Capso Vision Inc.

11/13/2025 | Press release | Distributed by Public on 11/13/2025 15:37

Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

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" for the year ended December 31, 2024 contained in the prospectus filed on July 3, 2025 with the Securities and Exchange Commission, as part of the Company's Registration Statement (File No. 333-287148) (the "Prospectus"). 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 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 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 include France, Germany, and Canada. 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). We were founded in 2005 and are headquartered in Saratoga, California.
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") review. In the third quarter of 2025 we began the second arm of our CapsoCam Colon pivotal study involving the second-generation of CapsoCam Colon capsule (the "Second-Generation Product", which incorporates further advanced features designed to improve the accuracy of CapsoCam Colon) with the study population expected to involve approximately 250 patients enrolled at up to 10 sites, in the U.S. We are working closely with FDA on addressing their review follow-up inquiries about the abovementioned 510(k) for the First-Generation Product. Based on the FDA comments received so far, we are refining the second arm study. This revision impacts the previous expectation to have the study for the Second-Generation Product ready for FDA submission in the first quarter 2026 and the FDA submission is now planned for the second quarter of 2026, with a goal of obtaining FDA 510(k) clearance for the Second-Generation Product in the fourth quarter of 2026.
Since we continue to invest in AI to improve our existing products, we made significant progress with a clinical study to demonstrate the benefits of our incorporation of AI technology into CapsoCam Plus, our existing product for small bowel. We currently plan to submit the related 510(k) application to the FDA by year end 2025. We experienced a slight delay in submission from our previously anticipated timing due to resource constraints from our third-party biostatistician. To mitigate further delays, we have contracted with an additional biostatistical consulting group. We expect that it will take approximately 6 months for the FDA to review our application, and issue their pending clearance, 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 Breakthrough Device Designation prioritizes a device in the FDA's review queue for all future regulatory submissions and accelerates communications (i.e., negotiations and feedback) with the FDA, thereby expediting the marketing application process.
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.
In late August 2025, Kevin Lundquist stepped down as Chief Financial Officer of the Company. The responsibilities of principal financial officer and principal accounting officer were assumed by David Garcia, Senior VP of Finance who joined the Company on November 3, 2025.
On September 22, 2025, Rebecca Petersen, the Company's Senior Director of Clinical Affairs, notified the Company of her planned retirement as effective October 15, 2025. Concurrently, the Company promoted Keri Jorgenson to Director of Clinical Operations and, Ms.Jorgenson, together with the other members of the clinical operations team, assumed responsibility for the Company's clinical development operations and activities.
As of September 30, 2025, we had an accumulated deficit of $148.3 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.
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 and its divisions and subsidiaries.
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 end of 2026), 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 (availability expected in the first quarter of 2026) and (b) patency capsule (for verifying a capsule endoscope can pass through the bowel without retention prior to an exam) (FDA 510(k) submission planned in the first 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 (targeted for mid-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 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 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 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 Quarterly Report on Form 10-Q 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 a percent of revenue 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 250 patients enrolled at up to 10 sites in the U.S. and plan to refine the study based on the FDA comments to the first arm pivotal study and (ii) continued clinical development of our updated small bowel CapsoCam Plus capsule incorporating our AI assisted pathology detection technology.
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 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 Three and Nine Months Ended September 30, 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.
Three Months Ended September 30,
2025 2024 $ Change % Change
(in thousands, except for percentages and per share amount)
Revenue $ 3,538 $ 2,966 $ 572 19 %
Costs of revenue 1,624 1,309 315 24 %
Gross profit 1,914 1,657 257 16 %
Gross Margin 54 % 56 % (2) %
OPERATING EXPENSES
Selling and marketing 1,773 1,745 28 2 %
Research and development 6,090 4,522 1,568 35 %
General and administrative 2,070 1,193 878 74 %
Total operating expenses 9,933 7,460 2,473 33 %
Operating loss (8,019) (5,803) (2,216) 38 %
Total non-operating income, net 98 9 89 989 %
Loss before income taxes (7,921) (5,794) (2,127) 37 %
Provision for income taxes - - - - %
Net loss and comprehensive loss $ (7,921) $ (5,794) $ (2,127) 37 %
Net loss per share - basic and diluted $ (0.17) $ (2.79) $ 2.62 (94) %
Nine Months Ended September 30,
2025 2024 $ Change % Change
(in thousands, except for percentages and per share amount)
Revenue $ 9,636 $ 8,304 $ 1,332 16 %
Costs of revenue 4,417 $ 3,661 756 21 %
Gross profit 5,219 4,643 576 12 %
Gross margin 54 % 56 % (2) %
OPERATING EXPENSES
Selling and marketing 5,581 5,168 413 8 %
Research and development 12,589 12,004 586 5 %
General and administrative 5,101 2,754 2,347 85 %
Total operating expenses 23,271 19,926 3,345 17 %
Operating loss (18,052) (15,283) (2,769) 18 %
Total non-operating income, net 131 24 107 446 %
Loss before income taxes (17,921) (15,259) (2,662) 17 %
Provision for income taxes - - - - %
Net loss and comprehensive loss $ (17,921) $ (15,259) $ (2,662) 17 %
Net loss per share - basic and diluted $ (1.05) $ (7.65) $ 6.60 (86) %
Revenue
Our revenue has increased in each year since we began U.S. direct sales in 2020. Our revenues for the three months ended September 30, 2025 and 2024 was $3.5 million and $3.0 million, respectively, representing a period-over-period growth of $0.6 million or approximately 19% (25% in the U.S. and 3% internationally). Our revenues for the nine months ended September 30, 2025 and 2024 was $9.6 million and $8.3 million,
respectively, representing a period-over-period growth $1.3 million or approximately 16% (18% in the U.S. and 10% 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 20% for the three months ended September 30, 2025 and 2024 and period-over-period increase of 17% for the nine months ended September 30, 2025 and 2024.
For the three and nine months ended September 30, 2025 and 2024, international sales accounted for 22% and 23% of total revenue.
Costs of Revenue
As we continued to scale our business, costs of revenue increased $0.3 million, or 24%, for the three months ended September 30, 2025, compared to the three months ended September 30, 2024 from $1.3 million to $1.6 million. For the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024 the cost of revenue was $4.4 million and $3.7 million, respectively, which represented an increase of $0.8 million, or 21% period-over-period. 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. customs enforcement.
Gross Profit and Gross Margin
Gross profit increased $0.3 million, or 16%, for the three months ended September 30, 2025, compared to the three months ended September 30, 2024, from $1.7 million to $1.9 million. For the nine months ended September 30, 2025 and 2024, the total gross profit was $5.2 million and $4.6 million respectively, representing a gross profit increase of $0.6 million, or 12% period-over-period. For the three months ended September 30, 2025 and 2024, the gross margin was 54% and 56%, respectively. For the nine months ended September 30, 2025 and 2024, the gross margin was 54% and 56%, 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 a pressure on selling prices we have when operating in a highly competitive market and 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 three and nine months ended September 30, 2025and 2024.
Three Months Ended September 30,
2025 2024 $ Change % Change
(in thousands, except percentages)
Selling and marketing $ 1,773 $ 1,745 $ 28 2 %
Research and development $ 6,090 $ 4,522 $ 1,568 35 %
General and administrative $ 2,070 $ 1,193 $ 878 74 %
Total operating expenses $ 9,933 $ 7,460 $ 2,473 33 %
Nine Months Ended September 30,
2025 2024 $ Change % Change
(in thousands, except percentages)
Selling and marketing $ 5,581 $ 5,168 $ 413 8 %
Research and development $ 12,589 $ 12,004 $ 586 5 %
General and administrative $ 5,101 $ 2,754 $ 2,347 85 %
Total operating expenses $ 23,271 $ 19,926 $ 3,345 17 %
Selling and Marketing Expenses
Selling and marketing expenses increased $0.028 million, or 2%, for the three months ended September 30, 2025, compared to the three months ended September 30, 2024, from $1.75 million to $1.77 million. For the nine months ended September 30, 2025 and 2024, selling and marketing expenses amounts were $5.6 million and $5.2 million respectively, representing an increase of $0.4 million, or 8% period-over-period. The increase was was due to the addition to the sales force headcount and increase commission payouts in response to revenue growth.
Research and Development Expenses
Research and development expenses increased $1.6 million, or 35%, for the three months ended September 30, 2025, compared to the three months ended September 30, 2024, from $4.5 million to $6.1 million. For the nine months ended September 30, 2025 and 2024, research and development expenses were $12.6 million and $12.0 million respectively, representing a increase of $0.6 million, or 5% period-over-period. The increase was primarily due to the development of the new CMOS under the development agreement with Canon Inc.. We continued incurring expenses associated with ongoing clinical trials in 2025 and our clinical trial expenses in the three and nine months ended September 30, 2025 of $2.4 million and $4.1 million, respectively, were primarily related to standalone clinical performance assessment of our AI assisted pathology detection technology for CapsoCam Plus and CapsoCam Colon.
General and Administrative Expenses
General and administrative expenses increased $0.9 million, or 74%, for the three months ended September 30, 2025 compared to the three months ended September 30, 2024, from $1.2 million to $2.1 million. The increase was primarily due to higher payroll and benefits expenses and stock-based compensation expenses.
For the nine months ended September 30, 2025 and 2024, general and administrative expenses were $5.1 million and $2.8 million respectively, representing an increase of $2.3 million, or 85% period-over-period. Of the total increase, approximately $0.9 million was attributable to higher professional service expenses, including audit, legal and consulting fees, $0.4 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 the executive officer departure, and $0.9 million was associated with higher payroll and benefits expenses.
Net Loss
Our reported net loss attributable to CapsoVision common stockholders for the three months ended September 30, 2025 and 2024 totaled approximately $7.9 million and $5.8 million, respectively, representing a period-over-period increase of $2.1 million or 37%. Our reported net loss attributable to CapsoVision common stockholders for the nine months ended September 30, 2025 and 2024 was $18 million and $15.3 million, respectively, representing a period-over-period increase of $2.7 million or 17%.
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 $148.3 million as of September 30, 2025. Net cash used in operating activities was $5.7 million and $7.1 million for the three months ended September 30, 2025 and 2024, respectively. For the nine months ended September 30, 2025 and 2024, net cash used in operating activities was $15.2 million and $14.7 million, 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 interim (unaudited) financial statements for the nine months ended September 30, 2025 included in this Quarterly Report on Form 10-Q note that there is substantial doubt about our ability to continue as a going concern within one year after the date of issuance of those 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 interim (unaudited) 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 interim (unaudited) financial statements for the nine months ended September 30, 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 interim (unaudited) financial statements for the nine months ended September 30, 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. LEASESto our financial statements included elsewhere in this Quarterly Reporton Form 10-Q for information about our lease obligations. In addition, see Note 9. COMMITMENTS AND CONTINGENCIESto our financial statements included elsewhere in this Quarterly Reporton Form 10-Q for information about our other commitments and contingencies.
Source of Liquidity
As of September 30, 2025, we had approximately $17.8 million in cash and cash equivalents. From our inception through September 30, 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. 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.
On July 3, 2025 we completed our IPO from which we received the net proceeds in the amount of $23.4 million.
Funding Requirements
As of September 30, 2025, we had an accumulated deficit of $148.3 million and cash and cash equivalents of $17.8 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. Based on our current operating plan, 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;
•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:
Nine months ended September 30,
2025 2024
(in thousands)
Net cash used in operating activities $ (15,178) $ (14,692)
Net cash used in investing activities $ (82) $ (153)
Net cash provided by financing activities $ 23,589 $ 10,073
Net increase (decrease) in cash and cash equivalents $ 8,329 $ (4,772)
Net Cash Used in Operating Activities
For the nine months ended September 30, 2025, net cash used in operating activities totaled $15.2 million, primarily driven by the net loss of $17.9 million for the period. Additional contributing factors included a $0.6 million increase in inventory to support increasing demand, offset by a $2.2 million increase in accrued expenses and other current liabilities, mainly due to research and development expenses and increased headcount related expenses, as well as $0.6 million increase in stock-based compensation expenses due to new grants and stock option accelerations.
For the nine months ended September 30, 2024, net cash used in operating activities was $14.7 million, primarily attributable to the net loss of $15.3 million. Cash outflows were further impacted by a $0.6 million increase in inventory to meet increased demand, a $0.5 million increase in accrued expenses and other current liabilities, mainly due to research and development expenses, including on-going clinical trials, and a $0.2 million increased in accounts payable driven primarily by on-going clinical trials.
Net Cash Used in Investing Activities
Net cash used in investing activities during the nine months ended September 30, 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 nine months ended September 30, 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 nine months ended September 30, 2024, net cash provided by financing activities was $10.1 million, which consisted of proceeds primarily from the sales of our preferred stocks.
Contractual Obligations and Commitments
Our contractual obligations at September 30, 2025 include operating lease payments of $1.1 million due within 27 months and $2.5 million in outstanding purchase commitment for the development agreement with Canon Inc. due in 18 months. 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 Quarterly Report on Form 10-Q 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.
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 Quarterly Report on Form 10-Q, 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).
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.
Recently Issued Accounting Pronouncements
See Note 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES to our financial statements included elsewhere in this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements applicable to our financial statements.
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