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 are no claims outstanding that would have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

Operating Lease

In the ordinary 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:


	As of September 30, 2025			As of December 31, 2024
Weighted-average remaining lease term		2.75			3.50
Weighted-average discount rate		8.65	%		9.08	%

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


(in thousands)
Year ending December 31,	Payments
Remainder of 2025	$	151
2026		895
2027		926
2028		472
Total undiscounted lease payments	$	2,444
Less: imputed interest		(270	)
Present value of future lease payments	$	2,174
Short-term operating lease liabilities		661
Long-term operating lease liabilities		1,513
Total operating lease liabilities	$	2,174

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.

CARLSMED, INC. 10-Q