NeuroPace Inc 10-K

Item 8. Financial Statements and Supplementary Data. 109 INDEX TO FINANCIAL STATEMENTS Page(s) Report of Independent Registered Public Accounting Firm (PCAOB ID 238 ) 111 Financial Statements: Balance Sheets 112 Statements of Operations and Comprehensive Loss 113 Statements of Stockholders’ Equity 114 Statements of Cash Flows 115 Notes to Financial Statements 117 110 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of NeuroPace, Inc. Opinion on the Financial Statements We have audited the accompanying balance sheets of NeuroPace, Inc. (the “Company”) as of December 31, 2025 and 2024, and the related statements of operations and comprehensive loss, of stockholders’ equity and of cash flows for the years then ended, including 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. 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 of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits 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 that 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/ PricewaterhouseCoopers LLP San Jose, California March 3, 2026 We have served as the Company's auditor since 2003. 111 NeuroPace, Inc. Balance Sheets December 31, (in thousands, except for share and per share amounts) 2025 2024 Assets Current assets: Cash and cash equivalents $ 21,692 $ 13,430 Short-term investments 39,366 39,325 Accounts receivable 14,681 12,851 Inventory 16,896 13,381 Prepaid expenses and other current assets 1,438 2,352 Total current assets 94,073 81,339 Property and equipment, net 1,125 1,052 Operating lease right-of-use asset 10,132 11,843 Restricted cash 122 122 Deferred offering costs — 276 Other assets 113 15 Total assets $ 105,565 $ 94,647 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 2,217 $ 2,954 Accrued liabilities 13,339 9,787 Operating lease liability 2,117 1,860 Deferred revenue 141 555 Total current liabilities 17,814 15,156 Long-term debt 58,884 59,525 Operating lease liability, net of current portion 9,836 11,953 Total liabilities 86,534 86,634 Commitments and contingencies (Note 5) Stockholders’ equity: Preferred stock, $ 0.001 par value, 10,000,000 shares authorized and no shares issued and outstanding as of December 31, 2025 and 2024 — — Common stock, $ 0.001 par value, 200,000,000 shares authorized as of December 31, 2025 and December 31, 2024; 33,574,759 and 30,145,039 shares issued and outstanding as of December 31, 2025 and 2024, respectively 34 30 Additional paid-in-capital 571,412 538,933 Accumulated deficit ( 552,415 ) ( 530,950 ) Total stockholders’ equity 19,031 8,013 Total liabilities and stockholders’ equity $ 105,565 $ 94,647 The accompanying notes are an integral part of these financial statements. 112 NeuroPace, Inc. Statements of Operations and Comprehensive Loss Year Ended December 31, (in thousands, except for share and per share amounts) 2025 2024 Revenue $ 99,986 $ 79,906 Cost of goods sold 22,766 20,821 Gross profit 77,220 59,085 Operating expenses: Sales and marketing 46,580 39,669 Research and development 27,888 23,653 General and administrative 19,090 17,434 Total operating expenses 93,558 80,756 Loss from operations ( 16,338 ) ( 21,671 ) Interest income 2,816 3,024 Interest expense ( 7,457 ) ( 8,798 ) Other income (expense), net ( 486 ) 304 Net loss and comprehensive loss $ ( 21,465 ) $ ( 27,141 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 0.66 ) $ ( 0.93 ) Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted 32,722,438 29,126,314 The accompanying notes are an integral part of these financial statements. 113 NeuroPace, Inc. Statements of Stockholders’ Equity Common Stock Additional Paid-In Capital Accumulated Deficit Total Stockholders’ Equity (in thousands, except for share amounts) Shares Amount Balances at January 1, 2024 27,823,465 $ 28 $ 524,435 $ ( 503,809 ) $ 20,654 Net loss — — — ( 27,141 ) ( 27,141 ) 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 sales commission and offering expenses of $ 212 444,555 — 3,167 — 3,167 Issuance of common stock upon vesting of restricted stock units 1,184,284 1 ( 1 ) — — Shares withheld for taxes ( 65,317 ) — ( 881 ) — ( 881 ) Repurchase of common stock ( 1,282 ) — — — — Change in early exercise liability — — 1 — 1 Stock-based compensation — — 10,282 — 10,282 Balances at December 31, 2024 30,145,039 30 538,933 ( 530,950 ) 8,013 Net loss — — — ( 21,465 ) ( 21,465 ) Issuance of ordinary shares in follow-on offering, net of underwriting discounts and commissions and offering expenses of $ 5,365 7,475,000 7 69,377 — 69,384 Repurchase of common stock from KCK Ltd. ( 5,270,845 ) ( 5 ) ( 49,541 ) — ( 49,546 ) Issuance of common stock as part of At-the-Market offering, net of sales commission and offering expenses of $ 15 18,590 — 224 — 224 Issuance of common stock pursuant to stock option exercises 199,638 — 593 — 593 Issuance of common stock pursuant to Employee Stock Purchase Plan 126,835 — 1,282 — 1,282 Issuance of common stock upon vesting of restricted stock units 920,717 2 ( 2 ) — — Shares withheld for taxes ( 40,215 ) — ( 543 ) — ( 543 ) Stock-based compensation — — 11,089 — 11,089 Balances at December 31, 2025 33,574,759 $ 34 $ 571,412 $ ( 552,415 ) $ 19,031 The accompanying notes are an integral part of these financial statements. 114 NeuroPace, Inc. Statements of Cash Flows Year Ended December 31, (in thousands) 2025 2024 Cash flows from operating activities Net loss $ ( 21,465 ) $ ( 27,141 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation expense 11,089 10,282 Depreciation 238 207 Amortization of debt discount and issuance costs 237 228 Non-cash interest expense 538 954 PIK interest incurred but not paid on term loan — 1,389 Loss on debt extinguishment 527 — Amortization of right-of-use asset 1,710 1,562 Gain on short-term investments ( 41 ) ( 229 ) Inventory write-downs 159 251 Loss on disposal of property and equipment 14 — Changes in operating assets and liabilities: Accounts receivable ( 1,830 ) ( 536 ) Inventory ( 3,673 ) ( 2,418 ) Prepaid expenses and other assets 943 384 Accounts payable ( 730 ) 671 Accrued liabilities 3,552 ( 1,392 ) Deferred revenue ( 414 ) ( 534 ) Operating lease liabilities ( 1,860 ) ( 1,627 ) Net cash used in operating activities ( 11,006 ) ( 17,949 ) Cash flows from investing activities Acquisition of property and equipment ( 332 ) ( 306 ) Proceeds from sale of short-term investments — 9,300 Net cash (used in) provided by investing activities ( 332 ) 8,994 Cash flows from financing activities Proceeds from issuance of common stock in follow-on offering, net of underwriting discounts and commissions 69,654 — Repurchase of common stock from KCK Ltd. ( 49,546 ) — Proceeds from issuance of common stock under employee plans 1,875 1,931 Taxes withheld and paid related to net share settlement of equity awards ( 543 ) ( 881 ) Proceeds from At-the-Market offering, net of sales commission 232 3,277 Proceeds from debt, net of discounts and issuance costs 58,435 — Repayment of debt ( 60,507 ) — Net cash provided by financing activities 19,600 4,327 Net increase (decrease) in cash and cash equivalents 8,262 ( 4,628 ) Cash, cash equivalents and restricted cash at the Beginning of Period 13,552 18,180 Cash, cash equivalents and restricted cash at the End of Period $ 21,814 $ 13,552 Reconciliation of cash, cash equivalents and restricted cash to balance sheets: Cash and cash equivalents $ 21,692 $ 13,430 Restricted cash 122 122 Cash, cash equivalents and restricted cash in balance sheets $ 21,814 $ 13,552 Supplemental disclosure of cash flow information: The accompanying notes are an integral part of these financial statements. 115 NeuroPace, Inc. Statements of Cash Flows Cash paid for interest $ 6,196 $ 6,226 Supplemental disclosures of non-cash investing and financing information: Deferred offering costs offset against additional paid-in capital $ 277 $ 110 Purchase of property and equipment included in accounts payable $ 13 $ 19 Net change in accrued liabilities from early exercise of options $ — $ ( 1 ) The accompanying notes are an integral part of these financial statements. 116 NeuroPace, Inc. Notes to Financial Statements 1. The Company 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 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, 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. 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. In January 2025, the Company sold 18,590 shares of common stock under the Sales Agreement for gross proceeds of $ 0.2 million, or $ 0.2 million after deducting sales commissions and offering expenses. In February 2025, the Company terminated the Sales Agreement and the ATM program. On the date of termination, the Company had $ 38.3 million remaining under the ATM program. Follow-On Offering 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 $ 69.7 million after deducting underwriting discounts and commissions and offering expenses. The Company used $ 49.5 million of the net proceeds to repurchase all of the 5,270,845 shares held by its significant stockholder (a related party), KCK Ltd., at $ 9.40 per share. The repurchased shares became authorized but unissued shares. 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 $ 552.4 million as of December 31, 2025. For the years ended December 31, 2025 and 2024, the Company used $ 11.0 million and $ 17.9 million, respectively, of cash in its operating activities. As of December 31, 2025, the Company had cash, cash equivalents and short-term investments of $ 61.1 million. Historically, the Company has funded its operations principally through the sales of its products, issuance of equity securities and debt financing. The Company’s financial statements have been prepared on the basis of the Company continuing as a going concern for the next 12 months. 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. The MidCap Credit Agreement (see Note 6) financial covenants require the Company to maintain an Applicable Liquidity Threshold no less than (a) $ 60.0 million until June 30, 2027, and (b) $ 40.0 million thereafter; or (c) provided the Company earns at least $ 90.0 million net revenue from the RNS System in 2026, liquidity shall be no less than $ 35.0 million thereafter. In the event liquidity falls below the Applicable Liquidity Threshold, the Company is required to achieve minimum annual trailing net RNS System revenue, tested on a quarterly basis, starting from $ 69.2 million over a trailing 12-month period ending June 30, 2025, and increasing to $ 87.3 million for the trailing 12-month period ending March 31, 2030. The Company’s trailing 12-month net RNS System revenue was $ 81.7 million as of December 31, 2025, exceeding the $ 71.0 million minimum per the MidCap Credit Agreement. In addition to the Applicable Liquidity Threshold, the MidCap Credit Agreement requires the Company 117 NeuroPace, Inc. Notes to Financial Statements to maintain a Minimum Liquidity balance of $ 25.0 million. The MidCap Credit Agreement defines liquidity to include cash and cash equivalents, short-term investments, and following the initial borrowing under the Revolver (see Note 6), the available Revolver balance. If the Company does not meet the financial covenants, the lenders may call the debt, which will result in the Company immediately needing additional capital and may raise doubt about the Company’s ability to continue as a going concern. The Company’s ability to raise additional capital may be adversely impacted by global economic conditions and disruptions to, and volatility in, the financial markets in the United States and worldwide. If the Company is unable to raise capital when needed, it will need to delay, limit, reduce or terminate planned commercialization or product development activities in order to reduce costs. As of December 31, 2025, the Company was in compliance with all covenants of the MidCap Credit Agreement. 2. Summary of Significant Accounting Policies Basis of Presentation The financial statements have been prepared in conformity with generally accepted accounting principles in the United States, or GAAP, as defined by the Financial Accounting Standards Board, or the FASB. Reclassifications Certain reclassifications have been made to the prior year footnote to conform to the presentation used in the current year. Use of Estimates The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements. The Company uses significant judgments when making estimates related to the provision for excess and obsolete inventories. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. 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. Revenue Recognition The Company derives most of its revenue from sales of RNS Systems to hospital facilities (typically comprehensive epilepsy centers, or Level 4 CECs) that implant its products. In addition, from the fourth quarter of 2022 through the fourth quarter of 2025, the Company derived 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, Inc., 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. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps: i. identify the contract(s) with a customer; ii. identify the performance obligations in the contract; iii. determine the transaction price; iv. allocate the transaction price to the performance obligations in the contract; and v. recognize revenue when (or as) the entity satisfies a performance obligation. 118 NeuroPace, Inc. Notes to Financial Statements At contract inception, the Company assesses the products or services promised within each contract and determines those that are performance obligations. The Company’s contracts with customers for the RNS System often include a promise to transfer products, as well as an implied promise to provide a service to the customer, which is access to the Company’s Patient Data Management System, or PDMS, and nSight Platform. 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 services. All prices are at fixed amounts per the sales agreement with the customer and there are no discounts, rebates or other price concessions. When a contract contains multiple performance obligations, the Company allocates the transaction price to each performance obligation based on its relative standalone selling price. Standalone selling prices are based on observable prices at which the Company separately sells its products or services. If a standalone selling price is not directly observable, the Company estimates the standalone selling price considering market data, cost, gross margin, and other available information. 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. 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. Assuming all other revenue recognition criteria are met, the Company recognizes revenue from the sale of its RNS System and related products at a point in time when the procedure is completed and the device is implanted in a patient. The Company also ships the RNS System and related products to customers who place orders ahead of scheduled procedures. Such orders or contracts generally include a promise to transfer products only. As such, the Company recognizes revenue from these orders or contracts at a point in time when the customer obtains control of the products. The Company recognizes service revenue related to the PDMS and the nSight Platform on a ratable basis over the period in which the Company expects to provide access to clinicians. The Company has concluded that such service revenue is immaterial. The Company’s contracts with customers for DIXI Medical products generally include a promise to transfer products only. As such, the Company recognizes revenue from the sale of DIXI Medical products at a point in time when the customer obtains control of the products. The Company recognizes revenue under its contract with Rapport to provide biomarker monitoring and data analysis services. 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 serv ices. The related revenue recognized for the years ended December 31, 2025 and 2024 were $ 2.4 million and $ 1.2 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. Payment terms are typically 30 days from the fulfillment of the orders and fall within the one-year guidance for the practical expedient which allows the Company to forgo adjustment of the promised amount of consideration for the effects of a significant financing component. Sales taxes that are collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales, however, most 119 NeuroPace, Inc. Notes to Financial Statements of the Company’s sales are tax exempt. The Company believes that collection is probable as it has no history of uncollectible accounts and the customers are large, creditworthy institutions. As allowed under the practical expedient, the Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. Costs associated with product sales include commissions, where the Company applies the practical expedient and recognizes commissions as expense when incurred because the expense is incurred over a period of time of less than one year. Commissions are reported in sales and marketing expense and general and administrative expense in the statements of operations and comprehensive loss. The Company’s contract assets were accounts receivable of $ 14.7 million and $ 12.9 million as of December 31, 2025 and 2024, respectively. The Company’s contract liabilities consist of deferred revenue of $ 0.1 million and $ 0.6 million as of December 31, 2025 and 2024, respectively. The Company’s deferred revenue balance was $ 0.1 million at December 31, 2025, which is expected to be recognized as revenue in 2026. Revenue recognized during the year ended December 31, 2025 that was included in the deferred revenue balance at the beginning of the year was $ 0.6 million. As of December 31, 2025, the aggregate amount of the transaction price allocated to the remaining performance obligations that are unsatisfied or partially unsatisfied was $ 1.5 million, which the Company expects to recognize as revenue by December 2027. Fair Value of Financial Instruments Carrying amounts of certain of the Company’s financial instruments, including cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate fair value because of the short-term nature of these instruments. The Company has a short-term investment in a fixed income mutual fund, which is classified as an equity security and carried at fair value based on quoted market prices. Changes in the fair value of the short-term investment are recorded in income or loss. The Company believes that its borrowings bear interest at the prevailing market rates for instruments with similar characteristics; accordingly, the carrying value of this instrument approximates its fair value. The Company determines the fair value of financial and non-financial assets and liabilities using the fair value hierarchy which establishes three levels of inputs that may be used to measure fair value (see Note 3). Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. Cash equivalents that are available-for-sale investments are recorded at fair value, based on quoted market prices. As of December 31, 2025 and 2024, the Company’s cash equivalents are entirely comprised of investments in money market funds. Restricted Cash 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, 2025 and 2024 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 Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents, short-term investments and accounts receivable to the extent of the amounts recorded on the balance sheets. The Company’s cash is invested in major financial institutions in the United States. Deposits in these financial institutions may exceed federally insured limits, and the Company is exposed to credit risk on deposits in the event of default of the financial institutions to the extent account balances exceed the amount insured by the Federal Deposit Insurance Corporation. The Company’s cash equivalents are invested in money market funds. 120 NeuroPace, Inc. Notes to Financial Statements 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, 2025 and 2024, there were no customers that represented 10% or more of revenue. As of December 31, 2025 and 2024, no customer represented 10% or more of the Company’s accounts receivable. Accounts Receivable Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company makes estimates on the collectability of customer accounts based primarily on analysis of historical trends and experience, the age of the receivable and changes in customers’ financial condition. The Company uses its judgment, based on the best available facts and circumstances, and records an allowance against amounts due to reduce the receivable to the amount that is expected to be collected. The Company determined that no allowance was required as of December 31, 2025 and 2024. To date, the Company has not experienced any material credit-related losses. Inventories Inventories are valued at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method for all inventories. Net realizable value is determined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. 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 estimate of excess quantities is judgmental and primarily dependent on the Company’s estimates of future demand for a particular product. If the estimate of future demand is too high, the Company may have to increase the reserve for excess inventory for that product and record a charge to the cost of goods sold. Inventory write-downs were $ 0.2 million and $ 0.3 million for the years ended December 31, 2025 and 2024, respectively. Property and Equipment, net Property and equipment, net is stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, generally three to five years . Leasehold improvements are amortized using the straight-line method over the shorter of the assets’ estimated useful lives or the remaining term of the lease. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the balance sheet, and any resulting gain or loss is reflected in operations in the period realized. Maintenance and repairs are charged to operations as incurred. Impairment of Long-Lived Assets The Company reviews long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If indicators of impairment exist, an impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition are less than their carrying amount. Impairment, if any, is measured as the amount by which the carrying amount of the long-lived assets exceeds their fair value. The Company did no t record any impairment of long-lived assets for the years ended December 31, 2025 and 2024. Leases 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. 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. Since the Company’s lease does not provide a readily determinable implicit rate, the Company uses its incremental borrowing rate based on the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term and in a similar economic 121 NeuroPace, Inc. Notes to Financial Statements environment at commencement date in determining the present value of future payments. The ROU asset also includes any lease payments made to the lessor at or before the commencement date, minus lease incentives received, and initial direct costs incurred. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. 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, 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 The Company capitalizes, within other assets, certain legal, accounting and other third-party fees that are directly related to the Company’s in-process equity financings, including its ATM offering, until such financings are consummated. After consummation of the equity financing, these costs are recorded as a reduction of the proceeds received as a result of the offering. Should a planned equity financing be abandoned, terminated or significantly delayed, the deferred offering costs are immediately written off to operating expenses. Upon issuing shares under the ATM offering during the years ended December 31, 2025 and December 31, 2024, $ 0.3 million and $ 0.1 million, respectively, of deferred offering costs were recorded against the proceeds from the ATM offering and recorded in stockholders equity as a reduction of additional paid-in capital. As of December 31, 2025 and 2024, $ 0.0 million and $ 0.3 million of deferred offering costs related to the ATM offering were recorded on the balance sheets, respectively. Government Programs In May 2021, the Company was awarded a grant by the National Institutes of Health, or NIH, to support research of thalamocortical responsive neurostimulation for the treatment of Lennox-Gastaut Syndrome, a type of epilepsy. The award was issued for a five-year period and has a total budget of over $ 9.3 million, which includes approximately $ 5.5 million in funding for subawards to third-party academic epilepsy centers that are collaborating on the study and are subinvestigators on the study funded by NIH. The subawardees are determined by NIH. The Company’s responsibility for the subawards is to submit the funding requests on behalf of the subawardees. The funding of subawards does not have any impact on the Company’s financial statements. Initially funding was approved for the first year beginning June 1, 2021 and provides for reimbursement of qualified direct and indirect expenses in the amount of $ 0.8 million, including $ 0.4 million for subawards. Approvals of funds for years two through five are subject to the completion of certain milestones. On July 30, 2022, the Company received funding approval for year two in the amount of $ 2.6 million, which includes $ 1.6 million for subawards. 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. On August 20, 2025, the Company received funding approval for year five in the amount of $ 1.6 million, which includes $ 0.8 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 $ 0.7 million and $ 1.7 million in funding during the years ended December 31, 2025 and 2024, respectively. Through December 31, 2025, $ 4.5 million of qualifying expenses have been incurred and funded by the NIH related to the first to fifth 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. As of December 31, 2025, the Company recorded prepaid expenses and other current assets of less than $0.1 million related to the fifth year of funding. Warranty 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. While the Company believes that historical experience provides a reliable basis for estimating such warranty costs, unforeseen 122 NeuroPace, Inc. Notes to Financial Statements quality issues or component failure rates could result in future costs in excess of such estimates. The warranty liability as of December 31, 2025 and 2024 was immaterial. Cost of Goods Sold The Company manufactures its products at its facility. Cost of goods sold consists primarily of costs related to materials, components and subassemblies, manufacturing overhead, direct labor, and reserves for excess and obsolete inventories. A significant portion of the Company’s cost of goods sold currently consists of manufacturing overhead costs. These overhead costs include the cost of facilities, material procurement, inventory control, quality assurance, equipment and operating supervision and management. Cost of goods sold also includes depreciation expense for production equipment and certain direct costs such as shipping costs. Shipping and handling costs are considered a fulfillment activity and are included in cost of goods sold as incurred. Research and Development Expenditures The Company expenses research and development costs as incurred. Research and development expenses consist primarily of engineering, product development, clinical studies to develop and support the Company’s products, regulatory expenses, medical affairs and other costs associated with products and technologies that are in development, including quality assurance. 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. Advertising Costs The Company expenses advertising costs as incurred and records such costs in sales and marketing expenses. Advertising costs include design and production costs, including website development, physician and patient testimonial videos, written media campaigns, and other items. Advertising costs of $ 0.5 million and $ 0.7 million were expensed during the years ended December 31, 2025 and December 31, 2024, respectively. Stock-Based Compensation The Company accounts for stock-based employee compensation in accordance with ASC 718, Stock Compensation . ASC 718 requires the measurement of compensation based on the grant date fair value of the stock option or restricted stock unit (see Note 8). The Company amortizes the fair value of each award on a straight-line basis over the requisite service period of the award. Income Taxes The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. The Company assesses all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position’s sustainability and is measured at the largest amount of benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement. As of each balance sheet date, unresolved uncertain tax positions must be reassessed, and the Company will determine whether (i) the factors underlying the sustainability assertion have changed and (ii) the amount of the recognized tax benefit is still appropriate. The recognition and measurement of tax benefits requires significant judgments. Judgments concerning the recognition and measurement of a tax benefit might change as new information becomes available. 123 NeuroPace, Inc. Notes to Financial Statements Net Loss per Share Attributable to Common Stockholders Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, without consideration of potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock and potentially dilutive securities outstanding for the period. For purposes of the diluted net loss per share calculation, stock options, restricted stock units and common stock committed under employee stock purchase plan are considered to be potentially dilutive securities. 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. JOBS Act Accounting Election The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date the Company (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. Recent Accounting Pronouncements Recently Adopted Accounting Pronouncements In December 2023, the FASB issued Accounting Standards Update, or ASU, 2023-09, Improvements to Income Tax Disclosures . 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 adopted this ASU effective for the fiscal year ended December 31, 2025 on a prospective basis, which did not have an impact on our financial statements, although it did result in expanded income-tax related disclosures. Refer to Note 9, Income Taxes, for inclusion of new disclosures required. Recent Accounting Pronouncements Not Yet Adopted In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40), and in January 2025, the FASB issued ASU 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosure (Subtopic 220-40): Clarifying the Effective Date . ASU 2024-03 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. ASU 2024-03, as clarified by ASU 2025-01, 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, and 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 evaluating the impact this standard will have on its financial statement disclosures. In July 2025, the FASB issued ASU No. 2025-05, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets , providing a practical expedient to measure credit losses on current accounts receivable and current contract assets under Accounting Standards Codification 606, Revenue from Contracts with Customers . The practical expedient assumes that current conditions as of the balance sheet date do not change for the remaining life of the asset. This ASU is effective for annual 124 NeuroPace, Inc. Notes to Financial Statements reporting periods beginning after December 15, 2025 and interim reporting periods within those annual reporting periods and should be applied prospectively. The Company is currently evaluating the impact this guidance will have on its financial statements and related disclosures. In December 2025, the FASB issued ASU No. 2025-10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities , providing authoritative guidance on the recognition, measurement, presentation, and disclosure of government grants received by business entities. The standard introduces a framework for determining when grants should be recognized, distinguishing between asset-related and income-related grants, and allows entities to present grants either as a reduction of related expenses or as a separate income line item. Expanded disclosures about the nature, terms, and conditions of grants are required. This ASU is effective for annual reporting periods beginning after December 15, 2028 and interim reporting periods within those annual reporting periods, with early adoption permitted. The Company is currently evaluating the impact this guidance will have on its financial statements and related disclosures. 3. Fair Value Measurements The Company measures certain financial assets and liabilities at fair value on a recurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value: Level 1 Quoted prices in active markets for identical assets or liabilities. 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. Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The following tables summarize the Company’s financial assets (cash equivalents and marketable securities) at fair value: As of December 31, 2025 Basis for Fair Value Measurements (in thousands) Level 1 Level 2 Level 3 Money market funds, included in cash and cash equivalents $ 18,965 $ 18,965 $ — $ — Fixed income mutual funds, included in short-term investments 39,366 39,366 — — Total $ 58,331 $ 58,331 $ — $ — 125 NeuroPace, Inc. Notes to Financial Statements As of December 31, 2024 Basis for Fair Value Measurements (in thousands) Level 1 Level 2 Level 3 Money market funds, included in cash and cash equivalents $ 13,349 $ 13,349 $ — $ — Fixed income mutual funds, included in short-term investments 39,325 39,325 — — Total $ 52,674 $ 52,674 $ — $ — There were no liabilities measured at fair value on a recurring and non-recurring basis as of December 31, 2025 and 2024. The money market funds are highly liquid and primarily invest in short-term fixed income securities issued by the U.S. government and U.S. government agencies. The Company’s available-for-sale investment comprises a short-term investment in a fixed income mutual fund, which primarily invests in debt securities issued by the U.S. government and U.S. government agencies and corporate bonds and notes. Interest income from short-term investment is recorded in interest income. During the years ended December 31, 2025 and 2024, the Company recognized less than $ 0.1 million and $ 0.2 million in unrealized gains from its short-term investment, respectively. As of December 31, 2025 and 2024, the Company’s short-term investment had a cumulative unrealized net gain of $ 0.2 million and $ 0.1 million, respectively. 4. Balance Sheet Components Inventory Inventories consist of the following: December 31, (in thousands) 2025 2024 Raw materials $ 6,209 $ 3,872 Work-in-process 2,778 2,154 Finished goods 7,909 7,355 Total $ 16,896 $ 13,381 Property and Equipment, net Property and equipment, net consists of the following: December 31, (in thousands) 2025 2024 Machinery, equipment, furniture and fixtures $ 4,917 $ 4,659 Computer equipment and software 1,979 1,932 Leasehold improvements 2,435 2,435 Total 9,331 9,026 Less: Accumulated depreciation ( 8,206 ) ( 7,974 ) Property and equipment, net $ 1,125 $ 1,052 Depreciation expense for each of the years ended December 31, 2025 and December 31, 2024 was $ 0.2 million. 126 NeuroPace, Inc. Notes to Financial Statements Accrued Liabilities Accrued liabilities consist of the following: December 31, (in thousands) 2025 2024 Payroll and related expenses $ 10,492 $ 8,310 Inventory purchases 874 575 Interest payable 484 — Professional fees 374 50 Vendor-related expenses 256 320 Other 859 532 Total $ 13,339 $ 9,787 5. Commitments and Contingencies Facility Lease In August 2011, the Company entered into a non-cancelable operating lease for combined office and manufacturing facilities in Mountain View, California. The lease was scheduled to expire in April 2019 and was amended in May 2018 to extend it through June 2024. In August 2022, the Company amended the lease to extend it through June 2030. The second amendment contained a rent-free period from September 2022 through December 2022. The Company has an option to extend the lease for a period of five years , commencing on July 1, 2030 and expiring on June 30, 2035. The renewal terms have not been included in the lease term used to calculate the ROU assets and lease liability as it is not reasonably certain that the Company will exercise the option. In conjunction with the original lease agreement, the Company obtained a letter of credit for $ 0.9 million in lieu of a security deposit. In May 2019, the letter of credit was amended and reduced to $ 0.7 million. In June 2021, the letter of credit was amended and further reduced to $ 0.2 million. The terms of the facility lease provide for rental payments on a graduated scale; however, rent expense is recognized on a straight-line basis over the lease term. Rental payments range from $ 2.8 million to $ 3.3 million per year over the extended term of the lease. The maturities of operating lease liabilities are as follows: (in thousands) December 31, 2025 2026 $ 3,031 2027 3,122 2028 3,215 2029 3,312 2030 1,704 Total undiscounted lease payments 14,384 Less: imputed interest 2,431 Total operating lease liability 11,953 Less: current portion 2,117 Operating lease liability, net of current portion $ 9,836 Operating lease cost was $ 2.8 million for each of the years ended December 31, 2025 and 2024. As of December 31, 2025, the remaining term for the operating lease in Mountain View, California was 4.5 years, and the discount rate used to measure the lease liability for such operating lease upon recognition was 8.5 %. 127 NeuroPace, Inc. Notes to Financial Statements During each of the years ended December 31, 2025 and 2024, cash paid for amounts included in operating lease liabilities of $ 2.9 million 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 stereo electroencephalography product line. The Distribution Agreement had an initial term of three years , which expired on September 30, 2025. During the initial term, to maintain the distribution rights, the Company was 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 every year of the Distribution Agreement. The Distribution Agreement would have automatically renewed for additional one-year term, if neither party provided 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. In March 2025, the Company notified DIXI Medical of its intent to not renew the Distribution Agreement upon expiration and, as a result, the Distribution Agreement terminated on September 30, 2025. The Distribution Agreement included a wind-down period following the termination date during which the Company had the right to sell any DIXI product inventory that it held on the date of expiration. At the end of the wind-down period, DIXI Medical is required to buy back, at cost, any DIXI product inventory with at least six months remaining shelf life held by the Company. In December 2025, the Company and DIXI Medical entered into an amendment to the Distribution Agreement to end the wind-down period and cease commercial partnership activities on December 31, 2025. Under the amended wind-down plan, the Company is currently selling back, at cost, the remaining DIXI inventory to DIXI Medical, which is expected to be completed prior to the close of the first quarter of 2026. As of December 31, 2025, the Company had $ 2.0 million related to the DIXI product inventory. Indemnifications In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and may provide for indemnification of the counterparty. The Company’s exposure under these agreements is unknown because it involves claims that may be made against it in the future but have not yet been made. The Company may, from time to time, be subject to claims or be required to defend actions related to its indemnification obligations. 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 maximum amount of potential future indemnification is unlimited. The Company believes that the fair value of these indemnification obligations is minimal. Accordingly, the Company has no t recognized any liabilities relating to these obligations as of December 31, 2025 and 2024. Contingencies From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. The Company determined that no accrual related to contingencies was required as of December 31, 2025 and 2024. Legal Proceedings The Company is not involved in any pending legal proceedings that it believes could have a material adverse effect on its business, results of operations, financial condition, or cash flows. From time to time, the Company may 128 NeuroPace, Inc. Notes to Financial Statements pursue litigation to assert its legal rights and such litigation may be costly and divert the efforts and attention of its management and technical personnel which could adversely affect its business. The Company regularly evaluates current information to determine whether any accruals should be adjusted and whether new accruals are required. Such accruals, if any, reflect the estimable and probable costs that the Company may incur from the outcomes of its legal proceedings. Legal costs are expensed as incurred. There were no material contingent liabilities requiring accrual as of December 31, 2025 and 2024. 6. Debt CRG Term Loan In September 2020, the Company entered into a Term Loan Agreement with CRG Partners IV L.P. and its affiliates for total borrowings of up to $ 60.0 million, or the CRG Term Loan, and borrowed $ 50.0 million. The CRG Term Loan initially bore interest at a rate of 12.5 % per year. In February 2023, the CRG Term Loan was amended which increased the annual interest rate from 12.5 % to 13.5 % effective March 1, 2023. The amendment was accounted for as a debt modification in accordance with ASC 470, Debt and the CRG Term Loan’s effective interest rate increased from 15.7 % to 16.8 %. Interest p ayments under the CRG Term Loan were made quarterly at the end of each calendar quarter. Through December 2020, the Company had the option to pay the entire interest paid-in-kind, or PIK, by increasing the principal of the CRG Term Loan. From January 2021 through December 2022, the Company had the option to pay interest as follows: 7.5 % per annum paid in cash and 5.0 % per annum PIK by increasing the principal of the CRG Term Loan. 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 CRG Term Loan. For each payment date from April 2022 through June 2024, the Company elected the PIK option, increasing the principal of the CRG Term Loan by $ 6.0 million. The CRG Term Loan was interest-only through maturity on September 30, 2025. In May 2024, the CRG Term Loan was further 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 CRG Term Loan included a fee upon repayment of the loan equal to 10 % of the aggregate principal amount being prepaid or repaid, or the backend fee. The CRG Term Loan was collateralized by substantially all of the Company’s assets. The Term Loan Agreement contained customary representations and warranties, covenants, events of default and termination provisions. The financial covenants required that the Company achieve minimum annual revenue thresholds commencing in 2021 and maintain a minimum balance of cash and cash equivalents. In February 2023, the CRG Term Loan was amended to reduce the minimum annual net revenue covenant to $ 45.0 million for the year ended December 31, 2023. The Company paid $ 1.0 million in fees to the lender and third parties which was reflected as a discount on the loan and was being accreted over the life of the loan using the effective interest method. Also, the Company issued warrants to the lender for a total of 346,823 shares of Series B’ redeemable convertible preferred stock which was converted into 213,941 shares of common stock. The warrants had a fair value of $ 0.6 million as of the issuance date, which was accounted for as debt issuance costs. In June 2025, the Company repaid its entire obligation under the CRG Term Loan amounting to $ 61.9 million, including principal of $ 56.0 million, interest of $ 1.4 million and backend fee of $ 4.5 million, using the proceeds from MidCap Term Loan (as defined below). At the time of repayment, the lender agreed to decrease the backend fee from 10 % to 8 % of the aggregate principal amount being prepaid or repaid. The repayment of the obligation under the CRG Term Loan was accounted for as a debt extinguishment and the Company recorded a loss on extinguishment of $ 0.5 million included in other income (expense), net in the statements of operations and comprehensive loss. During the years ended December 31, 2025 and December 31, 2024, the Company recorded interest expense related to debt discount and debt issuance costs of the CRG Term Loan of $ 0.1 million and $ 0.2 million, respectively. 129 NeuroPace, Inc. Notes to Financial Statements Interest expense on the CRG Term Loan was $ 3.7 million and $ 8.8 million during the years ended December 31, 2025 and December 31, 2024, respectively. MidCap Term Loan In June 2025, the Company entered into a credit, security and guaranty agreement (see Note 1), or MidCap Credit Agreement, with MidCap Funding IV Trust, as agent, MidCap Financial Trust, as term loan servicer and the financial institutions and other entities from time to time party thereto, or the Lenders. The MidCap Credit Agreement provides for a first lien senior secured credit facility consisting of (i) a $ 60.0 million term loan facility, or MidCap Term Loan, which was funded at closing of the MidCap Credit Agreement, and (ii) a revolving credit facility in an aggregate principal amount not to exceed $ 15.0 million, or the Revolver, and together with the MidCap Term Loan, the Loans. The Loans mature on June 4, 2030, and the principal is due in one installment on June 4, 2030. The MidCap Term Loan bears interest at an annual rate of the 30-day forward-looking term Secured Overnight Financing Rate, or SOFR, plus 5.5 %, subject to a 2.0 % SOFR floor. Borrowings under the Revolver will accrue interest at an annual rate of the 30-day forward-looking term SOFR plus 3.75 %, subject to a 2.0 % SOFR floor. Following the initial borrowing of the Revolver, the Company will pay an unused line fee equal to 0.25 % per annum of the average unused portion of the Revolver. Interest and unused line fee, if any, are payable monthly in arrears. The Company may voluntarily prepay the Loans in whole or in part and terminate the respective commitments thereunder prior to the maturity date. Each of the MidCap Term Loan and the Revolver is subject to a prepayment premium equal to 3.0 % of the amount terminated during the first year, 2.0 % in the second year, 1.0 % in the third year, and 0 % thereafter. In addition, the MidCap Term Loan is subject to an exit fee of 2 % of the amount borrowed upon prepayment or repayment. The Loans are collateralized by substantially all of the Company’s assets. The MidCap Credit Agreement contains customary representations and warranties, covenants, events of default and termination provisions. See Note 1 for its financial covenants. The Company incurred $ 1.5 million in fees to the lender and third parties which is reflected as a discount on the MidCap Term Loan and is being accreted over the life of the loan using the effective interest method. In addition, the Company shall pay an annual administrative fee, payable in advance, equal to 0.25 % of the aggregate outstanding principal of the MidCap Term Loan. As of December 31, 2025, the MidCap Term Loan had an annual effective interest rate of 11.0 %. Interest expense on the MidCap Term Loan was $ 3.7 million during the year ended December 31, 2025, including interest expense related to debt discount and debt issuance costs of the MidCap Term Loan of $ 0.3 million. The Revolver has not been drawn upon as of December 31, 2025. 130 NeuroPace, Inc. Notes to Financial Statements The following table sets forth the Company’s future minimum payments for the MidCap Term Loan as of December 31, 2025. Estimated future interest payments are calculated using the effective interest rate of 11.0 % at December 31, 2025. (in thousands) Estimated Interest and Administrative Fee Principal and Exit Fee Total 2026 $ 5,852 $ — $ 5,852 2027 5,852 — 5,852 2028 5,867 — 5,867 2029 5,852 — 5,852 2030 2,905 61,200 64,105 Total 26,328 61,200 87,528 Less: Unamortized debt discount and issuance cost ( 2,916 ) Less: Interest ( 25,728 ) Long-term Debt $ 58,884 7. Common Stock The Company’s Amended and Restated Certificate of Incorporation authorizes the Company to issue 200,000,000 shares of $ 0.001 par value common stock. The holders of common stock are entitled to receive dividends whenever funds and assets are legally available and when declared by the Board of Directors. As of December 31, 2025 and 2024, no dividends had been declared. The Company’s common stock reserved for future issuance is as follows: Year Ended December 31, 2025 2024 Outstanding options under the 2021 Equity Incentive Plan 2,218,352 1,987,784 Shares available for future grant under the 2021 Equity Incentive Plan 2,700,057 2,201,012 Outstanding options under the 2023 Inducement Plan 380,424 380,424 Outstanding restricted stock units under the 2021 Equity Incentive Plan 1,177,836 1,480,338 Common stock available for Employee Stock Purchase Plan 650,031 475,416 Total 7,126,700 6,524,974 8. Stock Plans 2021 Equity Incentive Plan 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 incentive stock options, or ISOs, nonqualified stock options, or 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). Options under the 2021 Plan may be granted for periods of up to 10 years at exercise prices no less than the fair market value of the Company’s common stock on the date of grant; 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 other stock-based awards and may 131 NeuroPace, Inc. Notes to Financial Statements include continued service, performance and/or other conditions. Generally, options and restricted stock units vest over a three or four-year period. In January 2026, the number of shares of common stock available for issuance under the 2021 Plan was increased by 1,342,990 shares as a result of the increase provision in the 2021 Plan. A summary of shares available for grant under the 2021 Plan is as follows: Shares Available for Grant Shares available for grant as of January 1, 2025 2,201,012 Authorized 1,507,251 Granted/Awarded ( 1,260,643 ) Canceled 212,222 Withheld for taxes 40,215 Shares available for grant as of December 31, 2025 2,700,057 2023 Inducement Plan 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. The Inducement Plan was adopted by the Compensation Committee without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules. The Company has initially reserved 380,424 shares of its common stock for issuance pursuant to awards granted under the Inducement Plan, and granted an option to purchase 380,424 shares of its common stock to its Chief Executive Officer, or CEO, as a material inducement for the CEO to join the Company. A summary of stock option activity is set forth below: Number of Shares Weighted-Average Exercise Price Weighted Average Remaining Contractual Term (in Years) Aggregate Intrinsic Value (in thousands) Outstanding as of January 1, 2025 2,368,208 $ 6.01 7.27 Granted 486,422 $ 11.14 Exercised ( 199,638 ) $ 2.97 Canceled ( 56,216 ) $ 11.27 Outstanding as of December 31, 2025 2,598,776 $ 7.09 7.10 $ 22,510 Vested and exercisable at December 31, 2025 1,791,602 $ 5.71 6.39 $ 18,027 Vested and expected to vest at December 31, 2025 2,598,776 $ 7.09 7.10 $ 22,510 The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock options and the fair value of the Company’s common stock for stock options that were in-the-money at period end. The total intrinsic value of stock options exercised was $ 2.2 million and $ 6.0 million during the years ended December 31, 2025 and December 31, 2024, respectively, determined at the date of each stock option exercise. Employee Stock Purchase Plan In April 2021, the Company adopted the 2021 Employee Stock Purchase Plan, or ESPP. 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 132 NeuroPace, Inc. Notes to Financial Statements under the ESPP. In January 2026, the number of shares of common stock available for issuance under the ESPP was increased by 335,747 shares as a result of the automatic increase provision in the ESPP. The Company issued 126,835 and 202,616 shares under the ESPP for the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025, 650,031 shares under the ESPP remain available for purchase. The offering period and purchase period are determined by the board of directors. A new offering period of six months has been authorized beginning December 7, 2025 through June 6, 2026. 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: Year Ended December 31, 2025 2024 Expected term (in years) 0.5 0.5 Expected volatility 79 % - 81 % 76 % - 78 % Weighted average risk-free interest rate 3.69 % - 4.32 % 4.34 % - 5.40 % Fair value of common stock $ 12.93 - $ 16.43 $ 6.47 - $ 10.95 Dividend yield — % — % Restricted Stock Units Activity with respect to restricted stock units, or RSUs, is as follows: Number of Shares Underlying Outstanding RSUs Weighted Average Grant Date Fair Value Unvested, January 1, 2025 1,480,338 $ 8.92 Granted 774,221 $ 12.17 Vested ( 920,717 ) $ 8.44 Canceled ( 156,006 ) $ 9.02 Unvested, December 31, 2025 1,177,836 $ 11.42 The fair value of RSUs is based on the Company’s closing stock price on the date of grant. Stock-Based Compensation The Company recognized stock-based compensation as follows: Year Ended December 31, (in thousands) 2025 2024 Cost of goods sold $ 694 $ 723 Sales and marketing 3,052 3,072 Research and development 3,406 3,270 General and administrative 3,937 3,217 Total stock-based compensation $ 11,089 $ 10,282 133 NeuroPace, Inc. Notes to Financial Statements The above stock-based compensation expense related to the following equity-based awards: Year Ended December 31, (in thousands) 2025 2024 Stock options and RSUs $ 10,506 $ 9,745 ESPP 583 537 Total stock-based compensation $ 11,089 $ 10,282 As of December 31, 2025, the total unrecognized stock-based compensation expense related to unvested stock options and RSUs was $ 15.8 million, which will be amortized on a straight-line basis over a weighted average remaining period of 2.5 years. As of December 31, 2025, the Company had unrecognized stock-based compensation expense relating to the ESPP awards of approximately $ 0.3 million, which is expected to be recognized over a weighted-average period of 0.4 years. The total fair value of RSUs that vested during the years ended December 31, 2025 and December 31, 2024 was $ 8.1 million and $ 8.8 million, respectively. The options granted during the years ended December 31, 2025 and December 31, 2024 had a weighted average grant date fair value of $ 7.83 per share and $ 8.13 per share, respectively. The Company estimated the fair value of stock options using the Black-Scholes option pricing model. The fair value of employee stock options is being amortized on a straight-line basis over the requisite service period of the awards. The fair value of employee stock options was estimated using the following assumptions for the years ended December 31, 2025 and 2024: Year Ended December 31, 2025 2024 Expected term (in years) 5.27 - 6.25 5.27 - 6.25 Expected volatility 77 % - 81 % 71 % - 78 % Weighted average risk-free interest rate 3.96 % - 4.47 % 3.62 % - 4.64 % Fair value of common stock $ 10.04 - $ 17.87 $ 6.00 - $ 17.11 Dividend yield — % — % The expected term of stock options represents the weighted-average period the stock options are expected to remain outstanding. The Company does not have sufficient historical exercise and post-vesting termination activity to provide accurate data for estimating the expected term of options and has opted to use the “simplified method,” whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the option. The expected stock price volatility assumption was determined by a combination of the Company’s historical stock trading volatility and the historical volatilities of industry peers, as the Company does not have sufficient trading history to solely rely on the volatility of its common stock. The Company will continue to analyze the historical stock price volatility and expected term assumptions as more historical data for the Company’s common stock becomes available. The risk-free interest rate assumption is based on the U.S. Treasury instruments whose term was consistent with the expected term of the Company’s stock options. The expected dividend assumption is based on the Company’s history and expectation of not to declare and pay dividends. The fair value of the Company’s common stock is determined based on its closing market price on the date of grant. The Company accounts for forfeitures as they occur. 134 NeuroPace, Inc. Notes to Financial Statements 9. Income Taxes The Company’s operations and income tax components are solely in the United States. From inception through 2025 , 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, 2025 and 2024 . 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. Upon adoption of ASU 2023-09, Improvements to Income Tax Disclosures , as described in Note 2, Summary of Significant Accounting Policies, the reconciliation of taxes at the federal statutory rate to our effective tax rate for the year ended December 31, 2025 was as follows: (in thousands, except for percentages) Amount Percent U.S. Federal Statutory Tax Rate $ ( 4,579 ) 21.0 % Tax Credits: Research and development tax credit ( 1,187 ) 5.4 % Change in valuation allowance 5,826 ( 26.7 ) % Nondeductible items: Executive compensation - Section 162(m) limitation 254 ( 1.2 ) % Stock-based compensation ( 556 ) 2.6 % Nondeductible interest expense 95 ( 0.4 ) % Other 147 ( 0.7 )% Effective tax rate $ — — % A reconciliation of the federal statutory rate to the Company’s effective tax rate for the year ended December 31, 2024 in accordance with the guidance prior to the adoption of ASU 2023-09 was as follows: Tax at federal statutory rate 21.0 % State taxes, net of federal benefit 6.4 % Research and development tax credit 5.1 % Stock-based compensation 5.5 % Nondeductible interest expense ( 2.0 ) % FIN 48 reserve ( 1.2 ) % Change in valuation allowance ( 21.8 ) % Federal net operating loss expiration ( 10.2 ) % Other ( 2.8 ) % Effective tax rate — % 135 NeuroPace, Inc. Notes to Financial Statements The tax effects of temporary differences that give rise to significant components of the deferred tax assets and liabilities are as follows: December 31, (in thousands) 2025 2024 Deferred tax assets: Net operating loss carryforwards $ 46,029 $ 42,043 Research and development credits 16,805 14,903 Research and development expenditures, capitalized for tax 12,073 12,283 Fixed assets and inventory — 28 Accruals and reserves 1,980 1,399 Interest expense carryforward 6,709 5,747 Operating lease liability 3,076 3,515 Other 1,698 1,281 Gross deferred tax assets 88,370 81,199 Deferred tax liabilities: Operating lease right-of-use asset ( 2,607 ) ( 3,014 ) Fixed assets and inventory ( 53 ) — Total deferred tax liabilities ( 2,660 ) ( 3,014 ) Valuation allowance ( 85,710 ) ( 78,185 ) Net deferred tax assets $ — $ — Beginning January 1, 2022, the Tax Cuts and Jobs Act, or the Tax Act, eliminated the option to deduct research and development expenditures in the current year and requires taxpayers to capitalize such expenses pursuant to Internal Revenue Code Section 174. The capitalized expenses are amortized over a 5-year period for domestic expenses and a 15-year period for foreign expenses. On July 4, 2025, the One, Big, Beautiful Bill Act, or OBBBA, was enacted in the United States. The OBBBA includes several significant tax provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The Company will no longer be required to capitalize its domestic research and development expenditures under Section 174 of the Internal Revenue Code beginning with the tax year ended December 31, 2025. The Company evaluated the impact of the OBBBA and determined that it did not have a material impact on the Company’s consolidated financial statements for the year ended December 31, 2025 other than the change in domestic research and experimental costs. The Company recognizes 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. The Company regularly evaluates the positive and negative evidence in determining the realizability of its deferred tax assets. Based upon the weight of available evidence, which includes the Company’s historical operating performance and reported cumulative net losses since inception, the Company maintained a full valuation allowance on the net deferred tax assets as of December 31, 2025 and 2024. The Company intends to maintain a full valuation allowance on its deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance. The valuation allowance increased by $ 7.5 million during the year ended December 31, 2025 primarily resulting from $ 7.2 million increase in gross deferred tax assets net of a $ 0.3 million decrease in deferred tax liabilities. 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. As of December 31, 2025, the Company had net operating loss, or NOL, carryforwards of $ 166.6 million and $ 181.5 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 2026. As of December 31, 2025, the 136 NeuroPace, Inc. Notes to Financial Statements amount of federal NOL carryforwards that does not expire is $ 129.2 million (subject to certain utilization limitations). As of December 31, 2025, the Company had research and development credit carryforwards of $ 6.8 million and $ 15.2 million available to reduce future taxable income, if any, for federal and state income tax purposes, respectively. The federal credit carryforwards begin expiring in 2036 and the state credits carry forward indefinitely. Utilization of the Company’s NOL and tax credit carryforwards may be subject to a substantial annual limitation due to the ownership change provisions included in the Internal Revenue Code, or Section 382, and similar state provisions. An annual limitation may result in the expiration of NOL and credit carryforwards before utilization. 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. The 2021 ownership change did not result in permanent limitations of its NOL or credit carryforwards. It has been determined that $ 226.8 million and $ 150.7 million of federal and state NOL carryforwards, respectively, have been permanently limited and will expire unutilized. It has also been determined that $ 10.4 million of federal research and development credits have been permanently limited and will expire unutilized. The gross deferred tax assets disclosed above exclude NOL and credit carryforwards that are expected to expire due to the Section 382 limitation. As of December 31, 2025, the Company had unrecognized tax benefits of $ 2.3 million related to $ 6.8 million and $ 15.2 million of federal and state research and development tax credit carryforwards, respectively. The unrecognized tax benefits, if recognized, would not have an impact on the Company's effective tax rate, due to the valuation allowance. It is unlikely that the amount of unrecognized tax benefits will significantly change over the next twelve months. No liability related to uncertain tax positions is recorded in the financial statements. A reconciliation of the beginning and ending unrecognized tax benefit amount is as follows: Year Ended December 31, (in thousands) 2025 2024 Beginning balance $ 2,085 $ 1,730 Increase in balance related to tax positions taken during the current year 232 355 Ending balance $ 2,317 $ 2,085 It is the Company’s policy to include penalties and interest expense related to income taxes as a component of other expense and interest expense, respectively, as necessary. The Company determined that no accrual for interest and penalties related to unrecognized tax benefits was required as of December 31, 2025 and 2024. All of the Company’s tax years will remain open for examination by the federal and state authorities for 3 and 4 years, respectively, from the date of utilization of its tax attributes. 10. Net Loss per Share Attributable to Common Stockholders The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders: Year Ended December 31, (in thousands, except for share and per share amounts) 2025 2024 Numerator: Net loss attributable to common stockholders $ ( 21,465 ) $ ( 27,141 ) Denominator: Weighted-average common stock outstanding used to compute basic and diluted net loss per share 32,722,438 29,126,314 Net loss per share attributable to common stockholders, basic and diluted $ ( 0.66 ) $ ( 0.93 ) 137 NeuroPace, Inc. Notes to Financial Statements The following potentially dilutive securities outstanding have been excluded from the computation of diluted weighted average shares outstanding because such securities have an antidilutive impact due to the Company’s net loss, in common stock equivalent shares: December 31, 2025 2024 Options to purchase common stock 2,598,776 2,368,208 Unvested RSUs 1,177,836 1,480,338 Shares committed under ESPP 62,136 68,138 Total Shares 3,838,748 3,916,684 11. 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 $ 0.9 million and $ 0.2 million, was in the United States for the years ended December 31, 2025 and 2024, respectively, based on the shipping location of the external customer. The Company’s chief operating decision maker, or CODM, is its Chief Executive Officer. The CODM makes decisions on resource allocation, evaluates operating performance, and monitors budget versus actual results using net loss. Significant expense categories included within net loss include cost of goods sold, sales and marketing expense, research and development expense, and general and administrative expense, which are presented on the Company’s statements of operations and comprehensive loss. Other segment items within net loss include interest income, interest expense, and other income (expense), net. 138 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.