CARLSMED, INC.

1. Organization

Description of Business

Carlsmed, Inc. (the “Company”) is a commercial-stage company within the surgical device with enabling technology sector. The Company was incorporated in Delaware in June 2018 and is headquartered in Carlsbad, California. The Company designs, manufactures, and markets aprevo®, a comprehensive technology platform for spine fusion surgery procedures.

The aprevo platform includes proprietary surgical planning software, using outcomes-based algorithms that are aided with artificial intelligence, and resulting custom-built, anatomically designed vertebral interbody implants. These implants provide each patient with a personalized vertebral fit to address their pathology and anatomy.

The U.S. Food and Drug Administration (“FDA”) cleared the aprevo interbody implants through its 510(k) regulatory pathway for the correction of adult lumbar spinal deformity in December 2020 and several degenerative conditions of the lumbar spine in August 2022. The Company commenced its limited clinical release with its first U.S. patient implant in February 2021, and in October 2021, the Company commenced its U.S. commercial launch of aprevo.

Reverse Stock Split

On July 10, 2025, the Company effectuated a 1-for-5.58 reverse stock split of the Company’s issued and outstanding shares of common stock, Series A, Series B, and Series C convertible preferred stock, as well as stock option awards to purchase shares of common stock, restricted stock units (“RSUs”), and warrants to purchase shares of common stock, Series B convertible preferred stock, and Series C convertible preferred stock. Consequently, all issued and outstanding shares of stock, stock option awards, RSUs, warrants, and per share data have been retroactively adjusted in these financial statements to reflect the reverse stock split for all periods presented. The par value of the common stock and convertible preferred stock remain unchanged. As the number and issuance price of all outstanding convertible preferred stock were adjusted, the conversion ratios for each series of the Company’s convertible preferred stock were unchanged. Stockholders entitled to fractional shares as a result of the reverse stock split received cash payment in lieu of receiving fractional shares.

Initial Public Offering

On July 24, 2025, the Company completed its initial public offering of 6,700,000 shares of its common stock, at a price to the public of$15.00 per share (the “IPO”). The net proceeds received by the Company from the IPO were$93.5 million, after deducting underwriting discounts and commissions and before additional offering expenses of $5.4 million paid by the Company. The underwriters had the option for a period of 30 days from the IPO date to purchase an additional 1,005,000 shares of common stock at the IPO price, less underwriting discounts and commissions, which was not exercised. Immediately prior to the closing of the IPO on July 24, 2025, all shares of the Company’s convertible preferred stock converted into shares of the Company’s common stock. In connection with this conversion, all warrants to purchase convertible preferred stock are now exercisable into common stock.

Liquidity and Capital Resources

As of September 30, 2025, the Company had$115.4 million of cash and cash equivalents,$15.6 million debt outstanding under its loan and security agreement with Customers Bank (the “Customers Loan Agreement”), and an accumulated deficit of$92.2 million.

On July 24, 2025, the Company completed the IPO and received net proceeds of$93.5 million, after deducting underwriting discounts and commissions and before additional offering expenses paid by the Company of$5.4 million.

The Company expects to continue to generate operating losses for the foreseeable future as it continues to expand commercial oper ations and develop its product portfolio. The Company believes that its existing cash on hand will be sufficient to meet anticipated capital requirements for its operations for at least 12 months from the date of the issuance of the accompanying Condensed Financial Statements.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited Condensed Financial Statements have been prepared by management in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and as required by S-X, Rule 10-1. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for a complete set of financial statements. In the opinion of the Company’s management, the accompanying unaudited Condensed Financial Statements and notes have been prepared on the same basis as the audited financial statements for the year ended December 31, 2024, and include all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the interim periods presented.

The accompanying unaudited Condensed Financial Statements should be read in conjunction with the Company’s audited annual financial statements and notes thereto included in the Company’s final prospectus, dated July 22, 2025, filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “Securities Act”) on July 24, 2025. The Company’s results of operations for the three and nine months ended September 30, 2025 are not necessarily indicative of the results to be expected for the year ending December 31, 2025 or for any other interim period.

Use of Estimates

The preparation of the unaudited Condensed Financial Statements in conformity with GAAP requires management to make informed estimates that require assumptions that affect the reported amounts in the accompanying unaudited Condensed Financial Statements. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that it believes to be reasonable under the circumstances. Actual results could differ materially under different assumptions and conditions.

Cash and Cash Equivalents

“Cash and cash equivalents” in the accompanying condensed Balance Sheets consist of bank deposits and highly liquid investments, including money market fund accounts, that are readily convertible into cash without penalty, with original maturities of three months or less from the purchase date. The carrying amounts reported in the accompanying condensed Balance Sheets for cash and cash equivalents are valued at cost, which approximate their fair value.

Restricted Cash

“Restricted cash” in the accompanying condensed Balance Sheets as of September 30, 2025 and December 31, 2024 represents cash held as collateral for the Company’s facility leases.

Accounts Receivable and Allowance for Credit Losses

“Accounts receivable, net of allowances” in the accompanying condensed Balance Sheets are presented net of allowances for credit losses. The Company maintains an allowance for expected credit losses for accounts receivable, which is recorded as an offset to accounts receivable. Changes in this allowance are recorded as “general and administrative” expense in the condensed Statements of Operations and Comprehensive Loss. Expected credit losses include losses expected based on known credit issues with certain customers as well as a general expected credit loss allowance based on relevant information, including historical loss rates, current conditions, and reasonable economic forecasts that affect collectability. The Company maintained an allowance for credit losses accounts of$1.6 million and$1.2 million as of September 30, 2025 and December 31, 2024, respectively. The Company recorded a provision for credit losses of less than $0.1 million and$0.1 million for the three months ended September 30, 2025 and 2024, respectively, and$0.4 million and$0.3 million for the nine months ended September 30, 2025 and 2024, respectively.

Concentrations of Financial Instrument Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents in deposits at financial institutions that may exceed federally insured limits and certain accounts receivable balances. Risks associated with cash and cash equivalents are mitigated by banking with creditworthy institutions with platforms that administer deposits across multiple banks within federally insured limits. The Company mitigates potential losses from uncollectible accounts receivable through its credit approval and ongoing collection and customer monitoring activities. To date, the Company has not experienced any losses on its financial instruments and believes that it has adequately recorded allowances for uncollectible accounts receivable in each reported period.

As of September 30, 2025, the Company hadone customer that accounted for 11% of the Company’s total accounts receivable balance. As of December 31, 2024, the Company didnot have accounts receivable balances from any one customer exceeding 10% of total accounts receivable. The Company didnot have revenue from any one customer exceeding 10% of total revenue for the three and nine months ended September 30, 2025. There were no customers exceeding 10% of total revenue for the three months ended September 30, 2024. There was one customer that accounted for 10% of the Company’s revenue for the nine months ended September 30, 2024.

Fair Value of Financial Instruments

Assets and liabilities are recorded at fair value on a recurring basis in the accompanying condensed Balance Sheets. These accounts are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The authoritative accounting guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:

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Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that are publicly accessible at the measurement date.

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Level 2: Observable prices that are based on inputs not quoted on active markets, but that are corroborated by market data. These inputs may include quoted prices for similar assets or liabilities or quoted market prices in markets that are not active to the general public.

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

The carrying amounts of the Company’s condensed financial instruments consisting of cash, cash equivalents, accounts receivables, prepaid expenses, accounts payable, and accrued liabilities approximate fair value due to the short maturities for each.

Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain assets or liabilities within the fair value hierarchy. The Company did not have any transfers of assets and liabilities between the levels of the fair value hierarchy during the periods presented.

(1) Included as a component of “cash and cash equivalents” on the accompanying condensed Balance Sheets.

Inventory

The Company maintains minimal inventories because aprevo is made specific to each patient’s anatomy to address their pathology and is not otherwise made-to-stock. Work-in-process inventory consists of titanium alloy implants for spine fusion surgical procedures, pending sterilization and packaging. Finished goods inventory is ready for shipment to the customer for use in a spine fusion surgical procedure.

Inventories are valued at the lower of cost or net realizable value, determined by the specific identification method. At each balance sheet date, the Company evaluates its inventories for obsolescence, based on notification of permanently canceled surgeries and ongoing estimates of permanent cancellations. The Company records the corresponding charge for obsolete inventory through “cost of sales.”

The components of reported “inventory” are as follows:

Warrant Liabilities

Prior to the closing of the IPO on July 24, 2025, the Company had issued warrants to purchase convertible preferred stock in conjunction with the Customers Loan Agreement (see Note 4). The Company accounted for its issued convertible preferred stock warrants as liabilities in accordance with ASC 480. The liability-classified warrants were initially measured at fair value, resulting in an implied discount on the related financing arrangement that was deferred as an asset as it relates to tranches of the Customers Loan Agreement. The deferred asset is recorded within “other assets” on the accompanying condensed Balance Sheets and is amortized into interest expense using the straight-line method over the period in which the Company can draw on the remaining tranches of the credit facility. Changes in fair value of the warrant liabilities are recognized in the condensed Statements of Operations and Comprehensive Loss.

In conjunction with the IPO, all of the outstanding shares of convertible preferred stock were converted into common stock. As a result, the Series B Warrant and Series C Warrant that had previously been exercisable for convertible preferred stock became exercisable for common stock. Upon the closing of the IPO on July 24, 2025, the Series B Warrant that was exercisable into 52,776 shares of common stock and the Series C Warrant that was exercisable into 5,093 shares of common stock met the criteria for equity classification and accordingly were reclassified from liabilities to equity, with the difference between their fair value immediately prior to reclassification and their prior recorded fair value being recognized in the accompanying condensed Statements of Operations and Comprehensive Loss. The fair value of these warrants immediately before reclassification was $0.7 million and are included in additional paid-in capital as of September 30, 2025. On the closing of the IPO on July 24, 2025, the Series B Warrant contained 5,644 shares of common stock and the Series C Warrant contained 15,282 shares of common stock that were exercisable contingent on specified revenue and loan draw milestones (see Note 4) and therefore continued to be classified as liabilities because they did not meet the criteria for equity classification.

Subsequently, as of September 30, 2025, the Company achieved a revenue milestone, causing 5,095 additional shares of common stock underlying the Series C Warrant to become exercisable and accordingly were reclassified from liabilities to equity as they met the criteria for equity classification. The difference between the fair value of the warrants immediately prior to reclassification and their prior recorded fair value was recognized in the accompanying condensed Statements of Operations and Comprehensive Loss. The fair value of these warrants at the time of reclassification was$0.1 million, and are included in "additional paid-in capital" as of September 30, 2025.

As of September 30, 2025, the Series B Warrant contains 5,644 shares of common stock and the Series C Warrant contains 10,187 shares of common stock that are exercisable contingent on loan draw milestones and continue to be classified as liabilities because they do not meet the equity classification criteria. On October 29, 2025, as a part of the Fifth Amendment to the Customers Loan Agreement, the Series B Warrant and Series C Warrant were amended and restated and the remaining aggregate 15,831 shares of common stock that were exercisable contingent on loan draw milestones were canceled(see Note 4).

The fair value of the warrant liabilities was determined based on significant inputs not observable in the market, which represents a “Level 3” measurement within the fair value hierarchy. Prior to the IPO, the fair values of the warrant liabilities were measured using the “hybrid method.” The hybrid method is often used when a company is expecting a liquidity event in the near future and is a combination of the option-pricing and probability-weighted expected return methods. Estimates and assumptions impacting the fair value measurement included the fair value per share of the underlying shares of convertible preferred stock, the remaining contractual term of the warrants, and probability of number of shares the warrants will become exercisable into. The most significant assumption in the model impacting the fair value of the warrants was the fair value of the Company’s convertible preferred stock as of each remeasurement date. Subsequent to the IPO, the fair value of the warrant liabilities is measured using the Black-Scholes option pricing model.

A summary of the changes in the total fair value of the warrant liabilities for the nine months ended September 30, 2025 and 2024, is as follows:

Deferred Offering Costs

The Company capitalizes certain legal, professional, accounting, and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After consummation of the equity financing, these costs are recorded in “stockholders’ equity (deficit)” or the applicable series of convertible preferred stock as a reduction of proceeds generated as a result of the offering. Should the in-process equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the condensed Statements of Operations and Comprehensive Loss. As of September 30, 2025 and December 31, 2024, there were zero and$0.4 million deferred offering costs, respectively, which are included in “other assets” in the accompanying condensed Balance Sheets.

The Company completed its IPO on July 24, 2025. As a result, the deferred offering costs were offset against the proceeds of the IPO (see Note 1).

Comprehensive Loss

Comprehensive loss encompasses all changes in equity other than those arising from transactions with stockholders. For the three and nine months ended September 30, 2025 and 2024, the Company hadno other comprehensive loss items and accordingly, "net loss" equaled "comprehensive loss."

Recent Accounting Pronouncements

Recently Issued Accounting Standards Not Yet Effective

Expense Disaggregation Disclosures - In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses(“ASU 2024-03”). This ASU requires new financial statement disclosures disaggregating prescribed expense categories within relevant income statement expense captions. ASU 2024-03 will be effective for fiscal years beginning after December 15, 2026, and interim periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact of adopting the standard.

Income Taxes -In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Tax Disclosures(“ASU 2023-09”). This ASU expands disclosures in an entity’s income tax rate reconciliation table and regarding cash taxes paid both in the U.S. and foreign jurisdictions. The update will be effective for fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact of adopting the standard.

Financial Instruments - Credit Losses - In July 2025, the FASB issued ASU 2025-05, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses for Accounts Receivable and Contract Assets (“ASU 2025-05”). This ASU provides entities with the option to elect a practical expedient that assumes that the current conditions as of the balance sheet date will remain unchanged for the remaining life of the asset when developing a reasonable and supportable forecast as part of estimating expected credit losses on these assets. ASU 2025-05 will be effective for fiscal years beginning after December 15, 2025 and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting the standard.

Internal-Use Software- In September 2025, the FASB issued ASU 2025-06, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software(“ASU 2025-06”). This ASU is intended to simplify the capitalization guidance by removing all references to prescriptive and sequential software development stages. This ASU also requires entities to begin capitalizing software costs when management authorizes and commits to funding the software project, and it is probable that the project will be completed and the software will be used for its intended purpose. ASU 2025-06 will be effective for fiscal years beginning after December 15, 2027 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of adopting the standard.

3. Balance Sheet Account Detail

The composition of selected captions within the accompanying condensed Balance Sheets are summarized below:

Property and Equipment, Net

The components of “property and equipment, net” as of September 30, 2025 and December 31, 2024 are as follows:

"Depreciation expense" for the three months ended September 30, 2025 and 2024 was$0.1 million andless than $0.1 million, respectively. Depreciation expense for the nine months ended September 30, 2025 and 2024 was$0.2 million and$0.1 million, respectively. The Company hasnot recognized any impairment loss for any long-lived assets for thethree and nine months ended September 30, 2025 and 2024.

Accrued Liabilities

The components of “accrued liabilities” as of September 30, 2025 and December 31, 2024 are as follows:

4. Debt

Customers Bank Credit Facility

As of September 30, 2025,$15.6 million of principal was outstanding under the $27.5 million Customers Loan Agreement that was set to mature on October 31, 2029. As of September 30, 2025, an aggregate$11.9 million was available to draw and the Company was in compliance with all applicable Customers Loan Agreement covenants. The Customers Loan Agreement was subsequently amended on October 29, 2025, which among other changes, amended the maturity date and amount available to draw as discussed in more detail below.

In Dece mber 2022, the Company and Signature Bank, subsequently succeeded by Customers Bank, entered into a loan and security agreement (the “Customers Loan Agreement”) with an initial maturity to December 2026 that provided$12.5 million of available principal. The Customers Loan Agreement required the Company to pay a tiered cash-based “Success Fee” upon a defined Liquidity Event that was eliminated in March 2024 in connection with the Third Amendment, as discussed below.

The Customers Loan Agreement bore interest at thegreater of (a)1.0% below Prime Rate or (b)5.25%. The Customers Loan Agreement also included an end of term charge of 4.21% of the aggregate principal amount funded, and such end of term charge remains in effect through the Third Amendment and Fourth Amendment. The end of term charge is recorded within “other long-term liabilities” within the condensed Balance Sheets and is accrued over the term of the loan through interest expense within the condensed Statements of Operations and Comprehensive Loss using the “effective interest method.” Debt issuance costs are accounted for as a debt discount and amortized as “interest expense” within the condensed Statements of Operations and Comprehensive Loss over the term of the loan using the “effective interest method.”

On March 7, 2024, the Company amended the Customers Loan Agreement (the “Third Amendment”) to increase the total principal available under the credit facility from$12.5 million to$18.8 million, subject to the achievement of certain revenue and other milestones, with extended maturity up to December 20, 2027, if certain conditions are met. The applicable per annum interest rate was adjusted to the greater of (a) WSJ Prime Rate +0.25% or (b)5.25%, and was 7.50% as of September 30, 2025.

As part of the Third Amendment, the Success Fee was contractually eliminated and replaced with the issuance of a warrant exercisable for up to 58,420 shares of Series B convertible preferred stock at an exercise price of$6.93 per share (the “Series B Warrant”). Upon issuance, the Series B Warrant was immediately exercisable for 26,881 shares with the remaining 31,539 additional shares becoming exercisable upon the required achievement of certain revenue milestones and/or draws of this expanded credit facility. The Series B Warrant was scheduled to expire 10 years from the issuance date of March 6, 2024, but was amended and restated in connection with the subsequent Fourth Amendment (see below). The fair value of the Series B Warrant at issuance in conjunction with the Third Amendment was$0.2 million.

In May 2024, the Company drew$6.3 million under the Customers Loan Agreement upon the achievement of requisite revenue milestones.

On December 30, 2024, the Company further amended the Customers Loan Agreement (the “Fourth Amendment”) to expand the credit facility from$18.8 million to$27.5 million, with the addition of two new debt draw tranches. Upon the Fourth Amendment, the Company had the ability to draw$7.5 million immediately and the remaining$4.4 million was contingent upon the achievement of a requisite revenue milestone. As of September 30, 2025, a requisite revenue milestone was met which resulted in the interest-only period being extended through January 31, 2027, followed by principal repayment over 33 months thereafter. Additionally, as a result of the requisite revenue milestone being met, the remaining$4.4 million became available to draw. Upon achievement of an additional revenue milestone, the interest-only period and repayment terms may be further extended to an interest-only period through July 31, 2027, followed by principal repayment over 27 months thereafter. However, such additional revenue milestone was not met as of September 30, 2025.

As part of the Fourth Amendment, the Company partially modified the aggregate 58,420 Series B Warrant issued with the Third Amendment, reducing the number of shares exercisable subject to remaining future draws of the credit facility as of the date of the Fourth Amendment from 11,289 shares to 5,644, with the remaining 5,644 shares becoming exercisable ratably with debt draws that had not occurred as of September 30, 2025. Additionally, the expiration date for the Series B Warrant was extended to December 30,2034. The modification of the Series B Warrant upon the Fourth Amendment resulted in an immaterial increase in the warrant liability.

Additionally, as part of the Fourth Amendment, the Company issued a new warrant that was exercisable into the Company’s Series C convertible preferred stock (“Series C Warrant”), subject to certain revenue and debt draw milestones. The Series C Warrant is exercisable for up to 20,375 shares at an exercise price of$10.74 per share and expires on December 30, 2034. Upon issuance, the Series C Warrant was immediately exercisable into 5,093 shares with the remaining 15,282 additional shares becoming exercisable upon the required achievement of certain revenue milestones and/or draws of this expanded credit facility. As of September 30, 2025, the Company achieved the revenue milestone, causing the Series C Warrant to be exercisable into an additional 5,095 shares. As of September 30, 2025, the Series C Warrant is exercisable into 10,188 shares, with the remaining 10,187 shares becoming exercisable upon draws of this expanded credit facility which have not yet occurred.

In connection with the close of the Company's IPO on July 24, 2025, all of the outstanding shares of convertible preferred stock were converted into common stock. As a result, the warrants to purchase convertible preferred stock are now exercisable into common stock. As of September 30, 2025, the Series B and Series C Warrants are exercisable for 52,776 and 10,188 shares of the common stock, respectively. Refer to Note 2 for additional information regarding the reclassification of certain warrants from liability classified to equity classified during the three months ended September 30, 2025.

Each of the Third Amendment and Fourth Amendment were accounted for as debt modifications with no gain or loss recognized. The carrying value of amounts outstanding under the Customers Loan Agreement approximates its fair value as of September 30, 2025. The fair value of the term loan is classified as a Level 2 measurement because interest rates charged are similar to other financial instruments with similar terms and maturities.

Interest expense on the Customers Loan Agreement was$0.4 million for the three months ended September 30, 2025 and 2024. Of these amounts,$0.1 million was related to amortization of the debt discount and issuance costs for the three months ended September 30, 2025 and 2024. Interest expense on the Customers Loan Agreement was$1.1 million and$0.9 million for the nine months ended September 30, 2025 and 2024, respectively. Of these amounts,$0.2 million was related to amortization of the debt discount and issuance costs for the nine months ended September 30, 2025 and 2024. The effective interest rate was 7.81% as of September 30, 2025.

On October, 29, 2025, the Company amended the Customers Loan Agreement (the “Fifth Amendment”) to provide for a credit facility consisting of (i) a term loan in the principal amount of up to $50.0 million (the “Term Loan”), $17.5 million of which is contingent upon the achievement of requisite revenue milestones, and (ii) a $10.0 million non-formula revolving line of credit (the “Non-Formula Revolving Line”), provided that at no time shall the aggregate amount advanced under the Term Loan and the Non-Formula Revolving Line exceed $50.0 million. With the execution of the Fifth Amendment, the current maximum availability of the Term Loan and Non-Formula Revolving Line aggregates to $42.5 million.

The maturity date of the Term Loan was extended to October 15, 2030, with an interest-only period through October 15, 2027, followed by principal repayment over 36 months thereafter. Upon achievement of certain revenue milestones, the interest-only period and repayment terms of the Term Loan may be extended through April 15,2025 followed by principal repayment over 30 months, and upon achievement of an additional milestone, may be further extended through October 15, 2028, followed by principal repayment over 24 months thereafter. The Non-Formula Revolving Line will mature on October 15, 2028. The applicable per annum interest rate did not change as a result of the Fifth Amendment and remains as the greater of (a) WSJ Prime Rate +0.25% or (b)5.25%.

In connection with the Fifth Amendment, the Company partially amended the Series B Warrant, reducing the number of shares of common stock exercisable subject to future draws under the Customers Loan Agreement as of the date of the Fifth Amendment from 58,420 to 52,776 (the “Amended Series B Warrant”). In addition, the Company partially amended the Series C Warrant, reducing the number of shares of common stock exercisable subject to future draws under the Customers Loan Agreement as of the date of the Fifth Amendment from 20,375 to 10,188 (the “Amended Series C Warrant” and, together with the Amended Series B Warrant, the “Amended Warrants”). As a result of the Amended Warrants, Customers Bank's contingent rights to exercise the Warrants for an aggregate of 15,831 shares of common stock were canceled.

The following table summarizes contractual principal payments as of September 30, 2025:

5. Common Stock

In accordance with the Company’s Amended and Restated Certificate of Incorporation dated July 24, 2025, the Company is authorized to issue two classes of stock—common stock and preferred stock. The Company shall have authority to issue 600,000,000 shares of common stock with par value of$0.00001 per share and 10,000,000 shares of preferred stock with par value of$0.00001 per share. As of September 30, 2025, the Company does not have any issued or outstanding shares of preferred stock.

Common stock reserved for future issuance as of September 30, 2025, consisted of the following:

(1) The Series B Warrant and Series C Warrant are exercisable into common stock (see Note 2).

SVB Common Stock Warrant

In April 2021, in connection with its entry into a loan and security agreement (the “SVB Loan Agreement”) with Silicon Valley Bank (“SVB”), the Company issued a warrant to purchase up to an aggregate of 10,338 shares of common stock at an exercise price of $0.34 per share (the “SVB Common Stock Warrant”). In July 2021, pursuant to the terms of the SVB Common Stock Warrant, the SVB Common Stock Warrant became exercisable for an additional 10,349 shares of common stock at an exercise price of $0.34 per share in connection with a principal draw. In February 2022, the Company amended the SVB Loan Agreement to draw additional principal and the SVB Common Stock Warrant became exercisable for an additional 5,176 shares of common stock at an exercise price of $0.40 per share. In December 2022, the Company terminated and repaid in full all amounts outstanding under the SVB Loan Agreement. On August 14, 2025, the Company issued 25,184 shares of common stock in conjunction with a net cashless exercise of the SVB Common Stock Warrant. As a result of the exercise, the SVB Common Stock Warrant is no longer outstanding.

6. Stock-Based Compensation

In September 2019, the Company adopted the Carlsmed, Inc. 2019 Stock Incentive Plan, which was subsequently amended, most recently in January 2025 (the “2019 Plan”). The 2019 Plan is administered by the Company’s board of directors (the “Board of Directors”). On July 10, 2025, the Board of Directors adopted, and the Company’s stockholders approved, the Carlsmed, Inc. 2025 Equity Incentive Plan (the “2025 Plan”), which became effective on July 21, 2025. The 2025 Plan replaced the 2019 Plan, as the Board of Directors determined to not make additional grants under the 2019 Plan following the closing of the IPO. However, the 2019 Plan will continue to govern outstanding equity awards granted under the 2019 Plan. The 2025 Plan allows the Company to grant incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards and other awards. The number of shares initially available for issuance under awards granted pursuant to the 2025 Plan is 3,595,177. As of September 30, 2025, there were 2,608,836 shares available for issuance pursuant to the 2025 Plan.

The exercise price of a share subject to a stock option may not be less than the fair market value of a share of the Company’s common stock at the grant date. Stock options granted to employees typically vest over four years, with 25% vesting on the first anniversary of the grant date and the remainder vesting ratably on a quarterly basis thereafter, subject to continued employment, and a contractual term of 10 years; related expense is recognized in the accompanying Statements of Operations and Comprehensive Loss on a straight-line basis over each award’s vesting period.

The Company also grants stock option awards to non-employees, including members of the Board of Directors. Options granted under the 2019 Plan may be subject to vesting acceleration in connection with a “Corporate Transaction,” as defined in the 2019 Plan.

The 2019 Plan allows for the exercise of certain stock option grants prior to vesting (“early exercise”), with such grants approved by the Board of Directors. For these awards, in the event of employee termination, the Company has the right, but not the obligation, to repurchase the portion of unvested stock at thelower of the exercise price or the then-current fair value. A liability is recorded within “accrued liabilities” on the accompanying condensed Balance Sheets that is equal to the cash received for these early exercises, and this liability is reduced as vesting occurs. Unvested shares that have been early exercised are reflected in “common shares issued” but excluded from “common shares outstanding” on the accompanying Condensed Financial Statements. As of September 30, 2025,68,698 shares of early exercised stock options were outstanding, representing an early exercise liability of$0.1 million. As of December 31, 2024,95,579 shares of early exercised stock options were outstanding, representing an early exercise liability of$0.1 million.

RSUs granted typically have three-year vesting schedules and the related expense is recognized in the accompanying Statements of Operations and Comprehensive Loss on a straight-line basis over each award’s vesting period.

In the nine months ended September 30, 2025, the Company granted RSUs to an employee that have a contractual term of four years and vest upon the satisfaction of performance, market, and service conditions. The performance conditions require either (1) the completion of an initial public offering where the Company’s stock is listed on an established stock exchange or (2) the occurrence of a corporate transaction, such as a merger, acquisition, or similar liquidity event. The market condition is based on the achievement of share price targets following the completion of an initial public offering or on the date of a corporate transaction. The service condition requires the employee to provide continued service through the achievement of both the performance and market conditions. The grant date fair value of such RSUs is determined using a Monte Carlo simulation methodology, which takes into consideration the probability of achievement of the market conditions.

Expense for the RSUs begins on the grant date and is recognized over the derived requisite service period of the award. However, no compensation expense was recognized until the performance-based vesting condition was probable of being achieved. On July 24, 2025, the Company completed its IPO, satisfying the performance condition of the RSUs. Consequently, compensation expense has been recognized proportionally for the completed portion of the requisite service period up to the IPO. The remaining unrecognized expense will be amortized over the remaining derived requisite service period associated with the market condition, regardless of whether the market condition is ultimately satisfied.

Stock Options

The follo wing summarizes stock option activity for the Company for the nine months ended September 30, 2025:

The weighted average grant date fair value of options granted during the three months ended September 30, 2025 and 2024 was$7.69 and$0.50 per share, respectively. The weighted average grant date fair value of options granted during the nine months ended September 30, 2025 and 2024 was$4.72 and$0.40 per share, respectively. The total fair value of options that vested during the three months ended September 30, 2025 and 2024 was$0.2 million and$0.1 million, respectively, based on the grant date fair value. For the nine months ended September 30, 2025 and 2024, the total fair value of options that vested was$0.4 million and$0.2 million, respectively, based on the grant date fair value.

The aggregate intrinsic value in the above table is calculated as the difference between the fair value of the Company’s common stock price and the exercise price of the stock options. The aggregate intrinsic value of stock options exercised during both the three months ended September 30, 2025 and 2024 was less than $0.1 million. For the nine months ended September 30, 2025 and 2024, the aggregate intrinsic value of stock options exercised was$1.8 million and$0.2 million, respectively.

The Company recorded stock-based compensation expense for stock options of$0.5 million and$0.1 million for the three months ended September 30, 2025 and 2024, respectively. The Company recorded stock-based compensation expense for stock options of$0.9 million and$0.2 million for the nine months ended September 30, 2025 and 2024, respectively. As of September 30, 2025, there was$8.9 million of unrecognized compensation for unvested stock options and the weighted-average period over which this remaining compensation cost will be recognized is 3.0 years.

The grant date fair value of the options is determined using an option pricing model. The assumptions that were used in estimating the grant date fair value of stock options under the option pricing method for thethree and nine months ended September 30, 2025 and 2024 were as follows:

(1) Based on the median stock price volatility for peer public companies over a historic timeframe similar to the expected term, with adjustments for differences in size and capital structure.

(2) Based on the U.S. Treasury yield curve in effect as of the valuation date.

(3) The Company has not paid and does not currently anticipate paying a cash dividend on its common stock.

(4) The expected term of stock options granted to employees represents the weighted average period the stock options are expected to be outstanding. The Company uses the simplified method for estimating the expected term, which calculates the expected term as the average time-to-vesting and the contractual life of the options for stock options issued to employees and non-employees.

Restricted Stock Units

The Company did not have any RSUs granted or outstanding during the nine months ended September 30, 2024.

The follo wing summarizes RSU activity for the Company for the nine months ended September 30, 2025:

The Company recorded stock-based compensation expense for RSUs of$0.2 million for the three and nine months ended September 30, 2025. As of September 30, 2025, there was$1.2 million of unrecognized compensation for unvested RSUs and the weighted-average period over which this remaining compensation cost will be recognized is 1.9 years.

Stock-based Compensation Cost

The compensation cost that has been included in the Company’s condensed Statements of Operations and Comprehensive Loss for all stock-based compensation arrangements is detailed as follows:

7. Convertible Preferred Stock

In March 2024, the Company issued a total of 3,586,091 shares of Series C convertible preferred stock at a price of$10.74 per share for gross cash proceeds of$38.5 million.

In September 2024, the Company issued a total of 1,304,032 shares of Series C convertible preferred stock at a price of$10.74 per share for gross cash proceeds of$14.0 million. In January 2025, the Company issued a total of 1,117,743 shares of Series C convertible preferred stock at a price of$10.74 per share for gross cash proceeds of$12.0 million. The September 2024 and January 2025 issuances of Series C convertible preferred stock were completed below the fair value of the shares as of each respective issuance date. The Company recorded the excess of fair value over the issuance price as a “deemed dividend” within additional paid-in-capital (“APIC”) in the amount of$0.6 million as of both issuance dates. The deemed dividends reflect the distribution of value from common stockholders to preferred stockholders due to the implicit discount on these shares issued in September 2024 and January 2025. Since the Company remained in an accumulated deficit position at each respective issuance date, this deemed dividends were recorded directly to APIC rather than retained earnings.

The Company closed the IPO on July 24, 2025 and all of the outstanding shares of convertible preferred stock were converted into 15,245,731 shares ofcommon stock.

8. Net Loss Per Share

Basic net loss per share is calculated bydividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding, net of the weighted-average unvested restricted stock subject to repurchase by the Company, if any, during the period. Diluted loss per share is calculated bydividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding, adjusted for the effects of potentially dilutive common stock, which are comprised of stock options and stock warrants, using the “treasury-stock method,” and convertible preferred stock, using the “if-converted method.”

Because the Company reported net losses for the period presented, all potentially dilutive common stock is antidilutive for this period and therefore basic and diluted net loss per common share are the same. The convertible preferred stock are considered participating securities; however, they were excluded from the computation of basic loss per share in the periods of net loss as there is no contractual obligation for the holders to share in the losses of the Company.

The foll owing table presents the number of anti-dilutive shares excluded from the calculation of diluted net loss per share as of September 30, 2025 and 2024:

(1)825,189 stock options vested and exercisable as of September 30, 2025.

(2) Convertible preferred stock was eligible to convert to common stock on a 1:1 basis upon the holder’s election or upon a Deemed Liquidation Event. Convertible preferred stock was converted into common stock on the IPO (see Note 7).

(3) No restricted stock units are vested as of September 30, 2025.

(4) Series B Warrant exercisable into 52,776 shares of common stock as of September 30, 2025.

(5) Series C Warrant exercisable into 10,188 shares of common stock as of September 30, 2025.

(6) On August 14, 2025, the SVB Common Stock Warrant was exercised (see Note 5).

9. Commitment and Contingencies

Legal Matters

The Company from time to time is involved in legal matters incidental to the conduct of its business. In the opinion of management, there areno claims outstanding that would have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

Operating Lease

In theordinary course of business, the Company enters into lease agreements with unaffiliated third parties for its facilities and office equipment. As of September 30, 2025, the Company had two active operating leases for a combined 23,000 square feet of administrative, engineering, and research and development space located in Carlsbad, California.

The first lease encompasses 16,000 square feet and commenced on May 1, 2021, and was originally set to expire on April 30, 2024. On December 4, 2023, the Company entered into a first amendment to the original lease agreement which resulted in the lease term extending to July 1, 2028. The Company used its incremental borrowing rate at the lease modification date of 9.08% in determining the discount rate utilized to present value the future minimum lease payments since an implicit interest rate in the lease agreement was not determinable.

On May 15, 2025, the Company entered into a second amendment to its original lease agreement, which modified the lease terms to lease an additional suite comprising an additional 7,000 square feet of space. The lease modification was accounted for as a separate contract. This new lease is set to expire on July 1, 2028. The Company used its incremental borrowing rate at the lease modification date of 7.62% in determining the discount rate utilized to present value the future minimum lease payments since an implicit interest rate in the lease agreement was not determinable.

Total lease expenses for the three months ended September 30, 2025 and 2024 were$0.2 million and$0.1 million, respectively. Total lease expenses for the nine months ended September 30, 2025 and 2024 were$0.5 million and$0.4 million, respectively.

The Company’s real estate taxes, insurance costs, and common area maintenance, are included in monthly rent and not separately itemized. Rent expense is allocated to cost of sales, research and development, sales and marketing, and general and administrative expenses in the accompanying condensed Statements of Operations and Comprehensive Loss.

The weighted-average lease terms and discount rates are as follows:

The aggregate future minimum lease payments under this lease as of September 30, 2025, are as follows:

The operating cash outflows included in the measurement of the operating lease liabilities was$0.4 million for both the nine months ended September 30, 2025 and 2024.

10. Segment Reporting

The following table provides the operating financial results of the Company’s single reportable segment. It includes the significant expense categories regularly provided to the Company’s Chief Operating Decision Maker, its Chief Executive Officer, computed under GAAP and reconciled to the Company’s total “net loss” as presented in the condensed Statements of Operations and Comprehensive Loss:

• Other segment expenses primarily include corporate, compliance, and research and development support expenses.

11. Income Taxes

In determining quarterly provisions for income taxes, the Company uses the annual estimated effective tax rate applied to the actual year-to-date income (loss), adjusted for discrete items, if any, that are taken into account in the relevant period. The Company’s annual estimated effective tax rate differs from the statutory rate primarily as a result of state taxes and changes in the Company’s valuation allowance.

The Company didnot record income tax expense for thethree and nine months ended September 30, 2025 and 2024. The Company maintains a full valuation allowance on its net deferred tax assets, as it is more likely-than-not that it will not be monetized through offsetting future taxable income.

There wereno material changes to the Company’s unrecognized tax benefits in thethree and nine months ended September 30, 2025 and 2024, and the Company does not expect to have significant changes to unrecognized tax benefits through the end of the fiscal year. The Company didnot have any interest or penalties related to its uncertain tax positions for thethree and nine months ended September 30, 2025 and 2024.

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law, which enacts significant changes to U.S. tax and related laws. Some of the provisions of the new tax law affecting corporations include, but are not limited to, expensing of domestic research expenses, increasing the limit of the deduction of interest expense deduction to thirty percent of EBITDA, and one hundred percent bonus depreciation on eligible property acquired after January 19, 2025. The provisions of the OBBBA became effective for the Company during the three months ended September 30, 2025.