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Document and Entity Information - shares	3 Months Ended
Document and Entity Information - shares	Mar. 31, 2019	May 09, 2019
Document And Entity Information
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q1
Entity Registrant Name	RESHAPE LIFESCIENCES INC.
Entity Central Index Key	0001371217
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Common Stock, Shares Outstanding		11,055,233

Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Current assets:
Cash and cash equivalents	$ 1,828	$ 5,548
Accounts and other receivables (net of allowance for bad debts of $345 at March 31, 2019 and $236 at December 31, 2018)	3,919	917
Finished goods inventory	1,025	985
Prepaid expenses and other current assets	2,460	1,269
Total current assets	9,232	8,719
Property and equipment, net	47	64
Operating lease right-of-use assets (Note 6)	1,070
Other intangible assets, net	36,511	36,927
Other assets	563	563
Total assets	47,423	46,273
Current liabilities:
Accounts payable and accrued liabilities	7,554	6,456
Embedded derivative liability (Note 5)	481
Subordinated convertible debentures (Note 5)	1,504
Asset purchase consideration payable, current (Note 5)	1,931	1,907
Operating lease liabilities, current (Note 6)	374
Total current liabilities	11,844	8,363
Asset purchase consideration payable, noncurrent (Note 5)	4,462	4,403
Operating lease liabilities, noncurrent (Note 6)	700
Deferred income taxes	1,844	1,844
Total liabilities	18,850	14,610
Commitments and contingencies (Note 11)
Stockholders’ equity:
Common stock, $0.01 par value; 275,000,000 shares authorized at March 31, 2019 and December 31, 2018; 7,703,233 and 8,770,433 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively	77	88
Additional paid-in capital	451,949	450,564
Accumulated deficit	(423,466)	(418,990)
Total stockholders’ equity	28,573	31,663
Total liabilities and stockholders’ equity	47,423	46,273
Series C convertible preferred stock
Stockholders’ equity:
Preferred stock, 5,000,000 shares authorized:	1	$ 1
Series E convertible preferred stock
Stockholders’ equity:
Preferred stock, 5,000,000 shares authorized:	$ 12

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Allowance for bad debts	$ 345	$ 236
Preferred stock, authorized	5,000,000	5,000,000
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	275,000,000	275,000,000
Common stock, shares issued	7,703,233	8,770,433
Common stock, shares outstanding	7,703,233	8,770,433
Series B convertible preferred stock
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, issued	3	159
Preferred stock, outstanding	3	159
Series C convertible preferred stock
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, issued	95,388	95,388
Preferred stock, outstanding	95,388	95,388
Series E convertible preferred stock
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, issued	1,192,000	0
Preferred stock, outstanding	1,192,000	0

Consolidated Statements of Operations - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Condensed Consolidated Statements of Operations
Revenue	$ 3,074	$ 139
Cost of revenue	(843)	(60)
Gross profit	2,231	79
Operating expenses:
Selling, general and administrative	5,421	6,336
Research and development	1,056	2,500
Total operating expenses	6,477	8,836
Operating loss	(4,246)	(8,757)
Other expense (income), net
Interest expense, net	103	1
Warrant expense	130
Other, net	(3)	1
Loss from continuing operations before income taxes	(4,476)	(8,759)
Income tax benefit	0	1,382
Loss from continuing operations	(4,476)	(7,377)
Loss from discontinued operations, net of tax		(3,856)
Net loss attributable to common shareholders	$ (4,476)	$ (11,233)
Net loss per share - basic and diluted:
Continuing operations (in dollars per share)	$ (0.54)	$ (500.40)
Discontinued operations (in dollars per share)		(261.57)
Net loss per share-basic and diluted (in dollars per share)	$ (0.54)	$ (761.97)
Shares used to compute basic and diluted net loss per share	8,242,451	14,742

Consolidated Statements of Stockholders' Equity - USD ($)	Preferred Stock Series B convertible preferred stock	Preferred Stock Series C convertible preferred stock	Preferred Stock Series E convertible preferred stock Issuance of series E convertible preferred stock	Preferred Stock Series E convertible preferred stock	Common Stock Issuance of series E convertible preferred stock	Common Stock	Additional Paid-in Capital	Accumulated Deficit	Series B convertible preferred stock	Total
Balance at Dec. 31, 2017		$ 1,000					$ 411,125,000	$ (334,759,000)		$ 76,367,000
Balance (in shares) at Dec. 31, 2017	6,055	95,388				14,742
Changes in Stockholders' Equity
Net loss								(11,233,000)		(11,233,000)
Stock-based compensation expense							740,000			740,000
Balance at Mar. 31, 2018		$ 1,000					411,865,000	(345,992,000)		65,874,000
Balance (in shares) at Mar. 31, 2018	6,055	95,388				14,742
Balance at Dec. 31, 2018	$ 159	$ 1				$ 88	450,564	(418,990)		31,663,000
Balance (in shares) at Dec. 31, 2018		95,388				8,770,433
Changes in Stockholders' Equity
Net loss								(4,476)		(4,476,000)
Stock-based compensation expense							1,256			1,256,000
Warrant expense							130			130,000
Conversion of stock	(156)		$ 12		$ (12)	$ 1	(1)
Conversion of stock (in shares)			1,192,000		(1,192,000)	124,800
Balance at Mar. 31, 2019	$ 3	$ 1		$ 12		$ 77	$ 451,949	$ (423,466)		$ 28,573,000
Balance (in shares) at Mar. 31, 2019		95,388		1,192,000		7,703,233			3

- Definition

The portion of profit or loss for the period, net of income taxes, which is attributable to the parent.

+ References + Details

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Cash flows from operating activities:
Net loss	$ (4,476)	$ (11,233)
Loss from discontinued operations, net of tax		3,856
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense	17	74
Amortization of intangible assets	416	34
Noncash interest expense	104
Stock-based compensation	1,256	740
Warrant expense	130
Deferred income tax benefit		(1,382)
Other noncash items	4	(1)
Change in operating assets and liabilities:
Accounts and other receivables	(3,002)	(474)
Inventory	(40)	(67)
Prepaid expenses and other current assets	(1,191)	(255)
Other assets		758
Accounts payable and accrued liabilities	1,083	1,739
Net cash used in operating activities - continuing operations	(5,699)	(6,211)
Net cash used in operating activities - discontinued operations		(3,110)
Net cash used in operating activities	(5,699)	(9,321)
Cash flows from financing activities:
Proceeds from issuance of subordinated convertible debentures	2,000
Payments of financing costs	(21)
Net cash provided by financing activities - continuing operations	1,979
Net cash provided by financing activities	1,979
Net decrease in cash and cash equivalents	(3,720)	(9,321)
Cash and cash equivalents:
Cash and cash equivalents at beginning of period	5,548	10,163
Cash and cash equivalents at end of period	1,828	$ 842
Noncash investing and financing activities:
Conversion of common stock to convertible preferred stock	12
Conversion of convertible preferred shares to common stock	1
Embedded derivative liability recorded as discount on subordinated convertible debentures	$ 481

Basis of Presentation

3 Months Ended

Mar. 31, 2019

Basis of Presentation

Basis of Presentation

(1) Basis of Presentation

The accompanying interim condensed consolidated financial statements and related disclosures of Reshape Lifesciences Inc. (the “Company”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") have been condensed or omitted.

In the opinion of management, the interim consolidated condensed financial statements reflect all adjustments considered necessary for a fair statement of the interim periods. All such adjustments are of a normal, recurring nature. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year.

Fair Value of Financial Instruments

The carrying amounts of cash equivalents, accounts receivable, accounts payable and certain accrued and other liabilities approximate fair value due to their short-term maturities. Refer to Note 5 regarding the fair value of debt instruments.

Net Loss Per Share

The following table sets forth the potential shares of common stock that are not included in the calculation of diluted net loss per share because to do so would be anti-dilutive as of the end of each period presented:


	March 31,
	2019	2018
Stock options outstanding	4,206	1,634
Common shares underlying subordinated convertible debentures	11,827,957	—
Common shares underlying convertible preferred stock	131,743	5,797
Warrants to purchase common stock	15,304,721	6,811

Recent Accounting Pronouncements

New accounting standards adopted by the Company in 2019 are discussed below or in the related notes, where appropriate.

In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-02 Leases (Topic 842) that amended the guidance on leases. The amendment improves transparency and comparability among companies by recognizing lease assets and lease liabilities on the balance sheet and by disclosing key information about leasing arrangements. The guidance was effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Reporting entities could elect to adjust comparative periods and record the cumulative effect adjustment at the beginning of the earliest comparative period, or to not adjust comparative periods and record the cumulative effect adjustment at the effective date.

The Company adopted the new guidance as of the effective date of January 1, 2019 using the modified retrospective approach with no adjustments to the comparative period presented in the financial statements. In addition, the Company elected the package of practical expedients permitted under the transition guidance to not reassess (1) whether any expired or existing contracts are, or contain, leases, (2) the lease classification for expired or existing leases, and (3) initial direct costs for existing leases.

The adoption of the guidance resulted in the recognition of right-of-use ("ROU") assets and lease liabilities for operating leases of $1,176 as of January 1, 2019. The guidance did not have an impact on the Company's Condensed Consolidated Statements of Operations or Cash Flows. See Note 6 for disclosures related to the Company's leases.

In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting, which is intended to simplify the accounting for nonemployee share-based payment transactions by expanding the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The guidance was effective for fiscal years and interim periods within those years beginning after December 15, 2018, with early adoption permitted. The Company adopted this guidance effective January 1, 2019. The adoption of this guidance had no effect on the Company’s consolidated financial statements as there were no share-based payment transactions with nonemployees in 2018 and such transactions in prior years, all of which had an established measurement date, were not material.

New accounting standards not yet adopted are discussed below.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements and is intended to improve the effectiveness of disclosures, including the consideration of costs and benefits. The guidance is effective for the fiscal years and interim periods within those years beginning after January 1, 2020. Early adoption is permitted, and an entity is permitted to early adopt any removed or modified disclosures and delay adoption of additional disclosures until their effective date. The Company is evaluating the effects of ASU 2018-13 on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The ASU is effective for the Company on January 1, 2020. Early adoption of the ASU is permitted. The Company is evaluating the effects of ASU 2018-15 on its consolidated financial statements.

Liquidity and Management's Plans	3 Months Ended
Liquidity and Management's Plans	Mar. 31, 2019
Liquidity and Management's Plans
Liquidity and Management's Plans	(2) Liquidity and Management’s Plans The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company currently is not generating revenue from operations that is significant relative to its level of operating expenses, and does not anticipate generating revenue sufficient to offset operating costs in the short-term to mid-term. The Company’s history of operating losses, limited cash resources and lack of certainty regarding obtaining significant third-party reimbursement for its products, raise substantial doubt about its ability to continue as a going concern. As of March 31, 2019, the Company had $1,828 of cash and cash equivalents. The Company’s anticipated operations include plans to (i) continue to integrate the sales and operations of the Company with the Lap-Band product line acquired in December 2018; (ii) continue development of the ReShape Vest, (iii) seek opportunities to leverage the Company’s intellectual property portfolio and custom development services to provide third party sales and licensing opportunities, and (iv) explore and capitalize on synergistic opportunities to expand our portfolio and offer future minimally invasive treatments and therapies in the obesity continuum of care. The Company believes that it has the flexibility to manage the growth of its expenditures and operations depending on the amount of available cash flows, which could include reducing expenditures for marketing, clinical and product development activities. However, the Company will ultimately need to achieve sufficient revenues from product sales and obtain additional equity or debt financing to support its operations. Management is currently pursuing various funding options, including seeking additional equity or debt financing as well as a strategic merger or other transaction to obtain additional funding to support the expansion of Lap-Band product sales and to continue the development of, and to successfully commercialize, the ReShape Vest. While the acquisition of the Lap-Band product line does provide incremental revenues to the Company, the cost to support the European clinical trial of the ReShape Vest is expected to exceed revenues for the foreseeable future. While there can be no assurance that the Company will be successful in its efforts, the Company has a long history of raising equity financing to fund its development activities. Should the Company be unable to obtain adequate financing in the near term, the Company’s business, result of operations, liquidity and financial condition would be materially and negatively affected, and the Company would be unable to continue as a going concern. Additionally, there can be no assurance that, assuming the Company is able to strengthen its cash position, it will achieve sufficient revenue or profitable operations to continue as a going concern.

Discontinued Operations

3 Months Ended

Mar. 31, 2019

Discontinued Operations.

Discontinued operations

(3) Discontinued Operations

During the fourth quarter of 2018, the Company sold substantially all of the assets exclusively related to its ReShape Balloon product line, which consisted of inventory, property and equipment and the related intellectual property underlying the intangible assets. The operating results of the ReShape Balloon product line have been reflected as discontinued operations in the Condensed Consolidated Financial Statements. In addition, the cash flows associated with discontinued operations are presented separately in the accompanying Condensed Consolidated Statements of Cash Flows.

There were no assets associated with the ReShape Balloon product line at March 31, 2019 and December 31, 2018. The components of loss from discontinued operations for the three months ended March 31, 2018 consisted of the following:


	Three Months Ended March 31, 2018
Total revenue	$	811
Loss from discontinued operations before income taxes		(3,856)
Income tax benefit		—
Loss from discontinued operations, net of tax	$	(3,856)

Supplemental Balance Sheet Information

3 Months Ended

Mar. 31, 2019

Supplemental Balance Sheet Information

Supplemental Balance Sheet Information

(4) Supplemental Balance Sheet Information

Components of selected captions in the condensed consolidated balance sheets consisted of the following:

Accounts and other receivables, net:


	March 31,		December 31,
	2019		2018
Accounts receivable	$	233	$	510
Receivables, Apollo		3,686		407
Total accounts and other receivables	$	3,919	$	917

Prepaid expenses and other current assets:


	March 31,		December 31,
	2019		2018
Prepaid contract research organization expenses	$	1,627	$	1,064
Prepaid insurance		659		58
Other current assets		174		147
Total prepaid expenses and other current assets	$	2,460	$	1,269

Accounts payable and accrued liabilities:


	March 31,		December 31,
	2019		2018
Accounts payable	$	2,622	$	1,558
Payables, Apollo		1,266		69
Professional service related expenses		2,561		3,095
Payroll related expenses		685		1,146
Other accrued liabilities		420		588
Total accounts payable and accrued liabilities	$	7,554	$	6,456

In connection with the Company’s December 2018 acquisition of the Lap-Band product line from Apollo Endosurgery, Inc. (“Apollo”), the Company entered into transition services, supply and distribution agreements with Apollo. The receivables from, and payables to, Apollo are primarily related to services performed by Apollo under these agreements. For a period of up to six months, Apollo takes and fills the Company’s Lap-Band product orders and collects invoices for such orders on the Company’s behalf. In addition, for a period of up to 24 months, Apollo issues purchase orders and procures certain accessory Lap-Band products from third-party suppliers on the Company’s behalf. Remittances from and to Apollo are subject to a reconciliation of the credits/charges for services performed under the agreements.

Debt	3 Months Ended
Debt	Mar. 31, 2019
Debt
Debt	(5) Debt Asset Purchase Consideration Payable The asset purchase consideration payable related to the Company’s December 2018 acquisition of the Lap-Band product line from Apollo was initially recorded at net present value using a discount rate of 5.1%. The asset purchase consideration payable is secured by a first security interest in substantially all of the Company’s assets. At March 31, 2019, the aggregate carrying value of the current and noncurrent asset purchase consideration payable of $6,393, as adjusted for accretion of interest, and due to the first security interest held by Apollo, approximates fair value. Convertible Subordinated Debentures On March 29, 2019, the Company completed a private placement with certain healthcare focused institutional investors for the sale of secured subordinated original issue discount convertible debentures (“debentures”) for a purchase price of $2,000. The debentures are due June 28, 2019 and have a face amount of $2,200, reflecting a 10% original issue discount. At any time after June 28, 2019, if the debentures have not been repaid, subject to certain investor ownership limitations, the debentures will be convertible into shares of common stock at a conversion price equal to the lesser of $0.33 and 80% of the average of the lowest two volume weighted average prices of the Company’s common stock during the 20 trading days prior to conversion. The Company analyzed the conversion features embedded in the debentures and determined that bifurcation and liability classification was required under ASC 815 due to the variable number of shares issuable upon conversion. The fair value of the bifurcated embedded conversion features was determined to be $481 as of the issuance date using a Monte Carlo model and primarily Level 3 inputs and was recorded as additional debt discount and an embedded derivative liability. As the Company did not elect the fair value option for the debentures, the initial carrying amount of the debentures, net of discounts and deferred financing costs of $1,483, will be accreted to the face amount over the term to maturity. The embedded derivative liability will be recorded at fair value at each reporting date. As collateral for the Company’s obligations under the debentures, the Company has granted the debenture holders a security interest in all of the assets of the Company and its subsidiary, which is subordinated to the Company’s obligation to Apollo for the remaining asset purchase consideration. In connection with the financing, the Company amended the exercise price of warrants to purchase up to 8 million shares of common stock held by the investors that were issued on November 28, 2018 from $1.50 per share to $0.01 per share. The value attributable to the exercise price reduction of $130 was recorded in Warrant Expense and was estimated using the Black Scholes option pricing model using a risk-free interest rate of 2.2%, an expected term of 4.7 years, expected dividends of zero and expected volatility of 204.4%.

Leases

3 Months Ended

Mar. 31, 2019

Leases

Leases

(6) Leases

On the date of adoption of Topic 842, the Company had noncancelable operating leases for office and warehouse space in San Clemente, California and noncancelable operating leases for certain office equipment that expire at various dates through 2022. The Company does not have any short-term leases or financing lease arrangements and there have been no lease modifications. Certain of the Company’s equipment leases include variable lease payments that are adjusted periodically based on actual usage. Lease and non-lease components are accounted for separately.

Operating lease costs for the three months ended March 31, 2019 were $120. Variable lease costs were not material for the three months ended March 31, 2019.

Supplemental information related to operating leases was as follows:


Balance Sheet Information at March 31, 2019
Operating lease ROU assets	$	1,070

Operating lease liabilities, current portion	$	374
Operating lease liabilities, long-term portion		700
Total operating lease liabilities	$	1,074

Cash Flow Information for the Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of operating leases liabilities	$	116

Maturities of operating lease liabilities at March 31, 2019 were as follows:


Twelve months ending March 31,
2020	$	419
2021		328
2022		333
2023		83
Total lease payments		1,163
Less: imputed interest		89
Total lease liabilities	$	1,074

Weighted-average remaining lease term at end of period (in years)		3.0
Weighted-average discount rate at end of period		5.1	%

Disclosures related to periods prior to adopting the new lease guidance

Future minimum lease commitments under noncancelable operating leases as of December 31, 2018 were as follows:


Year ending December 31,
2019	$	449
2020		332
2021		331
2022		166
Total	$	1,278

Equity	3 Months Ended
Equity	Mar. 31, 2019
Equity
Equity	(7) Equity February 2019 Conversion of Common Stock into New Series of Convertible Preferred Stock On February 1, 2019, pursuant to an exchange agreement with Sabby Volatility Warrant Master Fund, Ltd. (“Sabby”) 1,192,000 shares of the Company’s common stock were exchanged for an aggregate of 1,192,000 shares of series E convertible preferred stock, par value $0.01 per share (“Series E Preferred Stock”) in a noncash transaction. Each share of Series E Preferred Stock was convertible into one share of common stock at Sabby’s election. In April 2019, all shares of Series E Preferred Stock were converted into an equal number of shares of common stock. Conversion of Series B Convertible Preferred Stock into Common Stock During the three months ended March 31, 2019, 156 shares of Series B convertible preferred stock (“Series B Preferred Stock”) were converted into 124,800 shares of common stock. At March 31, 2019, the remaining 3 shares of Series B Preferred stock are convertible into 2,400 shares of common stock.

Revenue Disaggregation and Operating Segments

3 Months Ended

Mar. 31, 2019

Revenue Recognition

Revenue Disaggregation and Operating Segments

(8) Revenue Disaggregation and Operating Segments

The following table presents the Company’s revenue disaggregated by product and geography:


	Three Months Ended March 31, 2019						Three Months Ended March 31, 2018
	U.S.		OUS *		Total		U.S.		OUS		Total
Lap-Band product	$	3,066	$	8	$	3,074	$	—	$	—	$	—
ReShape vBloc product		—		—		—		139		—		139
Total	$	3,066	$	8	$	3,074	$	139	$	—	$	139

*All revenues outside the United States for the three months ended March 31, 2019 were in Canada.

As described in Note 4 of the Company's Consolidated Financial Statements included in its Annual Report on Form 10-K for the year ended December 31, 2018, the Company acquired the Lap-Band product line in December 2018. As a result of the acquisition of the Lap-Band product line, the Company is longer actively marketing the ReShape vBloc product.

Operating Segments

As described in Note 2 of the Company's Consolidated Financial Statements included in its Annual Report on Form 10-K for the year ended December 31, 2018, the Company’s operating segments consist of the Lap-Band segment, the ReShape Vest segment and the ReShape vBloc segment. These operating segments are reported based on the financial information provided to the Chief Operating Decision Maker (the Chief Executive Officer, or “CODM”).

The Company’s CODM evaluates segment performance based on gross profit. Gross profit for the Lap-Band segment was $2,231 and $0 for the three months ended March 31, 2019 and 2018, respectively. Gross profit for the ReShape vBloc product was $0 and $79, the three months ended March 31, 2019 and 2018, respectively. There were no revenues or gross profit recorded for the ReShape Vest operating segment for the three months ended March 31, 2019 and 2018 because the ReShape Vest is still in the development stage. The Company’s CODM does not use operating segment assets information to allocate resources or to assess performance of the operating segments and thus total segment assets have not been disclosed.

Income Taxes	3 Months Ended
Income Taxes	Mar. 31, 2019
Income Taxes
Income Taxes	(9) Income Taxes No income tax expense or benefit was recorded for the three months ended March 31, 2019 due to the valuation allowance on deferred tax assets. The income tax benefit of $1,382 recorded for the three months ended March 31, 2018 reflects the tax impact of the net operating loss in the period which have an indefinite carryover period. A portion of these net operating losses were supported by expected taxable income from the reversal of indefinite life intangibles, such that they are more likely than not to be realized.

Stock-based Compensation

3 Months Ended

Mar. 31, 2019

Stock-based Compensation

Stock-based Compensation

(10) Stock-based Compensation

Stock-based compensation expense related to stock options issued under the ReShape Lifesciences Inc. Second Amended and Restated 2003 Stock Incentive Plan (the “Plan”) and as inducement grants for the three months ended March 31, 2019 and 2018 was as follows:


	Three Months Ended
	March 31,
	2019		2018
Selling, general and administrative	$	1,223	$	682
Research and development		33		58
Total	$	1,256	$	740

As of March 31, 2019, there was approximately $5,103 of total unrecognized compensation costs related to unvested stock option awards, which are expected to be recognized over a weighted-average period of 2.5 years.

There were no stock options granted or exercised during the three months ended March 31, 2019 and 2018.

Commitments and Contingencies	3 Months Ended
Commitments and Contingencies	Mar. 31, 2019
Commitments and Contingencies
Commitments and Contingencies	(11) Commitments and Contingencies Clinical Trials The Company has ongoing commitments under the pre-approval ReCharge and post-approval ReNew clinical trials related to its ReShape vBloc product which are expected to be completed in 2019 and 2022, respectively. The Company is required to pay for patient follow up visits only to the extent they occur. In the event a patient does not attend a follow up visit, the Company has no financial obligation. The Company is also required to pay for explants or revisions, including potential conversions of ReCharge control devices to active devices, should a patient request or be required to have one during the course of the clinical trials. The Company has no financial obligation unless an explant, revision or conversion is requested or required. The Company recognizes expense when incurred with respect to these clinical trials. Litigation Fulfillium. On April 20, 2017, Fulfillium, Inc. filed a complaint against ReShape Medical, Inc. (which the Company acquired in October 2017 and which is now a wholly owned subsidiary of the Company) in the U.S. District Court for the District of Delaware, which alleged misappropriation of trade secrets and infringement of two U.S. Patents (“Fulfillium I”). On July 28, 2017, ReShape Medical moved to dismiss both the trade secret claim and certain aspects of the patent infringement claim, and to transfer the litigation to the U.S. District Court for the Central District of California. On October 16, 2017, the Court granted ReShape Medical’s motion to dismiss the trade secret and willful infringement claims, and ordered the case transferred to the U.S. District Court for the Central District of California. Fulfillium twice amended its complaint, narrowing its original trade secret claim and adding further patent infringement claims and additional parties. On June 4, 2018, ReShape Medical filed a motion to dismiss the patent infringement claims for lack of standing, which the Court granted on July 5, 2018. On August 10, 2018, the Court dismissed without prejudice the trade secret claim for lack of subject matter jurisdiction and terminated the case. Fulfillium has appealed these dismissals and ReShape Medical has appealed the grant and denial of certain attorney fee awards. On July 20, 2018, Fulfillium filed a new complaint against ReShape Lifesciences, Inc. (and its wholly owned subsidiary ReShape Medical LLC) in the U.S. District Court for the Central District of California (“Fulfillium II”) reasserting the patent infringement claims asserted in Fulfillium I. On August 15, 2018, Fulfillium amended its complaint in Fulfillium II to reassert the trade secret misappropriation claim asserted in Fulfillium I against ReShape Medical LLC and others. On September 7, 2018, Fulfillium filed a complaint in California state court alleging the same trade secret misappropriation claim asserted in both Fulfillium I and Fulfillium II. On November 7, 2018, the Court dismissed the non-Company parties from Fulfillium II. On April 20, 2018, ReShape Medical filed Inter Partes Review (“IPR”) petitions with the Patent Trial and Appeal Board of the U.S. Patent and Trademark Office (the “PTAB”) to have all claims of both of the originally asserted Fulfillium patents canceled as unpatentable over various combinations of prior art. On November 6, 2018, the PTAB denied those petitions. The parties held a mediation on April 9, 2019, but were unable to resolve the matter. The Company intends to continue to vigorously defend itself against Fulfillium’s claims. We currently are unable to estimate the losses or range of loss for these two matters. Alpha and Iroquois. On July 12, 2018, Alpha Capital Anstalt (“Alpha”) filed a complaint against the Company in the U.S. District Court for the Southern District of New York. In August 2017, Alpha acquired shares of the Company’s series B convertible preferred stock and warrants to purchase shares of the Company’s common stock in an underwritten public offering. Pursuant to the terms of the series B convertible preferred stock and warrants, the conversion price of the series B convertible preferred stock and exercise price of the warrants was subject to adjustment in the case of, among other things, dilutive issuances of securities by the Company. The complaint alleges breach of contract, claiming that the Company should have adjusted the conversion price of the series B convertible preferred stock and exercise price of the warrants to not less than $420.00 per share, rather than the $1,575.00 per share to which the Company actually adjusted such conversion price and exercise price, in connection with its registered direct offering of series D convertible preferred stock and warrants to purchase common stock that it completed and announced in April 2018. Alpha seeks declaratory relief, damages of not less than approximately $3.6 million (less the proceeds of actual sales of the Company’s common stock made by Alpha) and attorneys’ fees. The Company believes the claims alleged are without merit and intends to vigorously protect and defend itself. However, we are currently unable to estimate a loss or range of loss for this matter. On July 26, 2018, Iroquois Capital Investment Group, LLC and Iroquois Master Fund, Ltd. filed a complaint against the Company in the U.S. District Court for the Southern District of New York, with substantially the same claims and seeking substantially the same relief as Alpha’s complaint described above, except that Iroquois claims that the conversion price of the series D convertible preferred stock and exercise price of the warrants should have been adjusted to $189.00 per share, and Iroquois is claiming damages estimated to exceed $5 million. The Company believes the claims alleged are without merit and intends to vigorously protect and defend itself. However, we are currently unable to estimate a loss or range of loss for this matter. Except as disclosed in the foregoing paragraphs, the Company is not currently a party to any litigation and the Company is not aware of any pending or threatened litigation against it that is reasonably possible to have a material adverse effect on the Company’s business, operating results or financial condition. The medical device industry in which the Company operates is characterized by frequent claims and litigation, including claims regarding patent and other intellectual property rights as well as improper hiring practices. As a result, the Company may be involved in various legal proceedings from time to time. Product Liability Claims The Company is exposed to product liability claims that are inherent in the testing, production, marketing and sale of medical devices. Management believes any losses that may occur from these matters are adequately covered by insurance, and the ultimate outcome of these matters will not have a material effect on the Company’s financial position or results of operations. The Company is not currently a party to any product liability litigation and is not aware of any pending or threatened product liability litigation that is reasonably possible to have a material adverse effect on the Company’s business, operating results or financial condition.

Basis of Presentation (Policies)

3 Months Ended

Mar. 31, 2019

Basis of Presentation

Basis of Presentation

Fair Value of Financial Instruments

Net Loss Per Share


	March 31,
	2019	2018
Stock options outstanding	4,206	1,634
Common shares underlying subordinated convertible debentures	11,827,957	—
Common shares underlying convertible preferred stock	131,743	5,797
Warrants to purchase common stock	15,304,721	6,811

Recent Accounting Pronouncements

New accounting standards adopted by the Company in 2019 are discussed below or in the related notes, where appropriate.

New accounting standards not yet adopted are discussed below.

Basis of Presentation (Tables)

3 Months Ended

Mar. 31, 2019

Basis of Presentation

Schedule of anti-dilutive securities


	March 31,
	2019	2018
Stock options outstanding	4,206	1,634
Common shares underlying subordinated convertible debentures	11,827,957	—
Common shares underlying convertible preferred stock	131,743	5,797
Warrants to purchase common stock	15,304,721	6,811

Discontinued Operations (Tables)

3 Months Ended

Mar. 31, 2019

Discontinued Operations.

Schedule of components of loss from discontinued operations


	Three Months Ended March 31, 2018
Total revenue	$	811
Loss from discontinued operations before income taxes		(3,856)
Income tax benefit		—
Loss from discontinued operations, net of tax	$	(3,856)

- Definition

Tabular disclosure of information related to a disposal group. Includes, but is not limited to, a discontinued operation, disposal classified as held-for-sale or disposed of by means other than sale or disposal of an individually significant component.

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+ Details

Supplemental Balance Sheet Information (Tables)

3 Months Ended

Mar. 31, 2019

Supplemental Balance Sheet Information

Schedule of accounts and other receivables, net


	March 31,		December 31,
	2019		2018
Accounts receivable	$	233	$	510
Receivables, Apollo		3,686		407
Total accounts and other receivables	$	3,919	$	917

Schedule of prepaid expenses and other current assets


	March 31,		December 31,
	2019		2018
Prepaid contract research organization expenses	$	1,627	$	1,064
Prepaid insurance		659		58
Other current assets		174		147
Total prepaid expenses and other current assets	$	2,460	$	1,269

Schedule of accounts payable and accrued liabilities


	March 31,		December 31,
	2019		2018
Accounts payable	$	2,622	$	1,558
Payables, Apollo		1,266		69
Professional service related expenses		2,561		3,095
Payroll related expenses		685		1,146
Other accrued liabilities		420		588
Total accounts payable and accrued liabilities	$	7,554	$	6,456

Leases (Tables)

3 Months Ended

Mar. 31, 2019

Leases

Schedule of supplemental information related to operating leases


Balance Sheet Information at March 31, 2019
Operating lease ROU assets	$	1,070

Operating lease liabilities, current portion	$	374
Operating lease liabilities, long-term portion		700
Total operating lease liabilities	$	1,074

Cash Flow Information for the Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of operating leases liabilities	$	116

Schedule of maturities of operating lease liabilities


Twelve months ending March 31,
2020	$	419
2021		328
2022		333
2023		83
Total lease payments		1,163
Less: imputed interest		89
Total lease liabilities	$	1,074

Weighted-average remaining lease term at end of period (in years)		3.0
Weighted-average discount rate at end of period		5.1	%

Schedule of future minimum lease payments


Year ending December 31,
2019	$	449
2020		332
2021		331
2022		166
Total	$	1,278

Revenue Disaggregation and Operating Segments (Tables)

3 Months Ended

Mar. 31, 2019

Revenue Recognition

Schedule of revenue disaggregated by product and geography

	Three Months Ended March 31, 2019						Three Months Ended March 31, 2018
	U.S.		OUS *		Total		U.S.		OUS		Total
Lap-Band product	$	3,066	$	8	$	3,074	$	—	$	—	$	—
ReShape vBloc product		—		—		—		139		—		139
Total	$	3,066	$	8	$	3,074	$	139	$	—	$	139

*All revenues outside the United States for the three months ended March 31, 2019 were in Canada.

Stock-based Compensation (Tables)

3 Months Ended

Mar. 31, 2019

Stock-based Compensation

Schedule of stock-based compensation expense


	Three Months Ended
	March 31,
	2019		2018
Selling, general and administrative	$	1,223	$	682
Research and development		33		58
Total	$	1,256	$	740

Basis of Presentation - Anti-dilutive Securities (Details) - shares	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Stock options outstanding
Anti-dilutive securities
Anti-dilutive securities (in shares)	4,206	1,634
Common shares underlying subordinated convertible debentures
Anti-dilutive securities
Anti-dilutive securities (in shares)	11,827,957
Common shares underlying convertible preferred stock
Anti-dilutive securities
Anti-dilutive securities (in shares)	131,743	5,797
Warrants to purchase common stock
Anti-dilutive securities
Anti-dilutive securities (in shares)	15,304,721	6,811

Basis of Presentation - Topic 842 (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Jan. 01, 2019
New accounting pronouncements
Right-of-use asset	$ 1,070
Operating lease liability	$ 1,074
ASU 2016-02 \| Adjustment
New accounting pronouncements
Right-of-use asset		$ 1,176
Operating lease liability		$ 1,176

Liquidity and Management's Plans (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Liquidity and Management's Plans
Cash and cash equivalents	$ 1,828	$ 5,548

Discontinued Operations - Components of Loss (Details) - Discontinued operations held-for-sale - ReShape Balloon product line $ in Thousands	3 Months Ended
	Mar. 31, 2018 USD ($)
Components of loss from discontinued operations
Total revenue	$ 811
Loss from discontinued operations before income taxes	(3,856)
Loss from discontinued operations, net of tax	$ (3,856)

Supplemental Balance Sheet Information (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Accounts and other receivables, net
Accounts receivable	$ 233	$ 510
Receivables, Apollo	3,686	407
Total accounts and other receivables	3,919	917
Prepaid expenses and other current assets
Prepaid contract research organization expenses	1,627	1,064
Prepaid insurance	659	58
Other current assets	174	147
Total prepaid expenses and other current assets	2,460	1,269
Accounts payable and accrued liabilities
Accounts payable	2,622	1,558
Payables, Apollo	1,266	69
Professional service related expenses	2,561	3,095
Payroll related expenses	685	1,146
Other accrued liabilities	420	588
Total accounts payable and accrued liabilities	$ 7,554	$ 6,456

Debt - Asset Purchase Consideration Payable (Details) - Secured debt $ in Thousands	Mar. 31, 2019 USD ($)
Long-term debt
Discount rate (as a percent)	5.10%
Current and noncurrent debt	$ 6,393

Debt - Convertible Subordinated Debentures (Details) $ / shares in Units, shares in Millions			3 Months Ended
	Mar. 29, 2019 USD ($) $ / shares	Mar. 29, 2019 USD ($) D $ / shares	Mar. 31, 2019 USD ($)	Mar. 28, 2019 USD ($) $ / shares	Nov. 28, 2018 shares
Short-term debt
Purchase price			$ 2,000,000
Embedded derivative liability (Note 5)			481,000	$ 481,000
Warrant expense			$ 130,000
Secured subordinated convertible debentures due June 28, 2019
Short-term debt
Purchase price		$ 2,000,000
Face amount	$ 2,200,000	$ 2,200,000
Original issue discount	10.00%	10.00%
Percentage of average of lowest two volume weighted average price of common stock		80.00%
Number of volume weighted average price of common stock		2
Number of trading days prior to conversion \| D		20
Carrying amount	$ 1,483,000	$ 1,483,000
Secured subordinated convertible debentures due June 28, 2019 \| Maximum
Short-term debt
Conversion price \| $ / shares	$ 0.33	$ 0.33
November 28, 2018 Series A investor warrants
Short-term debt
Number of warrants (in shares) \| shares					8
Exercise price of warrants (in dollars per share) \| $ / shares	$ 0.01	$ 0.01		$ 1.50
Warrant expense	$ 130,000
November 28, 2018 Series A investor warrants \| Risk-free interest rate
Short-term debt
Warrant fair value measurement inputs	2.2	2.2
November 28, 2018 Series A investor warrants \| Expected term
Short-term debt
Warrants term	4 years 8 months 12 days	4 years 8 months 12 days
November 28, 2018 Series A investor warrants \| Expected dividends
Short-term debt
Warrant fair value measurement inputs	0	0
November 28, 2018 Series A investor warrants \| Expected volatility
Short-term debt
Warrant fair value measurement inputs	204.4	204.4

Leases - Supplemental Information (Details) $ in Thousands	3 Months Ended
Leases - Supplemental Information (Details) $ in Thousands	Mar. 31, 2019 USD ($)
Leases
Operating lease costs	$ 120
Balance Sheet Information related to operating leases
Right-of-use asset	1,070
Operating lease liabilities, current portion	374
Operating lease liabilities, long-term portion	700
Total operating lease liabilities	1,074
Cash Flow Information related to operating leases
Cash paid for amounts included in the measurement of operating leases liabilities	$ 116

Leases - Maturities of Liabilities (Details) $ in Thousands	Mar. 31, 2019 USD ($)
Maturities of operating lease liabilities
2020	$ 419
2021	328
2022	333
2023	83
Total lease payments	1,163
Less: imputed interest	89
Total lease liabilities	$ 1,074
Weighted-average remaining lease term at end of period (in years)	3 years
Weighted-average discount rate at end of period	5.10%

Leases - Future Minimum Lease Payments (Details) $ in Thousands	Dec. 31, 2018 USD ($)
Leases
2019	$ 449
2020	332
2021	331
2022	166
Total	$ 1,278

Equity (Details) - $ / shares		3 Months Ended
Equity (Details) - $ / shares	Feb. 01, 2019	Mar. 31, 2019	Dec. 31, 2018
Conversion of common stock into series E preferred stock
Equity
Conversion of stock shares converted	1,192,000
Conversion of series B preferred stock into common stock
Equity
Shares issued		124,800
Conversion of Stock, Shares Issued		124,800
Series E convertible preferred stock
Equity
Preferred stock, par value	$ 0.01	$ 0.01	$ 0.01
Shares issuable upon conversion of preferred stock	1
Series E convertible preferred stock \| Conversion of common stock into series E preferred stock
Equity
Shares issued	1,192,000
Conversion of Stock, Shares Issued	1,192,000
Series B convertible preferred stock
Equity
Preferred stock, par value		$ 0.01	$ 0.01
Shares issuable upon conversion of preferred stock		2,400
Shares outstanding		3
Series B convertible preferred stock \| Conversion of series B preferred stock into common stock
Equity
Conversion of stock shares converted		156

Revenue Disaggregation and Operating Segments - Revenue (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Revenue Recognition
Revenue	$ 3,074	$ 139
US
Revenue Recognition
Revenue	3,066	139
Outside US
Revenue Recognition
Revenue	8
Lap-Band product
Revenue Recognition
Revenue	3,074
Lap-Band product \| US
Revenue Recognition
Revenue	3,066
Lap-Band product \| Outside US
Revenue Recognition
Revenue	$ 8
ReShape vBloc product
Revenue Recognition
Revenue		139
ReShape vBloc product \| US
Revenue Recognition
Revenue		$ 139

Revenue Disaggregation and Operating Segments - Operating Segments (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Operating segments
Revenue	$ 3,074	$ 139
Gross profit	2,231	79
Operating segments \| Lap Band segment
Operating segments
Gross profit	2,231	0
Operating segments \| ReShape vBloc segment
Operating segments
Gross profit	0	79
Operating segments \| ReShape Vest segment
Operating segments
Revenue	0	0
Gross profit	$ 0	$ 0

Income Taxes - Income Tax Benefit (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Deferred:
Income tax benefit	$ 0	$ 1,382

Stock-based Compensation - Expense for Stock-Based Awards (Details) - USD ($) shares in Thousands	3 Months Ended		9 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Sep. 30, 2017
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation	$ 1,256		$ 740
Total unrecognized compensation costs related to non-vested stock options	$ 5,103,000
Total unrecognized compensation costs related to non-vested stock options, weighted-average period of recognition	2 years 6 months
Stock options granted	0	0
stock options exercised	0	0
Selling, general and administrative
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation	$ 1,223		682
Research and development
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation	$ 33		$ 58

Commitments and Contingencies - Narrative (Details) - USD ($) $ / shares in Units, $ in Millions	Jul. 26, 2018	Jul. 12, 2018
Alpha Litigation \| Series D Convertible Preferred Stock
Loss Contingencies [Line Items]
Warrant price (in dollars per share)		$ 1,575.00
Iroquois Litigation \| Series D Convertible Preferred Stock
Loss Contingencies [Line Items]
Warrant price (in dollars per share)	$ 189.00
Minimum \| Alpha Litigation
Loss Contingencies [Line Items]
Accrued liability and legal expenses	$ 3.6
Minimum \| Alpha Litigation \| Series B convertible preferred stock
Loss Contingencies [Line Items]
Warrant price (in dollars per share)		$ 420.00
Minimum \| Iroquois Litigation
Loss Contingencies [Line Items]
Accrued liability and legal expenses	$ 5.0