NPCE US Equity☆

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K. This discussion and analysis and other parts of this Annual Report on Form 10-K contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions, which are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled “Risk Factors” under Part I, Item 1A of this report and elsewhere in this Annual Report on Form 10-K.

Overview

We are a medical device company focused on transforming the lives of people living with epilepsy by reducing or eliminating the occurrence of debilitating seizures. Our novel and differentiated RNS System is the first and only commercially available, brain-responsive neuromodulation system that delivers personalized, real-time treatment at the seizure source. By continuously monitoring and analyzing the brain’s electrical activity, recognizing patient-specific abnormal electrical patterns, and responding in real time with imperceptible electrical pulses to prevent seizures, our RNS System delivers the precise amount of therapy when and where it is needed and provides exceptional clinical outcomes with approximately three minutes of stimulation on average per day. Our RNS System is also the only commercially available device that records continuous brain activity data and allows clinicians to monitor patients not only in person, but also remotely, providing them the data they need to make more informed treatment decisions, thus optimizing patient care. We believe the therapeutic advantages of our RNS System, combined with the insights obtained from our extensive brain data set, offer a significant leap forward in epilepsy treatment.

Our RNS System is currently indicated in the United States for use in adult epilepsy patients, meaning patients who are 18 years of age or older, with drug-resistant focal epilepsy. We recently announced our primary effectiveness endpoint data in our Post-approval Study in this patient population. The data showed that the RNS System efficacy improved over time, with a 62.5% median seizure reduction at six months after implant (n=314) and an 82.0% median seizure reduction at 36 months after implant (n=255). Additionally, 42.5% of patients experienced a period of seizure-freedom for at least six months, and 22% of patients were seizure free for at least one year. Results will be presented at the American Academy of Neurology Annual Meeting, held April 5 through 9, 2025.

We are conducting studies to expand our indication for use to patients with drug-resistant generalized epilepsy and patients with drug-resistant focal epilepsy under the age of 18. In March 2024, we completed implanting patients in our NAUTILUS study for generalized epilepsy and expect that the last patient will complete one year of follow up in March 2025, with the data lock and subsequent commencement of data analyses expected to begin in the second quarter of 2025. To support our RESPONSE study for label expansion in focal epilepsy patients under the age of 18, we recently announced our collaboration with the National Evaluation System for health Technology, or NEST, and the FDA to pursue the use of real-world data from the Pediatric Epilepsy Research Consortium, or PERC. We are planning to file the expanded label submissions to the FDA for both of these indications in the second half of 2025.

Our commercial efforts have historically been focused on growing adoption and utilization across Level 4 comprehensive epilepsy centers, or CECs, in the United States that facilitate appropriate care for drug-resistant epilepsy patients. In 2023, we received FDA approval of a Premarket Approval Supplement, or PMA-S, which updated the qualification criteria for centers and clinicians that may prescribe and implant the RNS System. We initiated a pilot program to begin our outreach to these centers and clinicians in 2024 and have commenced program expansion that will continue through 2025. We plan to address this opportunity in a targeted manner with incremental expansion of our sales force.

Since our inception, we have generated significant losses. We have financed our operations primarily through sales of our products, issuance of equity securities, and debt financing. As of December 31, 2024, we had an

95

accumulated deficit of $531.0 million, cash, cash equivalents and short-term investments of $52.8 million, and $59.5 million of outstanding debt under a term loan, net of debt discount and issuance costs.

We have invested heavily and expect to continue to invest in research and development and commercial activities. Our research and development activities include clinical studies to demonstrate the safety and effectiveness of our RNS System, including in expanded indications, and to obtain, as well as retain, FDA approval. We intend to continue making significant investments in research and development, clinical studies and regulatory affairs to support ongoing and future regulatory submissions for retaining and expanding indications of our RNS System, including to patients with drug-resistant generalized epilepsy and patients under the age of 18, support continuous improvements to our RNS System, and develop future products that address neurological disorders. We have also made significant investments in building our field commercial team and intend to make significant investments in sales and marketing efforts in the future, including initiatives to drive awareness and expand our referral channel to increase the number of drug-resistant epilepsy patients referred to CECs. We may in the future seek to acquire or invest in additional businesses, products, or technologies that we believe could complement or enhance our products, enhance our technical capabilities or otherwise offer growth opportunities, although we currently have no agreements or understandings with respect to any such acquisitions or investments. Because of these and other factors, we expect to continue to incur net losses and negative cash flows for the next several years. We may require additional funding to support operations and pay our obligations or may opportunistically seek to raise additional capital, which may include future equity or debt financings.

Based on our current planned operations, we believe our existing cash, cash equivalents and short-term investments will allow us to continue our operations for at least the next 12 months. See “Liquidity and Capital Resources - Future Funding Requirements” for additional information.

Collaborations and Partnerships

DIXI Distribution Agreement

In August 2022, we entered into an exclusive distribution agreement, or the Distribution Agreement, with DIXI Medical USA Corp., or DIXI Medical, pursuant to which we became the exclusive U.S. distributor of DIXI Medical’s stereo electroencephalography, or Stereo EEG, product line beginning in October 2022. These products are used in the epilepsy monitoring units, or EMUs, of comprehensive epilepsy centers to determine where epileptic seizures originate. In addition to providing us with an incremental revenue stream, the DIXI Medical partnership provides us with improved visibility of patients moving through the EMUs, many of whom may be candidates for our RNS System. This synergistic partnership leverages our field organization that is already calling on the same customers and supports our objective to engage earlier in the diagnostic and therapy selection process. The Distribution Agreement has an initial term of three years, which expires September 30, 2025, and which will be automatically renewed for additional one-year terms, unless either party provides written notice to the other party of its intention to not renew at least 180 days prior to the expiration of the then-current term.

Rapport Agreement

In November 2023, we entered into a collaboration agreement with Rapport Therapeutics, Inc., or Rapport, a clinical-stage biotechnology company, to leverage our data as well as our RNS System’s unique biomarker monitoring and data analysis capabilities. The collaboration evaluates biomarker changes in currently implanted RNS System patients that enroll in Rapport’s Phase 2a clinical trial of its product candidate. Pursuant to this agreement, we provide information to Rapport that will help evaluate the impact of their product candidate on certain biomarkers of patients with focal onset seizures.

Factors Affecting Our Performance

We believe there are several important factors that have impacted and that we expect will continue to impact our business and results of operations. These factors include:

96

Clinician, Hospital and Patient Awareness and Acceptance of Our RNS System

Our goal is to establish our RNS System as a standard of care for drug-resistant epilepsy. We intend to continue to promote awareness of our RNS System within existing and new accounts through additional investments in training and education of clinicians, epilepsy centers, hospitals and patients on the clinical benefits of our RNS System for the treatment of drug-resistant epilepsy. In addition, we intend to publish additional clinical data in scientific journals and to continue presenting at medical conferences. We plan to continue building patient awareness through direct-to-patient marketing initiatives, which include advertising, social media and online education. We also intend to continue supporting patient and referring clinician outreach efforts to help increase the number of appropriate patients with drug-resistant epilepsy being treated at CECs and outside of CECs, including by way of our expansion into the community setting. These efforts require significant investment by our marketing and sales organization.

Our Ability to Retain Our Experienced Commercial Team and Increase its Productivity

We have made significant investments in, and will continue to invest in, recruiting, training and retaining our experienced and specialized direct sales team, which includes Therapy Consultants and Field Clinical Engineers. Significant education and training is required for our team to achieve the level of technical competency with our products that is expected by clinicians and to gain experience building demand for our RNS System. Upon completion of initial training, our personnel typically require time in the field to grow their network of accounts, build relationships with clinicians and increase their productivity to the levels we expect. We believe successfully training, developing and retaining our Therapy Consultants and Field Clinical Engineers will be required to achieve growth. In addition, the loss of any productive sales personnel would have a negative impact on our ability to grow our business.

Competition

Our industry is highly competitive and subject to rapid change from the introduction of new products and technologies and the marketing activities of industry participants. There are two primary treatment alternatives for adults with drug-resistant epilepsy: (i) an ablative or resective surgery; and (ii) implantation of a neuromodulation device. Within neuromodulation, we currently compete with two manufacturers of neuromodulation devices. These companies have longer operating histories, significantly greater resources and name recognition, and established relationships with physicians and hospitals that treat patients with epilepsy. In addition to competing for market share, we also compete against these companies for personnel, including qualified sales and other personnel that are necessary to grow our business.

Leveraging Our Manufacturing Capacity to Further Improve Our Gross Margin

With our current operating model and infrastructure, we believe that we have the capacity to significantly increase our manufacturing production. If we grow our revenue and sell more RNS Systems, our fixed manufacturing costs will be spread over more units, which we believe will reduce our manufacturing costs on a per-unit basis and in turn improve our gross margin. In addition, we intend to continue investing in manufacturing efficiencies in order to reduce our overall manufacturing costs. However, other factors will continue to impact our gross margin such as the cost of materials, components and subassemblies, pricing, procedure mix, and geographic sales mix to the extent that we commercialize our RNS System outside of the United States.

Investing in Research and Development, Including Clinical Studies, to Expand Our Addressable Market

We intend to continue investing in clinical studies and existing and next generation technologies to further improve our RNS System and clinical outcomes, enhance the patient and provider experience and broaden the patient population that can be treated with our RNS System. In addition, we are continuing to develop AI-enabled software tools, leveraging our extensive database of intracranial electroencephalogram, or iEEG, data and our advanced data analysis capabilities to equip clinicians with the data they need to establish optimal program settings for each patient.

97

While research and development and clinical studies are time consuming and costly, we believe that a pipeline of product enhancements and new products that improve effectiveness, safety and ease of use is important for supporting increased adoption of our RNS System.

Change in Product Mix

We derive revenue from sales of our RNS System to hospital facilities both for initial RNS System implant procedures and for replacement procedures when our implanted devices reach end of service. We launched our current neurostimulator model in 2018. This device has an average battery life of nearly eleven years, an increase from the previous model of the device. We have experienced and may continue to experience changes in the percentage of our revenue from replacement procedures over the next few years as a result of the extended replacement cycle of the newer device, which may cause variability in our gross margin. We also derive revenue from sales of DIXI Medical products. A change in product mix between sales of our RNS System and DIXI Medical products would cause variability in our gross margin.

Components of Our Results of Operations

Revenue

We derive most of our revenue from sales of our RNS System to the hospital facilities that implant our RNS System. Our revenue fluctuates primarily based on the volume of procedures performed and the procedure mix between initial and replacement implants. Our revenue has also fluctuated and will continue to fluctuate in the future from quarter-to-quarter due to a variety of factors, including the success of our sales force in expanding adoption of our RNS System in new accounts and the number of physicians who are aware of and prescribe our RNS System.

We also derive revenue from sales of DIXI Medical products, primarily to our current customer base. Our revenue from the sale of DIXI Medical products will fluctuate in the future due to a variety of factors, including our ability to take market share from competitive Stereo EEG products.

Beginning in the fourth quarter of 2023, we also derive revenue from services provided to Rapport pursuant to our collaboration agreement with Rapport. Our revenue from this collaboration fluctuates due to the timing of services provided and other factors.

Nearly all of our revenue results from sales in the United States, but we also have limited sales of our RNS System in Canada pursuant to a special program that involves case-by-case approvals of the use of our RNS System in adult patients with drug-resistant focal epilepsy.

Cost of Goods Sold and Gross Margin

Cost of goods sold consists primarily of costs related to materials, components and subassemblies, personnel-related expenses for our manufacturing and quality assurance employees, including stock-based compensation, manufacturing overhead and charges for excess, obsolete and non-sellable inventories. Overhead costs include the cost of quality assurance, testing, material procurement, inventory control, operations supervision and management personnel, an allocation of facilities and information technology expenses, including rent and utilities, and equipment depreciation. Cost of goods sold also includes certain direct costs such as those incurred for shipping our RNS System. We record adjustments to our inventory valuation for estimated excess, obsolete and non-sellable inventories based on assumptions about future demand, past usage, changes to manufacturing processes and overall market conditions. Cost of goods sold also includes costs of procuring and shipping DIXI Medical products. We expect cost of goods sold to increase in absolute dollars as more of our RNS Systems and DIXI Medical products are sold.

We calculate gross margin as gross profit divided by revenue. Our gross margin has been and will continue to be affected by a variety of factors, primarily by our manufacturing costs, pricing and product mix. Our gross margin may increase over the long term to the extent our production volume increases as our fixed manufacturing costs would be spread over a larger number of units, thereby reducing our per-unit manufacturing costs. We expect our gross margin will fluctuate from period to period, however, based upon the factors described above.

98

Operating Expenses

Our operating expenses consist of research and development costs and selling, general and administrative costs.

Research and Development Expenses

Our research and development activities primarily consist of engineering and research programs associated with our products under development and clinical studies. Research and development expenses include personnel-related costs for our research and development employees, including stock-based compensation, and expenses related to consulting services, clinical trials, regulatory activities, prototyping, testing, materials and supplies, and allocated overhead including facilities and information technology expenses. Our clinical trial expenses include costs associated with clinical trial design, clinical trial site development and study costs, data management costs, related travel expenses, the cost of products used for clinical activities, and costs associated with our regulatory compliance. We expense research and development costs as they are incurred. We expect our research and development expenses will increase in absolute dollars as we continue to develop new product offerings and product enhancements and conduct studies for expanded indications for use.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses consist primarily of personnel-related costs for our sales and marketing employees, including stock-based compensation and sales-based variable compensation, travel expenses, consulting, public relations costs, direct marketing, customer training, trade show and promotional expenses and allocated facility and information technology expenses, and for administrative personnel that support our general operations such as executive management and information technology, finance, accounting, customer services, human resources and legal personnel. We expense sales variable compensation when revenue related to the underlying sale is recognized. Selling, general and administrative expenses also include costs attributable to professional fees for legal, accounting and tax services, insurance and recruiting fees.

We intend to continue to increase our sales and marketing spending to support increased adoption of our RNS System. We expect our sales and marketing expenses will increase in absolute dollars as we hire additional personnel and add programs in order to more fully penetrate the market opportunity. We expect our administrative expenses, including stock-based compensation expense, will increase as we increase our headcount to support our growth. Additionally, we may incur increased expenses related to audit, legal, regulatory and tax-related services, compliance with exchange listing and Securities and Exchange Commission, or SEC, requirements, and director and officer insurance premiums. Our selling, general and administrative expenses may fluctuate from period to period as we continue to grow.

Interest Expense and Income

Interest expense consists primarily of interest expense related to our term loan facility, including amortization of debt discount and issuance costs. Interest income is predominantly derived from investing surplus cash in money market funds and short-term marketable securities.

Other Income (Expense), Net

Other income (expense), net primarily consists of gain and loss from short-term investments.

Results of Operations

Comparison of the Years Ended December 31, 2024 and 2023

99

The following table summarizes our results of operations for the periods indicated (in thousands):

Years Ended December 31,

Operating expenses

Revenue

Revenue increased by $14.5 million, or 22%, to $79.9 million during the year ended December 31, 2024, compared to $65.4 million during the year ended December 31, 2023. The increase in revenue was primarily due to an increase in the number of RNS System units sold and an increase in sales of DIXI Medical products. Revenue from sales of DIXI Medical products represented approximately 17% of our total revenue for the year ended December 31, 2024, as compared to approximately 15% for the year ended December 31, 2023. All of our revenue, with the exception of $0.2 million and less than $0.1 million for the years ended December 31, 2024 and 2023, was generated from sales in the United States.

Cost of Goods Sold and Gross Margin

Cost of goods sold increased by $3.5 million, or 20%, to $20.8 million during the year ended December 31, 2024, compared to $17.3 million during the year ended December 31, 2023. The increase was primarily due to an increase in the number of RNS Systems sold and the costs of distributing DIXI Medical products. Our gross margin increased from 73.6% for the year ended December 31, 2023 to 73.9% for the year ended December 31, 2024 primarily due to lower fixed costs per unit as a result of increased production volume of the RNS System, partially offset by the lower gross margin from distribution of DIXI Medical products.

Research and Development Expenses

Research and development expenses increased by $2.9 million, or 14%, to $23.7 million during the year ended December 31, 2024, compared to $20.8 million during the year ended December 31, 2023. The increase in research and development expenses was primarily due to an increase of $2.4 million in personnel-related expenses, including stock-based compensation, driven by an increase in personnel during the year ended December 31, 2024, and an increase of $1.2 million in product development expenses. The increases were offset in part by an increase of $0.5 million in grant funds received primarily under the NIH funding agreement which are recognized as a reduction in research and development expenses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $2.6 million, or 5%, to $57.1 million during the year ended December 31, 2024, compared to $54.5 million during the year ended December 31, 2023. The increase in selling, general and administrative expenses was primarily due to an increase of $2.4 million in personnel-related expenses driven by an increase in our sales and field support personnel during the year ended December 31, 2024, compared to the year ended December 31, 2023, an increase of $0.3 million in sales, field support and marketing

100

costs, including travel, and an increase of $0.4 million in expenses related to commercial operations. The increases were partially offset by a decrease of $0.4 million in general and administrative expenses.

Interest Expense and Income

Interest expense increased by $0.3 million for the year ended December 31, 2024, compared to the year ended December 31, 2023, due to an increase in the average balance of our Term Loan as a result of using the PIK interest option for the payment dates from January 2023 through June 2024. Interest income decreased by less than $0.1 million for the year ended December 31, 2024, compared to the year ended December 31, 2023, primarily due to a decrease in average balances of our money market funds and short-term marketable securities, partially offset by higher interest yields in the year ended December 31, 2024.

Other Income (Expense), net

Other income (expense), net increased by 0.6 million to $0.3 million during the year ended December 31, 2024, compared to ($0.3) million during the year ended December 31, 2023, primarily due to unrealized gain, net on short-term investments in the year ended December 31, 2024.

Liquidity and Capital Resources

We have financed our operations primarily through sales of our products, issuance of equity securities and debt financing. As of December 31, 2024, we had cash, cash equivalents and short-term investments of $52.8 million and $59.5 million outstanding under the Term Loan, net of debt discount and issuance costs.

2025 Follow-on Offering

In February 2025, we received approximately $69.8 million in net proceeds after deducting underwriting discounts and commissions and offering expenses from the sale of 7,475,000 shares of our common stock, including 975,000 shares from the exercise of the underwriters’ option to purchase additional shares, at a public offering price of $10.00 per share. We used $49.5 million of the net proceeds from the offering to repurchase all of the shares held by our significant stockholder, KCK Ltd. We intend to use the remaining net proceeds from the offering for general corporate purposes, which may include clinical trial and other research and development expenses, selling, general and administrative expenses, debt reduction and working capital.

At-the-Market Equity Program

In November 2022, we entered into a Sales Agreement with Leerink Partners LLC, or Leerink, to sell shares of our common stock, from time to time, through an at-the-market, or ATM, equity offering program under which Leerink will act as our sales agent and pursuant to which we may sell common stock for aggregate gross sales proceeds of up to $50.0 million. During the year ended December 31, 2023, we received net proceeds of approximately $7.6 million from the sale of shares of common stock pursuant to our ATM offering program, after deducting sales commission and offering expenses. During the year ended December 31, 2024, we received net proceeds of approximately $3.2 million after deducting sales commissions and offering expenses. On February 20, 2025, we terminated the Sales Agreement and closed the ATM program. On the date of termination, we had $38.3 million remaining under our ATM program.

Term Loan

In September 2020, we entered into the Term Loan with CRG Partners IV L.P. and its affiliates for total borrowings of up to $60 million and borrowed $50 million. The remaining $10.0 million expired without being drawn.

The Term Loan currently bears interest at a rate of 13.5% per year. Payments under the loan are made quarterly with payment dates fixed at the end of each calendar quarter. From January 2023 through June 2025, we had the option to pay interest as follows: 8.5% per annum in cash and 5.0% per annum PIK by increasing the principal of the Term Loan. For each payment date from January 2023 through June 2024, we elected the PIK option.

101

The Term Loan was interest-only through its original final maturity of September 30, 2025. Following the interest-only period, principal payment would have been due in one installment on September 30, 2025. In May 2024, we amended the Term Loan to extend the final maturity by one year to September 30, 2026 and eliminate the PIK interest option after June 30, 2024. The Term Loan includes a fee upon repayment of the loan equal to 10% of the aggregate principal amount being prepaid or repaid.

The Term Loan is collateralized by substantially all of our assets. The loan agreement contains customary representations and warranties, covenants, events of default and termination provisions. The financial covenants require that we achieve minimum annual revenue thresholds and maintain a minimum balance of cash and cash equivalents. See Notes 1 and 6 to our financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

Material Cash Requirements

We have future minimum payments for the Term Loan totaling $75.0 million, with $7.7 million due within twelve months. In addition, we lease our office and manufacturing facilities in Mountain View, California under a non-cancelable operating lease which expires in June 2030. Future minimum lease payments under non-cancelable operating leases were $17.3 million as of December 31, 2024. See Note 5 to our financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

Future Funding Requirements

We expect to incur continued expenditures in the future in support of our commercialization efforts in the United States. In addition, we intend to continue to make investments in clinical studies, development of new products, and other ongoing research and development programs. We may incur additional expenses to expand our commercial organization to support our continued growth. We may incur additional expenses to further enhance our research and development efforts and to pursue commercial opportunities outside of the United States.

Based on our current planned operations, we expect that our cash, cash equivalents and short-term investments will enable us to fund our operating expenses for at least twelve months from the issuance of our financial statements as of and for the year ended December 31, 2024. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.

Because of the numerous risks and uncertainties associated with research, development and commercialization of medical devices, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on many factors, including:

•the costs of activities related to commercializing and marketing our RNS System in the United States and elsewhere, and manufacturing and distribution costs;

•our revenue and costs related to the DIXI Medical distribution agreement;

•the research and development activities we intend to undertake, including product enhancements and clinical studies for indication expansions that we intend to pursue;

•the cost of obtaining, maintaining, defending, enforcing, and protecting any patents and other intellectual property rights;

•whether or not we pursue acquisitions or investments in businesses, products or technologies that are complementary to our current business;

•the degree and rate of increased market acceptance of our RNS System in the United States and market acceptance elsewhere;

•our need to implement additional infrastructure and internal systems;

•our ability to hire additional personnel to support our operations as a public company; and

102

•the emergence of competing technologies or other adverse market developments.

If we raise additional capital through public or private equity or convertible debt offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Our ability to raise additional capital may be adversely impacted by global economic conditions and disruptions to, and volatility in, the financial markets in the United States and worldwide, as well as those more specifically impacting our industry. If we are unable to raise capital when needed, we will need to delay, limit, reduce or terminate planned commercialization or product development activities in order to reduce costs.

Summary Statements of Cash Flows

The following table sets forth the primary sources and uses of cash and cash equivalents for the periods presented below (in thousands):

Year Ended December 31,

Net cash (used in) provided by:

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

Cash Flows Used in Operating Activities

Net cash used in operating activities was $17.9 million for the year ended December 31, 2024. Cash used in operating activities was primarily a result of the net loss of $27.1 million, adjusted for non-cash charges of $14.6 million and change in operating assets and liabilities of $5.4 million. The non-cash charges primarily consisted of $10.3 million of stock-based compensation, $1.6 million of amortization of right-of-use assets, $1.4 million of interest incurred but paid-in-kind, $1.0 million of non-cash interest expense related to our Term Loan, and $0.3 million of inventory write-downs. The change in operating assets and liabilities was due to an increase in inventories of $2.4 million largely due to an increase in work-in-process inventory and finished goods, a decrease in operating lease liabilities of $1.6 million, a decrease in accrued liabilities of $1.4 million largely due to accrued payroll and related expenses, an increase in accounts receivable of $0.5 million, and a decrease in deferred revenue of $0.5 million, offset in part by an increase in accounts payable of $0.7 million, and a decrease in prepaid expenses and other assets of $0.4 million.

Net cash used in operating activities was $19.7 million for the year ended December 31, 2023. Cash used in operating activities was primarily a result of the net loss of $33.0 million, adjusted for non-cash charges of $15.7 million and change in operating assets and liabilities of $2.5 million. The non-cash charges primarily consisted of $9.6 million of stock-based compensation, $2.7 million of interest incurred but paid-in-kind, $1.4 million of amortization of right-of-use assets, $1.1 million of non-cash interest expense related to our Term Loan, $0.3 million of amortization of debt discount and issuance costs and $0.3 million of loss from short-term investments. The change in operating assets and liabilities was due to an increase in accounts receivable of $4.9 million primarily due to an increase in sales of our products, including our RNS System and DIXI Medical products, an increase in inventories of $1.7 million largely due to an increase in raw materials and finished goods, partially offset by a reduction in work-in-process inventory, a decrease in operating lease liabilities of $1.4 million due to cash paid for rent net of the accretion of imputed interest, offset in part by a decrease in prepaid expenses and other assets of $0.4 million, an increase in accrued liabilities of $3.8 million primarily due to an increase in accrued employee bonuses and payroll related expenses, and an increase in deferred revenue of $1.1 million related to our collaboration agreement with Rapport.

103

Cash Flows Provided by Investing Activities

Net cash provided by investing activities was $9.0 million for the year ended December 31, 2024, which primarily consisted of sales of short-term investments of $9.3 million, partially offset by purchases of property and equipment of $0.3 million.

Net cash provided by investing activities was $23.0 million for the year ended December 31, 2023, which primarily consisted of sales of short-term investments of $23.2 million, partially offset by purchases of property and equipment of $0.2 million.

Cash Flows Provided by Financing Activities

Net cash provided by financing activities was $4.3 million for the year ended December 31, 2024, which primarily consisted of $3.3 million of net cash proceeds from our At-the-Market offering and proceeds from the issuance of common stock under employee plans of $1.9 million, partially offset by taxes withheld and paid related to net share settlement of equity awards of $0.9 million.

Net cash provided by financing activities was $8.1 million for the year ended December 31, 2023, which primarily consisted of $7.9 million of net cash proceeds from our At-the-Market offering and proceeds from the issuance of common stock under employee plans of $0.8 million, partially offset by taxes withheld and paid related to net share settlement of equity awards of $0.3 million and payment of deferred offering costs of $0.3 million.

Critical Accounting Estimates

Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. For information on our significant accounting policies, see Note 2 to our financial statements included elsewhere in this Annual Report on Form 10-K. The preparation of our financial statements requires us to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Our estimates are based on our historical experience, knowledge of current events and actions we may undertake in the future, and on various other factors that we believe are reasonable under the circumstances. Our most critical accounting estimates subsequent to our IPO are those affecting the provision for excess and obsolete inventories.

We regularly review inventory quantities in consideration of actual loss experiences, projected future demand, and remaining shelf life to record a provision for excess and obsolete inventory when appropriate. We write down inventory that has become obsolete, inventory that has a cost basis in excess of its expected lower of cost or net realizable value, and inventory in excess of expected requirements. The estimate of excess quantities is judgmental and primarily depends on our estimate of future demand for a particular product. If our estimate of future demand is too high, we may have to write-down excess inventory for the product and record a charge to cost of goods sold, which could have a material adverse effect on our results of operations. Inventory write-downs were $0.3 million and $0.2 million for the years ended December 31, 2024 and December 31, 2023, respectively.

JOBS Act Accounting Election

The JOBS Act permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected to use this extended transition period under the JOBS Act until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies, which may make comparison of our financials to those of other public companies more difficult.

We will cease to be an emerging growth company on the date that is the earliest of (i) December 31, 2026, (ii) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more, (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years, or (iv) the

104

date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission.

Further, even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company,” which would allow us to take advantage of many of the same exemptions from disclosure requirements, including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We cannot predict if investors will find our common shares less attractive because we may rely on these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our share price may be more volatile.

Recent Accounting Pronouncements

See “Recent Accounting Pronouncements” in Note 2 to our financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Sensitivity

The market risk inherent in our financial instruments and in our financial position represents the potential loss arising from adverse changes in interest rates. As of December 31, 2024, we had cash, cash equivalents and short-term investments of $52.8 million, compared to $66.5 million at December 31, 2023, consisting of interest-bearing money market funds and fixed income mutual funds for which the fair value would be affected by changes in the general level of U.S. interest rates. However, due to the short-term maturities and the low-risk profile of our cash equivalents and short-term investments, an immediate 10% change in interest rates would not have a material effect on the fair value of our cash equivalents and short-term investments.

We do not believe that inflation, interest rate changes or exchange rate fluctuations have had a significant impact on our results of operations for any periods presented herein.

105

Item 8. Financial Statements and Supplementary Data.

106

INDEX TO FINANCIAL STATEMENTS

Page(s)

Report of Independent Registered Public Accounting Firm (PCAOB ID 238) 108

Financial Statements:

Balance Sheets 109

Statements of Operations and Comprehensive Loss 110

Statements of Stockholders’ Equity 111

Statements of Cash Flows 112

Notes to Financial Statements 114

107

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of NeuroPace, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of NeuroPace, Inc. (the “Company”) as of December 31, 2024 and 2023, and the related statements of operations and comprehensive loss, of stockholders’ equity and of cash flows for the years then ended, including the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Emphasis of Matter

As disclosed in Note 6 to the financial statements, the Company has a term loan maturing in September 2026. Management’s evaluation of the events and conditions related to this matter are described in Note 1.

/s/ PricewaterhouseCoopers LLP

San Jose, California

March 4, 2025

We have served as the Company's auditor since 2003.

108

NeuroPace, Inc.

Balance Sheets

December 31,

(in thousands, except share and per share amounts) 2024 2023

Assets

Current assets

Prepaid expenses and other current assets 2,352 2,737

Deferred offering costs 276 387

Liabilities and Stockholders’ Equity

Current liabilities

Operating lease liability, net of current portion 11,953 13,814

Commitments and contingencies (Note 5)

Stockholders’ equity

Total liabilities and stockholders’ equity $ 94,647 $ 107,651

The accompanying notes are an integral part of these financial statements.

109

NeuroPace, Inc.

Statements of Operations and Comprehensive Loss

Year Ended December 31,

(in thousands, except share and per share amounts) 2024 2023

Operating expenses

Other income (expense), net 304 (315)

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

The accompanying notes are an integral part of these financial statements.

110

NeuroPace, Inc.

Statements of Stockholders’ Equity

(in thousands, except share amounts) Shares Amount

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

Repurchase of common stock (1,340) — — — — —

Change in early exercise liability — — 1 — — 1

Stock-based compensation — — 9,558 — — 9,558

Repurchase of common stock (1,282) — — — — —

Change in early exercise liability — — 1 — — 1

The accompanying notes are an integral part of these financial statements.

111

NeuroPace, Inc.

Statements of Cash Flows

Year Ended December 31,

Cash flows from operating activities

Adjustments to reconcile net loss to net cash used in operating activities

Amortization of debt discount and issuance costs 228 283

PIK interest incurred but not paid on term loan 1,389 2,683

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

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

Changes in operating assets and liabilities

Prepaid expenses and other assets 384 381

Operating lease liabilities (1,627) (1,415)

Net cash used in operating activities (17,949) (19,701)

Cash flows from investing activities

Acquisition of property and equipment (306) (173)

Proceeds from sale of short-term investments 9,300 23,200

Net cash provided by investing activities 8,994 23,027

Cash flows from financing activities

Proceeds from issuance of common stock under employee plans 1,931 803

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

Payment of deferred offering costs — (305)

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

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

Cash, cash equivalents and restricted cash

Reconciliation of cash, cash equivalents and restricted cash to balance sheets:

Total cash, cash equivalents and restricted cash $ 13,552 $ 18,180

Supplemental disclosure of cash flow information:

Supplemental disclosures of non-cash investing and financing information:

The accompanying notes are an integral part of these financial statements.

112

NeuroPace, Inc.

Statements of Cash Flows

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

Purchase of property and equipment included in accounts payable $ 19 $ 69

Deferred offering costs offset against additional paid-in capital $ 110 $ 265

The accompanying notes are an integral part of these financial statements.

113

NeuroPace, Inc.

Notes to Financial Statements

1.The Company

NeuroPace, Inc., or the Company, was incorporated in the state of Delaware on November 19, 1997. The Company is a medical device company that has developed the RNS System, the only commercially available brain-responsive neuromodulation system designed for treating drug-resistant focal epilepsy by delivering personalized, real-time treatment at the seizure source. The Company began commercializing its products in the United States in 2014.

At-the-Market Equity Offering

In November 2022, the Company filed a Registration Statement on Form S-3, or Shelf, with the Securities and Exchange Commission, or the SEC, in relation to the registration of common stock, preferred stock, debt securities, warrants or any combination thereof for up to an aggregate of $150.0 million, of which $50.0 million may be issued and sold pursuant to an at-the-market, or ATM, offering program for sales of the Company’s common stock under a sales agreement, or Sales Agreement, with Leerink Partners LLC, or Leerink (formerly SVB Securities LLC). The Company agreed to pay Leerink up to 3.0% of the gross proceeds of sales of common stock made through the Sales Agreement. The Company’s common stock would be sold at prevailing market prices at the time of the sale and, as a result, prices may vary. During the year ended December 31, 2023, the Company sold 933,500 shares of common stock under the Sales Agreement for gross proceeds of $8.1 million, or $7.6 million after deducting sales commissions and offering expenses. During the year ended December 31, 2024, the Company sold 444,555 shares of common stock under the Sales Agreement for gross proceeds of $3.4 million, or $3.2 million after deducting sales commissions and offering expenses. As of December 31, 2024, the Company has $38.5 million remaining under its ATM program. Refer to Note 12 for information on the termination of the ATM program in February 2025.

Liquidity and Capital Resources

The Company has incurred operating losses and negative cash flows from operations since its inception and has an accumulated deficit of $531.0 million as of December 31, 2024. For the years ended December 31, 2024 and 2023, the Company used $17.9 million and $19.7 million, respectively, of cash in its operating activities. As of December 31, 2024, the Company had cash, cash equivalents and short-term investments of $52.8 million. Historically, the Company has funded its operations principally through the sales of its products, issuance of equity securities and debt financing.

The Company’s financial statements have been prepared on the basis of the Company continuing as a going concern for the next 12 months. Management believes that the Company’s cash, cash equivalents and short-term investments will allow the Company to continue its planned operations for at least the next 12 months from the date of the issuance of these financial statements.

In connection with the Term Loan described in Note 6, the Company will need to be in compliance with a minimum annual net revenue covenant determined in accordance with generally accepted accounting principles of $70.0 million in each of the years ending December 31, 2024 and December 31, 2025 and maintain a minimum cash and cash equivalents balance of $5.0 million. If the Company cannot generate sufficient revenue in the future, the Company may not be in compliance with the annual net revenue covenant and the lender may call the debt resulting in the Company immediately needing additional capital, and resulting in a going concern. The Company’s ability to raise additional capital may be adversely impacted by global economic conditions and disruptions to, and volatility in, the financial markets in the United States and worldwide. If the Company is unable to raise capital when needed, it will need to delay, limit, reduce or terminate planned commercialization or product development activities in order to reduce costs. As of December 31, 2024, the Company was in compliance with all covenants of the Term Loan.

2.Summary of Significant Accounting Policies

Basis of Presentation

The financial statements have been prepared in conformity with generally accepted accounting principles in the United States, or GAAP, as defined by the Financial Accounting Standards Board, or the FASB.

114

NeuroPace, Inc.

Notes to Financial Statements

Use of Estimates

The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements. The Company uses significant judgment when making estimates related to the provision for excess and obsolete inventories. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions.

Revenue Recognition

The Company derives most of its revenue from sales of RNS Systems to hospital facilities (typically comprehensive epilepsy centers, or Level 4 CECs) that implant its products. Beginning in the fourth quarter of 2022, the Company also derives revenue from sales of DIXI Medical products, primarily to its current customer base. Beginning in the fourth quarter of 2023, the Company also derives revenue from services provided to Rapport Therapeutics, Inc., or Rapport.

The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps:

i.identify the contract(s) with a customer;

ii.identify the performance obligations in the contract;

iii.determine the transaction price;

iv.allocate the transaction price to the performance obligations in the contract; and

v.recognize revenue when (or as) the entity satisfies a performance obligation.

At contract inception, the Company assesses the products or services promised within each contract and determines those that are performance obligations. The Company’s contracts with customers for the RNS System often include a promise to transfer products, as well as an implied promise to provide a service to the customer, which is access to the Company’s Patient Data Management System, or PDMS, and nSight Platform. The Company has concluded that the RNS System and its related products represent a single performance obligation, as the customer cannot benefit from the products individually, and that access to the PDMS and nSight Platform represent separate performance obligations, as the clinicians can utilize them with other components of the RNS System that are readily available.

The Company determines the transaction price based on the amount it expects to be entitled to in exchange for transferring the promised product or service to the customer, which is based on the invoiced price for the products or services. All prices are at fixed amounts per the sales agreement with the customer and there are no discounts, rebates or other price concessions.

When a contract contains multiple performance obligations, the Company allocates the transaction price to each performance obligation based on its relative standalone selling price. Standalone selling prices are based on observable prices at which the Company separately sells its products or services. If a standalone selling price is not directly observable, the Company estimates the standalone selling price considering market data, cost, gross margin, and other available information.

The Company typically delivers its RNS System and related products to a hospital on the date of the scheduled procedure. There is no commitment or contract until the delivery of the product and the procedure may be canceled

115

NeuroPace, Inc.

Notes to Financial Statements

at any time. Once the device has been implanted in or otherwise provided to a patient, the customer is considered to have accepted the delivery (i.e., has approved the contract) and both parties are committed to perform their respective obligations. Assuming all other revenue recognition criteria are met, the Company recognizes revenue from the sale of its RNS System and related products at a point in time when the procedure is completed and the device is implanted in a patient.

The Company also ships the RNS System and related products to customers who place orders ahead of scheduled procedures. Such orders or contracts generally include a promise to transfer products only. As such, the Company recognizes revenue from these orders or contracts at a point in time when the customer obtains control of the products.

The Company recognizes service revenue related to the PDMS and the nSight Platform on a ratable basis over the period in which the Company expects to provide access to clinicians. The Company has concluded that such service revenue is immaterial.

The Company’s contracts with customers for DIXI Medical products generally include a promise to transfer products only. As such, the Company recognizes revenue from the sale of DIXI Medical products at a point in time when the customer obtains control of the products.

The Company recognizes revenue under its contract with Rapport to provide biomarker monitoring and data analysis services. Revenue from biomarker monitoring is recognized ratably over the two-year contractual support period, as the benefits provided by the Company’s performance are simultaneously consumed by the customer. Revenue related to data analysis is recognized upon completion of the services. The Company’s contract with Rapport commenced during the fourth quarter of 2023. The related revenue recognized for the years ended December 31, 2024 and 2023 were $1.2 million and $0.4 million, respectively.

The Company recognizes revenue for arrangements where it has satisfied its performance obligations but has not issued invoices. These amounts are recorded as unbilled receivables, which are included in accounts receivable on the balance sheet, as the Company has an unconditional right to payment at the end of the applicable period.

Payment terms are typically 30 days from the fulfillment of the orders and fall within the one-year guidance for the practical expedient which allows the Company to forgo adjustment of the promised amount of consideration for the effects of a significant financing component. Sales taxes that are collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales, however, most of the Company’s sales are tax exempt. The Company believes that collection is probable as it has no history of uncollectible accounts and the customers are large, creditworthy institutions.

As allowed under the practical expedient, the Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. Costs associated with product sales include commissions, where the Company applies the practical expedient and recognizes commissions as expense when incurred because the expense is incurred over a period of time of less than one year. Commissions are reported in selling, general and administrative expense in the statements of operations and comprehensive loss.

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

The Company’s contract liabilities consist of deferred revenue of $0.6 million and $1.1 million as of December 31, 2024 and 2023, respectively. The Company’s deferred revenue balance was $0.6 million as of December 31, 2024, which is expected to be recognized as revenue in 2025. Revenue recognized during the year ended December 31, 2024 that was included in the deferred revenue balance at the beginning of the year was $1.1 million.

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

116

NeuroPace, Inc.

Notes to Financial Statements

Fair Value of Financial Instruments

Carrying amounts of certain of the Company’s financial instruments, including cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate fair value because of the short-term nature of these instruments. The Company has a short-term investment in a fixed income mutual fund, which is classified as equity security and carried at fair value based on quoted market prices. Changes in the fair value of the short-term investment are recorded in income or loss. The Company believes that its borrowings bear interest at the prevailing market rates for instruments with similar characteristics; accordingly, the carrying value of this instrument approximates its fair value. The Company determines the fair value of financial and non-financial assets and liabilities using the fair value hierarchy which establishes three levels of inputs that may be used to measure fair value (see Note 3).

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. Cash equivalents that are available-for-sale investments are recorded at fair value, based on quoted market prices. As of December 31, 2024 and December 31, 2023, the Company’s cash equivalents are entirely comprised of investments in money market funds.

Restricted Cash

Restricted cash is comprised of cash that is restricted as to withdrawal or use under the terms of certain contractual agreements. Restricted cash for the years ended December 31, 2024 and December 31, 2023 consists of collateral for the amended letter of credit that was issued in connection with the Company’s facility lease (see Note 5).

Concentration of Credit Risk, and Other Risks and Uncertainties

Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents, short-term investments and accounts receivable to the extent of the amounts recorded on the balance sheets. The Company’s cash is invested in major financial institutions in the United States. Deposits in these financial institutions may exceed federally insured limits, and the Company is exposed to credit risk on deposits in the event of default of the financial institutions to the extent account balances exceed the amount insured by the Federal Deposit Insurance Corporation. The Company’s cash equivalents are invested in money market funds.

The Company’s accounts receivable, with the exception of $0.1 million, are due from a variety of health care organizations in the United States. For the years ended December 31, 2024 and December 31, 2023, there were no customers that represented 10% or more of revenue. As of December 31, 2024 and December 31, 2023, no customer represented 10% or more of the Company’s accounts receivable.

Accounts Receivable

Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company makes estimates on the collectability of customer accounts based primarily on analysis of historical trends and experience, the age of the receivable and changes in customers’ financial condition. The Company uses its judgment, based on the best available facts and circumstances, and records an allowance against amounts due to reduce the receivable to the amount that is expected to be collected. The Company determined that no allowance was required as of December 31, 2024 and December 31, 2023. To date, the Company has not experienced any material credit-related losses.

Inventories

Inventories are valued at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method for all inventories. Net realizable value is determined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The Company regularly reviews inventory quantities in consideration of actual loss experiences, projected future demand, and remaining shelf life to record a provision for excess and obsolete inventory when appropriate. The Company’s policy is to

117

NeuroPace, Inc.

Notes to Financial Statements

write down inventory that has become obsolete, inventory that has a cost basis in excess of its expected lower of cost or net realizable value, and inventory in excess of expected requirements. The estimate of excess quantities is judgmental and primarily dependent on the Company’s estimates of future demand for a particular product. If the estimate of future demand is too high, the Company may have to increase the reserve for excess inventory for that product and record a charge to the cost of goods sold. Inventory write-downs were $0.3 million and $0.2 million for the years ended December 31, 2024 and December 31, 2023, respectively.

Property and Equipment, net

Property and equipment, net is stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, generally three to five years. Leasehold improvements are amortized using the straight-line method over the shorter of the assets’ estimated useful lives or the remaining term of the lease. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the balance sheet, and any resulting gain or loss is reflected in operations in the period realized. Maintenance and repairs are charged to operations as incurred.

Impairment of Long-Lived Assets

The Company reviews long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If indicators of impairment exist, an impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition are less than their carrying amount. Impairment, if any, is measured as the amount by which the carrying amount of the long-lived assets exceeds their fair value. The Company did not record any impairment of long-lived assets for the years ended December 31, 2024 and December 31, 2023.

Leases

The Company determines if an arrangement is a lease, or contains a lease, at inception. Operating leases are included in operating lease right-of-use, or ROU, assets, operating lease liability, and operating lease liability, net of current portion on the Company’s balance sheets.

ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. Since the Company’s lease does not provide an implicit rate, the Company uses its incremental borrowing rate based on the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term and in a similar economic environment at commencement date in determining the present value of future payments. The ROU asset also includes any lease payments made to the lessor at or before the commencement date, minus lease incentives received, and initial direct costs incurred. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The Company elected certain practical expedients under ASC 842, Leases, including the package of practical expedients, which among other things, allowed the Company to carry forward prior conclusions about lease identification and classification, as well as elections to not record leases with an initial term of twelve months or less on the balance sheet, and to combine the lease and non-lease components in determining the lease liabilities and ROU assets.

Deferred Offering Costs

The Company capitalizes, within other assets, certain legal, accounting and other third-party fees that are directly related to the Company’s in-process equity financings, including its ATM offering, until such financings are consummated. After consummation of the equity financing, these costs are recorded as a reduction of the proceeds received as a result of the offering. Should a planned equity financing be abandoned, terminated or significantly delayed, the deferred offering costs are immediately written off to operating expenses. Upon issuing shares under the ATM offering during the years ended December 31, 2024 and 2023, $0.1 million and $0.3 million, respectively, of deferred offering costs were recorded against the proceeds from the ATM offering and recorded in stockholders

118

NeuroPace, Inc.

Notes to Financial Statements

equity as a reduction of additional paid-in capital. As of December 31, 2024 and 2023, $0.3 million and $0.4 million of deferred offering costs related to the ATM offering were recorded on the balance sheets, respectively.

Government Programs

In May 2021, the Company was awarded a grant by the National Institutes of Health, or NIH, to support research of thalamocortical responsive neurostimulation for the treatment of Lennox-Gastaut Syndrome, a type of epilepsy. The award was issued for a five-year period and has a total budget of over $9.3 million, which includes approximately $5.5 million in funding for subawards to third-party academic epilepsy centers that are collaborating on the study and are subinvestigators on the study funded by NIH. The subawardees are determined by NIH. The Company’s responsibility for the subawards is to submit the funding requests on behalf of the subawardees. The funding of subawards does not have any impact on the Company’s financial statements. Initially funding was approved for the first year beginning June 1, 2021 and provides for reimbursement of qualified direct and indirect expenses in the amount of $0.8 million, including $0.4 million for subawards. Approvals of funds for years two through five are subject to the completion of certain milestones. On July 30, 2022, the Company received funding approval for year two in the amount of $2.6 million, which includes $1.6 million for subawards. On May 25, 2023, the Company received funding approval for year three in the amount of $3.0 million, which includes $1.5 million for subawards. On July 22, 2024, the Company received funding approval for year four in the amount of $1.7 million, which includes $1.0 million for subawards.

For funds received under the NIH funding agreement, the Company recognizes a reduction in research and development expenses in an amount equal to the qualifying expenses incurred in each period up to the amount awarded by the NIH. The Company received $1.7 million and $1.4 million in funding during the years ended December 31, 2024 and 2023, respectively. Through December 31, 2024, $3.8 million of qualifying expenses have been incurred and funded by the NIH related to the first to fourth year of funding.

Qualifying expenses incurred by the Company in advance of funding by the NIH are recorded within prepaid expenses and other current assets on the balance sheets. As of December 31, 2024, the Company recorded prepaid expenses and other current assets of less than $0.1 million related to the fourth year of funding.

Warranty

Warranty costs are accrued based on the Company’s best estimates when management determines that it is probable a charge or liability has been incurred and the amount of loss can be reasonably estimated. While the Company believes that historical experience provides a reliable basis for estimating such warranty cost, unforeseen quality issues or component failure rates could result in future costs in excess of such estimates. The warranty liability as of December 31, 2024 and December 31, 2023 was immaterial.

Cost of Goods Sold

The Company manufactures its products at its facility. Cost of goods sold consists primarily of costs related to materials, components and subassemblies, manufacturing overhead, direct labor, and reserves for excess and obsolete inventories. A significant portion of the Company’s cost of goods sold currently consists of manufacturing overhead costs. These overhead costs include the cost of facilities, material procurement, inventory control, quality assurance, equipment and operating supervision and management. Cost of goods sold also includes depreciation expense for production equipment and certain direct costs such as shipping costs. Shipping and handling costs are considered a fulfillment activity and are included in cost of goods sold as incurred.

Research and Development Expenditures

The Company expenses research and development costs as incurred. Research and development expenses consist primarily of engineering, product development, clinical studies to develop and support the Company’s products, regulatory expenses, medical affairs and other costs associated with products and technologies that are in development, including quality assurance. Research and development expenses include employee compensation, including stock-based compensation, supplies, consulting, prototyping, testing, materials, travel expenses, depreciation and an allocation of facility overhead expenses. Additionally, research and development expenses

119

NeuroPace, Inc.

Notes to Financial Statements

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

Advertising Costs

The Company expenses advertising costs as incurred. Advertising costs include design and production costs, including website development, physician and patient testimonial videos, written media campaigns, and other items. Advertising costs of $0.7 million and $0.7 million were expensed during the years ended December 31, 2024 and December 31, 2023, respectively.

Stock-Based Compensation

The Company accounts for stock-based employee compensation in accordance with ASC 718, Stock Compensation. ASC 718 requires the measurement of compensation based on the grant date fair value of the stock option or restricted stock unit (see Note 8). The Company amortizes the fair value of each award on a straight-line basis over the requisite service period of the award.

Income Taxes

The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

The Company assesses all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position’s sustainability and is measured at the largest amount of benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement. As of each balance sheet date, unresolved uncertain tax positions must be reassessed, and the Company will determine whether (i) the factors underlying the sustainability assertion have changed and (ii) the amount of the recognized tax benefit is still appropriate. The recognition and measurement of tax benefits requires significant judgment. Judgments concerning the recognition and measurement of a tax benefit might change as new information becomes available.

Net Loss per Share Attributable to Common Stockholders

Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, without consideration of potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock and potentially dilutive securities outstanding for the period. For purposes of the diluted net loss per share calculation, stock options, common stock subject to repurchase related to early exercise of stock options, and restricted stock units are considered to be potentially dilutive securities. Basic and diluted net loss attributable to common stockholders per share is presented in conformity with the two-class method required for participating securities. The Company considers the shares issued upon the early exercise of stock options subject to repurchase to be participating securities, because holders of such shares have non-forfeitable dividend rights in the event a dividend is paid on common stock. The holders of the shares issued upon early exercise of stock options subject to repurchase do not have a contractual obligation to share in the Company’s losses. As such, the net loss was attributed entirely to common stockholders. Because the Company has reported a net loss for all periods presented, diluted net loss per common share is the same as basic net loss per common share for those periods.

120

NeuroPace, Inc.

Notes to Financial Statements

JOBS Act Accounting Election

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date the Company (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In accordance with Accounting Standards Codification, or ASC, 280, Segment Reporting, the Company operates as one operating and reportable segment. In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amended guidance requires all public entities, including public entities with a single reportable segment, to disclose in interim and annual periods significant segment expenses that are regularly provided to the chief operating decision maker, or CODM, to allocate resources and assess performance, as well as the aggregate amount of other segment items included in the reported measure of segment profit or loss. The Company adopted this ASU effective for the fiscal year ended December 31, 2024 on a retrospective basis. Refer to Note 11 for further information on the Company’s reportable segment.

Recent Accounting Pronouncements Not Yet Adopted

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures. This ASU requires greater disaggregation of information about a reporting entity's effective tax rate reconciliation as well as information on income taxes paid. This ASU applies to all entities subject to income taxes and is intended to help investors better understand an entity’s exposure to potential changes in jurisdictional tax legislation and assess income tax information that affects cash flow forecasts and capital allocation decisions. This ASU is effective for annual periods beginning after December 15, 2024, with early adoption permitted, and should be applied on a prospective basis although retrospective application is permitted. The Company is currently evaluating the impact this standard will have on its financial statement disclosures.

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40). This ASU is intended to provide more detailed information about specified categories of expenses (including employee compensation, depreciation, and amortization) included in certain expense captions presented on the face of the income statement. This ASU is effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. This ASU may be applied either prospectively to financial statements issued for reporting periods after its effective date or retrospectively to all prior periods presented in the financial statements. The Company is currently assessing the impact this standard will have on its financial statement disclosures.

3.Fair Value Measurements

The Company measures certain financial assets and liabilities at fair value on a recurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:

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

121

NeuroPace, Inc.

Notes to Financial Statements

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

Level 3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

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

Fair Value as of December 31, 2024 Basis for Fair Value Measurements

(Level 1) (Level 2) (Level 3)

Assets:

Fixed income mutual funds, included in short-term investments 39,325 39,325 — —

The following table summarizes the Company’s financial assets (cash equivalents and marketable securities) at fair value as of December 31, 2023 (in thousands):

Fair Value as of December 31, 2023 Basis for Fair Value Measurements

(Level 1) (Level 2) (Level 3)

Assets:

Fixed income mutual funds, included in short-term investments 48,396 48,396 — —

There were no liabilities measured at fair value on a recurring and non-recurring basis as of December 31, 2024 and December 31, 2023.

The money market funds are highly liquid and primarily invest in short-term fixed income securities issued by the U.S. government and U.S. government agencies.

The Company’s available-for-sale investment comprises a short-term investment in a fixed income mutual fund, which primarily invests in debt securities issued by the U.S. government and U.S. government agencies and corporate bonds and notes. Interest income from short-term investment is recorded in interest income. During the years ended December 31, 2024 and 2023, the Company recognized $0.2 million and $1.0 million in unrealized gains from its short-term investment, respectively. As of December 31, 2024, the Company’s short-term investment had a cumulative unrealized net gain of $0.1 million. As of December 31, 2023, the Company’s short-term investment had a cumulative unrealized net loss of $0.1 million, which included an adjustment of $1.1 million unrealized loss recorded in other income (expense), net in the year ended December 31, 2023. The adjustment was not material to any previously issued financial statements.

122

NeuroPace, Inc.

Notes to Financial Statements

4.Balance Sheet Components

Inventory

Inventories consist of the following (in thousands):

December 31,

Property and Equipment, net

Property and equipment, net consists of the following (in thousands):

December 31,

Machinery, equipment, furniture and fixtures $ 4,659 $ 4,522

Computer equipment and software 1,932 1,822

Less: Accumulated depreciation (7,974) (7,767)

Property and equipment, net $ 1,052 $ 1,003

Depreciation expense for the years ended December 31, 2024 and December 31, 2023 was $0.2 million and $0.2 million, respectively.

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

December 31,

Payroll and related expenses $ 8,178 $ 9,655

Professional fees 50 30

5.Commitments and Contingencies

Facility Lease

In August 2011, the Company entered into a non-cancelable operating lease for combined office and manufacturing facilities in Mountain View, California. The lease was scheduled to expire in April 2019 and was amended in May 2018 to extend it through June 2024. In August 2022, the Company amended the lease to extend it through June 2030. The second amendment contained a rent-free period from September 2022 through December 2022. The Company has an option to extend the lease for a period of five years, commencing on July 1, 2030 and expiring on June 30, 2035. In conjunction with the original lease agreement, the Company obtained a letter of credit for $0.9 million in lieu of a security deposit. In May 2019, the letter of credit was amended and reduced to $0.7 million. In June 2021, the letter of credit was amended and further reduced to $0.2 million.

123

NeuroPace, Inc.

Notes to Financial Statements

The terms of the facility lease provide for rental payments on a graduated scale; however, rent expense is recognized on a straight-line basis over the lease term. Rental payments range from $2.8 million to $3.3 million per year over the extended term of the lease.

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

Total undiscounted lease payments 17,326

Less: imputed interest 3,513

Total operating lease liability 13,813

Less: current portion 1,860

Operating lease liability, net of current portion $ 11,953

Operating lease cost was $2.8 million and $2.8 million for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, the remaining term for the operating lease in Mountain View, California was 5.5 years, and the discount rate used to measure the lease liability for such operating lease upon recognition was 8.5%.

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

Distribution Agreement

In August 2022, the Company entered into an exclusive distribution agreement, or the Distribution Agreement, with DIXI Medical USA Corp, or DIXI Medical, pursuant to which the Company became the exclusive U.S. distributor of DIXI Medical’s stereo electroencephalography product line. The Distribution Agreement has an initial term of three years, which expires September 30, 2025. The Distribution Agreement automatically renews for additional one-year terms, unless either party provides written notice to the other party of its intention to not renew at least 180 days prior to the expiration of the then-current term. The current Distribution Agreement will automatically renew unless either party provides notice of intent not to renew by April 3, 2025.

To maintain the distribution rights, the Company is required to purchase a minimum of $2.4 million of DIXI Medical’s products during the twelve months beginning October 2022, and to increase the minimum purchase by 10% for each of the two subsequent years. The Company met the purchase commitment for the first two years and expects to meet the purchase commitment for the third year, which is through September 2025.

Indemnifications

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and may provide for indemnification of the counterparty. The Company’s exposure under these agreements is unknown because it involves claims that may be made against it in the future but have not yet been made. The Company may, from time to time, be subject to claims or be required to defend actions related to its indemnification obligations.

The Company indemnifies each of its directors and officers for certain events or occurrences, subject to certain limits, while the director or officer is or was serving at the Company’s request in such capacity, as permitted under Delaware law and in accordance with its certificate of incorporation and bylaws. The term of the indemnification period lasts as long as the director or officer may be subject to any proceeding arising out of acts or omissions of

124

NeuroPace, Inc.

Notes to Financial Statements

such individual in such capacity. The maximum amount of potential future indemnification is unlimited. The Company believes that the fair value of these indemnification obligations is minimal. Accordingly, the Company has not recognized any liabilities relating to these obligations as of December 31, 2024 and December 31, 2023.

Contingencies

From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. The Company determined that no accrual related to contingencies was required as of December 31, 2024 and December 31, 2023.

Legal Proceedings

The Company is not involved in any pending legal proceedings that it believes could have a material adverse effect on its business, results of operations, financial condition, or cash flows. From time to time, the Company may pursue litigation to assert its legal rights and such litigation may be costly and divert the efforts and attention of its management and technical personnel which could adversely affect its business. The Company regularly evaluates current information to determine whether any accruals should be adjusted and whether new accruals are required. Such accruals, if any, reflect the estimable and probable costs that the Company may incur from the outcomes of its legal proceedings. Legal costs are expensed as incurred. There were no contingent liabilities requiring accrual as of December 31, 2024 and 2023.

6.Debt

Term Loan

In September 2020, the Company entered into a Term Loan Agreement with CRG Partners IV L.P. and its affiliates for total borrowings of up to $60.0 million, or the Term Loan, and borrowed $50.0 million. The remaining $10.0 million of the Term Loan was available to the Company for borrowing until March 31, 2022 if the Company achieved a revenue-based milestone in 2021. The revenue-based milestone was not achieved, and the remaining $10.0 million of the Term Loan expired without being drawn.

The Term Loan initially bore interest at a rate of 12.5% per year. In February 2023, the Term Loan was amended which increased the annual interest rate from 12.5% to 13.5% effective March 1, 2023. The amendment was accounted for as a debt modification in accordance with ASC 470, Debtand the Term Loan’s effective interest rate increased from 15.7% to 16.8%. Payments under the Term Loan are made quarterly with payment dates fixed at the end of each calendar quarter. Through December 2020, the Company had the option to pay the entire interest paid-in-kind, or PIK, by increasing the principal of the Term Loan. From January 2021 through December 2022, the Company had the option to pay interest as follows: 7.5% per annum paid in cash and 5.0% per annum PIK by increasing the principal of the Term Loan. From January 2023 through June 2025, the Company had the option to pay interest as follows: 8.5% per annum paid in cash and 5.0% per annum PIK by increasing the principal of the Term Loan. For each payment date from April 2022 through June 2024, the Company elected the PIK option, increasing the principal of the Term Loan by $6.0 million.

The Term Loan was interest-only through September 2023, which could be extended through September 2025 at the Company’s option if the Company completed its initial public offering, or IPO, on or prior to September 30, 2023. In connection with closing the IPO in April 2021, the Company extended the interest-only period to September 30, 2025. Following the interest-only period, principal payment was to be due in one installment on September 30, 2025. In May 2024, the Term Loan was amended to extend the final maturity by one year to September 30, 2026 and eliminate the PIK interest option after June 30, 2024. The amendment was accounted for as a troubled debt restructuring in accordance with ASC 470 and no gain or loss was recognized. The Term Loan includes a fee upon repayment of the loan equal to 10% of the aggregate principal amount being prepaid or repaid, or the backend fee. As of December 31, 2024, the Term Loan had an annual effective interest rate of 15.5% per year.

The Term Loan is collateralized by substantially all of the Company’s assets. The Term Loan Agreement contains customary representations and warranties, covenants, events of default and termination provisions. The

125

NeuroPace, Inc.

Notes to Financial Statements

financial covenants require that the Company achieve minimum annual revenue thresholds commencing in 2021 and maintain a minimum balance of cash and cash equivalents (see Note 1). In February 2023, the Term Loan was amended to reduce the minimum annual net revenue covenant to $45.0 million for the year ended December 31, 2023.

The Company paid $1.0 million in fees to the lender and third parties which is reflected as a discount on the loan and is being accreted over the life of the loan using the effective interest method. Also, the Company issued warrants to the lender for a total of 346,823 shares of Series B’ redeemable convertible preferred stock. The warrants had a fair value of $0.6 million as of the issuance date, which was accounted for as debt issuance costs.

During the years ended December 31, 2024 and December 31, 2023, the Company recorded interest expense related to debt discount and debt issuance costs of the Term Loan of $0.2 million and $0.3 million, respectively.

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

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

Term Loan

Less: Unamortized debt discount and issuance cost (392)

Less: Unaccreted backend fee (1,690)

7. Common Stock

The Company’s Amended and Restated Certificate of Incorporation authorizes the Company to issue 200,000,000 shares of $0.001 par value common stock.

The holders of common stock are entitled to receive dividends whenever funds and assets are legally available and when declared by the Board of Directors. As of December 31, 2024 and December 31, 2023, no dividends had been declared.

As of December 31, 2024 and December 31, 2023, the Company had reserved common stock for future issuance as follows:

Year Ended December 31,

126

NeuroPace, Inc.

Notes to Financial Statements

8. Stock Plans

2020 Stock Plan

In August 2020, the Company adopted the 2020 Stock Plan, or the 2020 Plan, which provides for the granting of stock options to employees, directors and consultants of the Company. Stock options granted under the 2020 Plan may be either incentive stock options, or ISOs, nonqualified stock options, or NSOs, stock appreciation rights, restricted stock awards, restricted stock unit awards or other stock awards. ISOs may only be granted to Company employees (including officers and directors who are also employees). Stock awards other than ISOs may be granted to company employees, directors and consultants.

The maximum term of each stock option grant is ten years. The exercise price of ISOs and NSOs granted to a 10% stockholder shall not be less than 110% of the estimated fair value of the shares on the date of grant as determined by the Company’s board of directors.

2021 Equity Incentive Plan

In April 2021, prior to the IPO closing, the Company’s board of directors and stockholders approved the 2021 Equity Incentive Plan, or the 2021 Plan, which became effective upon the IPO closing. The Company initially reserved 2,900,000 shares of common stock for issuance of share-based compensation awards, including ISOs, NSOs, stock appreciation rights, restricted stock units and other stock-based awards. ISOs may be granted only to Company employees (including officers and directors who are also employees). Shares of common stock subject to awards granted under the 2020 Plan that are forfeited or lapse unexercised will be available for issuance under the 2021 Plan. Once the 2021 Plan became effective, no further grants were made under the 2020 Plan.

Options under the 2021 Plan may be granted for periods of up to 10 years at exercise prices no less than the fair market value of the Company’s common stock on the date of grant; provided, however, that the exercise price of an ISO granted to a 10% stockholder may not be less than 110% of the fair market value of the shares on the date of grant and such option may not be exercisable after the expiration of five years from the date of grant. Vesting conditions determined by the plan administrator may apply to stock options and other stock-based awards and may include continued service, performance and/or other conditions. Generally, options and restricted stock units vest over a three or four-year period.

In January 2025, the number of shares of common stock available for issuance under the 2021 Plan was increased by 1,507,251 shares as a result of the automatic increase provision in the 2021 Plan.

A summary of shares available for grant under the 2021 Plan is as follows:

Shares Available for Grant

2023 Inducement Plan

127

NeuroPace, Inc.

Notes to Financial Statements

In July 2023, the Company’s Compensation Committee of the Board of Directors approved the 2023 Inducement Plan, or the Inducement Plan. The terms of the Inducement Plan are similar to the terms of the 2021 Plan with the exception that incentive stock options may not be issued under the Inducement Plan and awards under the Inducement Plan may only be issued to eligible recipients under the applicable Nasdaq rules. The Inducement Plan was adopted by the Compensation Committee without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules. The Company has initially reserved 380,424 shares of its common stock for issuance pursuant to awards granted under the Inducement Plan, and granted an option to purchase 380,424 shares of its common stock to its Chief Executive Officer, or CEO, as a material inducement for the CEO to join the Company.

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

Options Outstanding

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock options and the fair value of the Company’s common stock for stock options that were in-the-money at period end. The total intrinsic value of stock options exercised was $6.0 million and $5.3 million during the years ended December 31, 2024 and December 31, 2023, respectively, determined at the date of each stock option exercise.

Early Exercise of Stock Options

The terms of the Company’s 2020 Plan and 2021 Plan permit the exercise of options granted under the plans prior to vesting, subject to required approvals. The shares of common stock issued from the early exercise of unvested stock options are restricted and continue to vest over the original implied service period. The Company has the option to repurchase any unvested shares at the original purchase price upon any voluntary or involuntary termination. The shares purchased by the employees and non-employees pursuant to the early exercise of stock options are not deemed, for accounting purposes, to be outstanding until those shares vest. The cash received in exchange for exercised and unvested shares related to stock options granted is recorded as a liability for the early exercise of stock options in accrued liabilities on the accompanying balance sheet and will be transferred into common stock and additional paid-in capital as the shares vest. As of December 31, 2024 and December 31, 2023 there were 0 and 30,211 shares of common stock, respectively, issued pursuant to early exercised options and subject to repurchase.

Employee Stock Purchase Plan

In April 2021, the Company adopted the 2021 Employee Stock Purchase Plan, or ESPP. The Company allows eligible employees to purchase shares of the Company's common stock through payroll deductions at a price equal to 85% of the lesser of the fair market value of the stock as of the first date or the ending date of each offering period, which is typically six months. There were 580,000 shares of common stock initially reserved for issuance

128

NeuroPace, Inc.

Notes to Financial Statements

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

The Company issued 202,616 and 280,599 shares under the ESPP for the years ended December 31, 2024 and December 31, 2023, respectively. As of December 31, 2024, 475,416 shares under the ESPP remain available for purchase. The offering period and purchase period is determined by the board of directors. A new offering period of six months has been authorized beginning December 7, 2024 through June 6, 2025.

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

Year Ended December 31,

Expected term (in years) 0.5 0.5

Weighted average risk-free interest rate 4.34% - 5.40% 5.36% - 5.43%

Dividend yield —% —%

Restricted Stock Units

Activity with respect to restricted stock units, or RSUs, was as follows:

The fair value of RSUs is based on the Company’s closing stock price on the date of grant.

Stock-Based Compensation

The Company recognized stock-based compensation as follows (in thousands):

Year Ended December 31,

Selling, general and administrative 6,289 6,203

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

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

129

NeuroPace, Inc.

Notes to Financial Statements

Year Ended December 31,

Stock options and restricted stock units $ 9,745 $ 9,271

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

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

As of December 31, 2024, the Company had unrecognized stock-based compensation expense relating to the ESPP awards of approximately $0.2 million, which is expected to be recognized over a weighted-average period of 0.4 years.

The total fair value of options that vested during the years ended December 31, 2024 and December 31, 2023 was $8.8 million and $7.8 million, respectively. The options granted during the years ended December 31, 2024 and December 31, 2023 had a weighted average grant date fair value of $8.13 per share and $3.85 per share, respectively.

The Company estimated the fair value of stock options using the Black-Scholes option pricing model. The fair value of employee stock options is being amortized on a straight-line basis over the requisite service period of the awards. The fair value of employee stock options was estimated using the following assumptions for the years ended December 31, 2024 and December 31, 2023:

Year Ended December 31,

Weighted average risk-free interest rate 3.62% - 4.64% 3.74% - 3.94%

Dividend yield —% —%

The expected term of stock options represents the weighted-average period the stock options are expected to remain outstanding. The Company does not have sufficient historical exercise and post-vesting termination activity to provide accurate data for estimating the expected term of options and has opted to use the “simplified method,” whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the option. The expected stock price volatility assumption was determined by a combination of the Company’s historical stock trading volatility and the historical volatilities of industry peers, as the Company does not have sufficient trading history to solely rely on the volatility of its common stock. The Company will continue to analyze the historical stock price volatility and expected term assumptions as more historical data for the Company’s common stock becomes available. The risk-free interest rate assumption is based on the U.S. Treasury instruments whose term was consistent with the expected term of the Company’s stock options. The expected dividend assumption is based on the Company’s history and expectation of not to declare and pay dividends.

The fair value of the Company’s common stock is determined based on its closing market price on the date of grant.

The Company accounts for forfeitures as they occur.

9. Income Taxes

The Company’s operations and income tax components are solely in the United States. From inception through 2024, the Company has only generated pretax losses in the United States and has not generated any pretax income or

130

NeuroPace, Inc.

Notes to Financial Statements

loss outside of the United States. The Company did not record a provision (benefit) for income taxes for the years ended December 31, 2024 and 2023. The Company accounts for income taxes in accordance with ASC 740, Income Taxes, which requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is "more likely than not." Realization of the future tax benefits is dependent on the Company's ability to generate sufficient taxable income within the carryforward period. Because of the Company's recent history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a full valuation allowance.

A reconciliation of the statutory U.S. federal rate to the Company’s effective tax rate is as follows:

December 31,

Tax at federal statutory rate 21.0 % 21.0 %

State taxes, net of federal benefit 6.4 % 4.5 %

Research and development tax credit 5.1 % 1.8 %

Stock-based compensation 5.5 % (0.8) %

Nondeductible interest expense (2.0) % (0.5) %

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

Federal net operating loss expiration (10.2) % — %

Other (2.8) % (2.4) %

Total — % — %

The tax effects of temporary differences that give rise to significant components of the deferred tax assets and liabilities are as follows (in thousands):

December 31,

Deferred tax assets:

Research and development expenditures, capitalized for tax 12,283 8,271

Fixed assets and inventory 28 151

Interest expense carryforward 5,747 5,033

Deferred tax liabilities:

Operating lease right-of-use asset (3,014) (3,436)

Total deferred tax liabilities (3,014) (3,436)

Net deferred tax assets $ — $ —

Beginning January 1, 2022, the Tax Cuts and Jobs Act, or the Tax Act, eliminated the option to deduct research and development expenditures in the current year and requires taxpayers to capitalize such expenses pursuant to Internal Revenue Code Section 174. The capitalized expenses are amortized over a 5-year period for domestic expenses and a 15-year period for foreign expenses. As a result of this provision of the Tax Act, deferred tax assets related to capitalized research expenses increased by $12.3 million.

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

131

NeuroPace, Inc.

Notes to Financial Statements

positive and negative evidence in determining the realizability of our deferred tax assets. Based upon the weight of available evidence, which includes our historical operating performance and reported cumulative net losses since inception, we maintained a full valuation allowance on the net deferred tax assets as of December 31, 2024 and 2023. We intend to maintain a full valuation allowance on our deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance. The valuation allowance increased by $5.9 million during the year ended December 31, 2024 primarily resulting from $5.5 million increase in gross deferred tax assets net of a $0.4 million decrease in deferred tax liabilities. The valuation allowance increased by $7.5 million during the year ended December 31, 2023 primarily resulting from $7.0 million increase in gross deferred tax assets net of a $0.5 million decrease in deferred tax liabilities.

As of December 31, 2024, the Company had net operating loss, or NOL, carryforwards of $152.5 million and $162.7 million available to reduce future taxable income, if any, for federal and state income tax purposes, respectively. The federal and state NOL carryforwards begin expiring in 2026 and 2029, respectively. As of December 31, 2024, the amount of federal NOL carryforwards that does not expire is $114.0 million (subject to certain utilization limitations).

As of December 31, 2024, the Company had research and development credit carryforwards of $5.4 million and $14.2 million available to reduce future taxable income, if any, for federal and state income tax purposes, respectively. The federal credit carryforwards begin expiring in 2037 and the state credits carryforward indefinitely.

Utilization of the Company’s NOL and tax credit carryforwards may be subject to a substantial annual limitation due to the ownership change provisions included in the Internal Revenue Code, or Section 382, and similar state provisions. An annual limitation may result in the expiration of NOL and credit carryforwards before utilization. The Company conducted Section 382 studies as of 2016, 2021, and 2024, and has determined that it experienced Section 382 ownership changes in 2016 and in 2021, and no change in 2024. The 2016 ownership change resulted in permanent limitations of its NOL and credit carryforwards. The 2021 ownership change did not result in permanent limitations of its NOL or credit carryforwards. It has been determined that $226.8 million and $150.7 million of federal and state NOL carryforwards, respectively, have been permanently limited and will expire unutilized. It has also been determined that $10.4 million of federal research and development credits have been permanently limited and will expire unutilized. The gross deferred tax assets disclosed above exclude NOL and credit carryforwards that are expected to expire due to the Section 382 limitation.

The American Rescue Plan Act of 2021 was signed into law on March 11, 2021 expanding the definition of covered employees as defined under Section 162(m). The provisions under the expanded definition of covered employees did not have a material impact on the Company’s tax positions for the year ended December 31, 2023 or 2024.

California Assembly Bill 85 (AB 85) was signed into law by Governor Gavin Newsom on June 29, 2020. The legislation suspends the California NOL deductions for 2020, 2021, and 2022 for certain taxpayers and imposes a limitation on certain California tax credits for 2020, 2021, and 2022. The legislation disallows the use of California NOL deductions if the taxpayer recognizes business income and its adjusted gross income is greater than $1,000,000. The carryover periods for NOL deductions disallowed by this provision will be extended. Additionally, any business credit will only offset a maximum of $5,000,000 of California tax. Given the Company’s taxable loss position, this legislation did not impact the tax provision for the years ended December 31, 2023 or 2024.

California Senate Bill 113 (SB 113), was signed into law by Governor Newsom on February 9, 2022. The legislation contains important California tax law changes, including reinstatement of business tax credits and net NOL deductions limited by AB 85 mentioned above. The new tax law should be accounted for under ASC 740 in the period of enactment (2022) but is not expected to have a material impact on the Company’s tax provision due to its taxable loss position.

On August 16, 2022, the President signed into law H.R. 5376, or the Inflation Reduction Act of 2022. The primary tax provisions in the new law include an alternative minimum tax on certain large corporations, a tax on stock buybacks and certain energy-related tax credits, each of which become effective after December 31, 2022. The

132

NeuroPace, Inc.

Notes to Financial Statements

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

As of December 31, 2024, the Company had unrecognized tax benefits of $2.1 million related to $5.4 million and $14.2 million of federal and state research and development tax credit carryforwards, respectively. The unrecognized tax benefits, if recognized, would not have an impact on the Company's effective tax rate, due to the valuation allowance. It is unlikely that the amount of unrecognized tax benefits will significantly change over the next twelve months. No liability related to uncertain tax positions is recorded in the financial statements.

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

Year Ended December 31,

Decrease in balance related to tax positions taken during prior years — (7)

It is the Company’s policy to include penalties and interest expense related to income taxes as a component of other expense and interest expense, respectively, as necessary. The Company determined that no accrual for interest and penalties related to unrecognized tax benefits was required as of December 31, 2024 and December 31, 2023.

All of the Company’s tax years will remain open for examination by the federal and state authorities for 3 and 4 years, respectively, from the date of utilization of its tax attributes.

10. Net Loss per Share Attributable to Common Stockholders

The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders (in thousands, except for share and per share amounts):

Year Ended December 31,

Numerator:

Net loss attributable to common stockholders $ (27,141) $ (32,956)

Denominator:

The following potentially dilutive securities outstanding have been excluded from the computation of diluted weighted average shares outstanding because such securities have an antidilutive impact due to the Company’s net loss, in common stock equivalent shares:

December 31,

Unvested early exercised common stock options — 30,211

133

NeuroPace, Inc.

Notes to Financial Statements

11. Segment Information

The Company operates as one operating and reportable segment. All of the Company’s long-lived assets, comprised of property and equipment, are based in the United States. All of the Company’s revenue, with the exception of $0.2 million and less than $0.1 million, was in the United States for the years ended December 31, 2024 and 2023, respectively, based on the shipping location of the external customer.

The Company’s CODM is our Chief Executive Officer. Our CODM makes decisions on resource allocation, evaluates operating performance, and monitors budget versus actual results using net loss. In addition to the significant expense categories included within net loss presented on the Company’s Statements of Operations and Comprehensive Loss, disaggregated amounts that comprise selling, general and administrative expenses are as follows (in thousands):

Year Ended December 31,

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

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

12. Subsequent Events

In February 2025, the Company completed a follow-on offering of 7,475,000 shares of the Company’s common stock, including 975,000 shares from the exercise of the underwriters’ option to purchase additional shares, at an offering price of $10.00 per share. The aggregate net proceeds to the Company from the follow-on offering were approximately $69.8 million after deducting underwriting discounts and commissions and estimated offering expenses. The Company used $49.5 million of the net proceeds to repurchase all of the 5,270,845 shares held by our significant stockholder, KCK Ltd., at $9.40 per share. The repurchased shares became authorized but unissued shares.

In February 2025, the Company terminated its Sales Agreement with Leerink and closed the ATM program. On the date of termination, the Company had $38.3 million remaining under the ATM program.

134

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), as amended) as of December 31, 2024, the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, our principal executive officer and principal financial officer have concluded that, as of the end of the period covered by this annual report, our disclosure controls and procedures were effective at the reasonable assurance level.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). The rules define internal control over financial reporting as a process designed by, or under the supervision of, the Company’s Chief Executive Officer and Chief Financial Officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management concluded that our internal control over financial reporting was effective as of December 31, 2024.

Attestation Report of the Registered Public Accounting Firm.

This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm due to an exemption for “emerging growth companies.”

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

Insider Trading Arrangement

During the quarter ended December 31, 2024, none of our directors and officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted, modified or terminated any contract, instruction, or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act or any “non-Rule 10b5-1 trading arrangement” as defined in Item 408(c) of Regulation S-K.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.

135

PART III

Certain information required by Part III is omitted from this report because we will file with the SEC a definitive proxy statement pursuant to Regulation 14A, or the 2025 Proxy Statement, no later than 120 days after the end of our fiscal year, and certain information included therein is incorporated herein by reference.

Item 10. Directors, Executive Officers and Corporate Governance.

The information required by this item is incorporated by reference to the information set forth in the sections titled “Proposal 1: Election of Directors,” “Information Regarding the Board of Directors and Corporate Governance,” “Information Regarding Executive Officers” and “Delinquent Section 16(a) Reports,” if applicable, in our 2025 Proxy Statement.

Information regarding our Code of Business Conduct and Ethics, or the Code of Conduct, required by this item will be contained in our 2025 Proxy Statement under the caption “Information Regarding the Board of Directors and Corporate Governance – Code of Ethics,” and is hereby incorporated by reference. If we make any substantive amendments to the Code of Conduct or grants any waiver from a provision of the Code of Conduct to any executive officer or director, we will promptly disclose the nature of the amendment or waiver on our website. The full text of our Code of Conduct is available on our website at https://investors.neuropace.com/corporate-governance. The reference to our website address does not constitute incorporation by reference of the information contained at or available through our website, and you should not consider it to be a part of this Annual Report.

136

Item 11. Executive Compensation.

The information required by this item is incorporated by reference to the information set forth in the section titled “Executive Compensation” and “Director Compensation” in our 2025 Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this item is incorporated by reference to the information set forth in the sections titled “Equity Compensation Plans at December 31, 2021” and “Security Ownership of Certain Beneficial Owners and Management” in our 2025 Proxy Statement.