# Vyome Holdings, Inc: Form 10-Q for the period ended Mar 31, 2024

- Company: [Vyome Holdings, Inc](/companies/hind.md) (CIK 1427570)
- Form: 10-Q
- Filed: 2024-05-15
- Accepted by EDGAR: May 15, 2024, 16:50 ET
- Period: 2024-03-31
- Accession: 0001558370-24-008304
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1427570/000155837024008304/rsls-20240331x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1427570/000155837024008304/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $1.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-01-01 to 2024-03-31 | $779.0k | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-01-01 to 2024-03-31 | $1.2m | us-gaap:GrossProfit |
| Research and development | 3 months, 2024-01-01 to 2024-03-31 | $484.0k | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2024-01-01 to 2024-03-31 | $1.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | −$2.2m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | $14.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | −$2.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.09 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.09 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 23,457,127 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | −$2.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2024-03-31 | $2.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-31 | $7.9m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $8.2m | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $3.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $3.7m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-03-31 | $4.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 19,841 characters.

*The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q.*

*Except for the historical information contained herein, the matters discussed in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are forward-looking statements that involve risks and uncertainties. In some cases, these statements may be identified by terminology such as “may,” “will,” “should,” “expects,” “could,” “intends,” “might,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of such terms and other comparable terminology. These statements involve known and unknown risks and uncertainties that may cause our results, level of activity, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. Factors that may cause or contribute to such differences include, among others, those discussed in the “Risk Factors” section included in Item 1A of our most recent Annual Report on Form 10-K.*

*Except as may be required by law, we undertake no obligation to update any forward-looking statement to reflect events after the date of this report.*

### Overview

We are the premier global weight-loss solutions company, offering an integrated portfolio of proven products and services that manage and treat obesity and associated metabolic disease. Our primary operations are in the following geographical areas: United States, Australia and certain European and Middle Eastern countries. Our current portfolio includes the Lap-Band Adjustable Gastric Banding System, the Obalon Balloon System, and the Diabetes Bloc-Stim Neuromodulation device, a technology under development as a new treatment for type 2 diabetes mellitus. There has been no revenue recorded for the Obalon Balloon System, and there has been no revenue recorded for the Diabetes Bloc-Stim Neuromodulation as this product is still in the development stage.

### Results of Operations

The following table sets forth certain data from our unaudited consolidated statements of operations expressed as percentages of revenue (in thousands):

| ​ ​ ​ | ​ ​ Three Months Ended March 31, 2024 | ​ | ​ ​ ​ | ​ ​ | ​ ​ 2023 | ​ | ​ ​ ​ ​ | ​ ​ ​ |
| --- | --- | --- | ---: | --- | --- | --- | ---: | --- |
| Revenue | $1,944 | ​ | 100.0% | ​ | $2,287 | ​ | 100.0% | ​ |
| Cost of revenue | ​ 779 | ​ | 40.1% | ​ | ​ 1,063 | ​ | 46.5% | ​ |
| Gross profit | ​ 1,165 | ​ | 59.9% | ​ | ​ 1,224 | ​ | 53.5% | ​ |
| **Operating expenses:** | **​** ​ | ​ | ​ ​ | ​ | **​** ​ | ​ | ​ ​ | ​ |
| Sales and marketing | ​ 1,019 | ​ | 52.4% | ​ | ​ 2,182 | ​ | 95.4% | ​ |
| General and administrative | ​ 1,872 | ​ | 96.3% | ​ | ​ 4,220 | ​ | 184.5% | ​ |
| Research and development | ​ 484 | ​ | 24.9% | ​ | ​ 453 | ​ | 19.8% | ​ |
| Total operating expenses | ​ 3,375 | ​ | 173.6% | ​ | ​ 6,855 | ​ | 299.7% | ​ |
| Operating loss | ​ (2,210) | ​ | (113.7)% | ​ | ​ (5,631) | ​ | (246.2)% | ​ |
| **Other expense (income), net:** | **​** ​ | ​ | ​ ​ | ​ | **​** ​ | ​ | ​ ​ | ​ |
| Interest (income) expense, net | ​ (9) | ​ | (0.5)% | ​ | ​ 5 | ​ | 0.2% | ​ |
| Gain on changes in fair value of liability warrants | ​ (21) | ​ | (1.1)% | ​ | ​ (2,965) | ​ | (130)% | ​ |
| (Gain) loss on foreign currency exchange, net | ​ 24 | ​ | 1.2% | ​ | ​ (21) | ​ | (0.9)% | ​ |
| Other | ​ (25) | ​ | (1)% | ​ | ​ (2) | ​ | (0)% | ​ |
| Loss before income tax provision | ​ (2,179) | ​ | (112.0)% | ​ | ​ (2,648) | ​ | (115.8)% | ​ |
| Income tax expense (benefit) | ​ 14 | ​ | 0.7% | ​ | ​ 14 | ​ | 0.6% | ​ |
| Net loss | $(2,193) | ​ | (112.7)% | ​ | $(2,662) | ​ | (116.4)% | ​ |

### Non-GAAP Disclosures

In addition to the financial information prepared in conformity with GAAP, we provide certain historical non-GAAP financial information. Management believes that these non-GAAP financial measures assist investors in making comparisons of period-to-period operating results.

Management believes that the presentation of this non-GAAP financial information provides investors with greater transparency and facilitates comparison of operating results across a broad spectrum of companies with varying capital structures, compensation strategies, and amortization methods, which provides a more complete understanding of our financial performance, competitive position, and prospects for the future. However, the non-GAAP financial measures presented in Form 10-Q have certain limitations in that they do not reflect all of the costs associated with the operations of our business as determined in accordance with GAAP. Therefore, investors should consider non-GAAP financial measures in addition to, and not a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. Further, the non-GAAP financial measures presented by the Company may be different from similarly named non-GAAP financial measures used by other companies.

### Adjusted EBITDA

Management uses adjusted EBITDA in its evaluation of the Company’s core results of operations and trends between fiscal periods and believes that these measures are important components of its internal performance measurement process. Adjusted EBITDA is defined as net loss before interest, taxes, depreciation and amortization, stock-based compensation, changes in fair value of liability warrants, and other one-time costs.

The following table contains a reconciliation of GAAP net loss to Adjusted EBITDA attributable to common stockholders for the three months ended March 31, 2024 and 2023 (in thousands):

| ​ ​ ​ | ​ ​ Three Months Ended March 31, 2024 | ​ ​ | ​ ​ 2023 |
| --- | --- | --- | --- |
| GAAP net loss | $(2,193) | ​ | $(2,662) |
| Adjustments: | ​ ​ | ​ | ​ ​ |
| Interest (income) expense, net | ​ (9) | ​ | ​ 5 |
| Income tax expense (benefit) | ​ 14 | ​ | ​ 14 |
| Depreciation and amortization | ​ 6 | ​ | ​ 48 |
| Stock-based compensation expense | ​ 72 | ​ | ​ 222 |
| Gain on changes in fair value of liability warrants | ​ (21) | ​ | ​ (2,965) |
| Adjusted EBITDA | $(2,131) | ​ | $(5,338) |

### Comparison of Results of Operations

### Three months ended March 31, 2024 and March 31, 2023

*Revenue.* The following table summarizes our unaudited revenue by geographic location based on the location of customers for the three months ended March 31, 2024 and 2023, as well as the percentage of each location to total revenue and the amount of change and percentage of change (dollars in thousands):

| ​ ​ ​ | ​ ​ Three Months Ended March 31, 2024 | ​ | ​ ​ ​ | ​ ​ | ​ ​ 2023 | ​ | ​ ​ ​ ​ | ​ ​ ​ | ​ ​ Amount Change | ​ ​ ​ | ​ ​ Percentage ​ Change ​ |
| --- | --- | --- | ---: | --- | --- | --- | ---: | --- | --- | --- | ---: |
| United States | $1,618 | ​ | 83.3% | ​ | $1,813 | ​ | 79.3% | ​ | $(195) | ​ | (10.8)% |
| Australia | ​ 102 | ​ | 5.2% | ​ | ​ 157 | ​ | 6.9% | ​ | ​ (55) | ​ | (35.0)% |
| Europe | ​ 198 | ​ | 10.2% | ​ | ​ 304 | ​ | 13.3% | ​ | ​ (106) | ​ | (34.9)% |
| Rest of World | ​ 26 | ​ | 1.3% | ​ | ​ 13 | ​ | 0.5% | ​ | ​ 13 | ​ | 100.0% |
| Total revenue | $1,944 | ​ | 100.0% | ​ | $2,287 | ​ | 100.0% | ​ | $(343) | ​ | (15.0)% |

Revenue totaled $1.9 million for the three months ended March 31, 2024, which represents a contraction of 15.0%, or $0.3 million compared to the same period in 2023. This primarily resulted from a decrease in sales volume primarily due to GLP-1 pharmaceutical weight-loss alternatives.

*Cost of Goods Sold and Gross Profit.* The following table summarizes our unaudited cost of revenue and gross profit for the three months ended March 31, 2024 and 2023, as well as the percentage compared to total revenue and amount of change and percentage of change (dollars in thousands):

| ​ ​ ​ | ​ ​ Three Months Ended March 31, 2024 | ​ | ​ ​ ​ | ​ ​ | ​ ​ 2023 | ​ | ​ ​ ​ ​ | ​ ​ ​ | ​ ​ Amount Change | ​ ​ ​ | ​ ​ Percentage ​ Change ​ |
| --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Revenue | $1,944 | ​ | 100.0% | ​ | $2,287 | ​ | 100.0% | ​ | $(343) | ​ | (15.0)% |
| Cost of revenue | ​ 779 | ​ | 40.1% | ​ | ​ 1,063 | ​ | 46.5% | ​ | ​ (284) | ​ | (26.7)% |
| Gross profit | $1,165 | ​ | 59.9% | ​ | $1,224 | ​ | 53.5% | ​ | $(59) | ​ | (4.8)% |

*Gross Profit.* Gross profit for both the three months ended March 31, 2024 and 2023, was $1.2 million. Gross profit as a percentage of total revenue for the three months ended March 31, 2024, was 59.9% compared to 53.5% for the same period in 2023. The increase in gross profit percentage is due to the reduction in overhead related costs, primarily payroll, as we had a reduction of employees late in 2023.

*Operating Expense.* The following table summarizes our unaudited operating expenses for the three months ended March 31, 2024 and 2023, as well as the percentage of total revenue and the amount of change and percentage of change (dollars in thousands):

| ​ ​ ​ | ​ ​ Three Months Ended March 31, 2024 | ​ | ​ ​ ​ | ​ ​ | ​ ​ 2023 | ​ | ​ ​ ​ ​ | ​ ​ ​ | ​ ​ Amount Change | ​ ​ ​ | ​ ​ Percentage ​ Change ​ |
| --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Sales and marketing | $1,019 | ​ | 52.4% | ​ | $2,182 | ​ | 95.4% | ​ | $(1,163) | ​ | (53.3)% |
| General and administrative | ​ 1,872 | ​ | 96.3% | ​ | ​ 4,220 | ​ | 184.5% | ​ | ​ (2,348) | ​ | (55.6)% |
| Research and development | ​ 484 | ​ | 24.9% | ​ | ​ 453 | ​ | 19.8% | ​ | ​ 31 | ​ | 6.8% |
| Total operating expenses | $3,375 | ​ | 173.6% | ​ | $6,855 | ​ | 299.7% | ​ | $(3,480) | ​ | (50.8)% |

*Sales and Marketing Expense.* Sales and marketing expenses for the three months ended March 31, 2024, decreased by $1.2 million, or 53.6%, to $1.0 million, compared to $2.2 million for the same period in 2023. The decrease is primarily due to a decrease of $0.7 million in advertising and marketing expenses, including consulting and professional marketing services, as the Company has reevaluated its marketing approach and has moved to a targeted digital marketing campaign, resulting in a reduction of costs. We also had a reduction in payroll expenditure, including commissions, stock compensation expense and travel of $0.5 million, due to changes in sales personnel and lower sales.

*General and Administrative Expense.* General and administrative expenses for the three months ended March 31, 2024, decreased by $2.3 million, or 55.1%, to approximately $1.9 million, compared to $4.2 million for the same period in 2023. The decrease is primarily due to a reduction in professional services, such as audit and legal fees of $1.3 million primarily due to the fiscal year end 2022 restatement that occurred during the first quarter of 2023, and a reduction in payroll-related expenses, including a reduction in stock-based compensation expense of $0.5 million, due to decline in staffing levels. We also had a decrease in rent and insurance of $0.1 million, as we moved our headquarters during the second quarter of 2023 to a smaller facility to reduce costs.

*Research and Development Expense*. Research and development expenses for the three months ended March 31, 2024, remained consistent with the same period in 2023, with a slight decrease primarily in stock based compensation.

### Liquidity and Capital Resources

The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company currently does not generate revenue sufficient to offset operating costs and anticipates such shortfalls to continue as the Company has modified its strategy to a metrics-driven approach through a sustainable and scalable business model, via a digital lead generation and re-engagement strategy. As of March 31, 2024, the Company had net working capital of approximately $4.4 million, primarily due to cash and cash equivalents and restricted cash of $2.5 million. The Company’s principal source of liquidity as of March 31, 2024, consisted of approximately $2.5 million of cash and cash equivalents and restricted cash, and $1.6 million of accounts receivable. Based on its available cash resources, the Company will not have sufficient cash on hand to fund its current operations for more than twelve months from the date of filing this Quarterly Report on Form 10-Q. This condition raises substantial doubt about the Company’s ability to continue as a going concern. The Company believes in the viability of its business strategy and in its ability to raise additional funds, however, there can be no assurance to that effect.

The following table summarizes our change in cash and cash equivalents and restricted cash (in thousands):

| ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Three Months Ended March 31, 2024 | ​ | ​ ​ 2023 |
| --- | --- | ---: | --- | ---: |
| Net cash used in operating activities | ​ | $(2,072) | ​ | $(5,061) |
| Net cash used in investing activates | ​ | ​ — | ​ | ​ (7) |
| Net cash provided by financing activities | ​ | — | ​ | 10,201 |
| Effect of exchange rate changes | ​ | ​ (8) | ​ | ​ (5) |
| Net change in cash and cash equivalents and restricted cash | ​ | $(2,080) | ​ | $5,128 |

### Net Cash Used in Operating Activities

Net cash used in operating activities from operations was $2.1 million and $5.1 million for the three months ended March 31, 2024 and 2023, respectively. For the three months ended March 31, 2024, net cash used in operating activities was primarily the result of our net loss of $2.2 million, partially offset by non-cash adjustments for stock-based compensation expense of $0.1 million, offset by a negative cash impact related to a reduction in bad debt of approximately $0.3 million, as we received a large return of products where the receivable was fully reserved. We show a positive cash impact on accounts receivable of $0.4 million, and inventory of approximately $0.3 million, and a negative impact to cash for accounts payable and accrued liabilities of $0.3 million.

For the three months ended March 31, 2023, net cash used in operating activities was primarily the result of our net loss of $2.7 million, partially offset by non-cash adjustments for stock-based compensation expense of $0.2 million and non-cash offering cost of $0.3 million, offset by a negative cash impact related to gains recognized for changes in fair value of liability warrants of $3.0 million. We show a negative cash impact to prepaid expenses of $0.4 million. This was offset by a positive cash impact to inventory of $0.1 million and accounts payable and accrued liabilities of $0.3 million.

### Net Cash Used in Investing Activities

There was no cash used in investing activities for the three months ended March 31, 2024, and net cash used in investing activities for the three months ended March 31, 2023, was minimal.

### Net Cash Provided by Financing Activities

There was no cash provided by financing activities for the three months ended March 31, 2024. Net cash provided by financing activities was $10.2 million for the three months ended March 31, 2023, due to the proceeds received from the public offering completed during February 2023, less costs to complete the transaction.

### Operating Capital and Capital Expenditure Requirements

The Company’s anticipated operations include plans to (i) grow sales and operations of the Company with the Lap-Band product line both domestically and internationally as well as to obtain cost savings synergies, (ii) introduce to the market Lap-Band 2.0 FLEX, (iii) continue development of the Diabetes Bloc-Stim Neuromodulation (“DBSN”) device, (iv) identifying strategic merger and acquisition alternatives, (v) seek opportunities to find strategic partners to leverage our intellectual property portfolio and custom development services to provide third-party sales and licensing opportunities, and (vi) explore and capitalize on synergistic opportunities to expand our portfolio and offer future minimally invasive treatments and therapies in the obesity continuum of care. The Company believes that it has the flexibility to manage the growth of its expenditures and operations depending on the amount of available cash flows, which could include reducing expenditures for marketing, and product development activities. If managements’ plans don’t develop, and the Company doesn’t get additional cash raises, at the current burn rate, management expects to run out of cash during the third quarter of 2024.

Because of the numerous risks and uncertainties associated with the development of medical devices, such as our Diabetes Bloc-Stim Neuromodulation, we are unable to estimate the exact amounts of capital outlays and operating expenditures necessary to complete the development of the Diabetes Bloc-Stim Neuromodulation or other additional products and successfully deliver a commercial product to the market. Our future capital requirements will depend on many factors, including, but not limited to, the following:

- the cost and timing of establishing sales, marketing and distribution capabilities;
- the cost of establishing clinical and commercial supplies of our Diabetes Bloc-Stim Neuromodulation, and any product candidates;
- the rate of market acceptance of our Diabetes Bloc-Stim Neuromodulation, and any other product candidates;
- the cost of filing and prosecuting patent applications and defending and enforcing our patent and other intellectual property rights;
- the cost of defending, in litigation or otherwise, any claims that we infringe third-party patent or other intellectual property rights;
- the effect of competing products and market developments;
- the cost of explanting clinical devices;
- the terms and timing of any collaborative, licensing or other arrangements that we may establish;
- any revenue generated by sales of our Lap-Band, ReShapeCare, ReShape Marketplace, Obalon Balloon System, Diabetes Bloc-Stim Neuromodulation or our future products; including FDA approval on Lap-Band 2.0,
- the scope, rate of progress, results and cost of our clinical trials and other research and development activities;
- the cost and timing of obtaining any further required regulatory approvals; and
- the extent to which we invest in products and technologies, although we currently have no commitments or agreements relating to any of these types of transactions.

### Critical Accounting Policies and Estimates

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. Information with respect to our critical accounting policies and estimates which we believe could have the most significant effect on our reported results and require subjective or complex judgments by management is contained in Item 7, “*Management's Discussion and Analysis of Financial Condition and Results of Operations,”* of our Annual Report on Form 10-K for the year ended December 31, 2023. There have been no significant changes from the information discussed therein.

During the three months ended March 31, 2024 there were no material changes to our significant accounting policies above, which are fully described in Note 2 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023.

### Recent Accounting Pronouncements

See Note 1 to our condensed consolidated financial statements for a discussion of recent accounting pronouncements.

## Controls and procedures

As filed, 7,526 characters.

### Evaluation of Disclosure Controls and Procedures

Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), defines the term “disclosure controls and procedures” as those controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our internal control system was designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. An internal control material weakness is a significant deficiency, or aggregation of deficiencies, that does not reduce to a relatively low level the risk that material misstatements in financial statements will be prevented or detected on a timely basis by employees in the normal course of their work. An internal control significant deficiency, or aggregation of deficiencies, is one that could result in a misstatement of the financial statements that is more than inconsequential. In making its assessment of internal control over financial reporting management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013). Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2024, and determined that our internal control over financial reporting was not effective at a reasonable assurance level due to the following material weakness in our internal control over financial reporting:

Control Environment: The Company has insufficient internal resources with appropriate accounting and finance knowledge and expertise to design, implement, document and operate effective internal controls over the financial reporting process. As a result, there was a lack of management review over several areas of the consolidated financial statements, including errors which were individually assessed as significant deficiencies that, when aggregated, resulted in a material weakness related to: 1) insufficient review of obsolete and scrap inventory; 2) insufficient reviews of accounts payable; and 3) inappropriate application of accounting standards related to functional currency. In addition to these identified errors, there were other areas of the consolidated financial statements that were impacted by certain deficiencies. During the prior year, there were deficiencies identified that have not yet been remediated including misstatements of inaccurate reporting of earnings per share due to formula errors over the weighted average share calculation spreadsheet and errors to the stock-based compensation expense. The root cause of all of the deficiencies identified above was related to insufficient internal resources with appropriate accounting and finance knowledge, which aggregated into this material weakness.

Journal Entry Access and Review: The Company did not have effective processes to ensure that all journal entries were properly approved prior to being posted to the general ledger. Furthermore, a segregation of duties conflict is present as the Sr. Accounting Manager has the ability to both prepare and post journal entries to the general ledger. As a result, it was concluded that there is material weakness in the design and operating effectiveness of internal controls over access and reviews of journal entries.

Information Technology (“IT”) Access Change and IT Security: A segregation of duties conflict is present as access, change management and other IT security risks to the Company’s information technology systems are not monitored or reviewed on a timely basis. This material weakness resulted from the aggregation of various control deficiencies.

Financial Reporting:

Inventory Capitalization – The Company’s controls were not designed effectively as the Company did not have a process in place to evaluate the amount of inventory, cost of goods sold, general and administrative expenses, and research and development expenses.

Income Taxes – The Company did not design and maintain effective management review controls at a sufficient level of precision over the accounting for income taxes. Management’s controls surrounding the evaluation of income tax provision and related disclosures were not operating effectively as the disclosure was not updated to reflect the appropriate tax amortization related to the accrued settlement account. While this did not have an impact on the financial statements due to the full valuation allowance recorded on the deferred tax assets, this did have an impact on the presentation of the prior year footnote disclosure. Additionally, there were errors identified within the tax provision during the prior year related to cost of goods sold for the Company’s foreign entities. This material weakness resulted in certain material corrections to the financial statements including the establishment of a FIN 48 liability, the tax benefit related to impairment charges recorded for the IPR&D in the prior year, the overstatement of the deferred tax asset and valuation allowance related to depreciable assets in the prior year, a return to provision adjustment in 2022 related to Obalon net operating losses generated in 2021 as a result of inaccurate stock compensation recorded within the tax provision and a difference in pretax book income that was unaccounted for in the disclosure.

Purchase Accounting – The Company did not design and maintain effective management review controls at a sufficient level of precision over the accounting for transactions related to the prepaid D&O insurance policy purchased in connection with the merger transaction in June 2021. This material weakness resulted in certain material corrections to the financial statements and in the restatement of the consolidated financial statements.

We are currently implementing our remediation plan to address the material weaknesses identified above. Such measures include:

- Designing and implementing controls to formalize roles and review responsibilities to align with our team's skills and experience and designing and implementing formalized controls.
- Designing and implementing formal processes, policies and procedures supporting our financial close process.
- Design a formal review of a monthly journal entry report to ensure journal entries are appropriately approved within a timely manner.

### Changes in Internal Control over Financial Reporting

Other than in connection with executing upon the continued implementation of the remediation measures referenced above, there have been no changes in our internal controls over financial reporting during the quarter ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

## Risk factors

As filed, 157 characters.

There have been no material changes to the risk factors set forth in Item 1A. “*Risk Factors”* of our 2023 Annual Report on Form 10-K filed on April 1, 2024.

Filed May 15, 2024.
Source: SEC EDGAR, the filing index for accession 0001558370-24-008304. Last ingested by Listed: Oct 24, 2026, 15:09 ET. No prices; not investment advice.