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Press release content from Globe Newswire. The AP news staff was not involved in its creation.

Obalon Announces Third Quarter 2019 Financial Results

November 8, 2019

SAN DIEGO, Nov. 08, 2019 (GLOBE NEWSWIRE) -- Obalon Therapeutics, Inc. (NASDAQ:OBLN), a weight loss solutions company with the first and only FDA-approved swallowable, gas-filled intragastric balloon system for the treatment of obesity, today announced its financial results for the third quarter ended September 30, 2019.

Third Quarter 2019 highlights:

-- Announced the opening of the first Company-owned retail treatment center, the Obalon Center for Weight Loss in San Diego, CA., and initial patient treatments -- Further streamlined operations and expenses to support the new commercial strategy -- Raised $16.6 million in gross proceeds from an equity offering -- Extinguished long-term debt facility by making the final $5 million payment -- Promoted William J. Plovanic to President and Chief Executive Officer -- Promoted Nooshin Hussainy to Chief Financial Officer

“During the third quarter, we opened the first Obalon Center for Weight Loss and began to lay the foundation for our new commercial strategy of developing Company-owned retail treatment centers, which we believe will make our proven, FDA-approved gastric balloon weight loss system more accessible to patients,” said William J Plovanic, President and Chief Executive Officer. “Our key accomplishments in the period included creating the required corporate structure, engaging a professional medical corporation to oversee medical care, hiring the necessary staff to run day-to-day operations, entering into the lease and building out the physical space for our first Company-owned retail weight loss treatment center, which resulted in opening the site and initiating first patient treatments.”

Mr. Plovanic continued, “There continues to be strong interest in the Obalon Balloon System from individuals with obesity who are frustrated with not being able to lose weight with diet and exercise-alone and those who are not interested in, or candidates for, surgery. I look forward to providing more detail on our commercial strategy on our earnings call today.”

Revenue for the third quarter of 2019 was $0.3 million, compared to $3.0 million for the third quarter of 2018. The decrease was largely attributable to the Company restructuring its operations, eliminating its direct field sales force in April 2019, and transitioning to its new strategy and business model. Net loss for the third quarter of 2019 was $3.7 million, compared to $6.7 million for the third quarter of 2018. Net loss per share for the third quarter of 2019 was $0.61, compared to $3.47 for the third quarter of 2018.

Cost of revenue was $0.4 million for the third quarter of 2019, down from $1.4 million for the third quarter of 2018. Gross deficit for the third quarter of 2019 was $0.1 million, compared to a gross profit of $1.6 million for the third quarter of 2018.

Research and development expense for the third quarter of 2019 totaled $1.2 million, down from $2.4 million for the third quarter of 2018. Selling, general and administrative expense decreased to $2.5 million for the third quarter of 2019, compared to $5.8 million for the third quarter of 2018.

Operating loss for the third quarter of 2019 was $3.7 million, down from a loss of $6.6 million for the third quarter of 2018.

As of September 30, 2019, the Company had cash and cash equivalents of $19.4 million and no debt.

Call Information

A conference call to discuss third quarter 2019 financial results is scheduled for today, November 8, 2019, at 9:00 AM Eastern Time (6:00 AM Pacific Time). Interested parties may access the conference call by dialing (844) 889-7791 (U.S.) or (661) 378-9934 (international) and using passcode 4987828. Media and individuals will be in a listen-only mode. Participants are asked to dial in a few minutes prior to the call to register for the event. The conference call will also be webcast live at: http://edge.media-server.com/mmc/p/htzhm89b

An archive of the webcast will be available for twelve months following the event on the Obalon Therapeutics, Inc. website located at http://investor.obalon.com in the “News & Events” section.

About Obalon Therapeutics, Inc.

Obalon Therapeutics, Inc. (NASDAQ:OBLN) is a San Diego-based company focused on developing and commercializing novel technologies for weight loss. For more information, please visit http://www.obalon.com.

Cautionary Statement Regarding Forward Looking Statements

This press release contains forward-looking statements that are not purely historical regarding Obalon’s or its management’s intentions, beliefs, expectations and strategies for the future, including those related to new products and their potential benefits. All forward-looking statements and reasons why results might differ included in this press release are made as of the date of this release, based on information currently available to Obalon, deal with future events, are subject to various risks and uncertainties, and actual results could differ materially from those anticipated in those forward looking statements. The risks and uncertainties that may cause actual results to differ materially from Obalon’s current expectations are more fully described in Obalon’s annual report on Form 10-K for the period ended December 31, 2018, its quarterly report on Form 10-Q for the period ended June 30, 2019 and its other reports, each as filed with the Securities and Exchange Commission. Except as required by law, Obalon assumes no obligation to update any such forward-looking statement after the date of this report or to conform these forward-looking statements to actual results.

For Obalon Therapeutics, Inc.

Investor Contact: William Plovanic President and Chief Executive Officer Obalon Therapeutics, Inc. Office: +1 760 607 5103 wplovanic@obalon.com

OBALON THERAPEUTICS, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS(in thousands, except shares and per share data)

Three Months Ended Nine Months Ended September 30, September 30, 2019 2018 2019 2018 ---------- ---------- ----------- ----------- (Unaudited) Revenue $ 333 $ 2,987 $ 2,494 $ 7,065 Cost of revenue 412 1,418 2,323 3,919 Gross (deficit) profit (79 ) 1,569 171 3,146 Operating expenses: Research and development 1,174 2,368 5,401 8,359 Selling, general and administrative 2,489 5,836 13,025 23,092 -------- - -------- - --------- - --------- - Total operating expenses 3,663 8,204 18,426 31,451 -------- - -------- - --------- - --------- - Loss from operations (3,742 ) (6,635 ) (18,255 ) (28,305 ) Interest income (expense), net 37 (70 ) (448 ) (164 ) Other expense, net (1 ) (40 ) (60 ) (155 ) -------- - -------- - --------- - --------- - Net loss (3,706 ) (6,745 ) (18,763 ) (28,624 ) Other comprehensive income (loss) — (3 ) — 3 -------- - -------- - --------- - --------- - Net loss and comprehensive loss $ (3,706 ) $ (6,748 ) $ (18,763 ) $ (28,621 ) - ------ - - ------ - - ------- - - ------- - Net loss per share, basic and diluted $ (0.61 ) $ (3.47 ) $ (5.07 ) $ (16.05 ) - ------ - - ------ - - ------- - - ------- - Weighted-average common shares outstanding, basic and diluted 6,061,248 1,945,864 3,700,538 1,783,793 -------- - -------- - --------- - --------- -

OBALON THERAPEUTICS, INC.CONDENSED CONSOLIDATED BALANCE SHEETS(in thousands, except shares and par value data)

September December 30, 31, 2019 2018 ---------- Assets (Unaudited) Current assets: Cash and cash equivalents $ 19,380 $ 21,187 Short-term investments — 2,548 Accounts receivable, net of allowance of $508 and $665, respectively 238 870 Inventory 2,048 1,580 Other current assets 683 2,462 -------- - -------- - Total current assets 22,349 28,647 Property and equipment, net 1,117 1,739 Lease right-of-use assets 1,191 — -------- - Total assets $ 24,657 $ 30,386 - ------ - - ------ - Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 732 $ 1,159 Accrued compensation 724 3,805 Deferred revenue 283 352 Other current liabilities 1,609 1,985 Current portion of lease liabilities 557 — Current portion of long-term loan — 9,930 -------- - -------- - Total current liabilities 3,905 17,231 Lease liabilities long-term 687 — Other long-term liabilities — 48 -------- - Total long-term liabilities 687 48 -------- - Total liabilities 4,592 17,279 Commitments and contingencies Stockholders’ equity: Common stock, $0.001 par value; 100,000,000 shares authorized as of September 30, 2019 and December 31, 2018; 7,724,100 and 2,351,333 shares issued and outstanding as of 8 2 September 30, 2019 and December 31, 2018, respectively Additional paid-in capital 187,574 161,859 Accumulated deficit (167,517 ) (148,754 ) -------- - -------- - Total stockholders’ equity 20,065 13,107 -------- - -------- - Total liabilities and stockholders’ equity $ 24,657 $ 30,386 - ------ - - ------ -

OBALON THERAPEUTICS, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)

Nine Months Ended September 30, 2019 2018 ----------- ----------- (Unaudited) Operating activities: Net loss $ (18,763 ) $ (28,624 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 361 428 Stock-based compensation 2,300 3,610 Loss on disposal of fixed assets 128 107 Amortization of right-of-use asset 301 — Accretion of investment discount, net (2 ) (20 ) Amortization of debt discount 70 29 Change in operating assets and liabilities: Accounts receivable, net 632 1,448 Inventory (117 ) (537 ) Other current assets 1,604 805 Accounts payable (724 ) 135 Accrued compensation (3,097 ) (1,823 ) Deferred revenue (69 ) (209 ) Lease liabilities, net (248 ) — Other current and long-term liabilities (363 ) 634 Net cash used in operating activities (17,987 ) (24,017 ) Investing activities: Purchases of short-term investments — (9,103 ) Maturities of short-term investments 2,550 24,302 Purchases of property and equipment (44 ) (867 ) --------- - --------- - Net cash provided by investing activities 2,506 14,332 Financing activities: Proceeds from long-term loan 10,000 — Payment on long-term loan (20,000 ) — Proceeds from issuance of common stock and warrants, net of paid issuance costs 15,014 9,973 Proceeds from issuance of common stock, net of issuance costs 8,659 — Proceeds from stock issued under employee stock purchase plan — 148 Proceeds from sale of common stock upon exercise of stock options 1 38 Fees paid in connection with loan amendment — (30 ) --------- - --------- - Net cash provided by financing activities 13,674 10,129 --------- - --------- - Net (decrease) increase in cash and cash equivalents (1,807 ) 444 Cash and cash equivalents at beginning of period 21,187 21,108 --------- - --------- - Cash and cash equivalents at end of period $ 19,380 $ 21,552 - ------- - - ------- - Supplemental cash flow information: Interest paid $ 700 $ 473 - ------- - - ------- - Unpaid issuance costs $ 295 $ 160 - ------- - - ------- - Property and equipment in accounts payable $ — $ 106 - ------- - - ------- -