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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended September 30, 2021

OR

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

 

For the transition period from to

Commission file number: 1-37897

RESHAPE LIFESCIENCES INC.

(Exact name of registrant as specified in its charter)

Delaware

26-1828101

(State or other jurisdiction
of incorporation or organization)

(IRS Employer
Identification No.)

1001 Calle Amanecer, San Clemente, California 92673
(Address of principal executive offices, including zip code)

(949) 429-6680
(Registrant’s telephone number, including area code)

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

Title of Each Class

    

Trading Symbol

Name of Each Exchange on which Registered

Common stock, $0.001 par value per share

RSLS

The Nasdaq Capital Market

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

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

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

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

  

Smaller Reporting Company

Emerging Growth Company

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

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

As of November 10, 2021, 17,784,027 shares of the registrant’s Common Stock were outstanding.

Table of Contents

INDEX

PART I – FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements (unaudited)

3

Condensed Consolidated Balance Sheets at September 30, 2021 and December 31, 2020

3

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020

4

Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2021 and 2020

5

Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2021 and 2020

6

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020

8

Notes to Condensed Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

Item 4.

Controls and Procedures

34

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

34

Item 1A.

Risk Factors

34

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

35

Item 3.

Defaults Upon Senior Securities

35

Item 4.

Mine Safety Disclosures

35

Item 5.

Other Information

35

Item 6.

Exhibits

36

SIGNATURES

37

2

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1.        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

RESHAPE LIFESCIENCES INC.

Condensed Consolidated Balance Sheets

(unaudited)

(dollars in thousands, except per share amounts)

September 30, 

December 31, 

    

2021

    

2020

ASSETS

Current assets:

Cash and cash equivalents

$

29,243

 

$

2,957

Restricted cash

50

50

Accounts and other receivables (net of allowance for doubtful accounts of $477 and $968 respectively)

 

3,457

 

 

2,620

Inventory

 

3,206

 

 

2,244

Prepaid expenses and other current assets

 

1,633

 

 

1,073

Total current assets

 

37,589

 

 

8,944

Property and equipment, net

 

1,602

 

 

584

Operating lease right-of-use assets

450

465

Other intangible assets, net

28,469

27,022

Goodwill

21,053

Other assets

 

1,535

 

 

46

Total assets

$

90,698

 

$

37,061

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

3,112

 

$

3,655

Accrued and other liabilities

 

3,235

 

 

3,630

Warranty liability, current

545

397

Debt, current portion, net of deferred financing costs

2,971

3,609

Operating lease liabilities, current

473

314

Total current liabilities

 

10,336

 

 

11,605

Debt, noncurrent portion

9,168

Operating lease liabilities, noncurrent

163

Warranty liability, noncurrent

527

1,022

Deferred income taxes

615

615

Total liabilities

11,478

 

22,573

Commitments and contingencies

Stockholders’ equity:

Preferred stock, 5,000,000 shares authorized:

Series B convertible preferred stock, $0.001 par value; zero and 3 issued and outstanding at September 30, 2021 and December 31, 2020, respectively

Series C convertible preferred stock, $0.001 par value; 95,388 shares issued and outstanding at September 30, 2021 and December 31, 2020

1

Common stock, $0.001 par value; 100,000,000 and 275,000,000 shares authorized at September 30, 2021 and December 31, 2020, respectively; 17,688,331 and 6,166,554 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively

 

18

 

 

6

Additional paid-in capital

 

620,611

 

 

529,429

Accumulated deficit

 

(541,302)

 

 

(514,827)

Accumulated other comprehensive loss

(107)

(121)

Total stockholders’ equity

 

79,220

 

 

14,488

Total liabilities and stockholders’ equity

$

90,698

 

$

37,061

3

Table of Contents

See accompanying notes to Condensed Consolidated Financial Statements.

RESHAPE LIFESCIENCES INC.

Condensed Consolidated Statements of Operations

(unaudited)

(dollars in thousands, except per share amounts)

Three Months Ended September 30, 

Nine Months Ended September 30, 

2021

2020

    

2021

2020

Revenue

$

3,708

$

3,602

$

10,458

$

8,092

Cost of revenue

1,573

 

1,321

 

3,886

 

3,471

Gross profit

2,135

 

2,281

 

6,572

 

4,621

Operating expenses:

Sales and marketing

3,496

 

1,160

 

6,186

 

3,446

General and administrative

12,052

2,434

19,085

7,809

Research and development

1,571

 

859

 

2,245

 

2,619

Total operating expenses

17,119

 

4,453

 

27,516

 

13,874

Operating loss

(14,984)

 

(2,172)

 

(20,944)

 

(9,253)

Other expense (income), net:

Interest expense, net

33

739

804

1,632

Warrant expense

2,813

2,813

Loss on extinguishment of debt, net

2,435

2,061

2,435

Gain on foreign currency exchange, net

(101)

(128)

(170)

(118)

Loss before income tax provision

(17,729)

(5,218)

(26,452)

(13,202)

Income tax expense (benefit)

(30)

(39)

23

(108)

Net loss

$

(17,699)

$

(5,179)

$

(26,475)

$

(13,094)

Net loss per share - basic and diluted:

Net loss per share - basic and diluted

$

(1.48)

$

(1.32)

$

(2.51)

$

(3.36)

Shares used to compute basic and diluted net loss per share

11,997,370

 

3,927,986

 

10,546,683

 

3,896,964

See accompanying notes to Condensed Consolidated Financial Statements.

4

Table of Contents

RESHAPE LIFESCIENCES INC.

Condensed Consolidated Statements of Comprehensive Loss

(unaudited)

(dollars in thousands)

Three Months Ended September 30, 

Nine Months Ended September 30, 

2021

    

2020

    

2021

2020

Net loss

$

(17,699)

$

(5,179)

$

(26,475)

$

(13,094)

Foreign currency translation adjustments

2

(45)

14

(66)

Other comprehensive income (loss), net of tax

2

(45)

14

(66)

Comprehensive loss

$

(17,697)

$

(5,224)

$

(26,461)

$

(13,160)

See accompanying notes to Condensed Consolidated Financial Statements.

5

Table of Contents

RESHAPE LIFESCIENCES INC.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited)

(dollars in thousands)

Three Months Ended September 30, 2021

Series B Convertible

Series C Convertible

Additional

Accumulated Other

Total

Preferred Stock

Preferred Stock

Common Stock

Paid-in

Accumulated

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

     

Capital

    

Deficit

    

Income (Loss)

     

Equity

Balance June 30, 2021

$

95,388

$

8,168,622

$

8

$

564,118

$

(523,603)

$

(109)

$

40,414

Net loss

(17,699)

(17,699)

Other comprehensive loss, net of tax

2

2

Stock compensation

10,720

10,720

Stock options exercised

90,832

201

201

Issuance of stock from RSUs

1,755,710

2

(2)

Issuance of warrants

1,535

1,535

Institutional exercise of warrants

7,635,667

8

43,433

43,441

Warrant liability reclassified to equity

476

476

Restricted shares issued for consulting services

37,500

130

130

Balance September 30, 2021

$

95,388

$

17,688,331

$

18

$

620,611

$

(541,302)

$

(107)

$

79,220

Nine Months Ended September 30, 2021

Series B Convertible

Series C Convertible

Additional

Accumulated Other

Total

Preferred Stock

Preferred Stock

Common Stock

Paid-in

Accumulated

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

     

Capital

    

Deficit

    

Loss

     

Equity

Balance December 31, 2020

3

$

95,388

$

1

3,486,253

$

4

$

529,431

$

(514,827)

$

(121)

$

14,488

Net loss

(26,475)

(26,475)

Other comprehensive income, net of tax

14

14

Issuance of common stock pursuant to reverse acquisition

(3)

(1)

3,340,035

3

30,559

30,561

Stock compensation

10,457

10,457

Stock options exercised

182,696

416

416

Issuance of stock from RSUs

1,755,710

2

(2)

Issuance of warrants

4,508

4,508

Institutional exercise of warrants

8,886,137

9

44,636

44,645

Warrant liability reclassified to equity

476

476

Restricted shares issued for consulting services

37,500

130

130

Balance September 30, 2021

$

95,388

$

17,688,331

$

18

$

620,611

$

(541,302)

$

(107)

$

79,220

See accompanying Notes to Condensed Consolidated Financial Statements

6

Table of Contents

RESHAPE LIFESCIENCES INC.

Condensed Consolidated Statements of Stockholders’ Equity (Continued)

(unaudited)

(dollars in thousands)

Three Months Ended September 30, 2020

Series B Convertible

Series C Convertible

Additional

Accumulated

Total

Preferred Stock

Preferred Stock

Common Stock

Paid-in

Accumulated

Comprehensive

Stockholders’

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

     

Capital

    

Deficit

Income (Loss)

     

Equity

Balance at June 30, 2020

3

$

95,388

$

1

5,586,554

$

5

$

520,288

$

(501,112)

$

(29)

$

19,153

Net loss

(5,179)

(5,179)

Other comprehensive income (loss), net of tax

(45)

(45)

Stock-based compensation expense

255

255

Issuance of warrants

2,899

2,899

Balance September 30, 2020

3

$

95,388

$

1

5,586,554

$

5

$

523,442

$

(506,291)

$

(74)

$

17,083

Nine Months Ended September 30, 2020

Series B Convertible

Series C Convertible

Additional

Accumulated Other

Total

Preferred Stock

Preferred Stock

Common Stock

Paid-in

Accumulated

Comprehensive

Stockholders’

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

     

Capital

    

Deficit

Loss

     

Equity

Balance December 31, 2019

3

$

95,388

$

1

391,739

$

$

517,311

$

(493,197)

$

(8)

$

24,107

Net loss

(13,094)

(13,094)

Other comprehensive loss, net of tax

(66)

(66)

Stock-based compensation expense

1,029

1,029

Issuance of warrants

4,292

4,292

Institutional exercise of warrants

5,085,834

5

605

610

Cashless exercise of warrants

58,981

Common stock issued for professional services

50,000

205

205

Balance September 30, 2020

3

$

95,388

$

1

5,586,554

$

5

$

523,442

$

(506,291)

$

(74)

$

17,083

See accompanying Notes to Condensed Consolidated Financial Statements.

7

Table of Contents

RESHAPE LIFESCIENCES INC.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(dollars in thousands)

Nine Months Ended September 30, 

2021

2020

Cash flows from operating activities:

    

    

Net loss

$

(26,475)

$

(13,094)

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation expense

 

132

 

8

Amortization of intangible assets

1,284

1,249

Noncash interest expense

104

175

Loss on extinguishment of debt, net

2,061

2,435

Stock-based compensation

10,457

1,029

Bad debt expense

62

184

Provision for inventory excess and obsolescence

162

244

Warrant expense

2,813

Amortization of debt discount and deferred debt issuance costs

494

1,392

Other noncash items

12

21

Change in operating assets and liabilities, net of business combination:

 

Accounts and other receivables

 

(900)

962

Inventory

 

21

(915)

Prepaid expenses and other current assets

 

(399)

613

Accounts payable and accrued liabilities

(1,838)

(1,260)

Warranty liability

(347)

116

Other

 

408

53

Net cash used in operating activities

 

(11,949)

 

(6,788)

Cash flows from investing activities:

Capital expenditures

(285)

(230)

Proceeds received from acquisition

5,207

Cash provided by (used in) investing activities:

4,922

(230)

Cash flows from financing activities:

Payments of financing costs

 

(3,234)

 

(59)

Proceeds from institutional exercise of warrants

 

45,616

 

610

Proceeds from stock options exercised

417

Proceeds from credit agreement

1,000

4,500

Payment of credit agreement

(10,500)

Proceeds from PPP loan

955

Net cash provided by financing activities

 

33,299

 

6,006

Effect of currency exchange rate changes on cash and cash equivalents

14

(66)

Net increase (decrease) in cash, cash equivalents and restricted cash

 

26,286

 

(1,078)

Cash, cash equivalents and restricted cash at beginning of period

 

3,007

 

2,985

Cash, cash equivalents and restricted cash at end of period

$

29,293

$

1,907

Supplemental disclosure:

Cash paid for income taxes

$

37

$

Cash paid for interest

296

Noncash investing and financing activities:

Purchase price, net of cash received

$

25,355

$

Fair value of warrants included as a component of loss on extinguishment of debt

2,974

2,899

Fair value of common stock and warrants issued related to the fundamental transaction exchange

2,813

Capital expenditures accruals

68

193

Relative fair value of warrants classified as debt issuance costs

1,393

See accompanying notes to Condensed Consolidated Financial Statements.

 

8

Table of Contents

ReShape Lifesciences Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share amounts; unaudited)

(1)  Basis of Presentation

The accompanying interim condensed consolidated financial statements and related disclosures of Reshape Lifesciences Inc. (the “Company” or “ReShape”) 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, 2020, filed on March 11, 2021. 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.

Revision of Previously Issued Financial Statement for Correction of Immaterial Errors

The Company revised the accompanying statement of operations for the period ended June 30, 2020, and condensed consolidated balance sheet and condensed consolidated statement of equity as of December 31, 2020, to reflect the correction of an immaterial error for amounts previously not reflected in the statements attributable to the share ratio adjustment to the Company’s common stock related to the merger with Obalon Therapeutics, Inc. (“Obalon”). This revision has no impact on the Company’s net income or retained earnings.

The following table summarizes the effect of the revision on each financial statement line item for the periods ended, as indicated (in thousands, except per share information):

Condensed Consolidated Balance Sheet

As Previously

Reported

Adjustment

As Revised

As of December 31, 2020

Common stock

$

6

$

(2)

$

4

Additional paid in capital

529,429

2

529,431

Condensed Consolidated Statement of Operations

As Previously

Reported

Adjustment

As Revised

Three months ended June 30, 2020

Net loss

$

(3,604)

$

$

(3,604)

Net loss per share - basic and diluted: