What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-03-04 compared with 2024-03-05 · 156 added, 146 removed, 690 unchanged (30% of the section changed)

30 unchanged sentences

As disclosed in Note 6 to the financial statements, the Company has a term loan maturing in September 2026.

Management’s evaluation of the events and conditions related to future funding are described in Note 1.

Management’s evaluation of the events and conditions related to this matter are described in Note 1.

/s/ PricewaterhouseCoopers LLP

34 unchanged sentences

Additional paid-in-capital 538,933 524,435

Accumulated other comprehensive loss — ( 1,108 )

Accumulated deficit ( 530,950 ) ( 503,809 )

17 unchanged sentences

Other income (expense), net 304 ( 315 )

Net loss $ ( 32,956 ) $ ( 47,082 )

Unrealized loss on available-for-sale debt securities — ( 836 )

Comprehensive loss $ ( 32,956 ) $ ( 47,918 )

Net loss and comprehensive loss $ ( 27,141 ) $ ( 32,956 )

Net loss per share attributable to common stockholders, basic and diluted $ ( 0.93 ) $ ( 1.27 )

7 unchanged sentences

Net loss — — — — ( 32,956 ) ( 32,956 )

Unrealized loss on available-for-sale debt securities — — — ( 836 ) — ( 836 )

Unrealized loss adjustment for short-term investment — — — 1,108 — 1,108

Issuance of common stock pursuant to stock option exercises 889,968 1 148 — — 149

Issuance of common stock pursuant to Employee Stock Purchase Plan 280,599 — 654 — — 654

Issuance of common stock as part of At-the-Market offering, net of sales commission and offering expenses of $ 509

933,500 1 7,621 — — 7,622

Issuance of common stock upon vesting of restricted stock units 728,986 1 ( 1 ) — — —

6 unchanged sentences

Net loss — — — — ( 27,141 ) ( 27,141 )

Unrealized loss adjustment for short-term investment — — — 1,108 — 1,108

Issuance of common stock pursuant to stock option exercises 556,718 1 809 — — 810

Issuance of common stock pursuant to Employee Stock Purchase Plan 202,616 — 1,121 — — 1,121

Issuance of common stock as part of At-the-Market offering, net of issuance costs of $ 509

Issuance of common stock as part of At-the-Market offering, net of sales commission and offering expenses of $ 212

444,555 — 3,167 — — 3,167

20 unchanged sentences

Amortization of right-of-use asset 1,562 1,433

Loss on short-term investments 315 356

(Gain) loss on short-term investments ( 229 ) 315

Inventory write-downs 251 196

15 unchanged sentences

Taxes withheld and paid related to net share settlement of equity awards ( 881 ) ( 259 )

Proceeds from at-the-market offering, net of issuance costs 7,888 —

Proceeds from At-the-Market offering, net of sales commission 3,277 7,888

Payment of deferred offering costs — ( 305 )

Net cash provided by financing activities 4,327 8,127

Net increase (decrease) in cash and cash equivalents 11,453 ( 12,582 )

Net (decrease) increase in cash and cash equivalents ( 4,628 ) 11,453

Cash, cash equivalents and restricted cash

11 unchanged sentences

Statements of Cash Flows

Operating lease right-of-use asset obtained in exchange for lease obligations $ — $ 10,700

Net change in accrued liabilities from early exercise of options $ ( 1 ) $ ( 1 )

5 unchanged sentences

NeuroPace, Inc., or the Company, was incorporated in the state of Delaware on November 19, 1997.

The Company is a medical device company that has developed the RNS System, the only commercially available brain-responsive neuromodulation system designed for treating medically refractory focal epilepsy by delivering personalized, real-time treatment at the seizure source.

The Company is a medical device company that has developed the RNS System, the only commercially available brain-responsive neuromodulation system designed for treating drug-resistant focal epilepsy by delivering personalized, real-time treatment at the seizure source.

The Company began commercializing its products in the United States in 2014.

At-the-Market Equity Offering

In November 2022, the Company filed a Registration Statement on Form S-3, or Shelf, with the Securities and Exchange Commission in relation to the registration of common stock, preferred stock, debt securities, warrants or any combination thereof for up to an aggregate of $ 150.0 million, of which $ 50.0 million may be issued and sold pursuant to an at-the-market, or ATM, offering program for sales of the Company’s common stock under a sales agreement, or Sales Agreement, with Leerink Partners LLC, or Leerink (formerly SVB Securities LLC).

In November 2022, the Company filed a Registration Statement on Form S-3, or Shelf, with the Securities and Exchange Commission, or the SEC, in relation to the registration of common stock, preferred stock, debt securities, warrants or any combination thereof for up to an aggregate of $ 150.0 million, of which $ 50.0 million may be issued and sold pursuant to an at-the-market, or ATM, offering program for sales of the Company’s common stock under a sales agreement, or Sales Agreement, with Leerink Partners LLC, or Leerink (formerly SVB Securities LLC).

The Company agreed to pay Leerink up to 3.0 % of the gross proceeds of sales of common stock made through the Sales Agreement.

The Company’s common stock would be sold at prevailing market prices at the time of the sale and, as a result, prices may vary.

In November 2023, the Company issued and sold 933,500 shares of common stock under the Sales Agreement for gross proceeds of $ 8.1 million.

The shares were sold at a weighted average price of $ 8.71 per share for aggregate net proceeds of approximately $ 7.6 million, after deducting sales commission and offering expenses.

As of December 31, 2023, we have $ 41.9 million remaining under our ATM program.

During the year ended December 31, 2023, the Company sold 933,500 shares of common stock under the Sales Agreement for gross proceeds of $ 8.1 million, or $ 7.6 million after deducting sales commissions and offering expenses.

During the year ended December 31, 2024, the Company sold 444,555 shares of common stock under the Sales Agreement for gross proceeds of $ 3.4 million, or $ 3.2 million after deducting sales commissions and offering expenses.

As of December 31, 2024, the Company has $ 38.5 million remaining under its ATM program.

Refer to Note 12 for information on the termination of the ATM program in February 2025.

Liquidity and Capital Resources

The Company has incurred operating losses and negative cash flows from operations since its inception and has an accumulated deficit of $ 531.0 million as of December 31, 2024.

For the years ended December 31, 2023 and 2022, the Company used $ 19.7 million and $ 36.9 million of cash, respectively, in its operating activities.

For the years ended December 31, 2024 and 2023, the Company used $ 17.9 million and $ 19.7 million, respectively, of cash in its operating activities.

As of December 31, 2024, the Company had cash, cash equivalents and short-term investments of $ 52.8 million.

2 unchanged sentences

Management believes that the Company’s cash, cash equivalents and short-term investments will allow the Company to continue its planned operations for at least the next 12 months from the date of the issuance of these financial statements.

In connection with the Term Loan described in Note 6, the Company will need to be in compliance with a minimum annual net revenue covenant determined in accordance with generally accepted accounting principles of $ 45.0 million and $ 70.0 million in the years ended December 31, 2023 and December 31, 2024, respectively, and maintain a minimum cash and cash equivalents balance of $ 5.0 million.

In connection with the Term Loan described in Note 6, the Company will need to be in compliance with a minimum annual net revenue covenant determined in accordance with generally accepted accounting principles of $ 70.0 million in each of the years ending December 31, 2024 and December 31, 2025 and maintain a minimum cash and cash equivalents balance of $ 5.0 million.

If the Company cannot generate sufficient revenue in the future, the Company may not be in compliance with the annual net revenue covenant and the lender may call the debt resulting in the Company immediately needing additional capital, and resulting in a going concern.

12 unchanged sentences

Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions.

Segment and Geographical Information

The Company operates and manages its business as one reportable and operating segment.

The Company’s chief executive officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance.

All of the Company’s long-lived assets, comprised of property and equipment, are based in the United States.

All of the Company’s revenue, with the exception of less than $ 0.1 million, was in the United States for the year ended December 31, 2023, based on the shipping location of the external customer.

All of the Company’s revenue was in the United States for the year ended December 31, 2022, based on the shipping location of the external customer.

Revenue Recognition

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Beginning in the fourth quarter of 2022, the Company also derives revenue from sales of DIXI Medical products, primarily to its current customer base.

Beginning in the fourth quarter of 2023, the Company also derives revenue from services provided to Rapport Therapeutics, or Rapport.

The Company recognizes revenue in accordance with Accounting Standards Codification, or ASC, 606, “Revenue from Contracts with Customers.” Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.

Beginning in the fourth quarter of 2023, the Company also derives revenue from services provided to Rapport Therapeutics, Inc., or Rapport.

The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers .

Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps:

7 unchanged sentences

The Company has concluded that the RNS System and its related products represent a single performance obligation, as the customer cannot benefit from the products individually, and that access to the PDMS and nSight Platform represent separate performance obligations, as the clinicians can utilize them with other components of the RNS System that are readily available.

The Company determines the transaction price based on the amount it expects to be entitled to in exchange for transferring the promised product or service to the customer, which is based on the invoiced price for the products or

NeuroPace, Inc.

Notes to Financial Statements

All prices are at fixed amounts per the sales agreement with the customer and there are no discounts, rebates or other price concessions.

3 unchanged sentences

The Company typically delivers its RNS System and related products to a hospital on the date of the scheduled procedure.

There is no commitment or contract until the delivery of the product and the procedure may be canceled at any time.

There is no commitment or contract until the delivery of the product and the procedure may be canceled

NeuroPace, Inc.

Notes to Financial Statements

Once the device has been implanted in or otherwise provided to a patient, the customer is considered to have accepted the delivery (i.e., has approved the contract) and both parties are committed to perform their respective obligations.

9 unchanged sentences

Revenue from biomarker monitoring is recognized ratably over the two-year contractual support period, as the benefits provided by the Company’s performance are simultaneously consumed by the customer.

Revenue related to data analysis is recognized upon completion of the services.

The Company’s contract with Rapport commenced during the fourth quarter of 2023, and the related revenue recognized as of December 31, 2023 is immaterial.

The Company recognizes revenue for arrangements where it has satisfied its performance obligations but has not issued invoices.

Revenue related to data analysis is recognized upon completion of the serv ices.

The Company’s contract with Rapport commenced during the fourth quarter of 2023.

The related revenue recognized for the years ended December 31, 2024 and 2023 were $ 1.2 million and $ 0.4 million, respectively.

The Company recognizes revenue for arran gements where it has satisfied its performance obligations but has not issued invoices.

These amounts are recorded as unbilled receivables, which are included in accounts receivable on the balance sheet, as the Company has an unconditional right to payment at the end of the applicable period.

6 unchanged sentences

The Company’s contract balances were accounts receivable of $ 12.9 million and $ 12.3 million as of December 31, 2024, and December 31, 2023, respectively.

The Company’s contract liabilities consist of deferred revenue of $ 0.6 million and $ 1.1 million as of December 31, 2024 and 2023, respectively.

The Company’s deferred revenue balance was $ 0.6 million as of December 31, 2024, which is expected to be recognized as revenue in 2025.

Revenue recognized during the year ended December 31, 2024 that was included in the deferred revenue balance at the beginning of the year was $ 1.1 million.

As of December 31, 2024, the aggregate amount of the transaction price allocated to the remaining performance obligations that are unsatisfied or partially unsatisfied was $ 1.7 million, which the Company expects to recognize as revenue by December 2025.

NeuroPace, Inc.

Notes to Financial Statements

The Company’s contract liabilities consist of deferred revenue for remaining performance obligations by the Company to transfer goods or services for which the Company has received consideration.

The Company’s deferred revenue balance was $ 1.1 million as of December 31, 2023, which is expected to be recognized as revenue in 2024.

The Company had no deferred revenue as of December 31, 2022.

Fair Value of Financial Instruments

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Restricted cash is comprised of cash that is restricted as to withdrawal or use under the terms of certain contractual agreements.

Restricted cash for the years ended December 31, 2023 and December 31, 2022 consists of collateral for the letter of credit issued during the year in connection with the Company’s facility lease (see Note 5).

Restricted cash for the years ended December 31, 2024 and December 31, 2023 consists of collateral for the amended letter of credit that was issued in connection with the Company’s facility lease (see Note 5).

Concentration of Credit Risk, and Other Risks and Uncertainties

3 unchanged sentences

The Company’s cash equivalents are invested in money market funds.

The Company’s accounts receivable are due from a variety of health care organizations in the United States.

The Company’s accounts receivable, with the exception of $ 0.1 million, are due from a variety of health care organizations in the United States.

For the years ended December 31, 2024 and December 31, 2023, there were no customers that represented 10% or more of revenue.

As of December 31, 2024 and December 31, 2023, no customer represented 10% or more of the Company’s accounts receivable.

The Company is subject to certain risks, including that its devices may not be approved or cleared or continue to be approved or cleared for marketing by governmental authorities or be successfully marketed for expanded indications.

There can be no assurance that the Company’s products will achieve widespread adoption in the marketplace, nor can there be any assurance that existing devices or any future devices can be developed or manufactured at an acceptable cost and speed and with appropriate performance characteristics.

The Company is also subject to risks common to companies in the medical device industry, including, but not limited to, new technological innovations, dependence on healthcare providers to prescribe initial implants and replacements, dependence upon third-party payors to provide adequate coverage and reimbursement, dependence on key personnel, single-source suppliers and vendors in connection with the manufacture of its products, concentration of comprehensive epilepsy centers, or CECs, and epileptologists, obtaining, maintaining, protecting, enforcing, and defending intellectual property rights and proprietary technology, product liability claims, legal proceedings, and compliance with government regulations.

NeuroPace, Inc.

Notes to Financial Statements

The Company’s medical devices require approvals or clearances from the U.S.

Food and Drug Administration, or the FDA, or international regulatory agencies.

In addition, in order to continue the Company’s operations, compliance with various federal and state laws is required.

If approvals or clearances were withdrawn by the FDA for the Company’s current products or if such approvals or clearances were denied or delayed for future products, product updates, or expanded indications for use, it would have a material adverse impact on the Company.

Accounts Receivable

8 unchanged sentences

The Company regularly reviews inventory quantities in consideration of actual loss experiences, projected future demand, and remaining shelf life to record a provision for excess and obsolete inventory when appropriate.

The Company’s policy is to write down inventory that has become obsolete, inventory that has a cost basis in excess of its expected lower of cost or net realizable value, and inventory in excess of expected requirements.

The Company’s policy is to

NeuroPace, Inc.

Notes to Financial Statements

write down inventory that has become obsolete, inventory that has a cost basis in excess of its expected lower of cost or net realizable value, and inventory in excess of expected requirements.

The estimate of excess quantities is judgmental and primarily dependent on the Company’s estimates of future demand for a particular product.

12 unchanged sentences

The Company did no t record any impairment of long-lived assets for the years ended December 31, 2024 and December 31, 2023.

Upon adoption of ASC 842, Leases , on January 1, 2022, the Company determined if an arrangement is a lease, or contains a lease, at inception.

The Company determines if an arrangement is a lease, or contains a lease, at inception.

Operating leases are included in operating lease right-of-use, or ROU, assets, operating lease liability, and operating lease liability, net of current portion on the Company’s balance sheets.

NeuroPace, Inc.

Notes to Financial Statements

ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date.

3 unchanged sentences

Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

The Company elected certain practical expedients under ASC 842 , including the package of practical expedients, which among other things, allowed the Company to carry forward prior conclusions about lease identification and classification, as well as elections to not record leases with an initial term of twelve months or less on the balance sheet, and to combine the lease and non-lease components in determining the lease liabilities and ROU assets.

The Company elected certain practical expedients under ASC 842 , Leases , including the package of practical expedients, which among other things, allowed the Company to carry forward prior conclusions about lease identification and classification, as well as elections to not record leases with an initial term of twelve months or less on the balance sheet, and to combine the lease and non-lease components in determining the lease liabilities and ROU assets.

Deferred Offering Costs

2 unchanged sentences

Should a planned equity financing be abandoned, terminated or significantly delayed, the deferred offering costs are immediately written off to operating expenses.

Upon closing the IPO, all deferred offering costs were charged against the proceeds from the IPO and recorded in stockholders equity as a reduction of additional paid-in capital.

Upon issuing shares under the ATM offering in November 2023, $ 0.3 million of deferred offering costs were charged against the proceeds from the ATM offering and recorded in stockholders equity as a reduction of additional paid-in capital.

Upon issuing shares under the ATM offering during the years ended December 31, 2024 and 2023, $ 0.1 million and $ 0.3 million, respectively, of deferred offering costs were recorded against the proceeds from the ATM offering and recorded in stockholders

NeuroPace, Inc.

Notes to Financial Statements

equity as a reduction of additional paid-in capital.

As of December 31, 2024 and 2023, $ 0.3 million and $ 0.4 million of deferred offering costs related to the ATM offering were recorded on the balance sheets, respectively.

9 unchanged sentences

On May 25, 2023, the Company received funding approval for year three in the amount of $ 3.0 million, which includes $ 1.5 million for subawards.

On July 22, 2024, the Company received funding approval for year four in the amount of $ 1.7 million, which includes $ 1.0 million for subawards.

For funds received under the NIH funding agreement, the Company recognizes a reduction in research and development expenses in an amount equal to the qualifying expenses incurred in each period up to the amount awarded by the NIH.

The Company received $ 1.7 million and $ 1.4 million in funding during the years ended December 31, 2024 and 2023, respectively.

Through December 31, 2024, $ 3.8 million of qualifying expenses have been incurred and funded by the NIH related to the first to fourth year of funding.

Qualifying expenses incurred by the Company in advance of funding by the NIH are recorded within prepaid expenses and other current assets on the balance sheets.

Through December 31, 2023, $ 2.0 million of qualifying expenses have been incurred and funded by the NIH related to the first, second and third year of funding.

As of December 31, 2023, the Company recorded prepaid expenses and other current assets of $ 0.1 million related to the third year of funding.

As of December 31, 2024, the Company recorded prepaid expenses and other current assets of less than $ 0.1 million related to the fourth year of funding.

Warranty costs are accrued based on the Company’s best estimates when management determines that it is probable a charge or liability has been incurred and the amount of loss can be reasonably estimated.

NeuroPace, Inc.

Notes to Financial Statements

Company believes that historical experience provides a reliable basis for estimating such warranty cost, unforeseen quality issues or component failure rates could result in future costs in excess of such estimates.

While the Company believes that historical experience provides a reliable basis for estimating such warranty cost, unforeseen quality issues or component failure rates could result in future costs in excess of such estimates.

The warranty liability as of December 31, 2024 and December 31, 2023 was immaterial.

10 unchanged sentences

Research and development expenses include employee compensation, including stock-based compensation, supplies, consulting, prototyping, testing, materials, travel expenses, depreciation and an allocation of facility overhead expenses.

Additionally, research and development expenses include costs associated with clinical studies including clinical trial design, clinical site reimbursement, data management, travel expenses, the cost of products used for clinical trials and costs associated with regulatory compliance and submitting and maintaining regulatory filings.

Additionally, research and development expenses

NeuroPace, Inc.

Notes to Financial Statements

include costs associated with clinical studies including clinical trial design, clinical site reimbursement, data management, travel expenses, the cost of products used for clinical trials and costs associated with regulatory compliance and submitting and maintaining regulatory filings.

Advertising Costs

13 unchanged sentences

The recognition and measurement of tax benefits requires significant judgment.

NeuroPace, Inc.

Notes to Financial Statements

Judgments concerning the recognition and measurement of a tax benefit might change as new information becomes available.

8 unchanged sentences

Because the Company has reported a net loss for all periods presented, diluted net loss per common share is the same as basic net loss per common share for those periods.

Comprehensive Loss

Comprehensive loss combines net loss and other comprehensive loss.

Other comprehensive loss represents unrealized gains or losses on short-term investments that are reported as a component of stockholders’ equity on the balance sheets.

NeuroPace, Inc.

Notes to Financial Statements

JOBS Act Accounting Election

5 unchanged sentences

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments- Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , which amends existing guidance on the impairment of financial assets and adds an impairment model that is based on expected losses rather than incurred losses and requires an entity to recognize as an allowance its estimate of expected credit losses for its financial assets.

An entity will apply this guidance through a cumulative-effect adjustment to retained earnings upon adoption (a modified-retrospective approach) while a prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date.

For public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, adoption is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

For SEC filers that are eligible to be smaller reporting companies and for all other entities, this ASU is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years.

The Company adopted this ASU effective January 1, 2023.

The adoption of this ASU did not have a material impact on the Company’s financial statements and related disclosures.

Recent Accounting Pronouncements Not Yet Adopted

NeuroPace, Inc.

Notes to Financial Statements

In accordance with Accounting Standards Codification, or ASC, 280, Segment Reporting , the Company operates as one operating and reportable segment.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures .

The amendments in this ASU require disclosures, on an annual and interim basis, of significant segment expenses that are regularly provided to the chief operating decision maker, or CODM, as well as the aggregate amount of other segment items included in the reported measure of segment profit or loss.

This ASU requires that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources.

Public entities will be required to provide all annual disclosures currently required by Topic 280 in interim periods, and entities with a single reportable segment are required to provide all the disclosures required by the amendments in this ASU and existing segment disclosures in Topic 280.

This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

The amendments in this ASU should be applied retrospectively to all prior periods presented in the financial statements.

The Company is currently evaluating the impact this standard will have on the disclosures within our financial statements.

The amended guidance requires all public entities, including public entities with a single reportable segment, to disclose in interim and annual periods significant segment expenses that are regularly provided to the chief operating decision maker, or CODM, to allocate resources and assess performance, as well as the aggregate amount of other segment items included in the reported measure of segment profit or loss.

The Company adopted this ASU effective for the fiscal year ended December 31, 2024 on a retrospective basis.

Refer to Note 11 for further information on the Company’s reportable segment.

Recent Accounting Pronouncements Not Yet Adopted

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures .

The ASU requires greater disaggregation of information about a reporting entity's effective tax rate reconciliation as well as information on income taxes paid.

The ASU applies to all entities subject to income taxes and is intended to help investors better understand an entity’s exposure to potential changes in jurisdictional tax legislation and assess income tax information that affects cash flow forecasts and capital allocation decisions.

The ASU is effective for annual periods beginning after December 15, 2024, with early adoption permitted.

The ASU should be applied on a prospective basis although retrospective application is permitted.

The Company is currently evaluating the impact this standard will have on the disclosures within our financial statements.

This ASU requires greater disaggregation of information about a reporting entity's effective tax rate reconciliation as well as information on income taxes paid.

This ASU applies to all entities subject to income taxes and is intended to help investors better understand an entity’s exposure to potential changes in jurisdictional tax legislation and assess income tax information that affects cash flow forecasts and capital allocation decisions.

This ASU is effective for annual periods beginning after December 15, 2024, with early adoption permitted, and should be applied on a prospective basis although retrospective application is permitted.

The Company is currently evaluating the impact this standard will have on its financial statement disclosures.

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40) .

This ASU is intended to provide more detailed information about specified categories of expenses (including employee compensation, depreciation, and amortization) included in certain expense captions presented on the face of the income statement.

This ASU is effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027.

Early adoption is permitted.

This ASU may be applied either prospectively to financial statements issued for reporting periods after its effective date or retrospectively to all prior periods presented in the financial statements.

The Company is currently assessing the impact this standard will have on its financial statement disclosures.

Fair Value Measurements

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Level 1 Quoted prices in active markets for identical assets or liabilities.

NeuroPace, Inc.

Notes to Financial Statements

Level 2 Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

3 unchanged sentences

The following table summarizes the Company’s financial assets (cash equivalents and marketable securities) at fair value as of December 31, 2024 (in thousands):

NeuroPace, Inc.

Notes to Financial Statements

Fair Value as of December 31, 2024

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Interest income from short-term investment is recorded in interest income.

As of December 31, 2022, the Company’s short-term investment had a fair value of $ 70.8 million, a cost basis of $ 71.9 million, and an unrealized loss of $ 1.1 million, which was recorded in accumulated other comprehensive loss.

During the year ended December 31, 2023, the Company recognized $ 1.0 million in unrealized gains from its short-term investment.

During the years ended December 31, 2024 and 2023, the Company recognized $ 0.2 million and $ 1.0 million in unrealized gains from its short-term investment, respectively.

As of December 31, 2024, the Company’s short-term investment had a cumulative unrealized net gain of $ 0.1 million.

As of December 31, 2023, the Company’s short-term investment had a cumulative unrealized net loss of $ 0.1 million, which included an adjustment of $ 1.1 million unrealized loss recorded in other income (expense), net in the year ended December 31, 2023.

The adjustment was not material to any previously issued financial statements.

NeuroPace, Inc.

Notes to Financial Statements

Balance Sheet Components

4 unchanged sentences

Total $ 13,381 $ 11,214

NeuroPace, Inc.

Notes to Financial Statements

Property and Equipment, net

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In June 2021, the letter of credit was amended and further reduced to $ 0.2 million.

NeuroPace, Inc.

Notes to Financial Statements

The terms of the facility lease provide for rental payments on a graduated scale;

1 unchanged sentence

Rental payments range from $ 2.8 million to $ 3.3 million per year over the extended term of the lease.

NeuroPace, Inc.

Notes to Financial Statements

The maturities of operating lease liabilities as of December 31, 2024 are as follows (in thousands):

7 unchanged sentences

As of December 31, 2024, the remaining term for the operating lease in Mountain View, California was 5.5 years, and the discount rate used to measure the lease liability for such operating lease upon recognition was 8.5 %.

During the years ended December 31, 2023 and 2022, cash paid for amounts included in operating lease liabilities of $ 2.8 million and $ 2.1 million, respectively, was included in cash flows from operating activities on the condensed statements of cash flows.

During the years ended December 31, 2024 and 2023, cash paid for amounts included in operating lease liabilities of $ 2.9 million and $ 2.8 million, respectively, was included in cash flows from operating activities on the statements of cash flows.

Distribution Agreement

In August 2022, the Company entered into an exclusive distribution agreement, or the Distribution Agreement, with DIXI Medical USA Corp, or DIXI Medical, pursuant to which the Company became the exclusive U.S.

distributor of DIXI Medical’s product line.

To maintain the exclusive distributor rights, the Company is committed to purchase a minimum of $ 2.4 million of DIXI Medical’s products during the twelve months beginning October 2022, and increase the purchase minimum by 10 % for each of the two subsequent years.

The Company met the purchase commitment for the first twelve months.

distributor of DIXI Medical’s stereo electroencephalography product line.

The Distribution Agreement has an initial term of three years , which expires September 30, 2025.

The Distribution Agreement automatically renews for additional one-year terms, unless either party provides written notice to the other party of its intention to not renew at least 180 days prior to the expiration of the then-current term.

The current Distribution Agreement will automatically renew unless either party provides notice of intent not to renew by April 3, 2025.

To maintain the distribution rights, the Company is required to purchase a minimum of $ 2.4 million of DIXI Medical’s products during the twelve months beginning October 2022, and to increase the minimum purchase by 10 % for each of the two subsequent years.

The Company met the purchase commitment for the first two years and expects to meet the purchase commitment for the third year, which is through September 2025.

Indemnifications

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The Company indemnifies each of its directors and officers for certain events or occurrences, subject to certain limits, while the director or officer is or was serving at the Company’s request in such capacity, as permitted under Delaware law and in accordance with its certificate of incorporation and bylaws.

The term of the indemnification period lasts as long as the director or officer may be subject to any proceeding arising out of acts or omissions of such individual in such capacity.

The term of the indemnification period lasts as long as the director or officer may be subject to any proceeding arising out of acts or omissions of

NeuroPace, Inc.

Notes to Financial Statements

such individual in such capacity.

The maximum amount of potential future indemnification is unlimited.

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The Company determined that no accrual related to contingencies was required as of December 31, 2024 and December 31, 2023.

NeuroPace, Inc.

Notes to Financial Statements

Legal Proceedings

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Legal costs are expensed as incurred.

There were no contingent liabilities requiring accrual at December 31, 2023 and 2022.

There were no contingent liabilities requiring accrual as of December 31, 2024 and 2023.

In September 2020, the Company entered into a Term Loan Agreement with CRG Partners IV L.P.

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The revenue-based milestone was not achieved, and the remaining $ 10.0 million of the Term Loan expired without being drawn.

The Term Loan bore interest at a rate of 12.5 % per year.

The Term Loan initially bore interest at a rate of 12.5 % per year.

In February 2023, the Term Loan was amended which increased the annual interest rate from 12.5 % to 13.5 % effective March 1, 2023.

The amendment was accounted as a debt modification and the Term Loan’s effective interest rate increased from 15.7 % to 16.8 %.

The amendment was accounted for as a debt modification in accordance with ASC 470, Debt and the Term Loan’s effective interest rate increased from 15.7 % to 16.8 %.

Payments under the Term Loan are made quarterly with payment dates fixed at the end of each calendar quarter.

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7.5 % per annum paid in cash and 5.0 % per annum PIK by increasing the principal of the Term Loan.

From January 2023 through June 2025, the Company has the option to pay interest as follows:

From January 2023 through June 2025, the Company had the option to pay interest as follows:

8.5 % per annum paid in cash and 5.0 % per annum PIK by increasing the principal of the Term Loan.

For each payment date from April 2022 through December 2023, the Company elected the PIK option, increasing the principal of the Term Loan by $ 4.6 million.

The Term Loan was interest-only through September 2023, which could be extended through September 2025 at the Company’s option if the Company completed its IPO on or prior to September 30, 2023.

In connection with closing the IPO, the Company extended the interest-only period to September 30, 2025.

Following the interest-only period, principal payment is due in one installment on September 30, 2025.

For each payment date from April 2022 through June 2024, the Company elected the PIK option, increasing the principal of the Term Loan by $ 6.0 million.

The Term Loan was interest-only through September 2023, which could be extended through September 2025 at the Company’s option if the Company completed its initial public offering, or IPO, on or prior to September 30, 2023.

In connection with closing the IPO in April 2021, the Company extended the interest-only period to September 30, 2025.

Following the interest-only period, principal payment was to be due in one installment on September 30, 2025.

In May 2024, the Term Loan was amended to extend the final maturity by one year to September 30, 2026 and eliminate the PIK interest option after June 30, 2024.

The amendment was accounted for as a troubled debt restructuring in accordance with ASC 470 and no gain or loss was recognized.

The Term Loan includes a fee upon repayment of the loan equal to 10 % of the aggregate principal amount being prepaid or repaid, or the backend fee.

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The Term Loan Agreement contains customary representations and warranties, covenants, events of default and termination provisions.

The financial covenants require that the Company achieve minimum annual revenue thresholds commencing in 2021 and maintain a minimum balance of cash and cash equivalents (see Note 1).

NeuroPace, Inc.

Notes to Financial Statements

financial covenants require that the Company achieve minimum annual revenue thresholds commencing in 2021 and maintain a minimum balance of cash and cash equivalents (see Note 1).

In February 2023, the Term Loan was amended to reduce the minimum annual net revenue covenant to $ 45.0 million for the year ended December 31, 2023.

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Interest expense on the Term Loan was $ 8.8 million and $ 8.5 million during the years ended December 31, 2024 and December 31, 2023, respectively.

NeuroPace, Inc.

Notes to Financial Statements

As of December 31, 2024, future minimum payments for the Term Loan are as follows (in thousands):

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Total 6,524,974 6,733,868

NeuroPace, Inc.

Notes to Financial Statements

2020 Stock Plan

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In April 2021, prior to the IPO closing, the Company’s board of directors and stockholders approved the 2021 Equity Incentive Plan, or the 2021 Plan, which became effective upon the IPO closing.

The Company initially reserved 2,900,000 shares of common stock for issuance of share-based compensation awards, including ISOs,

NeuroPace, Inc.

Notes to Financial Statements

NSOs, stock appreciation rights, restricted stock units and other stock-based awards.

The Company initially reserved 2,900,000 shares of common stock for issuance of share-based compensation awards, including ISOs, NSOs, stock appreciation rights, restricted stock units and other stock-based awards.

ISOs may be granted only to Company employees (including officers and directors who are also employees).

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provided, however, that the exercise price of an ISO granted to a 10% stockholder may not be less than 110 % of the fair market value of the shares on the date of grant and such option may not be exercisable after the expiration of five years from the date of grant.

Vesting conditions determined by the plan administrator may apply to stock options and may include continued service, performance and/or other conditions.

Vesting conditions determined by the plan administrator may apply to stock options and other stock-based awards and may include continued service, performance and/or other conditions.

Generally, options and restricted stock units vest over a three or four-year period.

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2023 Inducement Plan

In July 2023, the Company’s Compensation Committee of the Board of Directors approved the NeuroPace, Inc.

2023 Inducement Plan, or the Inducement Plan.

NeuroPace, Inc.

Notes to Financial Statements

In July 2023, the Company’s Compensation Committee of the Board of Directors approved the 2023 Inducement Plan, or the Inducement Plan.

The terms of the Inducement Plan are similar to the terms of the 2021 Plan with the exception that incentive stock options may not be issued under the Inducement Plan and awards under the Inducement Plan may only be issued to eligible recipients under the applicable Nasdaq rules.

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A summary of stock option activity for the years ended December 31, 2024 and 2023 is set forth below:

NeuroPace, Inc.

Notes to Financial Statements

Options Outstanding

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Early Exercise of Stock Options

The terms of the Company’s 2020 Plan and the 2021 Plan permit the exercise of options granted under the plans prior to vesting, subject to required approvals.

The terms of the Company’s 2020 Plan and 2021 Plan permit the exercise of options granted under the plans prior to vesting, subject to required approvals.

The shares of common stock issued from the early exercise of unvested stock options are restricted and continue to vest over the original implied service period.

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The Company allows eligible employees to purchase shares of the Company's common stock through payroll deductions at a price equal to 85 % of the lesser of the fair market value of the stock as of the first date or the ending date of each offering period, which is typically six months .

There were 580,000 shares of common stock initially reserved for issuance under the ESPP.

There were 580,000 shares of common stock initially reserved for issuance

NeuroPace, Inc.

Notes to Financial Statements

under the ESPP.

In January 2025, the number of shares of common stock available for issuance under the ESPP was increased by 301,450 shares as a result of the automatic increase provision in the ESPP.

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A new offering period of six months has been authorized beginning December 7, 2024 through June 6, 2025.

NeuroPace, Inc.

Notes to Financial Statements

Compensation expense is calculated using the fair value of the employees' purchase rights under the Black-Scholes model, which was estimated using the following assumptions:

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The above stock-based compensation expense related to the following equity-based awards (in thousands):

NeuroPace, Inc.

Notes to Financial Statements

Year Ended December 31,

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Total stock-based compensation $ 10,282 $ 9,558

NeuroPace, Inc.

Notes to Financial Statements

As of December 31, 2024, the total unrecognized stock-based compensation expense related to unvested stock options and restricted stock units was $ 15.0 million, which will be amortized on a straight-line basis over a weighted average remaining period of 2.1 years.

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The Company’s operations and income tax components are solely in the United States.

From inception through 2023 , the Company has only generated pretax losses in the United States and has not generated any pretax income or loss outside of the United States.

The Company did not record a provision (benefit) for income taxes for the years ended December 31, 2023 and 2022 .

The Company accounts for income taxes in accordance with ASC 740, which requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is "more likely than not." Realization of the future tax benefits is dependent on the Company's ability to generate sufficient taxable income within the carryforward period.

Because of the Company's recent history of operating losses, management believes that recognition of the deferred

From inception through 2024 , the Company has only generated pretax losses in the United States and has not generated any pretax income or

NeuroPace, Inc.

Notes to Financial Statements

tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a full valuation allowance.

loss outside of the United States.

The Company did not record a provision (benefit) for income taxes for the years ended December 31, 2024 and 2023 .

The Company accounts for income taxes in accordance with ASC 740, Income Taxes , which requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is "more likely than not." Realization of the future tax benefits is dependent on the Company's ability to generate sufficient taxable income within the carryforward period.

Because of the Company's recent history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a full valuation allowance.

A reconciliation of the statutory U.S.

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Change in valuation allowance ( 21.8 ) % ( 23.3 ) %

Federal net operating loss expiration ( 10.2 ) % — %

Other ( 2.8 ) % ( 2.4 ) %

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We recognize deferred income taxes for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes, as well as for tax attribute carryforwards.

We regularly evaluate the positive and negative evidence in determining the realizability of our deferred tax assets.

Based upon the weight of available evidence, which includes our historical operating performance and reported cumulative net losses since inception, we maintained a full valuation allowance on the net deferred tax assets as of December 31, 2023 and 2022.

We intend to maintain a full valuation allowance on our deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance.

The valuation allowance increased by $ 7.5 million and $ 12.8 million during the years ended December 31, 2023 and 2022, respectively.

The current year change in the valuation

We regularly evaluate the

NeuroPace, Inc.

Notes to Financial Statements

allowance is primarily the result of $ 7.0 million increase in gross deferred tax assets net of a $ 0.5 million decrease in deferred tax liabilities.

positive and negative evidence in determining the realizability of our deferred tax assets.

We intend to maintain a full valuation allowance on our deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance.

The valuation allowance increased by $ 5.9 million during the year ended December 31, 2024 primarily resulting from $ 5.5 million increase in gross deferred tax assets net of a $ 0.4 million decrease in deferred tax liabilities.

The valuation allowance increased by $ 7.5 million during the year ended December 31, 2023 primarily resulting from $ 7.0 million increase in gross deferred tax assets net of a $ 0.5 million decrease in deferred tax liabilities.

As of December 31, 2024, the Company had net operating loss, or NOL, carryforwards of $ 152.5 million and $ 162.7 million available to reduce future taxable income, if any, for federal and state income tax purposes, respectively.

The federal and state NOL carryforwards begin expiring in 2023 and 2028, for federal and state purposes, respectively.

The federal and state NOL carryforwards begin expiring in 2026 and 2029, respectively.

As of December 31, 2024, the amount of federal NOL carryforwards that does not expire is $ 114.0 million (subject to certain utilization limitations).

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An annual limitation may result in the expiration of NOL and credit carryforwards before utilization.

The Company conducted Section 382 studies as of 2016 and 2021 and has determined that it experienced Section 382 ownership changes in 2016 and in 2021.

The Company conducted Section 382 studies as of 2016, 2021, and 2024, and has determined that it experienced Section 382 ownership changes in 2016 and in 2021, and no change in 2024.

The 2016 ownership change resulted in permanent limitations of its NOL and credit carryforwards.

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On August 16, 2022, the President signed into law H.R.

5376 (commonly called the “Inflation Reduction Act of 2022”).

5376, or the Inflation Reduction Act of 2022.

The primary tax provisions in the new law include an alternative minimum tax on certain large corporations, a tax on stock buybacks and certain energy-related tax credits, each of which become effective after December 31, 2022.

The provisions of the Inflation Reduction Act of 2022 does not have a material impact on the Company’s financial statements and related disclosures.

NeuroPace, Inc.

Notes to Financial Statements

provisions of the Inflation Reduction Act of 2022 does not have a material impact on the Company’s financial statements and related disclosures.

As of December 31, 2024, the Company had unrecognized tax benefits of $ 2.1 million related to $ 5.4 million and $ 14.2 million of federal and state research and development tax credit carryforwards, respectively.

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No liability related to uncertain tax positions is recorded in the financial statements.

NeuroPace, Inc.

Notes to Financial Statements

A reconciliation of the beginning and ending unrecognized tax benefit amount is as follows (in thousands):

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Options to purchase common stock 2,368,208 2,588,765

Unvested early exercised common stock options 30,211 78,389

Unvested restricted stock units 1,480,338 2,430,803

Shares committed under ESPP 68,138 81,102

Unvested early exercised common stock options — 30,211

Total Shares 3,916,684 5,130,881

NeuroPace, Inc.

Notes to Financial Statements

Segment Information

The Company operates as one operating and reportable segment.

All of the Company’s long-lived assets, comprised of property and equipment, are based in the United States.

All of the Company’s revenue, with the exception of $ 0.2 million and less than $ 0.1 million, was in the United States for the years ended December 31, 2024 and 2023, respectively, based on the shipping location of the external customer.

The Company’s CODM is our Chief Executive Officer.

Our CODM makes decisions on resource allocation, evaluates operating performance, and monitors budget versus actual results using net loss.

In addition to the significant expense categories included within net loss presented on the Company’s Statements of Operations and Comprehensive Loss, disaggregated amounts that comprise selling, general and administrative expenses are as follows (in thousands):

Year Ended December 31,

Sales and marketing expense $ 39,669 $ 35,487

General and administrative expense 17,434 19,031

Total selling, general and administrative expense $ 57,103 $ 54,518

Other segment items within net loss include interest income, interest expense, and other income (expense), net.

Subsequent Events

In February 2025, the Company completed a follow-on offering of 7,475,000 shares of the Company’s common stock, including 975,000 shares from the exercise of the underwriters’ option to purchase additional shares, at an offering price of $ 10.00 per share.

The aggregate net proceeds to the Company from the follow-on offering were approximately $ 69.8 million after deducting underwriting discounts and commissions and estimated offering expenses.

The Company used $ 49.5 million of the net proceeds to repurchase all of the 5,270,845 shares held by our significant stockholder, KCK Ltd., at $ 9.40 per share.

The repurchased shares became authorized but unissued shares.

In February 2025, the Company terminated its Sales Agreement with Leerink and closed the ATM program.

On the date of termination, the Company had $ 38.3 million remaining under the ATM program.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data