# CapsoVision, Inc (CV) Informational only - not investment advice. CIK: 0001378325 SIC: 3845 Electromedical & Electrotherapeutic Apparatus SIC breadcrumb: [Manufacturing](/division/D/) > [SIC Major Group 38](/major-group/38/) > [SIC 3845 Electromedical & Electrotherapeutic Apparatus](/industry/3845/) Latest 10-K filed: 2026-03-26 SEC page: https://www.sec.gov/edgar/browse/?CIK=1378325 Filing source: https://www.sec.gov/Archives/edgar/data/1378325/000137832526000010/cv-20251231.htm ## Selected Fundamentals | Metric | Value | Unit | FY | Filed | | --- | ---: | --- | ---: | --- | | Revenue | 13554000 | USD | 2025 | 2026-03-26 | | Net income | -25315000 | USD | 2025 | 2026-03-26 | | Assets | 18164000 | USD | 2025 | 2026-03-26 | ## Financials Annual standardized facts from SEC companyfacts as of latest extracted filing date 2026-03-26. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001378325.json. Derived margins, ratios, and free cash flow are computed from the extracted annual SEC facts. | Metric | 2023 | 2024 | 2025 | | --- | ---: | ---: | ---: | | Revenue | | 11,756,000 | 13,554,000 | | Net income | | -19,898,000 | -25,315,000 | | Operating income | | -19,917,000 | -25,516,000 | | Gross profit | | 6,377,000 | 7,173,000 | | Diluted EPS | | -9.85 | -1.03 | | Operating cash flow | | -20,091,000 | -22,864,000 | | Capital expenditures | | 153,000 | 90,000 | | Assets | | 16,803,000 | 18,164,000 | | Liabilities | | 2,688,000 | 4,904,000 | | Stockholders' equity | -109,843,000 | -129,510,000 | 13,260,000 | | Free cash flow | | -20,244,000 | -22,954,000 | ### Ratios ROE and ROA use period-end equity/assets. Liabilities / equity uses total liabilities divided by stockholders' equity. Current ratio uses current assets divided by current liabilities when both are reported. | Metric | 2023 | 2024 | 2025 | | --- | ---: | ---: | ---: | | Return on equity | | | -190.91% | | Return on assets | | -118.42% | -139.37% | | Liabilities / equity | | | 0.37 | | Current ratio | | 8.24 | 3.77 | ## Quarterly Quarterly standardized facts from SEC companyfacts as of latest extracted filing date 2026-05-14. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001378325.json. Flow metrics use discrete quarter-length periods from 10-Q/10-Q/A filings. Q4 revenue and net income are derived only when annual FY and nine-month YTD facts exist for the same fiscal year; derived Q4 values are labeled. EPS Q4 is not derived. | Quarter | End date | Revenue | Net income | Diluted EPS | Method | | --- | --- | ---: | ---: | ---: | --- | | 2025-Q2 | 2025-03-31 | | -5,375,000 | | reported discrete quarter | | 2025-Q2 | 2025-06-30 | 3,315,000 | | -2.02 | reported discrete quarter | | 2025-Q3 | 2025-06-30 | | -4,625,000 | | reported discrete quarter | | 2025-Q3 | 2025-09-30 | 3,538,000 | | -0.17 | reported discrete quarter | | 2025-Q4 | 2025-12-31 | 3,918,000 | -7,394,000 | | derived Q4 = FY annual - nine-month YTD | | 2026-Q1 | 2026-03-31 | 2,792,000 | -7,033,000 | -0.15 | reported discrete quarter | ## Macro Cross-References - [CPIAUCSL](/indicator/CPIAUCSL/): Consumer Price Index for All Urban Consumers: All Items in U.S. City Average - [UNRATE](/indicator/UNRATE/): Unemployment Rate - [FEDFUNDS](/indicator/FEDFUNDS/): Federal Funds Effective Rate - [CES0500000003](/indicator/CES0500000003/): Average Hourly Earnings of All Employees, Total Private - [DFEDTARU](/indicator/DFEDTARU/): Federal Funds Target Range - Upper Limit - [DFEDTARL](/indicator/DFEDTARL/): Federal Funds Target Range - Lower Limit - [DGS3MO](/indicator/DGS3MO/): Market Yield on U.S. Treasury Securities at 3-Month Constant Maturity - [DGS2](/indicator/DGS2/): Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity - [DGS10](/indicator/DGS10/): Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity - [DGS30](/indicator/DGS30/): Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity - [T10Y2Y](/indicator/T10Y2Y/): 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity - [CPILFESL](/indicator/CPILFESL/): Consumer Price Index for All Urban Consumers: All Items Less Food and Energy - [CPIUFDSL](/indicator/CPIUFDSL/): Consumer Price Index for All Urban Consumers: Food - [CPIENGSL](/indicator/CPIENGSL/): Consumer Price Index for All Urban Consumers: Energy - [CUSR0000SAH1](/indicator/CUSR0000SAH1/): Consumer Price Index for All Urban Consumers: Shelter - [PCEPI](/indicator/PCEPI/): Personal Consumption Expenditures: Chain-type Price Index - [PCEPILFE](/indicator/PCEPILFE/): Personal Consumption Expenditures Excluding Food and Energy: Chain-type Price Index - [PPIACO](/indicator/PPIACO/): Producer Price Index by Commodity: All Commodities - [T10YIE](/indicator/T10YIE/): 10-Year Breakeven Inflation Rate - [U6RATE](/indicator/U6RATE/): Total Unemployed, Plus All Marginally Attached Workers Plus Total Employed Part Time for Economic Reasons - [PAYEMS](/indicator/PAYEMS/): All Employees, Total Nonfarm - [CIVPART](/indicator/CIVPART/): Labor Force Participation Rate - [EMRATIO](/indicator/EMRATIO/): Employment-Population Ratio - [UNEMPLOY](/indicator/UNEMPLOY/): Unemployed - [CE16OV](/indicator/CE16OV/): Employment Level - [ICSA](/indicator/ICSA/): Initial Claims - [JTSJOL](/indicator/JTSJOL/): Job Openings: Total Nonfarm - [JTSQUR](/indicator/JTSQUR/): Quits: Total Nonfarm - [GDPC1](/indicator/GDPC1/): Real Gross Domestic Product - [A191RL1Q225SBEA](/indicator/A191RL1Q225SBEA/): Real Gross Domestic Product: Percent Change from Preceding Period - [INDPRO](/indicator/INDPRO/): Industrial Production: Total Index - [TCU](/indicator/TCU/): Capacity Utilization: Total Index - [HOUST](/indicator/HOUST/): New Privately-Owned Housing Units Started: Total Units - [PERMIT](/indicator/PERMIT/): New Privately-Owned Housing Units Authorized in Permit-Issuing Places: Total Units - [RSAFS](/indicator/RSAFS/): Advance Retail Sales: Retail Trade - [PCE](/indicator/PCE/): Personal Consumption Expenditures - [DSPIC96](/indicator/DSPIC96/): Real Disposable Personal Income - [PSAVERT](/indicator/PSAVERT/): Personal Saving Rate - [M2SL](/indicator/M2SL/): M2 - [BOPGSTB](/indicator/BOPGSTB/): U.S. International Trade in Goods and Services: Balance - [MSPUS](/indicator/MSPUS/): Median Sales Price of Houses Sold for the United States - [HSN1F](/indicator/HSN1F/): New One Family Houses Sold: United States - [RHORUSQ156N](/indicator/RHORUSQ156N/): Homeownership Rate in the United States - [TTLCONS](/indicator/TTLCONS/): Total Construction Spending: Total Construction in the United States - [RRVRUSQ156N](/indicator/RRVRUSQ156N/): Rental Vacancy Rate in the United States - [TOTALSL](/indicator/TOTALSL/): Total Consumer Credit Owned and Securitized - [REVOLSL](/indicator/REVOLSL/): Revolving Consumer Credit Owned and Securitized - [DRCCLACBS](/indicator/DRCCLACBS/): Delinquency Rate on Credit Card Loans, All Commercial Banks - [GDP](/indicator/GDP/): Gross Domestic Product - [GPDI](/indicator/GPDI/): Gross Private Domestic Investment - [GCE](/indicator/GCE/): Government Consumption Expenditures and Gross Investment - [PCEC](/indicator/PCEC/): Personal Consumption Expenditures - [NETEXP](/indicator/NETEXP/): Net Exports of Goods and Services - [GFDEBTN](/indicator/GFDEBTN/): Federal Debt: Total Public Debt - [GFDEGDQ188S](/indicator/GFDEGDQ188S/): Federal Debt: Total Public Debt as Percent of Gross Domestic Product - [FYFSD](/indicator/FYFSD/): Federal Surplus or Deficit - [FGRECPT](/indicator/FGRECPT/): Federal Government Current Receipts - [FGEXPND](/indicator/FGEXPND/): Federal Government: Current Expenditures - [MANEMP](/indicator/MANEMP/): All Employees, Manufacturing - [USCONS](/indicator/USCONS/): All Employees, Construction - [USTRADE](/indicator/USTRADE/): All Employees, Retail Trade - [USFIRE](/indicator/USFIRE/): All Employees, Financial Activities - [USGOVT](/indicator/USGOVT/): All Employees, Government - [AWHAETP](/indicator/AWHAETP/): Average Weekly Hours of All Employees, Total Private - [DGORDER](/indicator/DGORDER/): Manufacturers' New Orders: Durable Goods - [NEWORDER](/indicator/NEWORDER/): Manufacturers' New Orders: Nondefense Capital Goods Excluding Aircraft - [BUSINV](/indicator/BUSINV/): Total Business Inventories - [EXPGS](/indicator/EXPGS/): Exports of Goods and Services - [IMPGS](/indicator/IMPGS/): Imports of Goods and Services - [IR](/indicator/IR/): Import Price Index (End Use): All Commodities - [PPIFIS](/indicator/PPIFIS/): Producer Price Index by Commodity: Final Demand ## Latest quarter (10-Q) Latest 10-Q source: https://www.sec.gov/Archives/edgar/data/1378325/000137832526000021/cv-20260331.htm Extracted structurally from real Item 2 body heading to real Item 3/4 boundary. Published MD&A gate trimmed front/tail over-capture. Confidence: high Filing date: 2026-05-14 Report date: 2026-03-31 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited financial statements and the related notes and the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2025. In addition to historical financial information, the following discussion contains forward looking statements that reflect our plans, estimates, and beliefs that involve significant risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to those differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” Overview We are a global medical technology company that develops advanced imaging and AI technologies, deployed in our capsule endoscopy solutions to identify abnormalities of the GI tract for diagnostic and screening purposes. Our capsule endoscope system, currently comprising the CapsoCam Plus single-use capsule and the CapsoCloud and CapsoView software, including 360 degree panoramic visualization of the small-bowel mucosa to investigate abnormalities such as obscure GI bleeding and Crohn’s disease, while our AI assisted pathology detection tools detect and highlight suspected abnormalities for a clinician, reducing their time to review the video and making capsule endoscopy more financially attractive to their practice. Our cloud-based solution enables medical professionals to access their patients’ videos and review those videos anytime, anywhere, 24/7, without a need to have an on-site server and maintain it, while accumulating an immense data trove on the cloud storage for AI training. We were founded in 2005 and are headquartered in Saratoga, California. We sell our small bowel capsule system to our provider customers (i.e., primarily gastroenterologists practicing in clinics and/or hospitals) both internationally and in the U.S. through our global sales and marketing team. In the U.S., we sell to customers directly. Internationally we sell both directly and through qualified exclusive distributors in specified regions. Our largest international shipping destinations in the three months ended March 31, 2026 include France, Germany, and Saudi Arabia. As of March 31, 2026, our CapsoCam Plus has been used in over 167,000 patients. We currently manufacture and intend to continue manufacturing our CapsoCam capsules included in our GI-tract capsule endoscopy solution (including CapsoCam Colon capsules). To assist us in manufacturing our GI-tract capsule endoscopy products, we rely on component suppliers and assembly manufacturers based in Asia (particularly Taiwan and Japan). As part of our effort to expand and grow our revenues beyond small-bowel-related, we are developing our next pipeline capsule endoscope product, CapsoCam Colon. Our CapsoCam Colon capsule (i) leverages CapsoCam Plus’s existing capsule design with its panoramic view and (ii) incorporates both our self-developed AI to automatically detect polyps and polyp-size measurement tool enabled by a 3D sensor in the capsule (polyp size being highly correlated with a polyp’s risk of becoming cancer). In the second quarter of 2025 we filed our 510(k) submission to the U.S. Food and Drug Administration (the “FDA”) for our initial CapsoCam Colon capsule endoscopy solution (the “First-Generation Product”). We received responses from the FDA in September 2025. During our meeting with the FDA in December 2025, the FDA raised inquiries on topics including panoramic image processing methodology, and the proposed study design, sample size and primary endpoint for an extended study. Based on our communications with the FDA, we have decided not to further pursue the submission and approval for the First-Generation Product, and to prioritize our resources for the development of our second-generation of CapsoCam Colon capsule (the “Second-Generation Product”), which features improved imaging quality and increased field of review with use of AI and better lens. We also expanded a second arm pivotal study to enroll approximately 800 patients at up to 20 sites in the U.S. in preparation for submitting a new 510(k) application for the Second-Generation Product. As of the date of this 25 Quarterly Report, over 600 patients have been enrolled in the second arm pivotal study. We currently expects to submit the 510(k) application for the Second-Generation Product in the third quarter of 2026. Since we continue to invest in AI to improve our existing products, we completed a clinical study to demonstrate the benefits of our incorporation of AI technology into CapsoCam Plus, our existing product for the small bowel. We submitted the related 510(k) application to the FDA in December 2025. We received feedback from the FDA in March 2026 and submitted our responses to the FDA in April 2026. We will continue engaging with the FDA and expect to obtain the FDA clearance by the middle of 2026. The commercialization is planned to begin shortly thereafter. Longer term, we believe our CapsoCam family of products, incorporating our panoramic imaging solution, can be adapted to address new GI medical indications. Potential new medical indications include esophageal medical conditions (such as esophageal varices) and pancreatic cancer. In connection with our efforts to address pancreatic cancer, we submitted an FDA “Breakthrough Device Designation” application for our capsule endoscopy solution on November 6, 2025. A response from FDA in January 2026 determined that the CapsoCam UGI does allow for visualization of the papilla and its abnormalities, for both pre-cancerous and cancerous lesions. Due to the fact that the device does not specifically define diagnostic criteria, the application was not approved. Following the FDA’s response, we initiated a study for early pancreatic cancer detection using the CapsoCam UGI system in May 2026. This study will build on established scientific literature and engage leading opinion leaders, including leadership of leading societies in the pancreatobiliary field, to define malignancy diagnosis criteria with the device. This study is expected to enroll up to 140 patients using the CapsoCam UGI system. As of May 11, 2026, the first patient has been enrolled in this study. We expect to resubmit the Breakthrough Device Designation application following the study, when additional data is available. The breakthrough designation is a part of the on-going project, potentially supplementing the regulatory pathway and approval for early pancreas cancer detection. However, additional research and studies to collect data may delay our anticipated timeline for obtaining the regulatory clearance (including obtaining the Breakthrough Device Designation) and may increase our research and development costs. As of March 31, 2026, we had an accumulated deficit of $162.7 million. To date, we have funded our operations primarily through proceeds from the sale of shares of our convertible preferred stock, IPO and Private Placement proceeds and cash generated from the sale of CapsoCam capsules and the use of CapsoCloud or CapsoView, CapsoCloud data access, and capsule video reading service. Our mission is to transform lives through innovative medical solutions that improve the health of patients around the world. When used in this Quarterly Report on Form 10-Q, the terms "we," "us," "our" and "the Company" mean CapsoVision. Our Business Model Key Factors Affecting Our Results of Operations and Performance We believe there are several important factors that have impacted and that we expect will impact our operating performance and results of operations for the foreseeable future. These factors include: Success in further penetrating the small bowel capsule endoscopy market. Until commercialization of our CapsoCam Colon capsule (targeted for the middle of 2027), to grow our revenues (and, in turn, reduce our expected losses and negative cash flows), we intend to grow our small-bowel-related revenues by, among other things: (i) retaining and growing our customer base; (ii) cost-effectively increasing the size and effectiveness of our U.S. and international sales teams and our customer-support function; (iii) pursuing the pediatric market (with children comprising a significant portion of the Crohn’s disease patient population); (iv) introducing complementary products such as our (a) capsule delivery device with full commercialization expected in the fourth quarter of 2026, and (b) patency capsule (for verifying whether a capsule endoscope can pass through the bowel without retention prior to an exam) with tentative FDA 510(k) submission planned by the end of the second quarter of 2026; (v) facilitating increased telemedicine adoption following recent FDA clearance of remote ingestion of our 26 CapsoCam Plus, allowing patients to ingest our capsules in the comfort of their own homes with remote provider supervision; and (vi) following related FDA 510(k) clearance (expected by the middle of 2026), commercializing our updated CapsoCam Plus which incorporates our AI assisted pathology detection technology. Success in our clinical development efforts and managing related costs. Prior FDA, EU and other regulatory clearances are required (as applicable) to, among other things, (i) commercialize our GI-tract capsule endoscopy solution (including newly developed capsules or major hardware or software enhancements and improvements to a previously approved capsule or related product), (ii) target a new or expanded indicated patient population for our solution or (iii) target new medical conditions. These clearances must be supported by satisfactory clinical study data, among other things. By their nature, clinical development and related expenses often require significant upfront investment in terms of time and cost before revenue generation is ensured. Consequently, to generate or achieve and maintain revenue, we must effectively manage our planned clinical development efforts in terms of successful results and time and costs expended. In particular, our clinical study expenses may fluctuate significantly due to numerous factors, including the nature of a clinical study and relatedly, the study’s protocols, size in terms of patients and clinical sites and duration and the ability to timely enroll sufficient qualified patients (which may be impacted by competing clinical trials). We may also be required to conduct additional clinical trials or other testing of any of our products beyond those that are contemplated or if we experience significant delays in enrollment in any clinical trials, we could incur significant additional costs and the clinical development timeline for our products may be delayed. Success in our research and development efforts. We plan to continue investing in research and development to build upon and expand our GI-tract capsule endoscopy solution. Our research and development initiatives are focused on introducing new capsule products and enhancements and improvements to existing products, aimed at increasing the value provided by our GI-tract capsule endoscopy solution to patients and providers. We plan to appropriately modify our combined CapsoCam capsule and CapsoCloud and/or CapsoView solution to address new GI indications, for which we have begun and/or expect to soon begin the technical validation process for several additional indications and clinical-use cases beyond the small [Excerpt truncated for page length; source filing is linked above.] ## Latest 10-K MD&A Extracted from Item 7 to the first post-MD&A boundary after HTML sanitization. Confidence: high Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this Annual Report. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs that involve significant risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to those differences include those discussed below and elsewhere in this Annual Report, particularly in “Risk Factors” and “Special Note Regarding Forward-Looking Statements”. Overview We are a global medical technology company that develops advanced imaging and AI technologies, deployed in our capsule endoscopy solutions to identify abnormalities of the GI tract for diagnostic and screening purposes. Our capsule endoscope system, currently comprising the CapsoCam Plus single-use capsule and the CapsoCloud and CapsoView software, including 360 degree panoramic visualization of the small-bowel mucosa to investigate abnormalities such as obscure GI bleeding and Crohn’s disease, while our AI assisted pathology detection tools detect and highlight suspected abnormalities for a clinician, reducing their time to review the video and making capsule endoscopy more financially attractive to their practice. Our cloud-based solution enables medical professionals to access their patients’ videos and review those videos anytime, anywhere, 24/7, without a need to have an on-site server and maintain it, while accumulating an immense data trove on the cloud storage for AI training. We were founded in 2005 and are headquartered in Saratoga, California. We sell our small bowel capsule system to our provider customers (i.e., primarily gastroenterologists practicing in clinics and/or hospitals) both internationally and in the U.S. through our global sales and marketing team. In the U.S., we sell to customers directly. Internationally, we sell both directly and through qualified exclusive distributors in specified regions. Our largest international shipping destinations in 2025 include France, Germany, and Columbia. We currently manufacture and intend to continue manufacturing our CapsoCam capsules included in our GI-tract capsule endoscopy solution (including CapsoCam Colon capsules). To assist us in manufacturing our GI-tract capsule endoscopy products, we rely on component suppliers and assembly manufacturers based in Asia (particularly Taiwan and Japan). 98 As part of our effort to expand and grow our revenues beyond small-bowel-related, we are developing our next pipeline capsule endoscope product, CapsoCam Colon. Our CapsoCam Colon capsule (i) leverages CapsoCam Plus’s existing capsule design with its panoramic view and (ii) incorporates both our self-developed AI to automatically detect polyps and polyp-size measurement tool enabled by a 3D sensor in the capsule (polyp size being highly correlated with a polyp’s risk of becoming cancer). In the second quarter of 2025 we filed our 510(k) submission to the FDA for our initial CapsoCam Colon capsule endoscopy solution (the "First-Generation Product”). We received responses from the FDA in September 2025. During our meeting with the FDA in December 2025, the FDA raised inquiries on topics including panoramic image processing methodology, and the proposed study design, sample size and primary endpoint for an extended study. Based on our communications with the FDA, we have decided not to further pursue the submission and approval for the First-Generation Product, and to prioritize our resources for the development of our second-generation of CapsoCam Colon capsule (the "Second-Generation Product"),which features improved imaging quality and increased field of review with use of AI and better lens. We also expanded a second arm pivotal study to enroll approximately 800 patients at up to 20 sites in the U.S. in preparation for submitting a new 510(k) application for the Second-Generation Product. As of the date of this Annual Report, over 500 patients have been enrolled for the second arm pivotal study. We currently expects to submit the 510(k) application for the Second-Generation Product in the third quarter of 2026. Since we continue to invest in AI to improve our existing products, we completed a clinical study to demonstrate the benefits of our incorporation of AI technology into CapsoCam Plus, our existing product for the small bowel. We submitted the related 510(k) application to the FDA in December 2025. We expect that it will take approximately six months for the FDA to review our application, and issue their pending clearance. The commercialization is planned to begin shortly thereafter. Longer term, we believe our CapsoCam family of products, incorporating our panoramic imaging solution, can be adapted to address new GI medical indications. Potential new medical indications include esophageal medical conditions (such as esophageal varices) and pancreatic cancer. In connection with our efforts to address pancreatic cancer, we submitted an FDA “Breakthrough Device Designation” application for our capsule endoscopy solution on November 6, 2025. A response from FDA in January 2026 determined that the CapsoCam UGI does allow for visualization of the papilla and its abnormalities, for both pre-cancerous and cancerous lesions. Due to the fact that the device does not specifically define diagnostic criteria, the application was not approved. The Company expects to resubmit the Breakthrough Device Designation application following the study, when additional data is available. The breakthrough designation is a part of the on-going project, potentially supplementing the regulatory pathway and approval for early pancreas cancer detection. However, additional research and studies to collect data may delay our anticipated timeline for obtaining the regulatory clearance (including obtaining the Breakthrough Device Designation) and may increase our research and development costs. On July 15, 2025, the Company entered into a development agreement with Canon Inc, for the development of complementary metal-oxide-semiconductor (“CMOS”) image sensor samples with higher resolution and higher dynamic range to allow the Company to evaluate functionality and performance, conduct clinical evaluation of capsule endoscopies that incorporate Canon image sensors and obtain FDA 510(k) clearance thereof. The image sensors developed under this Agreement will be incorporated in future versions of the Company’s capsule endoscopies. We have incurred a net loss of $25.3 million and $19.9 million during the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025, we had an accumulated deficit of $155.7 million, cash and cash equivalents of $10.1 million. To date, we have funded our operations primarily through proceeds from the sale of shares of our convertible preferred stock, IPO proceeds and cash generated from the sale of CapsoCam capsules and the use of CapsoCloud or CapsoView, CapsoCloud data access, and capsule video reading service. We expect to continue to incur significant losses for the foreseeable future as we continue to build our operations and transition to operating as a public company, as well as advance our current and future products through clinical development. 99 Our mission is to transform lives through innovative medical solutions that improve the health of patients around the world. When used in this Annual Report on Form 10-K, the terms "we," "us," "our" and "the Company" mean CapsoVision. Our Business Model Key Factors Affecting Our Results of Operations and Performance We believe there are several important factors that have impacted and that we expect will impact our operating performance and results of operations for the foreseeable future. These factors include: Success in further penetrating the small bowel capsule endoscopy market. Until commercialization of our CapsoCam Colon capsule (targeted for middle of 2027), to grow our revenues (and, in turn, reduce our expected losses and negative cash flows), we intend to grow our small-bowel-related revenues by, among other things: (i) retaining and growing our customer base; (ii) cost-effectively increasing the size and effectiveness of our U.S. and international sales teams and our customer-support function; (iii) pursuing the pediatric market (with children comprising a significant portion of the Crohn’s disease patient population); (iv) introducing complementary products such as our (a) capsule delivery device with full commercialization expected the fourth quarter of 2026, and (b) patency capsule (for verifying a capsule endoscope can pass through the bowel without retention prior to an exam) with tentative FDA 510(k) submission planned by the end of the second quarter of 2026; (v) facilitating increased telemedicine adoption following recent FDA clearance of remote ingestion of our CapsoCam Plus, allowing patients to ingest our capsules in the comfort of their own homes with remote provider supervision; and (vi) following related FDA 510(k) clearance (expected by the middle of 2026), commercializing our updated CapsoCam Plus which incorporates our AI assisted pathology detection technology. Success in our clinical development efforts and managing related costs. Prior FDA, EU and other regulatory clearances are required (as applicable) to, among other things, (i) commercialize our GI-tract capsule endoscopy solution (including newly developed capsules or major hardware or software enhancements and improvements to a previously approved capsule or related product), (ii) target a new or expanded indicated patient population for our solution or (iii) target new medical conditions. These clearances must be supported by satisfactory clinical study data, among other things. By their nature, clinical development and related expenses often require significant upfront investment in terms of time and cost before revenue generation is ensured. Consequently, to generate or achieve and maintain revenue, we must effectively manage our planned clinical development efforts in terms of successful results and time and costs expended. In particular, our clinical study expenses may fluctuate significantly due to numerous factors, including the nature of a clinical study and relatedly, the study’s protocols, size in terms of patients and clinical sites and duration and the ability to timely enroll sufficient qualified patients (which may be impacted by competing clinical trials). We may also be required to conduct additional clinical trials or other testing of any of our products beyond those that are contemplated or if we experience significant delays in enrollment in any clinical trials, we could incur significant additional costs and the clinical development timeline for our products may be delayed. Success in our research and development efforts. We plan to continue investing in research and development to build upon and expand our GI-tract capsule endoscopy solution. Our research and development initiatives are focused on introducing new capsule products and enhancements and improvements to existing products, aimed at increasing the value provided by our GI-tract capsule endoscopy solution to patients and providers. We plan to appropriately modify our combined CapsoCam capsule and CapsoCloud and/or CapsoView solution to address new GI indications, for which we have begun and/or expect to soon begin the technical validation process for several additional indications and clinical-use cases beyond the small bowel. Success in further developing our AI product features. We plan to continue investing to (i) improve the pathology-detection and classification accuracy and the scope of our AI algorithms and (ii) apply AI, including large language models, to streamline the diagnostic and medical-report-generation processes, which in turn improves the efficiency and effectiveness of our healthcare provider customers. Our CapsoCloud platform in the ordinary course collects patient videos and physician diagnostic reports that, with patient consent, we can utilize 100 as a dataset for training and validating our AI algorithms. This ever-expanding patient pathology dataset is unique among capsule endoscopy companies, and together with our in-house team of AI experts, provides a competitive advantage. Ongoing investment is required to apply expert labels to the accumulated image data and to modify, train, and test the algorithms on this labeled data to expand applications beyond the current horizon. Components of our Results of Operations Revenue We generate (i) product revenue from the sale of CapsoCam capsules, (ii) service revenue from the provision of reading services for videos, and (iii) product or service revenue depending on which video delivery option is utilized by the customer to download and view capsule videos (CapsoCloud or CapsoView). The customer’s delivery options include (1) CapsoCam capsules shipped to the customer which works together with downloadable software (CapsoView) installed locally on a customer’s computer (classified as product revenue), or (2) a software-as-a-service offering which involves the customer mailing capsule devices to an off-site Company-operated facility which processes uploads of video content to a cloud platform (CapsoCloud) the customer can access via a web browser or a smart device application in order to view videos and generate reports (classified as service revenue). We recognize revenue for our product and reading service performance obligations at a point in time, that being when the performance obligations are satisfied and control is transferred to the customer (generally upon shipment for products, or conveyance of final deliverable for services). For the software-as-a-service video delivery offering performance obligation, the associated revenue is recognized over time, typically less than one fiscal quarter, representing the estimate of the typical period of time in which customers derive utility from the cloud-based service. Fees paid to group purchasing organizations (GPOs) that act as procurement agents for their underlying medical practice, clinic, or hospital members are deducted from revenue in the period the related revenue is recognized. Our revenue fluctuates primarily based on the number of CapsoCam capsules sold. Costs of Revenue We currently manufacture and intend to continue manufacturing our CapsoCam capsules included in our GI-tract capsule endoscopy solution. To assist us in doing so, we rely on component suppliers and assembly manufacturers based in Asia (particularly Taiwan and Japan). Costs of revenue include materials, direct labor, and manufacturing overhead costs related to sold products, as well as certain period costs such as non-allocated overhead, scrap, and outbound freight costs, fees paid to physicians for providing reading services, and the costs of operating CapsoCloud as a software-as-a-service offering for video delivery of capsule videos such as shipping costs, processing costs, and data storage costs. All shipping and handling costs directly related to bringing products to their final point of sale are included in costs of revenue. As we expand our product offerings, acquire new customers and existing customers increase their use of our CapsoCam solutions, we expect that our costs of revenue will continue to increase in absolute terms in line with increased revenues. The U.S. government recently announced changes to its trade policies, including increasing tariffs on imports. Such changes could pose a risk to our business that could adversely affect our revenue, cost of revenue, gross profit, and gross margin. We will continue to evaluate the potential impact of tariffs on our business and results of operations and mitigating actions we might consider implementing. Gross Profit and Gross Margin We calculate gross profit as revenue less costs of revenue. Gross margin represents gross profit as a percentage of revenue. We expect gross profit and gross margin to change and be affected by various factors going forward, including selling prices, product costs, customer mix and production volumes as well as product mix once sale of 101 CapsoCam Colon capsules begin with CapsoCam Colon capsules expected to have a higher sales price and related costs of revenue as compared to CapsoCam Plus, given the additional optics and other features incorporated into the capsule. Due to the potential increase in cost of revenue, expected as a result of U.S. trade policies changes, including increasing tariffs on imports, our gross profit/gross margin may be adversely impacted. Operating Expenses Selling and Marketing Selling and marketing expenses include costs directly attributable to actively marketing our products and services using both direct employees and outside contractors or vendors. These costs include salaries, bonuses, benefits, and stock-based compensation, sales commissions, travel costs and expense reimbursements, and the costs to increase market awareness of our technology and our product advantages, including expenses related to sponsoring programs, events, conferences and consulting services. We expect our selling and marketing expenses to increase in the foreseeable future as we continue to increase the size of our in-house sales organization and market penetration in the U.S. and internationally, and expand indications. However, we expect selling and marketing expenses to decrease as a percentage of revenue primarily as our revenue grows. Research and Development Research and development costs are expensed as incurred in accordance with ASC 730. See Note 3 to our financial statements included elsewhere in this Annual Report for further details. Our research and development team includes hardware and software engineers with deep expertise in medical technology, optics, data science, AI, and cloud-based data and security architecture and individuals with extensive clinical development expertise. Our GI-tract capsule endoscopy solution research and development activities include both (i) activities focused on increasing the value of our solution (such as developing new capsule products, including the associated software component, and new enhancements and features) and (ii) related clinical trial development efforts. Related research and development expenses include salaries, bonuses, benefits, and stock-based compensation for our employees focused on research and development, including engineering for our AI technology and hardware development, clinical trials, or regulatory clearance, costs of independent contractors and outside vendors, costs of supplies consumed in or product inventory utilized in clinical trials, and the costs of the clinical trials themselves as charged within the negotiated budgets by trial sites or vendors responsible for multiple trial sites. In the near term, we expect our clinical development expenses to vary as, among others, we (i) finalized the first arm of our CapsoCam Colon large-scale pivotal study and began the second arm of our CapsoCam Colon pivotal study involving the second generation of that capsule (incorporating further advanced features designed to improve the accuracy of CapsoCam Colon) with the second arm expected to involve approximately 800 patients enrolled at up to 20 sites in the U.S. and plan to refine the study based on the FDA comments to the first arm pivotal study, (ii) continued clinical development of our updated small bowel CapsoCam Plus capsule incorporating our AI assisted pathology detection technology and (iii) conducted additional research and studies to collect data for the development of CapsoCam UGI. In addition to clinical trials costs, our research and development costs also includes engineering for our AI technology, hardware development, and regulatory personnel. General and Administrative General and administrative expenses consist primarily of personnel expenses, including salaries, bonuses, benefits, and stock-based compensation expense for personnel in executive, administrative, finance, human 102 resources, and other supporting functions. General and administrative expenses also include professional fees for legal services, consulting services, tax matters and audits, as well as information technology expenses, office expenses, rent, insurance, and foreign exchange gains (losses). We expect that our general and administrative expenses will increase in the foreseeable future as we increase our headcount to support the continued growth of our business. We also anticipate incurring additional expenses associated with operating as a public company, including increased expenses related to audit, legal, regulatory, compliance, director and officer insurance, investor and public relations, and tax-related services associated with maintaining compliance with the rules and regulations of the SEC and standards applicable to companies listed on a national securities exchange. However, we expect general and administrative expenses to decrease as a percentage of revenue primarily as, and to the extent, our revenue grows. Results of Operations for the Years ended December 31, 2025 and 2024 The following tables set forth our results of operations for the periods presented. The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods. Years Ended December 31, 2025 2024 $ Change % Change (in thousands, except for percentages and per share amount) Revenue $ 13,554  $ 11,756  $ 1,798  15  % Costs of revenue 6,381  $ 5,379  1,002  19  % Gross profit 7,173  6,377  796  12  % Gross margin 53  % 54  % (1) % OPERATING EXPENSES Selling and marketing 7,530  6,967  563  8  % Research and development 18,310  15,120  3,190  21  % General and administrative 6,849  4,207  2,642  63  % Total operating expenses 32,689  26,294  6,395  24  % Operating loss (25,516) (19,917) (5,599) 28  % Total non-operating income, net 225  30  195  650  % Loss before income taxes (25,291) (19,887) (5,404) 27  % Provision for income taxes 24  11  13  118  % Net loss and comprehensive loss $ (25,315) $ (19,898) $ (5,417) 27  % Net loss per share – basic and diluted $ (1.03) $ (9.85) $ 8.82  (90) % Revenue Our revenue has increased in each year since we began U.S. direct sales in 2020. Our revenues for the years ended December 31, 2025 and 2024 were $13.6 million and $11.8 million, respectively, representing a period-over-period growth $1.8 million or approximately 15% (17% in the U.S. and 8% internationally). The primary driver for our revenue growth was an increase in the number of CapsoCam Plus capsules sold: a period-over-period increase of 15% for the years ended December 31, 2025 and 2024. For the years ended December 31, 2025 and 2024, international sales accounted for 21% and 23% of total revenue. 103 Costs of Revenue As we continued to scale our business, costs of revenue increased $1.0 million, or 19%, for the year ended December 31, 2025, compared to the year ended December 31, 2024 from $5.4 million to $6.4 million. The increased costs of revenue was attributable to increased unit sales of CapsoCam Plus for the small-bowel and the related services and to increased customs and tariffs due to the change in U.S. trade policy. Gross Profit and Gross Margin Gross profit increased $0.8 million, or 12%, for the year ended December 31, 2025, compared to the year ended December 31, 2024, from $6.4 million to $7.2 million. For the years ended December 31, 2025 and 2024, the gross margin was 53% and 54%, respectively. The increase in gross profit was a result of increased CapsoCam Plus unit sales and the related software component, while the decline of the gross margin is due to changes the U.S. government made to the trade policies and tariffs at the beginning of the year resulting in increase of expenses for customs and tariffs. Operating Expenses The following tables provide a summary for our key operating expenses for the years ended December 31, 2025 and 2024. Years Ended December 31, 2025 2024 $ Change % Change (in thousands, except percentages) Selling and marketing $ 7,530  $ 6,967  $ 563  8  % Research and development $ 18,310  $ 15,120  $ 3,190  21  % General and administrative $ 6,849  $ 4,207  $ 2,642  63  % Total operating expenses $ 32,689  $ 26,294  $ 6,395  24  % Selling and Marketing Expenses Selling and marketing expenses increased $0.6 million, or 8%, for the year ended December 31, 2025, compared to the year ended December 31, 2024, from $7.0 million to $7.5 million. The increase was due to the addition to the sales force headcount and an increase in commission payouts in response to revenue growth. Research and Development Expenses Research and development expenses increased $3.2 million, or 21%, for the year ended December 31, 2025, compared to the year ended December 31, 2024, from $15.1 million to $18.3 million. The increase was primarily due to the design development of the new CMOS under the development agreement with Canon Inc. as described in Note 9. COMMITMENTS AND CONTINGENCIES and the design development of the new ASIC under the development agreement with an R&D and manufacturing services vendor as described in Note 16. RELATED PARTIES. General and Administrative Expenses General and administrative expenses increased $2.6 million, or 63%, for the year ended December 31, 2025, compared to the year ended December 31, 2024, from $4.2 million to $6.8 million. Of the total increase, approximately $0.9 million was attributable to higher professional service expenses, including audit, legal and consulting fees, $0.5 million was attributable to stock-based compensation expenses primarily due to new stock options granted at the end of 2024 and April 2025, as well as acceleration of stock option awards associated with 104 the executive officer departure, $1.1 million was associated with higher payroll and benefits expenses due to hiring employees at the executive level, $0.3 million was attributable to higher corporate insurance expenses due to operating as a public company from July 2025, $0.2 million associated with a higher software expenses, and $0.1 million was associated with non-employee Board of Director's compensation for the second part of 2025, offset by $0.2 million due to receipt of refundable payroll tax credits from the U.S. Federal government and by $0.3 million due to foreign exchange gains of $0.2 million for the year ended December 31, 2025 compared to foreign exchange loss of $0.1 million for the year ended December 31, 2024. Net Loss Our reported net loss attributable to CapsoVision common stockholders for the years ended December 31, 2025 and 2024 was $25.3 million and $19.9 million, respectively, representing a period-over-period increase of $5.4 million or 27%. Liquidity and Capital Resources Overview To date, we have financed our operations primarily through the net proceeds we have received from the sales of our convertible preferred stock and IPO common stock as well as cash generated from sales of our CapsoCam Plus capsule endoscopy solution. We have generated losses from our operations as reflected in our accumulated deficit of $155.7 million as of December 31, 2025. Net cash used in operating activities was $22.9 million and $20.1 million for the years ended December 31, 2025 and 2024, respectively. Our losses primarily resulted from the costs incurred in the development and sales and marketing of our products and providing general and administrative support for our operations. We expect to continue to incur losses in the foreseeable future and to expend significant amounts of cash as we continue to scale our business, invest in research and development activities, increase sales and marketing expenses to support commercial expansion, and increase general and administrative expenses to support being a publicly-traded company. Our annual financial statements for the year ended December 31, 2025 included in this Annual Report note that there is substantial doubt about our ability to continue as a going concern within one year after the date of issuance of the financial statements (see Note 2. GOING CONCERN). This means that we have expressed substantial doubt about our ability to continue our operations without an additional infusion of capital from external sources. Our annual financial statements have been prepared on a going concern basis and do not include any adjustments to reflect the future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may be necessary should we be unable to continue as a going concern. If we are unable to finance our operations, our business would be in jeopardy and we might not be able to continue operations and might have to liquidate our assets. In that case, investors might receive less than the value at which those assets are carried on our annual financial statements for the year ended December 31, 2025, and it is likely that investors would lose all or a part of their investment. See “Risk Factors—Risks Relating to Our Business and Industry—Our annual financial statements for the year ended December 31, 2025 include a footnote raising substantial doubt about our ability to continue as a 'going concern' and we will likely need to raise additional financing to fund our business and revenue growth plans." We have lease obligations and other contractual obligations and commitments as part of our ordinary course of business. See Note 8. LEASES to our financial statements included elsewhere in this Annual Report for information about our lease obligations. In addition, see Note 9. COMMITMENTS AND CONTINGENCIES to our financial statements included elsewhere in this Annual Report for information about our other commitments and contingencies. 105 Source of Liquidity As of December 31, 2025, we had approximately $10.1 million in cash and cash equivalents. From our inception through December 31, 2025, we have received aggregate gross proceeds of $143.6 million from sales of our convertible preferred stock, which were automatically converted into shares of our common stock in connection with the completion of our IPO. On July 3, 2025 we completed our IPO from which we received the net proceeds in the amount of $23.4 million. To provide for additional liquidity prior to the completion of our IPO, on May 28, 2025 we received $1 million as a note payable from an existing investor. The note payable, together with interest thereon (at 1% per month) was repaid shortly after completion of our IPO. In consideration for providing the note, we issued the investor 7,508 shares of our common stock. Funding Requirements As of December 31, 2025, we had an accumulated deficit of $155.7 million and cash and cash equivalents of $10.1 million. On July 3, 2025, we completed our IPO with the net proceeds to us of approximately $23.4 million after deducting underwriting discounts and commissions, and offering expenses payable by us. On March 16, 2026, we completed the private placement further discussed in 17. SUBSEQUENT EVENTS. Based on our current operating plan, even after this private placement of equity, we believe that our existing cash balances will not be sufficient to fund our operations for at least the next 12 months after the date of issuance of these financial statements. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. We may experience lower than expected cash generated from operating activities or greater than expected costs of revenue or operating expenses, and may need to raise additional capital to fund operations. Our future capital needs will depend upon our ability to execute our revenue growth plans and many factors, including: •the cost and pace of developing new products, enhancements to existing products and our research and development activities; •the market acceptance of our products; •our ability to develop and commercialize our CapsoCam capsule endoscopy solution for new indications, patient populations and clinical use cases; •our ability to successfully complete any required clinical or other studies and timely obtain and maintain any required regulatory approval or clearances; •insurer and third-party reimbursement of the costs associated with our GI-tract capsule endoscopy solution; •successful management of our global supply chain including our component suppliers and assembly manufacturers for our CapsoCam solution, many of which are located in Asia (particularly Taiwan and Japan) and some of which are currently single-source suppliers; •successful growth and leveraging of our global sales team (including, where appropriate, distributors) and marketing team to sell and market our GI-tract capsule endoscopy solution; •the costs of attaining, defending, and enforcing our intellectual property rights; •whether we acquire third-party products or technologies; 106 •the amount and nature of competition from other GI-tract diagnostic products or procedures; •our ability to raise additional funds to finance our operations; and •the costs associated with being a public company. If the sources of cash together with expected cash generated from operating activities are insufficient to satisfy our liquidity requirements, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our common stock. In addition, the undertaking of indebtedness would increase our fixed obligations and include covenants or other restrictions that could impede our ability to manage our operations. Our ability to raise additional funds may be adversely impacted by deteriorating global economic conditions and the disruptions to and volatility in the credit and financial markets in the U.S. and fluctuations in interest rates, resulting from factors that include but are not limited to, inflation, the conflict between Russia and Ukraine, political tensions between China and Taiwan and other factors, diminished liquidity and credit availability, tariffs, declines in consumer confidence, declines in economic growth, increases in unemployment rates and interest rates, and uncertainty about economic stability. If the equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly, and more dilutive. Further, if additional financing is needed, we may not be able to obtain additional financing on terms favorable to us or at all. Our inability to obtain adequate financing or financing on terms satisfactory to us, when we require it, could significantly limit our ability to continue supporting our business growth and responding to business challenges and opportunities. If we are unable to obtain additional funding on a timely basis, we will be required to scale back our plans and place certain activities on hold. We currently do not have any commitments to obtain additional funds. Our management continues to evaluate different strategies to obtain the required funding for future operations. These strategies may include public and private placements of equity and/or debt securities. Cash Flows The following table shows a summary of our cash flows for each of the periods presented: Year ended December 31, 2025 2024 (in thousands) Net cash used in operating activities $ (22,864) $ (20,091) Net cash used in investing activities $ (90) $ (153) Net cash provided by financing activities $ 23,604  $ 15,074  Net increase (decrease) in cash and cash equivalents $ 650  $ (5,170) Net Cash Used in Operating Activities For the year ended December 31, 2025, net cash used in operating activities totaled $22.9 million, primarily driven by the net loss of $25.3 million for the period. Additional contributing factors included a $0.4 million increase in inventory to support increasing demand, offset by a $2.1 million increase in accrued expenses and other current liabilities, mainly due to research and development expenses, as well as $0.8 million increase in stock-based compensation expenses due to new grants and stock option accelerations. For the year ended December 31, 2024, net cash used in operating activities was $20.1 million, primarily attributable to the net loss of $19.9 million. Cash outflows were further impacted by a $0.4 million increase in inventory to meet increased demand, as well as 0.2 million increase in stock-based compensation expenses due to new grants. 107 Net Cash Used in Investing Activities Net cash used in investing activities during the years ended December 31, 2025 and 2024 was $0.1 million and $0.2 million, respectively, and consisted of purchases of property and equipment. Net Cash Provided by Financing Activities Net cash provided by financing activities during the year ended December 31, 2025 consisted primarily of $23.4 million in net proceeds from the IPO, and $0.2 million in proceeds from the exercise of options on common stock and warrants. For the year ended December 31, 2024, net cash provided by financing activities was $15.1 million, which consisted of $15.0 million proceeds from the sales of our preferred stocks, and $0.1 million in proceeds from the exercise of options on common stock. Contractual Obligations and Commitments Our contractual obligations at December 31, 2025 include operating lease payments of $1.0 million due within 24 months and $2.7 million in outstanding purchase commitment for the development agreement with Canon Inc. due in 15 months, which takes into account an increase of $1.0 million due to the increased features in the specification pursuant to an amendment to the original development agreement with Canon, Inc. executed in March 2026. We expect to fund these obligations through our existing cash balances and cash flows from operations. The Company had no off-balance-sheet arrangements that have or are reasonably likely to have a material effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources. Critical Accounting Estimates Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. GAAP. Preparation thereof requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and certain items included in the footnotes to our financial statements. See Note 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES to our financial statements included elsewhere in this Annual Report for information about our significant accounting policies. While we believe the processes used in developing our estimates to be reasonable, actual amounts may differ from estimates. The following reflects the critical accounting estimates used in the preparation of our financial statements. The term “critical accounting estimates” refers to those estimates that involve a significant level of estimation uncertainty that have had, or are reasonably likely to have, a material impact on our financial condition or results of operations. Research and Development Expenses (including Clinical Trial Expenses) Research and development expenses, generally expensed as incurred, include salaries, bonuses, benefits, and stock-based compensation for employees focused on research and development or clinical trials, costs of independent contractors and outside vendors, costs of supplies consumed in or product inventory utilized in clinical trials, costs of the clinical trials themselves as charged within the negotiated budgets by trial sites or vendors responsible for multiple trial sites, and purchased or in-licensed intellectual property used in new product development where there is no alternative future use. We capitalize prepayments for goods or services, including trial device inventory or pre-paid clinical trial amounts, that will be used, consumed, or rendered for future research and development activities and recognize expense as the related goods are delivered or services are performed. We also record expenses and accruals for estimated costs of research and development activities that have not yet been billed to us, including services for clinical trials. Research and development expenses possess significant estimation uncertainty that have been, or are reasonably likely to be, material and include costs incurred with clinical trial sites and related vendors. 108 Such estimation uncertainty arises because: (i) the total time periods over which costs are expected to be incurred, and attributed to, may contract or expand based upon difficult-to-predict outcomes such as better than expected progress in, or delays in, clinical trials (including due to study protocol amendments); (ii) the costs’ behavior may be variable, or fixed, requiring judgments regarding proper attribution methodologies; and (iii) visibility of the precision of the exact progress of a particular study subject through the phases of the trial may be very limited, directly implicating necessary assumptions regarding informed consent, enrollment, or completion and speed of progress. Revenue Recognition We recognize revenue using a five-step model prescribed by U.S. GAAP resulting in revenue being recognized as performance obligations within a contract are satisfied. Judgment is required to apply the principles-based, five-step model for revenue recognition. Management is required to make certain estimates and assumptions about our contracts with our customers. To date, with limited exception for capsule video reading service revenues, all our revenue is generated from the sale of our CapsoCam Plus capsules to our customers (classified as product revenue) and the use of CapsoCloud or CapsoAccess (together with CapsoView) as the customer selected capsule video delivery option for (i) streaming the capsule videos (via CapsoCloud) for clinician review (classified as service revenue) or (ii) downloading the capsule videos (via CapsoAccess and CapsoView) for clinician review (classified as product revenue). Those aspects of the five-step revenue recognition model prescribed by U.S. GAAP that give rise to significant levels of estimation uncertainty and have been, or are reasonably likely to be, material to our financial condition or results of operations include (i) the estimation of stand-alone selling prices for performance obligations that are not, or are rarely, sold separately or possess a wide range of observed historical selling prices and (ii) the measurement of applicable time periods to be used for recognition of revenue which is initially deferred at the time of sale and subsequently recognized over time or at a point in time. The estimation of stand-alone selling prices, where we rely upon a cost-plus-expected margin approach, variability in our expected profit margin assumptions can, in turn, cause variation in estimated stand-alone selling prices and therefore the amounts of revenue allocated to different performance obligations. For the estimation of applicable time periods impacting recognition of revenue deferrals, estimates are determined using historical customer behavior and deliverable timing data. Usage of historical data requires consideration of trends, patterns, and changes in the underlying data, judgments regarding sampling, and judgments as to whether historical data needs to be adjusted for future expectations. Changes in these underlying inputs have not significantly impacted service revenues or deferrals in the most recent period. For more information, please, refer to Note 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES and Note 6. REVENUE AND DEFERRED REVENUE. Stock-Based Compensation We maintain equity incentive plans to provide long-term incentives for employees, consultants and members of our board of directors. These plans allow for the issuance of non-statutory and incentive stock options to employees, non-statutory stock options to consultants and restricted stock units to non-employee directors. We are required to determine the fair value of equity incentive awards and recognize compensation expense for all equity incentive awards granted. We account for stock-based compensation awards, including stock options to employees and non-employees, based on their estimated grant date fair value. We recognize the fair value of stock options, which vest based on continued service, on a straight-line basis over the requisite service period, which is generally four years. As described in detail in Note 12. STOCK-BASED COMPENSATION to our financial statements included elsewhere in this Annual Report, determining the fair value of stock-based compensation to be recorded typically involves the use of an option-pricing model (which, for our Company, is the Black-Scholes option-pricing model). 109 A significant level of estimation uncertainty arises from certain inputs to the Black-Scholes model. Those inputs include (i) the fair value of the underlying common stock and (ii) the volatility of that fair value. Common Stock Valuation We are required to estimate the fair value of the common stock underlying our stock-based awards when performing fair value calculations using the Black-Scholes option pricing model. Prior to the IPO, the fair value of the common stock underlying our stock-based awards was determined on each grant date by our board of directors or our compensation committee, with input from management, considering our most recently available third-party valuation of common shares. All options to purchase shares of our common stock were intended to be granted with an exercise price per share no less than the fair value per share of our common stock underlying those options on the date of grant, based on the information known to us on the date of grant. Our determination of the value of our common stock was performed using methodologies, approaches and assumptions consistent with the American Institute of Certified Public Accountants (AICPA), Audit and Accounting Practice Aid Series: Valuation of Privately Held Company Equity Securities Issued as Compensation (the AICPA Practice Aid). In addition, our board of directors considered various objective and subjective factors to determine the fair value of our common stock, including: •valuations of our common stock performed by independent third-party valuation specialists; •the anticipated capital structure that will directly impact the value of the currently outstanding securities; •our results of operations and financial position; •the status of our research and development efforts; •the composition of, and changes to, our management team and board of directors; •the lack of liquidity of our common stock as a private company; •our stage of development and business strategy and the material risks related to our business and industry; •external market conditions affecting the life sciences and biotechnology industry sectors; •U.S. and global economic conditions; •the likelihood of achieving a liquidity event for the holders of our common stock, such as an IPO or a sale of our company, given prevailing market conditions; and •the market value and volatility of comparable companies The AICPA Practice Aid prescribes several valuation approaches for setting the value of an enterprise, such as the cost, income and market approaches, and various methodologies for allocating the value of an enterprise to its common stock. The cost approach establishes the value of an enterprise based on the cost of reproducing or replacing the property less depreciation and functional or economic obsolescence, if present. The income approach establishes the value of an enterprise based on the present value of future cash flows that are reasonably reflective of our future operations, discounting to the present value with an appropriate risk adjusted discount rate or capitalization rate. The market approach is based on the assumption that the value of an asset is equal to the value of a substitute asset with the same characteristics. Our Board of Directors determined the income approach and market approach, including the back-solve method, were the most appropriate methods for estimating our enterprise value. Under the income approach, we 110 estimated the value based upon our projected financial performance. Under the back-solve method in the market approach, we estimated the value based upon our prior sales of redeemable convertible preferred stock to unrelated third parties, as well as secondary transactions undertaken in our preferred securities, using the option pricing method (the “OPM”). The back-solve analysis considered the post-transaction liquidation preferences, participation caps, dividends, conversion features, and our capital structure immediately following the closing of each financing round. Other market approaches included analyses based on the valuation of comparable publicly traded companies and mergers and acquisitions observed in related industries. We then applied these derived multiples or values to our financial metrics to estimate our market value. For valuations performed prior to December 31, 2024, the allocation of these enterprise values to each part of our capital structure, including our common stock and redeemable convertible preferred stock, was done utilizing the OPM. The OPM treats the rights of the holders of redeemable convertible preferred and common stock as equivalent to call options on any value of the enterprise above certain break points of value based upon the liquidation preferences of the holders of redeemable convertible preferred stock, as well as their rights to participation and conversion. Thus, the estimated value of the common stock can be determined by estimating the value of its portion of each of these call option rights. The OPM back-solve derives the implied equity value of a company from a recent transaction involving our own securities issued on an arms-length basis. For our valuations performed on or after December 31, 2024, the allocation of these enterprise values to each our share classes was done utilizing the hybrid method. The hybrid method is a hybrid between the probability-weighted expected returns method (the “PWERM”) and the OPM. The PWERM considers the enterprise value under various exit scenarios including an initial public offering (the “IPO Scenario”) and staying private, our estimate of the timing of each scenario and weightings based on our estimate of the probability of each event occurring. Our equity value under the IPO Scenario was estimated based on benchmarking analyses performed by the company and its bankers using market data observed for companies with recent IPOs. The equity value under the IPO Scenario was allocated to our capital stock using an IPO scenario analysis that contemplates the timing, size, valuation, and probability of an IPO event in the future. The stay private scenario estimated our equity value using an income approach based on our financial projections and market approaches based on the valuation of comparable publicly traded companies and mergers and acquisitions observed in related industries. Further, we used the OPM back-solve method and market indexing valuation method under the market approach with respect to the secondary transactions in our redeemable convertible preferred stock. The equity value was then allocated to our capital stock based on the OPM. After the equity value is determined and allocated to the various share classes, a discount for lack of marketability (“DLOM”) is applied to arrive at the fair value of the common stock. A DLOM is meant to account for the lack of marketability of a stock that is not traded on public exchanges. For financial reporting purposes, we considered the amount of time between the valuation date and the grant date of our stock options to determine whether to use the latest common stock valuation or a straight-line interpolation between the two valuation dates. This determination included an evaluation of whether the subsequent valuation indicated that any significant change in valuation had occurred between the previous valuation and the grant date. For valuations after the completion of our IPO, the fair value of each share of underlying common stock is based on the closing price of our common stock as reported on the date of grant on the Nasdaq stock exchange. Emerging Growth Company and Smaller Reporting Company Status We are an emerging growth company under the Jumpstart Our Business Startups Act (JOBS Act). Under the JOBS Act, we can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period for complying with new or revised accounting standards and as a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. However, we may elect to early adopt any new or revised accounting standards whenever such early adoption is permitted for 111 non-public companies. We may take advantage of these exemptions up until the time that we are no longer an emerging growth company. We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of our IPO, (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.235 billion, (iii) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year, or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. We are also a smaller reporting company as defined by Rule 12b-2 of the Exchange Act because both the market value of our stock held by non-affiliates is less than $700 million and our annual revenue is less than $100.0 million during the most recently completed fiscal year. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation. Recently Issued Accounting Pronouncements See Note 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES to our financial statements included elsewhere in this Annual Report for a description of recent accounting pronouncements applicable to our financial statements.