DIH Holding(DHAI) - 2024 Q2 - Quarterly Report

Form 10-Q Filing Information General Information DIH HOLDING US, INC. filed its Q2 2024 Form 10-Q, classified as a non-accelerated, smaller reporting, and emerging growth company - DIH HOLDING US, INC. filed a Quarterly Report on Form 10-Q for the period ended June 30, 2024[2] - The company is classified as a non-accelerated filer, smaller reporting company, and an emerging growth company, and has elected to use the extended transition period for complying with new or revised financial accounting standards[2] Common Stock Outstanding as of July 31, 2024 | Metric | Value | |:-----------------------------|:------------| | Common Stock Outstanding | 40,544,935 | Cautionary Note Regarding Forward-Looking Statements Forward-Looking Statements Disclaimer This section cautions that forward-looking statements involve risks and uncertainties, and are not guarantees of future results - Forward-looking statements are based on management's beliefs and assumptions and are subject to risks and uncertainties[4] - Key risk factors include technical and marketing difficulties, ability to innovate and expand, strategic changes, employee retention, capital raising, operating expense fluctuations, supply chain disruptions, security threats, regulatory changes, integration of acquisitions, product development, legal proceedings, internal control effectiveness, and general economic conditions[5][6] - The company does not guarantee future results and undertakes no obligation to update forward-looking statements, except as legally required[7][8] PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Unaudited condensed consolidated financial statements, including balance sheets and cash flows, are presented for Q2 2024 Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2024 | March 31, 2024 | |:-----------------------------|:--------------|:---------------| | Assets | | | | Cash and cash equivalents | $2,749 | $3,225 | | Total current assets | $29,375 | $27,056 | | Total assets | $38,209 | $35,735 | | Liabilities and Deficit | | | | Total current liabilities | $48,240 | $44,954 | | Convertible debt, net | $1,177 | — | | Notes payable - related party| $10,722 | $11,457 | | Total liabilities | $72,204 | $68,281 | Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | |:-----------------------------|:---------------------------------|:---------------------------------| | Revenue | $16,187 | $13,045 | | Cost of sales | $7,521 | $7,648 | | Gross profit | $8,666 | $5,397 | | Total operating expenses | $10,320 | $7,275 | | Operating loss | $(1,654) | $(1,878) | | Total other income (expense) | $1,763 | $(809) | | Income (loss) before income taxes | $109 | $(2,687) | | Income tax expense | $723 | $226 | | Net loss | $(614) | $(2,913) | | Net loss per share, basic and diluted | $(0.02) | $(0.12) | Condensed Consolidated Statements of Comprehensive Loss Condensed Consolidated Statements of Comprehensive Loss (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | |:----------------------------------------|:---------------------------------|:---------------------------------| | Net loss | $(614) | $(2,913) | | Foreign currency translation adjustments| $(1,388) | $841 | | Pension liability adjustments | $(291) | $(420) | | Other comprehensive (loss) income | $(1,679) | $421 | | Comprehensive loss | $(2,293) | $(2,492) | Condensed Consolidated Statements of Stockholders' Deficit Condensed Consolidated Statements of Stockholders' Deficit (in thousands, except share data) | Metric | March 31, 2024 | June 30, 2024 | |:----------------------------------------|:---------------|:--------------| | Common Stock Shares | 34,544,935 | 34,544,935 | | Common Stock Amount | $3 | $3 | | Additional Paid-In Capital | $2,613 | $3,685 | | Accumulated Deficit | $(35,212) | $(35,826) | | Accumulated Other Comprehensive Income (Loss) | $50 | $(1,857) | | Total Equity (Deficit) | $(32,546) | $(33,995) | - Net loss for the three months ended June 30, 2024, was $(614) thousand, contributing to an accumulated deficit of $(35,826) thousand[17] - The company recorded $710 thousand from a transaction related to reverse recapitalization and $362 thousand from the issuance of warrants during the period[17] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | |:----------------------------------------|:---------------------------------|:---------------------------------| | Net cash used in operating activities | $(2,010) | $(475) | | Net cash used in investing activities | $(235) | $(15) | | Net cash provided by (used in) financing activities | $1,774 | $(1,936) | | Effect of currency translation on cash | $(5) | $13 | | Net increase in cash, and cash equivalents | $(476) | $(2,413) | | Cash, and cash equivalents - beginning of period | $3,225 | $3,175 | | Cash, and cash equivalents - end of period | $2,749 | $762 | - Cash used in operating activities significantly increased to $(2,010) thousand in Q2 2024 from $(475) thousand in Q2 2023[21] - Financing activities provided $1,774 thousand in Q2 2024, a substantial improvement from $(1,936) thousand used in Q2 2023, primarily due to proceeds from convertible debt[21] Notes to Condensed Consolidated Financial Statements Note 1. Business and Organization - DIH Holding US, Inc. is a global provider of advanced robotic devices for physical rehabilitation, focusing on walking impairments, reduced balance, and impaired arm/hand functions[23] - The company consummated a business combination with Aurora Tech Acquisition Corp. on February 7, 2024, becoming a publicly-traded entity[24][93] - As of June 30, 2024, the Company had $2.7 million in cash and cash equivalents and an accumulated deficit of $35.8 million due to historical operating losses, primarily from decreased sales during COVID-19, new financial system implementation, EU MDR compliance costs, and public company adoption expenses[26][27] - Revenue increased by 24.1% to $16.2 million for the three months ended June 30, 2024, compared to $13.0 million in the prior year, and the company plans to fund growth through operations and future debt/equity financing[28][91] Note 2. Summary of Significant Accounting Policies - Following the Business Combination on February 7, 2024, the Company's financial statements are presented on a consolidated basis in conformity with U.S. GAAP, excluding entities not controlled by the Company as of June 30, 2024[30][31] - The functional currency for non-U.S. subsidiaries is their local currency, with assets and liabilities translated at balance sheet date exchange rates and revenues/expenses at average rates[35][36] - The Company is an emerging growth company and has elected to use the extended transition period for complying with new or revised financial accounting standards, which may affect comparability with other public companies[40][41] - The Company adopted ASU 2020-06 (Accounting for Convertible Instruments and Contracts in an Entity's Own Equity) on April 1, 2024, using the modified retrospective transition method for convertible debt issued on June 7, 2024[42] Note 3. Revenue Recognition Net Revenue by Category (in thousands) | Revenue Category | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | |:-----------------|:---------------------------------|:---------------------------------| | Devices | $12,283 | $10,443 | | Services | $3,542 | $2,375 | | Other | $362 | $227 | | Total revenue | $16,187 | $13,045 | - Revenue from devices is recognized at a point in time, while service revenue is recognized over time[48] - Deferred revenue increased from $9,881 thousand as of March 31, 2024, to $11,097 thousand as of June 30, 2024[49] - Advance payments from customers decreased from $10.6 million as of March 31, 2024, to $9.3 million as of June 30, 2024[50] Note 4. Geographical Information Revenue by Geographic Region (in thousands) | Region | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | |:-------|:---------------------------------|:---------------------------------| | EMEA | $10,212 | $6,633 | | Americas | $4,605 | $2,984 | | APAC | $1,370 | $3,428 | | Total | $16,187 | $13,045 | Long-Lived Assets by Geographic Region (in thousands) | Region | As of June 30, 2024 | As of March 31, 2024 | |:-------|:--------------------|:---------------------| | EMEA | $448 | $276 | | Americas | $171 | $206 | | APAC | $45 | $48 | | Total | $664 | $530 | Note 5. Net Loss Per Share Basic and Diluted Net Loss Per Share (in thousands, except share and per share amounts) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | |:----------------------------------------|:---------------------------------|:---------------------------------| | Net loss | $(614) | $(2,913) | | Weighted-average shares outstanding | 34,544,935 | 25,000,000 | | Net loss per share – basic and diluted | $(0.02) | $(0.12) | Dilutive Common Share Equivalents Excluded from EPS Calculation (in thousands) | Item | June 30, 2024 | |:----------------------------------------|:--------------| | Earnout shares | 6,000,000 | | Common Stock underlying Public Warrants | 10,100,000 | | Common Stock underlying Private Placement Warrants | 3,235,000 | | Convertible debt | 660,000 | | Warrants issued with convertible debt | 330,000 | | Total | 20,325,000 | - Potential common shares, including earnout shares, warrants, and convertible debt, were excluded from diluted net loss per share calculation as their effect would have been anti-dilutive[51][54] Note 6. Inventories, Net Inventories, Net (in thousands) | Category | June 30, 2024 | March 31, 2024 | |:----------------------------|:--------------|:---------------| | Raw materials and spare parts | $3,996 | $3,882 | | Work in process | $4,585 | $4,769 | | Finished goods | $2,524 | $1,283 | | Less: reserves | $(2,091) | $(2,104) | | Total inventories, net | $9,014 | $7,830 | - Total inventories, net, increased by $1,184 thousand from March 31, 2024, to June 30, 2024, primarily driven by an increase in finished goods[56] Note 7. Property and Equipment, Net Property and Equipment, Net (in thousands) | Category | June 30, 2024 | March 31, 2024 | |:------------------------------|:--------------|:---------------| | Property and equipment (gross)| $4,121 | $4,176 | | Less: accumulated depreciation| $(3,457) | $(3,646) | | Property and equipment, net | $664 | $530 | - Depreciation expense for the three months ended June 30, 2024, was $91 thousand, up from $79 thousand in the prior year period[57] Note 8. Capitalized software, net and other intangible assets, net Capitalized Software, Net and Other Intangible Assets, Net (in thousands) | Category | June 30, 2024 Net Carrying Amount | March 31, 2024 Net Carrying Amount | |:--------------------------|:----------------------------------|:-----------------------------------| | Capitalized software | $2,052 | $2,131 | | Other intangible assets | $380 | $380 | - Capitalized software and other intangible assets are not yet available for intended use and thus not amortized for the three months ended June 30, 2024 and 2023[60] Estimated Annual Amortization for Intangible Assets (in thousands) | Year | Estimated Annual Amortization | |:-----|:------------------------------| | 2025 | $224 | | 2026 | $448 | | 2027 | $448 | | 2028 | $448 | | 2029 | $448 | Note 9. Other current assets Other Current Assets (in thousands) | Category | June 30, 2024 | March 31, 2024 | |:-----------------------------|:--------------|:---------------| | Deferred cost of sales | $4,234 | $3,754 | | Value added tax ("VAT") receivable | $593 | $635 | | Advance payments | $715 | $414 | | Other current assets | $652 | $313 | | Total other current assets | $6,194 | $5,116 | - Total other current assets increased by $1,078 thousand from March 31, 2024, to June 30, 2024, primarily due to an increase in deferred cost of sales and advance payments[60] Note 10. Accrued Expenses and Other Current Liabilities Accrued Expenses and Other Current Liabilities (in thousands) | Category | June 30, 2024 | March 31, 2024 | |:-------------------------------------|:--------------|:---------------| | Taxes payable | $3,293 | $2,554 | | Other payables and current liabilities | $6,657 | $7,381 | | Total accrued expenses and other current liabilities | $9,950 | $9,935 | - Total accrued expenses and other current liabilities remained relatively stable, with a slight increase of $15 thousand from March 31, 2024, to June 30, 2024[61][62][63] Note 11. Other Non-Current Liabilities Other Non-Current Liabilities (in thousands) | Category | June 30, 2024 | March 31, 2024 | |:------------------------------|:--------------|:---------------| | Provisions | $1,976 | $1,977 | | Pension liabilities | $2,328 | $2,194 | | Total other non-current liabilities | $4,304 | $4,171 | - Total other non-current liabilities increased by $133 thousand from March 31, 2024, to June 30, 2024, primarily due to an increase in pension liabilities[64] Note 12. Convertible Debt and Warrant - On June 6, 2024, the Company issued $3.3 million in 8% Original Issue Discount Senior Secured Convertible Debentures, resulting in net proceeds of approximately $2.5 million[65] - The Debentures are convertible into 660,000 shares of Common Stock at $5.00 per share, mature on December 7, 2025, and bear 8% annual interest[65] - In connection with the Debentures, the Company also issued warrants to purchase 330,000 shares of common stock at an exercise price of $5.00 per share, with a five-year term[67] - The convertible debt and warrants were valued using a Monte Carlo simulation model, with the debenture measured at $2,638 thousand and the warrant at $362 thousand on the issuance date[68][69][71] Note 13. Related Party Transactions - DIH Cayman remains the largest shareholder and owns 100% interest in DIH International ('DIH Hong Kong')[73] - The Company has three related party notes payable to Hocoma AG, totaling $10.7 million as of June 30, 2024 (down from $11.5 million on March 31, 2024), each due on June 30, 2026, with a 1.25% interest rate[74][75] - The Company made purchases of $2,995 thousand from the Motek Group for the three months ended June 30, 2024, under an exclusive distribution agreement[76] Related Party Balances with Motek Group (in thousands) | Category | June 30, 2024 | March 31, 2024 | |:---------------------------|:--------------|:---------------| | Due from related party | $3,352 | $3,367 | | Due to related party | $8,357 | $8,667 | Note 14. Employee Benefit Plans - Expenses for defined contribution plans were $40 thousand for the three months ended June 30, 2024, up from $32 thousand in the prior year[78] Defined Benefit Plan Expenses (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | |:----------------------------|:---------------------------------|:---------------------------------| | Current service cost | $173 | $159 | | Interest cost | $51 | $50 | | Expected return on plan assets | $(98) | $(69) | | Net charge to statement of operations | $77 | $66 | Note 15. Income Taxes Income Tax Expense and Effective Tax Rate | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | |:----------------------------|:---------------------------------|:---------------------------------| | Income tax expense (in thousands) | $723 | $226 | | Effective tax rate | 663% | (8.4%) | - The effective tax rate for Q2 2024 was significantly higher (663%) than Q2 2023 (-8.4%) due to losses in certain jurisdictions not creating a benefit and income in others generating tax expense, with pre-tax book income near break-even in Q2 2024[80] - Unrecognized tax benefits were $3,499 thousand as of June 30, 2024, with accrued interest and penalties totaling $159 thousand, primarily related to potential penalty exposure for specific information reporting requirements in the United States[82] Note 16. Commitments and Contingencies - The Company is not currently a party to any litigation that is believed to have a material adverse effect on its business, operating results, cash flows, or financial condition[83] - A provision for liability is made when it is probable that a liability has been incurred and the amount can be reasonably estimated[83] Note 17. Leases Operating Lease Assets and Liabilities (in thousands) | Metric | June 30, 2024 | March 31, 2024 | |:----------------------------------------|:--------------|:---------------| | Operating lease, right-of-use assets, net | $4,388 | $4,466 | | Current portion of long-term operating lease | $1,509 | $1,572 | | Long-term operating lease | $2,925 | $2,917 | | Total operating lease liabilities | $4,434 | $4,489 | Lease Expense (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | |:----------------------------|:---------------------------------|:---------------------------------| | Fixed operating lease costs | $501 | $425 | | Short-term lease costs | $13 | $13 | | Total lease cost | $514 | $438 | Weighted Average Lease Term and Discount Rate | Metric | June 30, 2024 | March 31, 2024 | |:----------------------------------------|:--------------|:---------------| | Weighted-average remaining lease term (in years) | 2.52 | 2.63 | | Weighted-average discount rate | 4.00% | 4.00% | Note 18. Accumulated Other Comprehensive Income Changes in Accumulated Other Comprehensive Income (Loss) (in thousands) | Metric | March 31, 2024 | June 30, 2024 | |:----------------------------------------|:---------------|:--------------| | Balance at period start | $50 | $50 | | Foreign Currency Translation | $(2,420) | $(3,808) | | Defined Benefit Plan Items | $2,470 | $1,951 | | Total Accumulated Other Comprehensive Income (Loss) | $50 | $(1,857) | - Accumulated other comprehensive income shifted from a positive $50 thousand on March 31, 2024, to a loss of $(1,857) thousand on June 30, 2024, primarily due to foreign currency translation adjustments of $(1,388) thousand and defined benefit plan items of $(519) thousand[88] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2024 financial performance, condition, operations, and key factors affecting results Overview - DIH is a global provider of advanced robotic devices for physical rehabilitation, aiming to 'Deliver Inspiration & Health'[91] Key Financial Highlights (in millions) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | |:-----------|:---------------------------------|:---------------------------------| | Revenue | $16.2 | $13.0 | | Net Loss | $(0.6) | $(2.9) | - The $2.3 million improvement in net loss was primarily driven by a $3.2 million increase in gross profit and a $2.6 million increase in other income (expense) due to foreign exchange rate fluctuations, partially offset by elevated professional service and IT costs related to public company operations[92] Recent Developments - The Business Combination with Aurora Tech Acquisition Corp. was consummated on February 7, 2024, making DIH a successor to an SEC-registered company, leading to increased public company regulatory compliance costs[93][94] - On June 6, 2024, the Company issued $3.3 million in 8% Original Issue Discount Senior Secured Convertible Debentures, generating net proceeds of approximately $2.5 million, and also issued warrants to purchase 330,000 shares of Common Stock[95] Key Factors Affecting the DIH's Operating Results - Global supply chain and logistics challenges continue to impact DIH, leading to increased costs for freight, raw materials, and manufacturing[96] - Input cost inflation, which began at the end of fiscal 2022, is expected to remain elevated, impacting gross margins[97] - Foreign currency fluctuations, particularly the Euro, Swiss Franc, and Singapore Dollar against the U.S. Dollar, affect reported revenues and operating income, creating translational exchange rate risks[98] - Implementation costs for the EU Medical Device Regulation (EU MDR) are significant, with an extended transitional period to 2027-2028 for certain medical devices[99] - Macroeconomic uncertainties, including the conflict in Ukraine, COVID-19, supply chain disruptions, higher interest rates, and inflationary pressures, expose DIH's operations to market and operating challenges[100] Basis of Presentation - The condensed consolidated financial statements are prepared based on the underlying basis discussed in Note 2 of the Notes to Annual Consolidated Financial Statements[101] Components of Results of Operations - Revenue is generated from sales of medical rehabilitation devices and technology services to healthcare systems, clinics, and other institutions, with expectations for sequential increases in future periods[102] - Cost of sales includes direct materials, labor, and allocated overhead, expected to increase in absolute dollars but decrease per unit due to leverage[103] - Selling, general and administrative expenses are expected to increase due to scaling sales force, public company compliance, and increased professional services[104] - Research and development costs are expected to increase with continued investment in product design and technology[105] - Interest expense primarily relates to related party notes payable and bank charges[106] - Other income (expense), net, includes non-service components of defined benefit plan income/costs and non-recurring Business Combination costs[107] - Income tax expense is an estimate based on U.S. federal, state, and foreign income taxes, adjusted for credits, deductions, and deferred tax assets/liabilities[108] Results of Operations Consolidated Results of Operations (in thousands, except percentages) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Change ($) | Change (%) | |:----------------------------------------|:---------------------------------|:---------------------------------|:-----------|:-----------| | Revenue | $16,187 | $13,045 | $3,142 | 24.1% | | Costs of sales | $7,521 | $7,648 | $(127) | (1.7)% | | Gross Profit | $8,666 | $5,397 | $3,269 | 60.6% | | Selling, general and administrative expense | $8,676 | $5,837 | $2,839 | 48.6% | | Research and development | $1,644 | $1,438 | $206 | 14.3% | | Total operating expenses | $10,320 | $7,275 | $3,045 | 41.9% | | Operating loss | $(1,654) | $(1,878) | $224 | (11.9)% | | Interest expense | $(135) | $(120) | $(15) | 12.5% | | Other income (expense), net | $1,898 | $(689) | $2,587 | (375.5)% | | Total other income (expense) | $1,763 | $(809) | $2,572 | (317.9)% | | Profit (loss) before income taxes | $109 | $(2,687) | $2,796 | (104.1)% | | Income tax expense | $723 | $226 | $497 | 219.9% | | Net loss | $(614) | $(2,913) | $2,299 | (78.9)% | - Revenue increased by $3.1 million (24.1%) to $16.2 million, driven by a $1.8 million (17.6%) increase in device sales and a $1.2 million (49.1%) increase in services revenue, primarily from higher sales volume in EMEA and Americas[110][112] - Cost of sales decreased by $0.1 million (1.7%) to $7.5 million, despite increased sales volume, due to a $1.0 million inventory reserve and provisions recognized in the prior year that were insignificant in the current period[113] - Selling, general and administrative expense increased by $2.8 million (48.2%) to $8.7 million, mainly due to higher professional service costs ($0.7 million), performance-based compensation ($0.7 million), and overhead expenses ($0.9 million) related to public company operations and growth[114] - Research and development costs increased by $0.2 million (14.3%) to $1.6 million, primarily due to increased personnel expenses[115] - Other income (expense), net, swung from a $(0.7) million expense to a $1.9 million income, driven by favorable foreign exchange rate fluctuations as the Swiss Franc weakened against the U.S. dollar[117] - Income tax expense increased by $0.5 million to $0.7 million, driven by changes in net results across jurisdictions, with tax expense in profitable jurisdictions and non-realizable benefits from losses in others[118][119] Liquidity and Capital Resources Cash and Cash Equivalents (in millions) | Metric | June 30, 2024 | March 31, 2024 | |:----------------------------|:--------------|:---------------| | Cash and cash equivalents | $2.7 | $3.2 | - The company's accumulated deficit reached $(35.8) million as of June 30, 2024, due to historical operating losses from factors like the COVID-19 pandemic, Oracle system implementation, EU MDR compliance, and public company adoption costs[121] - Management expects current cash, operating cash flows, and future debt/equity financings to be sufficient for operating expenses and capital expenditures for at least the next 12 months[122] - The remaining balance on related party notes payable to Hocoma AG is $10.7 million as of June 30, 2024, with payments expected to continue from operational proceeds[123] - Liquidity was strengthened in June 2024 by $2.5 million net proceeds from the issuance of 8% Original Issue Discount Senior Secured Convertible Debentures[124] Cash Flows Summary of Cash Flow Activities (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | |:----------------------------------------|:---------------------------------|:---------------------------------| | Net cash used in operating activities | $(2,010) | $(475) | | Net cash used in investing activities | $(235) | $(15) | | Net cash (used in) / provided by financing activities | $1,774 | $(1,936) | | Effect of currency translation on cash | $(5) | $13 | | Net decrease in cash and cash equivalents | $(476) | $(2,413) | | Cash, and cash equivalents - beginning of period | $3,225 | $3,175 | | Cash, and cash equivalents - end of period | $2,749 | $762 | - Net cash used in operating activities increased by $1.5 million to $(2.0) million, primarily due to a $2.3 million decrease in net loss (driven by increased gross profit and foreign exchange gain) offset by a $2.3 million decrease in non-cash charges and a $0.8 million net decrease in working capital[127][128][129] - Net cash used in investing activities increased by $0.2 million to $(235) thousand, mainly for property and equipment purchases[130] - Net cash provided by financing activities increased by $3.7 million to $1.7 million, driven by $2.5 million from convertible debt financing and a $1.2 million decrease in related party notes payable payments[130] Critical Accounting Policies and Estimates - Revenue is recognized when performance obligations are satisfied, typically upon product shipment or receipt, or completion of installation[132][133] - The determination of employee benefit plan obligations and expenses relies on actuarial assumptions, with changes in the discount rate significantly impacting the defined benefit obligation[134][135][136] - Income taxes are accounted for under Topic 740, recognizing deferred tax assets and liabilities[137][138][139] Emerging Growth Company Status - As an emerging growth company, DIH benefits from exemptions from certain reporting requirements, including Sarbanes-Oxley Act Section 404 attestation and reduced executive compensation disclosures[141] - The Company has elected not to opt out of the extended transition period for new or revised financial accounting standards, allowing it to adopt new standards at the same time as private companies, which may affect comparability with other public companies[142] New Accounting Standards Not Yet Adopted - The Company is currently evaluating the impact of ASU No. 2023-07 (Segment Reporting) and ASU No. 2023-09 (Income Taxes) on its financial statements, with effective dates for fiscal years beginning after December 15, 2023, and December 15, 2024, respectively[43][44][144] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, DIH is exempt from quantitative and qualitative market risk disclosures - DIH is exempt from providing quantitative and qualitative disclosures about market risk due to its status as a smaller reporting company[145] Item 4. Controls and Procedures Disclosure controls were ineffective due to material weaknesses in internal controls, with a remediation plan underway - As of June 30, 2024, the company's disclosure controls and procedures were not effective due to material weaknesses in internal controls over financial reporting[146] - The material weakness is attributed to limited accounting personnel and resources to address public company internal control requirements[146] - A remediation plan is being implemented, including hiring additional qualified accounting personnel, engaging consultants for financial statement close and complex transactions, and segregating duties[148] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2024[150] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any material litigation or governmental proceedings - There is no material litigation, arbitration, or governmental proceeding currently pending against the company or its management[151] Item 1A. Risk Factors Readers are referred to the Annual Report on Form 10-K for a comprehensive discussion of risk factors - Readers should refer to Part I, Item 1A 'Risk Factors' in the Annual Report on Form 10-K for a discussion of important factors that may cause actual results to differ materially from forward-looking statements[6][152] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable for the current reporting period - This item is not applicable[152] Item 3. Defaults Upon Senior Securities The company reports no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[152] Item 4. Mine Safety Disclosures This item is not applicable for the current reporting period - This item is not applicable[152] Item 5. Other Information No directors or executive officers adopted or terminated Rule 10b5-1 trading arrangements this quarter - None of the company's directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the quarterly period[153] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including key agreements and certifications - Key exhibits include the Business Combination Agreement (2.1), Amended and Restated Certificate of Incorporation (3.1), By-Laws (3.2), Debenture dated June 7, 2024 (4.3), Securities Purchase Agreement dated June 6, 2024 (10.2), and certifications of the Principal Executive and Financial Officers (31.1*, 31.2*, 32.1*, 32.2*)[155] Signatures Report Signatures The report was duly signed on August 19, 2024, by the CEO and CFO, certifying compliance - The report was signed on August 19, 2024, by Jason Chen (CEO) and Lynden Bass (CFO and Director)[157]