CARLSMED, INC. Commitments Disclosure
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 December 31, 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 June 30, 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 June 30, 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 years ended December 31, 2025 and 2024 were $0.7 million and $0.6 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 Statements of Operations and Comprehensive Loss.
The weighted-average lease terms and discount rates are as follows:
|
|
As of December 31, 2025 |
|
|
As of December 31, 2024 |
|
||
Weighted-average remaining lease term |
|
|
2.50 |
|
|
|
3.50 |
|
Weighted-average discount rate |
|
|
8.63 |
% |
|
|
9.08 |
% |
The aggregate future minimum lease payments under this lease as of December 31, 2025, are as follows:
(in thousands) |
|
|
|
|
Year ending December 31, |
|
Payments |
|
|
2026 |
|
|
895 |
|
2027 |
|
|
926 |
|
2028 |
|
|
472 |
|
Total undiscounted lease payments |
|
$ |
2,293 |
|
Less: imputed interest |
|
|
(225 |
) |
Present value of future lease payments |
|
$ |
2,068 |
|
Short-term operating lease liabilities |
|
|
752 |
|
Long-term operating lease liabilities |
|
|
1,316 |
|
Total operating lease liabilities |
|
$ |
2,068 |
|
The operating cash outflows included in the measurement of the operating lease liabilities was $0.6 million and $0.5 million for the years ended December 31, 2025 and 2024, respectively.
About Commitments Disclosures
Commitments and contingencies disclosures catalog a company's off-balance-sheet obligations and legal exposures — purchase commitments, guarantee arrangements, pending litigation, and regulatory proceedings. These items represent potential future cash outflows that may not appear as liabilities on the balance sheet until they become probable and estimable.
Key signals: litigation reserves and disclosed loss ranges quantify management's estimate of legal exposure, but unquantified "reasonably possible" losses often represent the larger risk. Watch for changes in language around pending cases — shifts from "remote" to "reasonably possible" or increases in estimated loss ranges signal deteriorating outcomes. Unconditional purchase obligations and take-or-pay contracts create fixed cost structures that reduce operational flexibility. Guarantee arrangements for subsidiaries or joint ventures can create cascading obligations. Compare the total commitment schedule against projected free cash flow to assess whether the company can meet its obligations without additional financing.