The Company’s leases mainly include facility leases and storage leases. In determining the present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date if the rate implicit in the lease is not readily determinable. The Company estimates its

incremental borrowing rate based on qualitative factors including company specific credit offers, lease term, general economics, and the interest rate environment.

On February 5, 2021, the Company renewed the lease of the corporate headquarters in Menlo Park, California. The lease is a noncancelable operating lease for approximately 10,823 square feet of primary office space. The operating lease commenced on August 1, 2021 and is for a term of 37 months from the commencement date. The Company recorded an aggregate right-of-use ("ROU") asset and lease liability of $1.5 million. The ROU asset and corresponding lease liability were estimated using a weighted-average incremental borrowing rate of 13.59%. Total base rent is approximately $1.6 million under the lease agreement.

The Company recognizes rent expense on a straight-line basis over the noncancelable lease term. The Company’s rent expense was $0.2 million for both the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, the remaining lease term for the lease was 2.38 years.

Operating lease expense and supplemental cash flow information related to operating leases for the three months ended March 31, 2022 and 2021 were as follows (in thousands):


	Three Months Ended March 31,
	2022		2021
Operating lease expense	$	173	$	175
Cash paid for operating leases		170		177

Aggregate future minimum lease payments at March 31, 2022, under these noncancelable operating leases were as follows (in thousands):


	As of March 31,
	2022
2022		521
2023		705
2024		462
Total future minimum lease payments	$	1,688
Less: imputed interest		(258	)
Present value of future minimum lease payments	$	1,430
Less: current portion of operating lease liability		(534	)
Operating lease liabilities - noncurrent	$	896

On September 16, 2021, the Company filed suit in the U.S. District Court for the District of Delaware (C.A. No. 1:21-cv-01317) alleging that Ivantis, Inc. directly or indirectly infringes U.S. Patent Nos. 8,287,482, 9,370,443, 9,486,361, and 10,314,742 by making, using, selling, and offering for sale the Hydrus® Microstent. The Company’s Complaint seeks money damages and injunctive relief. On January 24, 2022, Ivantis asserted counterclaims requesting declaratory judgments that the Company's asserted patents-in-suit are not infringed and/or invalid. No trial date has been set. The Company is presently unable to predict the outcome of this lawsuit or to reasonably estimate the potential financial impact of the lawsuit on the Company, if any.

The Company is subject to claims and assessments from time to time in the ordinary course of business. Accruals for litigation and contingencies are reflected in the financial statements based on management’s assessment, including the advice of legal counsel, of the expected outcome of litigation or other dispute resolution proceedings, and/or the expected resolution of contingencies. Liabilities for estimated losses are accrued if the potential losses from any claims or legal proceedings are considered probable and the amounts can be reasonably estimated. Significant judgment is required in both the determination of probability of loss and the determination as to whether the amount can be reasonably estimated. Accruals are based only on information available at the time of the assessment due to the uncertain nature of such matters. As additional information becomes available,

management reassesses potential liabilities related to pending claims and litigation and may revise its previous estimates, which could materially affect the Company’s results of operations in a given period. As of March 31, 2022 and December 31, 2021, the Company was not involved in any material legal proceedings except as described above.

In March 2022, the Company announced a voluntary recall of the TearCare SmartHub 1.0 devices to ensure regulatory compliance with product classification codes following TearCare's 510(k) clearance with the FDA in December 2021. During the first quarter of 2022, the Company estimated the cost of providing customers with replacement TearCare SmartHub 1.5 devices to be $0.9 million, which was expensed to cost of goods sold in the first quarter. The Company began providing replacement devices in March 2022 and expects to have all replacement devices provided by the end of the second quarter of fiscal year 2022.

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but that have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations.

The Company indemnifies each of its directors and officers for certain events or occurrences, subject to certain limits, while the director 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 a director may be subject to any proceeding arising out of acts or omissions of such director in such capacity. The maximum amount of potential future indemnification is unlimited; however, the Company currently holds director liability insurance. This insurance allows the transfer of risk associated with the Company’s exposure and may enable it to recover a portion of any future amounts paid. 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 March 31, 2022 and December 31, 2021.