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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM 10-Q
__________________________________
(Mark one)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 001-39430
__________________________________
https://cdn.kscope.io/748fb6153f086fb78710f64ca7a8b471-gbk0ijuxhbuw000001.jpg
ACUTUS MEDICAL, INC.
(Exact name of registrant as specified in its charter)
__________________________________
Delaware45-1306615
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
2210 Faraday Ave.,
Suite 100, Carlsbad, CA
92008
(Address of principal executive offices)(Zip Code)
(Registrant’s telephone number, including area code) (442) 232-6080
___________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading
Symbol
Name of each exchange on which registered 
Common Stock, par value $0.001 per shareAFIB
The Nasdaq Stock Market LLC
(Nasdaq Capital Market)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ☐    No  
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Class of Common StockOutstanding Shares as of November 9, 2023
Common Stock, $0.001 par value29,303,779


Table of Contents
Acutus Medical, Inc.
Form 10-Q
For the Quarter Ended September 30, 2023
Table of Contents
Page



Table of Contents
Item 1. Financial Statements.
Acutus Medical, Inc.
Condensed Consolidated Balance Sheets
September 30,
2023
December 31,
2022
(in thousands, except share and per share amounts)(unaudited)
ASSETS
Current assets:
Cash and cash equivalents$24,100 $25,584 
Marketable securities, short-term14,375 44,863 
Restricted cash, short-term7,015 5,764 
Accounts receivable8,952 21,085 
Inventory15,728 13,327 
Employer retention credit receivable 4,703 
Prepaid expenses and other current assets2,467 2,541 
Total current assets72,637 117,867 
Property and equipment, net6,611 9,221 
Right-of-use assets, net3,359 3,872 
Intangible assets, net1,433 1,583 
Other assets688 897 
Total assets$84,728 $133,440 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$4,754 $4,721 
Accrued liabilities7,438 9,686 
Contingent consideration, short-term 1,800 
Operating lease liabilities, short-term707 319 
Warrant liability1,868 3,346 
Total current liabilities14,767 19,872 
Operating lease liabilities, long-term3,462 4,103 
Long-term debt34,761 34,434 
Other long-term liabilities32 12 
Total liabilities53,022 58,421 
Commitments and contingencies (Note 12)
Stockholders' equity
Preferred stock, $0.001 par value; 5,000,000 shares authorized as of September 30, 2023 and December 31, 2022; 6,666 shares of the preferred stock, designated as Series A Common Equivalent Preferred Stock, are issued and outstanding as of September 30, 2023 and December 31, 2022
  
Common stock, $0.001 par value; 260,000,000 shares authorized as of September 30, 2023 and December 31, 2022; 29,289,934 and 28,554,656 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively
29 29 
Additional paid-in capital598,842 594,173 
Accumulated deficit(566,212)(518,314)
Accumulated other comprehensive loss(953)(869)
Total stockholders' equity31,706 75,019 
Total liabilities and stockholders' equity$84,728 $133,440 
The accompanying notes are an integral part of these condensed consolidated financial statements.
1

Table of Contents
Acutus Medical, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
(in thousands, except share and per share amounts)(unaudited)
Revenue$5,238 $3,644 $14,696 $11,401 
Cost of products sold8,595 6,951 $23,447 $23,589 
Gross profit(3,357)(3,307)(8,751)(12,188)
Operating expenses (income):
Research and development4,795 5,946 17,712 21,884 
Selling, general and administrative7,432 9,679 26,280 38,207 
Goodwill impairment   12,026 
Restructuring 1,331 475 2,280 
Change in fair value of contingent consideration 198 123 1,153 
Gain on sale of business(2,648) (5,927)(43,575)
Total operating expenses9,579 17,154 38,663 31,975 
Loss from operations(12,936)(20,461)(47,414)(44,163)
Other income (expense):
Loss on debt extinguishment   (7,947)
Change in fair value of warrant liability636 904 1,478 904 
Interest income547 241 2,223 292 
Interest expense(1,409)(1,109)(4,110)(3,810)
Total other income (expense), net(226)36 (409)(10,561)
Loss before income taxes(13,162)(20,425)(47,823)(54,724)
Income tax expense75  75  
Net loss$(13,237)$(20,425)$(47,898)$(54,724)
Other comprehensive income (loss)
Unrealized gain on marketable securities4 39 7  
Foreign currency translation adjustment(66)(351)(91)(904)
Comprehensive loss$(13,299)$(20,737)$(47,982)$(55,628)
Net loss per common share, basic and diluted$(0.45)$(0.72)$(1.65)$(1.93)
Weighted average shares outstanding, basic and diluted29,262,768 28,359,516 29,024,353 28,273,207 
The accompanying notes are an integral part of these condensed consolidated financial statements.
2

Table of Contents
Acutus Medical, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
For the Three Months Ended September 30, 2023
(in thousands, except share amounts)Preferred StockCommon StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders'
Equity
SharesAmountSharesAmount
Balance as of June 30, 20236,666 $ 29,206,570 $29 $597,578 $(552,975)$(891)$43,741 
Unrealized gain on marketable securities— — — — — — 4 4 
Foreign currency translation adjustment— — — — — — (66)(66)
Stock-based compensation— — 83,364 — 1,264 — — 1,264 
Net loss— — — — — (13,237)— (13,237)
Balance as of September 30, 2023 (unaudited)6,666 $ 29,289,934 $29 $598,842 $(566,212)$(953)$31,706 
For the Three Months Ended September 30, 2022
(in thousands, except share amounts)Preferred StockCommon StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive Income (Loss)
Total
Stockholders'
Equity
SharesAmountSharesAmount
Balance as of June 30, 20226,666 $ 28,349,200 $28 $590,429 $(512,997)$(809)$76,651 
Unrealized gain on marketable securities— — — — — — 39 39 
Foreign currency translation adjustment— — — — — — (351)(351)
Stock-based compensation— — 24,588 — 1,867 — — 1,867 
Net loss— — — — — (20,425)— (20,425)
Balance as of September 30, 2022 (unaudited)6,666 $ 28,373,788 $28 $592,296 $(533,422)$(1,121)$57,781 
The accompanying notes are an integral part of these condensed consolidated financial statements.

3

Table of Contents
Acutus Medical, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
For the Nine Months Ended September 30, 2023
(in thousands, except share amounts)Preferred StockCommon StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive Income (Loss)
Total
Stockholders'
Equity
SharesAmountSharesAmount
Balance as of December 31, 20226,666 $ 28,554,656 $29 $594,173 $(518,314)$(869)$75,019 
Unrealized gain on marketable securities— — — — — — 7 7 
Foreign currency translation adjustment— — — — — — (91)(91)
Stock option exercises— — 3,218 — 4 — — 4 
Stock-based compensation— — 686,898 — 4,640 — — 4,640 
Employee stock purchase plan shares issued— — 45,162 — 25 — — 25 
Net loss— — — — — (47,898)— (47,898)
Balance as of September 30, 2023 (unaudited)6,666 $ 29,289,934 $29 $598,842 $(566,212)$(953)$31,706 
For the Nine Months Ended September 30, 2022
(in thousands, except share amounts)Preferred StockCommon StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive Loss
Total
Stockholders'
Equity
SharesAmountSharesAmount
Balance as of December 31, 20216,666 $ 27,957,223 $28 $584,613 $(478,698)$(217)$105,726 
Foreign currency translation adjustment— — — — — — (904)(904)
Stock option exercises— — 98,772 — 66 — — 66 
Stock-based compensation— — 223,567 — 7,435 — — 7,435 
Employee stock purchase plan shares issued— — 94,226 — 182 — — 182 
Net loss— — — — — (54,724)— (54,724)
Balance as of September 30, 2022 (unaudited)6,666 $ 28,373,788 $28 $592,296 $(533,422)$(1,121)$57,781 
The accompanying notes are an integral part of these condensed consolidated financial statements.

4

Table of Contents
Acutus Medical, Inc.
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30,
20232022
(in thousands)(unaudited)
Cash flows from operating activities
Net loss$(47,898)$(54,724)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense3,498 4,653 
AcQMap Systems converted to sales238 266 
Sales-type lease gain(310)(87)
Amortization of intangible assets150 370 
Non-cash stock-based compensation expense4,915 7,497 
(Accretion of discounts) amortization of premiums on marketable securities, net(1,318)237 
Amortization of debt issuance costs325 741 
Amortization of operating lease right-of-use assets513 480 
Loss on debt extinguishment 7,947 
Goodwill impairment 12,026 
Gain on sale of business, net(5,927)(43,575)
Direct costs paid related to sale of business (2,917)
Change in fair value of warrant liability(1,478)(904)
Loss on disposal of property and equipment268  
Change in fair value of contingent consideration123 1,153 
Changes in operating assets and liabilities:
Accounts receivable1,244 420 
Inventory(2,401)1,812 
Employer retention credit receivable4,703  
Prepaid expenses and other current assets420 (4,296)
Other assets495 386 
Accounts payable(2)(2,929)
Accrued liabilities(2,430)(179)
Operating lease liabilities(253)(390)
Other long-term liabilities20 (40)
Net cash used in operating activities(45,105)(72,053)
Cash flows from investing activities
Proceeds from sale of business17,000 50,000 
Purchases of available-for-sale marketable securities(38,521)(33,235)
Sales of available-for-sale marketable securities 18,599 
Maturities of available-for-sale marketable securities70,250 59,642 
Purchases of property and equipment(1,394)(2,473)
Net cash provided by investing activities47,335 92,533 
Cash flows from financing activities
Repayment of debt (44,550)
Penalty fees paid for early prepayment of debt (1,063)
Borrowing under new debt, net of fees 34,825 
Payment of debt issuance costs (626)
Proceeds from the exercise of stock options4 66 
Repurchase of common shares to pay employee withholding taxes(275)(62)
Proceeds from employee stock purchase plan25 182 
Payment of contingent consideration(1,923)(873)
Net cash used in financing activities(2,169)(12,101)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(294)(447)
Net change in cash, cash equivalents and restricted cash(233)7,932 
Cash, cash equivalents and restricted cash, at the beginning of the period31,348 24,221 
Cash, cash equivalents and restricted cash, at the end of the period$31,115 $32,153 
Supplemental disclosure of cash flow information:
Cash paid for interest$3,731 $3,101 
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Supplemental disclosure of noncash investing and financing activities:
Accounts receivable from sale of business$6,111 $ 
Change in unrealized (gain) loss on marketable securities$(7)$ 
Change in unpaid purchases of property and equipment$35 $48 
Contingent consideration escrow release$ $380 
Net book value on AcQMap system sales-type leases$238 $244 
Amount of debt proceeds allocated to warrant liability$ $3,379 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Acutus Medical, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1—Organization and Description of Business
Acutus Medical, Inc. (the “Company”) historically designed, manufactured and marketed a range of tools for catheter-based ablation procedures to treat various arrhythmias. Prior to November 2023, the Company’s product portfolio included novel access sheaths, diagnostic and mapping catheters, ablation catheters, mapping and imaging consoles and accessories, as well as supporting algorithms and software programs.
In November 2023, the Company’s Board of Directors approved a strategic realignment of resources and corporate restructuring (the “Restructuring”). The Company began implementation of a shift in its business model to solely support the manufacturing and distribution of Medtronic Inc.’s (“Medtronic”) left-heart access product portfolio, including to potentially earn earnout payments from Medtronic pursuant to its manufacturing and distribution arrangements with Medtronic. As part of the Restructuring, the Company will wind down its mapping and ablation businesses and will no longer manufacture or distribute the AcQMap Mapping System, the AcQMap 3D Mapping Catheter, the AcQBlate Force-Sensing Ablation Catheter, the AcQGuide Max 2.0 steerable sheath, and associated accessories, and will explore strategic alternatives for these businesses (including a potential sale of related assets). The Company expects that the Restructuring will be substantially complete in the first quarter of 2024. See Note 19 – Subsequent Events – Strategic Realignment of Resources and Corporate Restructuring, below, for further details.
The Company was incorporated in the state of Delaware on March 25, 2011, and is located in Carlsbad, California.
Liquidity, Capital Resources and Going Concern
The Company has limited revenue, and has incurred significant operating losses and negative cash flows from operations since its inception, and anticipates that it will incur significant losses for at least the next several years. As of September 30, 2023 and December 31, 2022, the Company had cash, cash equivalents, restricted cash and marketable securities of $45.5 million and $76.2 million, respectively. For the nine months ended September 30, 2023 and 2022, net losses were $47.9 million and $54.7 million, respectively, and net cash used in operating activities was $45.1 million and $72.1 million, respectively. As of September 30, 2023 and December 31, 2022, the Company had an accumulated deficit of $566.2 million and $518.3 million, respectively, and working capital of $57.9 million and $98.0 million, respectively.
The Restructuring is intended to reduce the Company’s operating expenses and optimize its cash resources by focusing exclusively on the manufacturing and distribution of the left-heart access Products (as defined in Note 3 – Sale of Business, below) to Medtronic to continue to generate revenue from such sales and potentially earn the associated earnout payments. Following the Restructuring, the Company expects its primary uses of capital to be investments in manufacturing and distributing the left-heart access Products to Medtronic and related expenses, raw materials and supplies, legal and other regulatory expenses, general administrative costs and working capital.
On June 30, 2022, Medtronic paid the Company $50.0 million at the first closing (the "First Closing") of the sale of the Company's left-heart access portfolio to Medtronic, of which $4.0 million was paid into an indemnity escrow account for a period of 18 months following the First Closing to secure the Company's indemnification obligations under the asset purchase agreement ("Asset Purchase Agreement") entered into with Medtronic on April 26, 2022. The OEM Earnout (as defined in Note 3 - Sale of Business, below) under the Asset Purchase Agreement with Medtronic was achieved on October 31, 2022, with $20.0 million paid by Medtronic to the Company in November 2022. Additionally, the Transfer Earnout (as defined in Note 3 - Sale of Business, below) under the Asset Purchase Agreement with Medtronic was achieved on December 21, 2022, with $17.0 million paid by Medtronic to the Company in January 2023. Beginning in February 2023, following Medtronic's first commercial sale of the left-heart access Products after the Company's achievement of the OEM Earnout (as defined in Note 3 - Sale of Business, below), the Company became eligible to earn amounts equal to 100%, 75%, 50% and 50%, respectively, of quarterly Net Sales (as defined in the Asset Purchase Agreement) from sales of the left-heart access products achieved by Medtronic each year over four years. During the nine months ended September 30, 2023, the Company earned $6.1 million in contingent consideration based on Medtronic's left-heart access Products sales. As part of the Restructuring, the Company will focus exclusively on the manufacturing and distribution of the left-heart access Products to Medtronic to continue to generate revenue from such sales and potentially earn the associated earnout payments.
Management believes the Company’s current cash, cash equivalents and marketable securities are sufficient to fund operations for at least the next 12 months from the date of this filing.
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Note 2—Summary of Significant Accounting Policies
Basis of Presentation
The condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, the condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These condensed consolidated financial statement results are not necessarily indicative of results to be expected for the full fiscal year or any future period.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Acutus Medical, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates and Assumptions
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and disclosures of contingent assets and liabilities. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue and expenses that are not readily apparent from other sources. Actual results could differ from those estimates.
Segments
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business as one operating segment and reportable segment.
Cash and Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. All of the Company’s cash equivalents have liquid markets and high credit ratings. The Company maintains its cash in bank deposits and other accounts, the balances of which, at times and as of September 30, 2023 and December 31, 2022, exceeded federally insured limits.

Restricted cash consists of (i) deposited cash collateral for the Company’s corporate credit card program and (ii) cash received for the sale of business to Medtronic held in an indemnity escrow account until certain terms of sale are met.
The following table reconciles cash, cash equivalents and restricted cash in the condensed consolidated balance sheets to the total balances as of September 30, 2023 and December 31, 2022 (in thousands):
September 30,
2023
December 31,
2022
(unaudited)
Cash and cash equivalents$24,100 $25,584 
Restricted cash7,015 5,764 
Total cash, cash equivalents and restricted cash$31,115 $31,348 
Marketable Securities
The Company’s marketable securities portfolio consists of investments in money market funds, commercial paper, U.S. treasury securities, Yankee debt securities, and asset-backed securities.
The Company considers its debt securities to be available-for-sale securities. Available-for-sale securities are classified as cash equivalents or short-term or long-term marketable securities based on the maturity date at time of purchase and their availability
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to meet current operating requirements. Marketable securities that mature in three months or less from the date of purchase are classified as cash equivalents. Marketable securities, excluding cash equivalents, that mature in one year or less are classified as short-term available-for-sale securities and are reported as a component of current assets.
Securities that are classified as available-for-sale are measured at fair value with temporary unrealized gains and losses reported in other comprehensive income (loss), and as a component of stockholders’ equity until their disposition or maturity. See Fair Value Measurements, below. The Company reviews all available-for-sale securities at each period end to determine if they remain available-for-sale based on the Company’s current intent and ability to sell the security if it is required to do so. Realized gains and losses from the sale of marketable securities, if any, are calculated using the specific-identification method.
Marketable securities are subject to a periodic impairment review. The Company may recognize an impairment charge when a decline in the fair value of investments below the cost basis is determined to be other-than-temporary. In determining whether a decline in market value is other-than-temporary, various factors are considered, including the cause, duration of time and severity of the impairment, any adverse changes in the investee’s financial condition and the Company’s intent and ability to hold the security for a period of time sufficient to allow for an anticipated recovery in market value. Declines in value judged to be other-than-temporary are included in the Company’s condensed consolidated statements of operations and comprehensive loss. The Company did not record any other-than-temporary impairments related to marketable securities in the Company’s condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2023 and 2022.
Concentrations of Credit Risk and Off-Balance Sheet Risk
Financial instruments that potentially subject the Company to credit risk consist principally of cash, cash equivalents, restricted cash, accounts receivable and marketable securities. The Company has not experienced losses on these accounts, and management believes, based upon the quality of the financial institutions, that the credit risk with regard to these deposits is not significant.
Revenue from Contracts with Customers
The Company accounts for revenue earned from contracts with customers under Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers (“ASC 606”), and ASC 842, Leases ("ASC 842"). The core principle of ASC 606 is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:
Step 1: Identify the contract with the customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when, or as, the company satisfies a performance obligation.

ASC 842 provides guidance on determining whether an agreement contains a lease. ASC 842 defines a lease as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration.
For new customers, the Company places its medical diagnostic equipment, the AcQMap System, at customer sites under evaluation agreements and generates revenue from the sale of disposable products used with the AcQMap System. Disposable products primarily include AcQMap Catheters and AcQGuide Steerable Sheaths. Outside of the United States, the Company also has the Qubic Force Device which generates revenue from the sale of the AcQBlate Force Ablation Catheters. The Company provides the disposable products in exchange for consideration, which occurs when a customer submits a purchase order and the Company provides disposables at the agreed upon prices in the invoice. Generally, customers purchase disposable products using separate purchase orders after the equipment has been provided to the customer for free with no binding agreement or requirement to purchase any disposable products. The Company has elected the practical expedient and accounting policy election to account for the shipping and handling as activities to fulfill the promise to transfer the disposable products and not as a separate performance obligation.
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Additionally, the Company sells the AcQMap System to customers along with software updates on a when-and-if-available basis, as well as the Qubic Force Device and a transseptal crossing line of products which can be used in a variety of heart procedures and does not need to be accompanied with an AcQMap System or Qubic Force Device. Included in the transseptal crossing line of products are primarily the AcQRef Introducer Sheath, the AcQGuide Sheaths and the AcQCross Transseptal Dilator/Needle.
The Company also enters into deferred equipment agreements that are generally structured such that the Company agrees to provide an AcQMap System at no up-front charge, with title of the device transferring to the customer at the end of the contract term, in exchange for the customer’s commitment to purchase disposables at a specified price over the term of the agreement, which generally ranges from two to four years. The Company has determined that such deferred equipment agreements include an embedded sales-type lease. The Company allocates contract consideration under deferred equipment agreements containing fixed annual disposable purchase commitments to the underlying lease and non-lease components at contract inception. The Company expenses the cost of the device at the inception of the agreement and records a financial lease asset equal to the gross consideration allocated to the lease. The lease asset is reduced by payments for minimum disposable purchases that are allocated to the lease.
Lastly, the Company enters into short-term operating leases for the rental of the AcQMap System after an evaluation. These lease agreements impose no requirement on the customer to purchase the equipment, and the equipment is not transferred to the customer at the end of the lease term. The short-term nature of the lease agreements does not result in lease payments accumulating to an amount that equals the value of the equipment nor is the lease term reflective of the economic life of the equipment.
The Company’s contracts primarily include fixed consideration. Generally, there are no discounts, rebates, returns or other forms of variable consideration. Customers are generally required to pay within 30 to 60 days.
The delivery of disposable products are performance obligations satisfied at a point in time. The disposable products are shipped Free on Board (“FOB”) shipping point or FOB destination. For disposable products that are shipped FOB shipping point, the customer has the significant risks and rewards of ownership and legal title to the assets when the disposable products leave the Company’s shipping facilities, at which point the customer obtains control and thus revenue is recognized at that point in time. Revenue is recognized on delivery for disposable products shipped FOB destination.
For direct customers, the installation and delivery of the AcQMap System is satisfied at a point in time when the installation is complete, which is when the customer can benefit and has control of the system. For AcQMap System sold to Biotronik SE & Co. KG (“Biotronik”), the installation is not a performance obligation as it is performed by Biotronik, and therefore the AcQMap System is satisfied at a point in time when they have control of the system. The Company’s software updates and equipment service performance obligations are satisfied evenly over time as the customer simultaneously receives and consumes the benefits of the Company’s performance for these services throughout the service period.
The Company allocates the transaction price to each performance obligation identified in the contract based on the relative standalone selling price (“SSP”). The Company determines SSP for the purposes of allocating the transaction price to each performance obligation based on the adjusted market assessment approach that maximizes the use of observable inputs, which include, but are not limited to, sales transactions where the specific performance obligations are sold separately, Company list prices and specific offers to customers.
Except for the deferred equipment agreements noted above, the Company’s contracts with customers generally have an expected duration of one year or less, and therefore the Company has elected the practical expedient in ASC 606 to not disclose information about its remaining performance obligations. Any incremental costs to obtain contracts are recorded as selling, general and administrative ("SG&A") expense as incurred due to the short duration of the Company’s contracts. The Company’s contract balances consisted solely of accounts receivable as of September 30, 2023 and December 31, 2022.
In May 2020, the Company entered into bi-lateral distribution agreements (the “Bi-Lateral Distribution Agreements”) with Biotronik. Pursuant to the Bi-Lateral Distribution Agreements, the Company obtained a non-exclusive license to distribute a range of Biotronik’s products and accessories in the United States, Canada, China, Hong Kong and multiple Western European countries under the Company’s private label. Moreover, if an investigational device exemption (“IDE”) clinical trial is required for these products to obtain regulatory approval in the United States, or a clinical trial is required for these products to obtain regulatory approval in China, the Company will obtain an exclusive distribution right in such territories for a term of up to five years commencing on the date of regulatory approval if the Company covers the cost of the IDE or other clinical trial and the Company conducts such study within a specified period. Biotronik also agreed to distribute the Company’s products and accessories in Germany, Japan, Mexico, Switzerland and multiple countries in Asia-Pacific, Eastern Europe, the Middle East
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and South America. The Company also granted Biotronik a co-exclusive right to distribute these products in Hong Kong. Each party will pay to the other party a specified transfer price on the sale of the other party’s products and, accordingly, will earn a distribution margin on the sale of the other party’s products.
The foregoing description applies to products that will no longer be manufactured and sold by the Company upon completion of the Restructuring. See Note 1 – Organization and Description of Business – Liquidity, Capital Resources and Going Concern, above.
In 2022, the Company sold its left-heart access transseptal crossing business to Medtronic. In connection with the sale, the Company entered into a distribution agreement (the "Distribution Agreement") with Medtronic, pursuant to which the Company acts as the original equipment manufacturer ("OEM") supplier of these products. The Company will produce and sell the products to Medtronic for a period of up to four years. Revenue is recognized when the title to the products are transferred to Medtronic, which occurs when the products are shipped from our facility (or FOB shipping point). See Note 3 – Sale of Business, below, for further details. As part of the Restructuring, the Company will focus exclusively on the manufacturing and distribution of the left-heart access Products to Medtronic to continue to generate revenue from such sales and potentially earn the associated earnout payments.
The following table sets forth the Company’s revenue for disposables, systems and service/other for the three and nine months ended September 30, 2023 and 2022 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
(unaudited)(unaudited)
Disposables$4,069 $2,857 $11,409 $9,402 
Systems563 476 1,254 823 
Service/Other606 311 2,033 1,176 
Total revenue$5,238 $3,644 $14,696 $11,401 
The following table provides revenue by geographic location for the three and nine months ended September 30, 2023 and 2022 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
(unaudited)(unaudited)
United States$3,347 $1,925 $8,720 $5,985 
Outside the United States1,891 1,719 5,976 5,416 
Total revenue$5,238 $3,644 $14,696 $11,401 
Inventory
Inventory is stated at the lower of cost (first-in, first-out basis) or net realizable value. The Company recorded write-downs for excess and obsolete inventory of $0.3 million and $0.2 million for the three months ended September 30, 2023 and 2022, respectively, and $0.9 million and $2.6 million for the nine months ended September 30, 2023 and 2022, respectively, based on management’s review of inventories on hand, comparisons to estimated future usage and sales, observed shelf-life and assumptions about the likelihood of obsolescence.

Accounts Receivable
Trade accounts receivable are recorded net of allowances for uncollectible accounts. The Company evaluates the collectability of its accounts receivable based on various factors including historical experience, the length of time the receivables are past due and the financial health of the customer. The Company reserves specific receivables if collectability is no longer reasonably assured. Based upon the assessment of these factors, the Company did not record an allowance for uncollectible accounts as of September 30, 2023 or December 31, 2022.

Pursuant to the Asset Purchase Agreement with Medtronic, the Company was eligible to receive the Transfer Earnout, a contingent cash consideration of $17.0 million upon the Company’s initial submission for CE Mark certification. The Company
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met this condition as of December 31, 2022 and recorded a receivable on the consolidated balance sheets for the year then ended. Medtronic provided full payment in January 2023. See Note 3 - Sale of Business for additional details.

In addition, beginning in February 2023, following Medtronic's first commercial sale of the left-heart access Products after the Company's achievement of the OEM Earnout (as such terms are defined in Note 3 - Sale of Business, below), the Company became eligible to earn amounts equal to 100%, 75%, 50% and 50%, respectively, of quarterly Net Sales (as defined in the Asset Purchase Agreement) from sales of the left-heart access Products achieved by Medtronic each year over four years. During the nine months ended September 30, 2023, the Company earned $6.1 million based on Medtronic's left-heart access Products sales and recorded a corresponding receivable on the condensed consolidated balance sheets as of the period then ended.

Accounts receivable recorded on the condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022 consists of the following (in thousands):

September 30,
2023
December 31,
2022
(unaudited)
Trade accounts receivable$2,841 $4,085 
Earnouts receivable from Medtronic6,111 17,000 
Total accounts receivable$8,952 $21,085 

Employee Retention Credit Receivable
The Employee Retention Credit is a refundable U.S. tax credit separate from tax based on income for businesses that continued to pay employees while shut down due to the COVID-19 pandemic or had significant declines in gross receipts from March 13, 2020 to December 31, 2021. The Company applied for the tax credit in 2022 and as of September 30, 2023, the entire $6.8 million claimed tax credit has been refunded to the Company, of which $4.7 million was received during the nine months ended September 30, 2023.
Property and Equipment, Net
Property and equipment are recorded at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the related assets, generally three to five years, or, in the case of leasehold improvements, over the lesser of the useful life of the related asset or the lease term.
Intangible Assets
The Company’s intangible assets consist of a license agreement with Biotronik. The Company determines the appropriate useful life of its finite-lived intangible assets by performing an analysis of expected cash flows of the acquired assets. Finite-lived intangible assets are amortized over their estimated useful lives using the straight-line method, which approximates the pattern in which the economic benefits are consumed. Acquired in-process technology is classified as a finite-lived intangible and amortized accordingly. Indefinite-lived intangible assets are tested for impairment at least annually and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Indefinite-lived intangible assets are impaired if their estimated fair values are less than their carrying value.
Goodwill
Goodwill represents the excess of the purchase price of an entity over the estimated fair value of the assets acquired and liabilities assumed, and it is presented as goodwill in the accompanying condensed consolidated balance sheets. Under ASC 350, Intangibles – Goodwill and Other (“ASC 350”), goodwill is not amortized but is subject to periodic impairment testing. ASC 350 requires that an entity assign its goodwill to reporting units and test each reporting unit’s goodwill for impairment at least on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. In the evaluation of goodwill for impairment, which is performed annually during the fourth quarter, the Company first assesses qualitative factors to determine whether the existence of events or circumstances led to a determination that it was more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company is required to perform the
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quantitative goodwill impairment test. The Company has one reporting unit. During the nine months ended September 30, 2022, the Company fully impaired its goodwill balance of $12.0 million.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including property and equipment and finite-lived intangible assets, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. An impairment loss is recognized when the asset’s carrying value exceeds the total undiscounted cash flows expected from its use and eventual disposition. The amount of the impairment loss is determined as the excess of the carrying value of the asset over its fair value. For the three and nine months ended September 30, 2023 and 2022, the Company determined that there was no impairment of property and equipment or intangible assets.
Foreign Currency Translation and Transactions
The assets, liabilities and results of operations of Acutus Medical N.V. and Acutus Medical UK Limited are measured using their functional currency, the Euro and British Pound Sterling, respectively, which is the currency of the primary foreign economic environment in which the subsidiaries operate. Upon consolidating these entities with the Company, their assets and liabilities are translated to U.S. dollars at currency exchange rates as of the balance sheet date and their revenues and expenses are translated at the weighted average currency exchange rates during the applicable reporting periods. Translation adjustments resulting from the process of translating the entities’ financial statements are reported in accumulated other comprehensive loss in the condensed consolidated balance sheets and foreign currency translation adjustment in the condensed consolidated statements of operations and comprehensive loss.
Lease Property
The Company leases office space in Carlsbad, California as its corporate headquarters and for manufacturing operations. Additionally, it leases office space in Zaventem, Belgium for international operations. The Company accounts for its lease property under ASC 842. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the condensed consolidated balance sheets as both a right-of-use asset and a lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate, which is the rate for collateralized borrowings based on the current economic environment, credit history, credit rating, value of leases, currency in which the lease obligation is satisfied, rate sensitivity, lease term and materiality. Lease liabilities are increased by interest and reduced by payments each period, and the right-of-use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right-of-use asset results in straight-line rent expense over the lease term. Variable lease expenses are recorded when incurred.

In calculating the right-of-use asset and lease liability, the Company elected to combine lease and non-lease components. The Company adopted the policy election to exclude short-term leases having initial terms of twelve months from the initial recognition provisions of ASC 842. See Note 11 - Operating Leases for additional details.
Cost of Products Sold
Cost of products sold includes raw materials, direct labor, manufacturing overhead, shipping and receiving costs and other less significant indirect costs related to the production of the Company’s products.
Research and Development
Prior to the Restructuring, the Company was actively engaged in new product research and development efforts. Research and development expenses consist primarily of salaries and employee-related costs (including stock-based compensation) for personnel directly engaged in research and development activities, clinical trial expenses, equipment costs, material costs, allocated rent and facilities costs and depreciation.
Research and development expenses relating to possible future products are expensed as incurred. The Company also accrues and expenses costs for activities associated with clinical trials performed by third parties as incurred. All other costs relative to setting up clinical trial sites are expensed as incurred. Clinical trial site costs related to patient enrollment are accrued as patients are entered into the trials.
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Selling, General and Administrative
Selling, general, and administrative expenses consist primarily of salaries and employee-related costs (including stock-based compensation) for personnel in sales, executive, finance and other administrative functions, allocated rent and facilities costs, legal fees relating to intellectual property and corporate matters, professional fees for accounting and consulting services, marketing costs and insurance costs.
Fair Value Measurements
Financial Instruments
Fair value measurements are based on the premise that fair value is an exit price representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the following three-tier fair value hierarchy is used in determining the inputs for measuring fair value:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs other than Level 1 prices for similar assets or liabilities that are directly or indirectly observable in the marketplace.
Level 3—Unobservable inputs which are supported by little or no market activity and consist of financial instruments valued using pricing models, discounted cash flow methodologies or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
Financial instruments measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Management’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The use of different assumptions and/or estimation methodologies may have a material effect on estimated fair values. Accordingly, the fair value estimates disclosed or initial amounts recorded may not be indicative of the amount that the Company or holders of the instruments could realize in a current market exchange. There were no transfers made among the three levels in the fair value hierarchy for the three and nine months ended September 30, 2023 and 2022.
As of September 30, 2023 and December 31, 2022, the Company’s cash (excluding cash equivalents which are recorded at fair value on a recurring basis), restricted cash, accounts receivable, accounts payable and accrued expenses were carried at cost, which approximates the fair values due to the short-term nature of each instrument. The carrying amount of the Company’s long-term debt approximates fair value due to its variable market interest rate and management’s opinion that current rates and terms that would be available to the Company with the same maturity and security structure would be essentially equivalent to that of the Company’s long-term debt.
The following tables classify the Company’s financial assets and liabilities measured at fair value on a recurring basis into the fair value hierarchy as of September 30, 2023 and December 31, 2022 (in thousands):
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Fair Value Measurements as of September 30, 2023
(unaudited)
Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Assets included in:
Cash and cash equivalents
Money market securities$21,019 $ $ $21,019 
Marketable securities at fair value
U.S. treasury securities 2,968  2,968 
Commercial paper 10,665  10,665 
Asset-backed securities 742  742 
Total fair value$21,019 $14,375 $ $35,394 
Liabilities included in:
Warrant liability$ $ $1,868 $1,868 
Total fair value$ $ $1,868 $1,868 

Fair Value Measurements as of December 31, 2022
Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Assets included in:
Cash and cash equivalents
Money market securities$22,700 $ $ $22,700 
Marketable securities at fair value
U.S. treasury securities 26,897  26,897 
Commercial paper 14,764  14,764 
Yankee debt securities 3,202  3,202 
Total fair value$22,700 $44,863 $ $67,563 
Liabilities included in:
Warrant liability$ $ $3,346 $3,346 
Contingent consideration  1,800 1,800 
Total fair value$ $ $5,146 $5,146 

The fair value of the Company’s money market securities is determined using quoted market prices in active markets for identical assets.
The fair value for the available-for-sale marketable securities is determined based on valuation models using inputs that are observable either directly or indirectly (Level 2 inputs) such as quoted prices for similar assets, yield curve, volatility factors,
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credit spreads, default rates, loss severity, current market and contractual prices for the underlying instruments, broker and dealer quotes, as well as other relevant economic measures.
Financial Obligations
The following table presents changes in Level 3 liabilities measured at fair value for the nine months ended September 30, 2023 (in thousands):
Contingent
Consideration
Warrant Liability
Balance, December 31, 2022$1,800 $3,346 
Change in fair value123 (1,478)
Final payment of contingent consideration$(1,923)$ 
Balance, September 30, 2023 (unaudited)$ $1,868 

As of September 30, 2023, the fair value of the common stock warrants was estimated using the Black-Scholes option pricing model. The fair value was estimated to be $0.4942 per warrant as of September 30, 2023 and the significant inputs used in the estimation of the fair value were as follows:
September 30, 2023
(unaudited)
Risk-free interest rate4.61%
Expected term in years6.75
Expected volatility85.0%

Stock-Based Compensation
The Company accounts for all stock-based payments to employees and non-employees, including grants of stock options, restricted stock units ("RSUs"), and restricted stock awards ("RSAs"), to be recognized in the consolidated financial statements based on their respective grant date fair values. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model. The RSUs and RSAs are valued based on the fair value of the Company’s common stock on the date of grant. The Company expenses stock-based compensation related to stock options, RSUs and RSAs over the requisite service period. All stock-based compensation costs are recorded in cost of products sold, research and development expense or SG&A expense in the condensed consolidated statements of operations and comprehensive loss based upon the respective employee’s or non-employee’s roles within the Company. Forfeitures are recorded as they occur. See Note 15—Stock-Based Compensation for additional details.
Income Taxes
Income taxes are recorded in accordance with ASC 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse, and net operating loss (“NOL”) carryforwards and research and development tax credit carryforwards. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit would more likely than not be realized assuming examination by the taxing authority. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. To date, there have been no interest or penalties charged in relation to the unrecognized tax benefits.
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Warrant Liability
The Company accounts for certain common stock warrants outstanding as a liability at fair value, determined using the Black-Scholes option pricing model, on the condensed consolidated balance sheets in accordance with ASC 815, Derivatives and Hedging (“ASC 815”). The liability is subject to re-measurement at each reporting period and any change in fair value is recognized in the condensed consolidated statements of operations and comprehensive loss. See Note 13—Warrants for additional details.
Business Combinations
The Company accounts for business acquisitions using the acquisition method of accounting based on ASC 805, Business Combinations (“ASC 805”), which requires recognition and measurement of all identifiable assets acquired and liabilities assumed at their fair value as of the date control is obtained. The Company determines the fair value of assets acquired and liabilities assumed based upon its best estimates of the acquisition-date fair value of assets acquired and liabilities assumed in the acquisition. Goodwill is calculated as the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) ("ASU 2016-13"). ASU 2016-13 sets forth a “current expected credit loss” model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost, available-for-sale debt securities and applies to certain off-balance sheet credit exposures. ASU 2016-13 is effective for smaller reporting companies in 2023. The Company adopted the guidance in the first quarter of 2023 with no material impact on the condensed consolidated financial statements.
Note 3—Sale of Business
On June 30, 2022, the Company completed the First Closing in accordance with the Asset Purchase Agreement with Medtronic, pursuant to which the Company agreed to sell to Medtronic certain transseptal access and sheath assets which make up the Company's left-heart access portfolio (and which comprised the Rhythm Xience, Inc. ("Rhythm Xience") product line acquired as part of the Rhythm Xience acquisition). The assets transferred to Medtronic upon the First Closing (the “Assets”) include patents, trademarks, patent and trademark applications, know-how, copyrights, prototypes and other intellectual property owned or licensed by the Company, business records and documents (including regulatory and clinical materials) and manufacturing equipment related to the AcQCross® line of sheath-compatible septal crossing devices, AcQGuide® MINI integrated crossing device and sheath, AcQGuide® FLEX Steerable Introducer with integrated transseptal dilator and needle, and AcQGuide® VUE steerable sheaths (the “Products”).

Pursuant to the Asset Purchase Agreement, Medtronic paid $50.0 million at the First Closing, of which $4.0 million was paid into an indemnity escrow account for a period of 18 months following the First Closing to secure indemnification obligations of the Company under the Asset Purchase Agreement, which the Company has recorded as restricted cash on its condensed consolidated balance sheets.
The Company is also eligible to receive the following contingent cash consideration pursuant to the Asset Purchase Agreement:

(i)    $20.0 million upon the Company’s completion, to the reasonable satisfaction of Medtronic, of certain conditions set forth in the Asset Purchase Agreement relating to the Company becoming a qualified supplier of Medtronic for the Products, including demonstration of ISO 14971:2019 compliance, completion of certain test method validations and compliance with certain other reporting requirements (the “OEM Earnout”);
(ii)    $17.0 million upon the earlier of (A) the Second Closing (as defined below) or (B) the Company’s initial submission for CE Mark certification of the Products under the European Union Medical Devices Regulation, to the reasonable satisfaction of a third-party regulatory consultant, subject to certain other conditions as set forth in the Asset Purchase Agreement (the “Transfer Earnout”); and
(iii)    amounts equal to 100%, 75%, 50% and 50%, respectively, of quarterly Net Sales (as defined in the Asset Purchase Agreement) from sales of the Products achieved by Medtronic over each year of a four-year period beginning on the first full quarter after Medtronic’s first commercial sale of a Product and achievement of the OEM Earnout.
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The $20.0 million OEM Earnout was achieved in October 2022 and payment was received in November 2022, of which $1.6 million is held in escrow and recorded as restricted cash on the condensed consolidated balance sheets. The $17.0 million Transfer Earnout was achieved in December 2022 and payment was received in January 2023, of which $1.4 million is held in escrow and recorded as restricted cash on the condensed consolidated balance sheets. During the nine months ended September 30, 2023, $6.1 million was earned under item (iii) and recorded as a receivable on the condensed consolidated balance sheet as of September 30, 2023.

With the achievement of the OEM Earnout Conditions (as defined in the Asset Purchase Agreement) and upon notice from Medtronic, Medtronic became the Company's exclusive distributor of the Products under the Distribution Agreement.

The Company recorded a net gain of $79.5 million during the year ended December 31, 2022 related to the sale of business to Medtronic, calculated as the difference between the non-contingent consideration received, less direct transaction costs and the net carrying amount of the assets sold.

The Company recorded the following amounts for the nine months ended September 30, 2023, resulting in a net gain of $5.9 million related to the sale of business to Medtronic, calculated as the difference between the non-contingent consideration earned, less direct transaction costs (in thousands):

Nine Months Ended
September 30, 2023
(unaudited)
Percentage of Product Net Sales Earnout accrued as of September 30, 2023$6,111 
Transaction costs(184)
          Gain on sale of business, net$5,927 

The net gain on sale will be adjusted in future periods by the contingent consideration, based on the achievement of the predetermined milestones mentioned above. The sale was accounted for as a derecognition of a group of assets that is a business pursuant to ASC 810 - Consolidation, with the resulting gain classified as operating income within loss from operations on the condensed consolidated statements of operations and comprehensive loss. The sale did not represent a strategic shift having a major effect on the Company's operations and financial results and, consequently, did not qualify as a discontinued operation.
Note 4—Marketable Securities
Marketable securities consisted of the following as of September 30, 2023 and December 31, 2022 (in thousands):
September 30, 2023 (unaudited)
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Available-for-sale securities - short-term:
U.S. treasury securities$2,968 $ $ $2,968 
Commercial paper10,665   10,665 
Asset-backed securities742   742 
Total available-for-sale securities - short-term14,375   14,375 
     Total available-for-sale securities$14,375 $ $ $14,375 

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December 31, 2022
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Available-for-sale securities - short-term:
U.S. treasury securities$26,906 $3 $(12)$26,897 
Commercial paper3,200 2  3,202 
Yankee debt securities14,764   14,764 
Total available-for-sale securities - short-term44,870 5 (12)44,863 
     Total available-for-sale securities$44,870 $5 $(12)$44,863 
As of September 30, 2023, the Company’s available-for-sale securities classified as short-term of $14.4 million mature in 1 year or less and there were none held long-term. As of December 31, 2022, the Company’s available-for-sale securities classified as short-term of $44.9 million mature in 1 year or less and there were none held long-term.
Note 5—Inventory
Inventory as of September 30, 2023 and December 31, 2022 consisted of the following (in thousands):
September 30,
2023
December 31,
2022
(unaudited)
Raw materials$10,664 $9,179 
Work in process2,416 2,025 
Finished goods2,648 2,123 
Total inventory$15,728 $13,327 
Note 6—Lessor Sales-Type Leases
The Company recognizes revenue and costs, as well as leases receivable, at the commencement of embedded sales-type leases within its deferred equipment agreements. There was no lease revenue related to sales-type leases for both the three months ended September 30, 2023 and 2022. Lease revenue related to sales-type leases was $0.5 million and $0.3 million for the nine months ended September 30, 2023 and 2022, respectively. Costs related to embedded leases within the Company’s deferred equipment agreements are included in cost of products sold in the condensed consolidated statements of operations and comprehensive loss.
As of September 30, 2023 and December 31, 2022, a balance of $0.6 million for both periods for short-term leases receivable is recorded in prepaid expenses and other current assets on the condensed consolidated balance sheets, and a balance of $0.3 million and $0.5 million, respectively, for long-term leases receivable is recorded in other assets related to sales-type leases.
Note 7—Property and Equipment, Net
The Company’s property and equipment, net, consisted of the following as of September 30, 2023 and December 31, 2022 (in thousands):
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September 30,
2023
December 31,
2022
(unaudited) 
Medical diagnostic equipment$14,995 $14,826 
Furniture and fixtures452 432 
Office equipment1,561 1,556 
Laboratory equipment and software5,226 5,148 
Leasehold improvements974 580 
Construction in process1,675 2,166 
Total property and equipment24,883 24,708 
Less: accumulated depreciation(18,272)(15,487)
Property and equipment, net$6,611 $9,221 

Property and equipment includes certain medical diagnostic equipment and AcQMap Systems located at customer premises. The Company retains ownership of the equipment and has the right to remove the equipment if it is not being used according to expectations. The Company records the cost of equipment to cost of sales on the condensed consolidated statements of operations and comprehensive loss when it is subsequently sold or the Company enters into a sales-type lease agreement. See Note 6 - Lessor Sales-Type Leases for additional details.
Depreciation expense was $1.0 million and $1.5 million for the three months ended September 30, 2023 and 2022, respectively, and $3.5 million and $4.7 million for the nine months ended September 30, 2023 and 2022, respectively.
Note 8—Intangible Assets
The following table presents intangible assets activity for the nine months ended September 30, 2023 (in thousands):
Intangible
Assets
Balance, December 31, 2022$1,583 
Amortization expense(150)
Balance, September 30, 2023 (unaudited)$1,433 

Intangible Assets
The tables below present the details of intangible assets as of September 30, 2023 and December 31, 2022 (dollars in thousands):
September 30, 2023Estimated
Useful
Life
(in years)
Weighted
Average
Remaining
Life
(in years)
Intangible
Assets
Accumulated
Amortization
Balance
(unaudited)
Licensed intangibles10.07.2$2,000 $(567)$1,433 
     Total intangible assets$2,000 $(567)$1,433 
December 31, 2022Estimated
Useful
Life
(in years)
Weighted
Average
Remaining
Life
(in years)
Intangible
Assets
Accumulated
Amortization
Balance
Licensed intangibles10.07.92,000 (417)1,583 
     Total intangible assets$2,000 $(417)$1,583 

The Company recorded amortization expense related to the above intangible assets of $0.1 million for both the three months ended September 30, 2023 and 2022, and $0.2 million and $0.4 million for the nine months ended September 30, 2023 and 2022, respectively.
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The following table presents the future amortization expense associated with amortizable intangible assets as of September 30, 2023 (in thousands):
Total
Amortization
Three months ending December 31, 2023$50 
Year ending December 31, 2024200 
Year ending December 31, 2025200 
Year ending December 31, 2026200 
Year ending December 31, 2027200 
Thereafter583 
     Total future amortization$1,433 

Note 9—Accrued Liabilities
Accrued liabilities consisted of the following as of September 30, 2023 and December 31, 2022 (in thousands):
September 30,
2023
December 31,
2022
(unaudited)
Compensation and related expenses$5,264 $6,919 
Professional fees192 126 
Deferred revenue349 326 
Sales and use tax187 639 
Clinical studies374 390 
Clinician Council payable241 216 
Accrued royalties108 159 
Accrued restructuring35 45 
Other688 866 
     Total accrued liabilities$7,438 $9,686 
Note 10—Debt
Outstanding debt as of September 30, 2023 and December 31, 2022 consisted of the following (in thousands):
September 30,
2023
December 31,
2022
(unaudited)
2022 Credit Agreement(1)
$36,750 $36,776 
Total outstanding debt, gross36,750 36,776 
Less: Unamortized debt discount and fees(1,989)(2,342)
Total outstanding debt, long-term$34,761 $34,434 
(1)The 2022 Credit Agreement includes final payment fees of $1.8 million.
2022 Amended and Restated Credit Agreement
On June 30, 2022, the Company amended and restated its prior debt facility. The amended and restated credit agreement (as amended by Amendment No. 1, dated August 4, 2023, and Amendment No. 2, dated November 8, 2023, and as further amended from time to time, the "2022 Credit Agreement") is with related parties Deerfield Private Design Fund III, L.P. and Deerfield Partners, L.P. (collectively referred to as “Deerfield” or "Lenders") and is for an aggregate principal amount of $35.0 million and has a 5-year term. Proceeds from the 2022 Credit Agreement, along with cash on hand, were used to repay the prior debt facility and to pay related fees and expenses.

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The 2022 Credit Agreement bears an annual interest of 9% plus the one-month adjusted term Secured Overnight Financing Rate (applying a 2.5% minimum rate). From date of closing, amortization payments are due as follows:

15% of the principal due at the end of month 36;
15% of the principal due at the end of month 48; and
70% due at the end of month 60.

The 2022 Credit Agreement is subject to prepayment penalties and provides for final payment fees of an additional $1.8 million due upon prepayment, on the maturity date or upon acceleration.
The 2022 Credit Agreement is secured by a first-priority perfected lien on and security interest in substantially all of the Company’s existing and after-acquired tangible and intangible assets, subject to certain exceptions noted therein.

The 2022 Credit Agreement is subject to certain customary affirmative covenants, representations and warranties and other terms and conditions. It also contains certain customary negative covenants, including, but not limited to, restrictions on the Company’s ability and that of its subsidiaries to merge and consolidate with other companies, incur indebtedness, grant liens or security interests on assets, pay dividends or make other restricted payments, sell or otherwise transfer assets or enter into transactions with affiliates.
In addition, the 2022 Credit Agreement includes customary events of default and other provisions that could require all amounts due thereunder to become immediately due and payable, either automatically or at the option of the Lenders, if the Company fails to comply with the terms.
On August 4, 2023, the Company and Deerfield entered into that certain Amendment No. 1, dated August 4, 2023 (“Amendment No.1”) to the 2022 Credit Agreement. Pursuant to Amendment No. 1, the 2022 Credit Agreement was amended to decrease the amount of cash the Company is required to maintain pursuant to the minimum liquidity covenant in the 2022 Credit Agreement to $5,000,000 for a period of 18 months, at which point the amount required under the minimum liquidity covenant shall increase to $20,000,000 (or, if certain conditions are met, $10,000,000), in exchange for a fee paid by the Company.
On November 8, 2023, the Company and Deerfield entered into that certain Amendment No. 2, dated November 8, 2023 (“Amendment No. 2”) to the 2022 Credit Agreement. Pursuant to Amendment No. 2, the 2022 Credit Agreement was amended to, among other things: (i) adjust and increase the amortization schedule such that payments commence on June 30, 2024 and are made 12, 24 and 36 months (i.e., the scheduled maturity date) following June 30, 2024; (ii) limit the business activities the Company may engage in; and (iii) require the Company to maintain a minimum liquidity of $10,000,000 at all times, in exchange for fees paid by the Company.
In connection with entering into the 2022 Credit Agreement, the Company entered into a warrant purchase agreement (the "2022 Warrant Purchase Agreement") with Deerfield, pursuant to which the Company issued to Deerfield warrants to purchase up to an aggregate 3,779,018 shares of the Company's common stock at an exercise price of $1.1114 per warrant share for a period of eight years following issuance (the "2022 Warrants").

The 2022 Warrants represent a freestanding financial instrument and are conditionally puttable at the holder’s option upon an event that is outside of the Company’s control. Therefore, the 2022 Warrants are classified as liability pursuant to ASC 480, Distinguishing Liabilities from Equity, initially and subsequently recognized at fair value, with changes in fair value recognized in the statements of operations and comprehensive loss. Refer to Fair Value Measurements in Note 2 - Summary of Significant Accounting Policies and Note 13 - Warrants for more information.
Note 11—Operating Leases
The Company leases approximately 50,800 square feet of office space for its corporate headquarters and manufacturing facility in Carlsbad, California under a non-cancelable operating lease that expires on December 31, 2027. The lease is subject to variable charges for common area maintenance and other costs that are determined annually based on actual costs. The base rent is subject to an annual increase each year. The Company has a renewal option for an additional five-year term upon the expiration date of the lease, which has been excluded from the calculation of the right-of-use asset as it is not reasonably certain to be exercised.
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Additionally, the Company leases approximately 3,900 square feet of office space in Zaventem, Belgium under a non-cancelable operating lease that expires on December 31, 2024. The lease is subject to variable charges that are determined annually for common area maintenance and other costs based on actual costs, and base rent is subject to an annual increase each year based on an index rate.
The following table summarizes quantitative information about the Company’s operating leases for the nine months ended September 30, 2023 and 2022 (dollars in thousands):
Nine Months Ended September 30,
20232022
(unaudited)
Operating cash flows from operating leases$282$631
Weighted average remaining lease term – operating leases (in years)4.23.4
Weighted average discount rate – operating leases7.0%7.0%

The following table provides the components of the Company’s operating lease expense for the three and nine months ended September 30, 2023 and 2022 (in thousands):

Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
(unaudited)(unaudited)
Operating leases
Operating lease cost$252 $252 $755 $768 
Variable lease cost81 77 243 216 
Total operating lease expense$333 $329 $998 $984 
As of September 30, 2023, future minimum payments under the non-cancelable operating leases under ASC 842 were as follows (in thousands):
Three months ending December 31, 2023$138 
Year ending December 31, 20241,160 
Year ending December 31, 20251,151 
Year ending December 31, 20261,185 
Year ending December 31, 20271,221 
Total4,855 
Less: present value discount(686)
Operating lease liabilities$4,169 
Note 12—Commitments and Contingencies
The Company and certain of its current and former officers have been named as defendants in two putative securities class action lawsuits filed in the United States District Court for the Southern District of California on February 14, 2022 and March 23, 2022. On July 19, 2022, the court consolidated the two actions, appointed a lead plaintiff and appointed lead counsel for the proposed class. On September 16, 2022, the lead plaintiff filed a consolidated amended complaint. The defendants thereafter filed a motion to dismiss. On September 27, 2023, the court granted the defendant’s motion to dismiss in its entirety, but gave plaintiffs leave to file an amended complaint. On October 27, 2023, the plaintiffs filed a second amended complaint asserting similar claims. We are defending the action. Due to the complex nature of the legal and factual issues involved in these class action matters, the outcome is not presently determinable and any loss is neither probable nor reasonably estimable.
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Note 13—Warrants
As of September 30, 2023 and December 31, 2022, the outstanding warrants to purchase the Company’s common stock consisted of the following:
Exercise PriceExpiration DateSeptember 30,
2023
December 31,
2022
(unaudited)
Warrants issued in 2015$5.25 1/30/253,808 3,808 
Warrants issued with 2018 Convertible Notes$0.10 6/7/28346,689 346,689 
Warrants issued with 2018 Term Loan$16.67 7/31/2826,998 26,998 
Warrants issued with 2019 Credit Agreement$16.67 5/20/29419,992 419,992 
Warrants issued with 2022 Credit Agreement$1.11 6/30/303,779,018 3,779,018 
Total Warrants4,576,505 4,576,505 

There was no warrant activity during the nine months ended September 30, 2023.

The Company’s warrants provide the holder the option to purchase a specified number of shares for a specified price within a specified duration or upon the occurrence of a specific event. The holder may exercise the warrant either by cash payment or by exercise pursuant to a cashless exercise whereby a calculated number of shares are withheld upon exercise to satisfy the exercise price. The warrants do not provide the holder any voting rights until the warrants are exercised.

In accordance with ASC 480, the 2022 Warrants are recorded at fair value on the condensed consolidated balance sheets as a warrant liability. Changes in fair value are recognized as a change in fair value of warrant liability in the condensed consolidated statements of operations and comprehensive loss. For the nine months ended September 30, 2023, a favorable fair value change of $1.5 million was recognized.

In connection with the Series A Common Equivalent Preferred Stock Exchange Agreements (as defined below), four warrant holders are limited to exercising their warrants such that following any such exercise, the number of shares of common stock beneficially owned by such holder cannot exceed 4.9% of the outstanding common stock of the Company (two of the holders may, at their option and upon sufficient prior written notice to the Company, increase such percentage to 9.9%). In the event the common share limit has been met and the holder chooses to exercise their warrants, the holder can sell any common stock they hold. Therefore, the amendment to the warrant agreements does not restrict the holder from fully exercising the warrants under the original terms of the warrant agreements.
Note 14—Stockholders’ Equity
Series A Common Equivalent Preferred Stock
In August 2021, the Company entered into exchange agreements (the “Exchange Agreements”) with four investors pursuant to which the investors exchanged 6,665,841 shares of the Company’s common stock for 6,666 shares of a new series of non-voting convertible preferred stock of the Company designated as “Series A Common Equivalent Preferred Stock,” par value $0.001 per share (the "Preferred Stock"). In connection with the issuance of the Preferred Stock pursuant to the Exchange Agreements, on August 23, 2021, the Company filed a Certificate of Designation of Preferences, Rights and Limitations of the Series A Common Equivalent Preferred Stock of the Company with the Secretary of State of the State of Delaware. The Preferred Stock ranks senior to the common stock with respect to rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, having a liquidation preference equal to its par value of $0.001 per share. The Preferred Stock will participate equally and ratably on an as-converted basis with the holders of common stock in all cash dividends paid on the common stock. The Preferred Stock is non-voting.
Upon election, each holder may convert each share of Preferred Stock into 1,000 shares of common stock, except to the extent that following such conversion the number of shares of common stock held by such holder, its affiliates and any other persons whose beneficial ownership of common stock would be aggregated with such holder’s for purposes of Section 13(d) of the Exchange Act including shares held by any “group” (as defined in Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and applicable regulations of the Securities and Exchange Commission ("SEC")) of which such holder is a member, but excluding shares beneficially owned by virtue of the ownership of securities or rights to acquire securities that have limitations on the right to convert, exercise or purchase similar to the limitation set forth in the Series A Certificate of Designation, exceeds 4.9% (or, at the election of the holders, OrbiMed Private Investments IV, LP or OrbiMed
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Royalty Opportunities II, LP, made by delivering at least 61 days advance written notice to the Company of its intention to increase the beneficial ownership cap applicable to such holder, 9.9%) of the total number of sha