Sight Sciences Inc

Notes to Consolidated Financial Statements (Unaudited)

Note 1. The Company and Nature of Business

Description of Business

Sight Sciences, Inc. (the “Company”) was incorporated in the State of Delaware in 2010 and is headquartered in Menlo Park, California. The Company is an ophthalmic medical device company focused on the development and commercialization of surgical and nonsurgical technologies for the treatment of prevalent eye diseases. The Company’s mission is to develop transformative, interventional technologies that allow eyecare providers to procedurally elevate the standards of care — empowering people to keep seeing.

The Company's product portfolio aligns with its two reportable operating segments: Surgical Glaucoma and Dry Eye. The products for the Surgical Glaucoma segment include the OMNI® Surgical System ("OMNI"), which is an implant-free, handheld, single-use, therapeutic technology that enables ophthalmic surgeons to perform a comprehensive procedure (i) indicated in the United States to reduce intraocular pressure in adult patients with primary open-angle glaucoma, and (ii) CE Marked for the catheterization and transluminal viscodilation of Schlemm’s canal and cutting of the trabecular meshwork to reduce intraocular pressure in adult patients with open-angle glaucoma; and the SION® Surgical Instrument ("SION"), a bladeless, manually operated device used in ophthalmic surgical procedures to excise trabecular meshwork. The product portfolio for the Dry Eye segment consists of the TearCare® System ("TearCare") for ophthalmologists and optometrists. TearCare is a proprietary, interventional, dry eye device designed to melt and facilitate the comprehensive removal of meibomian gland obstructions and restore gland functionality and healthy oil production for adult patients with evaporative dry eye disease due to meibomian gland dysfunction (“MGD”) when used in conjunction with manual expression of the meibomian glands, enabling clearance of gland obstructions by physicians to address the leading cause of dry eye disease.

Liquidity Considerations

Since inception, the Company has incurred losses and negative cash flows from operations. As of December 31, 2024, the Company had an accumulated deficit of $346.3 million and recorded a net loss of $51.5 million for the year then ended and expects to incur additional losses in the future.

The Company believes its cash and cash equivalents balance, and other existing sources of liquidity will satisfy its working capital and capital resource requirements for at least 12 months from the date of issuance of its consolidated financial statements. Any failure to generate increased revenue, achieve improved gross margins, or control operating costs could require the Company to raise additional capital through equity or debt financing. Such additional financing may not be available on acceptable terms, or at all. If the Company is unable to improve its financial performance, or to secure additional funding when desired, it may need to delay the development of its products, reduce research and development activities, modify, or abandon planned future expenditures or reduce operating costs, any of which could harm its business, require it to change its business strategy or scale back its operations, or limit its ability to achieve its strategic objectives.

Presentation Reclassification

Certain prior year amounts have been reclassified for consistency with current year presentation. This reclassification was to report investment income separately from other income (expense), net in the consolidated statements of operations and comprehensive income. This reclassification had no effect on the reported results of operations.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). The Company’s consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Sight Sciences UK, Ltd and Sight Sciences GmbH. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period. The most significant estimates relate to the allowance for credit losses, inventory excess and obsolescence, the selection of useful lives of property and equipment, determination of the fair value of stock option grants, and provisions for income taxes and contingencies. Management evaluates its estimates and assumptions on an ongoing basis using historical experience, existing and known circumstances, authoritative accounting guidance, and other factors management believes to be reasonable, including an assessment of current and anticipated future macroeconomic conditions, and makes adjustments when facts and circumstances dictate. These estimates are based on information available as of the date of the financial statements. Actual results could differ from these estimates, which may result in material effects on the Company’s financial condition, results of operations and liquidity. To the extent there are differences between these estimates and actual results, the Company’s consolidated financial statements may be materially impacted.

Fair Value of Financial Instruments

The Company’s financial instruments typically consist of cash and cash equivalents, accounts receivable, accounts payable, accrued and other current liabilities, common stock warrants, and short-term and long-term debt. The Company's cash equivalents are comprised of U.S. treasury securities that are classified as held-to-maturity and recorded at amortized cost in the financial statements, and money market accounts. The Company states accounts receivable, accounts payable, and accrued and other current liabilities at their carrying value, which approximates fair value due to the short time to the expected receipt or payment. The carrying amount of the Company’s debt approximates its fair value as the effective interest rate approximates market rates currently available to the Company.

Concentration of Credit and Supply Chain Risk

Financial instruments that subject the Company to concentration of credit risk consist of cash and cash equivalents and accounts receivable. The Company’s cash and cash equivalents are deposited with a high-quality financial institution. Deposits at this institution may, at times, exceed federally insured limits. Management believes that this financial institution is financially sound and, that minimal credit risk exists with respect to these deposits. The Company has not experienced any losses on its deposits of cash and cash equivalents.

The Company relies on third-party contract manufacturers for the manufacture of all of its commercial products. The Company also depends on a limited number of single source suppliers to provide some of the components, accessories and materials used in the manufacture and assembly of its commercial products. Any failure on the part of the Company’s manufacturers or suppliers to timely provide products or components to the Company, or any other disruptions in the Company’s supply chain, would have a negative impact on the Company’s financial condition, results of operations and liquidity.

For the years ended December 31, 2024 and 2023, there wereno customers that represented 10% or more of the Company's revenue.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of 90 days or less, when purchased, to be cash and cash equivalents. As of December 31, 2024 and 2023, cash and cash equivalents includes $106.5 million and $129.1 million of U.S. treasury securities that are classified as held-to-maturity and recorded at amortized cost in the financial statements, respectively. As of December 31, 2024 and 2023, the remainder of cash and cash equivalents consists of checking and savings deposits, as well as money market funds, recorded at cost, which approximates fair value. The Company’s cash balances exceed those that are federally insured. To date, the Company has not recognized any losses as a result of uninsured balances.

Accounts Receivable and Provision for Credit Losses

Accounts receivable are stated at invoiced amounts, net of estimated allowance for credit losses. The Company’s provision for credit losses methodology for accounts receivables is developed using its historical collection experience, current and anticipated future macroeconomic conditions, and a review of the current aging status and financial condition of its customers. The Company uses its reasonable judgment, based on the available information, and records a provision against amounts due to reduce the receivable to the amount that is expected to be collected. These specific provisions are reevaluated and adjusted as additional information is received that impacts the amount reserved. To date, the Company has not experienced material credit-related losses. The allowance for credit losses was $0.7 million and $1.2 million as of December 31, 2024 and 2023, respectively.

Inventory, net

Inventory represents raw materials and finished goods purchased from third-party suppliers and manufacturers. Inventory is valued at the lower of cost or net realizable value. Cost is determined using actual costs on a first-in, first-out basis for all inventory. 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. As of December 31, 2024, the Company’s inventory balance consisted of finished goods of $5.6 million and raw materials of $1.0 million. As of December 31, 2023, the Company’s inventory consisted of finished goods of $7.3 million and raw materials of $1.0 million.

The Company regularly reviews inventory quantities in consideration of its actual inventory loss experiences, projected future demand for its products, and remaining shelf life to record a provision for excess and obsolete inventory when appropriate. The Company’s policy is to write down inventory that has become obsolete, inventory that has a cost basis in excess of the lower of cost or expected net realizable value, and inventory in excess of expected product demand. The estimate of excess quantities requires the Company to exercise judgment and is primarily dependent on the Company’s estimates of future demand for the particular product. As of December 31, 2024 and 2023, the Company has reserves for excess and obsolete inventory of $0.3 million and $0.5 million.

Property and Equipment, net

Property and equipment are recorded at cost, less accumulated depreciation. Repairs and maintenance costs are expensed as incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, typically two to five years. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the consolidated balance sheets and any resulting gain or loss is reflected in the consolidated statements of operations and consolidated loss in the period realized.

Construction-in-process assets consist primarily of tools and equipment used to manufacture the Company’s products that have not yet been placed in service. These assets are stated at cost and are not initially depreciated. Once the assets are placed into service, assets are reclassified to the appropriate asset class based on their nature, and are depreciated in accordance with their respective useful lives as indicated above.

Impairment of Long-Lived Assets

The Company assesses long-lived assets, including property and equipment, whenever events or changes in business circumstances indicate that the carrying amount of such assets may not be fully recoverable. If indicators of impairment exist, an impairment loss may 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. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary. The Company didnot record any impairment of long-lived assets for the years ended December 31, 2024 and 2023.

Leases

Contractual arrangements that meet the definition of a lease are classified as operating or finance leases and are recorded on the consolidated balance sheets as both a right-of-use asset (“ROU asset”) and lease liability, calculated by discounting fixed lease payments over the lease term at the Company’s incremental borrowing rate (“IBR”). Lease 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. The Company currently does not have any finance leases.

As the implicit rates for the Company's operating leases are not determinable, the Company uses an IBR based on the information available at the respective lease commencement dates to determine the present value of future payments. IBR represents the interest rate that the Company would expect to incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis with similar terms and payments, in an economic environment where the leased asset is located.

The Company does not recognize lease ROU assets or lease liabilities for short-term leases, if any, having initial terms of 12 months or less at lease commencement as an accounting policy election. The Company recognizes rent expense on a straight-line basis over the lease term for these short-term leases.

Common Stock Warrants

The common stock warrants issued by the Company pursuant to the Hercules Loan Agreement (as defined in Note 5. Debt) are classified in equity, as they meet all the criteria for equity classification. The fair value of the common stock warrants was calculated using the Black-Scholes option pricing method and are recorded at fair value upon issuance in additional paid-in capital in the consolidated balance sheets. These common stock warrants are not remeasured after the issuance date.

The Company’s unissued common stock warrants under the Hercules Loan Agreement are classified as liabilities in the consolidated balance sheets. These common stock warrants are remeasured at each reporting date using the BackSolve Method, with the gain or loss recorded in the Company’s consolidated statements of operations and comprehensive loss.

See Note 5. Debt and Note 7. Stockholders' Equity, for additional information regarding the common stock warrants.

Revenue Recognition

The Company applies the following five steps to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its arrangements:

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Identify the contract with a customer,

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Identify the performance obligations in the contract,

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Determine the transaction price,

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Allocate the transaction price to performance obligations in the contract, and

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Recognize revenue as the performance obligations are satisfied.

Revenue recognized during the years ended December 31, 2024 and 2023 relates entirely to the sale of the Company’s products within the Surgical Glaucoma and Dry Eye segments. These sales are primarily to hospitals, medical centers, and eyecare professionals ("ECPs") throughout the United States. Sales are generally made through sales representatives and distributors.

The Company’s revenue arrangements consist of a single performance obligation. Revenue is recognized at the point in time when control of the promised goods transfer to the Company’s customers. Revenue is measured at the amount of consideration expected to be received in exchange for the transfer of goods. The amount of revenue that is recognized is based on the transaction price, which represents the invoiced amounts and includes estimates of variable consideration, such as discounts, where applicable. The Company does not offer right of return, except in the case where items are defective as manufactured, and the Company does not typically provide customers with a right to a refund. The amount of variable consideration included in the transaction price may be constrained and is included only to the extent it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period. Payment terms, typically 30 days, are offered to customers and do not include a significant financing component. The Company extends credit to customers based upon their financial condition and credit history and generally require no collateral. The Company does not have any contract balances related to product sales.

Shipping and handling costs incurred for the delivery of goods to customers are included in cost of goods sold. In cases where the Company bills shipping and handling costs to customers, the Company classifies those amounts in net revenue. As a practical expedient, the Company recognizes the incremental costs of obtaining contracts, such as sales commissions, as an expense when incurred since the amortization period of the asset the Company otherwise would have recognized is one year or less. Sales commissions are recorded within selling, general and administrative expenses in the consolidated statements of operations and comprehensive loss.

Cost of Goods Sold

The Company purchases products, components, accessories, and materials from third-party suppliers and manufacturers. Cost of goods sold consists primarily of costs related to materials, manufacturing overhead costs, reserves for excess, and obsolete and non-sellable inventories. Cost of goods sold also includes depreciation expense for production equipment and certain direct costs, such as shipping and handling costs.

Research and Development

The Company expenses research and development costs as incurred. Research and development expenses consist primarily of 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. 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.

Selling, General and Administrative

Selling, general and administrative expenses include compensation (including stock-based compensation) and employee benefits for executive management, commercial, finance, and human resources personnel; facility costs (including rent); bad debt costs; professional service fees; and other general overhead costs, including depreciation.

Advertising Expense

The Company expenses advertising costs as incurred. Advertising expenses for fiscal years 2024 and 2023 were $1.4 million and $2.1 million, respectively, included in selling, general and administrative expenses in the consolidated statements of operations and comprehensive loss.

The Company's equity incentive plan permits the grant of stock-based awards, such as stock options and restricted stock units ("RSUs"), to employees, directors and consultants. The Company’s employee stock purchase plan (“ESPP”) allows employees to purchase stock from the Company at a discount. The Company measures and records the expense related to stock-based payment awards based on the fair value of those awards as determined on the date of grant. The Company recognizes stock-based compensation expense over the requisite service period of the individual grant, which is generally equal to the vesting period and uses the straight- line method to recognize stock-based compensation, and accounts for forfeitures as they occur.

The Company selected the Black-Scholes option-pricing model as the method for determining the estimated fair value for stock options and awards granted pursuant to the ESPP. The Black-Scholes option-pricing model requires the use of highly subjective and complex assumptions, which determine the fair value of share-based awards, including the stock option’s expected term, expected volatility of the underlying stock, risk-free interest rate and expected dividend yield.

The fair value of RSU awards is determined based on the number of units granted and the closing price of the Company's common stock as of the grant date.

Investment Income

The Company’s investment income consists primarily of interest and amortization on held-to-maturity investments in treasury securities. All treasury securities are purchased with maturities of less than 90 days and recorded at amortized costs in the financial statements.

Currency Remeasurement

Foreign currency transaction gains and losses are recorded in other income (expense), net in the Company’s consolidated statements of operations and comprehensive loss. Such amounts have not been material for all periods presented.

Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Management assesses the likelihood that the resulting deferred tax assets will be realized. A valuation allowance is provided when it is more likely than not that some portion or all off a deferred tax asset will not be realized. Due to the Company's historical operating performance and the recorded cumulative net losses in prior fiscal periods, the net deferred tax assets have been fully offset by a valuation allowance.

The Company recognizes uncertain income tax positions at the largest amount that is more likely than not to be sustained upon audit by relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Changes in recognition or measurement are reflected in the period in which judgment occurs. The Company's policy is to recognize interest and penalties related to the underpayment of income tax as a component of provision for income taxes.

Comprehensive Loss

Comprehensive loss represents all changes in stockholders’ equity except those resulting from distributions to stockholders. There have been no items qualifying as other comprehensive income (loss) and, therefore, for all periods presented, there was no difference between comprehensive loss and the Company’s reported net loss.

Net Loss Per Share Attributable to Common Stockholders

Basic and diluted net loss per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities. Basic and diluted net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period without consideration of potentially dilutive securities. The Company’s potentially dilutive shares, which consist of outstanding common stock options and RSUs, were excluded in the computation of diluted net loss per share for the period as the result would have been anti-dilutive due to the Company's net loss position in each period.

Emerging Growth Company and Smaller Reporting Company

The Company is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, as well as a "smaller reporting company, as defined by the Securities and Exchange Commission per Rule 12b-2 of the Exchange Act. As such the Company is eligible for exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies or smaller reporting companies, including reduced reporting and extended transition periods to comply with new or revised accounting standards for public business entities. The Company has elected to avail themselves of this exemption and, therefore, will not be subject to the timeline for adopting new or revised accounting standards for public business entities that are not emerging growth companies, and will follow the transition guidance applicable to private companies.

Recent Accounting Pronouncements

Accounting Standards Adopted

In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The ASU updates reportable segment disclosure requirements, primarily through requiring enhanced disclosures about significant segment expenses and information used to assess segment performance. The ASU is effective on a retrospective basis for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company adopted ASU 2023-07 with no material impact on the Company's consolidated financial statements.

Accounting Standards Not Yet Adopted

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The ASU includes amendments requiring enhanced income tax disclosures, primarily related to standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. The guidance is effective for fiscal years beginning after December 15, 2024, with early adoption permitted, and should be applied either prospectively or retrospectively. The Company is currently evaluating the impact of adopting this ASU on its financial statements and related disclosures.

In November 2024, the FASB issued ASU No. 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures. The ASU requires additional disclosure in the notes the financial statements of specified information about certain expenses such as purchases of inventory, employee compensation, depreciation, intangible asset amortization, and depreciation and other expenses which are presented in the face of the income statement within continuing operations. This ASU is effective for annual periods beginning after December 15, 2026, and interim periods within annual periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact this new standard will have on the related disclosures in the consolidated financial statements.

As of December 31, 2024, there are no additional ASUs issued and not yet adopted that are expected to have a material impact on the Company's financial statements and related disclosures.

Note 3. Fair Value Measurements

The Company reports all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The authoritative guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

Level 1—Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities 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 related assets or liabilities.

Level 3—Inputs are unobservable inputs for the asset or liability. The level in the fair value hierarchy within which a fair value measurement in its entirety is based on the lowest-level input that is significant to the fair value measurement in its entirety.

The Company's cash and cash equivalents included Level 1 investments in U.S. treasury securities and money market funds. The Company had money market funds of $6.4 million and $5.4 million as of December 31, 2024 and 2023, respectively. In addition, the Company had investments in U.S. treasury securities of $106.5 and $129.1 million as of December 31, 2024 and 2023, respectively. These U.S. treasury securities are classified as held-to-maturity and all have been purchased with original maturities of 90 days or less. Held-to-maturity debt securities are recorded at amortized cost in the financial statements.

The Company measures the fair value of outstanding debt for disclosure purposes on a recurring basis. As of December 31, 2024 and 2023, total debt of $39.4 million and $33.9 million is reported at amortized cost, respectively. This outstanding debt is classified as Level 2 as it is not actively traded. The amortized cost of the outstanding debt approximates the fair value.

The Company measures the fair value of the unissued common stock warrants to be issued pursuant to the Hercules Loan Agreement using the Black-Scholes option pricing method. These are classified as Level 3 liabilities, with an overall value of less than $0.1 million as of December 31, 2024. The unissued warrants are remeasured at each reporting date following execution of the Hercules Loan Agreement.

The financial statements as of December 31, 2024 and 2023, do not include any assets or liabilities that are measured at fair value on a nonrecurring basis.

Note 4. Balance Sheet Components

Property and Equipment, Net

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

Depreciation expense was $0.5 million and $0.6 million for the years ended December 31, 2024 and 2023 respectively.

Accrued and Other Current Liabilities

Accrued and other current liabilities consist of the following (in thousands):

Other Noncurrent Liabilities

Other noncurrent liabilities consist of the following (in thousands):

Note 5. Debt

Hercules Capital Loan Agreement

In January 2024, the Company entered into the Hercules Loan Agreement, which provides for a maximum $65.0 million credit facility. An initial tranche of $35.0 million (the “Initial Loan”) was funded under the credit agreement on January 22, 2024 (the “Closing Date”). On December 10, 2024, we consummated the Tranche 1(b) Drawdown (together with the Initial Loan, the "Tranche I Commitment"). In addition to the Initial Loan and Tranche 1(b) Drawdown, the Hercules Loan Agreement provides additional tranches available to the Company (the “Tranche Loans,” and together with the Initial Loan, the “Term Loans). Tranche 2 consists of $10.0 million available to draw upon through September 15, 2025, contingent upon the achievement of certain performance milestones. The Company does not currently anticipate achieving these milestones prior to the deadline of June 30, 2025 performance deadline. Tranche 3 consists of $15.0 million available for us to draw through the interest only period in increments of $5.0 million, subject to the sole approval of Hercules' investment committee.

On December 10, 2024, the Company consummated the drawdown of the $5.0 million Tranche 1(b) Term Loan Advance (the “Tranche Loan”) under the Hercules Loan Agreement. Upon consummation of the Tranche Loan, the aggregate principal amount of borrowings under the Loan Agreement was $40.0 million.

The Hercules Loan Agreement provides for a maturity date of July 1, 2028, with an interest only period running for the first 30 months of the agreement term, extendable for an additional six months for a total of 36 months upon the achievement of certain milestones. The Term Loans accrue interest at a floating annual rate equal to the greater of 10.35% or the Wall Street Journal prime rate plus 2.35%, with the interest rate under the Term Loans equal to 10.35% at December 31, 2024. The final payment fee is set at 5.95% of the funded balance, which is recognized as a debt discount and is being accreted into the amortization of debt issuance costs using the effective interest rate method over the term of the loan.

In conjunction with the funding of the Initial Loan, the Company issued warrants to the Lenders to purchase up to an aggregate of 135,686 shares of its common stock at an exercise price of $5.159 per share, which were recorded and classified as equity. On December 10, 2024, upon the funding of the Tranche 1(b) Drawdown, the Company issued additional warrants to the Lenders to purchase 26,095 shares of its common stock at an exercise price of $3.83. Each warrant is exercisable for a period of seven years from the date of issuance. If the additional Term Loans are funded, the Company will be obligated to issue to the Lenders additional warrants to purchase common stock in an amount equal to 2.0% of the funded balance of each tranche, divided by the exercise price on the date the Company draws funds from such tranche. The exercise price will be calculated using the five-day volume-weighted average stock price as of such date. See Note 7, Stockholders' Equity, for additional information regarding these common stock warrants.

The obligations under the Hercules Loan Agreement are guaranteed by the Company and its future subsidiaries, subject to exceptions for certain foreign subsidiaries. The obligations under the agreement are secured by substantially all of the Company's assets, including its material intellectual property. Additionally, the Company is subject to customary affirmative and negative covenants, including covenants that limit or restrict the ability of the Company to, among other things, incur indebtedness, grant liens, merge or consolidate, make investments, dispose of assets, make acquisitions, pay dividends or make distributions, repurchase stock and enter into certain transactions with affiliates, in each case subject to certain exceptions. The Company is also subject to certain minimum cash and revenue covenants under the Hercules Loan Agreement. The Company was in compliance with all covenants as of December 31, 2024.

MidCap Loan Agreement

The Company previously entered into credit and security agreements with certain entities affiliated with MidCap Financial Services (such entities collectively, “MidCap”), which provided for a $35.0 million senior secured term loan (the “MidCap Term Loan”). In January 2024, the Company terminated the Amended and Restated Credit and Security Agreement (Term Loan) (the “MidCap Term Loan Agreement”) evidencing the MidCap Term Loan and paid off in full the secured obligations thereunder in connection with its entry into the Hercules Loan Agreement. The Company recorded a loss on debt extinguishment of $2.0 million during the year ended December 31, 2024.

The commitment obligations under the MidCap Term Loan Agreement were guaranteed by the Company’s current and future subsidiaries, subject to exceptions for certain foreign subsidiaries, and secured by substantially all assets of the Company, including material intellectual property. The MidCap Term Loan Agreement had a maturity date of November 1, 2025. In addition, the MidCap Term Loan Agreement provided for a stated floating interest rate that was equal to the reserve-adjusted Secured Overnight Finance Rate, plus 7.00%, and a provision for a final payment fee of 6.0% of the $35.0 million MidCap Term Loan balance, which was recorded as a long-term interest payable as of December 31, 2023.

Maturities Schedule

Long-term and short-term debt, as of December 31, 2024 and 2023 was as follows (in thousands):

The repayment schedule relating to the principal amount of the Hercules Term Loan as of December 31, 2024, is as follows (in thousands):

Note 6. Commitments and Contingencies

Operating Lease Obligations

The Company has various operating leases, which include facility leases and equipment leases. Operating leases are recorded on the consolidated balance sheets as both a right-of-use asset ("ROU asset") and lease liability. which are recognized based on the present value of the future minimum lease payments over the lease term. In determining the present value of these lease payments, the Company uses its incremental borrowing rate ("IBR") based on the information available at the lease commencement date if the rate implicit in the lease is not readily determinable. The Company’s IBR represents the interest rate that the Company would expect to incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis with similar terms and payments, in an economic environment where the leased asset is located. In determining the lease term, the Company includes all renewal options that are reasonably probable to be executed.

The Company leases its corporate headquarters in Menlo Park, California. The lease commenced in August 2021 and was originally for a term of 37 months from the commencement date. In December 2023, the Company entered into an amendment to the lease, extending the lease term an additional 26 months. Upon signing the amendment, the Company recorded an aggregate lease ROU asset and lease liability of $1.2 million. The lease ROU asset and corresponding lease liability were estimated using a weighted-average IBR of 11.40%. Total base rent for the remaining 34 months under the amended lease agreement is approximately $1.5 million.

During the fourth quarter of 2022, the Company entered into a supply agreement with an expected term of approximately 18 months. The supply agreement contained provisions that, when evaluated, indicated an embedded lease was present and the Company recorded an aggregate lease ROU asset and lease liability of $0.7 million, which were estimated using a weighted-average IBR of 10.75%. Total base rent under the agreement is approximately $0.7 million.

The Company recognizes rent expense on a straight-line basis over the noncancelable lease term. The Company’s rent expense was $0.8 million and $1.2 million for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, the weighted average remaining lease term for the Company's leases was 1.8 years.

Operating lease expense and supplemental cash flow information related to operating leases for the years ended December 31, 2024 and 2023 were as follows (in thousands):

Aggregate future minimum lease payments at December 31, 2024 under these noncancelable operating leases were as follows (in thousands):

Legal Proceedings

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) (the “Court”) alleging that Ivantis, Inc. (“Ivantis”) directly and indirectly infringes the Company’s 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. On August 1, 2022, the Company filed an amended complaint alleging that Alcon Inc., Alcon Vision, LLC and Alcon Research, LLC (collectively, “Alcon”) infringe the four originally asserted patents by making, using, selling, and offering for sale the Hydrus® Microstent, and that all defendants also infringe U.S. Patent No. 11,389,328. The defendants asserted counterclaims requesting declaratory judgments that the Company’s asserted patents-in-suit are not infringed and/or are invalid. In September 2022, Ivantis and Alcon filed petitions with the U.S. Patent Office seeking inter partes review of U.S. Patent Nos. 8,287,482, 9,370,443, 9,486,361, and 10,314,742 (IPR2022-01529, IPR2022-01530, IPR2022-01533, IPR2022-01540), each of which the U.S. Patent Office denied for raising prior art references and invalidity arguments that were cumulative of those previously considered by the U.S. Patent Office. On April 26, 2024, at the conclusion of a five-day jury trial, the Company was awarded a positive jury trial verdict of $34 million, comprised of $5.5 million in lost profits damages and $28.5 million in royalty damages for commercial sales of the Hydrus® Microstent for the period between its commercial launch through trial. The patents at issue were U.S. Patent Nos. 8,287,482, 9,370,443, and 11,389,328. In December 2024, the Court held an in-person hearing to hear the parties’ oral arguments on their post-trial briefings at the conclusion of which, the Court ordered the parties to engage in non-binding mediation. In early March 2025, we and Alcon informed the Court that we had not resolved our dispute through mediation, and asked the Court to decide the parties’ post-trial motions and enter a judgement, which judgement will be subject to appeal. 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.

In addition to the foregoing, from time to time, the Company is subject to legal claims, regulatory matters and contingencies in the ordinary course of business. Accruals for these matters are reflected in the financial statements based on management’s assessment, including the advice of legal counsel, of the expected outcome of these matters. Liabilities for estimated losses are accrued if the potential losses from any legal proceedings, regulatory matters or contingencies 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 legal claims, regulatory matters and contingencies, and may revise its previous estimates, which could materially affect the Company’s results of operations in a given period.

Except as described above, as of December 31, 2024 and 2023, the Company was not a party to any legal proceedings, regulatory matters, or other disputes or claims which, if determined adversely, would, individually or taken together, have a material adverse effect on the Company’s business, financial condition, operating results, liquidity, or future prospects.

Indemnification

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 December 31, 2024 and 2023.

Note 7. Stockholders' Equity

Common Stock

The Company’s certificate of incorporation provides for 200,000,000 authorized shares of common stock, par value $0.001 per share, and 10,000,000 authorized shares of preferred stock, par value $0.001 per share. The holders of common stock are entitled to receive dividends whenever funds are legally available, when and if declared by the board of directors. As of December 31, 2024, no dividends have been declared. Each share of common stock is entitled toone vote.

At December 31, 2024 and 2023, the Company had reserved common stock for future issuances as follows:

Common Stock Warrants

On January 22, 2024, in conjunction with the funding of the Initial Loan under the Hercules Loan Agreement, the Company issued common stock warrants to the Lenders to purchase up to an aggregate of 135,686 shares of our common stock at an exercise price of $5.159 per share. On December 10, 2024, upon the funding of the Tranche I(b) Loan, the Company issued additional warrants to the Lenders to purchase 26,095 shares of its common stock at an exercise price of $3.83. Each warrant is exercisable for up to seven years from the date of issuance. The warrants are classified as equity. During the year ended December 31, 2024, the fair value of the issued warrants recorded was $0.7 million, which was calculated using the Black-Scholes option-pricing model. These warrants were recorded at fair value upon their issuance in additional paid-in capital in the consolidated balance sheet. The issued warrants are not remeasured after the issuance date.

If the additional Term Loans are funded, the Company will be obligated to issue to the Lenders additional warrants to purchase common stock in an amount equal to 2.0% of the funded balance of each tranche, divided by the exercise price on the date the Company draws funds from such tranche, or the issuance date. The exercise price will be calculated using the five-day volume-weighted average stock price as of such date.

The unissued warrants do not meet the requirements for classification in equity, and are recorded as liabilities in other noncurrent liabilities in the financial statements. The fair value of the unissued common stock warrants was calculated using the Black-Scholes option-pricing method and they were recorded at fair value upon the funding of the Hercules Loan Agreement. The unissued warrants are remeasured at each reporting date after the issuance date. According to the fair value measurement criteria, the unissued warrants are considered Level 3 liabilities, with an overall value of less than $0.1 million as of December 31, 2024.

Note 8. Equity Incentive Plans

2011 Stock Option Plan and 2021 Equity Incentive Plan

In 2011, the Company approved the 2011 Stock Option Plan (the “2011 Plan”) that provided for the granting of stock options to employees and nonemployees of the Company.

In July 2021, the board of directors and stockholders adopted and approved the 2021 Incentive Award Plan, (the “2021 Plan”). Under the 2021 Plan, the Company has the ability to issue incentive stock options ("ISOs"), nonqualified stock options ("NSOs"), stock appreciation rights, dividend equivalent rights, restricted stock awards, and RSUs.

Stock options under the 2021 Plan can typically be granted for periods of up to ten years. For stock options granted to a grantee who, at the time the option is granted, owned stock representing more than 10% of the voting power of all classes of stock of the Company (or any parent or subsidiary of the Company), the term of the stock option may be granted for periods of up to five years. The ISOs and NSOs will be granted at a price per share not less than the fair value at the date of grant. The exercise price of a stock option granted to a 10% stockholder shall be not less than 110% of the grant date fair value of the shares. Stock options granted to new hires generally vest over a four-year period, with 25% of the shares vesting on the first anniversary of the grant date and the remaining shares vesting in 36 equal monthly installments thereafter; stock options granted as merit awards generally vest in 48 equal monthly installments following the grant date.

RSUs are share awards that entitle the holder to receive shares of common stock upon vesting and settlement of the awards. RSUs granted generally vest over a four-year period with straight-line vesting in equal amounts, either in annual or quarterly installments.

The Company initially reserved 5,200,000 shares of common stock for future issuance under the 2021 Plan. This initial reserve is subject to annual increase on the first day of each calendar year beginning on January 1, 2022 and ending on and including January 1, 2031. These annual increases are equal to the lesser of (i) 5% of the aggregate number of shares of common stock outstanding on the final day of the immediately preceding calendar year and (ii) such smaller number of shares of common stock as determined by the Board, subject to certain limitations. Pursuant to the evergreen provision, the initial share reserve was increased by 2,456,568 and 2,414,907 shares on January 1, 2024 and 2023, respectively.

At December 31, 2024 and 2023, there were 5,931,302 shares and 6,033,176 shares, respectively, of common stock available for issuance under the 2021 Plan.

The 2011 Plan was superseded by the 2021 Plan at the time of the initial public offering of the Company's common stock, which closed on July 15, 2021, and no further grants have been made under the 2011 Plan from the date the 2021 Plan became effective. The terms under the 2011 Plan are consistent with those described above for the 2021 Plan.

Stock Option Awards

The following table summarizes stock option activity under the 2011 and 2021 Plans:

The weighted-average grant-date fair values of stock options granted during the year ended December 31, 2024 and 2023 was$2.71 per shareand $3.78 per share, respectively. The aggregate intrinsic value of stock options exercised was$0.9 million during the year ended December 31, 2024. The aggregate intrinsic value was calculated as the difference between the exercise prices of the underlying stock options and the estimated fair value of the common stock on the date of exercise.

During the years ended December 31, 2024 and 2023, the Company recorded stock-based compensation expense of $7.8 million and $8.5 million, respectively, related to stock options. As of December 31, 2024, the unrecognized stock-based compensation of unvested stock options was $5.6 million, which is expected to be recognized over a weighted-average period of 1.2 years.

Determination of Fair Value

The Company estimated the fair value of stock options using the Black-Scholes option-pricing model. The fair value of stock options is recognized on a straight-line basis over the requisite service periods of the awards. The fair value of stock options was estimated using the following weighted-average assumptions:

Expected Term

The expected term is calculated using the simplified method, which is available if there is insufficient historical data about exercise patterns and post-vesting employment termination behavior. The simplified method is based on the vesting period and the contractual term for each grant or for each vesting tranche for awards with graded vesting. The midpoint of the vesting date and the maximum contractual expiration date is used as the expected term under this method. For awards with multiple vesting tranches, the time from grant until the midpoints for each of the tranches may be averaged to provide an overall expected term.

Expected Volatility

The Company used an average historical stock price volatility of a peer group of publicly traded companies to be representative of its expected future stock price volatility, as the Company did not have any trading history for its common stock. For purposes of identifying these peer companies, the Company considered the industry, stage of development, size, and financial leverage of potential comparable companies. For each grant, the Company measured historical volatility over a period equivalent to the expected term.

Risk-Free Interest Rate

The risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero-coupon issues with remaining terms equivalent to the expected term of a stock award.

Expected Dividend Rate

The Company has not paid, and does not anticipate paying any dividends in the near future. Accordingly, the Company has estimated the dividend yield to be 0%.

Restricted Stock Units

RSUs are share awards that entitle the holder to receive shares of common stock upon vesting and settlement. RSUs cannot be transferred, and the awards are subject to forfeiture if the holder’s employment terminates prior to the release of the vesting restrictions. RSUs granted generally vest over afour-year period with straight-line vesting in equal amounts (either in annual or quarterly installments), provided the employee remains continuously employed with the Company. The fair value of an RSU is equal to the closing price of the Company’s common stock on the grant date.

The following table summarizes RSU activity under the 2021 Plan:

During the years ended December 31, 2024 and 2023, the Company recorded stock-based compensation of $8.7 million and $5.5 million, respectively, related to RSUs. As of December 31, 2024, the unrecognized stock-based compensation associated with unvested RSUs was $19.2 million, which is expected to be recognized over a weighted-average period of 2.6 years.

Employee Stock Purchase Plan

In July 2021, the board of directors and stockholders adopted and approved the 2021 Employee Stock Purchase Plan (the “ESPP”). The ESPP permits participants to purchase shares of common stock at a discount through payroll deductions of up to a specified percentage of their eligible compensation. Shares of common stock are offered during two offering periods annually, each running for six-months, with the first offering period typically beginning in the second quarter, and the second offering period typically beginning in the fourth quarter. The purchase of shares for participants in the ESPP occurs at the conclusion of each offering period.

The Company initially reserved 850,000 shares of common stock for future issuance under the ESPP. This initial reserve is subject to annual increase on the first day of each calendar year beginning on January 1, 2022 and ending on and including January 1, 2031. These annual increases shall be equal to the lesser of (i) 1% of the aggregate number of shares of common stock outstanding on the final day of the immediately preceding calendar year and (ii) such smaller number of shares of common stock as determined by the Board, subject to certain limitations. Pursuant to the evergreen provision, the initial share reserve was increased by 491,313 and 482,981 shares on January 1, 2024 and 2023, respectively.

As of December 31, 2024 and 2023, there were 1,631,076 shares and 1,488,227 shares of common stock available for issuance under the ESPP.

For the year ended December 31, 2024, participants in the ESPP purchased 348,464 shares for a total of $0.8 million. As of December 31, 2024, the Company has collected payroll withholdings of $0.1 million in the current offering period for the purchase of shares under the ESPP. For the years ended December 31, 2024 and 2023, the Company recorded stock-based compensation expense associated with the ESPP of $0.6 million and $0.6 million, respectively.

The fair value of shares to be issued under the ESPP was estimated using the Black-Scholes valuation model with the following assumptions for the years ended December 31, 2024 and 2023, respectively:

The following is a summary of stock-based compensation expense by function (in thousands):

Note 9. Net Loss per Share Attributable to Common Stockholders

Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding for the period. As the Company reported a net loss for the years ended December 31, 2024 and 2023, basic net loss per share is the same as diluted net loss per share as the inclusion of potentially dilutive shares would have been antidilutive if included in the calculation.

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

The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share attributable to common stockholders for the period presented because including them would have been antidilutive:

Note 10. Income Taxes

The Company’s income tax provision for the years ended December 31, 2024 and 2023, consists of the following (in thousands):

Current

The Company's components of income/(loss) before the provision for income taxes includes domestic loss of $51.3 million and $55.7 million for the years ended December 31, 2024 and 2023, respectively. Foreign income for the years ended December 31, 2024 and 2023 was $0.1 million and $0.2 million, respectively.

Deferred tax assets and liabilities reflect the net tax effect of temporary differences between carrying value of assets and liabilities for financial reporting purposes and the tax basis of these assets and liabilities as measured by income tax law. The income tax effect of temporary differences that give rise to deferred tax assets and (liabilities) consist of the following (in thousands):

Internal Revenue Code (IRC) Section 382 limits the use of federal net operating losses and income tax credit carryforwards in certain situations where changes occur in stock ownership of a company. If the Company should have an ownership change of more than 50% of the value of the Company’s capital stock, utilization of the carryforwards could be restricted.

The reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows (in thousands):

A valuation allowance is recorded when it is more likely than not that some portion of the deferred tax assets will not be realized. As of each reporting date, the Company's management considers all evidence, both positive and negative, that could impact management's view with regard to future realization of deferred tax assets. As of December 31, 2024, a full valuation allowance for deferred tax assets was recorded as management believes it is not more likely than not that all of the deferred tax assets will be realized. At December 31, 2024 and 2023, the Company has a net operating loss carryforward for federal income tax purposes of approximately $269.2 million and $235.5 million, respectively. At December 31, 2024 and 2023, the Company has a net operating loss carryforward for state income tax purposes of approximately $245.0 million and $201.6 million, respectively. Of the Company's federal net operating loss carryovers, $14.8 million was generated before January 1, 2018 and is subject to a 20-year carryforward period. The remaining $254.4 million can be carried forward indefinitely but is subject to an 80% taxable income limitation. The pre-2018 federal and certain state net operating losses will begin to expire in 2031 and 2032, respectively, if not utilized.

As of December 31, 2024 and 2023, the Company has federal research and development income tax credit carryforwards of approximately $2.8 million and $1.9 million, respectively. As of December 31, 2024 and 2023, the Company has state research and development income tax credit carryforwards of approximately $2.3 million and $1.7 million, respectively. The Federal income tax credits begin to expire in 2033. The California research and development credits can be carried forward indefinitely. The total amount of uncertain tax positions ("UTP") on research and development tax credits is $1.3 millionand

$0.9 million as of December 31, 2024 and 2023, respectively. The Company does not expect any significant change to the UTP balances in the next 12 months.

As of December 31, 2024 and 2023, the Company has business interest expense carryforwards of $0.0 million and $0.8 million, respectively. Business interest expense can be carried forward indefinitely.

The following table summarizes the activity related to the unrecognized tax benefits (in thousands):

The Company does not have any material uncertain tax positions as of December 31, 2024 and does not expect any significant change to such balances in the next twelve months.

The Company currently has no federal or state tax examinations in progress nor has it had any federal or state tax examinations since its inception. Due to the history of net operating losses, the Company’s federal and state tax returns remain open to examination by the tax authorities.

Note 11. Segment Information

The Company’s Chief Executive Officer, who is the Company’s Chief Operating Decision Maker (“CODM”), manages the business through two operating segments, consistent with how the Company’s Chief Executive Officer: (i) assesses operating performance on a regular basis, (ii) makes resource allocation decisions, and (iii) designates responsibilities of his direct reports. The Company’s operating segments, which also qualify as reportable segments include: (i) Surgical Glaucoma and (ii) Dry Eye. These segments are generally determined based on the decision-making structure and the grouping of similar products and services.

The Company’s CODM uses segment gross profit to assess the operating performance and make resource allocation decisions for each of its segments. Segment gross profit represents revenue reduced by cost of goods sold within each of the operating and reportable segments. The CODM reviews a monthly executive reporting package based on consolidated results of the Company when making decisions about allocating resources and assessing performance. The CODM evaluates actual segment performance to budget and forecast, including monthly sales performance, when allocating capital and personnel.

The Company does not have any intercompany transactions between segments that require elimination. The CODM does not review operating expenses separately for its segments, as the Company does not allocate operating expenses, with many operating costs shared between the segments, and therefore, this is not considered when allocating resources and assessing performance. The Company evaluated the monthly executive reporting package and did not identify any significant or other expenses for disclosure that are not already presented.

In reviewing and assessing segment performance and managing operations, management does not review segment assets. Substantially all of the Company’s revenue is generated from sales in the United States.

The following table summarizes select operating results information for each reportable segment (dollars in thousands):