CapsoVision, Inc 10-K

Item 8. Financial Statements and Supplementary Data INDEX TO FINANCIAL STATEMENTS Audited Financial Statements Report of Independent Registered Public Accounting Firm (PCAOB ID: 23 ) 114 Balance Sheets 115 Statements of Operations and Comprehensive Loss 117 Statements of Convertible Preferred Stock and Stockholders' Equity ( Deficit ) 118 Statements of Cash Flows 120 Notes to Financial Statements 121 113 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of CapsoVision, Inc. Opinion on the Financial Statements We have audited the accompanying balance sheets of CapsoVision, Inc. (the “Company”) as of December 31, 2025 and 2024, the related statements of operations and comprehensive loss, convertible preferred stock and stockholders’ equity (deficit) and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Going Concern Uncertainty The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses and negative cash outflows from operations. These matters raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Baker Tilly US, LLP Santa Clara, California March 26, 2026 We have served as the Company’s auditor since 2024. 114 CAPSOVISION, INC. BALANCE SHEETS (in thousands, except par value and share amounts) December 31, 2025 December 31, 2024 ASSETS Current Assets Cash and cash equivalents $ 10,112 $ 9,319 Accounts receivable, net 2,498 2,001 Inventory 2,987 2,629 Prepaid expenses and other current assets 1,072 898 Total current assets 16,669 14,847 Property and equipment, net 611 720 Operating lease right-of-use assets 843 1,195 Other long-term assets 41 41 TOTAL ASSETS $ 18,164 $ 16,803 LIABILITIES, CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ EQUITY (DEFICIT) Current Liabilities Accounts payable $ 1,143 $ 749 Accrued expenses and other current liabilities 2,697 569 Deferred revenue 177 132 Operating lease liabilities – current 410 351 Total current liabilities 4,427 1,801 Operating lease liabilities – long-term 477 887 Total liabilities 4,904 2,688 Commitments and contingencies - Note 9 Convertible Preferred Stock (each Series: $ 0.001 par value) Series A, B, C, C-1, D, D-1, D-2, E, F-1, F-2, G, G-1, H: none and 153,682,280 shares authorized, none and 38,665,583 issued and outstanding, and liquidation preference of none and $ 152,378 as of December 31, 2025 and December 31, 2024, respectively — 143,625 115 CAPSOVISION, INC. BALANCE SHEETS (continued) (in thousands, except par value and share amounts) December 31, 2025 December 31, 2024 Convertible Preferred Stock (each Series: $ 0.001 par value) (continued) Total convertible preferred stock — 143,625 Stockholders’ Equity Common stock, $ 0.001 par value: 300,000,000 and 190,000,000 shares authorized; 46,865,051 and 2,090,945 issued and outstanding as of December 31, 2025 and December 31, 2024, respectively 47 2 Additional paid-in capital 168,878 838 Accumulated deficit ( 155,665 ) ( 130,350 ) Total stockholders’ equity (deficit) 13,260 ( 129,510 ) TOTAL LIABILITIES, CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ EQUITY (DEFICIT) $ 18,164 $ 16,803 116 CAPSOVISION, INC. STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (in thousands, except share and per-share amounts) Years Ended December 31, 2025 2024 Net revenue $ 13,554 $ 11,756 Costs of revenue 6,381 $ 5,379 Gross profit 7,173 6,377 OPERATING EXPENSES Selling and marketing 7,530 6,967 Research and development 18,310 15,120 General and administrative 6,849 4,207 Total operating expenses 32,689 26,294 Operating loss ( 25,516 ) ( 19,917 ) NON-OPERATING INCOME Interest income, net 269 26 Other non-operating income (expense), net ( 44 ) 4 Total non-operating income, net 225 30 Loss before income taxes ( 25,291 ) ( 19,887 ) Provision for income taxes 24 11 Net loss and comprehensive loss $ ( 25,315 ) $ ( 19,898 ) Net loss per share – basic and diluted $ ( 1.03 ) $ ( 9.85 ) Weighted average common shares outstanding – basic and diluted 24,555,381 2,020,077 117 CAPSOVISION, INC. STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) (in thousands, except share amounts) Convertible Preferred Stock Common Stock Shares Amount Shares Par Value Additional Paid-in-Capital Accumulated Deficit Total Stockholders’ Equity (Deficit) December 31, 2023 35,559,025 $ 128,625 1,837,036 $ 2 $ 607 $ ( 110,452 ) $ ( 109,843 ) Issuance of Series H convertible preferred stock 3,106,558 15,000 — — — — — Issuance of common stock upon exercises of stock options — — 253,909 — 75 — 75 Stock-based compensation — — — — 156 — 156 Net loss — — — — — ( 19,898 ) ( 19,898 ) December 31, 2024 38,665,583 $ 143,625 2,090,945 $ 2 $ 838 $ ( 130,350 ) $ ( 129,510 ) Conversion of all convertible preferred stock to common stock - initial public offering ( 38,665,583 ) ( 143,625 ) 38,665,583 39 143,586 — 143,625 Issuance of common stock in initial public offering, net of issuance costs — — 5,629,978 6 22,848 — 22,854 Issuance of Underwriters Warrants — — — — 519 — 519 Issuance of common stock upon promissory note repayment — — 7,508 — 31 — 31 Reverse stock split rounddown and cash in lieu payment — — ( 108 ) — ( 1 ) — ( 1 ) Issuance of common stock upon exercises of stock options — — 438,808 — 158 — 158 The accompanying notes are an integral part of these financial statements. 118 CAPSOVISION, INC. STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED) (in thousands, except share amounts) Issuance of common stock upon exercises of warrants — — 15,015 — 73 — 73 Issuance of common stock upon vesting of restricted stock units — — 17,322 — — — — Stock-based compensation — — — — 826 — 826 Net loss — — — — — ( 25,315 ) ( 25,315 ) December 31, 2025 — $ — 46,865,051 $ 47 $ 168,878 $ ( 155,665 ) $ 13,260 The accompanying notes are an integral part of these financial statements. 119 CAPSOVISION, INC. STATEMENTS OF CASH FLOWS (in thousands) Year ended December 31, 2025 2024 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ ( 25,315 ) $ ( 19,898 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 216 206 Loss on disposal of property and equipment 1 — Amortization of operating lease right-of-use assets 351 315 Unrealized foreign exchange (gains) losses ( 173 ) 103 Stock in lieu of debt repayment 31 — Stock-based compensation 826 156 Bad debt expense 11 8 Changes in operating assets and liabilities: Accounts receivable ( 478 ) ( 176 ) Inventory ( 358 ) ( 434 ) Prepaid expenses and other current assets ( 174 ) ( 316 ) Other long-term assets — 1 Accounts payable 376 388 Accrued expenses and other current liabilities 2,128 ( 204 ) Deferred revenue 45 36 Operating lease liabilities ( 351 ) ( 276 ) Net cash used in operating activities $ ( 22,864 ) $ ( 20,091 ) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment ( 90 ) ( 153 ) Net cash used in investing activities $ ( 90 ) $ ( 153 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of Series H convertible preferred stock — 15,000 Proceeds from IPO, net of commissions 26,557 — Payment of IPO offering costs ( 3,184 ) — Proceeds from promissory note issuance 1,000 — Repayment of promissory note ( 1,000 ) — Proceeds from exercises of options on common stock and warrants 231 74 Net cash provided by financing activities $ 23,604 $ 15,074 Net increase (decrease) in cash and cash equivalents 650 ( 5,170 ) Effect of exchange rate changes on cash and cash equivalents 143 ( 70 ) Cash and cash equivalents at beginning of period 9,319 14,559 Cash and cash equivalents at end of year $ 10,112 $ 9,319 SUPPLEMENTAL CASH FLOW DISCLOSURES Cash paid for income taxes $ 9 $ 6 Cash paid for interest 15 — NON-CASH FINANCING AND INVESTING ACTIVITIES The accompanying notes are an integral part of these financial statements. 120 CAPSOVISION, INC. STATEMENTS OF CASH FLOWS (in thousands) Underwriters warrants issued in connection with the IPO $ 519 — Conversion of convertible preferred stock into common stock upon initial public offering $ 143,625 — CAPSOVISION, INC. NOTES TO FINANCIAL STATEMENTS (in thousands, except share and per-share amounts) 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 third 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 The accompanying notes are an integral part of these financial statements. 121 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 December 31, 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 December 31, 2025, the Company had cash and cash equivalents of $ 10,112 . For the year then ended December 31, 2025, the Company had an operating loss of $ 25,516 , a net loss and comprehensive loss of $ 25,315 , and net cash used in operating activities of $ 22,864 . 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, as well as subsequent private placement further discussed in 17. SUBSEQUENT EVENTS, 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, but 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 The accompanying 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”). 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. Reporting Entity The Company’s organizational structure reflects a single incorporated entity, CapsoVision, Inc.. This single entity has a foreign branch and physical presence in Taiwan, Republic of China, which is an extension of the U.S. corporation. The accompanying notes are an integral part of these financial statements. 122 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 years ended December 31, 2025 and 2024, the Company recorded $ 193 and $( 93 ), respectively, of net foreign exchange gains (losses) 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 valuation, 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 The accompanying notes are an integral part of these financial statements. 123 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 year ended December 31, 2025, the same customer represented 9 % of our revenue and 22 % of our accounts receivable as of December 31, 2025. For the year ended December 31, 2024, that same customer represented 10 % of our revenue and 21 % of our accounts receivable as of December 31, 2024. 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 The accompanying notes are an integral part of these financial statements. 124 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 constrained to 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. The accompanying notes are an integral part of these financial statements. 125 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 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 $ 117 and $ 51 for the years ended December 31, 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 were nil 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 accompanying notes are an integral part of these financial statements. 126 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 years ended December 31, 2025 and 2024, the Company incurred $ 6,391 and $ 7,647 , 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 or warrants 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. Asset Class Estimated Useful Life Machinery & equipment 5 years Computer equipment and office equipment 3 to 5 years The accompanying notes are an integral part of these financial statements. 127 Purchased software 3 to 5 years Leasehold improvements Shorter of remaining lease term or useful life 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 Securities has 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 The accompanying notes are an integral part of these financial statements. 128 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 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 December 31, 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 ("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. The accompanying notes are an integral part of these financial statements. 129 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 December 31, 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. In June 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 Company adopted this standard for the fiscal year 2025 annual financial statements and has applied this standard prospectively which had a disclosure only impact on its financial statements. See Note 14. INCOME TAXES. Accounting Pronouncements Issued and Not Yet Adopted 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 The accompanying notes are an integral part of these financial statements. 130 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. In September 2025, the FASB issued ASU 2025-06, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software , which amends certain aspects of the accounting for and disclosure of internal-use software costs. The amendments are effective for all entities for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. Early adoption is permitted and the amendments should be applied either prospectively to financial statements issued for reporting periods after the effective date, retrospectively to any or all prior periods presented in the financial statements, or through a modified prospective transition approach which is based on the status of the project and whether software costs were capitalized before the date of adoption. The Company is currently evaluating the impact ASU 2025-06 will have on its disclosures. In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements, which provides clarity about current interim disclosure requirements and adds a disclosure principle that requires entities to disclose events since the end of the last annual reporting period that have a material impact on the entity. The amendments are effective for interim reporting periods within annual reporting periods beginning after December 15, 2027, for public business entities and for interim reporting periods within annual reporting periods beginning after December 15, 2028, for entities other than public business entities. Early adoption is permitted for all entities. The amendments in this Update can be applied either (1) prospectively or (2) retrospectively to any or all prior periods presented in the financial statements. At the same time, the FASB issued ASU 2025-12 - Codification Improvements . The amendments are effective for all entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. Early adoption is permitted in both interim and annual reporting periods in which financial statements have not yet been issued or made available for issuance. If an entity adopts the amendments in this Update in an interim period, it must adopt them as of the beginning of the annual reporting period that includes that interim reporting period. An entity may elect to early adopt the amendments on an issue-by-issue basis. The Company is currently evaluating the impact ASU 2025-11 and ASU 2025-12 will have on its disclosures. 4. FAIR VALUE MEASUREMENTS The Company’s demand deposit accounts include money market demand deposits which constitute cash, 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: December 31, 2025 December 31, 2024 Finished goods $ 107 $ 176 Work in process 994 897 Raw materials 1,886 1,556 Inventory $ 2,987 $ 2,629 The accompanying notes are an integral part of these financial statements. 131 For the years ended December 31, 2025 and December 31, 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: December 31, 2025 December 31, 2024 Prepayment for insurance $ 324 $ 64 Advance payments for inventory purchases $ 300 $ 349 Deferred initial public offering costs — 225 Other 448 260 Prepaid expenses and other current assets $ 1,072 $ 898 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: December 31, 2025 December 31, 2024 Machinery and equipment $ 928 $ 821 Computer equipment, office equipment, and purchased software 101 101 Leasehold improvements 157 157 Accumulated depreciation and amortization ( 575 ) ( 359 ) Property and equipment, net $ 611 $ 720 Depreciation and amortization expenses of $ 216 and $ 206 for the years ended December 31, 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: December 31, 2025 December 31, 2024 Accrued compensation $ 568 $ 349 Accrued clinical trial expenses 83 13 Accrued R&D expenses 1,448 — Accrued sales taxes 79 67 Other 519 140 Accrued expenses and other current liabilities $ 2,697 $ 569 The accompanying notes are an integral part of these financial statements. 132 6. REVENUE AND DEFERRED REVENUE Total revenue disaggregated by geographic source, type of customer, and products or services was as follows. Years Ended December 31, 2025 2024 United States (medical practice, clinic, and hospital customers): Products (capsules and capsule reading devices) $ 9,741 $ 8,302 Services (cloud-based video delivery and reading services) 916 780 Outside United States (distributor customers): Products (capsules and capsule reading devices) 2,897 2,674 Total revenue $ 13,554 $ 11,756 For the years ended December 31, 2025 and 2024, U.S. service revenues included (i) $ 621 and $ 548 , 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) $ 295 and $ 232 , respectively, of revenue from the provision of video reading to customers (recognized at a point in time upon provision of deliverables). Product revenues outside the United States are attributable to individual foreign countries based upon shipment destination. The Company’s distributor customers outside the United States typically serve the countries in which they are domiciled (and may distribute to adjacent countries or territories). Outside the United States, for the year ended December 31, 2025, product revenues included $ 1,248 and $ 598 attributable to France and Germany, respectively, with the balance attributable to other countries; for the year ended December 31, 2024 product revenues included $ 1,160 and $ 565 attributable to France and Germany, respectively, with the balance attributable to other countries. 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 $ 177 , $ 132 and $ 96 as of December 31, 2025, December 31, 2024 and December 31, 2023, respectively. During the year ended December 31, 2025, the Company recognized $ 132 of revenue that was included in deferred revenue as of December 31, 2024. During the year ended December 31, 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 $ 110 and $ 103 for the years ended December 31, 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 The accompanying notes are an integral part of these financial statements. 133 $ 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 under one year to approximately two years as of December 31, 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 of three 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. Years Ended December 31, 2025 2024 Operating lease expense $ 474 $ 476 Short-term lease expense 37 34 Total lease expense $ 511 $ 510 Lease-related amounts reflected in the balance sheet and data related thereto were as follows. December 31, 2025 December 31, 2024 Operating lease right-of-use assets $ 843 $ 1,195 Operating lease liabilities - current $ 410 $ 351 Operating lease liabilities – long-term 477 887 Total operating lease liabilities $ 887 $ 1,238 Weighted average remaining lease term 2.0 years 3.0 years Weighted average discount rate 11.8 % 11.8 % Years Ended December 31, 2025 2024 Variable lease payments related to operating leases $ — $ 39 Cash payments related to operating leases $ 474 $ 437 The accompanying notes are an integral part of these financial statements. 134 Future minimum lease payments under non-cancellable leases are as follows as of December 31, 2025. 2026 488 2027 503 Less: interest ( 104 ) Total operating lease liabilities $ 887 9. COMMITMENTS AND CONTINGENCIES Purchase Commitments The Company, post-acquisition of raw materials, relies significantly upon third-party contract manufacturers located in Taiwan. 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. Additionally, due to the changes in the development scope by the end of fiscal year 2025, Canon and the Company agreed to increase the development fee by $ 1.0 million and executed an amendment to the original development agreement in March 2026. For the year ended December 31, 2025 we recognized $ 2.4 million in R&D expenses. The outstanding balance due to Canon was $ 1.4 million and included in Accrued Expenses and Other Current Liabilities in the balance sheet as of December 31, 2025. The outstanding purchase commitment for this agreement as of December 31, 2025 is $ 2.7 million. Receipt of Federal Government Assistance In April 2025, the Company received cash related to refundable payroll tax credits from the U.S. Federal government in the amount of $ 208 reflecting receipt of credit claims related to calendar 2020 and 2021 remitted to the U.S. Internal Revenue Service under the Employee Retention Credit program, a source of COVID-19 pandemic era Federal relief. This amount, due to the uncertainty of eventual receipt following claims made, was not recognized until receipt in the year ended December 31, 2025 and was reflected within general and administrative expenses given its relationship to payroll taxes reflected as operating expenses. There can be no assurance that the Company’s program benefit received may not be examined, and if examined, possibly challenged as to a portion or all of the benefit received which, if required to be returned, would have an adverse impact on the Company’s liquidity. 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 The accompanying notes are an integral part of these financial statements. 135 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 December 31, 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 of zero ) as of December 31, 2024. There were no issuances of Series H in the year ended December 31, 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 December 31, 2025, and December 31, 2024, respectively. Convertible preferred stock outstanding as of December 31, 2024 consisted of the following (in thousands, except share amounts.) Series Year Shares Liquidation Carrying Preferred Issued Authorized Outstanding Amount Value Series A 2006 17,962,675 5,394,197 $ 4,850 $ 4,850 Series B 2008 6,000,000 1,801,802 $ 4,319 $ 4,319 Series C 2010 5,747,127 880,187 $ 2,550 $ 2,550 Series C-1 2011 3,876,405 848,599 $ 2,515 $ 2,515 Series D 2011 2,222,222 520,519 $ 1,560 $ 1,560 Series D-1 2012 6,766,666 166,833 $ 500 $ 500 Series D-2* 2012 11,083,333 2,920,649 $ 17,506 $ 8,753 Series E 2014 14,000,000 4,151,977 $ 15,900 $ 15,900 Series F-1 2016 13,043,479 1,201,203 $ 4,600 $ 4,600 Series F-2 2016 12,000,000 2,498,498 $ 10,400 $ 10,400 Series G 2018 5,926,000 1,779,559 $ 8,000 $ 8,000 Series G-1 2018 6,896,552 2,039,756 $ 9,849 $ 9,849 Series H 2019 48,157,821 14,461,804 $ 69,829 $ 69,829 153,682,280 38,665,583 $ 152,378 $ 143,625 * Liquidation preference includes two times the original issue price per share. All Series of preferred stock are collectively referred to as the “Preferred Stock”. The accompanying notes are an integral part of these financial statements. 136 Convertible Preferred Stock - Conversion Rights Preferred Stock shares might be 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 Stock was 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. The accompanying notes are an integral part of these financial statements. 137 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. The accompanying notes are an integral part of these financial statements. 138 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, 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 of five 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 December 31, 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: Initial Placement Underwriters' Warrants Over-allotment exercise Underwriters' Warrants Risk-free interest rate 3.94 % 3.96 % Expected term 5 years 4.96 years Volatility of common stock 78.83 % 78.94 % Expected dividend rate — % — % 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 December 31, 2025 and 190,000,000 authorized shares at December 31, 2024, and had 46,865,051 and 2,090,945 issued and outstanding shares, as of December 31, 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. The accompanying notes are an integral part of these financial statements. 139 December 31, 2025 December 31, 2024 Conversion of preferred stock — 38,665,583 Exercises of stock options under 2005 Plan 1,627,097 2,298,947 Exercises of stock options under 2025 Plan 348,551 — Exercises of warrants 168,898 15,015 Reserved for future grants under 2005 Plan — 880,007 Reserved for future grants under 2025 Plan 3,838,331 — Total reserved shares of common stock 5,982,877 41,859,552 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. 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 December 31, 2025, a total of 3,838,331 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 were no shares of common stock available for new award grants as of December 31, 2025 under the 2005 Plan. Options granted to employees and non-employees contain only service vesting conditions, with typical grants vesting over a four-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 with no shares remaining outstanding at December 31, 2025 and 15,015 warranted common shares remaining outstanding at December 31, 2024. Being The accompanying notes are an integral part of these financial statements. 140 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 year ended December 31, 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 in accordance with ASC Topic 718, Compensation - Stock Compensation . Stock Options Stock option activity for the year ended December 31, 2025 was as follows. Options on Common Stock Weighted Average Exercise Price Weighted Average Remaining Contractual Life (years) Aggregate Intrinsic Value Outstanding (vested and expected to vest) as of December 31, 2024 2,298,905 $ 0.47 7.5 $ 4,961 Granted 534,722 5.20 Exercised ( 438,808 ) 0.36 4,532 Forfeited, canceled, or expired ( 419,171 ) 0.66 Outstanding (vested and expected to vest) as of December 31, 2025 1,975,648 1.74 7.2 $ 17,869 Exercisable as of December 31, 2025 880,289 0.46 4.7 $ 9,005 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 1,095,359 unvested stock options outstanding as of December 31, 2025. As of December 31, 2025, unrecognized compensation cost of $ 2,734 related to outstanding unvested stock options is expected to be recognized as expense over a weighted average period of 1.8 years. The weighted-average fair value of options granted during the years ended December 31, 2025 and 2024, was $ 3.70 and $ 1.83 per share, respectively. The total fair value of options vested were $ 798 and $ 72 during the years ended December 31, 2025 and 2024, respectively. During the years ended December 31, 2025 and 2024, 438,808 and 253,909 stock options were exercised and satisfied with newly-issued shares, resulting in cash proceeds of $ 158 and $ 75 , respectively. The accompanying notes are an integral part of these financial statements. 141 The following table summarizes Black-Scholes option pricing model weighted-average assumptions. Year Ended December 31 2025 2024 Risk-free interest rate 3.81 % 4.30 % Expected term 6.05 years 6.05 years Volatility of common stock 79.6 % 73.4 % Expected dividend rate — % — % In estimating the fair value of the underlying common stock prior to IPO, the Company utilized a third party 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 vested on December 31, 2025. Restricted Stock Units Weighted Average Grant Date Fair Value per Share Outstanding as of December 31, 2024 — Granted 17,322 $ 4.33 Vested ( 17,322 ) Outstanding as of December 31, 2025 — For the year ended December 31, 2025, the Company recorded $ 75 in stock-based compensation related to RSUs. The total fair value of RSUs vested during the year ended December 31, 2025 was approximately $ 185 . 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. Years Ended December 31, 2025 2024 Costs of revenue $ 9 $ 2 Selling and marketing 20 17 Research and development 212 53 General and administrative 585 84 Total stock-based compensation expense $ 826 $ 156 The accompanying notes are an integral part of these financial statements. 142 13. SEGMENTS The Company has one 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 domestic and foreign components of loss before income taxes are as follows. Year ended December 31, 2025 2024 Domestic $ ( 24,424 ) $ ( 19,220 ) Foreign ( 867 ) ( 667 ) Loss before income taxes $ ( 25,291 ) $ ( 19,887 ) The components of the income tax provision are as follows. Year ended December 31, 2025 2024 Current provision U.S. Federal $ — $ — U.S. State 11 4 Foreign 13 7 Total current provision $ 24 $ 11 Deferred provision U.S. Federal — — U.S. State — — Foreign — — Total deferred provision — — Total income tax provision $ 24 $ 11 The accompanying notes are an integral part of these financial statements. 143 The reconciliation between the Company's effective tax rate and the statutory tax rate for the year ended December 31, 2025 is as follows: Year Ended December 31, 2025 Amount Percent U.S. Federal statutory tax rate $ ( 5,311 ) 21.0 % State and local income tax, net of federal taxes 11 ( 0.04 ) % Foreign tax effects Taiwan Local income taxes 13 ( 0.05 ) % Effects of changes in tax laws or rates enacted in the current period — — % Tax credits Research and development tax credits — — % Changes in valuation allowance 5,213 ( 20.6 ) % Nontaxable or nondeductible items 100 ( 0.4 ) % Other Adjustments ( 1 ) — % Total effective tax rate $ 24 ( 0.1 ) % The reconciliation between the Company's effective tax rate and the statutory tax rate for the year ended December 31, 2024 is as follows: Year Ended December 31, 2024 Federal statutory income tax rate 21.0 % Permanent book-tax differences ( 0.4 ) % State income taxes, net of federal benefit 3.7 % Federal and State research and development tax credits ( 0.8 ) % Change in valuation allowance ( 23.6 ) % Other — % Total effective tax rate ( 0.1 ) % The amounts of cash paid for income taxes by the Company are as follows: Amount California $ 1 Massachusetts 0.5 North Carolina 1.0 New York State 5.6 Total cash paid for income taxes (net of refunds) $ 8 On July 4, 2025, the One Big Beautiful Bill was enacted (“OBBBA”), introducing significant and wide-ranging changes to the U.S. federal tax system. Significant components include restoration of 100% accelerated tax depreciation on qualifying property including expansion to cover qualified production property. Another major aspect includes the return to immediate expensing of domestic research and experimental expenditures (“R&E”) which in some cases may include retroactive application back to 2021 for businesses with gross receipts of less than $31 million or accelerated tax deductions of R&E that was previously capitalized for larger businesses. The The accompanying notes are an integral part of these financial statements. 144 legislation also reinstates EBITDA-based interest deductions for tax purposes and makes several business tax incentives permanent. Less favorable business provisions include limitations on tax deductions for charitable contributions. Deferred income taxes are accounted for using the asset and liability method, which requires recognition of deferred tax assets and liabilities for the expected future consequences of temporary differences between the financial reporting basis and the tax basis of assets and liabilities, as measured by enacted state and federal tax rates. The main components of deferred tax assets (liabilities) are as follows. December 31, 2025 December 31, 2024 Deferred tax assets: Net operating loss carryforwards $ 32,568 $ 26,441 Capitalized R&D expenses 5,087 5,657 Research and development tax credits 1,318 1,318 Accrued expenses 443 95 Operating lease liabilities 212 306 Other 42 13 Total deferred tax assets 39,670 33,830 Valuation allowance ( 39,295 ) ( 33,384 ) Deferred tax assets less valuation allowance 375 446 Deferred tax liabilities: Depreciation ( 132 ) ( 151 ) Operating lease right-of-use assets ( 202 ) ( 295 ) Unrealized gains/losses ( 41 ) — Total deferred tax liabilities ( 375 ) ( 446 ) Net deferred tax assets $ — $ — Valuation Allowance Considerations A valuation allowance against a deferred tax asset must be established when it is “more likely than not” that all, or a portion of, deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. After consideration of all the information available, in particular the Company’s accumulated deficit and history of operating losses, it was concluded that uncertainty exists with respect to future realization of deferred tax assets. The valuation allowance increased during the years ended December 31, 2025 and December 31, 2024 in the amounts of $ 5,912 and $ 4,700 , respectively. Net Operating Losses and Tax Credit Carryforwards The Company has experienced and generated net operating losses (“NOLs”) for tax purposes since inception. As of December 31, 2025 (December 31, 2024), total available gross (pre-tax) Federal and U.S. state NOL carryforward amounts were $ 126,094 and $ 93,244 ($ 100,304 and $ 79,481 ), respectively. Under the Federal Tax Cuts and Jobs Act of 2017, NOLs incurred in tax years beginning on or after January 1, 2018, are carried forward indefinitely and subject to a usage limitation of 80% of taxable income; NOLs incurred in tax years prior to January 1, 2018, are subject to a twenty-year carryforward before expiring and not subject to a usage limitation of taxable income. As of December 31, 2025 (December 31, 2024), total Federal and U.S. state research and development tax credit carryforward amounts, net of unrecognized tax benefits, were 1,318 ( 1,318 ), respectively. The accompanying notes are an integral part of these financial statements. 145 NOLs and tax credit carryforward values are as follows as of December 31, 2025. Amount Expiration Term Net Operating Losses (gross; pre-tax) NOLs – Federal (arising after December 31, 2017) $ 77,974 No expiry NOLs – Federal (arising before January 1, 2018) $ 48,120 2027 NOLs – State - indefinite $ 3,327 No expiry NOLs – State – definite lived $ 89,917 2028 R&D Tax Credits R&D tax credits – Federal and State $ 1,318 2033 Utilization of NOL carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 as amended (“Section 382”), or, for states, state laws, due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50% over a three-year period. The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception. If the Company has experienced a change of control, as defined by Section 382, at any time since inception, utilization of the NOL carryforwards or research and development tax credit carryforwards would be subject to an annual limitation under Section 382. Any limitation may result in expiration of a portion of the NOL carryforwards or research and development tax credit carryforwards before utilization. Section 174 Capitalization OBBBA made changes to Section 174 of the Internal Revenue Code of 1986 as amended for taxable years beginning December 31, 2024 with the Company being able to deduct domestic research and experimental (R&E) expenditures in the year they are incurred when before these costs were capitalized and amortized over 5 years. The Company is still required to capitalize foreign R&E costs and amortize them over 15 years. For the tax year ended December 31, 2025 the Company incurred $ 3,545 of foreign R&D expenses which were capitalized and are being amortized over the respective period noted above. For the tax year ended December 31, 2024 the Company incurred $ 13,910 and $ 1,116 of domestic and foreign R&D expenses, respectively, which were capitalized and are being amortized over the respective periods noted above. These amounts are reflected in gross deferred tax assets (together with previous periods’ amounts, net of amounts amortized for tax purposes). The accompanying notes are an integral part of these financial statements. 146 Uncertain Tax Positions A reconciliation of the beginning and ending balance of total unrecognized tax benefits on a tax-effected basis for follows; these relate principally to research and development credit carryforwards. Unrecognized tax benefits, December 31, 2023 $ 1,634 Additions for current tax positions 3 Changes for previous tax positions ( 165 ) Unrecognized tax benefits, December 31, 2024 $ 1,472 Additions for current tax positions 12 Changes for previous tax positions — Unrecognized tax benefits, December 31, 2025 $ 1,484 The Company has not yet conducted a study of its research and development credit carryforwards. This study may result in an adjustment to the Company’s research and development credit carryforwards; however, until a study is completed and any adjustment is known, the tax assets associated with the research and development credit carryforwards have been fully offset with a reserve. A full valuation allowance has been provided against the Company’s net deferred tax assets, and if an adjustment to the net unrecognized tax benefits were to occur, this adjustment would be offset by an equal adjustment to the valuation allowance. The Company has recognized no interest and penalties associated with substantially all of its unrecognized tax benefits. There are no tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within twelve months of the reporting date. The Company files U.S. Federal and State income tax returns in jurisdictions with varying statutes of limitations. In the normal course of business, the Company is subject to examination by taxing authorities throughout the U.S. These examinations could include examining the timing and amount of deductions, the allocation of income among various tax jurisdictions and compliance with laws. The Company’s remaining open tax years subject to examination by federal and state tax authorities include the years ended December 31, 2019, through 2025 in the U.S and December 31, 2020 through 2025 in the Company’s foreign operations. However, for tax years from inception through the present, federal and state taxing authorities may examine and adjust loss carryforwards in the years in which those loss carryforwards are ultimately utilized. There are currently no pending income tax examinations. 15. NET LOSS PER SHARE Years Ended December 31, 2025 2024 Numerator: Net loss – basic and diluted $ ( 25,315 ) $ ( 19,898 ) Denominator: Weighted-average number of shares of common stock outstanding – basic and diluted 24,555,381 2,020,077 Net loss per share – basic and diluted $ ( 1.03 ) $ ( 9.85 ) 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 The accompanying notes are an integral part of these financial statements. 147 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. Years Ended December 31, 2025 2024 Convertible preferred stock (all series) 19,279,825 38,665,583 Warrants on common stock 90,763 15,015 Options on common stock 2,027,469 2,298,947 Restricted Stock Units 5,078 — Total 21,403,135 40,979,545 16. RELATED PARTIES For the year ended December 31, 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 ($ 1,207 and $ 320 for the years ended December 31, 2025 and December 31, 2024, 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. There were no other material transactions with related parties during the years ended December 31, 2025 and December 31, 2024 and no amounts due from or to related parties at December 31, 2025 or December 31, 2024. 17. SUBSEQUENT EVENTS On February 12, 2026 the Company signed a consulting agreement with Wen-Hung Tsai, one of the Company's shareholders and a former member of the Company's Board of Directors (till February 26, 2024). Per the consulting agreement Mr.Wen-Hung Tsai will provide strategic advice, help with industrial affiliation and partnerships, as well as work on the supply chain establishment for new products. As compensation for his services, the Company granted to Mr.Wen-Hung Tsai on February 12, 2026 an option to purchase 250,000 shares of the Company's Common Stock under the Company’s 2025 Equity Incentive Plan. Eighty percent ( 80 %) of the option grant is scheduled to vest and become exercisable on February 12, 2027. The remaining portion of the option grant is scheduled to vest and become exercisable in three ( 3 ) equal monthly installments on the same day of each successful calendar month following February 12, 2027. On March 16, 2026 , the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with selected accredited investors (the “Investors”), for the purposes of raising approximately $ 14 million in aggregate gross proceeds for the Company (the “Private Placement”). Pursuant to the terms of the Securities Purchase Agreement, the Company agreed to issue and sell to the Investors in the Private Placement an aggregate of 2,867,089 shares (the “Shares”) of common stock of the Company, par value $ 0.001 per share (the “Common Stock”), at $ 4.883 per Share. The closing of the Private Placement occurred on March 16, 2026 . The Company intends to use the net proceeds from the Private Placement for general corporate purposes, including sales and marketing, research and development activities, general and administrative matters, working capital and capital expenditures. In connection with the Private Placement, the Company entered into a registration rights agreement, dated March 16, 2026 (the “Registration Rights Agreement”), with the Investors, pursuant to which, among other things, the Company will (i) prepare and file with the Securities and Exchange Commission (the “SEC”) a registration statement to register for resale the Shares within 90 days after the closing of the Private Placement, and (ii) use commercially reasonable efforts to have such registration statement declared effective as soon as reasonably The accompanying notes are an integral part of these financial statements. 148 practicable following the filing thereof with the SEC. The Registration Rights Agreement contains customary terms and conditions for a transaction of this type. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures None.