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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 June 30, 2023

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.)

18 Technology Dr, Suite 110, Irvine, California 92618
(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 August 3, 2023, 3,452,447 shares of the registrant’s Common Stock were outstanding.

INDEX

PART I – FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements (unaudited)

3

Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022

3

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2023 and 2022

4

Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2023 and 2022

5

Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2023 and 2022

6

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022

7

Notes to Condensed Consolidated Financial Statements

8

Item 2.

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

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

25

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

26

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

27

Item 3.

Defaults Upon Senior Securities

27

Item 4.

Mine Safety Disclosures

27

Item 5.

Other Information

27

Item 6.

Exhibits

28

SIGNATURES

29

2

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)

June 30, 

December 31, 

    

2023

    

2022

ASSETS

Current assets:

Cash and cash equivalents

$

4,567

 

$

3,855

Restricted cash

100

100

Accounts and other receivables (net of allowance for doubtful accounts of $555 and $410 respectively)

 

1,975

 

 

2,180

Inventory

 

3,268

 

 

3,611

Prepaid expenses and other current assets

 

634

 

 

165

Total current assets

 

10,544

 

 

9,911

Property and equipment, net

 

659

 

 

698

Operating lease right-of-use assets

297

171

Deferred tax asset, net

57

56

Other intangible assets, net

238

260

Other assets

 

57

 

 

46

Total assets

$

11,852

 

$

11,142

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

1,601

 

$

1,926

Accrued and other liabilities

 

2,527

 

 

5,040

Warranty liability, current

167

344

Operating lease liabilities, current

109

171

Total current liabilities

 

4,404

 

 

7,481

Operating lease liabilities, noncurrent

198

Common stock warrant liability

512

Total liabilities

5,114

 

7,481

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 June 30, 2023 and December 31, 2022

Common stock, $0.001 par value; 300,000,000 shares authorized at June 30, 2023 and December 31, 2022; 3,452,169 and 519,219 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

 

3

 

 

1

Additional paid-in capital

 

637,172

 

 

627,935

Accumulated deficit

 

(630,342)

 

 

(624,187)

Accumulated other comprehensive loss

(95)

(88)

Total stockholders’ equity

 

6,738

 

 

3,661

Total liabilities and stockholders’ equity

$

11,852

 

$

11,142

See accompanying notes to Condensed Consolidated Financial Statements.

3

RESHAPE LIFESCIENCES INC.

Condensed Consolidated Statements of Operations

(unaudited)

(dollars in thousands, except per share amounts)

Three Months Ended June 30, 

Six Months Ended June 30, 

2023

2022

    

2023

2022

Revenue

$

2,254

$

2,892

$

4,541

$

5,332

Cost of revenue

1,060

 

1,009

 

2,123

 

2,231

Gross profit

1,194

 

1,883

 

2,418

 

3,101

Operating expenses:

Sales and marketing

2,177

 

4,636

 

4,359

 

9,330

General and administrative

2,445

5,363

6,667

9,254

Research and development

581

 

747

 

1,033

 

1,492

(Gain) loss on disposal of assets, net

(33)

381

(33)

381

Total operating expenses

5,170

 

11,127

 

12,026

 

20,457

Operating loss

(3,976)

 

(9,244)

 

(9,608)

 

(17,356)

Other expense (income), net:

Interest income, net

(9)

(14)

(4)

(15)

Gain on changes in fair value of liability warrants

(472)

(3,438)

(Gain) loss on foreign currency exchange, net

204

(21)

188

Other

(6)

1

(8)

(9)

Loss before income tax provision

(3,489)

(9,435)

(6,137)

(17,520)

Income tax expense

4

9

18

39

Net loss

$

(3,493)

$

(9,444)

$

(6,155)

$

(17,559)

Net loss per share - basic and diluted:

Net loss per share - basic and diluted

$

(1.08)

$

(24.45)

$

(2.48)

$

(46.37)

Shares used to compute basic and diluted net loss per share

3,249,259

 

386,239

 

2,482,957

 

378,684

See accompanying notes to Condensed Consolidated Financial Statements.

4

RESHAPE LIFESCIENCES INC.

Condensed Consolidated Statements of Comprehensive Loss

(unaudited)

(dollars in thousands)

Three Months Ended June 30, 

Six Months Ended June 30, 

2023

    

2022

    

2023

2022

Net loss

$

(3,493)

$

(9,444)

$

(6,155)

$

(17,559)

Foreign currency translation adjustments

(2)

(1)

(7)

20

Other comprehensive income, net of tax

(2)

(1)

(7)

20

Comprehensive loss

$

(3,495)

$

(9,445)

$

(6,162)

$

(17,539)

See accompanying notes to Condensed Consolidated Financial Statements.

5

RESHAPE LIFESCIENCES INC.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited)

(dollars in thousands)

Three Months Ended June 30, 2023

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 March 31, 2023

95,388

$

2,648,765

$

3

$

634,697

$

(626,849)

$

(93)

$

7,758

Net loss

(3,493)

(3,493)

Other comprehensive income, net of tax

(2)

(2)

Stock compensation

217

217

Common stock purchased

291,395

894

894

Equity issuance costs

(207)

(207)

Issuance of stock from RSUs

834

Exercise of warrants

511,175

1,571

1,571

Balance June 30, 2023

95,388

$

3,452,169

$

3

$

637,172

$

(630,342)

$

(95)

$

6,738

Six Months Ended June 30, 2023

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, 2022

95,388

$

519,219

$

1

$

627,935

$

(624,187)

$

(88)

$

3,661

Net loss

(6,155)

(6,155)

Other comprehensive income, net of tax

(7)

(7)

Issuance of common stock pursuant to reverse stock split

18,399

Stock compensation

440

440

Common stock purchased

1,476,395

1

894

895

Equity issuance costs

91

91

Issuance of stock from RSUs

1,668

Exercise of warrants

1,436,488

1

7,812

7,813

Balance June 30, 2023

95,388

$

3,452,169

$

3

$

637,172

$

(630,342)

$

(95)

$

6,738

Three Months Ended June 30, 2022

Series C Convertible

Additional

Accumulated

Total

Preferred Stock

Common Stock

Paid-in

Accumulated

Comprehensive

Stockholders’

Shares

    

Amount

    

Shares

    

Amount

     

Capital

    

Deficit

Income (Loss)

     

Equity

Balance March 31, 2022

95,388

$

371,954

$

$

623,118

$

(586,088)

$

(71)

$

36,959

Net loss

(9,444)

(9,444)

Other comprehensive income, net of tax

(1)

(1)

Stock compensation

770

770

Issuance of stock from RSUs

2,871

Exercise of warrants

17,773

2,492

2,492

Balance June 30, 2022

95,388

$

392,598

$

$

626,380

$

(595,532)

$

(72)

$

30,776

Six Months Ended June 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

$

356,641

$

$

622,399

$

(577,973)

$

(92)

$

44,334

Net loss

(17,559)

(17,559)

Other comprehensive income, net of tax

20

20

Stock compensation

1,489

1,489

Issuance of stock from RSUs

18,184

Exercise of warrants

17,773

2,492

2,492

Balance June 30, 2022

95,388

$

392,598

$

$

626,380

$

(595,532)

$

(72)

$

30,776

See accompanying Notes to Condensed Consolidated Financial Statements.

6

RESHAPE LIFESCIENCES INC.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(dollars in thousands)

Six Months Ended June 30, 

2023

2022

Cash flows from operating activities:

    

Net loss

$

(6,155)

$

(17,559)

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

Depreciation expense

 

75

 

184

Amortization of intangible assets

22

911

(Gain) Loss on disposal of assets, net

(33)

381

Stock-based compensation

440

1,489

Bad debt expense

145

(104)

Provision for inventory excess and obsolescence

67

129

Deferred income tax

(1)

Gain on changes in fair value of liability warrants

(3,438)

Offering cost

298

Other noncash items

12

(18)

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

 

 

Accounts and other receivables

 

60

 

471

Inventory

 

276

 

(1,352)

Prepaid expenses and other current assets

 

(470)

 

353

Accounts payable and accrued liabilities

(2,833)

1,500

Warranty liability

 

(177)

 

(185)

Other

 

(11)

 

Net cash used in operating activities

(11,723)

(13,800)

Cash flows from investing activities:

Capital expenditures

(43)

(19)

Proceeds from sale of capital assets

33

39

Cash (used in) provided by investing activities:

(10)

20

Cash flows from financing activities:

Proceeds from sale and issuance of securities

12,451

Proceeds from warrants exercised

2,489

Net cash provided by financing activities

12,451

2,489

Effect of currency exchange rate changes on cash and cash equivalents

 

(6)

 

20

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

 

712

 

(11,271)

Cash, cash equivalents and restricted cash at beginning of period

3,955

22,815

Cash, cash equivalents and restricted cash at end of period

$

4,667

$

11,544

Supplemental disclosure:

Cash paid for income taxes

$

$

Cash paid for interest

Noncash investing and financing activities:

Capital expenditures accruals

$

$

9

See accompanying notes to Condensed Consolidated Financial Statements.

 

7

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, 2022, filed on April 17, 2023. 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.

Reverse Stock Split and Merger Exchange Ratio

On December 23, 2022, at the commencement of trading, the Company effected a 1-for-50 reverse stock split. Accordingly, all share and per share amounts for the periods presented in the accompanying consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect the reverse stock split. No fractional shares were issued in connection with the reverse stock split.

Summary of Significant Accounting Policies

The Company’s significant accounting policies are described in Note 4 to its audited consolidated financial statements for the year ended December 31, 2022, which are included in the Company’s Annual Report on Form 10-K which was filed with the SEC on April 17, 2023.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may materially differ from these estimates. The Company reviews its estimates on an ongoing basis or as new information becomes available to ensure that these estimates appropriately reflect changes in its business.

Long-Lived Assets

We evaluate long-lived assets, including finite-lived intangible assets, for impairment by comparison of the carrying amounts to future net undiscounted cash flows expected to be generated by such assets when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Should an impairment exist, the impairment loss would be measured based on the excess carrying value of the asset over the asset’s fair value or estimates of future discounted cash flows.

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 7 regarding fair value measurements and inputs of warrants.

8

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:

June 30, 

    

2023

    

2022

Stock options

 

17,634

 

26,161

Unvested restricted stock units

2,598

16,424

Convertible preferred stock

10

10

Warrants

 

1,632,514

 

139,047

Recent Accounting Pronouncements

New accounting standards adopted are discussed below.

In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which is intended to provide financial statement users with more useful information about expected credit losses on financial assets held by a reporting entity at each reporting date. In May 2019, the FASB issued ASU No. 2019-05, which amended the new standard by providing targeted transition relief. The new guidance replaces the existing incurred loss impairment methodology with a methodology that requires consideration of a broader range of reasonable and supportable forward-looking information to estimate all expected credit losses. In November 2019, the FASB issued ASU No. 2019-11, which amended the new standard by providing additional clarification. This guidance became effective on January 1, 2023 and did not have a material impact to the consolidated financial statements.

(2)  Liquidity and Management’s Plans

The Company currently does not generate revenue sufficient to offset operating costs and anticipates such shortfalls to continue as the Company has modified its strategy to a metrics-driven approach through a sustainable and scalable business model, via a digital lead generation and re-engagement strategy. As of June 30, 2023, the Company had net working capital of approximately $6.1 million, primarily due to cash and cash equivalents and restricted cash of $4.7 million, and $2.0 million of accounts receivable. The Company has raised gross proceeds of $12.7 million between the public offerings that occurred on February 8, 2023, and April 24, 2023. Based on its available cash resources, the Company may not have sufficient cash on hand to fund its current operations for more than twelve months from the date of filing this Quarterly Report on Form 10-Q. This condition raises substantial doubt about the Company’s ability to continue as a going concern.

The Company’s anticipated operations include plans to (i) grow sales and operations of the Company with the Lap-Band product line both domestically and internationally as well as to obtain cost savings synergies, (ii) introduce to the market place ReShapeCare and ReShape Marketplace as an extension, (iii) marketing efforts to increase brand recognition, create customer awareness and increase the patient demand, (iv) continue development of the Diabetes Bloc-Stem Neuromodulation (DBSN) device, (v) seek opportunities to leverage our intellectual property portfolio and custom development services to provide third-party sales and licensing opportunities, and (vi) explore and capitalize on synergistic opportunities to expand our portfolio and offer future minimally invasive treatments and therapies in the obesity continuum of care, including Lap-Band 2.0. 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.

The Company may be required to raise additional capital, however, there can be no assurance as to whether additional financing will be available on terms acceptable to the Company, if at all. If sufficient funds on acceptable terms are not available when needed, it would have a negative impact on the Company’s financial condition and could force the Company to delay, limit, reduce, or terminate product development or future commercialization efforts or grant rights to develop and market product candidates or testing products that the Company would otherwise plan to develop.

Therefore, the plans cannot be deemed probable of being implemented. As a result, the Company’s plans do not alleviate substantial doubt about our ability to continue as a going concern.

9

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above.

COVID-19 Risk

The impact of COVID-19 has subsided substantially in the U.S. but continues to result in reduced activity levels outside of the U.S., such as continued restrictions on travel and business operations and advising or requiring individuals to limit or forego their time outside of their homes or places of business.

(3)  Supplemental Balance Sheet Information

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

Inventory:

June 30, 

December 31,

2023

    

2022

Raw materials

$

806

$

832

Sub-assemblies

999

864

Finished goods

 

1,463

 

1,915

Total inventory

$

3,268

$

3,611

Prepaid expenses and other current assets:

June 30, 

December 31,

2023

    

2022

Prepaid insurance

$

282

$

78

Patents

69

Prepaid advertising and marketing

108

3

Taxes

63

Other current assets

112

84

Total prepaid expenses and other current assets

$

634

$

165

Accrued and other liabilities:

June 30, 

December 31,

2023

    

2022

Payroll and benefits

$

1,150

$

1,829

Accrued legal settlements

400

1,775

Customer deposits

459

510

Taxes

68

119

Accrued professional

356

316

Other liabilities

 

94

 

491

Total accrued and other liabilities

$

2,527

$

5,040

10

(4) Intangible Assets

The Company’s finite-lived intangible assets consists of developed technology, and trademarks and tradenames. The estimated useful lives of these finite-lived intangible assets is 10 years. The amortization expenses for the three months ended June 30, 2023 and 2022, were $11 thousand and $0.5 million, respectively, and the six months ended June 30, 2023 and 2022, were $22 thousand and $0.9 million, respectively.

June 30, 2023

    

Weighted Average Useful Life (years)

    

Gross Carrying Amount

    

Accumulated Amortization

    

Net Book Value

Finite-lived intangible assets:

Developed technology

10.0

$

5,989

$

(5,821)

$

168

Trademarks/Tradenames

10.0

462

(392)

70

Total

$

6,451

$

(6,213)

$

238

December 31, 2022

    

Weighted Average Useful Life (years)

    

Gross Carrying Amount

    

Accumulated Amortization

    

Net Book Value

Finite-lived intangible assets:

Developed technology

10.0

$

5,989

$

(5,805)

$

184

Trademarks/Tradenames

10.0

462

(386)

76

Total

$

6,451

$

(6,191)

$

260

(5) Leases

The Company has a noncancelable operating lease for office and warehouse space in San Clemente, which was extended by twelve months with an end date of June 30, 2023. The Company also had an operating lease and warehouse space in Carlsbad, California, which expired June 30, 2022. On March 13, 2023, the Company entered into a lease for approximately 5,038 square feet of office and warehouse space at 18 Technology Drive, Suite 110, Irvine, California 92618 and relocated our principal executive offices from our former San Clemente, California location to the Irvine, California location. The Irvine California lease has a term of 36 months commencing on May 1, 2023.

The Company does not have any short-term leases or financing lease arrangements. Lease and non-lease components are accounted for separately.

Operating lease costs were $0.1 million and $0.2 million for the three months ended June 30, 2023 and 2022, respectively, and $0.2 million and $0.5 million for the six months ended June 30, 2023 and 2022, respectively. Variable lease costs were not material.

11

Supplemental information related to operating leases is as follows:

June 30

December 31,

Balance Sheet information

2023

2022

Operating lease ROU assets

$

297

$

171

Operating lease liabilities, current portion

$

109

$

171

Operating lease liabilities, long-term portion

198

Total operating lease liabilities

$

307

$

171

Cash flow information for the six months ended June 30,

2023

2022

Cash paid for amounts included in the measurement of operating leases liabilities

$

174

$

386

Maturities of operating lease liabilities were as follows: