Note 13. Commitments and Contingencies Commitments Leases: The Company primarily enters into leases for office space that are classified as operating leases. For the three months ended September 30, 2023 and 2022, total lease cost was $0.6 million and $1.2 million, respectively. For the nine months ended September 30, 2023 and 2022, total lease cost was $2.5 million and $3.5 million, respectively. Total lease cost was primarily composed of operating lease costs. The Company terminated one of its operating leases for office space and modified another during the third quarter of 2023 that increased its lease payments by $0.2 million. The Company recognized a total decrease of $4.2 million to operating lease assets, $0.7 million to the current portion of operating lease liabilities included in accrued expenses and other current liabilities, and $4.7 million to the non-current portion of operating lease liabilities on the condensed consolidated balance sheets for the lease termination and lease modification. As part of the lease termination, the Company agreed to forfeit a $0.9 million security deposit included in other non-current assets on the condensed consolidated balance sheets. The Company recognized a $0.2 million gain on lease termination within operating expenses on the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2023. Purchase Commitments: The Company enters into inventory purchase commitments with third-party manufacturers in the ordinary course of business, including a non-cancellable inventory supply agreement with a certain third-party manufacturing vendor. The provisions of the agreement allowed the Company, once it reached a certain cumulative purchase threshold in the fourth quarter of 2021, to pay for a portion of the subsequent inventory purchases using an advance previously paid to the vendor. As of September 30, 2023, the aggregate amount of minimum inventory purchase commitments is $22.4 million, and the Company has a vendor advance asset of $2.2 million, net of write-downs, and an accrued purchase commitment liability of $0.2 million related to the agreement. The portion of the balances that is expected to be utilized in the next 12 months is included in current assets and current liabilities in the accompanying condensed consolidated balance sheets. The Company applied the guidance in Topic 330, Inventory to assess the purchase commitment and related loss, using such factors as Company-specific forecasts which are reliant on the Company’s limited sales history, agreement-specific provisions, macroeconomic factors, and market and industry trends. For the three and nine months ended September 30, 2023 and 2022, the Company did not recognize any additions to the accrued purchase commitment liability, or any related losses, based on its purchase commitment assessment as there were no significant changes to the assessment factors. The Company reviews its inventory on hand, including inventory acquired under the purchase commitments, for excess and obsolescence (“E&O”) on a quarterly basis. Any E&O inventory acquired that was previously accounted for as a purchase commitment liability accrual or vendor advance write down is recorded at zero value. During the three months ended September 30, 2023, the Company did not acquire such E&O inventory. During the three months ended September 30, 2023, the Company utilized $0.3 million of the accrued purchase commitment liability and $0.3 million of the vendor advance that was previously written down to acquire such E&O inventory. During the nine months ended September 30, 2023, the Company utilized $1.9 million of the accrued purchase commitment liability and $4.8 million of the vendor advance that was previously written down to acquire such E&O inventory. During the three and nine months ended September 30, 2022, the Company utilized $15.6 million of the accrued purchase commitment liability and $7.6 million of the vendor advance that was previously written down to acquire such E&O inventory. Contingencies The Company is involved in litigation and legal matters from time to time, which have arisen in the normal course of business. Although the ultimate results of these matters are not currently determinable, management does not expect that they will have a material effect on the Company’s condensed consolidated balance sheets, statements of operations and comprehensive loss, or statements of cash flows. The Company accrues an estimated liability for legal contingencies when the Company considers a potential loss probable and can reasonably estimate the amount of the potential loss. On February 16, 2022, a putative class action lawsuit, styled Rose v. Butterfly Network, Inc., et al. (Case No. 2:22-cv-00854) was filed in the United States District Court for the District of New Jersey and was amended on November 1, 2022. The claims are against the Company and certain of its directors and previous management as well as Longview and member of its then board of directors, alleging that the defendants made false and misleading statements and/or omissions about its post-Business Combination business and financial prospects. The alleged class consists of all persons or entities who purchased or otherwise acquired the Company’s stock between January 12, 2021 and November 15, 2021, persons who exchanged Longview shares for the Company’s common stock, and persons who purchased Longview stock pursuant, or traceable to, the Proxy/Registration Statement filed with the SEC on November 27, 2020 or any amendment thereto. The Company intends to vigorously defend against this action. The lawsuit seeks unspecified damages, together with interest thereon, as well as the costs and expenses of litigation. There is no assurance that the Company will be successful in the defense of the litigation or that insurance will be available or adequate to fund any potential settlement or judgment or the litigation costs of the action. The Company is unable to predict the outcome or reasonably estimate a range of possible loss at this time. On March 9, 2022, Fujifilm Sonosite, Inc. (“Fujifilm”) filed a complaint against the Company, styled Fujifilm Sonosite, Inc. v. Butterfly Network, Inc. (Case No. 1:22-cv-00309) in the United States District Court for the District of Delaware. The complaint alleged that the Butterfly iQ and iQ+ ultrasound probes, hard carrying case, and mobile device application software infringe certain patents purportedly owned by Fujifilm. The lawsuit seeks unspecified damages including compensatory damages, lost profits, reasonable royalty damages, a preliminary and/or permanent injunction, pre- and post-judgment interest, and the fees and costs of litigation. There is no assurance that the Company will be successful in the defense of the litigation or that insurance will be available or adequate to fund any potential settlement or judgment or the litigation costs of the action. The Company expects to resolve the complaint with Fujifilm within one year, with no resulting impact to the Company’s existing patents and intellectual property. During the third quarter of 2023, the Company recognized an estimated liability of $1.6 million for the potential loss in accrued liabilities and other current expenses on the condensed consolidated balance sheets with the potential loss recognized in other on the condensed consolidated statements of operations and comprehensive loss. On June 21, 2022, a stockholder derivative action, styled Koenig v. Todd M. Fruchterman, et al. (Case No. 1:22-cv-00825) was filed in the United States District Court for the District of Delaware against the Company’s Board of Directors and the Company as nominal defendant, alleging violation of Section 14(a) of the Exchange Act, as amended, and Rule 14a-9 promulgated thereunder, and claims for breach of fiduciary duty, contribution and indemnification, aiding and abetting, and gross mismanagement. The lawsuit is premised upon allegedly inadequate internal controls and purportedly misleading representations regarding the Company’s financial condition, business prospects, and the Company’s November 2021 earnings announcement. The Company intends to vigorously defend against this action. The lawsuit seeks unspecified damages, disgorgement, and restitution, together with interest thereon, as well as the costs and expenses of litigation. There is no assurance that the Company will be successful in the defense of the litigation or that insurance will be available or adequate to fund any potential settlement or judgment or the litigation costs of the action. The Company is unable to predict the outcome or reasonably estimate a range of possible loss at this time. The Company, as well as certain current and former directors and executive officers, is also involved in other legal matters for employment-related claims that have not been fully resolved and for which it is unable to predict the outcome.
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