Risk Factors Summary
Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled “Risk Factors.” These risks include, but are not limited to, the following:
◦ We are dependent on Medtronic for all of our revenue, with no sales or marketing capabilities of our own, and following the completion of the Operational Downsizing and occurrence of the Second Closing, we will have no manufacturing capabilities of our own, and our business will rely solely on our ability to capture the value associated with potential earnout payments we are eligible to receive under the Asset Purchase Agreement until 2027.
◦ There are continued risks associated with the Restructuring and Operational Downsizing, including our ability to manage the transition costs to realize the anticipated benefits.
◦ Our ability to continue to have the liquidity necessary to service our debt and meet contractual payment obligations and fund our operations depends on many factors, including our ability to generate sufficient cash flow from operations or obtain other financing.
◦ Our board of directors may decide to pursue a liquidation and dissolution of our business prior to or following the conclusion of the Net Sales Earnout period. In such an event, the amount of cash available for distribution to our stockholders, if any, will depend heavily on the timing of such liquidation as well as the amount of cash that will need to be reserved for commitments and contingent liabilities, including under our 2022 Credit Agreement (as defined below).
◦ Defects or failures associated with the Products we have manufactured for Medtronic under the Distribution Agreement may have a material adverse effect on our business, financial condition, cash flows and results of operations.
◦ If we are unable to comply with our remaining obligations to Medtronic, it could have a material adverse effect on our business, results of operation, cash flows, and financial position.
◦ If we underestimate Medtronic demand for the Products, or if the Second Closing does not occur or does not occur on the timeline we anticipate, we may encounter substantial difficulties managing the ramp up of our operations given our Operational Downsizing. If we are unable to meet Medtronic demand, we may be
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in violation of our obligations under the Distribution Agreement and Asset Purchase Agreement and lose the earnouts we are eligible for under these agreements.
◦ Our common stock has been delisted from The Nasdaq Stock Market LLC ("Nasdaq"), and we have undertaken actions to effect a "going dark" transaction, including the deregistration of our common stock with the U.S. Securities and Exchange Commission ("SEC"), including the suspension of our reporting obligations under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Our common stock has been delisted from Nasdaq and is traded over-the-counter, your ability to trade and the market price of our shares of common stock may be negatively impacted.
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PART I
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Item 1. Business.
Overview
Historically, we designed, manufactured and marketed a range of tools for catheter-based ablation procedures to treat various arrhythmias. Our product portfolio included novel access sheaths, diagnostic and mapping catheters, conventional and contact ablation catheters, mapping and imaging consoles and accessories, as well as supporting algorithms and software programs. Our foundational product was our AcQMap Imaging and Mapping System, which was designed to rapidly and accurately identify ablation targets and to confirm both ablation success and procedural completion.
In April 2022, we announced that we agreed to sell our left-heart access product portfolio to Medtronic pursuant to an Asset Purchase Agreement with Medtronic (the "Asset Purchase Agreement") and refinance existing debt with a new longer-term credit facility to recapitalize our business and fund our strategic growth priorities. Pursuant to the sale transaction, Medtronic paid upfront cash consideration of $50.0 million (of which $4.0 million was paid into an indemnity escrow account for a period of 18 months), and we became eligible for contingent cash consideration of up to $37.0 million (of which we earned $20.0 million on October 31, 2022 and $17.0 million on December 31, 2022) plus a portion of Medtronic’s future net sales of the left-heart access product portfolio. In conjunction with the sale of our left-heart access product portfolio, we executed a distribution agreement with Medtronic (the “Distribution Agreement”), pursuant to which we agreed to manufacture and supply these left-heart access products to Medtronic as exclusive distributor of the product line for an initial term of up to four years at specified transfer prices. We will also continue to be eligible for earnout payments on Medtronic’s net sales of the left-heart access product portfolio through 2027.
In November 2023, we announced, following an extensive strategic review by our board of directors, and in light of the current financing environment and the capital investments required to achieve leadership in the electrophysiology market, that we had determined to reallocate capital from our mapping and ablation business to the manufacturing of left-heart access products for Medtronic under the Distribution Agreement, which we believe will maximize the potential for future contingent cash consideration and cash flow. As part of this restructuring (the "Strategic Restructuring"), we wound down our mapping and ablation businesses and no longer manufacture or distribute our AcQMap Mapping System, AcQMap 3D Mapping Catheter, AcQBlate Force-Sensing Ablation Catheter, AcQGuide Max 2.0 Steerable Sheath, or associated accessories, though we continue to explore strategic alternatives for these businesses (including a potential sale of related assets).
As a result of this restructuring, we have relied solely on our strategic partnership with Medtronic to generate revenue through (i) the manufacture of the left-heart access product portfolio for Medtronic at transfer prices specified under our Distribution Agreement and (ii) potential earnouts from Medtronic’s sales of the left-heart access product portfolio to end-users.
In November 2024, our board of directors approved a realignment of resources and operational downsizing of the company to reduce the size of our organization while complying with our remaining obligations to Medtronic for the production of left-heart access products under the Distribution Agreement and Asset Purchase Agreement (the “Operational Downsizing”). As a result of the Operational Downsizing, we have reduced operations to a scale designed solely to support the manufacturing and distribution of Medtronic’s left-heart access products under the Distribution Agreement through the transition of the production of these products to Medtronic pursuant to the terms of the Asset Purchase Agreement and the Distribution Agreement, which would occur at a Second Closing under the Asset Purchase Agreement as described under “—Left-Heart Access Portfolio Sale and Distribution Agreement” below. As part of the Operational Downsizing, we announced a reduction in workforce of approximately 61 employees, representing approximately 70% of our employees. Upon the occurrence of the Second Closing, we anticipate that our sole source of revenue would be potential earnouts from Medtronic’s sales of the left-heart access product portfolio to end-users pursuant to the Asset Purchase Agreement, and to further wind down operations to minimize costs while continuing to capture the value associated with potential earnout payments we are eligible to receive under the Asset Purchase Agreement until 2027.
In January 2025, our board determined to effect the deregistration of our common stock with the SEC, including the suspension of our reporting obligations under the Exchange Act. We filed a Form 15 with the SEC to voluntarily effect such deregistration. The filing of the Form 15 immediately suspended our reporting obligations under Section 13(a) of the Exchange Act, subject only to our obligation to file a Form 10-K for our fiscal year ended December 31, 2024. We expect the deregistration to become effective 90 days after filing the Form 15 with the SEC.
Left-Heart Access Portfolio Sale and Distribution Agreement
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On June 30, 2022, we completed the first closing (the “First Closing”) of the sale of our left-heart access portfolio in accordance with the Asset Purchase Agreement, pursuant to which we sold to Medtronic our AcQCross® line of sheath-compatible septal crossing devices, the AcQGuide® MINI integrated crossing device and sheath, the AcQGuide FLEX steerable introducer with integrated transseptal dilator and needle and the AcQGuide® VUE steerable sheaths (the “Products”). Pursuant to the Asset Purchase Agreement, Medtronic paid cash consideration of $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, and acquired from us, among other things, intellectual property rights to the Products and certain equipment used in the manufacturing of the Products. A second closing would occur on a date determined by Medtronic, but no later than the fourth anniversary of the First Closing, subject to the satisfaction of customary closing conditions (the “Second Closing”). At the Second , Medtronic would acquire certain additional assets relating to the Products, primarily supplier agreements and permits and design and specification files required for Medtronic to become the manufacturer of record of the Products, for no additional consideration.
Under the Asset Purchase Agreement, we also became eligible to receive contingent cash consideration of up to $ 37.0 million plus a portion of Medtronic’s future net sales from the Products, as follows :
(i) $20.0 million upon our completion, to the reasonable satisfaction of Medtronic, of certain conditions set forth in the Asset Purchase Agreement relating to our 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 or (B) our initial submission for Conformité Européenne Mark, or CE Mark, certification of the Products under the European Union Medical Devices Regulation, or MDR, 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 over 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 (the “Net Sales Earnouts”).
On October 31, 2022, we achieved the OEM Earnout, and payment of $20.0 million from Medtronic was received in November 2022. Further, on December 1, 2022, Medtronic qualified us as an original equipment manufacturer (“OEM”) and accordingly, we began to manufacture the Products exclusively for Medtronic under the Distribution Agreement. The Distribution Agreement has an initial term ending on the date of the Second Closing. If the Second Closing has not occurred on or prior to the fourth anniversary of the First Closing, then the Distribution Agreement will automatically renew thereafter for successive one-year periods, unless either we or Medtronic provides notice of non-renewal at least 180 days before the end of the then current term.
On December 31, 2022, we achieved the Transfer Earnout for our submission for CE Mark certification of the Products under the European Union MDR, to the reasonable satisfaction of a third-party regulatory consultant, and payment of $17.0 million was received from Medtronic on January 14, 2023.
The quarterly measurement period for the Net Sales Earnouts began on January 30, 2023, and such earnout payments began in January 2024 and will continue quarterly each quarter thereafter until 2027. In 2024, we earned $11.1 million related to Net Sales Earnouts and received $18.7 million in related payments. In 2023, we earned $9.4 million related to the Net Sales Earnouts, with $7.3 million paid in January 2024.
Strategic Realignment and Restructuring
In November 2023, our board of directors approved the Strategic Restructuring. We implemented a shift in our business model to solely support the manufacturing and distribution of Medtronic’s left-heart access product portfolio under the Distribution Agreement, including to earn potential Net Sales Earnouts. As part of the Restructuring, we wound down our mapping and ablation businesses and no longer manufacture or distribute our AcQMap Mapping System, AcQMap 3D Mapping Catheter, AcQBlate Force-Sensing Ablation Catheter, AcQGuide Max 2.0 Steerable Sheath or associated accessories and are exploring strategic alternatives for these businesses (including a potential sale of related assets). In addition, we reduced our workforce by approximately 160 employees, representing approximately 65% of our employees at the time. The restructuring was substantially completed in the first quarter of 2024.
As of December 31, 2024, we have recognized $26.8 million of the estimated $21.0 million to $32.0 million of pre-tax restructuring and exit-related charges, of which $1.0 million of the estimated $2.0 million to $3.0 million represented cash expenditures for the payment of severance and related benefit costs, $2.9 million of the estimated
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$3.0 million to $4.0 million represented cash expenditures for the payment of retention bonuses to certain employees that are assisting with the Restructuring, less than $3.7 million of the estimated $2.0 million to $5.0 million represented cash expenditures for other restructuring costs, and $19.2 million of the estimated $14.0 million to $20.0 million represented non-cash pre-tax impairment charges in connection with the disposition of certain assets, including inventory, fixed assets and intangibles. A majority of the non-cash charges were incurred in the fourth quarter of 2023, while the majority of the cash expenditures charges were incurred in the first quarter of 2024.
Operational Downsizing
In November 2024, our board of directors approved the Operational Downsizing, in which we are reducing the size of our organization while complying with our remaining obligations to Medtronic for the production of left-heart access products. As part of the Operational Downsizing, we announced a reduction in our current workforce of approximately 61 employees, representing approximately 70% of the Company’s employees, that is expected to be completed by the first quarter of 2025. In compliance with the Worker Adjustment and Retraining Notification Act, we provided pre-termination notices to affected employees and government authorities where required. We entered into retention arrangements with certain employees who are expected to remain with us to assist with the downsizing and operation of our left-heart access manufacturing and distribution business.
We estimate we will incur approximately $1.4 million to $1.8 million of pre-tax downsizing and exit-related charges, of which approximately $0.3 million represents future cash expenditures for the payment of monetary consideration and related benefit costs, approximately $1.2 million represents future cash expenditures for the payment of retention bonuses to certain employees that will assist with the Operational Downsizing, and potentially up to $0.3 million estimated as future cash expenditures for contract closing costs. We expect that a majority of the future cash expenditures charges will be incurred in the first quarter of 2025, and that the Operational Downsizing will be substantially complete in the first quarter of 2025.
As of December 31, 2024, we have recognized $1.4 million of the pre-tax downsizing and exit-related charges.
Amendment to Debt Documents
On January 21, 2025, we and Deerfield Partners, L.P. and Deerfield Private Design Fund III, L.P. (collectively, the “Deerfield Funds”) entered into Amendment No. 5 (“Amendment No. 5”) to the Amended and Restated Credit Agreement, dated as of June 30, 2022 (as amended, restated, supplemented or otherwise modified from time to time, the “2022 Credit Agreement”), among us, the Deerfield Funds and Wilmington Trust, National Association, as Administrative Agent.
Pursuant to Amendment No. 5, the 2022 Credit Agreement was amended to allow us to effect the deregistration of our common stock with the SEC, including the termination of our periodic reporting obligations under the Exchange Act (the “Deregistration”) and, among other things: (i) provided that the Deerfield Funds would receive a consent fee in the form of a contingent value right payable upon certain triggering events in an amount equal to the lesser of $300,000 or 5.0% of the aggregate amount of total value that would otherwise be available to our equityholders (the “Consent Fee”); (ii) modified the financial reporting requirements under the 2022 Credit Agreement, including requiring delivery of cash flow forecasts to the Deerfield Funds; (iii) required the appointment of a Chief Restructuring Officer; and (iv) modified the negative covenants to limit our business activities and required us to maintain minimum liquidity of $5 million. The effectiveness of Amendment No. 5 was conditioned upon the occurrence of the Deregistration on or prior to January 31, 2025 (or such other date as agreed to by the Deerfield Funds in their sole discretion).
In connection with entry into Amendment No. 5 and the Deregistration, we also entered into certain other agreements, including: (i) a contingent value rights agreement to provide for payment of the Consent Fee by us to the Deerfield Funds (the “Contingent Value Rights Agreement”); (ii) a warrant termination agreement to terminate (a) warrants to purchase 224,118 shares of our common stock pursuant to that certain Warrant to Purchase Shares of Common Stock of the Company dated as of June 7, 2018 (the “2018 Warrants”), (b) warrants to purchase 209,996 shares of our common stock pursuant to that certain Warrant dated as of May 20, 2019 (the “2019 Warrants”) and (c) warrants to purchase 3,779,018 shares of our common stock pursuant to that certain Warrant to Purchase Shares of Common Stock of the Company dated June 30, 2022 (the “2022 Warrants”) for a fee equal to $250,000 in the aggregate paid by us to the Deerfield Funds (the “Warrant Termination Agreement”) and (iii) a registration rights termination agreement to terminate the registration rights agreement, dated June 30, 2022, among us and the Deerfield Funds and withdraw the registration statement on Form S-3 filed with the SEC (File No. 333-266804) in
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connection with the sale from time to time of our securities held by the Deerfield Funds and terminate the offer and/or sale of securities under such registration statement (the “Registration Rights Termination Agreement”).
Deregistration and “Going Dark ”
As previously disclosed, Nasdaq suspended trading in our common stock on May 9, 2024, due to noncompliance with Nasdaq Listing Rule 5550(a)(2) and 5550(b). On May 15, 2024, Nasdaq announced that it would formally delist our common stock that was previously suspended. On May 16, 2024, Nasdaq filed a Form 25 Notification of Delisting with the SEC to complete the delisting and remove such securities from registration under Section 12(b) of the Exchange Act, and such delisting took effect on May 26, 2024. The deregistration of our common stock under Section 12(b) of the Exchange Act was effective 90 days after the Form 25 filing. On May 9, 2024, our common stock began trading over the counter on the OTC Pink Market under the trading symbol “AFIB.”
In January 2025, our board determined to effect the deregistration of our common stock with the SEC, including the suspension of our reporting obligations under the Exchange Act (the “Deregistration”). We filed a Form 15 with the SEC to voluntarily effect the Deregistration. The filing of the Form 15 immediately suspended our reporting obligations under Section 13(a) of the Exchange Act, subject only to our obligation to file a Form 10-K for our fiscal year ended December 31, 2024. We expect the Deregistration to become effective 90 days after filing the Form 15 with the SEC.
Our board of directors has determined that “going dark” is in the best interests of our company and our stockholders as a result of the substantial cost savings from the elimination of accounting and other expenses relating to maintaining our status as a public reporting company. In coming to this decision, our board of directors, among other factors, considered the advantages and disadvantages of being an Exchange Act reporting company, the number of stockholders and the relatively low level of trading in our common stock.
Overview of the Products We Manufacture
Historical Products
Historically, we designed, manufactured and marketed a range of tools for catheter-based ablation procedures to treat various arrhythmias. Our foundational and most highly differentiated product was our AcQMap Imaging and Mapping System which offered a non-contact map paradigm-shifting approach to mapping the drivers and maintainers of arrhythmias with unmatched speed and precision. We established a broad portfolio of electrophysiology products that complemented our AcQMap System. In addition to our AcQMap System, our commercial product portfolio included a suite of access devices and full product lines of diagnostic and, in our European markets, ablation catheters. We also launched the AcQBlate Force Sensing Ablation System following the December 2020 receipt of CE Mark approval in Europe.
As part of the Strategic Restructuring, we wound down our mapping and ablation businesses and no longer manufacture or distribute our AcQMap Mapping System, AcQMap 3D Mapping Catheter, AcQBlate Force-Sensing Ablation Catheter, AcQGuide Max 2.0 Steerable Sheath or associated accessories.
Current Products
Following the Strategic Restructuring and the shift in our business model to solely supporting the manufacturing and distribution of the Products to Medtronic, we manufacture transseptal crossing devices and associated accessories, such as integrated transseptal dilators and needles, fixed-curve or steerable introducers, and steerable sheaths (i.e., the Products). These Products are used to access the left side, or left atrium, of the cardiac anatomy and are used in a range of medical applications, including in electrophysiology and structural heart procedures. The technology supports physicians during a critical component of an ablation or structural heart procedure.
The transseptal crossing devices that we manufacture for Medtronic include versions that are length-, diameter- and tip-matched and designed to lock into the hub of sheaths used in many left-heart procedures. These devices enable mechanical septal crossing with a spring-loaded needle that can also be enhanced with concurrent delivery of radiofrequency energy. They streamline the procedural workflow by eliminating the need for wire and needle exchanges, as they incorporate a retained guidewire within the hollow crossing needle.
The fixed-curve and steerable introducers are indicated for introducing various cardiovascular catheters into the heart, including the left side of the heart through the interatrial septum. They are designed to facilitate vascular access to the heart and then provide catheter positioning (fixed or variable) within the cardiac anatomy.
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The steerable sheaths are designed to facilitate handling and deliverability of interventional devices.
We previously obtained U.S. Food and Drug Administration, or FDA, clearance for the Products in April 2021 and for additional configurations of the Products in June 2022 and submitted an application for CE Mark under the European Union MDR for the Products in December 2022.
We believe the unique attributes of the Products that we manufacture for Medtronic offer significant clinical benefits relative to the current standard of care. The Products are designed for patient safety and procedural efficiency, allowing for fewer steps than a traditional transseptal access workflow.
The transseptal crossing devices contain a spring-tensioned safety needle that only deploys when actuated. The matched integrated dilator and needle lock together with introducers as one unit for control and ease of use.
The transseptal crossing devices incorporate a retained guidewire within the hollow crossing needle. This design reduces exchanges and allows physicians to reposition without requiring wire and needle exchanges. The elimination of guidewire and needle exchanges facilitates transseptal crossing procedures, as the optimal septal crossing location and angle differ depending on the procedure so the ability to easily reposition without cumbersome catheter withdrawals and exchanges is important.
Market and Industry
Electrophysiology involves the diagnosing and treating of abnormal electrical activities of the heart. Electrophysiology products include devices used by electrophysiologists and interventional cardiologists for the treatment of cardiac arrhythmias, or heart rhythm disorders, which are common and can occur when the heart beats too rapidly, too slowly or irregularly. If left untreated, arrhythmias can result in debilitating symptoms, heart failure, stroke and sudden cardiac death. Atrial fibrillation, or AF, is the most common arrhythmia and is characterized by rapid and irregular activation of the heart. This irregular behavior increases the potential to develop blood clots within the upper chambers of the heart, which can then circulate to other organs, leading to reduced blood flow and strokes.
Structural heart conditions involve defects or disorders in the heart’s structure—its valves, walls, chambers or muscles. Structural heart products include those used by interventional cardiologists to treat defects of the heart, such as valve stenosis (stiffness) and valve regurgitation (leaky valve). Surgical repair of the valve may be required in such circumstances.
The Products we manufacture for Medtronic are used in electrophysiology and structural heart procedures. An estimated several hundred thousand transseptal crossings are performed annually during these procedures. The Products support the challenging and critical step of accessing the left atrium during electrophysiology and structural heart procedures such as atrial fibrillation ablation procedures, left atrial appendage occlusions, and transcatheter mitral valve repairs. They simplify transseptal crossing for electrophysiologists and interventional cardiologists to improve workflow, add procedural efficiencies and help alleviate complexity during left heart procedures.
Our Strategy
Following the Operational Downsizing, our strategy is to reduce our operations to a scale designed solely to support the manufacturing and distribution of Medtronic’s left-heart access products under the Distribution Agreement through the transition of the production of these products to Medtronic pursuant to the terms of the Asset Purchase Agreement and the Distribution Agreement, which would occur at a Second Closing under the Asset Purchase Agreement. Upon the occurrence of the Second Closing, we anticipate that our sole source of revenue would be potential earnouts from Medtronic’s sales of the left-heart access product portfolio to end-users pursuant to the Asset Purchase Agreement, and to further wind down operations to minimize costs while continuing to capture the value associated with potential earnout payments we are eligible to receive under the Asset Purchase Agreement until 2027. We have also, and may continue to, explore opportunities for the sale of our remaining intellectual property assets relating to our former mapping and ablation business.
Competition
The medical device industry is intensely competitive, subject to rapid change and significantly affected by new product introductions and other market activities of industry participants.
Because our revenue following the Operational Downsizing is primarily dependent on our ability to capture the value associated with potential earnout payments we are eligible to receive under the Asset Purchase Agreement until 2027, which is dependent on Medtronic’s ability to sell the Products, we face indirect competition from
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Medtronic’s competitors for heart access products in the electrophysiology field, which we believe to include Abbott Laboratories, Biosense Webster Inc. (a Johnson & Johnson Company), and Boston Scientific Corporation.
Many competitors in the manufacturing services industry and the electrophysiology field are large, well-capitalized companies with significantly greater market share and resources. We believe that the principal competitive factors in the electrophysiology field are: name recognition; relations with healthcare professionals, customers and third-party payors; quality and depth of distribution networks; breadth of product lines and the ability to offer rebates or bundle products to offer discounts or other incentives; capabilities in research and development, manufacturing, clinical trials, marketing and obtaining regulatory clearance or approval for products; and financial and human resources for product development, manufacturing, sales and marketing and patent prosecution.
Intellectual Property
We rely on a combination of patent, trademark, trade secret, copyright and other intellectual property rights and measures to protect our technology and the continued commercialization of the Products by Medtronic.
As of December 31, 2024, our patent portfolio included 40 solely owned or exclusively licensed U.S. patents and 20 solely owned or exclusively licensed pending U.S. patent applications (including one solely owned Patent Cooperation Treaty, or PCT, application and zero solely owned provisional U.S. patent applications). In addition, we solely owned or exclusively licensed 56 issued patents and 42 pending patent applications in jurisdictions outside the United States. Of our 62 pending patent applications (U.S. and outside the U.S.), zero have been allowed. Our patents are scheduled to expire between 2027 and 2042. Further, pursuant to our sale of the Products to Medtronic, we no longer retain rights to any patents covering the Products.
For more information regarding the risks related to our intellectual property, please see the section titled “Risk Factors—Risks Related to Our Intellectual Property.”
Manufacture and Supply
We manufacture the Products for Medtronic at our approximately 50,800 square foot facility in Carlsbad, California. This facility provides approximately 15,750 square feet of space for our production operations, including manufacturing, quality control and storage. We believe our existing facility is sufficient to meet our current manufacturing needs and we believe that adequate additional space will be available if we require it. We also subleased out unused portions of the facility.
We stock inventory of raw materials, components and finished goods at our facility in Carlsbad. We rely on a single or limited number of suppliers for certain raw materials and components, and we generally have no long-term supply arrangements with our suppliers, as we generally order on a purchase order basis.
Government Regulation
Our manufacturing operations are subject to regulatory requirements of the FDA’s Quality System Regulation, or QSR, for medical devices sold in the United States, set forth in 21 CFR part 820, and the European Medical Device Directive 93/42/EEC and amendments, and the Products comply to ISO 13485 for manufacturing for medical devices marketed in the European Union. In addition, the Carlsbad facility is licensed by the California Food and Drug Branch.
We have registered with the FDA as a medical device manufacturer and have obtained a manufacturing license from the California Department of Public Health, or CDPH. The FDA and CDPH have broad post-market and regulatory enforcement powers. We are subject to unannounced inspections by the FDA and the Food and Drug Branch of CDPH to determine our compliance with the QSR and other regulations, and these inspections may include the manufacturing facilities of our suppliers. Additionally, our Notified Body, DQS-MED, regularly inspects our manufacturing and operational facilities to ensure ongoing ISO 13485 compliance in order to maintain CE Mark.
We are also subject to applicable local regulations relating to the environment, waste management and health and safety matters including measures relating to the release, use, storage, treatment, transportation, discharge, disposal, sale, labeling, collection, recycling, treatment and remediation of hazardous substances. As of December 31, 2024, there were no material capital expenditures for environmental control facilities. Although there is no assurance that existing or future environmental laws applicable to our operations or the Products we manufacture will not have a material adverse effect on our operations, cash flows or financial condition, we do not currently anticipate material capital expenditures for environmental control facilities.
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Human Capital Resources
As part of the Restructuring, we reduced our workforce by approximately 160 employees, representing approximately 65% of our employees at the time, that was completed by the first quarter of 2024. As part of the Operational Downsizing, we further reduced our workforce by 61 employees, representing approximately 70% of our employees, that is expected to be completed by the first quarter of 2025. In compliance with the Worker Adjustment and Retraining Notification Act, we have provided pre-termination notices to affected employees and government authorities where required. As of December 31, 2024, we had 85 employees, of which 85 are full-time employees.
As of December 31, 2024, we have paid $0.0 million of the estimated $1.4 million to $1.8 million in downsizing and exit-related charges, which includes approximately $0.3 million for the payment of severance and related benefit costs and $1.2 million for the payment of retention bonuses to certain employees that will assist with the Operational Downsizing. A majority of the cash expenditures charges was incurred in the first quarter of 2025, and we expect the Operational Downsizing to be substantially complete in the first quarter of 2025
Company Information
We were incorporated in Delaware on March 25, 2011 as Acutus Medical, Inc. Our principal executive offices and manufacturing facilities are located at 2210 Faraday Ave., Suite 100, Carlsbad, CA 92008, and our telephone number is (442) 232-6080. Our website address is www.acutusmedical.com . The information on, or that may be accessed through, our website is not a part of this report and the inclusion of our website address in this report is an inactive textual reference only.
“Acutus,” the “Acutus” logo, “Acutus Medical,” the “Acutus Medical” logo, “AcQMap,” the “AcQMap” logo, “AcQBlate,” the “AcQBlate” logo, “AcQGuide,” the “AcQGuide” logo], “AcQRef,” the “AcQRef” logo, “SuperMap,” the “SuperMap” logo, “UNCOVER AF” and the “UNCOVER AF” logo are trademarks or registered trademarks of our company. Our logo and our other trade names, trademarks and service marks appearing in this report are our property. Solely for convenience, our trademarks and trade names referred to in this report appear without the ™ or ® symbol, but those references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks and trade names. Other trade names, trademarks and service marks appearing in this report are the property of their respective owners.
We make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports available free of charge at our website as soon as reasonably practicable after they have been filed with the SEC.
Implications of Being an Emerging Growth Company and a Smaller Reporting Company
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As such, we are eligible for exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation, and an exemption from the requirements to obtain a non-binding advisory vote on executive compensation or golden parachute arrangements.
In addition, an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this provision of the JOBS Act. As a result, we will not be subject to new or revised accounting standards at the same time as other public companies that are not emerging growth companies. Therefore, our consolidated financial statements may not be comparable to those of companies that comply with new or revised accounting pronouncements as of public company effective dates.
We will remain an emerging growth company until the earliest of: (i) December 31, 2025; (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.235 billion; (iii) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year; or (iv) the
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date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.
We are also a smaller reporting company as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.
Item 1A. Risk Factors.
Investing in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes before deciding whether to invest in shares of our common stock. The risks described below are not the only ones facing us. The occurrence of any of the following risks or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial could materially and adversely affect our business, financial condition, results of operations and future prospects. Please also see the section titled “Cautionary Note Regarding Forward-Looking Statements.”
Risks Related to our Business
We are dependent on Medtronic for all of our revenue, with no sales or marketing capabilities of our own, and following the completion of the Operational Downsizing and occurrence of the Second Closing, we will have no manufacturing capabilities of our own, and our business will rely solely on our ability to capture the value associated with potential earnout payments we are eligible to receive under the Asset Purchase Agreement until 2027.
Following the Restructuring, we have no sales or marketing capabilities of our own, and we have relied solely on our strategic partnership with Medtronic to generate revenue through (i) the manufacture of the left-heart access product portfolio for Medtronic at transfer prices specified under our Distribution Agreement and (ii) potential earnouts from Medtronic’s sales of the left-heart access product portfolio to end-users. As a result of the Operational Downsizing, we further reduced operations to a scale designed solely to support the manufacturing and distribution of Medtronic’s left-heart access products under the Distribution Agreement through the transition of the production of these products to Medtronic pursuant to the terms of the Asset Purchase Agreement and the Distribution Agreement, which would occur at a Second Closing under the Asset Purchase Agreement as described under “Business—Left-Heart Access Portfolio Sale and Distribution Agreement”. Upon the occurrence of the Second Closing, we anticipate that our sole source of revenue would be potential earnouts from Medtronic’s sales of the left-heart access product portfolio to end-users pursuant to the Asset Purchase Agreement until 2027. Moreover, we do not expect further demand for our production of the Products from Medtronic under the Distribution Agreement after June 30, 2025 and, following the completion of the Operational and occurrence of the Second , we will have no manufacturing capabilities and no material operations. Accordingly, our depends on Medtronic performing its obligations under the Distribution Agreement and the Asset Purchase Agreement and continuing to market and sell the Products to end-users in order for us to earnout payments under the Asset Purchase Agreement. There can be no assurance that Medtronic will be to, or will, perform its obligations under the Distribution Agreement or the Asset Purchase Agreement, or continue to market and sell the Products.
We believe that the factors that may effect Medtronic’s ability to continue to market and successfully sell the Products include, among other things:
• acceptance by Medtronic’s customers of the Products as safe, effective and, with respect to providers, cost-effective, and their level of demand for the Products;
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• Medtronic’s ability to increase physician awareness of the Products and on the willingness of hospitals, physicians, patients or payors to adopt them;
• the coverage and reimbursement policies with respect to the procedures using the Products and current and future products that compete with the Products;
• defects or failures associated with the Products, including any that result in product recalls or other safety or end-user satisfaction issues relating to the Products;
• the medical device industry is intensely competitive, subject to rapid change and significantly affected by new product introductions and other market activities of industry participants, and many competitors in the electrophysiology field are large, well-capitalized companies that may invest greater resources than Medtronic in manufacturing, marketing and sales of current and future products that compete with the Products;
• the cost of manufacturing the Products, which may vary depending on the quantity of production and the terms of Medtronic’s agreements with third-party suppliers;
• the occurrence of natural disasters, outbreaks of disease or public health crises such as the COVID-19 pandemic; and
• economic uncertainty and capital markets disruption, including due to the ongoing military conflict between Russia and Ukraine and Israel and Hamas.
If Medtronic is unable to successfully market and sell the Products, or if Medtronic decided to no longer market and sell the Products, it would have a significantly negative effect on the potential earnout payments we are eligible to receive under the Asset Purchase Agreement until 2027, and have a material adverse effect on our business, results of operation, cash flows and financial condition.
There are continued risks associated with the Restructuring and Operational Downsizing, including our ability to manage the transition costs to realize the anticipated benefits.
As part of the Restructuring and Operational Downsizing, we have recognized $27.1 million out of an estimated $22.4 million - 33.8 million of pre-tax restructuring and exit-related charges, for associated employee severance and benefits, retention bonuses, other restructuring costs and the disposition of certain assets. As part of our Operational Downsizing, we have incurred $0.3 million out of an estimated $1.8 million of pre-tax downsizing and exit-related charges, payment of monetary consideration and related benefit costs, retention bonuses and other contract closing costs. The amount of actual restructuring, downsizing, transition and impairment charges may materially exceed our estimates, when determined, due to various factors outside of our control. Moreover, we may not realize, in full or in part, the anticipated benefits, savings and improvements in our cost structure from our realignment and efforts due to , or costs. If we are to realize the expected operational and cost savings from the and Operational , our business, results of operations and financial condition would be affected, and we may be to seek protection. The and Operational involve numerous risks, including but not limited to:
▪ the inability of our remaining business to retain qualified personnel necessary to run the remaining business;
▪ potential disruption of the operations of our remaining business and diversion of management’s attention from such business and operations;
▪ exposure to unknown, contingent or other liabilities, including litigation arising in connection with the Restructuring or Operational Downsizing; and
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▪ unintended negative consequences from changes to our business profile.
Our ability to continue to have the liquidity necessary to service our debt, meet contractual payment obligations and fund our operations depends on many factors, including our ability to generate sufficient cash flow from operations or obtain other financing.
Our ability to continue to have the liquidity necessary to service our debt and meet financial covenants under our 2022 Credit Agreement depends on us generating sufficient cash, either through cash flows from operations or other financings. If we are unable to service our debt, we would be in default under the 2022 Credit Agreement, which would result in all amounts outstanding under such facility becoming immediately due and payable unless we are able to refinance such indebtedness or obtain a waiver or amendment of the 2022 Credit Agreement from our lenders, which may not be available to us on acceptable terms or at all. While we believe that cash on hand, remaining distribution revenue from left-heart access Products to Medtronic and future earnouts under the Asset Purchase Agreement will generate sufficient cash flows to service our debt and meet our obligations for the next twelve months; however, the foregoing expectation is dependent on a number of factors, including our ability to generate sufficient cash flow from operations, our ongoing ability to manage our operating obligations and the potential borrowing restrictions imposed by the Deerfield Funds based on their credit judgment.
In the event that we are unable to timely service our debt or fund our other liquidity needs, we may need to refinance all or a portion of our indebtedness before maturity, seek waivers of or amendments to our contractual obligations for payment, sell material assets, file for bankruptcy protection and/or liquidate our business, or seek other financing opportunities, none of which may be available to us on acceptable terms or at all.
Our board of directors may decide to pursue a liquidation and dissolution of our business prior to or following the conclusion of the Net Sales Earnout period. In such an event, the amount of cash available for distribution to our stockholders, if any, will depend heavily on the timing of such liquidation as well as the amount of cash that will need to be reserved for commitments and contingent liabilities, including under our 2022 Credit Agreement.
Our board of directors may decide to pursue an assignment for the benefit of creditors, a reorganization or a dissolution of the Company and liquidation of all our remaining assets prior to or following the completion of the Net Sales Earnout period under the Asset Purchase Agreement. In such an event, the amount of cash available for distribution to our stockholders, if any, will depend heavily on the timing of such decision, as with the passage of time the amount of cash available for distribution will be reduced as we continue to fund our operations. The process of liquidation may be lengthy, and we cannot make any assurances regarding the timing of completing such a process. If our board of directors were to approve and recommend, and our stockholders were to approve, a dissolution and liquidation, we would be required under Delaware corporate law to pay our outstanding obligations, including any under our 2022 Credit Agreement, as well as to make reasonable provision for contingent and unknown obligations, prior to making any distributions in liquidation to our stockholders. Further, upon our liquidation, , winding up, , receivership, general assignment for the of creditors or other event, the Deerfield Funds would be entitled to a consent fee under Amendment No. 5 to the 2022 Credit Agreement in an amount equal to the lesser of $300,000 or 5.0% of the aggregate amount of total value that would otherwise be available to our equityholders. There is a substantial likelihood that no cash will be available to distribute to stockholders after paying our debts and other obligations and setting aside funds for reserves. In addition to our obligations to the Deerfield Funds and other creditors, our financial commitments and contingent liabilities may include: (i) personnel costs, including severance; (ii) contractual obligations to third parties; (iii) non-cancelable lease obligations; and (iv) potential us.
As a result of the requirement to reserve for contingencies, a portion of our assets may need to be reserved pending the resolution of such obligations and the timing of any such resolution is uncertain. In addition, we may be subject to litigation or other claims related to a dissolution and liquidation. If a dissolution and liquidation were pursued, our board of directors, in consultation with our advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly, holders of our common stock would likely lose all or a significant portion of their remaining investment in the event of a liquidation, dissolution or winding up.
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Defects or failures associated with the Products we have manufactured for Medtronic under the Distribution Agreement may have a material adverse effect on our business, financial condition, cash flows and results of operations.
Under the Distribution Agreement, we provide a limited warranty that the Products are free of material defects and conform to specifications, and we offer to repair, replace or refund the purchase price of defective products. As a result, we bear the risk of potential warranty claims on the Products. Furthermore, in the event that a recall is caused by a Product due to our non-conformance with the Product specifications or quality requirements, we would be solely responsible for all costs and expenses reasonably incurred by Medtronic in connection with the recall. The circumstances giving rise to recalls are unpredictable, and any recalls of existing or future products could have a material adverse effect on our business, financial condition and results of operations. In the event that we attempt to recover some or all of the expenses associated with a warranty claim against us from our suppliers or vendors, we may not be successful in recovery and any recovery from such vendor or supplier may not be adequate.
The medical device industry has historically been subject to extensive litigation over product liability claims. We may be subject to product liability claims if the Products cause, or merely appear to have caused, an injury or death, even if due to physician error. In addition, an injury or death that is caused by the activities of our suppliers such as those that provide us with components and raw materials, or by an aspect of a treatment used in combination with the Products such as a complementary drug or anesthesia, may be the basis for a claim against us by patients, hospitals, physicians or others purchasing or using the Products, even if the Products were not the actual cause of such injury or death. An adverse outcome of any such claim involving one of the Products could result in our incurring substantial liabilities to Medtronic under the Distribution Agreement.
Although we carry product liability insurance, we can give no assurance that such coverage will be available or adequate to satisfy any claims. Product liability insurance is expensive, subject to significant deductibles and exclusions, and may not continue to be available on acceptable terms, if at all. Any product liability claims brought against us, with or without merit, could increase our product liability insurance rates or prevent us from securing continuing coverage, harm our reputation, significantly increase our expenses and reduce sales of the Products. If we are unable to obtain or maintain insurance at an acceptable cost or on acceptable terms with adequate coverage or otherwise protect against potential product liability claims, we could be exposed to significant liabilities. Product liability claims could cause us to incur significant legal fees and deductibles, and claims in excess of our insurance coverage would be paid out of cash reserves, our financial condition and operating results. a suit regardless of its merit or eventual outcome could be , could management’s attention from our business and might result in publicity, which could result in reduced acceptance of the Products in the market, in product or in market withdrawals.
We are required to file adverse event reports under MDR regulations with the FDA which are publicly available on the FDA’s website. We are required to file MDRs if the Products we manufacture may have caused or contributed to a serious injury or death or malfunctioned in a way that could likely cause or contribute to a serious injury or death if it were to recur. Any such MDR that reports a significant adverse event could result in negative publicity, which could harm our reputation and Medtronic’s future sales. See “—Risks Related to Government Regulation—If any of the Products we manufacture cause or contribute to a death or a serious injury or malfunction in certain ways, we will be required to report under applicable medical device reporting regulations, which can result in voluntary corrective actions or agency enforcement actions.”
If we are unable to comply with our remaining obligations to Medtronic, it could have a material adverse effect on our business, results of operation, cash flows and financial position.
If we are unable to comply with our remaining obligations to Medtronic under the Distribution Agreement and the Asset Purchase Agreement, including but not limited to our obligations to meet Medtronic demand for manufacture of the Products (if any) or transfer to Medtronic certain assets relating to the Products required for Medtronic to become manufacturer of record of the Products at the Second Closing, we could be in breach or default under these agreements and face liability. If we fail to comply with our obligations under these agreements, Medtronic may have the right to terminate these agreements, which would negatively impact our ability to earn the earnouts we are potentially eligible to receive under the Asset Purchase Agreement and prevent us from meeting the Second Closing conditions. We would be in default under our 2022 Credit Agreement, which would result in all amounts
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outstanding under such facility becoming immediately due and payable unless we are able to refinance such indebtedness or obtain a waiver or amendment of the 2022 Credit Agreement from our lenders. Thus, failure to comply with our remaining obligations to Medtronic could have a material adverse effect on our business, results of operations, cash flows and financial position.
If we underestimate Medtronic demand for the Products, or if the Second Closing does not occur or does not occur on the timeline we anticipate, we may encounter substantial difficulties managing the ramp up of our operations given our Operational Downsizing. If we are unable to meet Medtronic demand, we may be in violation of our obligations under the Distribution Agreement and Asset Purchase Agreement and lose the earnouts we are eligible to receive under these agreements.
We have effectuated an Operational Downsizing to reduce our operations to a scale designed solely to support the manufacturing and distribution of Medtronic’s Products under the Distribution Agreement through the transition of the production of these Products to Medtronic pursuant to the terms of the Asset Purchase Agreement and the Distribution Agreement, which would occur at a Second Closing under the Asset Purchase Agreement. However, if we underestimate Medtronic demand for the Products, or if the Second Closing does not occur or does not occur on the timeline we anticipate, we may encounter substantial difficulties and incur significant costs to quickly ramp up our operations and resume hiring of skilled personnel to ensure we have sufficient manufacturing capabilities to meet our obligations under the Distribution Agreement and the Asset Purchase Agreement. We may be unable to meet our obligations under these agreements, which would cause us to be in breach or default of such agreements and negatively impact our ability to earn the earnouts we are potentially eligible to receive under the Asset Purchase Agreement and cause us to significant revenue .
The terms of our 2022 Credit Agreement, require us to meet certain operating and financial covenants and place restrictions on our operating and financial flexibility. If we raise additional capital through debt financing, the terms of any new debt could further restrict our ability to operate our business.
On June 30, 2022, we amended and restated our prior debt facility under the 2019 credit agreement with the 2022 Credit Agreement, which provided us with a senior term loan facility in aggregate principal amount of $35 million.
On August 4, 2023, we entered into Amendment No. 1 (“Amendment No.1”) to the 2022 Credit Agreement with the Deerfield Funds. Pursuant to Amendment No. 1, the 2022 Credit Agreement was amended to decrease the amount of cash we are 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 us.
On November 8, 2023, we entered into Amendment No. 2 (“Amendment No. 2”) to the 2022 Credit Agreement with the Deerfield Funds. 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 us to maintain a minimum liquidity of $10,000,000 at all times, in exchange for fees paid by us.
On March 4, 2024, we entered into Waiver and Amendment No. 3 (“Amendment No. 3”) to the 2022 Credit Agreement with the Deerfield Funds. Previously, on February 16, 2024, the Biotronik Parties filed a demand (the "Demand") against us with the American Arbitration Association, alleging that we breached our contractual obligations under five agreements relating to the licensing, manufacturing, distribution and development of medical devices as a result of the wind down of our businesses. Pursuant to Amendment No. 3, Deerfield has agreed to waive any Default or Event of Default (each defined in the 2022 Credit Agreement) that has arisen or may arise in connection with the Demand. In addition, pursuant to Amendment No. 3, among other things, (i) the 2022 Credit Agreement was amended such that (x) a Change in Control (as defined in the 2022 Credit Agreement) under the 2022 Credit Agreement would not be deemed to occur in the event our common stock ceases to be listed on Nasdaq (without a comparable re-listing) (a “Delisting”) and (y) exposure incurred in excess of $3.0 million in respect of proceedings in relation to the Demand and/or related proceedings and/or between such parties is deemed an Event of (as defined in the 2022 Credit Agreement) under the 2022 Credit Agreement.
On November 13, 2024, we entered into Amendment No. 4 (“Amendment No. 4”) to the 2022 Credit Agreement with the Deerfield Funds. Pursuant to Amendment No. 4, the 2022 Credit Agreement was amended to (i) adjust the amortization schedule of the 2022 Credit Agreement such that the $7.5 million installment payment of principal due on June 30, 2025 would be made over three equal installments of $2.5 million on each of June 30, 2025, September
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30, 2025 and December 31, 2025 and (ii) increase the exit fee associated with prepayment or repayment of the loans from 5.0% to 6.0% of the principal amount of the loans prepaid or repaid.
On January 21, 2025, we entered into Amendment No. 5 to the 2022 Credit Agreement with the Deerfield Funds. Pursuant to Amendment No. 5, the 2022 Credit Agreement was amended to allow us to effect the Deregistration and, among other things: (i) provided that the Deerfield Funds would receive a Consent Fee in the form of a contingent value right payable upon certain triggering events in an amount equal to the lesser of $300,000 or 5.0% of the aggregate amount of total value that would otherwise be available to our equityholders; (ii) modified the financial reporting requirements under the 2022 Credit Agreement, including requiring delivery of cash flow forecasts to the Deerfield Funds; (iii) required the appointment of a Chief Restructuring Officer; and (iv) modified the negative covenants to limit our business activities and required us to maintain minimum liquidity of $5 million.
Our payment obligations under the 2022 Credit Agreement reduced cash available to fund working capital, capital expenditures, manufacturing and general corporate needs. In addition, indebtedness under the 2022 Credit Agreement bears interest at a variable rate, making us vulnerable to increases in market interest rates. If market rates increase, we will have to pay additional interest on this indebtedness, which would further reduce cash available for our other business needs.
Our obligations under the 2022 Credit Agreement are secured by substantially all of our assets and the assets of our wholly-owned subsidiary. The security interest granted over our assets could limit our ability to obtain additional debt financing. In addition, the 2022 Credit Agreement contains customary affirmative and negative covenants restricting our activities, including limitations on:
◦ dispositions, mergers or acquisitions; encumbering our intellectual property;
◦ incurring indebtedness or liens;
◦ paying dividends or redeeming stock or making other distributions;
◦ making certain investments;
◦ liquidating our company;
◦ modifying our organizational documents;
◦ entering into sale-leaseback arrangements; and,
◦ engaging in certain other business transactions.
In addition, we are required to maintain a minimum liquidity amount of $5.0 million. Failure to comply with the covenants in the 2022 Credit Agreement, including the minimum liquidity covenant, could result in the acceleration of our obligations under the 2022 Credit Agreement, and, if such acceleration were to occur, would materially and adversely affect our business, financial condition and results of operations.
We may not have sufficient funds, and may be unable to arrange for additional financing, to pay the amounts due under our debt arrangement. The obligations under the 2022 Credit Agreement are subject to acceleration upon the occurrence of specified events of default, including payment default, change in control, bankruptcy, insolvency, certain defaults under other material debt, certain events with respect to regulatory approvals and a material adverse change in our business, operations or other financial condition. If an event of default (other than certain events of bankruptcy or insolvency) occurs and is continuing, Wilmington Trust may declare all or any portion of the outstanding principal amount of the borrowings plus accrued and unpaid interest to be due and payable. Upon the occurrence of certain events of bankruptcy or insolvency, all of the outstanding principal amount of the borrowings plus accrued and interest will automatically become due and payable. The 2022 Credit Agreement also provides for final payment fees that are due upon prepayment, on the maturity date or upon acceleration, as well as prepayment .
Our outstanding indebtedness and any future indebtedness combined with our other financial obligations could increase our vulnerability to adverse changes in general economic, industry and market conditions, limit our flexibility in planning for, or reacting to, changes in our business and the industry and impose a competitive disadvantage compared to our competitors that have less debt or better debt servicing options.
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Taxing authorities may successfully assert that we should have collected or in the future should collect sales and use, gross receipts, value added or similar taxes and may successfully impose additional obligations on us, and any such assessments or obligations could adversely affect our business, financial condition and results of operations.
We have not historically collected sales and use, gross receipts, value added or similar taxes, although we may be subject to such taxes in various jurisdictions. One or more jurisdictions may seek to impose additional tax collection obligations on us, including for past sales. A successful assertion by a state, country or other jurisdiction that we should have been or should be collecting additional sales, use or other taxes on our services could, among other things, result in substantial tax liabilities for past sales, create significant administrative burdens for us or otherwise harm our business, results of operations and financial condition.
Our ability to utilize our net operating loss carryforwards may be limited.
As of December 31, 2024, we had U.S. federal and state net operating loss, or NOL, carryforwards of approximately $458.7 million and $150.1 million, respectively. We may use these NOLs to offset against taxable income for U.S. federal and state income tax purposes. If not utilized, our U.S. federal NOLs (and our state NOLs in conforming states) arising in taxable years beginning before 2018 will begin to expire in 2031. Deductibility of U.S. federal NOLs arising in taxable years beginning after 2017 may be carried forward 20 years and are limited to 80% of our taxable income before the deduction for such NOLs. Additionally, Section 382 of the Internal Revenue Code of 1986, as amended, may limit the NOLs we may use in any year for U.S. federal income tax purposes in the event of certain changes in ownership of our company. A Section 382 “ownership change” generally occurs if one or more stockholders or groups of stockholders who own at least 5% of a company’s stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws. In addition, future issuances or sales of our stock, including certain transactions involving our stock that are outside of our control, could result in future “ownership changes.” “Ownership changes” that have occurred in the past or that may occur in the future could result in the imposition of an annual limit on the amount of pre-ownership change NOLs and other tax attributes we can use to reduce our taxable income, potentially increasing and accelerating our liability for income taxes, and also potentially causing those tax attributes to expire unused. Any on using NOLs could, depending on the extent of such and the NOLs previously used, result in our retaining less cash after payment of U.S. federal and state income taxes during any year in which we have taxable net income than we would be entitled to retain if such NOLs were available as an offset such income for U.S. federal and state income tax reporting purposes, which could impact operating results.
If we experience significant disruptions in our information technology systems, our business may be adversely affected.
We depend on our information technology systems for the efficient functioning of our business, including the manufacture, distribution and maintenance of the Products, as well as for accounting, data storage, compliance, purchasing and inventory management. We do not have redundant information technology systems at this time. Our information technology systems may be subject to computer viruses, ransomware or other malware, attacks by computer hackers, failures during the process of upgrading or replacing software, databases or components thereof, power outages, damage or interruption from fires or other natural disasters, hardware failures, telecommunication failures and user errors, among other malfunctions. We could be subject to any number of unintentional events that could involve a third party gaining unauthorized access to our systems, which could our operations, our data or result in release of our confidential information. Technological could our operations, including our ability to timely ship and track product orders, project inventory requirements, manage our supply chain and otherwise service Medtronic’s ability to use the Products for treatments. In the event we experience significant , we may be to repair our systems in an and timely manner. Accordingly, such events may or reduce the of our entire operation and have a material effect on our business, financial condition and results of operations. To the extent that any or security were to result in a of, or to, our data or applications, or result in disclosure of confidential or proprietary information, we could incur liability.
Currently, we carry business interruption coverage to mitigate certain potential losses, but this insurance is limited in amount and may not be sufficient in type or amount to cover us against claims related to security breaches, cyber-attacks and other related data and system disruptions. We cannot be certain that such potential losses will not exceed our policy limits, whether insurance will continue to be available to us on economically reasonable terms, or at all, or whether any insurer will not deny coverage as to any future claim. In addition, we may be subject to changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements. We are increasingly dependent on complex information technology to manage our infrastructure. Our information systems require an ongoing commitment of significant resources to maintain, protect and enhance our
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existing systems. Failure to maintain or protect our information systems and data integrity effectively could have a material adverse effect on our business, financial condition and results of operations.
Security breaches, loss of data and other disruptions could compromise sensitive information related to our business or prevent us from accessing critical information and expose us to liability, which could adversely affect our business and our reputation.
The information we stored historically includes sensitive data, including procedure-based information, and legally protected health information, insurance information and other potentially personally identifiable information. We also store sensitive intellectual property and other proprietary business information. Although we take measures to protect sensitive information from unauthorized access or disclosure, our information technology, or IT, and infrastructure, and that of our third-party billing and collections provider and other technology partners, may be vulnerable to cyber-attacks by hackers or viruses or breached due to employee error, malfeasance, social engineering (including phishing), ransomware, supply chain attacks and vulnerabilities through our third-party partners, credential stuffing, efforts by individuals or groups of hackers and sophisticated organizations including state-sponsored organizations, bug or security vulnerabilities in the software or systems on which we rely or other disruptions. We rely extensively on IT systems, networks and services including internet sites, data hosting and processing facilities and tools, physical security systems and other hardware, software and technical applications and platforms, some of which are managed, hosted, provided and/or used by third parties or their vendors to assist in conducting our business. A significant , invasion, , or of information technology systems or infrastructure by our workforce, by others with authorized access to our systems or by persons could impact operations. The ever-increasing use and evolution of technology including cloud-based computing creates for the dissemination or of confidential information stored in our or our third-party providers’ systems, in portable media or in storage devices. We could also experience a business , a theft of confidential information or the reputational from industrial espionage attacks, malware or other cyber-attacks, which may compromise our system infrastructure or lead to data leakage either internally or at our third-party providers. Although the aggregate impact on our operations and financial condition has not been material to date, we have been the target of events of this nature and expect them to continue as cybersecurity have been rapidly evolving in sophistication and becoming more prevalent in the industry. We are investing in protections and monitoring practices of our data and IT to reduce these risks and we continue to monitor our systems on an ongoing basis for any current or potential . There can be no assurance, however, that our efforts will prevent or to our or our third-party providers’ databases or systems that could materially and affect our business, financial condition and results of operations.
Additionally, we cannot be certain that any insurance coverage that we may maintain will be adequate or otherwise protect us with respect to claims, expenses, fines, penalties, business loss, data loss, litigation, regulatory actions or other impacts arising out of security breaches or other disruptions, or that such coverage will continue to be available on acceptable terms or at all. Any of these results could adversely affect our business, financial condition and results of operations.
Risks Related to Government Regulation
Regulatory compliance is expensive, complex and uncertain, and failure to comply could lead to enforcement actions against us and other negative consequences for our business.
The current Products that we manufacture are subject to extensive regulation by the FDA in the United States, our Notified Body in the European Union and certain other non-U.S. regulatory agencies. Complying with these regulations is costly, time-consuming, complex and uncertain. Government regulations specific to medical devices are wide-ranging and include, among other things, oversight of:
◦ product design, development, manufacture (including our suppliers) and testing;
◦ product safety and effectiveness;
◦ product labeling;
◦ product storage and shipping;
◦ record keeping;
◦ product sales and distribution;
◦ product changes;
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◦ product recalls; and
◦ post-market surveillance and reporting of deaths or serious injuries and certain malfunctions.
In order to sell the Products in member countries of the EEA, the Products must comply with the essential requirements of the Medical Device Directive, or MDD. Compliance with these requirements is a prerequisite to be able to affix the CE Mark to the Products, without which they cannot be sold or marketed in the EEA. To demonstrate compliance with the essential requirements, we must undergo a conformity assessment procedure which varies according to the type of medical device and its classification. Except for low-risk medical devices (Class I non-sterile, non-measuring devices) where the manufacturer can issue an European Commission Declaration of Conformity based on a self-assessment of the conformity of its products with the essential requirements of the MDD, a conformity assessment procedure requires the intervention by a Notified Body. Depending on the relevant conformity assessment procedure, the Notified Body would typically audit and examine the technical file and the quality system for the manufacture, design and final inspection of our devices. The Notified Body issues a certificate of conformity following successful completion of a conformity assessment procedure conducted in relation to the medical device and its manufacturer and their conformity with the essential requirements. This certificate entitles the manufacturer to affix the CE Mark to its medical devices after having prepared and signed a related EC Declaration of Conformity. If we fail to be in compliance with applicable European laws and directives, we would be to affix the CE Mark to the Products, which would prevent Medtronic from selling them within the EEA.
Further, failure to comply with applicable U.S. requirements regarding, for example, manufacturing or labeling the Products, may subject us to a variety of administrative or judicial actions and sanctions, such as Form 483 observations, warning letters, untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties and criminal prosecution.
Any enforcement action by the FDA and other comparable non-U.S. regulatory agencies could have a material adverse effect on our business, financial condition and results of operations. Our failure to comply with applicable regulatory requirements could result in enforcement action by the FDA or state or international agencies, which may include any of the following actions:
◦ untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;
◦ unanticipated expenditures to address or defend such actions;
◦ customer notifications for repair, replacement or refunds;
◦ recall, detention or seizure of the Products;
◦ operating restrictions or partial suspension or total shutdown of production;
◦ refusing or delaying requests for 510(k) clearance or Premarket Approval, or PMA, of modified products;
◦ operating restrictions;
◦ withdrawing 510(k) clearances or PMA that have already been granted;
◦ refusal to grant export approval for the Products; or
◦ criminal prosecution.
If any of these events were to occur, it would have a material and adverse effect on our business, financial condition and results of operations.
Our operations are subject to pervasive and continuing FDA regulatory requirements.
Medical devices regulated by the FDA are subject to controls which include: registration with the FDA; listing commercially distributed products with the FDA; complying with current Good Manufacturing Processes under QSR; filing reports with the FDA, and keeping records relative to certain types of adverse events associated with devices under the medical device reporting regulation; assuring that device labeling complies with device labeling requirements; and reporting certain device field removals and corrections to the FDA.
The medical device industry is now experiencing greater scrutiny and regulation by federal, state and foreign governmental authorities. Companies in our industry are subject to more frequent and more intensive reviews and investigations, often involving the marketing, business practices and product quality management. Such reviews and
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investigations may result in civil and criminal proceedings; the imposition of substantial fines and penalties; the receipt of warning letters, untitled letters, demands for recalls or the seizure of the Products; the requirement to enter into corporate integrity agreements, stipulated judgments or other administrative remedies; and could result in our incurring substantial unanticipated costs and the diversion of key personnel and management’s attention from their regular duties, any of which may have a material and adverse effect on our business, financial condition and results of operations, and may result in greater and continuing governmental scrutiny of our business in the future.
If we fail to comply with the FDA’s QSR, or other FDA or European Union requirements, the FDA or the competent European Union authority could take various enforcement actions including halting our manufacturing operations, and our business would suffer.
In the United States, as a manufacturer of a medical device, we are required to demonstrate and maintain compliance with the FDA’s QSR. The QSR is a complex regulatory scheme that covers the methods and documentation of the design, testing, control, manufacturing, labeling, quality assurance, packaging, storage and shipping of medical devices. The FDA enforces the QSR through periodic inspections and unannounced “for cause” inspections.
We are subject to periodic FDA inspections to determine compliance with QSR and pursuant to the Bioresearch Monitoring Program, which may in the future result in the FDA issuing Form 483s. Outside the United States, the Products we manufacture and our operations are also often required to comply with standards set by industrial standards bodies such as the International Organization for Standardization. Foreign regulatory bodies may evaluate the Products or the testing that the Products undergo against these standards. The specific standards, types of evaluation and scope of review differ among foreign regulatory bodies. Our failure to comply with FDA or local requirements that pertain to clinical trials/investigations, including GCP requirements and the QSR (in the United States), or failure to take satisfactory and prompt corrective action in response to an adverse inspection, could result in enforcement actions including a warning letter, adverse publicity, a shutdown of or restrictions on our manufacturing operations, delays in approving or clearing the Products, to permit the import or export of the Products, prohibition on sales of the Products, a or seizure of the Products, , , civil or or other sanctions, any of which could cause our business and operating results to .
The Products may be subject to recalls after receiving FDA or foreign approval or clearance, which could divert managerial and financial resources, harm our reputation and adversely affect our business.
The FDA and similar foreign governmental authorities have the authority to require the recall of the Products because of any failure to comply with applicable laws and regulations or because of defects in design or manufacture. A government mandated or voluntary product recall by us or Medtronic could occur because of, for example, component failures, device malfunctions or other adverse events such as serious injuries or deaths or quality-related issues such as manufacturing errors or design or labeling defects. Any future recalls of the Products could divert managerial and financial resources, harm our reputation and adversely affect our business.
If we initiate a correction or removal for one of the Products we manufacture to reduce a risk to health posed by such product, we would be required to submit a publicly available Correction and Removal report to the FDA and, in many cases, similar reports to other regulatory agencies. This report could be classified by the FDA as a product recall which could lead to increased scrutiny by the FDA, other international regulatory agencies and Medtronic regarding the quality and safety of the Products. Furthermore, the submission of these reports has been and could be used by competitors against us in competitive situations and cause Medtronic to delay purchase decisions or cancel orders from us and would harm our reputation.
If any of the Products we manufacture cause or contribute to a death or a serious injury or malfunction in certain ways, we will be required to report under applicable MDR regulations, which can result in voluntary corrective actions or agency enforcement actions.
Under FDA MDR regulations, medical device manufacturers are required to report to the FDA information that a device has or may have caused or contributed to a death or serious injury, or has malfunctioned in a way that would likely cause or contribute to death or serious injury if the malfunction of the device or one of our similar devices were to recur. If we fail to report events required to be reported to the FDA within the required timeframes, or at all, the FDA could take enforcement action and impose sanctions against us. Any such adverse event involving the Products also could result in future voluntary corrective actions such as recalls or customer notifications, or agency action such as inspection or enforcement action. Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, would require our time and capital, management from operating our business and may our reputation and have a material effect on our business, financial condition and results of operations.
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Our strategic partner, employees, independent contractors, consultants, and vendors may engage in misconduct or other improper activities including noncompliance with regulatory standards and requirements.
We are exposed to the risk that our strategic partner, employees, independent contractors, consultants and vendors may engage in fraudulent or illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that violates: (i) the laws of the FDA and other similar foreign regulatory bodies including those laws requiring the reporting of true, complete and accurate information to such regulators; (ii) manufacturing standards; (iii) healthcare fraud and abuse laws in the United States and similar foreign fraudulent misconduct laws; or (iv) laws that require the true, complete and accurate reporting of financial information or data. These laws may impact, among other things, future sales. In particular, the promotion, sales and marketing of healthcare items and services, as well as certain business arrangements in the healthcare industry, are subject to extensive laws designed to prevent , , self-dealing and other practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, structuring and commissions, certain customer incentive programs and other business arrangements generally.
We have adopted a code of business conduct and ethics, but it is not always possible to identify and deter misconduct by our employees and other third parties, and the precautions we take to detect and prevent these activities may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those actions could result in the imposition of significant fines or other sanctions including the imposition of civil, criminal and administrative penalties, damages, monetary fines, , individual , additional reporting and oversight obligations, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual , reputational , profits and future earnings and of operations, any of which could affect our ability to operate our business and our results of operations. Whether or not we are in any such actions or , we could incur substantial costs including legal fees and the of the attention of management in ourselves any of these or , which could have a material effect on our business, financial condition and results of operations.
Compliance with environmental laws and regulations could be expensive, and failure to comply with these laws and regulations could subject us to significant liability.
Our manufacturing operations involve the use of hazardous substances and are subject to a variety of federal, state, local and foreign environmental laws and regulations relating to the storage, use, discharge, disposal, remediation of, and human exposure to, hazardous substances and the sale, labeling, collection, recycling, treatment and disposal of products containing hazardous substances. Liability under environmental laws and regulations can be joint and several and without regard to fault or negligence. Compliance with environmental laws and regulations may be expensive, and noncompliance could result in substantial liabilities, fines and penalties, personal injury and third-party property damage claims and substantial investigation and remediation costs. Environmental laws and regulations could become more stringent over time, imposing compliance costs and increasing risks and associated with . We cannot you that of these laws and regulations will not occur in the future, or have not occurred in the past, as a result of human , , equipment or other causes. The expense associated with environmental regulation and remediation could our financial condition and results of operations.
Risks Related to Our Intellectual Property
We are a contract manufacturer, and our lack of any meaningful registered intellectual property means we rely solely on our manufacturing processes for our success.
We are a contract manufacturer of the Products for Medtronic, and our business is largely dependent upon our manufacturing processes and know-how. Pursuant to our sale of the Products to Medtronic, we no longer retain any patents covering the Products, and we no longer have an intellectual property position that is protected by meaningful registered intellectual property. The lack of strong patent and other intellectual property protection increases our vulnerability and sole dependence on our manufacturing processes for our success.
We are required to indemnify Medtronic for intellectual property claims in respect of the Products under the Asset Purchase Agreement, and as a result we may become a party to intellectual property litigation or
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administrative proceedings that could be costly and could interfere with our ability to sell the Products to Medtronic and Medtronic’s ability to sell the Products to end-users.
The medical device industry has been characterized by extensive litigation regarding patents, trademarks, trade secrets and other intellectual property rights, and companies in the industry have used intellectual property litigation to gain a competitive advantage. It is possible that U.S. and foreign patents and pending patent applications or trademarks controlled by third parties may be alleged to cover the Products. Additionally, the Products include components that we purchase from vendors, and may include design components that are outside of our direct control. Our competitors, many of which have substantially greater resources and have made substantial investments in patent portfolios, trade secrets, trademarks and competing technologies, may have applied for or obtained, or may in the future apply for or obtain, patents or trademarks that will prevent, limit or otherwise interfere with our ability to make, use, sell and/or export the Products to Medtronic, or Medtronic’s ability to sell and/or export the Products to end-users. Because patent applications can take years to issue and are often afforded confidentiality for some period of time, there may currently be pending applications, unknown to us, that later result in issued patents that could cover one or more of the Products. Moreover, in recent years, individuals and groups that are non-practicing entities, commonly referred to as “patent trolls,” have purchased patents and other intellectual property assets for the purpose of making of in order to extract settlements. From time to time, we may receive letters, notices or “invitations to license,” or may be the subject of that our products and business operations or the intellectual property rights of others. The defense of these matters can be time consuming, to in , management’s attention and resources, our reputation and brand and cause us to incur significant expenses or make substantial payments. Vendors from whom we purchase hardware or software may not indemnify us in the event that such hardware or software is of a third party’s patent or trademark or of a third party’s trade secret, or any indemnification granted by such vendors may not be sufficient to address any liability and costs we incur as a result of such . Additionally, we may be obligated to indemnify our business partners in connection with and to obtain licenses or refund fees, which could further exhaust our resources.
For example, under our Asset Purchase Agreement with Medtronic, we are required to indemnify Medtronic against the risk of intellectual property claims related to the Products. We may be responsible for claims that the Products we supply use, infringe, misappropriate or otherwise violate third party intellectual property rights.
Even if we believe a third party’s intellectual property claims are without merit, there is no assurance that a court would find in our favor, including on questions of infringement, validity, enforceability or priority of patents. A court of competent jurisdiction could hold that these third-party patents are valid, enforceable and infringed, which could materially and adversely affect our ability to sell the Products to Medtronic and Medtronic’s ability to sell the Products to end-users. In order to successfully challenge the validity of any such U.S. patent in federal court, the presumption of validity must be overcome. This burden is a high one requiring clear and convincing evidence as to the invalidity of any such U.S. patent claim, and there is no assurance that a court of competent jurisdiction would invalidate the claims of any such U.S. patent. Conversely, the patent owner need only prove by a preponderance of the evidence, which is a lower of proof.
Further, if patents, trademarks or trade secrets are successfully asserted against us or Medtronic, this may harm our business and result in injunctions preventing us from developing, manufacturing or selling the Products to Medtronic or them from selling the Products to end-users, or result in obligations to pay license fees, damages, attorney fees and court costs, which could be significant. In addition, if a party is found to willfully infringe third-party patents or trademarks or to have misappropriated trade secrets, that party could be required to pay treble damages in addition to other penalties.
Our rights to develop, manufacture and distribute the Products to Medtronic are subject, in part, to the terms and conditions of licenses granted to us by Medtronic.
We rely, in part, upon licenses to certain patent rights and proprietary technology from Medtronic that are important or necessary to the development, manufacturing and distribution of the Products to Medtronic. We may not have the right to control the preparation, filing, prosecution, maintenance, enforcement and defense of patents and patent applications covering such technology. Therefore, we cannot be certain that these patents and patent applications will be prepared, filed, prosecuted, maintained, enforced and defended in a manner consistent with the best interests of our business. If our licensor, Medtronic, fails to prosecute, maintain, enforce and defend such patents, or loses rights to those patents or patent applications, the rights we have licensed may be reduced or eliminated, and our right to develop, manufacture or distribute any of the Products that are the subject of such licensed rights could be adversely affected.
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If we are unable to protect the confidentiality of our other proprietary information covering the Products, our business and competitive position may be harmed.
We also rely on other proprietary rights, including protection of trade secrets and other proprietary information that is not patentable or that we elect not to patent. However, trade secrets can be difficult to protect and some courts are less willing or are unwilling to protect trade secrets. To maintain the confidentiality of our trade secrets and proprietary information, we rely heavily on confidentiality provisions that we have in contracts with our employees, consultants, contractors, collaborators and others upon the commencement of their relationship with us. We cannot guarantee that we have entered into such agreements with each party that may have or have had access to our trade secrets or proprietary technology and processes. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade secrets by such third parties despite the existence generally of these confidentiality restrictions. These contracts may not provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information. There can be no assurance that such third parties will not their agreements with us, that we will have adequate remedies for any , or that our trade secrets will not otherwise become known or independently developed by competitors. the protections we do place on our intellectual property or other proprietary rights, monitoring use and disclosure of our intellectual property is , and we do not know whether the steps we have taken to protect our intellectual property or other proprietary rights will be adequate. Enforcing a claim that a party or a trade secret is , expensive and time-consuming, and the outcome is . The laws of many foreign countries will not protect our intellectual property or other proprietary rights to the same extent as the laws of the United States. Consequently, we may be to prevent our proprietary technology from being in the United States and abroad, which could require efforts to protect the technology.
To the extent our intellectual property or other proprietary information protection is incomplete, we are exposed to a greater risk of direct competition. A third party could, without authorization, copy or otherwise obtain and use the Products, or develop similar technology. Our competitors could purchase the Products from Medtronic and attempt to replicate some or all of the competitive advantages derived the design around any protected technology. Our failure to secure, protect and enforce our intellectual property rights could substantially harm the value of the Products and our business. The theft or unauthorized use or publication of our trade secrets and other confidential business information could reduce the differentiation of the Products and harm our business.
We also seek to preserve the integrity and confidentiality of our data and other confidential information by maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached and detecting the disclosure or misappropriation of confidential information and enforcing a claim that a party illegally disclosed or misappropriated confidential information is difficult, expensive and time-consuming, and the outcome is unpredictable. Further, we may not be able to obtain adequate remedies for any breach. Any of the foregoing could materially and adversely affect our business, financial condition and results of operations.
Maintaining patent protection for the Products depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and patent protection for the Products could be reduced or eliminated by Medtronic’s non-compliance with these requirements, which could have a material adverse effect on our business, financial condition and results of operations.
The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. In addition, periodic maintenance fees, renewal fees, annuity fees and various other government fees on issued patents and patent applications will be due to the USPTO and foreign patent agencies over the lifetime of such patents or patent applications. We rely on Medtronic to pay these fees due to U.S. and non-U.S. patent agencies for patents in respect of the Products. While an unintentional lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and to properly legalize and submit formal documents. If Medtronic to maintain the patents covering the Products, we may not be to stop a competitor from marketing products that are the same as or similar to the Products, which could have a material effect on our business, financial condition and results of operations.
We may be subject to claims that we or our employees, consultants or contractors have wrongfully used, disclosed or otherwise misappropriated the intellectual property of a third party, including trade secrets or know-how, or
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are in breach of non-competition or non-solicitation agreements with our competitors or claims asserting an ownership interest in intellectual property we regard as our own or otherwise transferred to Medtronic.
Many of our employees, consultants and contractors were previously employed at or engaged by other medical device, biotechnology or pharmaceutical companies, including our competitors or potential competitors. Some of these employees, consultants and contractors may have executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment. Although we try to ensure that our employees, consultants and contractors do not use the intellectual property, proprietary information, know-how or trade secrets of others in their work for us, we may be subject to claims that we or these individuals have, inadvertently or otherwise, used, disclosed or otherwise misappropriated intellectual property, including trade secrets or other proprietary information of their former employers or our competitors or potential competitors. Additionally, we may be subject to claims from third parties challenging our ownership interest in intellectual property we regard as our own or transferred to Medtronic based on claims that our employees, consultants or contractors have breached an obligation to assign inventions to another employer, to a former employer or to another person or entity.
Litigation may be necessary to defend against such claims, and it may be necessary to enter into a license to settle any such claim; however, there can be no assurance that a license would be obtained on commercially reasonable terms, if at all. If our defense to those claims fails, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. For example, a court could prohibit us from using technologies or features that are essential to the Products if such technologies or features are found to incorporate or be derived from the trade secrets or other proprietary information of the former employer. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a to management.
An inability to incorporate technologies or features that are important or essential to the Products could have a material adverse effect on our business, financial condition and results of operations, and may prevent us from selling the Products to Medtronic or Medtronic from selling the Products to end-users. Any litigation or the threat thereof may adversely affect our ability to maintain employees. A loss of key personnel or their work product could hamper or prevent our ability to manufacture the Products for Medtronic, which could have an adverse effect on our business, financial condition and results of operations.
We may be subject to claims challenging the inventorship of the patents we transferred to Medtronic and other intellectual property in respect of the Products.
We or Medtronic may be subject to claims that former consultants, contractors or other third parties have an interest in the patents, trade secrets or other intellectual property in respect of the Products that we transferred to Medtronic as an inventor or co-inventor. While it is our policy to require our employees, consultants and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. The assignment of intellectual property rights may not be self-executing or the assignment agreements may be breached, and we or Medtronic may be forced to bring claims against third parties or defend claims that they may bring against us or Medtronic to determine the ownership the intellectual property. Under our Asset Purchase Agreement with Medtronic, we are required to indemnify Medtronic the risk of intellectual property related to the Products. We may be responsible for that the Products we supply use, , or otherwise third party intellectual property rights. If we or Medtronic in any such , in addition to paying monetary , we or Medtronic may intellectual property rights such as ownership of, or right to use, intellectual property that is important to the Products. Any such events could have a material effect on our business, financial condition and results of operations.
Risks Related to Our Common Stock
Our common stock has been delisted from Nasdaq, and we have undertaken actions to effect a “going dark” transaction, including the deregistration of our common stock with the SEC, including the suspension of our reporting obligations under Exchange Act.
As previously disclosed, Nasdaq suspended trading in our common stock on May 9, 2024, due to noncompliance with Nasdaq Listing Rule 5550(a)(2) and 5550(b). On May 15, 2024, Nasdaq announced that it would formally delist our common stock that was previously suspended. On May 16, 2024, Nasdaq filed a Form 25 Notification of Delisting with the SEC to complete the delisting and remove such securities from registration under Section 12(b) of the Exchange Act, and such delisting took effect on May 26, 2024. The deregistration of our common stock under Section 12(b) of the Exchange Act was effective 90 days after the Form 25 filing. On May 9, 2024, our common stock began trading over the counter on the OTC Pink Market under the trading symbol “AFIB.”
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In January 2025, our board determined to effect the Deregistration. We filed a Form 15 with the SEC to voluntarily effect the Deregistration. The filing of the Form 15 immediately suspended our reporting obligations under Section 13(a) of the Exchange Act, subject only to our obligation to file a Form 10-K for our fiscal year ended December 31, 2024. We expect the Deregistration to become effective 90 days after filing the Form 15 with the SEC.
These actions have the following effect:
◦ Except for the filing this Form 10-K, we have ceased filing annual, quarterly, current, and other reports and documents with the SEC, and our stockholders will have significantly less information about us and our business, operations, and financial performance than they previously had.
◦ We are no longer listed on Nasdaq, which may have an adverse effect on the liquidity of our common stock. Any trading in our common stock will only occur in privately negotiated sales and on the OTC, but only if one or more brokers chooses to make a market for our common stock on the OTC and complies with applicable regulatory requirements, which may adversely affect the liquidity of our common stock and result in a significantly increased spread between the bid and asked prices of our common stock, and there is no guarantee that a broker will continue to make a market in our common stock and that trading of our common stock will continue on the OTC or otherwise. Additionally, the overall price of our stock may be significantly reduced due to the potential that investors may view the investment as inherently riskier given the fact that publicly available information about us will be significantly more limited, as well as due to possible limited liquidity of our common stock.
◦ We will no longer be subject to the reporting requirements under the Exchange Act or other requirements applicable to a public company, including requirements under the Sarbanes-Oxley Act and the listing standards of any national securities exchange.
◦ Our executive officers, directors and 10% stockholders will no longer be required to file reports relating to their transactions in our common stock with the SEC. In addition, our executive officers, directors and 10% shareholders will no longer be subject to the recovery of profits provision of the Exchange Act, and persons acquiring 5% of our common stock will no longer be required to report their beneficial ownership under the Exchange Act.
◦ We will have no ability to access the public capital markets or to use public securities in attracting and retaining executives and other employees, and we will have a decreased ability to use stock to acquire other companies.
Since our common stock was delisted from Nasdaq and is traded over-the-counter, your ability to trade and the market price of our shares of common stock may be negatively impacted.
Since our common stock was delisted from Nasdaq and is traded on the over-the-counter market, the application of the “penny stock” rules could adversely affect the market price of our common stock and increase the transaction costs to sell those shares. The SEC has adopted regulations which generally define a “penny stock” as any equity security not listed on a national securities exchange or quoted on Nasdaq that has a market price of less than $5.00 per share, subject to certain exceptions. Since our common stock was delisted from Nasdaq and is traded on the over-the-counter market at a price of less than $5.00 per share, our common stock is considered a penny stock. Unless otherwise exempted, the SEC’s penny stock rules require a broker-dealer, before a transaction in a penny stock, to deliver a standardized risk disclosure document that provides information about penny stock and the risks in the penny stock market, the current bid and offer quotations for the penny stock, the compensation of the broker-dealer and the salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. Further, prior to a transaction in a penny stock, the penny stock rules require the broker-dealer to provide a written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s agreement to the transaction. The penny stock rules restrict the ability of
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brokers-dealers to sell our common stock and may affect the ability of investors to sell their shares, until our common stock is no longer a penny stock.
We have in the past and may be in the future subject to securities litigation, which is expensive and could divert management attention.
We and certain of our current officers have been named as defendants in two putative securities class action lawsuits filed by putative stockholders in the United States District Court for the Southern District of California on February 15, 2022 and March 23, 2022 (case numbers 22CV206 and 22CV0388). The plaintiffs allege that the defendants violated Section 10(b) of the Exchange Act and Rule 10b-5 and Section 20(a) of the Exchange Act. The complaints allege that the defendants made false and misleading statements about our business, prospects and operations. The putative claims are based upon statements made in filings made by us with the SEC, press releases and on earnings calls between May 13, 2021 and November 11, 2021. The lawsuits seek, among other relief, a determination that the alleged claims may be asserted on a class-wide basis, unspecified compensatory , attorney’s fees, other expenses and costs. On July 19, 2022, the court consolidated the two actions, appointed a lead and appointed lead counsel for the proposed class. On September 16, 2022, the lead filed a consolidated amended . The thereafter filed a motion to . On September 27, 2023, the court granted the ’s motion to in its entirety, but gave leave to file an amended . On October 27, 2023, the filed a second amended asserting similar . The thereafter filed a motion to . On March 26, 2024, the court granted the ’s motion and, on April 29, 2024, the case and entered judgment. On May 29, 2024, filed a notice of appeal. On June 28, 2024, voluntarily the appeal with , and we consider this matter .
We may also be the target of this type of litigation in the future. Securities litigation against us, including the putative class actions described above, could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.
We currently do not intend to declare dividends on our common stock in the foreseeable future and, as a result, your only opportunity to achieve a return on your investment is if the price of our common stock appreciates.
We currently do not expect to declare any dividends on our common stock in the foreseeable future. Instead, we anticipate that all of our earnings, if any, in the foreseeable future will be used to provide working capital to support our operations. Any determination to declare or pay dividends in the future will be at the discretion of our board of directors, subject to applicable laws and dependent upon a number of factors including our earnings, capital requirements and overall financial condition. In addition, our ability to pay dividends on our common stock is currently limited by the covenants of our 2022 Credit Agreement and may be further restricted by the terms of any future debt or preferred securities. Accordingly, your only opportunity to achieve a return on your investment in our company may be if the market price of our common stock appreciates and you sell your shares at a profit. The market price for our common stock may never exceed, and may fall below, the price that you pay for such common stock.
Our directors, executive officers and principal stockholders and their respective affiliates have substantial influence over us and could delay or prevent a change in corporate control; our principal stockholders may have interests that conflict with your interests as an investor in our common stock.
As of December 31, 2024, our directors, executive officers and holders of more than 5% of our common stock beneficially owned, as a group, approximately 18.1% of our common stock. As of December 31, 2024, funds affiliated with certain of our directors also held all of the 6,666 outstanding shares of our Series A Common Equivalent Preferred Stock, convertible into up to 6,665,841 shares of our common stock (which conversion is subject to certain beneficial ownership limitations set forth in our Certificate of Designation of Preferences, Rights and Limitations of the Series A Common Equivalent Preferred Stock). In addition, as of December 31, 2024, we had $32.5 million remaining in aggregate principal amount of outstanding long-term debt under our 2022 Credit Agreement with certain entities affiliated with Deerfield Management Company, L.P., of which one entity is a 9.1% holder of our common stock. Our principal stockholders, in the aggregate, will continue to have substantial influence over the outcome of matters submitted to our stockholders for approval including the election of directors and any matter related to the merger, consolidation or sale of all or substantially all of our assets. In addition, these stockholders, in the aggregate, will continue to have significant influence over the management and affairs of our company. Accordingly, this concentration of ownership may have the effect of:
◦ delaying, deferring or preventing a change in corporate control;
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◦ impeding a merger, consolidation, takeover or other business combination involving us; or
◦ discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.
The interests of our principal stockholders may conflict with your interests as a stockholder. You should carefully consider these potential conflicts of interest before deciding whether to invest in shares of our common stock.
Provisions in our organizational documents and agreements with third parties could delay or prevent a change of control.
Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a merger, acquisition, tender offer, takeover attempt or other change of control transaction that a stockholder might consider to be in its best interest, including attempts that might result in a premium over the market price of our common stock.
These provisions include the following:
◦ establish a classified board of directors so that not all members of our board of directors are elected at one time;
◦ authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan;
◦ permit the board of directors to establish the number of directors and fill any vacancies and newly-created directorships;
◦ provide that directors may only be removed for cause;
◦ require super-majority voting to amend some provisions in our certificate of incorporation and bylaws;
◦ eliminate the ability of our stockholders to call special meetings of stockholders;
◦ prohibit stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders;
◦ provide that the board of directors is expressly authorized to make, alter or repeal our bylaws;
◦ restrict the forum for certain litigation against us to Delaware; and
◦ establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.
These provisions could make it more difficult for a third party to acquire us, even if the third party’s offer may be considered beneficial by many of our stockholders. As a result, our stockholders may be limited in their ability to obtain a premium for their shares.
In addition, our Settlement Agreement with the Biotronik Parties contains provisions that may have the effect of delaying, deterring or preventing a change in control transaction involving us. Under the Settlement Agreement, we must pay to Biotronik contingent payments of (x) in the event of a Qualifying Asset Sale (as defined in the Settlement Agreement), an amount equal to 50% of the aggregate cash consideration received; (y) in the event of a Change of Control (as defined in the Settlement Agreement) of the Company involving a Competitive Company (as defined in the Settlement Agreements), (A) initial amounts of $8 million and 5% of the aggregate upfront consideration received, with the latter not to exceed approximately $25 million (“Agreed Upfront Consideration”) and (B) additional amounts if additional consideration is received, up to approximately $25 million in aggregate (including the Agreed Upfront Consideration); and (z) in the event of a Change of Control not involving a Competitive Company, with certain exceptions, an amount equal to 25% of the aggregate cash consideration received.
Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware and the federal district courts of the United States of America will be the exclusive forums for substantially all disputes between
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us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, another state court in Delaware or the federal district court for the District of Delaware) is the exclusive forum for the following (except for any claim as to which such court determines that there is an indispensable party not subject to the jurisdiction of such court (and the indispensable party does not consent to the personal jurisdiction of such court within 10 days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than such court or for which such court does not have subject matter jurisdiction:
◦ any derivative action or proceeding brought on our behalf;
◦ any action asserting a claim of breach of fiduciary duty;
◦ any action asserting a claim against us arising under the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws; and
◦ any action asserting a claim against us that is governed by the internal-affairs doctrine.
This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the U.S. federal courts have exclusive jurisdiction.
Our amended and restated bylaws further provide that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act of 1933, as amended, or Securities Act.
These exclusive-forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us and our directors, officers and other employees. Any person or entity purchasing or otherwise acquiring any interest in any of our securities shall be deemed to have notice of and consented to these provisions. There is uncertainty as to whether a court would enforce such provisions, and the enforceability of similar choice of forum provisions in other companies’ charter documents has been challenged in legal proceedings. It is possible that a court could find these types of provisions to be inapplicable or unenforceable, and if a court were to find either exclusive-forum provision in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could seriously our business. For example, under the Securities Act, federal courts have concurrent jurisdiction over all suits brought to enforce any duty or liability created by the Securities Act, and investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder.
Our board of directors is authorized to issue and designate shares of our preferred stock in additional series without stockholder approval.
Our amended and restated certificate of incorporation authorizes our board of directors, without the approval of our stockholders, to issue shares of our preferred stock, subject to limitations prescribed by applicable law, rules and regulations and the provisions of our amended and restated certificate of incorporation, as shares of preferred stock in series, to establish from time to time the number of shares to be included in each such series and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof. The powers, preferences and rights of these additional series of preferred stock may be senior to or on parity with our common stock, which may reduce its value.
General Risk Factors
Market conditions and changing circumstances, some of which may be beyond our control, could impair our ability to access our existing cash, cash equivalents and investments and to timely pay key vendors and others.
Market conditions and changing circumstances, some of which may be beyond our control, could impair our ability to access our existing cash, cash equivalents and investments and to timely pay key vendors and others. For example, on March 10, 2023, Silicon Valley Bank (SVB), where we maintain certain accounts, was placed into receivership with the Federal Deposit Insurance Corporation (FDIC), which resulted in all funds held at SVB being temporarily inaccessible by SVB’s customers. If other banks and financial institutions with whom we have banking relationships enter receivership or become insolvent in the future, we may be unable to access, and we may lose, some or all of our existing cash, cash equivalents and investments to the extent those funds are not insured or otherwise protected by the FDIC. In addition, in such circumstances we might not be able to timely pay key vendors
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and others. We regularly maintain cash balances that are not insured or are in excess of the FDIC’s insurance limit. Any delay in our ability to access our cash, cash equivalents and investments (or the loss of some or all of such funds) or to timely pay key vendors and others could have a material adverse effect on our operations and cause us to need to seek additional capital sooner than planned.
Litigation and other legal proceedings may adversely affect our business.
From time to time, we may become involved in legal proceedings relating to patent and other intellectual property matters, product liability claims, employee claims, tort or contract claims, federal regulatory investigations, securities class action and other legal proceedings or investigations, which could have an adverse impact on our reputation, business and financial condition and divert the attention of our management from the operation of our business. For example, we and certain of our current officers have been named as defendants in two putative securities class action lawsuits filed by putative stockholders in the United States District Court for the Southern District of California on February 15, 2022 and March 23, 2022 (case numbers 22CV206 and 22CV0388). Plaintiffs allege that the defendants violated Section 10(b) of the Exchange Act and Rule 10b-5, and Section 20(a) of the Exchange Act. The that the made and statements about our business, prospects and operations. The putative are based upon statements made in filings made by us with the SEC, press releases and on earnings calls between May 13, 2021 and November 11, 2021. The lawsuits seek, among other relief, a determination that the may be asserted on a class-wide basis, unspecified compensatory , attorney’s fees, other expenses and costs. On July 19, 2022, the court consolidated the two actions, appointed a lead and appointed lead counsel for the proposed class. On September 16, 2022, the lead filed a consolidated amended . We thereafter filed a motion to . On September 27, 2023, the court granted the ’s motion to in its entirety, but gave leave to file an amended . On October 27, 2023, the filed a second amended asserting similar . The thereafter filed a motion to . On March 26, 2024, the court granted the ’s motion and, on April 29, 2024, the case and entered judgment. On May 29, 2024, filed a notice of appeal. On June 28, 2024, voluntarily the appeal with , and we consider this matter .
In addition, on February 2, 2024, Biotronik sent a Notice to us. The Notice provides that Biotronik rescinds and terminates the Bi-Lateral Distribution Agreements, effective immediately, based on the alleged repudiation of our contractual obligations under the Bi-Lateral Distribution Agreements, and alleges damages in an amount to be quantified by Biotronik. Biotronik has separately alleged that we breached our contractual obligations to it under the LDA, as a result of the wind down of our mapping and ablation businesses and alleges further damages.
On February 16, 2024, the Biotronik Parties filed the Demand against Acutus with the American Arbitration Association (who notified us of the Demand on February 29, 2024), alleging that we breached our contractual obligations under five agreements relating to the licensing, manufacturing, distribution and development of medical devices as a result of the wind down of our businesses. The Biotronik Parties allege that we breached, among other things, our obligations (i) to develop, manufacture, use and commercialize certain product lines under the LDA and the MSA; (ii) to distribute Biotronik products and manufacture and supply Acutus products under the Bi-Lateral Distribution Agreements, as applicable; and (iii) to use commercially reasonable efforts to perform and complete our responsibilities under the F&DA. The claim seeks, among other relief, $38.0 million in damages, attorney’s fees, other expenses and costs.
On October 15, 2024, we and the Biotronik Parties entered into a Settlement Agreement terminating the LDA, MSA, the Bi-Lateral Distribution Agreements and the F&DA (except for certain surviving obligations specified therein), settling the arbitration relating to such agreements, and releasing and discharging each party of all claims against the other, including any claims that were or could have been asserted in the arbitration. Pursuant to the Settlement Agreement, we must pay to Biotronik (i) an initial settlement payment of approximately $2.5 million; (ii) contingent payments of (x) in the event of a Qualifying Asset Sale (as defined in the Settlement Agreement), an amount equal to 50% of the aggregate cash consideration received; (y) in the event of a Change of Control (as defined in the Settlement Agreement) of the Company involving a Competitive Company (as defined in the Settlement Agreements), (A) initial amounts of $8 million and 5% of the aggregate upfront consideration received, with the latter not to exceed approximately $25 million (“Agreed Upfront Consideration”) and (B) additional amounts if additional consideration is received, up to approximately $25 million in aggregate (including the Agreed Upfront Consideration); and (z) in the event of a Change of Control not involving a Competitive Company, with certain exceptions, an amount equal to 25% of the aggregate cash consideration received.
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Litigation is inherently unpredictable and can result in excessive or unanticipated verdicts and/or injunctive relief that affect how we operate our business. We could incur judgments or enter into settlements of claims for monetary damages or for agreements to change the way we operate our business, or both. There may be an increase in the scope of these matters or there may be additional lawsuits, claims, proceedings or investigations in the future, which could have a material adverse effect on our business, financial condition and results of operations. Adverse publicity about regulatory or legal action against us could damage our reputation, undermine Medtronic or our end-user’s confidence and reduce long-term demand for the Products, even if the regulatory or legal action is or not material to our operations.
