ReShape Lifesciences (RSLS) 10-Q23 May 222022 Q1 Quarterly reportFinancial data

Company Profile

Document and Entity Information

Document and Entity Information - shares	3 Months Ended
Document and Entity Information - shares	Mar. 31, 2022	May 19, 2022
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Mar. 31, 2022
Entity File Number	1-37897
Entity Registrant Name	RESHAPE LIFESCIENCES INC.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	26-1828101
Entity Address, Address Line One	1001 Calle Amanecer
Entity Address, City or Town	San Clemente
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	92673
City Area Code	(949)
Local Phone Number	429-6680
Title of 12(b) Security	Common stock, $0.001 par value per share
Trading Symbol	RSLS
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		18,693,219
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	Q1
Entity Central Index Key	0001427570
Amendment Flag	false

Condensed Consolidated Balance

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Current assets:
Cash and cash equivalents	$ 15,410	$ 22,765
Restricted cash	50	50
Accounts and other receivables (net of allowance for doubtful accounts of $1,087 and $1,172 respectively)	2,410	2,815
Inventory	3,998	3,003
Prepaid expenses and other current assets	1,759	1,622
Total current assets	23,627	30,255
Property and equipment, net	1,371	1,454
Operating lease right-of-use assets	524	266
Other intangible assets, net	20,371	20,827
Other assets	1,377	1,456
Total assets	47,270	54,258
Current liabilities:
Accounts payable	3,598	3,468
Accrued and other liabilities	3,463	3,169
Warranty liability, current	649	415
Operating lease liabilities, current	441	279
Total current liabilities	8,151	7,331
Operating lease liabilities, noncurrent	86
Warranty liability, noncurrent	41	300
Deferred income taxes	367	555
Total liabilities	8,645	8,186
Stockholders' equity:
Common stock, $0.001 par value; 100,000,000 shares authorized at both March 31, 2022 and December 31, 2021; 18,597,522 and 17,831,875 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively	19	18
Additional paid-in capital	623,652	622,906
Total stockholders' equity	38,625	46,072
Total liabilities and stockholders' equity	47,270	54,258
Series B convertible preferred stock
Stockholders' equity:
Accumulated deficit	(584,975)	(576,760)
Series C convertible preferred stock
Stockholders' equity:
Preferred stock, Value
Accumulated other comprehensive loss	$ (71)	$ (92)

Condensed Consolidated Balanc_2

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Allowance for doubtful accounts	$ 1,087	$ 1,172
Preferred stock, authorized	10,000,000	10,000,000
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	18,597,522	17,831,875
Common stock, shares outstanding	18,597,522	17,831,875
Series C convertible preferred stock
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, issued	95,388	95,388
Preferred stock outstanding	95,388	95,388

Condensed Consolidated Statemen

Condensed Consolidated Statements of Operations - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Condensed Consolidated Statements of Operations
Revenue	$ 2,440	$ 3,221
Cost of revenue	1,222	937
Gross profit	1,218	2,284
Operating expenses:
Sales and marketing	4,707	1,250
General and administrative	4,163	2,720
Research and development	748	571
Total operating expenses	9,618	4,541
Operating loss	(8,400)	(2,257)
Other expense (income), net:
Interest expense, net	(1)	599
Loss on extinguishment of debt, net		1,960
Other, net	(11)
(Gain) Loss on foreign currency exchange, net	(16)	33
Loss before income tax provision	(8,372)	(4,849)
Income tax (benefit) expense	(157)	25
Net loss	$ (8,215)	$ (4,874)
Net loss per share - basic and diluted:
Net loss per share - basic (in dollars per share)	$ (0.44)	$ (1.24)
Net loss per share - diluted (in dollars per share)	$ (0.44)	$ (1.24)
Shares used to compute basic net loss per share	18,539,568	3,927,986
Shares used to compute diluted net loss per share	18,539,568	3,927,986

Condensed Consolidated Statem_2

Condensed Consolidated Statements of Comprehensive Loss - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Condensed Consolidated Statements of Comprehensive Loss
Net loss	$ (8,215)	$ (4,874)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	21	19
Other comprehensive income, net of tax	21	19
Comprehensive loss	$ (8,194)	$ (4,855)

Condensed Consolidated Statem_3

Condensed Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Preferred StockSeries B convertible preferred stock	Preferred StockSeries C convertible preferred stock	Common Stock	Additional Paid-in Capital	Accumulated Deficit	Accumulated Other Comprehensive Income (Loss)	Total
Balance at Mar. 31, 2021		$ 1	$ 3	$ 532,507	$ (519,701)	$ (102)	$ 12,708
Balance (in shares) at Mar. 31, 2021	3	95,388	3,486,253
Balance at Dec. 31, 2020		$ 1	$ 3	529,432	(514,827)	(121)	14,488
Balance (in shares) at Dec. 31, 2020	3	95,388	3,486,253
Changes in Stockholders' (Deficit) Equity
Net loss					(4,874)		(4,874)
Other comprehensive income, net of tax						19	19
Stock-based compensation expense				101			$ 101
Issuance of stock for RSUs (shares)							0
Series G warrants issued				2,974			$ 2,974
Balance at Mar. 31, 2022			$ 19	623,652	(584,975)	(71)	38,625
Balance (in shares) at Mar. 31, 2022		95,388	18,597,522
Balance at Dec. 31, 2021			$ 18	622,906	(576,760)	(92)	46,072
Balance (in shares) at Dec. 31, 2021		95,388	17,831,875
Changes in Stockholders' (Deficit) Equity
Net loss					$ (8,215)		(8,215)
Other comprehensive income, net of tax						$ 21	21
Stock-based compensation expense				747			$ 747
Issuance of stock for RSUs			$ 1	$ (1)
Issuance of stock for RSUs (shares)			765,647				765,647

Condensed Consolidated Statem_4

Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Cash flows from operating activities:
Net loss	$ (8,215)	$ (4,874)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense	94	7
Amortization of intangible assets	456	411
Noncash interest expense		43
Loss on extinguishment of debt, net		1,960
Stock-based compensation	747	101
Bad debt expense	26	27
Provision for inventory excess and obsolescence	78	1
Deferred income tax	(187)
Amortization of debt discount and deferred debt issuance costs		461
Other noncash items	(20)	17
Change in operating assets and liabilities, net of business combination:
Accounts and other receivables	379	(780)
Inventory	(1,073)	182
Prepaid expenses and other current assets	(137)	237
Accounts payable and accrued liabilities	420	296
Warranty liability	(25)	(50)
Other	79
Net cash used in operating activities	(7,378)	(1,961)
Cash flows from investing activities:
Capital expenditures	(7)	(119)
Proceeds from sale of capital assets	9
Cash provided by (used in) investing activities:	2	(119)
Cash flows from financing activities:
Proceeds from credit agreement		1,000
Net cash provided by financing activities		1,000
Effect of currency exchange rate changes on cash and cash equivalents	21	19
Net increase in cash, cash equivalents and restricted cash	(7,355)	(1,061)
Cash, cash equivalents and restricted cash at beginning of period	22,815	3,007
Cash, cash equivalents and restricted cash at end of period	15,460	1,946
Supplemental disclosure:
Cash paid for income taxes		31
Noncash investing and financing activities:
Capital expenditures accruals	$ 9	141
Fair value of warrants included as a component of loss on extinguishment of debt		$ 2,974

Basis of Presentation

Basis of Presentation	3 Months Ended
Basis of Presentation	Mar. 31, 2022
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” 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. Reverse Stock Split and Merger Exchange Ratio On June 15, 2021, and immediately prior to the closing of the merger of Obalon Therapeutics, Inc. and ReShape Lifesciences Inc., the Company effected a 1 Acquisition The Company accounts for business combinations in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations. The results of businesses acquired in a business combination are included in the Company’s consolidated financial statements from the date of the acquisition. Purchase accounting results in assets and liabilities of an acquired business generally being recorded at their estimated fair values on the acquisition date. Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill. Transaction costs associated with business combinations are expensed as incurred and are included in general and administrative related costs in the consolidated statements of operations. The Company performs valuations of assets acquired and liabilities assumed and allocates the purchase price to its respective assets and liabilities. Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates. Upon completion of the business combination with Obalon on June 15, 2021, the transaction was treated as a “reverse acquisition” for financial accounting purposes. As a result of the controlling interest of the former shareholders of ReShape, for financial statement reporting and accounting purposes, ReShape was considered the acquirer under the acquisition method of accounting in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805-10-55. The reverse acquisition is deemed a capital transaction in substance whereas the historical assets and liabilities of Obalon before the business combination were replaced with the historical financial statements of ReShape in all future filings with the SEC. Goodwill and Long-Lived Assets Goodwill represents the excess of the cost of an acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. Indefinite-lived intangible assets relate to in-process research and development ("IPR&D") acquired in business combinations. The estimated fair values of IPR&D projects acquired in a business combination which have not reached technological feasibility are capitalized and accounted for as indefinite-lived intangible assets until completion or abandonment of the projects. In accordance with guidance within FASB ASC 350 “Intangibles - Goodwill and Other,” goodwill and identifiable intangible assets with indefinite lives are not subject to amortization but must be evaluated for impairment. 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. For goodwill and indefinite-lived intangible assets, in-process research and development, we review for impairment annually and upon the occurrence of certain events as required by ASC Topic 350, “Intangibles — Goodwill and Other.” Goodwill and indefinite-lived intangible assets are tested at least annually for impairment and more frequently if events or changes in circumstances indicate that the asset might be impaired. We review goodwill for impairment by first assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. If we are able to determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, we would conclude that goodwill is not impaired. If the carrying amount of a reporting unit is zero or negative, the second step of the impairment test is performed to measure the amount of impairment loss, if any, when it is more likely than not that a goodwill impairment exists. The Company did not record any impairment loss for goodwill or indefinite-lived intangible assets for the three months ended March 31, 2022 and 2021. 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 and Note 9 regarding fair value measurements and inputs of warrants. 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, 2022 2021 Stock options 833,974 23 Unvested restricted stock units 897,823 — Convertible preferred stock 38 726 Warrants 6,952,335 8,164,319 Recent Accounting Pronouncements There were no new accounting standards adopted by the Company in 2022. New accounting standards not yet adopted are discussed below. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) additional clarification. This guidance is effective for the fiscal years and interim periods within those years beginning after December 15, 2022. The Company is currently evaluating the impact the guidance will have on its consolidated financial statements.

Liquidity and Management's Plan

Liquidity and Management's Plans	3 Months Ended
Liquidity and Management's Plans	Mar. 31, 2022
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 does not generate revenue sufficient to offset operating costs and anticipates such shortfalls to continue primarily due to the unpredictability of new variants of COVID-19, which may result in a slow-down of elective surgeries and restrictions in some locations. The Company believes that the actions presently being taken to further implement the Company’s business plan to expand sales with a direct to consumer marketing strategy will provide the opportunity for the Company to generate sufficient revenues to continue as a going concern. The Company believes in the viability of its business strategy and in its ability to raise additional funds, there can be no assurance to that effect. The Company’s ability to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate revenues. As of March 31, 2022, the Company had net working capital of approximately $15.5 million, primarily due to cash and cash equivalents and restricted cash of $15.5 million. The Company’s principal source of liquidity as of March 31, 2022, consisted of approximately $15.5 million of cash and cash equivalents and restricted cash, and $2.4 million of accounts receivable. The Company’s anticipated operations include plans to (i) manufacture, and promote the sales and operations of the LAP-BAND ® care TM care COVID-19 Risk and Uncertainties and CARES Act Since the first quarter of 2020, the COVID-19 pandemic has led to unprecedented restrictions on, distributions in, and other related impacts on business and personal activities, including a shift in healthcare priorities, which resulted in a significant decline in medical procedures in 2020 in the United States and foreign countries. Concerns remain regarding the pace of economic recovery due to virus resurgence, including new variants, across the globe as well as vaccine distribution and hesitancy. The United States and other foreign governments may continue existing measures or implement new restrictions and other requirements in light of the continuing spread of the COVID-19 pandemic. Due to the uncertainty caused by the COVID-19 pandemic, the full extent to which the pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including sales, expenses, manufacturing, clinical trials, research and development costs, reserves and allowances, will depend on future developments that are highly uncertain and difficult to predict. These developments include, but are not limited to, the duration and spread of the outbreak (including new and more contagious variants of COVID-19), its severity, the actions to contain the virus or address its impact, the timing, distribution, public acceptance and efficacy of vaccines and other treatments, United States and foreign governments actions to respond to the reduction of global activity, and how quickly and to what extent normal economic and operating conditions can resume. On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. The CARES Act established the Paycheck Protection Program (“PPP”) under which the Company received a PPP loan. On February 3, 2021, the Company submitted the application for PPP loan forgiveness according to the terms and conditions of the United States Small Business Administration’s (“SBA”) Loan Forgiveness Application (Revised June 24, 2002). On March 1, 2021, the Company received confirmation from the SBA that, the PPP Loan had been forgiven in full including all interest incurred. This may still be subject to audit by the SBA or relevant authorities, subject to terms and conditions of the PPP program. The Company was also able to benefit from the employee retention credit. For further details on the PPP loan and the employee retention credit, see Note 5 below.

Supplemental Balance Sheet Info

Supplemental Balance Sheet Information	3 Months Ended
Supplemental Balance Sheet Information	Mar. 31, 2022
Supplemental Balance Sheet Information
Supplemental Balance Sheet Information	(3) Supplemental Balance Sheet Information Components of selected captions in the condensed consolidated balance sheets consisted of the following: Inventory: March 31, December 31, 2022 2021 Raw materials $ 1,028 $ 829 Sub-assemblies 1,231 682 Finished goods 1,739 1,492 Total inventory $ 3,998 $ 3,003 Prepaid expenses and other current assets: March 31, December 31, 2022 2021 Prepaid insurance $ 597 $ 736 Prepaid advertising and marketing 947 698 Other current assets 215 188 Total prepaid expenses and other current assets $ 1,759 $ 1,622 Accrued and other liabilities: March 31, December 31, 2022 2021 Payroll and benefits $ 1,858 $ 1,527 Customer deposits 596 549 Taxes 299 307 Accrued insurance premium — 301 Accrued professional 396 300 Other liabilities 314 185 Total accrued and other liabilities $ 3,463 $ 3,169

Goodwill and Intangible Assets

Goodwill and Intangible Assets	3 Months Ended
Goodwill and Intangible Assets	Mar. 31, 2022
Goodwill and Intangible Assets
Goodwill and Intangible Assets	(4) Goodwill and Intangible Assets Indefinite-lived intangible assets consist of IPR&D for the ReShape Vest recorded in connection with the Company’s 2017 acquisition of BarioSurg, Inc and developed technology recorded in connection with the Obalon acquisition. The Company’s finite-lived intangible assets consists of developed technology, trademarks and tradenames, and covenant not to compete. The estimated useful lives of these finite-lived intangible assets range from 3 to 10 years. The amortization expenses for the three months ended March 31, 2022 and 2021, were $0.5 million and $0.4 million, respectively.

Debt

Debt	3 Months Ended
Debt	Mar. 31, 2022
Debt
Debt	(5) Debt CARES Act On April 24, 2020, the Company entered into a PPP Loan agreement with Silicon Valley Bank (“SVB”) under the PPP, which is part of the CARES Act administered by the United States Small Business Administration (“SBA”). As part of the application for these funds, the Company in good faith, has certified that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. This certification further requires the Company to take into account our current business activity and our ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. Under this program, the Company received proceeds of $1.0 million from the PPP Loan. In accordance with the requirements of the PPP, the Company used proceeds from the PPP Loan primarily for payroll costs, rent and utilities. The PPP Loan has a 1.00% interest rate per annum, matures on April 24, 2022 and is subject to the terms and conditions applicable to loans administered by the SBA under the PPP. On February 23, 2021, the Company submitted the application for PPP loan forgiveness, in accordance with the terms and conditions of the SBA’s Loan Forgiveness Application (revised June 24, 2020). On March 1, 2021, the Company received confirmation from the SBA that the PPP Loan was forgiven in full including all interest incurred, which resulted in a gain on debt extinguishment of $1.0 million, during the three months ended March 31, 2021. On December 27, 2020, the Taxpayer Certainty and Disaster Tax Relief Act of 2020 expanded certain benefits made available under the enhanced CARES Act, including modifying and extending the employee retention credit. As modified, the employee retention credit provides eligible employers with less than 500 employees a refundable tax credit against the employer’s share of social security taxes. The employee retention credit is equal to 70% of qualified wages paid to employees during calendar year 2021 for a maximum credit of $7,000 per employee for each calendar quarter through September 30, 2021. The Company recognized a $0.3 million employee retention credit during the three months ended March 31, 2021, which was offset against payroll tax expense. Credit Agreement On January 19, 2021, the Company and the Lender entered into an amendment to the credit agreement, originally entered into on March 25, 2020, that increased the amount available under delayed draw term loans by $1.0 million, and issued an additional 1,000,000 Series G Warrants. The Company evaluated the accounting related to the amendment and in conjunction with the warrants issued. Based on this analysis the Company determined the agreements are substantially different and extinguished the original credit agreement and recorded the amended credit agreement as a new debt at a fair value of $10.0 million. As a result, during the three months ended March 31, 2021, the Company recorded a debt discount of approximately $0.5 million and a $3.0 million loss on extinguishment of debt, which is comprised of the fair value of the warrants and unamortized debt issuance cost with the original credit agreement, offset by the debt discount. At March 31, 2021, there was approximately $0.1 million of unamortized debt discount. Pursuant to the amendment of the credit agreement, the maturity date of the loans are March 31, 2021 and the loans bear interest at LIBOR plus 2.5%. On March 10, 2021, the Company and the Lender entered into an amendment to the credit agreement that extended the maturity date from March 31, 2021 to March 31, 2022. The Company has accounted for this amendment as a debt modification. The associated unamortized debt discount on the January 19, 2021 amendment of $0.1 million will be amortized as interest expense over the term of the amended credit agreement. On June 28, 2021, the Company entered into a warrant exercise agreement with existing investors, including the Lender, to exercise certain outstanding warrants. For further details on this transaction see Note 9. The Company used some of the proceeds from this transaction to pay off the $10.5 million of debt outstanding under the credit agreement. Asset Purchase Consideration Payable The asset purchase consideration payable related to the Company’s December 2018 acquisition of the Lap-Band of the Company’s assets, but that security interest terminated in accordance with its terms in October 2019. At December 31, 2021, the Company had paid off the purchase consideration in full.

Leases

Leases	3 Months Ended
Leases	Mar. 31, 2022
Leases
Leases	(6) Leases The Company has noncancelable operating leases for office and warehouse space in San Clemente and Carlsbad, California, as well as 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. The Company extended the San Clemente lease by twelve months with an end date of June 30, 2023 and extended the Carlsbad lease by three months with an end date of June 30, 2022. 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 were $0.2 million and $0.1 million for the three months ended March 31, 2022 and 2021, respectively. Variable lease costs were not material. Supplemental information related to operating leases is as follows: Balance sheet information at March 31, 2022 Operating lease ROU assets $ 524 Operating lease liabilities, current portion $ 441 Operating lease liabilities, long-term portion 86 Total operating lease liabilities $ 527 Cash flow information for the three months ended March 31, 2022 Cash paid for amounts included in the measurement of operating leases liabilities $ 200 Maturities of operating lease liabilities were as follows: Twelve months ending March 31, 2022 2023 $ 451 2024 87 Total lease payments 538 Less: imputed interest 11 Total lease liabilities $ 527 Weighted-average remaining lease term at end of period (in years) 1.0 Weighted-average discount rate at end of period 5.5

Acquisition

Acquisition	3 Months Ended
Acquisition	Mar. 31, 2022
Acquisition
Acquisition	(7) Acquisition On June 15, 2021, the Company completed the previously announced merger with Obalon, which was treated as a reverse acquisition for accounting purposes, for an aggregate purchase price of $30.6 million. This includes the issuance of 3,340,035 shares of common stock valued at $30.6 million at the closing market price on the day of merger and the cancellation of 2,680,301 shares of common stock. As a result of the controlling interest of the former shareholders of ReShape, for financial statement reporting and accounting purposes, ReShape was considered the acquirer under the acquisition method of accounting in accordance with ASC 805-10-55. The reverse acquisition is deemed a capital transaction in substance whereas the historical assets and liabilities of Obalon before the business combination were replaced with the historical financial statements of ReShape in all future filings with the SEC. There were no acquisition related costs recognized for the three months ended March 31, 2022 and 2021. Tangible and intangible assets acquired were recorded based on their estimated fair values at the acquisition date. The excess of the purchase price over the fair value of the net assets acquired was recorded to goodwill. The following table summarizes the fair values of the assets acquired and liabilities assumed, primarily related to inventory, developed technology, goodwill (including the deductibility for tax purposes) and income tax related accruals: Current assets $ 5,887 Property and equipment, net 796 Right-of-use assets 335 Other assets 1,898 Goodwill 21,566 Developed technology 2,730 Liabilities assumed (2,650) Total purchase price 30,562 Less: cash acquired (5,207) Total purchase price, net of cash acquired $ 25,355 As part of the warrant agreements there was a provision that would provide the holders, at their election, a cash payment based on a Black-Scholes valuation of the warrants in connection with certain fundamental transactions. This clause could be exercised by the holders for 30 days subsequent to the date of the transaction. The Company performed a preliminary valuation of the warrants and recorded a liability at the time of the merger of $2.0 million. During the third quarter of 2021, the Company completed its valuation of these warrants which resulted in a liability for the warrants of $1.3 million, a decrease of $0.7 million, which had a corresponding decrease to goodwill. The Company had one of the holders exercise the fundamental transaction option, and rather than paying cash both parties agreed on the Company issuing shares of common stock and new warrants to this investor. See Notes 8 and 9 below for additional details. As the 30 day period passed, the Company valued the remaining warrants using a Black-Scholes model with an exercise price ranging from $13.20 to $15.00 per share, a risk free rate of 0.44%, a volatility rate of 122.1% and a dividend rate of 0. This resulted in a total fair value of $0.9 million as of July 15, 2021, with the change in fair value being recognized as a component of warrant expense. The ending liability of $0.5 million was reclassified from a current liability to additional paid-in capital. As of March 31, 2022, the Company is still finalizing the impact of acquisition accounting on deferred income taxes, which will be finalized when the pre-merger Obalon tax return is finalized. Goodwill includes expected synergies and other benefits the Company believes will result from the acquisition. The developed technology has been capitalized at fair value as an intangible asset with an estimated life of 15 years. The developed technology was determined using the income approach. This approach determines fair value based on cash flow projections which are discounted to present value using a risk-adjusted rate of return, using nonrecurring Level 3 inputs. The discount rate used was 22.0%. For the year ended December 31, 2021, the Company fully impaired goodwill due to the decline in market capitalization.

Equity

Equity	3 Months Ended
Equity	Mar. 31, 2022
Equity
Equity	(8) Equity Common Stock Issued Related to Restricted Stock Units During the three months ended March 31, 2022, the Company issued 765,647 shares of common stock subject to vesting of the restricted stock units. For further details see Note 12. There were no shares issued during the three months ended March 31, 2021. August 2021 Issuance of Common Stock for Services On August 11, 2021, the Company entered into a consulting agreement in which the Company issued to the consultant 37,500 shares of restricted common stock for the consulting services in a private placement in reliance on Rule 4(a)(2) under the Securities Act of 1933, as amended (the “Securities Act”). The shares were deemed earned on the day of the agreement and became unrestricted six months after the agreement date which is when the contract term ends. July 2021 Exchange of Warrants for Common Stock On July 16, 2021, the Company entered into an exchange agreement (the “Exchange Agreement”) with existing institutional investors to exchange certain outstanding warrants (the “Exchange Warrants”) for shares of common stock and new warrants to purchase common stock. The investors held common stock purchase warrants issued by the Company prior to the merger of Obalon and ReShape. The merger constituted a fundamental transaction under the Exchange Warrants and, as a result thereof, pursuant to the terms and conditions of the Exchange Warrants, the investors were entitled to a cash payment equal to the Black Scholes value of the Exchange Warrants, calculated in accordance with the terms of the Exchange Warrants (the “Black Scholes Payment”). Subject to the terms and conditions set forth in the Exchange Agreement and, in reliance on Section 3(a)(9) of the Securities Act, in lieu of the Black Scholes Payment, the Company and the Investors agreed to exchange all of the Exchange Warrants for (a) a total of 504,861 shares of common stock, which was calculated by dividing the Black Scholes Payment by $4.038, which was equal to 95% of the closing market price of the Company’s common stock on The Nasdaq Capital Market on July 16, 2021 and (b) new warrants to purchase up to a total of 400,000 shares of common stock at an exercise price of $4.038 with a term of five years. For further details on the warrants see Note 9 below. June 2021 Exercises of Warrants for Common Stock On June 28, 2021, the Company entered into a warrant exercise agreement with existing accredited investors to exercise certain outstanding warrants to purchase up to an aggregate of 7.9 million shares of the Company’s common stock, of which 7.1 million shares were issued in July in accordance with the terms of the warrant exercise agreement. In consideration for the immediate exercise of the existing warrants for cash, the exercising holders received new unregistered warrants to purchase up to an aggregate of 5.9 million shares (equal to 75% of the shares of common stock issued in connection with the exercise) of the Company’s common stock (the “New Warrants”) in a private placement pursuant to Section 4(a)(2) of the Securities Act. The investors paid a cash purchase price for the New Warrants equal to $0.09375 per share of common stock underlying the New Warrants. In connection with the exercise, the Company also agreed to reduce the exercise price of certain of the existing warrants to $6.00 , which is equal to the most recent closing price of the Company’s common stock on The Nasdaq Capital Market prior to the execution of the warrant exercise agreement. For further details on the warrants see Note 9 below. The gross proceeds to the Company from the exercise and the sale of the New Warrants was approximately $45.5 million, prior to deducting placement agent fees and estimated offering expenses. The Company used approximately $10.8 million to pay off the credit agreement, including $10.5 million of debt and $0.3 million of accrued interest under its secured credit agreement dated March 25, 2020, as amended, see Note 5 above for further details. The Company intends to use the remainder of the net proceeds for working capital and general corporate purposes. On June 18, 2021, the Company issued 100,000 shares of common stock to two healthcare focused institutional investors, totaling 200,000 shares of common stock and on June 21, 2021, the Company issued 130,445 and 57,229 shares of common stock to two healthcare focused institutional investors totaling 187,674 shares of common stock, as an exercise of pre-funded warrants issued in connection with the September 2019 private placement transactions. The Company received approximately $0.1 million in connection with the exercises

Warrants

Warrants	3 Months Ended
Warrants	Mar. 31, 2022
Warrants.
Warrants	(9) Warrants On July 16, 2021, the Company entered into an exchange agreement with an existing accredited investor to exchange certain outstanding warrants for shares of common stock and issued new warrants to purchase up to total of 400,000 shares of common stock at an exercise price of $4.038 per share with a term of 5 years. These new warrants were valued at $1.5 million using the fair value approach at the time of issuance. The fair value of the new warrants was determined using a Black Scholes option pricing model using a risk free rate of 0.79%, an expected term of five years, expected dividends of zero and expected volatility of 157.7%. On June 28, 2021, the Company entered into a warrant exercise agreement with existing accredited investors to exercise certain outstanding warrants. As part of this agreement the Company modified the Series E warrants issued September 23, 2019 from an exercise price of $10.64 per share to $6.00 per share, the Series G warrants issued on March 25, 2020 from an exercise price of $6.56 per share to $6.00 per share, the Series G warrants issued on December 17, 2020 from an exercise price of $6.21 per share to $6.00 per share and the Series G warrants issued on January 21, 2021 from an exercise price of $6.21 per share to $6.00 per share. The Company issued a total of 7,929,384 shares of common stock in connection with this transaction and issued an additional 5,947,039 new warrants. These new warrants were valued at $18.5 million using the fair value approach at the time of issuance. The fair value the new warrants was determined using a Black Scholes option pricing model using a risk free rate of 0.898%, an expected term of five years, expected dividends of zero and expected volatility of 97.6%. On January 19, 2021, the Company issued 1,000,000 Series G Warrants, pre-merger, which were adjusted by the exchange ratio in the merger, to an institutional investor in connection with an amendment to the credit agreement. The Series G Warrants were valued at $3.0 million using the fair value approach at the time of issuance and was recorded as a component of the loss on extinguishment of debt during the three months ended March 31, 2021. See Note 5 above for details. The fair value of the Series G Warrants was determined using a Black Scholes option pricing model using a risk free rate of 0.45%, an expected term of five years; expected dividends of zero and expected volatility of 97.1%.

Revenue Disaggregation and Oper

Revenue Disaggregation and Operating Segments	3 Months Ended
Revenue Disaggregation and Operating Segments	Mar. 31, 2022
Revenue Disaggregation and Operating Segments
Revenue Disaggregation and Operating Segments	(10) Revenue Disaggregation and Operating Segments The Company conducts operations worldwide and has sales in the following regions: United States, Australia, Europe and Rest of World. For the three months ended March 31, 2022 and 2021, the Company primarily only sold the Lap-Band system. The following table presents the Company’s revenue disaggregated by geography: Three Months Ended March 31, 2022 2021 United States $ 1,844 $ 2,520 Australia 181 293 Europe 414 379 Rest of world 1 29 Total revenue $ 2,440 $ 3,221 Operating Segments The Company conducts operations worldwide and is managed in the following geographical regions: United States, Australia, Europe and the Rest of World (primarily in the Middle East). All regions sell the Lap-Band system, which consisted of nearly all our revenue and gross profit for the three months ended March 31, 2022 and 2021. During the three months ended March 31, 2022 and 2021, there was minimal revenue for reshape care

Income Taxes

Income Taxes	3 Months Ended
Income Taxes	Mar. 31, 2022
Income Taxes
Income Taxes	(11) Income Taxes During the three months ended March 31, 2022, a $0.2 million tax benefit was recorded primarily due to a reduction in the valuation allowance related to an impairment of indefinite lived assets partially offset by state and foreign taxes. During the three months ended March 31, 2021, a $25 thousand tax expense was recorded, primarily due to U.S. state minimum taxes and projected income in Australia and the Netherlands. The income tax provisions for the three months ended March 31, 2022 and year ended December 31, 2021, were calculated using the discrete year-to-date method. The effective tax rate differs from the statutory tax rate of 21% primarily due to the existence of valuation allowances against net deferred tax assets and current liabilities resulting from the estimated state income tax liabilities and foreign tax liability. In assessing the realization of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Based on the level of historical losses, projections of losses in future periods and potential limitations pursuant to changes in ownership under Internal Revenue Code Section 382, the Company provided a valuation allowance at both March 31, 2022 and December 31, 2021.

Stock-based Compensation

Stock-based Compensation	3 Months Ended
Stock-based Compensation	Mar. 31, 2022
Stock-based Compensation
Stock-based Compensation	(12) Stock-based Compensation Stock-based compensation expense related to stock options and RSUs issued under the ReShape Lifesciences Inc. Second Amended and Restated 2003 Stock Incentive Plan (the “Plan”) for the three months ended March 31, 2022 and 2021 were as follows: Three Months Ended March 31, 2022 2021 Sales and marketing $ 104 $ — General and administrative 570 101 Research and development 73 — Total stock-based compensation expense $ 747 $ 101 Stock Options A summary of the status of the Company’s stock options as of March 31, 2022 and changes during the three months ended March 31, 2022 are as follows: Weighted Weighted Average Aggregate Average Remaining Intrinsic Exercise Price Contractual Value Shares Per Share Life (years) (in thousands) Outstanding at December 31, 2021 885,039 7.97 $ — Options granted — — Options exercised — — Options cancelled (51,065) 3.62 Outstanding at March 31, 2022 833,974 8.23 8.9 $ — Exercisable at March 31, 2022 612,410 9.90 8.7 — Vested and expected to vest at March 31, 2022 833,974 8.23 8.9 — There was no intrinsic value of the outstanding stock options at March 31, 2022. The unrecognized share-based expense at March 31, 2022 was $0.8 million and will be recognized over a weighted average period of 2.2 years. Stock option awards outstanding under the Company’s incentive plans have been granted at exercise prices that are equal to the market value of its common stock on the date of grant. Such options generally vest over a period of four years and expire at ten years after the grant date. The Company recognized compensation expense ratably over the vesting period. The Company uses a Black-Scholes option-pricing model to estimate the fair value of stock options granted, which requires the input of both subjective and objective assumptions as follows: Expected Term Expected Volatility Risk-free Interest Rate Expected Dividend Yield Restricted Stock Units During the three months ended March 31, 2022, the Company did not grant or cancel any RSUs. A summary of the Company’s unvested RSUs award activity for the three months ended March 31, 2022, were as follows: Weighted Average Grant Date Shares Fair Value Unvested RSUs at December 31, 2021 1,711,318 $ — Granted — 4.36 Vested (1) (813,495) 4.36 Cancelled/Forfeited — — Non-vested RSUs at March 31, 2022 897,823 4.36 (1) At March 31, 2022, there were 47,848 shares of common stock related to RSU awards that had vested and the shares were not distributed to the participants until April of 2022. The Company recorded a liability to account for these shares and reversed the liability once the shares were issued to the participants. The fair value of each RSU is the closing stock price on the Nasdaq of the Company’s common stock on the date of grant. Upon vesting, a portion of the RSU award may be withheld to satisfy the statutory income tax withholding obligation. The remaining RSUs will be settled in shares of the Company’s common stock after the vesting period. The unrecognized compensation cost related to the RSUs at March 31, 2022 was $3.9 million and expected to be recognized over a period of 1.8 years.

Commitments and Contingencies

Commitments and Contingencies	3 Months Ended
Commitments and Contingencies	Mar. 31, 2022
Commitments and Contingencies
Commitments and Contingencies	(13) Commitment and Contingencies Litigation On August 6, 2021, Cowen and Company, LLC filed a complaint against ReShape, as successor in interest to Obalon Therapeutics, in the Supreme Court of the State of New York based on an alleged breach of contract arising out of Cowen’s prior engagement as Obalon’s financial advisor. The complaint alleges that Cowen is entitled to be paid a $1.35 million fee in connection with ReShape’s merger with Obalon under the terms of Cowen’s engagement agreement with Obalon. The complaint also seeks reimbursement of Cowen’s attorneys’ fees and interest in connection with its claim. The Company is unable to predict the ultimate outcome of this matter; therefore, no amounts have been accrued. The Company intends to vigorously defend this matter. On August 18, 2021, H.C. Wainwright & Co., LLC filed a complaint against ReShape in the Supreme Court of the State of New York based on an alleged breach of contract arising out of Wainwright’s prior engagement by ReShape in connection with certain capital raising transactions by ReShape. The complaint alleges that Wainwright is entitled to be paid a fee in connection with ReShape’s capital raising transaction under the warrant exercise agreement that ReShape entered into on June 28, 2021. Wainwright alleges that its June and September 2019 engagement agreements with ReShape require ReShape to pay Wainwright a cash fee equal to 8.0% of the gross proceeds that ReShape received from the exercise of warrants issued pursuant to those engagement agreements, including warrants that were exercised in the June 2021 transaction. The complaint also seeks reimbursement of Wainwright’s attorneys’ fees and interest in connection with its claim. The Company is unable to predict the ultimate outcome of this matter or estimate a range of possible exposure; therefore, no amounts have been accrued. The Company intends to vigorously defend this matter. 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

Basis of Presentation (Policies)	3 Months Ended
Basis of Presentation (Policies)	Mar. 31, 2022
Basis of Presentation
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.
Reverse Stock Splits	Reverse Stock Split and Merger Exchange Ratio On June 15, 2021, and immediately prior to the closing of the merger of Obalon Therapeutics, Inc. and ReShape Lifesciences Inc., the Company effected a 1
Acquisition	Acquisition The Company accounts for business combinations in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations. The results of businesses acquired in a business combination are included in the Company’s consolidated financial statements from the date of the acquisition. Purchase accounting results in assets and liabilities of an acquired business generally being recorded at their estimated fair values on the acquisition date. Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill. Transaction costs associated with business combinations are expensed as incurred and are included in general and administrative related costs in the consolidated statements of operations. The Company performs valuations of assets acquired and liabilities assumed and allocates the purchase price to its respective assets and liabilities. Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates. Upon completion of the business combination with Obalon on June 15, 2021, the transaction was treated as a “reverse acquisition” for financial accounting purposes. As a result of the controlling interest of the former shareholders of ReShape, for financial statement reporting and accounting purposes, ReShape was considered the acquirer under the acquisition method of accounting in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805-10-55. The reverse acquisition is deemed a capital transaction in substance whereas the historical assets and liabilities of Obalon before the business combination were replaced with the historical financial statements of ReShape in all future filings with the SEC.
Goodwill and Long-Lived Assets	Goodwill and Long-Lived Assets Goodwill represents the excess of the cost of an acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. Indefinite-lived intangible assets relate to in-process research and development ("IPR&D") acquired in business combinations. The estimated fair values of IPR&D projects acquired in a business combination which have not reached technological feasibility are capitalized and accounted for as indefinite-lived intangible assets until completion or abandonment of the projects. In accordance with guidance within FASB ASC 350 “Intangibles - Goodwill and Other,” goodwill and identifiable intangible assets with indefinite lives are not subject to amortization but must be evaluated for impairment. 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. For goodwill and indefinite-lived intangible assets, in-process research and development, we review for impairment annually and upon the occurrence of certain events as required by ASC Topic 350, “Intangibles — Goodwill and Other.” Goodwill and indefinite-lived intangible assets are tested at least annually for impairment and more frequently if events or changes in circumstances indicate that the asset might be impaired. We review goodwill for impairment by first assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. If we are able to determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, we would conclude that goodwill is not impaired. If the carrying amount of a reporting unit is zero or negative, the second step of the impairment test is performed to measure the amount of impairment loss, if any, when it is more likely than not that a goodwill impairment exists. The Company did not record any impairment loss for goodwill or indefinite-lived intangible assets for the three months ended March 31, 2022 and 2021.
Fair Value of Financial Instruments	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 and Note 9 regarding fair value measurements and inputs of warrants.
Net Loss Per Share	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, 2022 2021 Stock options 833,974 23 Unvested restricted stock units 897,823 — Convertible preferred stock 38 726 Warrants 6,952,335 8,164,319
Recent Accounting Pronouncements	March 31, 2022 2021 Stock options 833,974 23 Unvested restricted stock units 897,823 — Convertible preferred stock 38 726 Warrants 6,952,335 8,164,319

Basis of Presentation (Tables)

Basis of Presentation (Tables)	3 Months Ended
Basis of Presentation (Tables)	Mar. 31, 2022
Basis of Presentation
Schedule of anti-dilutive securities	March 31, 2022 2021 Stock options 833,974 23 Unvested restricted stock units 897,823 — Convertible preferred stock 38 726 Warrants 6,952,335 8,164,319

Supplemental Balance Sheet In_2

Supplemental Balance Sheet Information (Tables)	3 Months Ended
Supplemental Balance Sheet Information (Tables)	Mar. 31, 2022
Supplemental Balance Sheet Information
Schedule of components of inventory	March 31, December 31, 2022 2021 Raw materials $ 1,028 $ 829 Sub-assemblies 1,231 682 Finished goods 1,739 1,492 Total inventory $ 3,998 $ 3,003
Schedule of components of prepaid expenses and other current assets	March 31, December 31, 2022 2021 Prepaid insurance $ 597 $ 736 Prepaid advertising and marketing 947 698 Other current assets 215 188 Total prepaid expenses and other current assets $ 1,759 $ 1,622
Schedule of components of accrued and other liabilities	March 31, December 31, 2022 2021 Payroll and benefits $ 1,858 $ 1,527 Customer deposits 596 549 Taxes 299 307 Accrued insurance premium — 301 Accrued professional 396 300 Other liabilities 314 185 Total accrued and other liabilities $ 3,463 $ 3,169

Leases (Tables)

Leases (Tables)	3 Months Ended
Leases (Tables)	Mar. 31, 2022
Leases
Schedule of supplemental information related to operating leases	Balance sheet information at March 31, 2022 Operating lease ROU assets $ 524 Operating lease liabilities, current portion $ 441 Operating lease liabilities, long-term portion 86 Total operating lease liabilities $ 527 Cash flow information for the three months ended March 31, 2022 Cash paid for amounts included in the measurement of operating leases liabilities $ 200
Schedule of maturities of operating lease liabilities	Twelve months ending March 31, 2022 2023 $ 451 2024 87 Total lease payments 538 Less: imputed interest 11 Total lease liabilities $ 527 Weighted-average remaining lease term at end of period (in years) 1.0 Weighted-average discount rate at end of period 5.5

Acquisitions (Tables)

Acquisitions (Tables)	3 Months Ended
Acquisitions (Tables)	Mar. 31, 2022
Acquisition
Schedule of fair values of the assets acquired and liabilities assumed	Current assets $ 5,887 Property and equipment, net 796 Right-of-use assets 335 Other assets 1,898 Goodwill 21,566 Developed technology 2,730 Liabilities assumed (2,650) Total purchase price 30,562 Less: cash acquired (5,207) Total purchase price, net of cash acquired $ 25,355

Revenue Disaggregation and Op_2

Revenue Disaggregation and Operating Segments (Tables)	3 Months Ended
Revenue Disaggregation and Operating Segments (Tables)	Mar. 31, 2022
Revenue Disaggregation and Operating Segments
Schedule of revenue disaggregated by product and geography	Three Months Ended March 31, 2022 2021 United States $ 1,844 $ 2,520 Australia 181 293 Europe 414 379 Rest of world 1 29 Total revenue $ 2,440 $ 3,221

Stock-based Compensation (Table

Stock-based Compensation (Tables)	3 Months Ended
Stock-based Compensation (Tables)	Mar. 31, 2022
Stock-based Compensation
Summary of stock option activity	Weighted Weighted Average Aggregate Average Remaining Intrinsic Exercise Price Contractual Value Shares Per Share Life (years) (in thousands) Outstanding at December 31, 2021 885,039 7.97 $ — Options granted — — Options exercised — — Options cancelled (51,065) 3.62 Outstanding at March 31, 2022 833,974 8.23 8.9 $ — Exercisable at March 31, 2022 612,410 9.90 8.7 — Vested and expected to vest at March 31, 2022 833,974 8.23 8.9 —
Schedule of stock-based compensation expense	Three Months Ended March 31, 2022 2021 Sales and marketing $ 104 $ — General and administrative 570 101 Research and development 73 — Total stock-based compensation expense $ 747 $ 101
Summary of unvested RSUs award activity	Weighted Average Grant Date Shares Fair Value Unvested RSUs at December 31, 2021 1,711,318 $ — Granted — 4.36 Vested (1) (813,495) 4.36 Cancelled/Forfeited — — Non-vested RSUs at March 31, 2022 897,823 4.36 (1) At March 31, 2022, there were 47,848 shares of common stock related to RSU awards that had vested and the shares were not distributed to the participants until April of 2022. The Company recorded a liability to account for these shares and reversed the liability once the shares were issued to the participants.

Basis of Presentation (Details)

Basis of Presentation (Details) $ in Thousands	Jun. 15, 2021	Mar. 31, 2022USD ($)shares	Mar. 31, 2021USD ($)shares
Anti-dilutive securities
Reverse stock split ratio	0.333
Loss on impairment of intangible asset and goodwill \| $		$ 0	$ 0
Obalon Therapeutics Inc.
Anti-dilutive securities
Stock exchange ratio	0.5367
Stock options
Anti-dilutive securities
Anti-dilutive securities (in shares)		833,974	23
Restricted stock units
Anti-dilutive securities
Anti-dilutive securities (in shares)		897,823
Convertible preferred stock
Anti-dilutive securities
Anti-dilutive securities (in shares)		38	726
Warrants to purchase common stock
Anti-dilutive securities
Anti-dilutive securities (in shares)		6,952,335	8,164,319

Liquidity and Management's Pl_2

Liquidity and Management's Plans (Details) - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021	Mar. 31, 2021	Dec. 31, 2020
Liquidity and Management's Plans
Working capital	$ 15,500
Cash and cash equivalents and restricted cash	15,460	$ 22,815	$ 1,946	$ 3,007
Accounts receivable	$ 2,410	$ 2,815

Supplemental Balance Sheet In_3

Supplemental Balance Sheet Information (Details) - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Inventory:
Raw materials	$ 1,028	$ 829
Sub-assemblies	1,231	682
Finished goods	1,739	1,492
Total inventory	3,998	3,003
Prepaid expenses and other current assets:
Prepaid insurance	597	736
Prepaid advertising and marketing	947	698
Other current assets	215	188
Total prepaid expenses and other current assets	1,759	1,622
Accrued and other liabilities:
Payroll and benefits	596	549
Customer deposits		301
Taxes	396	300
Accrued insurance premium	299	307
Accrued professional	1,858	1,527
Other liabilities	314	185
Total accrued and other liabilities	$ 3,463	$ 3,169

Goodwill and Intangible Assets

Goodwill and Intangible Assets (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Acquisition.
Amortization expense	$ 456	$ 411
Minimum
Acquisition.
Useful Life (years)	3 years
Maximum
Acquisition.
Useful Life (years)	10 years

Debt - CARES Act (Details)

Debt - CARES Act (Details) - USD ($) $ in Thousands	Apr. 24, 2020	Mar. 31, 2022	Mar. 31, 2021
Debt Instrument [Line Items]
Gain on extinguishment of debt			$ (1,960)
Employee retention credit		$ 300
PPP loan
Debt Instrument [Line Items]
Amount received	$ 1,000
Gain on extinguishment of debt			$ 1,000

Debt - Credit agreement (Detail

Debt - Credit agreement (Details) - USD ($) $ in Thousands	Jun. 28, 2021	Jan. 19, 2021	Mar. 31, 2021	Mar. 30, 2021
Short-term Debt [Line Items]
Debt discount			$ 100
Loss on extinguishment of debt, net			1,960
Credit agreement
Short-term Debt [Line Items]
Additional borrowing amount		$ 1,000
New debt fair value		10,000
Debt discount				$ 500
Loss on extinguishment of debt, net			$ (3,000)
Credit facility bear interest			2.50%
Other Noncash Expense		$ 100
Payment of credit agreement	$ 10,500
Credit agreement \| Series G Warrants
Short-term Debt [Line Items]
Number of shares in exchange of warrant exercise		1,000,000

Debt - Asset Purchase Considera

Debt - Asset Purchase Consideration Payable (Details)	Mar. 31, 2022
Secured debt \| Discount rate
Long-term debt
Debt fair value measurement input	0.051

Leases - Supplemental Informati

Leases - Supplemental Information (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021	Dec. 31, 2021
Operating lease costs	$ 200	$ 100
Balance sheet information related to operating leases
Operating lease ROU assets	524		$ 266
Operating lease liabilities, current	441		$ 279
Operating lease liabilities, long-term portion	86
Total operating lease liabilities	527
Cash flow information related to operating leases
Cash paid for amounts included in the measurement of operating leases liabilities	$ 200
San Clemente Office And Warehouse Space [Member]
Lease renewal term	12 months
Carlsbad Office And Warehouse Space [Member]
Lease renewal term	3 months

Leases - Maturities of Liabilit

Leases - Maturities of Liabilities (Details) $ in Thousands	Mar. 31, 2022USD ($)
Maturities of operating lease liabilities
2023	$ 451
2024	87
Total lease payments	538
Less: imputed interest	11
Total lease liabilities	$ 527
Weighted-average remaining lease term at end of period (in years)	1 year
Weighted-average discount rate at end of period	5.50%

Acquisition (Details)

Acquisition (Details) - Obalon Therapeutics Inc. - USD ($) $ in Millions	Jun. 15, 2021	Mar. 31, 2022	Mar. 31, 2021
Acquisitions
Aggregate purchase price	$ 30.6
Issuance of shares of common stock	3,340,035
Shares issued value	$ 30.6
Cancellation of shares	2,680,301
Acquisition related costs		$ 0	$ 0

Acquisition - Fair value of ass

Acquisition - Fair value of assets acquired and liabilities assumed (Details) - Obalon Therapeutics Inc. $ in Thousands	Jun. 15, 2021USD ($)
Fair values of the assets acquired and liabilities assumed
Current assets	$ 5,887
Property and equipment, net	796
Right-of-use assets	335
Other assets	1,898
Goodwill	21,566
Developed technology	2,730
Liabilities assumed	(2,650)
Total purchase price	30,562
Less: cash acquired	(5,207)
Total purchase price, net of cash acquired	$ 25,355

Acquisition - Narrative (Detail

Acquisition - Narrative (Details) $ / shares in Units, $ in Thousands	Jun. 15, 2021USD ($)	Mar. 31, 2022USD ($)	Sep. 30, 2021USD ($)item	Mar. 31, 2021USD ($)	Jul. 15, 2021USD ($)$ / shares
Acquisition.
Decrease in warrant liability		$ (25)		$ (50)
Obalon Therapeutics Inc.
Acquisition.
Warrant liability	$ 2,000		$ 1,300
Decrease in warrant liability			$ 700
Number of holders exercised fundamental transaction option \| item			1
Fair value portion of warrants					$ 900
Reclassification of warrants					$ 500
Obalon Therapeutics Inc. \| Minimum
Acquisition.
Warrant exercise price (in dollars per share) \| $ / shares					$ 13.20
Obalon Therapeutics Inc. \| Maximum
Acquisition.
Warrant exercise price (in dollars per share) \| $ / shares					$ 15
Obalon Therapeutics Inc. \| Developed technology
Acquisition.
Useful life		15 years
Obalon Therapeutics Inc. \| Discount rate \| Developed technology
Acquisition.
Discount rate		0.220
Obalon Therapeutics Inc. \| Risk Free Rate
Acquisition.
Warrant fair value measurement inputs					0.0044
Obalon Therapeutics Inc. \| Volatility
Acquisition.
Warrant fair value measurement inputs					1.221
Obalon Therapeutics Inc. \| Expected dividends
Acquisition.
Warrant fair value measurement inputs					0

Equity - Issuance of stock and

Equity - Issuance of stock and warrants (Details) $ / shares in Units, $ in Millions	Aug. 11, 2021shares	Jun. 28, 2021USD ($)$ / sharesshares	Jun. 21, 2021USD ($)individualshares	Jun. 18, 2021individualshares	Mar. 31, 2022shares	Mar. 31, 2021shares	Jul. 16, 2021$ / sharesshares	Jun. 27, 2021$ / shares
Equity
Issuance of stock for RSUs (shares)					765,647	0
Warrants exercise price expressed							95.00%
Issuance of common stock upon exercise of warrants, net of transaction costs (in shares)				200,000
Stock issued (in shares)				100,000
Number of healthcare focused institutional investors \| individual			2	2
Credit agreement
Equity
Payment of credit agreement \| $		$ 10.5
2019 private placement
Equity
Issuance of common stock upon exercise of warrants, net of transaction costs (in shares)			187,674
Proceeds from warrant exercises \| $			$ 0.1
Stock issued (in shares)			130,445
Restricted Shares
Equity
Common stock issued for professional services (in shares)	37,500
Contract expiration term	6 months
June 2021 warrants
Equity
Issuance of common stock upon exercise of warrants, net of transaction costs (in shares)		7,929,384
Proceeds from warrant exercises \| $		$ 45.5
June 2021 warrants \| Credit agreement
Equity
Proceeds to repay \| $		10.8
Payment of credit agreement \| $		10.5
Accrued interest \| $		$ 0.3
Series E warrants
Equity
Warrant exercise price (in dollars per share) \| $ / shares		$ 6						$ 10.64
New Unregistered Warrants
Equity
Number of shares in exchange of warrant exercise		5,947,039
Warrant exercise price (in dollars per share) \| $ / shares		$ 6
Issuance of common stock upon exercise of warrants, net of transaction costs (in shares)		7,100,000
Percentage of common stock issued		75.00%
Cash purchase price per share \| $ / shares		$ 0.09375
Exchange Warrants
Equity
Number of shares in exchange of warrant exercise							504,861
Warrant exercise price (in dollars per share) \| $ / shares							$ 4.038
New Warrants
Equity
Warrant exercise price (in dollars per share) \| $ / shares							$ 4.038
Warrants term							5 years
New Warrants \| Maximum
Equity
Number of shares in exchange of warrant exercise							400,000
Common Stock
Equity
Issuance of stock for RSUs (shares)					765,647
Common Stock \| 2019 private placement
Equity
Stock issued (in shares)			57,229

Warrants (Details)

Warrants (Details) $ / shares in Units, $ in Millions	Jun. 28, 2021USD ($)Y$ / sharesshares	Jun. 18, 2021shares	Jan. 19, 2021USD ($)Yshares	Jul. 16, 2021USD ($)Y$ / sharesshares	Jun. 27, 2021$ / shares
Class of Warrant or Right [Line Items]
Issuance of common stock \| shares		200,000
Series E warrants
Class of Warrant or Right [Line Items]
Exercise price of warrants (in dollars per share) \| $ / shares	$ 6				$ 10.64
Series G Warrants
Class of Warrant or Right [Line Items]
Number of warrants issued \| shares			1,000,000
Value of warrants issued \| $			$ 3
Series G Warrants \| Risk Free Rate
Class of Warrant or Right [Line Items]
Warrant fair value measurement inputs			0.0045
Series G Warrants \| Remaining Life
Class of Warrant or Right [Line Items]
Warrant fair value measurement inputs \| Y			5
Series G Warrants \| Expected dividends
Class of Warrant or Right [Line Items]
Warrant fair value measurement inputs			0
Series G Warrants \| Volatility
Class of Warrant or Right [Line Items]
Warrant fair value measurement inputs			0.971
Series G Warrants Issued March 25, 2020
Class of Warrant or Right [Line Items]
Exercise price of warrants (in dollars per share) \| $ / shares	6				6.56
Series G Warrants Issued December 17, 2020
Class of Warrant or Right [Line Items]
Exercise price of warrants (in dollars per share) \| $ / shares	6				6.21
Series G Warrants Issued January 21, 2021
Class of Warrant or Right [Line Items]
Exercise price of warrants (in dollars per share) \| $ / shares	$ 6				$ 6.21
June 2021 warrants
Class of Warrant or Right [Line Items]
Issuance of common stock \| shares	7,929,384
New Unregistered Warrants
Class of Warrant or Right [Line Items]
Warrants purchased \| shares	5,947,039
Exercise price of warrants (in dollars per share) \| $ / shares	$ 6
Fair value portion of warrants \| $	$ 18.5
Issuance of common stock \| shares	7,100,000
New Unregistered Warrants \| Risk Free Rate
Class of Warrant or Right [Line Items]
Warrant fair value measurement inputs	0.00898
New Unregistered Warrants \| Remaining Life
Class of Warrant or Right [Line Items]
Warrant fair value measurement inputs \| Y	5
New Unregistered Warrants \| Expected dividends
Class of Warrant or Right [Line Items]
Warrant fair value measurement inputs	0
New Unregistered Warrants \| Volatility
Class of Warrant or Right [Line Items]
Warrant fair value measurement inputs	0.976
New Warrants
Class of Warrant or Right [Line Items]
Exercise price of warrants (in dollars per share) \| $ / shares				$ 4.038
Warrants term				5 years
Fair value portion of warrants \| $				$ 1.5
New Warrants \| Risk Free Rate
Class of Warrant or Right [Line Items]
Warrant fair value measurement inputs				0.0079
New Warrants \| Remaining Life
Class of Warrant or Right [Line Items]
Warrant fair value measurement inputs \| Y				5
New Warrants \| Expected dividends
Class of Warrant or Right [Line Items]
Warrant fair value measurement inputs				0
New Warrants \| Volatility
Class of Warrant or Right [Line Items]
Warrant fair value measurement inputs				1.577
New Warrants \| Maximum
Class of Warrant or Right [Line Items]
Warrants purchased \| shares				400,000

Revenue Disaggregation and Op_3

Revenue Disaggregation and Operating Segments (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2022USD ($)item	Mar. 31, 2021USD ($)item
Revenue Recognition
Revenue	$ 2,440	$ 3,221
Number of Products in Development Stage \| item	2	2
United States
Revenue Recognition
Revenue	$ 1,844	$ 2,520
Australia
Revenue Recognition
Revenue	181	293
Europe
Revenue Recognition
Revenue	414	379
Rest of world
Revenue Recognition
Revenue	1	29
Obalon Therapeutics Inc.
Revenue Recognition
Revenue	0
ReShape Vest and Diabetes Bloc-Stim Neuromodulation Products
Revenue Recognition
Revenue	$ 0	$ 0

Income Taxes - Income Tax Benef

Income Taxes - Income Tax Benefit (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Income Taxes
Effective tax rate differs from statutory tax rate	21.00%
Deferred:
Deferred income tax	$ (187)
Current:
Total income tax benefit, net	$ (157)	$ 25

Stock-based Compensation - Expe

Stock-based Compensation - Expense for Stock-Based Awards (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Compensation expense recognized
Stock-based compensation expense	$ 747	$ 101
Sales and marketing
Compensation expense recognized
Stock-based compensation expense	104
General and administrative expense
Compensation expense recognized
Stock-based compensation expense	570	$ 101
Research and development
Compensation expense recognized
Stock-based compensation expense	$ 73

Stock-based Compensation - Stoc

Stock-based Compensation - Stock Option Activity (Details) - Stock options $ / shares in Units, $ in Millions	3 Months Ended
	Mar. 31, 2022USD ($)$ / sharesshares
Shares
Shares outstanding, Beginning balance (in shares) \| shares	885,039
Shares, Options cancelled (in shares) \| shares	(51,065)
Shares outstanding, Ending balance (in shares) \| shares	833,974
Shares, Exercisable (in shares) \| shares	612,410
Shares, Vested and expected to vest (in shares) \| shares	833,974
Weighted Average Exercise Price
Weighted Average Exercise Price Outstanding, Beginning balance (in dollars per share) \| $ / shares	$ 7.97
Weighted Average Exercise Price, Options cancelled (in dollars per share) \| $ / shares	3.62
Weighted Average Exercise Price Outstanding, Ending balance (in dollars per share) \| $ / shares	8.23
Weighted Average Exercise Price, Exercisable (in dollars per share) \| $ / shares	9.90
Weighted Average Exercise Price, Vested and expected to vest (in dollars per share) \| $ / shares	$ 8.23
Weighted Average Remaining Contractual Life
Weighted Average Remaining Contractual Life Outstanding	8 years 10 months 24 days
Weighted Average Remaining Contractual Life, Exercisable	8 years 8 months 12 days
Weighted Average Remaining Contractual Life, Vested and expected to vest	8 years 10 months 24 days
Additional disclosures
Unrecognized share-based expenses \| $	$ 0.8
Weighted average period	2 years 2 months 12 days
Vesting Period	4 years
Option expiration period	10 years

Stock-based Compensation - Rest

Stock-based Compensation - Restricted Stock Units (Details) - Restricted stock units $ / shares in Units, $ in Millions	3 Months Ended
	Mar. 31, 2022USD ($)$ / sharesshares
Shares
Unvested RSUs, Beginning balance (in shares)	1,711,318
Shares, Vested (in shares)	(813,495)
Non-vested RSUs, Ending balance (in shares)	897,823
Weighted Average Grant Date Fair Value
Weighted Average Grant Date Fair Value, Granted (in dollars per share) \| $ / shares	$ 4.36
Weighted Average Grant Date Fair Value, Vested (in dollars per share) \| $ / shares	4.36
Non-vested RSUs, Ending balance (in dollars per share) \| $ / shares	$ 4.36
Additional disclosures
Vested and undistributed	47,848
Unrecognized compensation costs \| $	$ 3.9
Recognition period	1 year 9 months 18 days

Commitments and Contingencies (

Commitments and Contingencies (Details) - USD ($) $ in Thousands	Aug. 18, 2021	Aug. 06, 2021
Commitments and Contingencies
Amount of claim		$ 1,350
Percentage of gross proceeds received from the exercise of warrants issued pursuant to capital raising engagement agreements sought	8.00%
Litigation
Percentage of gross proceeds received from the exercise of warrants issued pursuant to capital raising engagement agreements sought	8.00%