Company had 300,000,000 authorized shares at September 30, 2025 and 190,000,000 authorized shares at December 31, 2024, and had 46,798,901 and 2,090,945 issued and outstanding shares, as of September 30, 2025 and December 31, 2024, respectively.

Authorized common stock was reserved for future issuance as follows, including pursuant to outstanding equity awards and future equity awards under the 2005 Plan and the 2025 Plan.

12. STOCK-BASED COMPENSATION

2025 Stock Plan

The 2025 Plan, which was adopted by the Company's Board of Directors in May 2025 and approved by the Company's stockholders in June 2025, became effective upon the consummation of the IPO. Upon the effectiveness of the 2025 Plan, the 2005 Plan was terminated and no further grants may be made under the 2005 Plan. The Company's 2025 Plan provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, stock bonuses, restricted stock, stock units and other forms of awards including cash awards to its officers, directors, employees, consultants and advisors of the Company and its subsidiaries.

A total of 4,204,204 shares of the Company’s common stock were initially authorized for issuance with respect to awards granted under the 2025 Plan. Shares subject to outstanding awards granted under the 2005 Plan that are not paid, delivered or exercised before they expire or are canceled or terminated will be available for award grants under the 2025 Plan. In addition, the share limit will automatically increase on the first trading day in January of each year (commencing with 2026) by an amount equal to (1) 4% of the total number of shares of our common stock that are issued and outstanding on the last trading day in December in the prior year, or (2) lesser number as determined by the Company’s Board of Directors. Any shares subject to awards granted under the 2025 Plan that are not paid, delivered or exercised before they expire or are canceled or terminated, fail to vest, as well as shares used to pay the purchase or exercise price of awards or related tax withholding obligations, will become available for new award grants under the 2025 Plan. As of September 30, 2025, a total of 4,100,331 shares is available for award purposes under the 2025 Plan.

Amended and Restated 2005 Stock Plan

Pursuant to the 2005 Plan, the Company granted equity-based incentive awards prior to the IPO to the Company’s employees, directors, and consultants. The 2005 Plan permitted the grant of stock options (either Incentive Stock Options (“ISO” – employees only) or Non-Qualified Stock Options (“NQSO”)) and restricted stock awards (“RSA”); only ISOs and NQSOs were outstanding during the periods presented. Under the 2005 Plan,880,007 shares of common stock were reserved for issuance at December 31, 2024. Upon the effectiveness of the 2025 Plan, the 2005 Plan was terminated and no new awards were granted under the 2005 Plan after the IPO, and there wereno shares of common stock available for new award grants as of September 30, 2025 under the 2005 Plan.

Options granted to employees and non-employees contain only service vesting conditions, with typical grants vesting over afour-years period(vesting 25% on the first anniversary of the award and 1/48 th each month thereafter) but may be granted with different vesting profiles, including options that are vested-at-grant (immediate vesting) and that are subject to different vesting schedules. Options granted to employees and non-employees expire no more than 10 years from the date of grant.

The Company, outside of the 2005 Plan, previously issued an insignificant number of warrants to purchase its common stock; of these, all have expired or been exercised withno shares remaining outstanding at September 30, 2025 and 15,015 warranted common shares remaining outstanding at December 31, 2024. Being outside of the 2005 Plan, they are excluded from the stock option award activity and stock-based compensation presentations which follow. The Company previously recognized immaterial warrant-related expense.

Stock Option Modification

Effective August 27, 2025, the Company's Chief Financial Officer (the "Former Executive") stepped down from his position with the Company. As part of the termination of employment of the Former Executive, there were certain supplementary modifications to the Former Executive's non-vested stock option awards including acceleration of some non-vested shares and extension of their post-termination exercise period, and voluntary forfeiture of the remaining non-vested stock option awards. During the three months ended September 30, 2025, the Company recorded a one-time, noncash incremental stock-based compensation expense net of required reversal of previously recognized compensation in the amount of $159 related to these stock option award modifications which was included in General and administrative expenses in the condensed statement of operations. The Company accounted for the resulting net incremental stock option award modification compensation under ASC Topic 718, Compensation - Stock Compensation.

Stock Options

Stock option activity for the nine months ended September 30, 2025 was as follows.

The aggregate intrinsic values are calculated as the differences between the exercise prices of the underlying options and the fair value of the Company’s common stock for options that were in the money. The Company had 1,018,305 unvested stock options outstanding as of September 30, 2025.

During the nine months ended September 30, 2025 and 2024,389,980 and 253,024 stock options were exercised and satisfied with newly-issued shares, resulting in cash proceeds of $143 and $73, respectively.

The following table summarizes Black-Scholes option pricing model weighted-average assumptions; for the three months ended September 30, 2024 (*), there wereno grants.

In estimating the fair value of the underlying common stock prior to IPO, the Company utilized a third party professional valuation firm whose analyses supported management's concluded estimate. Post IPO the fair value of the underlying common stock is based on the Company’s closing stock price on the date of grant.

Restricted Stock Units

On September 15, 2025 the Company granted a total of 17,322 restricted stock units (RSUs) to its six non-employee directors utilizing a fair market value (FMV) of $4.33 per share of the Company's common stock on the grant date. These RSUs are scheduled to vest on December 31, 2025.

Stock-Based Compensation Expense

Stock-based compensation, measured at the grant date, is recognized ratably over the requisite service period, using the straight-line method of expense attribution. Forfeitures are accounted for as a reduction in expense in the period in which they occur; no compensation cost is recorded for awards that do not vest. The Company recognized total stock-based compensation expense for employees and non-employees as components of the statement of operations and comprehensive loss as follows.

13. SEGMENTS

The Company hasone operating (and reportable) segment known as the Capsule Endoscopy Segment; its chief operating decision maker is its Chief Executive Officer. The composition of this segment reflects the Company’s focus on capsule endoscope medical devices addressing different areas within the GI tract. Refer to Note 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES and Note 6. REVENUE AND DEFERRED REVENUE for descriptions of products and services. Segment accounting policies are the same as those described therein. The chief operating decision maker assesses performance for the Capsule Endoscopy Segment and decides how to allocate resources based upon net income (loss) as reported in the statement of operations and comprehensive loss; also considered is operating income (loss), measured on the same basis as in the statement of operations and comprehensive loss. Net income (loss) and operating income (loss) are used in the process of evaluating expenses and determining where to prioritize resources.

Segment assets are identical to those reported in the balance sheet as total assets. Segment revenue is identical to that reported in the statement of operations and comprehensive loss; significant segment expenses are identical to those identified in the statement of operations and comprehensive loss under the line items for selling and marketing expenses, research and development expenses, and general and administrative expenses. Other segment items are represented by non-operating income (expense), net (which includes insignificant interest income) and the provision for income taxes as reported in the statement of operations and comprehensive loss. Segment depreciation expense and capital expenditures are identical to amounts in the statement of cash flows.

14. INCOME TAXES

The provision for income taxes for the three and nine months ended September 30, 2025 and 2024 was not material. The Company continues to incur operating losses. The Company had an approximately zero effective tax rate for each of the three and nine months ended September 30, 2025 and 2024, respectively. The effective tax rates differ significantly from the U.S. statutory tax rate, primarily due to the Company’s maintenance of a full valuation allowance against its net deferred tax assets in all periods presented.

15. NET LOSS PER SHARE

Basic net loss per share is the same as diluted net loss per share as the inclusion of potential common shares outstanding would have been anti-dilutive. The Company's convertible preferred stock Series constitute participating securities; however, as a result of the net loss position, they are excluded from the calculation of basic net loss per share..

Potentially dilutive securities that were not included in the preceding calculations because they would be anti-dilutive were as follows.

16. RELATED PARTIES

For the three and nine months ended September 30, 2025, the Company's material transactions with related parties were limited to a promissory note described in Note 7. NOTE PAYABLE and certain R&D expenses ($298 and $960 for the three and nine months ended September 30, 2025, respectively) for non-recurring engineering services with an R&D and manufacturing services vendor that holds an insignificant percentage of the Company's capital stock. The outstanding balance for the non-recurring services was included in Accrued Expenses and Other Current Liabilities in the condensed balance sheet as of September 30, 2025.

There were no other material transactions with related parties during the three and nine months ended September 30, 2024 and no amounts due from or to related parties at September 30, 2025 or December 31, 2024, other than accrued R&D expenses.

17. SUBSEQUENT EVENTS

The Company has evaluated subsequent events for possible impact on the financial statements through November 13, 2025, the date these financial statements were available for issuance.

Effective November 3, 2025, David Garcia, Senior VP of Finance, has been appointed by the Board of Directors to serve as the Company’s principal financial officer and principal accounting officer. In connection with Mr. Garcia’s appointment, the Compensation Committee of the Board approved a stock option grant to purchase 165,000 shares of the Company’s common stock under the 2025 Plan. The per share exercise price of the option equals the closing price per share of the Company’s common stock on November 3, 2025. Twenty-five percent (25%) of the option is scheduled to vest and become exercisable on November 3, 2026. The remaining portion of the option is scheduled to vest and become exercisable in thirty-six (36) equal monthly installments on the same day of each successive calendar month following November 3, 2026.