SEC Filing - ReShape Lifesciences

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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, 2022


	☐	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, 2022, 24,176,434 shares of the registrant’s Common Stock were outstanding.

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INDEX


PART I – FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021	3
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021	4
	Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2022 and 2021	5
	Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2022 and 2021	6
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	37
Item 4.	Mine Safety Disclosures	37
Item 5.	Other Information	37
Item 6.	Exhibits	38
SIGNATURES		39

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PART I – FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

RESHAPE LIFESCIENCES INC.

Condensed Consolidated Balance Sheets

(unaudited)

(dollars in thousands, except per share amounts)


	September 30,		December 31,
	2022		2021
ASSETS
Current assets:
Cash and cash equivalents	$	6,146	$	22,765
Restricted cash		100		50
Accounts and other receivables (net of allowance for doubtful accounts of $947 and $1,172 respectively)		2,230		2,815
Inventory		4,171		3,003
Prepaid expenses and other current assets		926		1,622
Total current assets		13,573		30,255
Property and equipment, net		896		1,454
Operating lease right-of-use assets		255		266
Other intangible assets, net		12,513		20,827
Other assets		1,219		1,456
Total assets	$	28,456	$	54,258
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,992	$	3,468
Accrued and other liabilities		4,848		3,169
Warranty liability, current		418		415
Operating lease liabilities, current		255		279
Total current liabilities		7,513		7,331
Warranty liability, noncurrent		—		300
Deferred income taxes, net		—		555
Total liabilities		7,513		8,186
Commitments and contingencies (Note 13)
Stockholders’ equity:
Preferred stock, 10,000,000 shares authorized:
Series C convertible preferred stock, $0.001 par value; 95,388 shares issued and outstanding at September 30, 2022 and December 31, 2021		—		—
Common stock, $0.001 par value; 100,000,000 shares authorized at both September 30, 2022 and December 31, 2021; 22,595,748 and 17,831,875 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively		23		18
Additional paid-in capital		627,350		622,906
Accumulated deficit		(606,362)		(576,760)
Accumulated other comprehensive loss		(68)		(92)
Total stockholders’ equity		20,943		46,072
Total liabilities and stockholders’ equity	$	28,456	$	54,258

See accompanying notes to Condensed Consolidated Financial Statements.

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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,
		2022		2021		2022		2021
Revenue	$	2,798	$	3,708	$	8,130	$	10,458
Cost of revenue		697		1,573		2,928		3,886
Gross profit		2,101		2,135		5,202		6,572
Operating expenses:
Sales and marketing		2,619		3,496		11,990		6,186
General and administrative		3,872		12,052		13,488		19,085
Research and development		588		1,571		2,096		2,245
Impairment of intangible assets		6,947		—		6,947		—
Loss on disposal of assets, net		1		—		383		—
Total operating expenses		14,027		17,119		34,904		27,516
Operating loss		(11,926)		(14,984)		(29,702)		(20,944)
Other expense (income), net:
Interest (income) expense, net		(31)		33		(47)		804
Warrant expense		—		2,813		—		2,813
Loss on extinguishment of debt, net		—		—		—		2,061
Loss (Gain) on foreign currency exchange, net		279		(101)		467		(170)
Other		—		—		(9)		—
Loss before income tax provision		(12,174)		(17,729)		(30,113)		(26,452)
Income tax (benefit) expense		(363)		(30)		(511)		23
Net loss	$	(11,811)	$	(17,699)	$	(29,602)	$	(26,475)
Net loss per share - basic and diluted:
Net loss per share - basic and diluted (as revised for the three and nine months ended September 30, 2021, see Note 1)	$	(0.52)	$	(1.04)	$	(1.47)	$	(3.07)
Shares used to compute basic and diluted net loss per share (as revised for the three and nine months ended September 30, 2021, see Note 1)		22,559,072		17,088,254		20,155,117		8,614,321

See accompanying notes to Condensed Consolidated Financial Statements.

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RESHAPE LIFESCIENCES INC.

Condensed Consolidated Statements of Comprehensive Loss

(unaudited)

(dollars in thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
		2022	2021		2022		2021
Net loss	$	(11,811)	$	(17,699)	$	(29,602)	$	(26,475)
Foreign currency translation adjustments		4		2		24		14
Other comprehensive income, net of tax		4		2		24		14
Comprehensive loss	$	(11,807)	$	(17,697)	$	(29,578)	$	(26,461)

See accompanying notes to Condensed Consolidated Financial Statements.

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RESHAPE LIFESCIENCES INC.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited)

(dollars in thousands)


	Three Months Ended September 30, 2022
	Series C Convertible						Additional				Accumulated Other		Total
	Preferred Stock			Common Stock			Paid-in		Accumulated		Comprehensive		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Deficit		Loss		Equity
Balance June 30, 2022	95,388	$	—	19,629,708	$	20	$	626,965	$	(594,551)	$	(72)	$	32,362
Net loss	—		—	—		—		—		(11,811)		—		(11,811)
Other comprehensive income, net of tax	—		—	—		—		—		—		4		4
Stock compensation	—		—	—		—		388		—		—		388
Issuance of stock from RSUs	—		—	116,040		—		—		—		—		—
Exercise of warrants	—		—	2,850,000		3		(3)		—		—		—
Balance September 30, 2022	95,388	$	—	22,595,748	$	23	$	627,350	$	(606,362)	$	(68)	$	20,943


	Nine Months Ended September 30, 2022
	Series C Convertible						Additional				Accumulated Other		Total
	Preferred Stock			Common Stock			Paid-in		Accumulated		Comprehensive		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Deficit		Loss		Equity
Balance December 31, 2021	95,388	$	—	17,831,875	$	18	$	622,906	$	(576,760)	$	(92)	$	46,072
Net loss	—		—	—		—		—		(29,602)		—		(29,602)
Other comprehensive income, net of tax	—		—	—		—		—		—		24		24
Stock compensation	—		—	—		—		1,957		—		—		1,957
Issuance of stock from RSUs	—		—	1,025,231		1		(1)		—		—		—
Exercise of warrants	—		—	3,738,642		4		2,488		—		—		2,492
Balance September 30, 2022	95,388	$	—	22,595,748	$	23	$	627,350	$	(606,362)	$	(68)	$	20,943

See accompanying Notes to Condensed Consolidated Financial Statements.

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RESHAPE LIFESCIENCES INC.

Condensed Consolidated Statements of Stockholders’ Equity (Continued)

(unaudited)

(dollars in thousands)


	Three Months Ended September 30, 2021
	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 June 30, 2021	—	$	—	95,388	$	—	8,168,622	$	8	$	564,118	$	(523,603)	$	(109)	$	40,414
Net loss	—		—	—		—	—		—		—		(17,699)		—		(17,699)
Other comprehensive income, 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.

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RESHAPE LIFESCIENCES INC.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(dollars in thousands)


	Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities:
Net loss	$	(29,602)	$	(26,475)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		271		132
Amortization of intangible assets		1,367		1,284
Noncash interest expense		—		104
Impairment of intangible assets		6,947		—
Loss on extinguishment of debt, net		—		2,061
Loss on disposal of assets, net		383		—
Stock-based compensation		1,957		10,457
Bad debt (recoveries) expense		(72)		62
Provision for inventory excess and obsolescence		148		162
Deferred income tax		(555)		—
Warrant expense		—		2,813
Amortization of debt discount and deferred debt issuance costs		—		494
Other noncash items		(21)		12
Change in operating assets and liabilities, net of business combination:
Accounts and other receivables		657		(900)
Inventory		(1,317)		21
Prepaid expenses and other current assets		696		(399)
Accounts payable and accrued liabilities		129		(1,838)
Warranty liability		(297)		(347)
Other		237		408
Net cash used in operating activities		(19,072)		(11,949)
Cash flows from investing activities:
Capital expenditures		(52)		(285)
Proceeds from acquisition		—		5,207
Proceeds from sale of capital assets		39		—
Cash (used in) provided by investing activities:		(13)		4,922
Cash flows from financing activities:
Payments of financing costs		—		(3,234)
Proceeds from warrants exercised		2,492		45,616
Proceeds from stock options exercised		—		417
Proceeds from credit agreement		—		1,000
Payment of credit agreement		—		(10,500)
Net cash provided by financing activities		2,492		33,299
Effect of currency exchange rate changes on cash and cash equivalents		24		14
Net (decrease) increase in cash, cash equivalents and restricted cash		(16,569)		26,286
Cash, cash equivalents and restricted cash at beginning of period		22,815		3,007
Cash, cash equivalents and restricted cash at end of period	$	6,246	$	29,293
Supplemental disclosure:
Cash paid for income taxes	$	—	$	37
Cash paid for interest		—		296
Noncash investing and financing activities:
Capital expenditures accruals	$	79	$	68
Purchase price, net of cash received		—		25,355
Fair value of warrants included as a component of loss on extinguishment of debt		—		2,974

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See accompanying notes to Condensed Consolidated Financial Statements.

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, 2021, filed on April 8, 2022. 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 statement of operations for the periods ended December 31, 2020, March 31, 2021, June 30, 2021, September 30, 2021, December 31, 2021, and March 31, 2022, to reflect the correction of an immaterial error in the computation of the weighted average shares used to compute basic and diluted net loss per share. This revision has no impact on the Company’s net loss or accumulated deficit.

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The following table summarizes the effect of the revision on each financial statement line item for the periods ended as indicated:


	Condensed Consolidated Statement of Operations
	As Previously
	Reported		Adjustment		As Revised
For the year ended December 31, 2020
Net loss per share - basic and diluted:
Net loss per share - basic and diluted	$	(5.54)	$	(0.01)	$	(5.55)
Shares used to compute basic and diluted net loss per share		3,904,762		(6,612)		3,898,150
Three months ended March 31, 2021
Net loss per share - basic and diluted:
Net loss per share - basic and diluted	$	(1.24)	$	—	$	(1.24)
Shares used to compute basic and diluted net loss per share		3,927,986		10,159		3,938,145
Three months ended June 30, 2021
Net loss per share - basic and diluted:
Net loss per share - basic and diluted	$	(0.47)	$	(0.39)	$	(0.86)
Shares used to compute basic and diluted net loss per share		8,226,144		(3,672,168)		4,553,976
Six months ended June 30, 2021
Net loss per share - basic and diluted:
Net loss per share - basic and diluted	$	(1.11)	$	(0.96)	$	(2.07)
Shares used to compute basic and diluted net loss per share		7,928,702		(3,682,642)		4,246,060
Three months ended September 30, 2021
Net loss per share - basic and diluted:
Net loss per share - basic and diluted	$	(1.48)	$	0.44	$	(1.04)
Shares used to compute basic and diluted net loss per share		11,997,370		5,090,884		17,088,254
Nine months ended September 30, 2021
Net loss per share - basic and diluted:
Net loss per share - basic and diluted	$	(2.51)	$	(0.56)	$	(3.07)
Shares used to compute basic and diluted net loss per share		10,546,683		(1,932,362)		8,614,321
For the year ended December 31, 2021