NOTE

COMMITMENTS AND CONTINGENCIES

Directors and Officers Indemnification

As permitted under Delaware law and in accordance with its bylaws, the Company indemnifies its officers and directors for certain events or occurrences while the officer or director is or was serving at the Company’s request in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. The maximum amount of potential future indemnification is unlimited; however, the Company has a director and officer insurance policy that limits its exposure and

may

enable it to recover a portion of any future payments. The Company believes the fair value of these indemnification agreements is minimal. Accordingly, it has

not

recorded any liabilities for these agreements as of

December 31, 2019.

In the normal course of business, the Company provides indemnification of varying scope under its agreements with other companies, typically its clinical research organizations, investigators, clinical sites, suppliers and others. Pursuant to these agreements, it generally indemnifies, holds harmless, and agrees to reimburse the indemnified parties for losses suffered or incurred by the indemnified parties in connection with the use or testing of its products or product candidates or with any U.S. patent or any copyright or other intellectual property infringement claims by any

third

party with respect to its products. The term of these indemnification agreements is generally perpetual. The potential future payments the Company could be required to make under these indemnification agreements is unlimited. Historically, costs related to these indemnification provisions have been immaterial. The Company also maintains various liability insurance policies that limit its exposure. As a result, it believes the fair value of these indemnification agreements is minimal. Accordingly, the Company has

not

recorded any liabilities for these agreements as of

December 31, 2019.

Legal Matters

From time to time, the Company

may

be involved in various legal proceedings arising in the ordinary course of business. On

July 29, 2019,

Mr. John McGovern, the Company’s former Interim President & Chief Executive Officer and Chief Financial Officer, submitted a demand for arbitration seeking severance in the amount of

$370,000

as well as additional damages in connection with his separation from service with the Company. The Company does

not

believe the claims asserted by Mr. McGovern have any merit, and the Company intends to defend against all such claims. As of

December 31, 2019,

there are

other matters that, in the opinion of management, would ultimately result in liability that would have a material adverse effect on the Company’s financial position, results of operations or cash flows.

Leases

The Company leases office space for its corporate headquarters, located in Emeryville, California. The initial lease term is through

February 28, 2022.

The Company has the option to extend the term of the lease for

one five

(

)-year period upon written notice to the landlord. The Company intends to exercise the renewal option for this lease. The Company also has a lease commitment for laboratory facilities and office space at EmeryStation North in Emeryville, California (“EmeryStation”) under an operating lease that will expire on

October 31, 2020.

There are

stated renewal terms. Per the terms of the agreements, the Company does

not

have any residual value guarantees.

July 2016,

the Company subleased all rentable square feet of real property at EmeryStation (“Sublease Agreement”). The Sublease Agreement commenced

September 8, 2016.

The Sublease Agreement will terminate on

October 21, 2020

and there are

stated renewal terms. Per the terms of the agreement, the sublessee does

not

have any residual value guarantees.

In addition to the facility leases, the Company has leased

vehicles under a master fleet lease agreement. Each lease is for a period of

months, which commenced upon the delivery of the vehicle during the

first

quarter of

2017.

During the

first

quarter of

2019,

in connection with the restructuring of its U.S. sales force, the Company reviewed its fleet leases for impairment. The Company estimated fair value based on the lowest level of identifiable estimated future cash flows and recorded an impairment charge of

$125

thousand, which is included in the Sales and Marketing expenses line item within the Operating Expenses in the Consolidated Statements of Operations and Comprehensive Loss for the year ended

December 31, 2019.

During the

fourth

quarter of

2019,

the Company early terminated the lease agreement related to the idled vehicles, and has

leased vehicles as of

December 31, 2019.

Additionally, the Company had an operating lease for

copiers which expired in

August 2019.

The Company renewed the lease in

October 2019.

The new lease will expire in

October 2022.

The monthly lease payment for the copiers is

not

material.

In calculating the present value of the lease payments, the Company has elected to utilize its incremental borrowing rate based on the original lease term and

not

the remaining lease term. The Company has elected to account for each lease component and its associated non-lease components as a single lease component, and has allocated all of the contract consideration across lease components only. This will potentially result in the initial and subsequent measurement of the balances of the right-of-use assets and lease liability for leases being greater than if the policy election was

not

applied. The leases include variable components (i.e. common area maintenance, excess mileage charges, etc.) that are paid separately from the monthly base payment based on actual costs incurred and therefore were

not

included in the right-of-use assets and lease liability, but are reflected as an expense in the period incurred.

The components of lease costs, lease term and discount rate for the year ended

December 31, 2019

are as follows (in thousands except lease term and discount rate):

Lease Costs

Operating lease cost	$	1,130
Sublease income		(632	)
Net lease cost	$	498

Other information
Operational cash flow used for operating leases	$	1,285


Weighted-average remaining lease term (in years)		1.7
Weighted-average discount rate		12	%

Operating lease expense was

$505

thousand and

$483

thousand for the years ended

December

31,

2018

and

2017,

respectively, under Topic

840.

Future lease payments under non-cancelable leases as of

December 31, 2019

were as follows (in thousands):

2020	$	1,047
2021		454
2022		88
Thereafter		—
Total future minimum lease payments		1,589
Less imputed interest		(154	)
Total	$	1,435

Reported as:
Operating lease liability	$	930
Operating lease liability- non-current		505
Total	$	1,435

Future lease payments to be received under non-cancelable leases as of

December 31, 2019

were as follows (in thousands):

2020	$	577
2021		—
2022		—
Thereafter		—
Total future minimum lease payments	$	577