SEC Form 424B3 filed by Allurion Technologies Inc.

Filed Pursuant to Rule 424(b)(3)

Registration No. 333-274564

Prospectus Supplement No. 7

(To Prospectus dated December 15, 2023)

 

ALLURION TECHNOLOGIES, INC.

Up to 56,548,268 Shares of Common Stock

 

 

This prospectus supplement no. 7 (this “Prospectus Supplement”) amends and supplements the prospectus dated December 15, 2023 (as supplemented or amended from time to time, the “Prospectus”) which forms part of our Registration Statement on Form S-1/A (Registration Statement No. 333-274564). This Prospectus Supplement is being filed to update and supplement the information included or incorporated by reference in the Prospectus with the information contained in our Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission (the “SEC”) on August 14, 2024 (the “10-Q”). Accordingly, we have attached the 10-Q to this Prospectus Supplement.

This Prospectus Supplement updates and supplements the information in the Prospectus and is not complete without, and may not be delivered or utilized except in combination with, the Prospectus, including any amendments or supplements thereto. This Prospectus Supplement should be read in conjunction with the Prospectus, and if there is any inconsistency between the information in the Prospectus and this Prospectus Supplement, you should rely on this Prospectus Supplement.

Our common stock is listed on The New York Stock Exchange (“NYSE”) under the symbol “ALUR” and our public warrants are listed on the NYSE under the symbol “ALUR.WS”. On August 14, 2024, the last quoted sale price for shares of our common stock as reported on the NYSE was $0.6938 per share, and the last quoted sale price for our public warrants as reported on the NYSE was $0.2375 per warrant.

We are an “emerging growth company” under applicable federal securities laws and will be subject to reduced public company reporting requirements.

 

 

Investing in our securities involves a high degree of risk. Before buying any securities, you should carefully read the discussion of the risks of investing in our securities in “Risk Factors” beginning on page 26 of the Prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under the Prospectus or determined if the Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

The date of this Prospectus Supplement is August 15, 2024.

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

OR

 

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from       to      

Commission File Number: 001-41767

 

 

Allurion Technologies, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Delaware		92-2182207
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
11 Huron Drive Natick, MA		01760
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (508) 647-4000

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.0001 per share		ALUR		The New York Stock Exchange
Warrants to purchase 1.420455 shares of Common Stock for $8.10 per share		ALUR WS		The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer		☐		Accelerated filer		☐
Non-accelerated filer		☒		Smaller reporting company		☒
				Emerging growth company		☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No  ☒

As of August 9, 2024, the registrant had 64,348,508 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 

Table of Contents

 

				Page
PART I.		FINANCIAL INFORMATION			1
Item 1.		Financial Statements (Unaudited)			1
		Condensed Consolidated Balance Sheets			1
		Condensed Consolidated Statements of Operations			2
		Condensed Consolidated Statements of Comprehensive Income (Loss)			3
		Condensed Consolidated Statements of Stockholders’ Deficit			4
		Condensed Consolidated Statements of Cash Flows			5
		Notes to Unaudited Condensed Consolidated Financial Statements			7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			34
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			48
Item 4.		Controls and Procedures			48
PART II.		OTHER INFORMATION			50
Item 1.		Legal Proceedings			50
Item 1A.		Risk Factors			50
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			56
Item 3.		Defaults Upon Senior Securities			56
Item 4.		Mine Safety Disclosures			56
Item 5.		Other Information			56
Item 6.		Exhibits			57
Signatures					59

 

i

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, but are not limited to, statements regarding the plans, strategies and prospects, both business and financial, of Allurion Technologies, Inc. (“Allurion”, the “Company”, “we”, “our”, or “us”). These statements are based on the beliefs and assumptions of the management of Allurion. Although Allurion believes that its plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, Allurion cannot assure you that it will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning possible or assumed future actions, business strategies, events, or results of operations, are forward-looking statements. These statements may be preceded by, followed by or include the words “believes”, “estimates”, “expects”, “projects”, “target”, “goal”, “forecasts”, “may”, “will”, “potential”, “should”, “would”, “could”, “future”, “seeks”, “plans”, “predicts”, “propose”, “scheduled”, “anticipates”, “intends”, or similar expressions.

Forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, statements about the ability of Allurion to:

 

•

realize the benefits expected from the business combination (the “Business Combination”) between Allurion and Compute Health Acquisition Corp. (“Compute Health”) pursuant to that certain Business Combination Agreement, dated as of February 9, 2023 (as amended, the “Business Combination Agreement”), by and among Allurion, Allurion Technologies, LLC, which was previously known as Allurion Technologies Opco, Inc. (formerly Allurion Technologies, Inc.) prior to the consummation of the Business Combination (“Legacy Allurion”), Compute Health, Compute Health Corp., (“Merger Sub I”) and Compute Health LLC (“Merger Sub II” and, together with Merger Sub I, the “Merger Subs”);

 

•

successfully defend litigation that may be instituted against Allurion;

 

•

manage various conflicts of interest that could arise among us or our affiliates, investors, directors, and officers;

 

•

successfully deploy our cash and cash equivalents and proceeds from the Chardan Equity Facility (as defined herein);

 

•

maintain the listing of Allurion securities on the New York Stock Exchange (“NYSE”), and the potential liquidity and trading of such securities;

 

•

achieve the benefits of the collaboration with Medtronic plc;

 

•

acquire sufficient sources of funding if and when needed;

 

•

attract and retain key employees, officers, and directors;

 

•

implement and achieve business plans, forecasts, and other expectations, including any financial projections provided to PIPE Investors (as defined herein) in connection with the Business Combination, the Purchasers in connection with the RTW Convertible Notes (as defined herein), and the investors in the Equity Offering (as defined herein), and identify and realize additional opportunities;

 

•

manage risks associated with the management of Allurion having limited experience operating as a public company;

 

•

commercialize current and future products and services and create sufficient demand among health care providers and patients for such products;

 

•

successfully complete current and future preclinical studies and clinical trials of the swallowable, procedure-less intragastric balloon for weight loss developed by Allurion (the “Allurion Balloon”) and any other future product candidates;

 

•

obtain market acceptance of the Allurion Balloon as safe and effective;

 

•

cost-effectively sell existing and future products through existing distribution arrangements with distributors and/or successfully adopt a direct sales force as part of a hybrid sales model that includes both distributors and a direct sales effort;

 

•

timely collect accounts receivable from our customers;

 

•

obtain regulatory approval or clearance in the U.S. and certain non-U.S. jurisdictions for current and future products and maintain previously obtained approvals and/or clearances in those jurisdictions where products and services are currently offered;

 

ii

•

successfully complete remediation programs to resume sales of the Allurion Balloon in France and any other country that suspends sales of our products;

 

•

accurately forecast customer demand and manufacture sufficient quantities of products that patients and health care providers request;

 

•

successfully compete in the highly competitive and rapidly changing regulated industries in which Allurion operates, and effectively address changes in such industries, including changes in competitors’ products and services and changes in the laws and regulations that affect Allurion;

 

•

successfully manage any future international expansion of Allurion’s business and navigate business, regulatory, political, operational, financial, and economic risks associated with doing business internationally;

 

•

successfully manage any future growth in Allurion’s business;

 

•

contract with third-party suppliers and providers and monitor their ability to perform adequately under those arrangements;

 

•

comply with applicable legal and regulatory obligations;

 

•

obtain and maintain intellectual property protection for Allurion’s products and technologies and acquire or license (on commercially reasonable terms) intellectual property from third parties;

 

•

sell products, and use proprietary technologies, without infringing, misappropriating, or otherwise violating the proprietary rights or intellectual property of third parties;

 

•

manage the impact of any significant acquisitions, dispositions, and other similar or material transactions;

 

•

implement and maintain effective internal controls;

 

•

manage the effects of natural disasters, terrorist attacks, the spread and/or abatement of infectious diseases such as COVID-19, and the occurrence of other events beyond our reasonable control, including with respect to potential operational disruptions, labor disruptions, increased costs, and impacts to demand related thereto, on the ability to implement business plans, forecasts, and other expectations; and

 

•

other factors detailed under the section entitled “Risk Factors.”

We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, prospects, business strategy, and financial needs. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, assumptions and other factors described under the heading “Risk Factors” in this Quarterly Report on Form 10-Q and in the section entitled “Risk Factors” within our Annual Report on Form 10-K filed with the SEC on March 26, 2024, as amended. These risks are not exhaustive. Other sections of this Quarterly Report on Form 10-Q include additional factors that could adversely impact our business and financial performance. Moreover, Allurion operates in very competitive and rapidly changing environments. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and such statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities laws.

 

iii

PART I-FINANCIAL INFORMATION

Item 1. Financial Statements.

ALLURION TECHNOLOGIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

 

		June 30, 2024				December 31, 2023
Assets
Current assets:
Cash and cash equivalents		$	19,258			$	38,037
Accounts receivable, net of allowance of doubtful accounts of $11,363 and $12,671, respectively			13,357				18,194
Inventory, net			4,788				6,171
Prepaid expenses and other current assets			2,902				2,414
Total current assets			40,305				64,816
Property and equipment, net			3,254				3,381
Right-of-use asset			2,481				3,010
Other long-term assets			510				505
Total assets		$	46,550			$	71,712
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable		$	7,984			$	10,379
Current portion of term loan			—				38,643
Current portion of lease liabilities			850				908
Accrued expenses and other current liabilities			14,724				15,495
Total current liabilities			23,558				65,425
Public warrant liabilities			2,113				5,943
Revenue Interest Financing liability			39,000				36,200
Earn-out liabilities			4,110				23,990
Convertible notes payable			40,950				—
Lease liabilities, net of current portion			1,788				2,306
Other liabilities			5,613				8,335
Total liabilities			117,132				142,199
Commitments and Contingencies (Note 16)
Stockholders’ deficit:
Preferred stock, $0.0001 par value - 100,000,000 shares authorized as of June 30, 2024; and no shares issued and outstanding as of June 30, 2024 and December 31, 2023			—				—
Common stock, $0.0001 par value - 1,000,000,000 shares authorized as of June 30, 2024; and 47,972,989 and 47,688,096 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively			5				5
Additional paid-in capital			144,768				143,007
Accumulated other comprehensive loss			(5,980	)			(700	)
Accumulated deficit			(209,375	)			(212,799	)
Total stockholders’ deficit			(70,582	)			(70,487	)
Total liabilities and stockholders’ deficit		$	46,550			$	71,712

The accompanying notes are an integral part of these consolidated financial statements.

 

1

ALLURION TECHNOLOGIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands, except per share amounts)

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2024				2023				2024				2023
Revenue		$	11,766			$	12,960			$	21,152			$	27,031
Cost of revenue			2,773				2,992				5,293				5,932
Gross profit			8,993				9,968				15,859				21,099
Operating expenses:
Sales and marketing			6,718				10,273				12,863				22,137
Research and development			4,310				6,581				10,035				14,433
General and administrative			7,311				6,408				13,697				11,714
Total operating expenses:			18,339				23,262				36,595				48,284
Loss from operations			(9,346	)			(13,294	)			(20,736	)			(27,185	)
Other income (expense):
Interest expense			(339	)			(2,508	)			(2,270	)			(4,745	)
Changes in fair value of warrants			1,376				(204	)			4,507				(1,679	)
Changes in fair value of debt			8,230				2,257				8,230				2,257
Changes in fair value of Revenue Interest Financing and PIPE Conversion Option			6				—				1,496				—
Changes in fair value of earn-out liabilities			5,690				—				19,880				—
Loss on extinguishment of debt			(8,713	)			—				(8,713	)			—
Termination of convertible note side letters			—				(8,134	)			—				(8,134	)
Other income (expense), net			999				(91	)			1,171				(255	)
Total other income (expense):			7,249				(8,680	)			24,301				(12,556	)
Income (loss) before income taxes			(2,097	)			(21,974	)			3,565				(39,741	)
Provision for income taxes			(65	)			(22	)			(141	)			(56	)
Net Income (loss)			(2,162	)			(21,996	)			3,424				(39,797	)
Cumulative undeclared preferred dividends			—				(725	)			—				(1,442	)
Net income (loss) attributable to common shareholders		$	(2,162	)		$	(22,721	)		$	3,424			$	(41,239	)
Net income (loss) per share
Basic		$	(0.05	)		$	(0.84	)		$	0.07			$	(1.52	)
Diluted		$	(0.05	)		$	(0.84	)		$	0.07			$	(1.52	)
Weighted-average shares outstanding
Basic			47,946,609				27,107,397				47,862,980				27,097,341
Diluted			47,946,609				27,107,397				48,982,998				27,097,341

The accompanying notes are an integral part of these consolidated financial statements.

 

2

ALLURION TECHNOLOGIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(dollars in thousands, except per share amounts)

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2024				2023				2024				2023
Net Income (loss)		$	(2,162	)		$	(21,996	)		$	3,424			$	(39,797	)
Other comprehensive loss:
Change in fair value of Revenue Interest Financing due to change in credit risk			(3,000	)			—				(5,200	)			—
Change in fair value of RTW Convertible Notes due to change in credit risk			(80	)			—				(80	)			—
Comprehensive Loss		$	(5,242	)		$	(21,996	)		$	(1,856	)		$	(39,797	)

The accompanying notes are an integral part of these consolidated financial statements.

 

3

ALLURION TECHNOLOGIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(dollars in thousands)

 

		Common Stock								Additional Paid-				Accumulated Other Comprehensive				Accumulated				Stockholders’
		Shares				Amount				in Capital				Loss				Deficit				Deficit
Balance as of January 1, 2023			27,079,856				3				99,875				—				(132,192	)			(32,314	)
Exercise of stock options			15,376				—				20				—				—				20
Issuance of Legacy Allurion convertible preferred stock for the exercise of warrants			3,554				—				29				—				—				29
Stock-based compensation expense			—				—				409				—				—				409
Net loss			—				—				—				—				(17,801	)			(17,801	)
Balance as of March 31, 2023			27,098,786				3				100,333				—				(149,993	)			(49,657	)
Exercise of stock options			27,626				—				28				—				—				28
Issuance of Legacy convertible preferred stock for the exercise of warrants			492				—				6				—				—				6
Stock-based compensation expense			—				—				401				—				—				401
Net loss							—								—				(21,996	)			(21,996	)
Balance as of June 30, 2023			27,126,904				3				100,768				—				(171,989	)			(71,218	)
Balance as of January 1, 2024			47,688,096				5				143,007				(700	)			(212,799	)			(70,487	)
Exercise of stock options			4,646				—				9				—				—				9
Issuance of common stock for the exercise of Public Warrants			142				—				—				—				—				—
Issuance of common stock from equity line financing (Note 12)			143,234				—				378				—				—				378
Issuance of common stock in connection with vesting of RSU awards			62,619				—				—				—				—				—
Stock-based compensation expense			—				—				552				—				—				552
Other comprehensive loss			—				—				—				(2,200	)			—				(2,200	)
Net income			—				—				—				—				5,586				5,586
Balance as of March 31, 2024			47,898,737				5				143,946				(2,900	)			(207,213	)			(66,162	)
Exercise of stock options			11,491				—				16				—				—				16
Issuance of common stock in connection with vesting of RSU awards			62,619				—				—				—				—				—
Issuance of common stock for the exercise of Public Warrants			142				—				1				—				—				1
Stock-based compensation expense			—				—				805				—				—				805
Other comprehensive loss			—				—				—				(3,080	)			—				(3,080	)
Net loss			—				—				—				—				(2,162	)			(2,162	)
Balance as of June 30, 2024			47,972,989				5				144,768				(5,980	)			(209,375	)			(70,582	)

The accompanying notes are an integral part of these consolidated financial statements.

 

4

ALLURION TECHNOLOGIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

 

		Six Months Ended June 30,
		2024				2023
Operating Activities:
Net income (loss)		$	3,424			$	(39,797	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Non-cash lease expense			362				416
Depreciation and amortization			564				399
Stock-based compensation			1,357				810
Provision for uncollectible accounts			—				2,885
Unrealized exchange (gain) or loss			373				49
Provision for inventory			369				469
Change in fair value of warrant liabilities			(4,507	)			1,679
Change in fair value of derivative liabilities			(1,895	)			35
Change in fair value of Revenue Interest Financing and PIPE Conversion Option			(1,496	)			—
Change in fair value of earn-out liabilities			(19,880	)			—
Interest paid on debt recorded at fair value			(1,054	)			—
Change in fair value of debt			(8,230	)			(2,257	)
Debt issuance costs associated with debt recorded at fair value			1,357				—
Non-cash interest expense			1,464				775
Non-cash termination of convertible note side letters			—				6,632
Loss on term loan extinguishment			8,713				0
Changes in operating assets and liabilities:
Accounts receivable			4,412				930
Inventory			1,014				(1,468	)
Prepaid expenses, other current and long-term assets			718				634
Lease liabilities			(411	)			(391	)
Accounts payable			(2,504	)			5,021
Accrued expenses and other current liabilities			(1,713	)			3,162
Net cash used in operating activities		$	(17,563	)		$	(20,017	)
Investing Activities:
Purchases of property and equipment			(539	)			(408	)
Net cash used in investing activities		$	(539	)		$	(408	)
Financing Activities:
Proceeds from issuance of convertible notes			48,000				19,550
Proceeds from option and warrant exercises			26				61
Proceeds from equity line financing			378				—
Repayment of convertible notes			—				(500	)
Payment of deferred financing costs			—				(1,604	)
Payment of debt issuance costs			(1,357	)			—
Repayment of Fortress term loan			(47,720	)			—
Net cash provided by (used in) financing activities		$	(673	)		$	17,507
Net decrease in cash and cash equivalents and restricted cash		$	(18,775	)		$	(2,918	)
Cash and cash equivalents and restricted cash at beginning of period			38,421				8,023
Cash and cash equivalents and restricted cash at end of period		$	19,646			$	5,105
Supplemental disclosure of cash flow information
Cash paid for interest		$	2,672			$	3,967
Supplemental cash flow information on non-cash investing and financing activities
Purchase of property and equipment included in accounts payable		$	31			$	165
Deferred financing costs in accounts payable and accrued expenses			1,207				6,918
Change in fair value of Revenue Interest Financing through OCI			(5,280	)			—

The accompanying notes are an integral part of these consolidated financial statements.

 

5

ALLURION TECHNOLOGIES, INC. AND SUBSIDIARIES

A reconciliation of the amounts of cash and cash equivalents and restricted cash in the consolidated balance sheets to the amount in the consolidated statements of cash flows is as follows (in thousands):

 

		June 30, 2024				December 31, 2023
Cash and cash equivalents		$	19,258			$	38,037
Restricted cash included in other long-term assets			388				384
Cash and cash equivalents and restricted cash shown in the statement of cash flows		$	19,646			$	38,421

The accompanying notes are an integral part of these consolidated financial statements.

 

6

1. Organization and Basis of Presentation

Organization

Allurion Technologies, Inc. (“Allurion” or the “Company”) is a vertically integrated medical device company that is developing, manufacturing, and commercializing innovative weight loss experiences centered around its Allurion^™ Balloon. The Allurion Balloon is the world’s first and only swallowable, procedureless^™ intragastric balloon for weight loss that does not require surgery, endoscopy, or anesthesia for placement. Allurion sells the Allurion Balloon and connected scale through distributors or directly to health care providers.

The Company also offers tiered access to artificial intelligence (“AI”)-powered remote patient monitoring tools, a mobile app for patients and a clinic dashboard for providers, referred to as the Allurion Virtual Care Suite (“VCS”) and, collectively with the Allurion Balloon, referred to as the “Allurion Program”. The base tier of the VCS is free of charge to those purchasing the Allurion Balloon, as well as customers looking for a weight-loss management platform for patients utilizing other weight loss treatments, including anti-obesity medications and bariatric surgery. More full-scale versions of the VCS are available to health care providers on an upgrade basis. Allurion currently markets the Allurion Program in over 50 countries, and the Company operates subsidiaries in the United States, France, the United Arab Emirates, Hong Kong, the United Kingdom, Italy, Spain, Australia and Mexico.

Business Combination Agreement

On February 9, 2023, Allurion Technologies Opco, Inc. (formerly Allurion Technologies, Inc., “Legacy Allurion”) and Allurion Technologies, Inc. (formerly Allurion Technologies Holdings, Inc.) entered into the Business Combination Agreement (as subsequently amended on May 2, 2023, the “Business Combination Agreement”) with Compute Health Acquisition Corp. (“CPUH” or “Compute Health”), Compute Health Corp. (“Merger Sub I”) and Compute Health LLC (“Merger Sub II” and, together with Merger Sub I, the “Merger Subs”). Pursuant to the Business Combination Agreement, on August 1, 2023 (the “Closing Date”), the Mergers (as defined below) were consummated in three steps: (a) Compute Health merged with and into Allurion (the “CPUH Merger”), with Allurion surviving the CPUH Merger as a publicly listed entity (the time at which the CPUH Merger became effective, the “CPUH Merger Effective Time”) and becoming the sole owner of the Merger Subs; (b) three hours following the consummation of the CPUH Merger, Merger Sub I merged with and into Legacy Allurion (the “Intermediate Merger” and the time at which the Intermediate Merger became effective, the “Intermediate Merger Effective Time”), with Legacy Allurion surviving the Intermediate Merger and becoming a direct, wholly-owned subsidiary of Allurion; and (c) thereafter, Legacy Allurion merged with and into Merger Sub II (the “Final Merger” and, collectively with the CPUH Merger and the Intermediate Merger, the “Mergers”, and together with all other transactions contemplated by the Business Combination Agreement, the “Business Combination”), with Merger Sub II surviving the Final Merger and remaining a direct, wholly-owned subsidiary of Allurion (the time at which the Final Merger became effective, the “Final Merger Effective Time”). Allurion shares began trading on the New York Stock Exchange (“NYSE”) under the ticker symbol “ALUR” on August 2, 2023. Upon completion of the Business Combination, Legacy Allurion’s business operations continued as our business operations.

The Business Combination was accounted for as a reverse capitalization in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Under this method of accounting, Compute Health was treated as the “acquired” company for financial reporting purposes and Legacy Allurion was the accounting “acquirer”. Accordingly, the Business Combination was treated as the equivalent of Legacy Allurion issuing stock for the net assets of Compute Health, accompanied by a recapitalization. As a result of the reverse recapitalization, the assets and liabilities of the Company are presented at their historical carrying values, and the assets and liabilities of Compute Health are recognized on the acquisition date and measured on the basis of the net proceeds from the capital transaction, with no goodwill or other intangible assets recorded. This determination is primarily based on the fact that, immediately following the Business Combination, Legacy Allurion stockholders had a majority of the voting power of Allurion, Legacy Allurion controlled the majority of the board seats of Allurion, and Legacy Allurion senior management comprised all of the senior management of Allurion. The equity structure has been restated in all comparative periods up to the Closing Date to reflect the number of shares of the Company’s common stock, $0.0001 par value per share (“Common Stock,” “Allurion Common Stock” or the “Company’s Common Stock”), issued to Legacy Allurion stockholders in connection with the Business Combination. As such, the shares and corresponding capital amounts and earnings per share related to Legacy Allurion’s convertible preferred stock and Legacy Allurion common stock prior to the Business Combination have been retroactively restated as shares reflecting the exchange ratio of approximately 0.9780 (the “Exchange Ratio”) established in the Business Combination. As a result of this retrospective application, certain prior period balances within the condensed consolidated financial statements have changed. Refer to Note 3, Business Combination for further discussion regarding the closing of the Business Combination with Compute Health.

Unless otherwise indicated, references in this Quarterly Report on Form 10-Q to the “Company”, “our”, and “Allurion” refer to the condensed consolidated operations of Allurion Technologies, Inc. and its subsidiaries. References to CPUH and Compute Health refer to Compute Health Acquisition Corp. and its subsidiaries prior to the consummation of the Business Combination and references to “Legacy Allurion” refer to Allurion Technologies, Inc. prior to the consummation of the Business Combination.

 

7

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and the rules and regulations of the Securities and Exchange Commission (“SEC”). Any reference in these notes to the applicable accounting guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”), and Accounting Standards Update (“ASU”), of the Financial Accounting Standards Board (“FASB”). They should be read in conjunction with our audited financial statements as of and for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K, as amended (“Annual Report on Form 10-K”). The financial statements as of June 30, 2024 and for the three and six months ended June 30, 2024 and 2023 presented in this report are unaudited; however, in the opinion of management such financial statements reflect all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods presented. The results of operations for the periods presented are not necessarily indicative of the results that might be expected for future interim periods or for the full year.

Our foreign operations are subject to exchange rate fluctuations and foreign currency transaction costs. The functional currency for all of our foreign subsidiaries is the United States dollar except Allurion Australia Pty Ltd., which uses the Australian dollar. When remeasuring from a local currency to the functional currency, assets and liabilities are remeasured into U.S. dollars at exchange rates in effect at the balance sheet dates and results of operations transacted in local currency are remeasured into U.S. dollars using average exchange rates for the period presented. A loss from remeasurement of $0.4 million and gain from remeasurement of less than $0.1 million for the six months ended June 30, 2024 and 2023, respectively, and losses from remeasurement of $0.1 million each of the three months ended June 30, 2024 and 2023, are recorded in the statements of operations within Other income (expense), net. The Company translates the foreign functional currency financial statements to U.S. dollars for Allurion Australia Pty Ltd. using the exchange rates at the balance sheet date for assets and liabilities, the period average exchange rates for revenues and expenses, and the historical exchange rates for equity transactions. The effects of foreign currency translation adjustments were immaterial for the three and six months ended June 30, 2024 and 2023.

Going Concern

The Company has evaluated whether there are certain events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the interim condensed consolidated financial statements are issued.

The Company has incurred recurring losses since inception, anticipates net losses and negative operating cash flows for the near future, and may be unable to remain in compliance with certain financial covenants required under its credit facilities. Through June 30, 2024, the Company has funded its operations primarily with proceeds from the sale of its convertible preferred stock, issuance of convertible notes, issuance of term loans, and funds received upon consummation of the Business Combination. The Company has incurred recurring losses and cash outflows from operating activities since its inception, including losses from operations of $20.7 million and $27.2 million and cash outflows from operating activities of $17.6 million and $20.0 million for the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024, the Company had an accumulated deficit of $209.4 million. The Company expects to continue to generate significant operating losses for the foreseeable future.

Based on the Company’s recurring losses from operations incurred since inception, its expectation of continuing operating losses for the foreseeable future, the potential need to raise additional capital to finance its future operations, and the potential of being unable to remain in compliance with certain financial covenants under its credit facilities, the Company has concluded that there is substantial doubt about its ability to continue as a going concern for a period of one year from the date that these condensed consolidated financial statements are issued. The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.

2. Summary of Significant Accounting Policies

There have been no significant changes, except as described below, to the significant accounting policies disclosed in Note 2 of the “Notes to Consolidated Financial Statements” to the consolidated audited financial statements as of and for the year ended December 31, 2023 included in our Annual Report on Form 10-K.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Management considers many factors in selecting appropriate financial accounting policies and controls in developing the estimates and assumptions that are used in the preparation of these consolidated financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates. Actual results could differ from those estimates.

 

8

RTW Convertible Notes

The Company accounted for the RTW Convertible Notes (defined below) under the fair value options (“FVO”) election of ASC Topic 825, Financial Instruments (“ASC 825”). The RTW Convertible Notes accounted for under the FVO election was a debt host financial instrument containing embedded features wherein the entire financial instrument was initially measured at its issue-date estimated fair value and then subsequently remeasured at estimated fair value on a recurring basis at each reporting period date. Changes in the estimated fair value of the RTW Convertible Notes were recorded as a component of Other income (expense) in the condensed consolidated statements of operations. A portion of the estimated change in fair value must be reported in other comprehensive loss to the extent that it is attributable to instrument-specific credit risk. As a result of electing the FVO, direct costs and fees related to the RTW Convertible Notes were expensed as incurred.

Reclassification of Prior Year Presentation

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. Adjustment has been made to the condensed consolidated statement of operations for the three and six months ended June 30, 2023, to present the change in fair value of derivative liabilities as part of Other income (expense), net. This amount was a separate line item in prior years.

Risk of Concentration of Credit, Significant Customers and Significant Suppliers

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash equivalents and accounts receivable, net. The Company maintains deposits in accredited financial institutions in excess of federally insured limits. The Company maintains its cash, cash equivalents and restricted cash with financial institutions that management believes to be of high credit quality. The Company has not experienced any losses on such accounts and does not believe it is exposed to any unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

Significant customers are those which represent more than 10% of the Company’s total revenue for the three and six months ended June 30, 2024 and 2023 or accounts receivable, net balance as of June 30, 2024 and December 31, 2023. The following table presents customers that represent 10% or more of the Company’s total revenue and accounts receivable, net:

 

		Revenue								Revenue								Accounts Receivable
		Three Months Ended June 30,								Six Months Ended June 30,								June 30,				December 31,
		2024				2023				2024				2023				2024				2023
Customer A			N/A				N/A				N/A				N/A				12	%			16	%

The Company relies on third parties for the supply of parts and components for its products as well as third-party logistics providers. In instances where these parties fail to perform their obligations, the Company may be unable to find alternative suppliers of parts and components to satisfactorily deliver its products to its customers on time, if at all, which could have a material adverse effect on the Company’s operating results, financial condition and cash flows and damage its customer relationships.

Recently Adopted Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options and Derivatives and Hedging-Contracts in Entity’s Own Equity, which simplifies the accounting for convertible instruments. The guidance removes certain accounting models which separate the embedded conversion features from the host contract for convertible instruments. The Company adopted ASU 2020-06 effective January 1, 2024 under the modified retrospective method of transition approach. The adoption of ASU 2020-06 did not have an impact on the Company’s condensed consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an interim and annual basis. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal periods beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. The Company expects to enhance annual segment reporting disclosures based on the new requirements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires public entities, on an annual basis, to provide disclosure of specific categories in the rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction. This ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements and related disclosures.

 

9

3. Business Combination

As discussed in Note 1, Organization and Basis of Presentation, on August 1, 2023 the Company consummated the Business Combination with Compute Health pursuant to the Business Combination Agreement. The Business Combination was accounted for as a reverse capitalization in accordance with U.S. GAAP. Under this method of accounting, Compute Health, which was the legal acquirer, was treated as the “acquired” company for financial reporting purposes. Accordingly, the Business Combination was treated as the equivalent of Allurion issuing stock for the net assets of Compute Health, accompanied by a recapitalization.

Upon the closing of the Business Combination, (a) holders of Legacy Allurion common stock received shares of Allurion Common Stock in an amount determined by application of the Exchange Ratio of approximately 0.9780, (b) each then-outstanding share of Legacy Allurion preferred stock was converted into the right to receive shares of Allurion Common Stock equal to the number of shares of Legacy Allurion common stock that would be issued upon conversion of such outstanding share of Legacy Allurion preferred stock based on the applicable conversion ratio multiplied by the Exchange Ratio, (c) each then-outstanding and unexercised Legacy Allurion option was converted into a new Allurion option on the same terms and conditions as were applicable to such Legacy Allurion option based on the Exchange Ratio (“Rollover Option”), (d) each then-outstanding Legacy Allurion warrant was converted into a new Allurion warrant based on the Exchange Ratio (“Rollover Warrant”), (e) each then-outstanding Legacy Allurion restricted stock unit was converted into a rollover restricted stock unit based on the Exchange Ratio, and (f) certain amounts of loans made by Compute Health Sponsor LLC (the “Sponsor”) to CPUH, which balance was $3.7 million at the time of the Business Combination (the “Sponsor Loan Excess”), were converted into 525,568 shares of Allurion Common Stock (the “Sponsor Loan Equity Issuance”). For periods prior to the Business Combination, the reported share and per share amounts have been retroactively converted by applying the Exchange Ratio. The consolidated assets, liabilities, and results of operations prior to the Business Combination are those of Legacy Allurion.

Further, upon the closing of the Business Combination, each then-outstanding share of Compute Health Class A common stock was canceled and extinguished and was converted into the right to receive 1.420455 shares of Allurion Common Stock. Additionally, the Company assumed 13,206,922 outstanding public warrants to purchase an aggregate 18,759,838 shares of Allurion Common Stock at $8.10 per share.

In connection with the Business Combination, the Company incurred approximately $22.7 million of transaction costs, consisting of legal and other professional fees, of which $15.2 million was recorded to additional paid-in capital as a reduction of proceeds, $2.5 million was recorded as debt issuance costs in connection with the Fortress Term Loan (as defined below), and $5.0 million was recorded as an expense in general and administrative expenses on the condensed consolidated statement of operations and comprehensive loss. Of the $5.0 million recorded as general and administrative expenses, $3.6 million relates to a one-time insurance payment related to any potential matters that might arise from the period prior to the Business Combination, and as such is not capitalized as an asset. An additional $1.2 million relates to direct costs and fees incurred as part of the Revenue Interest Financing with RTW.

The following table reconciles the elements of the Business Combination to the condensed consolidated statement of cash flows and the condensed consolidated statement of changes in equity:

 

		December 31, 2023
Cash - CPUH trust (net of redemptions)		$	38,395
Cash - PIPE Investors			37,922
Gross Proceeds			76,317
Less: transaction costs paid			(14,665	)
Net proceeds from the Business Combination			61,652
Less: warrant liabilities assumed			(13,762	)
Less: repayment of note assumed in the Business Combination			(2,500	)
Less: accrued transaction costs at December 31, 2023			(580	)
Business Combination, net of transaction costs		$	44,810

 

10

The number of shares of Allurion Common Stock outstanding immediately following the consummation of the Business Combination was as follows:

 

		Common Stock
Legacy Allurion Equityholders (1)			27,897,387
CPUH Stockholders (2)			5,165,698
Shares Issued to PIPE Investors (2)			5,386,695
Shares issued to RTW and Fortress (3)			1,900,000
Shares issued to convertible note holders			3,301,222
CPUH Sponsor Shares (2)			3,262,711
Side Letter Termination Shares (3)			387,696
Total shares of Common Stock immediately after Business Combination			47,301,409

 

(1)	Consists of Legacy Allurion common stock and Legacy Allurion preferred stock, plus the issuance of common stock in connection with the vesting of RSUs at closing, less the Gaur Trust Contributed Shares (as defined below).

(2)	The CPUH Stockholders shares, PIPE shares, and CPUH Sponsor shares are presented combined within the condensed consolidated statements of stockholders deficit on the “Reverse recapitalization, net of transaction costs” line, which is less the Gaur Trust Contributed Shares (as defined below).

(3)

The shares issued to RTW and Fortress and the Side Letter Termination shares are presented combined within the condensed consolidated statements of stockholders deficit on the “Derecognition of liabilities associated with the Backstop Shares, Hunter shares, and additional RTW and Fortress shares and issuance of related shares” line.

PIPE Investment

In connection with the execution of the Business Combination Agreement, Allurion and Compute Health entered into subscription agreements, each dated February 9, 2023 (the “PIPE Subscription Agreements”), with certain accredited investors and qualified institutional buyers (the “PIPE Investors”), pursuant to which, upon the terms and subject to the conditions set forth therein, the PIPE Investors, among other things, purchased an aggregate of 5,386,695 shares of Allurion Common Stock at a purchase price of $7.04 per share (other than as set forth in the Amended and Restated RTW Side Letter, as defined below), for an aggregate purchase price of $37.9 million, following the CPUH Merger Effective Time (the “PIPE Investment”).

Revenue Interest Financing Agreement, Side Letter and PIPE Conversion Option

On February 9, 2023, concurrently with the execution of the Business Combination Agreement, the Company entered into the Revenue Interest Financing Agreement (the “Revenue Interest Financing Agreement”) with certain entities that engaged RTW Investment, LP (together with its affiliates, “RTW”) as investment manager. Pursuant to the Revenue Interest Financing Agreement, at the closing of the Business Combination, RTW paid Allurion an aggregate of $40.0 million (the “Investment Amount”). In exchange for the Investment Amount, Allurion will remit revenue interest payments on all current and future products, digital solutions and services developed, imported, manufactured, marketed, offered for sale, promoted, sold, tested or otherwise distributed by Allurion and its subsidiaries at a rate up to 6.0% of annual net sales prior to December 31, 2026. On or after January 1, 2027, the Company will remit revenue interest payments at a rate up to 10.0% of annual net sales, and it will continue to make revenue interest payments to RTW until December 31, 2030. The Revenue Interest Financing Agreement was amended pursuant to the RIFA Amendment (as defined below) on April 14, 2024. The RIFA Amendment, among other things, increased the rate of revenue interest payments to be paid to RTW on all current and future products, digital solutions and services developed, imported, manufactured, marketed, offered for sale, promoted, sold, tested or otherwise distributed by Allurion and its subsidiaries. Refer to Note 9, Revenue Interest Financing, Side Letter, and PIPE Conversion Option below for further discussion on the Revenue Interest Financing.

Additionally, in connection with the Company entering in the Revenue Interest Financing, the Company, Compute Health, Legacy Allurion, Merger Sub II and RTW entered into a side letter (the “RTW Side Letter”) on February 9, 2023 under which RTW may elect to convert up to $7.5 million of its initial PIPE Investment into an additional revenue interest financing by forfeiting a number of shares of Allurion Common Stock acquired by its PIPE Investment. Refer to Note 9, Revenue Interest Financing, Side Letter, and PIPE Conversion Option below for further discussion on the Revenue Interest Financing.

On May 2, 2023, the parties amended and restated the RTW Side Letter (as amended, the “Amended and Restated RTW Side Letter”), in connection with the Backstop Agreement (defined below), pursuant to which, among other things, Allurion issued 250,000 shares of Allurion Common Stock to RTW immediately prior to the Intermediate Merger Effective Time.

Fortress Credit Agreement

In connection with the closing of the Business Combination, the Company entered into a term loan facility (the “Fortress Term Loan”) pursuant to a Credit Agreement and Guaranty, dated as of August 1, 2023 (the “Fortress Credit Agreement”), with Fortress Credit Corp. (“Fortress”), as administrative agent for the lenders party thereto from time to time (the “Lenders”). Under the terms of

 

11

the Fortress Term Loan, we borrowed $60.0 million which was used to repay the outstanding principal, accrued and unpaid interest, and other obligations with respect to the 2021 Term Loan (as defined below). Additionally, per the terms of the Fortress Term Loan and Backstop Agreement, Allurion issued an aggregate of 950,000 shares of Allurion Common Stock to an affiliate of Fortress pursuant to a subscription agreement between Allurion and such affiliate. Refer to Note 8, Debt for further discussion on the Fortress Term Loan.

Backstop Agreement

On May 2, 2023, CFIP2 ALLE LLC, an affiliate of Fortress Credit Corp., and RTW (collectively, the “Backstop Purchasers”), Legacy Allurion, Allurion and Hunter Ventures Limited (“HVL”) entered into the backstop agreement (the “Backstop Agreement”). Pursuant to the Backstop Agreement, immediately prior to the Intermediate Merger Closing, (a) each Backstop Purchaser purchased $2 million of the aggregate principal amount outstanding of HVL’s Legacy Allurion convertible note issued in February 2023, (b) Allurion canceled the existing HVL Legacy Allurion Convertible Note and issued a new Allurion Convertible Note to HVL for the remaining balance together with all unpaid interest accrued since the date of issuance thereof, (c) Allurion issued new Allurion Convertible Notes to each Backstop Purchaser with an issuance date of August 1, 2023 and an original principal amount of $2 million each and (d) Allurion issued 700,000 shares of Allurion Common Stock to each Backstop Purchaser. Refer to Note 8, Debt for further discussion around the Backstop Agreement.

HVL Termination Agreement

On May 2, 2023, HVL and Legacy Allurion entered into a letter agreement (the “HVL Termination Agreement”), terminating the side letter agreement entered into between Legacy Allurion and HVL in connection with the issuance of HVL’s Legacy Allurion convertible note on February 15, 2023. Pursuant to the HVL Termination Agreement, among other things, at the closing of the Business Combination, upon the terms and subject to the conditions set forth therein, Allurion issued to HVL 387,696 shares of Allurion Common Stock. Refer to Note 8, Debt for further discussion regarding the HVL Termination Agreement.

Gaur Contribution Agreement

On May 2, 2023, Shantanu K. Gaur and Neha Gaur, trustees of The Shantanu K. Gaur Revocable Trust of 2021 (the “Gaur Trust”) and Allurion entered into a contribution agreement (the “Gaur Contribution Agreement”), pursuant to which, among other things, upon the terms and subject to the conditions set forth therein, the Gaur Trust contributed to Allurion, as a contribution of capital, 79,232 shares of Allurion Common Stock (the “Gaur Trust Contributed Shares”). The Gaur Trust’s contribution of the Gaur Trust Contributed Shares was effective immediately following the consummation of the Business Combination and the issuance of shares of Allurion Common Stock to the Gaur Trust pursuant to the terms of the Business Combination Agreement.

RSU Forfeiture Agreement

On May 2, 2023, Krishna Gupta, a member of our Board of Directors, entered into a letter agreement with Legacy Allurion (the “RSU Forfeiture Agreement”), pursuant to which, among other things, upon the terms and subject to the conditions set forth therein, Mr. Gupta agreed to forfeit 79,232 restricted stock units of Allurion (the “Forfeited RSUs”). The Forfeited RSUs were terminated and cancelled without consideration therefor immediately following the closing of the Business Combination Agreement.

Sponsor Contribution Agreement

On May 2, 2023, the Sponsor and Compute Health entered into a letter agreement (the “Sponsor Contribution Agreement”) pursuant to which, among other things, upon the terms and subject to the conditions set forth therein, the Sponsor agreed to contribute to Compute Health, as a contribution of capital, 161,379 shares of Compute Health Class A Common Stock (“Sponsor Contributed Shares”). The Sponsor’s contribution of the Sponsor Contributed Shares was made immediately following the CPUH Recapitalization (defined below) and immediately prior to the CPUH Merger Effective Time.

Sponsor Support Agreement

On February 9, 2023, Allurion entered into a support agreement (the “Sponsor Support Agreement”), pursuant to which immediately prior to the CPUH Merger Effective time, (a) the Sponsor recapitalized each of the Sponsor’s 21,442,500 shares of Compute Health Class B Common Stock, and all 12,833,333 of the Sponsor’s warrants to purchase shares of Class A Common Stock, into 2,088,327 shares of Compute Health Class A Common Stock and (b) the additional Class B Holders set forth on Schedule I of the Sponsor Support Agreement (the “Additional Class B Holders”) recapitalized his or her 30,000 shares of Compute Health Class B Common Stock into 21,120 shares of Compute Health Class A Common Stock (the “CPUH Recapitalization”). Subsequently, at the CPUH Merger Effective Time, each such share of Compute Health Class A Common Stock was converted into shares of Allurion Common Stock at an exchange ratio of 1.420455 (the “CPUH Exchange Ratio”).

 

12

Conversion of Convertible Notes

In connection with the closing of the Business Combination, outstanding Legacy Allurion Convertible Notes with an aggregate principal amount together with accrued but unpaid interest of approximately $21.8 million were converted into 3,301,222 shares of Allurion Common Stock with a corresponding recognition of additional paid-in capital (“APIC”) of $25.6 million provided for under the terms of such Legacy Allurion Convertible Notes, and are no longer outstanding. Refer to Note 8, Debt for further information on the Company’s convertible notes.

Public Warrants and Warrant Amendment

In connection with the closing of the Business Combination, the Company assumed 13,206,922 outstanding public warrants (the “Public Warrants”) to purchase an aggregate 18,759,838 shares of Allurion Common Stock at $8.10 per share following the Warrant Amendment (defined below). The total value of the liability associated with the Public Warrants was $13.8 million measured at fair value based on the public warrant quoted price. The Company concluded the warrants met the definition of a liability based on the settlement provision that allows the warrant holders to net-share settle their warrants in the event of a failed registration statement within 60 days of the Business Combination or any time a registration is not effective. As such, they have been classified as a liability on the balance sheet. See Note 12, Capital Stock and Stockholders Deficit and Note 10, Fair Value Measurements for further information on the Public Warrants and Warrant Amendment.

Earn-Out Liabilities

In connection with the closing of the Business Combination, Legacy Allurion equity holders are entitled to receive additional shares of Allurion Common Stock if the share price achieves certain targets (the “Earn-Out Shares”). The Company accounts for the potential issuance of the Earn-Out Shares as a contingent consideration arrangement, which was initially valued and recorded at $53.0 million. See Note 10, Fair Value Measurements for further information on the earn-out liabilities.

4. Revenue

Revenue by geographic region is based on the country in which our customer is located and is summarized by geographic area as follows (in thousands):

 

		Three Months Ended June 30,
		2024				2023
France		$	1,866			$	1,258
Spain			1,450				896
All Other Countries			8,450				10,806
Total Revenues		$	11,766			$	12,960

For the three months ended June 30, 2024, $3.6 million of revenue was generated in five countries included within All Other Countries in the table above, representing approximately 31% of Total Revenues, with each country responsible for approximately 4% to 8% of the total. Remaining revenue was generated by sales in 40 other countries included within All Other Countries. For the three months ended June 30, 2023, $4.4 million of revenue was generated in five countries included within All Other Countries, representing approximately 35% of Total Revenues, with each country responsible for approximately 4% to 9% of the total. Remaining revenue was generated by sales in 40 other countries included within All Other Countries.

 

		Six Months Ended June 30,
		2024				2023
France		$	3,536			$	3,113
Spain			2,562				2,520
United Kingdom			2,173				2,257
All Other Countries			12,881				19,141
Total Revenues		$	21,152			$	27,031

For the six months ended June 30, 2024, $5.4 million of revenue was generated in five countries included within All Other Countries in the table above, representing approximately 26% of Total Revenues, with each country responsible for approximately 3% to 8% of the total. Remaining revenue was generated by sales in 45 other countries included within All Other Countries. For the six months ended June 30, 2023, $7.7 million of revenue was generated in five countries included within All Other Countries, representing approximately 29% of Total Revenues, with each country responsible for approximately 4% to 8% of the total. Remaining revenue was generated by sales in 48 other countries included within All Other Countries. No revenue was generated in the United States for the three and six months ended June 30, 2024.

 

13

5. Inventory

Inventory consists of the following (in thousands):

 

		June 30, 2024				December 31, 2023
Finished goods		$	2,760			$	3,427
Work in progress			767				967
Raw materials			1,261				1,777
Total Inventory		$	4,788			$	6,171

Inventory is stated net of $0.3 million and less than $0.1 million for the provision for excess and obsolete inventory as of June 30, 2024 and December 31, 2023, respectively.

6. Property and Equipment, net

Property and equipment consist of the following (in thousands):

 

		Estimated Useful Life (in Years)		June 30, 2024				December 31, 2023
Computers and purchased software		3		$	618			$	618
Leasehold improvements		Shorter of useful life or lease term			1,943				1,943
Furniture and fixtures		5			291				291
Machinery and equipment		3-5			3,072				2,893
Property and equipment-at cost					5,924				5,745
Less accumulated depreciation and amortization					(3,984	)			(3,559	)
Construction in progress					1,314				1,195
Property and equipment-net				$	3,254			$	3,381

Depreciation expense was $0.2 million for each of the three months ended June 30, 2024 and 2023, and $0.6 million and $0.4 million for the six months ended June 30, 2024 and 2023, respectively, recorded as follows (in thousands):

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2024				2023				2024				2023
Cost of revenue		$	112			$	59			$	314			$	218
Research and development			50				46			$	99				83
General and administrative			21				35			$	84				70
Sales and marketing			14				14			$	67				28
Total depreciation and amortization expense		$	197			$	154			$	564			$	399

7. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):

 

		June 30, 2024				December 31, 2023
Marketing reimbursement		$	1,620			$	2,834
Accrued compensation			2,921				1,687
Accrued clinical trials and R&D			3,831				3,694
Accrued selling and marketing			678				1,110
Accrued professional fees			1,292				1,505
Accrued warranty			25				44
Accrued restructuring			—				655
Other accrued expenses			4,357				3,966
Total accrued expenses and other current liabilities		$	14,724			$	15,495

 

14

In connection with strategic initiatives implemented during the year ended December 31, 2023, the Company’s management approved and initiated plans to reduce its cost structure. During the three months ended June 30, 2024, the Company recorded less than $0.1 million in restructuring charges and paid less than $0.1 million in restructuring charges. During the six months ended June 30, 2024, the Company recorded less than $0.1 million in restructuring charges and paid $0.7 million in restructuring charges.

8. Debt

The components of the Company’s third-party debt consist of the following (in thousands):

 

		June 30, 2024				December 31, 2023
Fortress Term Loan		$	—			$	43,100
RTW Convertible Notes		$	48,000			$	—
Total principal amount of debt			48,000				43,100
Change in fair value			(7,050	)			—
Plus: Accretion			—				148
Less: current portion of long-term debt, net of discounts			—				(38,643	)
Less: unamortized deferred financing costs and debt discounts			—				(4,605	)
Long-term debt, net of current portion and discounts		$	40,950			$	—

As of December 31, 2023, the fair value for the Company’s Fortress Term Loan approximated the carrying amount.

Term Loans

2021 Term Loan

In March 2021, the Company entered into a loan and security agreement (as amended, the “2021 Term Loan” and the “2021 Term Loan Agreement”) with Runway Growth Credit Fund, Inc. (“Runway”) that provided for borrowings up to $25.0 million.

In December 2021, the 2021 Term Loan Agreement was amended (the “Amendment”) to extend the maturity date of the 2021 Term Loan to December 30, 2025 and provide for an additional $20.0 million of borrowings. In December 2021, the Company issued warrants exercisable for 132,979 shares of Legacy Allurion Series C preferred stock as consideration for the Amendment and the draw down related to the 2021 Term Loan Agreement. The fair value of these warrants was determined to be $0.3 million upon issuance and are classified as a warrant liability on the condensed consolidated balance sheet as of June 30, 2024 and December 31, 2023 (see Note 10, Fair Value Measurements). Upon the closing of the Business Combination, these warrants were converted into warrants exercisable for 130,053 shares of Allurion Common Stock.

In June 2022, the 2021 Term Loan Agreement was amended to revise definitional terms for certain milestone events, the final payment amount and certain financial covenants. In September 2022, the 2021 Term Loan Agreement was further amended to, among other things, increase additional borrowing up to $15.0 million.

During June through December of 2022, the Company drew an additional $30.0 million of the 2021 Term Loan and warrants exercisable for 88,440 shares of Series D-1 preferred stock were issued. The fair value of these warrants was determined to be $0.8 million upon issuance and are classified as a warrant liability on the consolidated balance sheets as of June 30, 2024 and December 31, 2023 (see Note 10, Fair Value Measurements). Upon the closing of the Business Combination, the warrants exercisable for 88,440 shares of Series D-1 preferred stock were converted into warrants exercisable for 90,476 shares of Allurion Common Stock.

On August 1, 2023, the 2021 Term Loan was paid off using the proceeds from the Fortress Term Loan (see below). The total payoff amount was $58.0 million, consisting of $55.0 million repayment of principal, a $1.1 million prepayment fee, and a $1.6 million final payment fee. The prepayment fee was calculated as 2% of the outstanding principal balance as of August 1, 2023. The final payment fee was calculated as the 3% of the outstanding principal balance as of August 1, 2023 less the original final payment of $0.1 million. The Company recorded a $3.9 million loss on extinguishment of debt in connection with the 2021 Term Loan repayment.

Interest expense for the three months ended June 30, 2023 related to the 2021 Term Loan was $2.2 million, consisting of $2.0 million of contractual interest, less than $0.1 million of amortization of the debt discount, and $0.1 million amortization of warrant and term loan accretion. Interest expense for the six months ended June 30, 2023 related to the 2021 Term Loan was $4.3 million, consisting of $4.0 million of contractual interest, $0.1 million amortization of the debt discount, $0.1 million of amortization of the warrant, and $0.1 million of term loan accretion.

 

15

Fortress Term Loan

On August 1, 2023, the Company entered into the Fortress Term Loan pursuant to the Fortress Credit Agreement with Fortress that provided gross proceeds of $60 million. The Fortress Term Loan had a maturity date of June 30, 2027 and accrued interest per annum at a rate of 6.44% plus the greater of (i) the Wall Street Journal Prime Rate and (ii) 3.0%, which interest was payable in arrears on a monthly basis. The Fortress Term Loan provided for an exit payment equal to 3.0% of the Fortress Term Loan (the “Exit Fee”) due upon prepayment or the maturity date of the Fortress Term Loan, in addition to any early prepayment fee. The Exit Fee is treated as additional interest expense and is accreted over the life of the loan using the effective interest method. Proceeds of the Fortress Term Loan were used, in part, to repay all amounts outstanding under the 2021 Term Loan. In connection with the issuance of the Fortress Term Loan, the Company paid issuance costs of $2.5 million, which were recorded as a debt discount and will be amortized over the remaining life of the loan.

On December 29, 2023, the Company entered into an amendment to the Fortress Credit Agreement (the “Fortress Amendment”). The Fortress Amendment waived the December 31, 2023 minimum revenue covenant under the Fortress Credit Agreement and modified the minimum liquidity covenant by increasing the minimum liquidity amount from $12.5 million to $33.5 million until March 31, 2024, $23.5 million from April 1, 2024 to June 30, 2024, $16.9 million from July 1, 2024 to September 30, 2024 and $12.5 million on October 1, 2024 and thereafter. The Fortress Amendment also provided that at any time after March 31, 2024, each lender had the right to convert a portion of the outstanding principal amount, not to exceed the lender’s proportionate share of a maximum of $20.0 million in aggregate outstanding principal amount, into shares of Allurion Common Stock at a conversion price based on the 30-day volume weighted average price (“VWAP”) of Allurion Common Stock on the NYSE ending on the trading day immediately preceding the date of exercise of the lender’s conversion right (the “Fortress Conversion Option”). As part of the Fortress Amendment, the Company prepaid $20.0 million of the principal outstanding under the Fortress Credit Agreement. Additionally, $3.1 million of fees were incurred and considered paid-in-kind and capitalized as an additional debt discount and added to the outstanding principal amount of the loans under the Fortress Amendment. The fees will be amortized through interest expense over the remaining life of the loan. The Fortress Amendment was accounted for as a modification under ASC 470. In connection with the modification and related prepayment, the Company wrote off $0.8 million of the unamortized debt issuance costs which was recorded within interest expense on the condensed consolidated statement of operations for the year ended December 31, 2023.

The Company assessed the terms and features of the Fortress Credit Agreement in order to identify any potential embedded features that would require bifurcation or any beneficial conversion features. The terms and features assessed include, under certain circumstances, a default interest rate of 3% that will apply to all outstanding obligations during the occurrence and continuance of an event of default. In accordance with ASC 815, the Company concluded that this feature is not clearly and closely related to the host instrument and represents an embedded derivative (the “Term Loan Derivative Liability”) that is required to be re-measured at fair value on a quarterly basis. At the inception of the Fortress Term Loan, the fair value of the embedded derivative was determined to be immaterial. The Term Loan Derivative Liability was fair valued to zero in connection with the repayment of the Fortress Term Loan, with a corresponding $2.0 million gain recorded in other income (expense), net in the condensed consolidated statement of operations for the three and six months ended June 30, 2024.

On April 16, 2024, the Company repaid all outstanding obligations under the Fortress Term Loan with proceeds from the Amended Note Purchase Agreement (as defined below) with RTW. The total payoff amount was $48.0 million, consisting of $43.1 million repayment of principal, a $2.7 million prepayment fee, a $1.3 million exit fee, $0.6 million of other fees paid directly to Fortress, and $0.3 million of accrued interest. The Company recorded an $8.7 million loss on extinguishment of debt in connection with the Fortress Term Loan repayment in the condensed consolidated statement of operations for the three and six months ended June 30, 2024.

Interest expense for the three months ended June 30, 2024 related to the Fortress Term Loan was $0.3 million, consisting of $0.3 million of contractual interest and less than $0.1 million amortization of debt discount and term loan accretion. Interest expense for the six months ended June 30, 2024 related to the Fortress Term Loan was $2.3 million, consisting of $1.9 million of contractual interest, $0.3 million amortization of the debt discount, and term loan accretion of $0.1 million. The average interest rate through April 16, 2024 was 14.94%.

Convertible Notes

2021 Convertible Notes

In December 2021, the Company entered into a convertible note agreement with investors for gross proceeds of $2.0 million with a stated interest rate of 5.0% per annum (the “2021 Convertible Notes”) and a maturity date 36 months from the date of issuance unless previously converted pursuant to their terms of the agreement. No issuance costs were incurred.

The 2021 Convertible Notes provided that, effective upon either a Special Purpose Acquisition Company (i.e. “deSPAC”) transaction, closing of a qualified financing, or closing of a non-qualified financing, all of the outstanding principal and interest would automatically convert into shares of Legacy Allurion common stock or shares of the same class or series of capital stock issued in the qualified financing in an amount equal to the balance of the 2021 Convertible Notes on the date of conversion divided by the capped conversion price, which is calculated by dividing $600.0 million by the fully diluted capitalization of the Company immediately prior to the conversion of the 2021 Convertible Notes.

 

16

Interest expense for each of the three and six months ended June 30, 2023 related to the 2021 Convertible Notes was less than $0.1 million and $0.1 million, respectively, consisting entirely of contractual interest. Interest expense related to the 2021 Convertible Notes is recorded within Interest expense on the condensed consolidated statement of operations. On August 1, 2023, in connection with the closing of the Business Combination, the outstanding 2021 Convertible Notes were converted into an aggregate 133,617 shares of Allurion Common Stock with a corresponding recognition of APIC of $2.2 million, and are no longer outstanding.

2022 Convertible Notes

In January 2022, the Company entered into a convertible note purchase agreement with investors for gross proceeds of $1.1 million with a stated interest rate of 5.0% per annum (the “2022 Convertible Notes”). The 2022 Convertible Notes were to mature 36 months from the issuance date unless previously converted pursuant to the terms of the agreement. Issuance costs were de minimis. The 2022 Convertible Notes had the same terms as the 2021 Convertible Notes.

Interest expense for each of the three and six months ended June 30, 2023 related to the 2022 Convertible Notes was less than $0.1 million, consisting entirely of contractual interest. Interest expense related to the 2022 Convertible Notes is recorded within Interest expense on the condensed consolidated statement of operations. On August 1, 2023, in connection with the closing of the Business Combination, the outstanding 2022 Convertible Notes were converted into an aggregate 83,216 shares of Allurion Common Stock with a corresponding recognition of APIC of $1.2 million, and are no longer outstanding.

2023 Convertible Notes

Between February and August 2023, the Company entered into a convertible note purchase agreement, and related side letters, for the sale of convertible notes (the “2023 Convertible Notes”) to certain investors for gross proceeds of $28.7 million, with a stated interest rate of 7.0% per annum. The 2023 Convertible Notes provided that they would mature on December 31, 2026 unless previously converted pursuant to the terms of the note purchase agreement. The 2023 Convertible Notes also provided that, effective upon a deSPAC transaction, all of the outstanding principal and interest would automatically convert into a number of shares of Legacy Allurion common stock equal to the balance of the 2023 Convertible Notes on the date of conversion divided by the discounted capped conversion price, which is calculated by dividing $217.3 million by the fully diluted capitalization of the Company immediately prior to the conversion of the 2023 Convertible Notes.

Additionally, the 2023 Convertible Notes provided that, effective upon the closing of a qualified financing, holders of the 2023 Convertible Notes could optionally accelerate repayment of the principal and interest of the 2023 Convertible Notes or convert all of the outstanding principal and interest into shares of Legacy Allurion common stock or shares of the same class or series of capital stock issued in the qualified financing equal to the balance of the 2023 Convertible Notes on the date of conversion divided by the greater of the capped price or the discounted price. The capped price is calculated by dividing $260.0 million by the fully diluted capitalization of the Company immediately prior to the conversion of the 2023 Convertible Notes, and the discounted price is calculated as 85% of the cash price of the same class or series of capital stock issued in the qualified financing. The 2023 Convertible Notes are accounted for under the fair FVO election of ASC 825 as the notes contain embedded derivatives, including the automatic conversion upon a deSPAC transaction prior to the deSPAC deadline, voluntary conversion upon a qualified financing, automatic repayment upon a sale event, and conversion rate adjustment, which would require bifurcation and separate accounting. These convertible notes are initially measured at their issue-date estimated fair value and subsequently remeasured at estimated fair value on a recurring basis at each reporting period date.

Interest expense for each of the three and six months ended June 30, 2023 related to the 2023 Convertible Notes was $0.3 million and $0.4 million, respectively, consisting entirely of contractual interest. Interest expense related to the 2023 Convertible Notes is recorded within Interest expense on the condensed consolidated statement of operations.

On May 2, 2023 the Company entered into termination agreements (the “Termination Agreements”) with respect to side letters entered into with certain holders of the 2023 Convertible Notes. With respect to the Termination Agreement with one of the side letter holders (the “Side Letter Holder”), the Company had the right to prepay, in one or more transactions, all or a portion of the outstanding principal amount, plus accrued interest, under such holder’s 2023 Convertible Note (the “Side Letter Holder Bridge Note”), including by way of (a) a $2 million payment in cash by the Company to the Side Letter Holder on May 2, 2023, $1.5 million of which was deemed a prepayment penalty and recorded as other expense on the income statement, with the remaining $0.5 million recorded as a reduction of the principal amount, (b) immediately prior to the consummation of the transactions contemplated by the Business Combination Agreement, an additional payment of at least $6 million, up to the then-outstanding principal amount, plus accrued interest, under the Side Letter Holder Bridge Note by way of (i) payment in cash by the Company and/or (ii) the sale and transfer of all or any portion of the Side Letter Holder Bridge Note, equivalent in value to the portion of the additional payment to be repaid pursuant to this clause (b)(ii), to any person or persons designated in writing by the Company. The Termination Agreements were accounted for as a modification of debt and the modified convertible notes continued to be accounted for under the FVO with any change in fair value recognized in other expense on the income statement.

 

17

In addition, under the Termination Agreement executed with the Side Letter Holder, the Company agreed to issue to the Side Letter Holder a number of shares of Allurion Common Stock (“PubCo Additional Shares”) equal to (a) the outstanding principal and accrued interest under the Side Letter Holder Bridge Note immediately prior to the consummation of the transactions contemplated by the Business Combination Agreement (after giving effect to the payment of the repayments) divided by $5.00, plus (b) 300,000 shares of Allurion Common Stock. The PubCo Additional Shares were accounted for as a freestanding financing liability. The liability for the PubCo Additional Shares was initially measured at its issue-date estimated fair value and subsequently remeasured at fair value at each reporting period, with changes in fair value reflected in earnings until the PubCo Additional Shares were issued. A $3.4 million liability was recorded at issuance for the PubCo Additional Shares as Other liabilities on the balance sheet. On August 1, 2023, upon closing of the Business Combination, the Side Letter Holder was issued 387,696 PubCo Additional Shares with a corresponding recognition of APIC of $2.7 million, and the liability is no longer outstanding.

Further on May 2, 2023, RTW and Fortress (the “Backstop Purchasers”) entered into the Backstop Agreement with the Company, Legacy Allurion and the Side Letter Holder. Pursuant to the Backstop Agreement, each Backstop Purchaser agreed that to the extent any Side Letter Holder Bridge Notes remained outstanding prior to the consummation of the Business Combination, such Backstop Purchaser would, at the closing of the Business Combination, purchase up to $2.0 million of the Side Letter Holder Bridge Notes from the Side Letter Holder in exchange for shares of Allurion Common Stock (the “Base PubCo Shares”, “Backstop Shares” and “Conditional Additional PubCo Shares”). The Base PubCo Shares and Backstop Shares were accounted for as a freestanding financing liability. The Base PubCo Shares and Backstop Shares liability was initially measured at its issue-date estimated fair value and subsequently remeasured at fair value at each reporting period with changes in fair value reflected in earnings until the Base PubCo Shares and Backstop Shares were issued. A $3.3 million liability was recorded at issuance for the Base PubCo Shares and Backstop Shares liability as Other liabilities on the balance sheet. On August 1, 2023, upon closing of the Business Combination, per the terms of the Fortress Term Loan, the Amended and Restated RTW Side Letter and Backstop Agreement, the Backstop Purchasers were each issued 950,000 shares of Allurion Common Stock with a corresponding recognition of APIC of $13.4 million, and the liability is no longer outstanding.

On August 1, 2023, immediately prior to the closing of the Business Combination, the Company repaid $6.3 million of the Side Letter Holder Bridge Note, leaving a principal balance of $6.3 million. Each Backstop Purchaser then purchased $2.0 million principal amount of the outstanding portion of the Side Letter Holder Bridge Note, Allurion canceled the existing Side Letter Holder Bridge Note and issued a new convertible note to the Side Letter Holder for the remaining balance together with all unpaid interest accrued since the date of issuance of $2.7 million, Allurion issued convertible notes to each Backstop Purchaser with an issuance date of the Closing Date (August 1, 2023) and an original principal amount of $2.0 million each, and Allurion issued 700,000 shares of Allurion Common Stock to each Backstop Purchaser. Additionally, the outstanding 2023 Convertible Notes were converted into an aggregate 3,084,389 shares of Allurion Common Stock with a corresponding recognition of APIC of $22.2 million, and are no longer outstanding.

RTW Convertible Notes

On April 14, 2024, the Company entered into a note purchase agreement (the “Original Note Purchase Agreement”) with RTW as agent for the purchasers (the “Purchasers”) party thereto from time to time (RTW in such capacity, the “Principal Purchaser”), and Acquiom Agency Services LLC (“Acquiom”) as collateral agent for the Purchasers. Subsequently, on April 16, 2024, the Company, the Principal Purchaser, the Purchasers, and Acquiom entered into the First Amendment to the Original Note Purchase Agreement (the “Amended Note Purchase Agreement”).

Pursuant to the Amended Note Purchase Agreement, the Company issued and sold $48.0 million of convertible senior secured notes (the “RTW Convertible Notes”). The RTW Convertible Notes bear interest at an annual rate of 6%, which interest is paid quarterly in cash or, at the Company’s option, in kind for the first three years. The RTW Convertible Notes will mature on April 16, 2031 unless previously converted pursuant to the terms of the Amended Note Purchase Agreement. The RTW Convertible Notes are convertible into shares of Allurion Common Stock, at a Purchaser’s election at any time after the earliest of (i) the date on which Stockholder Approval (as defined below) is obtained, (ii) December 31, 2025, (iii) the date of a Fundamental Change Company Notice (as defined in the Amended Note Purchase Agreement), and (iv) the Make-Whole Fundamental Change Effective Date (as defined in the Amended Note Purchase Agreement), subject to certain terms and limitations in the Amended Note Purchase Agreement, based on a conversion rate of 617.2840 shares of common stock per $1,000 principal amount of Notes (equivalent to a conversion price of approximately $1.62 per share, which represents a 35% premium to the lowest price per share in an equity financing for capital raising purposes ending on the date on which the Company has raised aggregate gross offering proceeds of at least $15,000,000 (the “Next Equity Financing”). On July 1, 2024, we consummated the Public Offering, as described elsewhere in this Quarterly Report on Form 10-Q, which constituted a Next Equity Financing. The Amended Note Purchase Agreement provides that unless and until requisite approval of the Company’s stockholders is obtained (“Stockholder Approval”), the Company will not deliver Allurion Common Stock upon conversion of the RTW Convertible Notes in excess of 1% of the number of shares of Allurion Common Stock outstanding as of April 14, 2024.

The RTW Convertible Notes are accounted for under the FVO election of ASC 825 as the notes contain embedded derivatives, including the conversion upon Stockholder Approval, the conversion upon a Fundamental Change Company Notice, the conversion upon a Make-Whole Fundamental Change, redemption upon the event of default, and redemption upon a Fundamental Change, which would require bifurcation and separate accounting. The RTW Convertible Notes are initially measured at their issue-date estimated

 

18

fair value and subsequently remeasured at estimated fair value on a recurring basis at each reporting period date. The fair value of the RTW Convertible Notes at issuance was $49.1 million, with a corresponding $1.1 million loss recognized in Other income (expense), net in the condensed consolidated statement of operations. In connection with the issuance of the RTW Convertible Notes and RIFA Amendment (as defined below), we incurred $1.4 million in issuance costs, which were directly expensed through general and administrative expense due to the FVO election of the RTW Convertible Notes and Revenue Interest Financing. For the three and six months ended June 30, 2024, the Company recorded an $8.2 million gain and $0.1 million loss through the condensed consolidated statements of operations and other comprehensive income (loss), respectively.

The Amended Note Purchase Agreement contains financial maintenance covenants, which require (i) the Company maintain not less than $12,500,000 in unrestricted cash in controlled accounts in the U.S. at all times, (ii) the Company to receive minimum trailing twelve-month consolidated revenue at amounts designated in the Amended Note Purchase Agreement, tested quarterly beginning with the twelve-month period ending March 31, 2025, and (iii) the Company’s and its subsidiaries’ consolidated business operations outside the United States to be profitable for the trailing three-month period, tested quarterly beginning with the three-month period ending December 31, 2025. The Company is in compliance with the covenants in the Amended Note Purchase Agreement as of June 30, 2024.

The Company elected paid in kind interest for the three and six months ended June 30, 2024 related to the RTW Convertible Notes.

9. Revenue Interest Financing, Side Letter, and PIPE Conversion Option

On February 9, 2023, Legacy Allurion entered into the Revenue Interest Financing Agreement. Pursuant to the Revenue Interest Financing, at the closing of the Business Combination, RTW paid Allurion an aggregate of $40.0 million Investment Amount. In exchange for the Investment Amount, Allurion will remit revenue interest payments on all current and future products, digital solutions and services developed, imported, manufactured, marketed, offered for sale, promoted, sold, tested or otherwise distributed by Allurion and its subsidiaries at a rate up to 6.0% of annual net sales prior to December 31, 2026. On or after January 1, 2027, the Company will remit revenue interest payments at a rate up to 10.0% of annual net sales, and it will continue to make revenue interest payments to RTW until December 31, 2030.

If RTW has not received aggregate revenue interest payments equal to at least 100% of the Investment Amount by December 31, 2027, the Company must make a cash payment in an amount sufficient to catch RTW up to 100% of the Investment Amount. If RTW has not received revenue interest payments equal to at least 240% of the Investment Amount by December 31, 2030, the Company must make a cash payment in an amount sufficient to catch RTW up to 240% of the Investment Amount. In any event, RTW shall not receive aggregated revenue interest payments in excess of 260% of the Investment Amount (the “Hard Cap”). In addition, prior to December 31, 2025, the Company may prepay a pre-specified payment amount (the “Prepayment Amount”) and terminate the Revenue Interest Financing Agreement. The Prepayment Amount shall be an amount equal to 165% of the Investment Amount less the sum of all revenue interest payments made to RTW prior to such date of prepayment.

The Revenue Interest Financing is accounted for under the FVO election of ASC 825 as the Revenue Interest Financing contains embedded derivatives, including the requirements to settle the Revenue Interest Financing prior to maturity upon the occurrence of certain contingent events and our ability to prepay the Revenue Interest Financing, which would require bifurcation and separate accounting. The Revenue Interest Financing is initially measured at its issue-date estimated fair value and subsequently remeasured at estimated fair value on a recurring basis at each reporting period date. Changes in fair value are recorded as a component of Other income (expense) in the condensed consolidated statements of operations. A portion of the estimated change in fair value must be reported in other comprehensive loss to the extent that it is attributable to instrument-specific credit risk. In connection with the issuance of the Investment Amount, we paid $1.2 million in issuance costs in August 2023, which were directly expensed through general and administrative expense due to the FVO election. As of June 30, 2024, the Company has made $2.1 million in royalty payments to RTW. Refer to Note 10, Fair Value Measurements, for additional information regarding the changes in fair value of the Revenue Interest Financing.

Concurrently, and in connection with the Amended Note Purchase Agreement, the Revenue Interest Financing Agreement was amended pursuant to the Omnibus Amendment (the “RIFA Amendment”) by and among the Company, Allurion Opco, Allurion Australia Pty Ltd, a proprietary limited company organized under the laws of Australia and a wholly-owned subsidiary of the Company, the Original RIFA Investors (as defined therein) and RTW, on April 14, 2024. The RIFA Amendment, among other things, increased the rate of revenue interest payments to be paid to RTW on all current and future products, digital solutions and services developed, imported, manufactured, marketed, offered for sale, promoted, sold, tested or otherwise distributed by Allurion and its subsidiaries for net sales less than or equal to $100 million prior to December 31, 2026 from 6% to 12% and increased the rate on net sales in less than or equal to $100 million on or after January 1, 2027 from 10% to 12%. Additionally, the Prepayment Amount was modified such that, prior to March 31, 2026, the Company is entitled to settle the Revenue Interest Financing for a prepayment amount that would allow the investors to yield a 20% internal rate of return.

 

19

In connection with the Company entering into the Revenue Interest Financing, if, at any time beginning 12 months and ending 24 months following the closing of the Mergers, the VWAP per share of Allurion Common Stock is less than $7.04 for the average of 20 trading days within any 30 trading day period (“Stock Price Drop”); and the absolute value of the percentage decrease of such Stock Price Drop measured from a reference price of $10.00 per share of Allurion Common Stock is greater than the absolute value of the percentage decrease in the VWAP of a comparable publicly traded peer index as defined in the Amended and Restated RTW Side Letter over the same time period, then RTW may elect to convert up to $7.5 million of its initial PIPE Investment into additional revenue interest financing to be added to the Investment Amount by forfeiting a number of shares of Allurion Common Stock acquired in the PIPE Investment. Such additions to the Investment Amount would result in proportional increases to the minimum aggregate revenue interest payments described above. The PIPE Conversion Option is accounted for as a derivative under ASC 815. The PIPE Conversion Option was initially measured at its issue-date estimated fair value of $3.3 million within Other liabilities on the condensed consolidated balance sheets with corresponding recognition of expense at inception as there is no right received by the Company that meets the definition of an asset and the transaction did not involve a distribution or a dividend. The PIPE Conversion Option liability is subsequently remeasured at its estimated fair value on a recurring basis at each reporting period date, with a gain or loss recognized within Other income (expense).

The RIFA Amendment was accounted for as a modification with the change in fair value of the PIPE Conversion Option treated as an exchange between the Company and RTW as part of the RIFA Amendment. As such, the Revenue Interest Financing and PIPE Conversion Option were remeasured as of April 16, 2024 just prior to the RIFA Amendment, to $33.0 million and $6.6 million, respectively. The Revenue Interest Financing and PIPE Conversion Option were subsequently remeasured as of April 16, 2024 under the terms of the RIFA Amendment, to $39.0 million and $4.6 million, respectively. As of June 30, 2024, the Revenue Interest Financing and PIPE Conversion Option were re-measured to $39.0 million and $5.5 million, respectively.

For the three months ended June 30, 2024, the Company recorded a $2.1 million loss and a $3.0 million loss through the condensed consolidated statements of operations and other comprehensive income (loss), respectively. For the six months ended June 30, 2024, the Company recorded a $1.3 million gain and a $5.2 million loss through the condensed consolidated statements of operations and other comprehensive income (loss), respectively. The changes in fair value were recorded in the Changes in fair value of Revenue Interest Financing and PIPE Conversion Option in the condensed consolidated statement of operations.

10. Fair Value Measurements

The following tables present the fair value hierarchy for the Company’s assets and liabilities that are measured at fair value at issuance date and on a recurring basis and indicate the level within the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value (in thousands):

 

Fair Value Measurement as of June 30, 2024
		Total Carrying Value				Level 1				Level 2				Level 3
Assets:
Cash equivalents
Money market funds		$	13,304			$	13,304			$	—			$	—
Total assets		$	13,304			$	13,304			$	—			$	—
Liabilities:
Legacy Allurion Common Stock Warrant Liabilities		$	145			$	—			$	—			$	145
Public Warrants			2,113				2,113				—				—
Revenue Interest Financing			39,000				—				—				39,000
PIPE Conversion Option			5,450				—				—				5,450
Earn-out Liability			4,110				—				—				4,110
RTW Convertible Notes			40,950				—				—				40,950
Success Fee Derivative Liability			14				—				—				14
Total Liabilities		$	91,782			$	2,113			$	—			$	89,669

 

20

Fair Value Measurement as of December 31, 2023
		Total Carrying Value				Level 1				Level 2				Level 3
Assets:
Cash equivalents
Money market funds		$	30,582			$	30,582			$	—			$	—
Total assets		$	30,582			$	30,582			$	—			$	—
Liabilities:
Legacy Allurion Common Stock Warrant Liabilities		$	821			$	—			$	—			$	821
Public Warrants			5,943				5,943				—				—
Revenue Interest Financing			36,200				—				—				36,200
PIPE Conversion Option			5,600				—				—				5,600
Earn-out Liability			23,990				—				—				23,990
Term Loan Derivative Liability			1,895				—				—				1,895
Success Fee Derivative Liability			14				—				—				14
Total Liabilities		$	74,463			$	5,943			$	—			$	68,520

Public Warrants

As a result of the Business Combination on August 1, 2023, the Company recorded a liability for Public Warrants to purchase the Company’s Common Stock. The Public Warrants are traded on the NYSE and are recorded at fair value using the closing price as June 30, 2024 of $0.16, which is a Level 1 input.

Legacy Allurion Warrants

The Company has classified the Legacy Allurion Common Stock Warrants within Level 3 of the hierarchy as the fair value is derived using the Black-Scholes option pricing model, which uses a combination of observable (Level 2) and unobservable (Level 3) inputs. See table below for the assumptions used in the pricing model of the Legacy Allurion Common Stock Warrants:

 

		Measurement Date				Interest Rate		Exercise Price				Estimated Fair Value of Underlying Share Price				Expected Volatility				Expected Life (Years)
Legacy Allurion Series C Preferred Stock warrants (as converted to Common)			June 30, 2024			4.33%		$	6.73			$	1.00				90	%		6.75
Other Common Stock			June 30, 2024			4.50%			1.05				1.00				90	%		3.19
Legacy Allurion Series D-1 Preferred Stock warrants (as converted to Common)			June 30, 2024			4.33%-4.34%			12.14				1.00				90	%		6.75-8.21

 

		Measurement Date				Interest Rate		Exercise Price				Estimated Fair Value of Underlying Share Price				Expected Volatility				Expected Life (Years)
Legacy Allurion Series C Preferred Stock warrants (as converted to Common)			December 31, 2023			3.88%			6.73			$	3.74				100	%		7.25
Other Common Stock			December 31, 2023			3.95%			1.05				3.74				100	%		3.69
Legacy Allurion Series D-1 Preferred Stock warrants (as converted to Common)			December 31, 2023			3.88%			12.14				3.74				100	%		7.25-8.71

Expected dividend yield for all calculations is 0.00%.

 

21

The following table reconciles the changes in fair value for the three and six months ended June 30, 2024 and 2023 of the warrant liabilities valued using Level 3 inputs:

 

		Preferred Stock Warrants (as converted to Common)				Common Stock Warrants				Total
Balance - March 31, 2023		$	2,585			$	1,245			$	3,830
Change in fair value			98				106				204
Exercise of warrants			(4	)			—				(4	)
Balance - June 30, 2023		$	2,679			$	1,351			$	4,030
Balance - March 31, 2024		$	233			$	71			$	304
Change in fair value		$	(123	)		$	(36	)			(159	)
Balance - June 30, 2024		$	110			$	35			$	145

 

		Preferred Stock Warrants (as converted to Common)				Common Stock Warrants				Total
Balance - January 1, 2023		$	1,777			$	596			$	2,373
Change in fair value			924				755				1,679
Exercise of warrants			(22	)			—				(22	)
Balance - June 30, 2023		$	2,679			$	1,351			$	4,030
Balance - January 1, 2024		$	642			$	179			$	821
Change in fair value		$	(532	)		$	(144	)			(676	)
Balance - June 30, 2024		$	110			$	35			$	145

2019 Term Loan Success Fee Derivative Liability

The derivative liability for the success fee associated with Legacy Allurion’s November 2019 loan and security agreement with Western Alliance Bank (the “2019 Term Loan” and such fee, the “Success Fee”) was recorded at fair value as of June 30, 2024 and December 31, 2023 using the following assumptions: weighted-average probability for the likelihood of a change in control or liquidity event within four years from the initial valuation date of the derivative liability and a market-based discount rate that will increase or decrease each period based on changes in the probability in the future cash flows.

2023 Convertible Notes

The 2023 Convertible Notes were accounted for using the FVO election. Under the FVO election, the financial instrument is initially measured at its issue-date estimated fair value and subsequently re-measured at estimated fair value on a recurring basis at each reporting period date. The fair value was measured as of August 1, 2023, just prior to the conversion of the 2023 Convertible Notes, using the share price at conversion ($7.04 per share). Upon the conversion of the 2023 Convertible Notes, the convertible note liability was derecognized.

Revenue Interest Financing and PIPE Conversion Option

The Revenue Interest Financing is accounted for using the FVO election. Under the FVO election, the financial instrument is initially measured at its issue-date estimated fair value and subsequently remeasured at estimated fair value on a recurring basis at each reporting period date. The fair value of the Revenue Interest Financing was remeasured as of June 30, 2024 and December 31, 2023 using a discounted cash flow (“DCF”) method under the income approach utilizing future revenue projections and a discount rate of 30.1% and 24.4%, respectively.

The fair value of the PIPE Conversion Option was accounted for as a derivative under ASC 815. The instrument is measured using a Monte Carlo Simulation Method (“MCSM”) using the number of shares convertible of 1,065,341 and the following assumptions:

 

		June 30, 2024				December 31, 2023
Stock Price		$	1.00			$	3.74
Risk-free interest rate			5.06	%			4.46	%
Expected term (in years)			1.1				1.6
Expected volatility			110.0	%			82.5	%

 

22

Earn-Out Liability

Upon the closing of the Business Combination, the Earn-Out Shares were accounted for as a liability because the triggering events that determine the number of shares to be earned included events that were not indexed to Allurion Common Stock, with the change in fair value recognized in Change in the fair value of earn-out liabilities in the consolidated statement of operations. The estimated fair value of the Earn-Out Shares was determined using a MCSM with the following assumptions at each valuation date:

 

		June 30, 2024				December 31, 2023
Stock Price		$	1.00			$	3.74
Risk-free interest rate			4.4	%			3.9	%
Expected term (in years)			4.1				4.6
Expected volatility			103.0	%			87.0	%

Term Loan Derivative Liability

The Term Loan derivative liability associated with the Fortress Term Loan was derecognized as of June 30, 2024 as the Fortress Term Loan was repaid on April 16, 2024.

RTW Convertible Notes

The RTW Convertible Notes are accounted for using the FVO election. Under the FVO election, the financial instrument is initially measured at its issue-date estimated fair value and subsequently measured at estimated fair value on a recurring basis at each reporting period date. The fair value of the RTW Convertible Notes was remeasured as of June 30, 2024 using a DCF method under the income approach with a MCSM applied to determine the simulated stock price at each payment date and event that may trigger conversion of the RTW Convertible Notes. The fair value was measured using the $48.0 million principal amount of the RTW Convertible Notes and the following assumptions:

 

		June 30, 2024
Stock Price		$	1.00
Risk-free interest rate			4.3	%
Expected term (in years)			6.8
Expected volatility			80.0	%

The changes in the fair values of the Success Fee derivative liability, 2023 Convertible Notes, Revenue Interest Financing, PIPE Conversion Option, Earn-out liability, Term Loan Derivative liability, RTW Convertible Notes, PubCo Share liability, and Base PubCo and Backstop Share liability categorized with Level 3 inputs for the three months ended June 30, 2024 and 2023 were as follows:

 

		Success Fee Derivative Liability				2023 Convertible Notes				Revenue Interest Financing				PIPE Conversion Derivative				Earn-Out Liability				Term Loan Derivative Liability				RTW Convertible Notes				PubCo Share Liability				Base PubCo & Backstop Share Liability				Total
Balance - March 31, 2023		$	207			$	13,600			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	13,807
Fair value upon issuance			—				5,950			$	—				—				—				—				—				3,370				3,264				12,584
Change in fair value			6				(2,257	)			—				—				—				—				—				(43	)			41				(2,253	)
Repayments of debt			—				(500	)			—				—				—				—				—				—				—				(500	)
Balance - June 30, 2023		$	213			$	16,793			$	—			$	—			$	—			$	—			$	—			$	3,327			$	3,305			$	23,638
Balance - March 31, 2024		$	14			$	—			$	35,000			$	7,510			$	9,800			$	1,957			$	—			$	—			$	—			$	54,281
Fair value upon issuance			—				—				—				—				—				—				49,100				—				—				49,100
Change in fair value			—				—				2,054				(2,060	)			(5,690	)			(1,957	)			(8,230	)			—				—				(15,883	)
Change in fair value - OCI			—				—				3,000				—				—				—				80				—				—				3,080
Repayments of debt			—				—				(1,054	)			—				—				—				—				—				—				(1,054	)
Balance - June 30, 2024		$	14			$	—			$	39,000			$	5,450			$	4,110			$	—			$	40,950			$	—			$	—			$	89,524

 

23