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, 2022~~March 31, 2023


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

For the transition period from to

Commission file number: 1-37897

RESHAPE LIFESCIENCES INC.

(Exact name of registrant as specified in its charter)


Delaware	26-1828101
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

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

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

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

Title of Each Class		Trading Symbol	Name of Each Exchange on which Registered
Common stock, $0.001 par value per share		RSLS	The Nasdaq Capital Market

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

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

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


Large Accelerated Filer	☐	Accelerated Filer	☐
Non-accelerated Filer	☒	Smaller Reporting Company	☒
Emerging Growth Company	☐

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

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

As of ~~August 15, 2022, 22,559,404~~May 11, 2023, 2,942,313 shares of the registrant’s Common Stock were outstanding.

Table of Contents

INDEX


PART I – FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets as of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022	3
	Condensed Consolidated Statements of Operations for the three ~~and six~~ months ended ~~June 30, 2022~~March 31, 2023 and ~~2021~~2022	4
	Condensed Consolidated Statements of Comprehensive Loss for the three ~~and six~~ months ended ~~June 30, 2022~~March 31, 2023 and ~~2021~~2022	5
	Condensed Consolidated Statements of Stockholders’ Equity for the three ~~and six~~ months ended ~~June 30, 2022~~March 31, 2023 and ~~2021~~2022	6
	Condensed Consolidated Statements of Cash Flows for the three ~~and six~~ months ended ~~June 30, 2022~~March 31, 2023 and ~~2021~~2022	87
	Notes to Condensed Consolidated Financial Statements	98
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2417
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3223
Item 4.	Controls and Procedures	3223

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	3324
Item 1A.	Risk Factors	3324
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3424
Item 3.	Defaults Upon Senior Securities	3425
Item 4.	Mine Safety Disclosures	3425
Item 5.	Other Information	3425
Item 6.	Exhibits	3526
SIGNATURES		3627

Table of Contents

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,		March 31,		December 31,
	2022		2021		2023		2022
ASSETS
Current assets:
Cash and cash equivalents	$	11,494	$	22,765	$	8,983	$	3,855
Restricted cash		50		50		100		100
Accounts and other receivables (net of allowance for doubtful accounts of $934 and $1,172 respectively)		2,448		2,815
Accounts and other receivables (net of allowance for doubtful accounts of $444 and $410 respectively)						2,125		2,180
Inventory		4,226		3,003		3,493		3,611
Prepaid expenses and other current assets		1,269		1,622		530		165
Total current assets		19,487		30,255		15,231		9,911
Property and equipment, net		887		1,454		672		698
Operating lease right-of-use assets		338		266		86		171
Deferred tax asset, net						57		56
Other intangible assets, net		19,915		20,827		249		260
Other assets		1,298		1,456		57		46
Total assets	$	41,925	$	54,258	$	16,352	$	11,142
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,513	$	3,468	$	1,997	$	1,926
Accrued and other liabilities		5,814		3,169		5,319		5,040
Warranty liability, current		525		415		200		344
Operating lease liabilities, current		338		279		86		171
Total current liabilities		9,190		7,331		7,602		7,481
Operating lease liabilities, noncurrent		—		—
Warranty liability, noncurrent		5		300
Deferred income taxes, net		367		555
Common stock warrant liability						992		—
Total liabilities		9,562		8,186		8,594		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, 2022 and December 31, 2021		—		—
Common stock, $0.001 par value; 100,000,000 shares authorized at both June 30, 2022 and December 31, 2021; 19,629,708 and 17,831,875 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively		20		18
Series C convertible preferred stock, $0.001 par value; 95,388 shares issued and outstanding at March 31, 2023 and December 31, 2022						—		—
Common stock, $0.001 par value; 300,000,000 shares authorized at March 31, 2023 and December 31, 2022; 2,648,765 and 519,219 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively						3		1
Additional paid-in capital		626,966		622,906		634,697		627,935
Accumulated deficit		(594,551)		(576,760)		(626,849)		(624,187)
Accumulated other comprehensive loss		(72)		(92)		(93)		(88)
Total stockholders’ equity		32,363		46,072		7,758		3,661
Total liabilities and stockholders’ equity	$	41,925	$	54,258	$	16,352	$	11,142

See accompanying notes to Condensed Consolidated Financial Statements.

Table of Contents

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,				Three Months Ended March 31,
		2022		2021		2022		2021	2023		2022
Revenue	$	2,892	$	3,529	$	5,332	$	6,750	$	2,287	$	2,440
Cost of revenue		1,009		1,376		2,231		2,314		1,063		1,222
Gross profit		1,883		2,153		3,101		4,436		1,224		1,218
Operating expenses:
Sales and marketing		4,663		1,441		9,371		2,691		2,182		4,694
General and administrative		5,454		4,311		9,616		7,031		4,220		3,892
Research and development		761		103		1,508		674		453		745
Loss on disposal of assets, net		381		—		381		—
Total operating expenses		11,259		5,855		20,876		10,396		6,855		9,331
Operating loss		(9,376)		(3,702)		(17,775)		(5,960)		(5,631)		(8,113)
Other expense (income), net:
Interest (income) expense, net		(14)		172		(15)		771
Loss on extinguishment of debt, net		—		101		—		2,061
Loss (Gain) on foreign currency exchange, net		204		(101)		188		(69)
Interest expense (income), net										5		(1)
Gain on changes in fair value of liability warrants										(2,965)		—
Gain on foreign currency exchange, net										(21)		(16)
Other		1		—		(9)		—		(2)		(11)
Loss before income tax provision		(9,567)		(3,874)		(17,939)		(8,723)		(2,648)		(8,085)
Income tax (benefit) expense		9		28		(148)		53
Income tax benefit										14		30
Net loss	$	(9,576)	$	(3,902)	$	(17,791)	$	(8,776)	$	(2,662)	$	(8,115)
Net loss per share - basic and diluted:
Net loss per share - basic and diluted (as revised for the three and six months ended June 30, 2021, see Note 1)	$	(0.50)	$	(0.86)	$	(0.94)	$	(2.07)
Shares used to compute basic and diluted net loss per share (as revised for the three and six months ended June 30, 2021, see Note 1)		19,310,968		4,553,976		18,933,217		4,246,060

Net loss per share - basic and diluted										(1.56)		(21.87)
Shares used to compute basic and diluted net loss per share										1,708,141		371,031

See accompanying notes to Condensed Consolidated Financial Statements.

Table of Contents

RESHAPE LIFESCIENCES INC.

Condensed Consolidated Statements of Comprehensive Loss

(unaudited)

(dollars in thousands)


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
		2022	2021		2022		2021		2023		2022
Net loss	$	(9,576)	$	(3,902)	$	(17,791)	$	(8,776)	$	(2,662)	$	(8,115)
Foreign currency translation adjustments		(1)		(7)		20		12		(5)		21
Other comprehensive (loss) income, net of tax		(1)		(7)		20		12
Other comprehensive income, net of tax										(5)		21
Comprehensive loss	$	(9,577)	$	(3,909)	$	(17,771)	$	(8,764)	$	(2,667)	$	(8,094)

See accompanying notes to Condensed Consolidated Financial Statements.

Table of Contents

RESHAPE LIFESCIENCES INC.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited)

(dollars in thousands)

Three 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 March 31, 2022

95,388

$
—

18,597,522

$
19

$
623,652

$
(584,975)

$
(71)

$
38,625
Net loss

—

—

—

—

—

(9,576)

—

(9,576)
Other comprehensive loss, net of tax

—

—

—

—

—

—

(1)

(1)
Stock compensation

—

—

—

—

823

—

—

823
Issuance of stock from RSUs

—

—

143,544

—

—

—

—

—
Exercise of warrants

—

—

888,642

1

2,491

—

—

2,492
Balance June 30, 2022

95,388

$
—

19,629,708

$
20

$
626,966

$
(594,551)

$
(72)

$
32,363


	Three Months Ended March 31, 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	—		—	—		—		—		(2,662)		—		(2,662)
Other comprehensive income, net of tax	—		—	—		—		—		—		(5)		(5)
Issuance of common stock pursuant to reverse stock split	—		—	18,399		—		—						—
Stock compensation	—		—	—		—		222		—		—		222
Common stock purchased				1,185,000		1		—						1
Equity issuance costs	—		—	—		—		298						298
Issuance of stock from RSUs	—		—	834		—		—		—		—		—
Exercise of warrants	—		—	925,313		1		6,242		—		—		6,243
Balance March 31, 2023	95,388	$	—	2,648,765	$	3	$	634,697	$	(626,849)	$	(93)	$	7,758

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

$
—

17,831,875

$
18

$
622,906

$
(576,760)

$
(92)

$
46,072
Net loss

—

—

—

—

—

(17,791)

—

(17,791)
Other comprehensive income, net of tax

—

—

—

—

—

—

20

20
Stock compensation

—

—

—

—

1,570

—

—

1,570
Issuance of stock from RSUs

—

—

909,191

1

(1)

—

—

—
Exercise of warrants

—

—

888,642

1

2,491

—

—

2,492
Balance June 30, 2022

95,388

$
—

19,629,708

$
20

$
626,966

$
(594,551)

$
(72)

$
32,363

~~See accompanying Notes to Condensed Consolidated Financial Statements.~~

~~Table of Contents~~

~~RESHAPE LIFESCIENCES INC.~~

~~Condensed Consolidated Statements of Stockholders’ Equity (Continued)~~

~~(unaudited)~~

~~(dollars in thousands)~~

Three Months Ended June 30, 2021

Series B Convertible

Series C Convertible

Additional

Accumulated

Total

Preferred Stock

Preferred Stock

Common Stock

Paid-in

Accumulated

Comprehensive

Stockholders’

Shares

Amount

Shares

Amount

Shares

Amount

Capital

Deficit

Income (Loss)

Equity
Balance March 31, 2021

3

$
—

95,388

$
1

3,486,253

$
3

$
532,507

$
(519,701)

$
(102)

$
12,708
Net loss

—

—

—

—

—

—

—

(3,902)

—

(3,902)
Other comprehensive income (loss), net of tax

—

—

—

—

—

—

—

—

(7)

(7)
Issuance of common stock pursuant to reverse acquisition

(3)

—

—

(1)

3,340,035

4

30,558

—

—

30,561
Reversal of stock compensation

—

—

—

—

—

—

(364)

—

—

(364)
Deferred issuance cost of shares held in abeyance

—

—

—

—

—

—

17,705

—

—

17,705
Exercise of warrants

—

—

—

—

1,250,470

1

1,202

—

—

1,203
Stock options exercised

—

—

—

—

91,864

—

215

—

—

215
Balance June 30, 2021

—

$
—

95,388

$
—

8,168,622

$
8

$
581,823

$
(523,603)

$
(109)

$
58,119

Six Months Ended June 30, 2021

Series B Convertible

Series C Convertible

Additional

Accumulated Other

Total

Preferred Stock

Preferred Stock

Common Stock

Paid-in

Accumulated

Comprehensive

Stockholders’

Shares

Amount

Shares

Amount

Shares

Amount

Capital

Deficit

Loss

Equity
Balance December 31, 2020

3

$
—

95,388

$
1

3,486,253

$
3

$
529,432

$
(514,827)

$
(121)

$
14,488
Net loss

—

—

—

—

—

—

—

(8,776)

—

(8,776)
Other comprehensive income, net of tax

—

—

—

—

—

—

—

—

12

12
Issuance of common stock pursuant to reverse acquisition

(3)

—

—

(1)

3,340,035

4

30,558

—

—

30,561
Reversal of stock compensation

—

—

—

—

—

—

(263)

—

—

(263)
Issuance of warrants

—

—

—

—

—

—

2,974

—

—

2,974
Deferred issuance cost for shares held in abeyance

—

—

—

—

—

—

17,705

—

—

17,705
Institutional exercise of warrants

—

—

—

—

1,250,470

1

1,202

—

—

1,203
Stock options exercised

—

—

—

—

91,864

—

215

—

—

215
Balance June 30, 2021

—

$
—

95,388

$
—

8,168,622

$
8

$
581,823

$
(523,603)

$
(109)

$
58,119


	Three Months Ended March 31, 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 December 31, 2021	95,388	$	—	356,641	$	—	$	622,399	$	(577,973)	$	(92)	$	44,334
Net loss	—		—	—		—		—		(8,115)		—		(8,115)
Other comprehensive income, net of tax	—		—	—		—		—		—		21		21
Stock compensation	—		—	—		—		719		—		—		719
Issuance of stock from RSUs	—		—	15,313		—		—		—		—		—
Balance March 31, 2022	95,388	$	—	371,954	$	—	$	623,118	$	(586,088)	$	(71)	$	36,959

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

RESHAPE LIFESCIENCES INC.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(dollars in thousands)


	Six Months Ended June 30,				Three Months Ended March 31,
	2022		2021		2023		2022
Cash flows from operating activities:
Net loss	$	(17,791)	$	(8,776)	$	(2,662)	$	(8,115)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		184		40		37		94
Amortization of intangible assets		911		828		11		456
Noncash interest expense		—		78		—		—
Impairment of intangible assets						—		—
Loss on extinguishment of debt, net		—		2,061		—		—
Loss on disposal of assets, net		381		—		—		—
Stock-based compensation		1,570		(263)		222		719
Bad debt expense		(104)		56		34		26
Provision for inventory excess and obsolescence		129		13		9		78
Deferred income tax		(188)		—		(1)		—
Amortization of debt discount and deferred debt issuance costs		—		494
Gain on changes in fair value of liability warrants						(2,965)		—
Offering cost						298		—
Other noncash items		(18)		15		3		(20)
Change in operating assets and liabilities, net of business combination:
Accounts and other receivables		471		(859)		21		379
Inventory		(1,352)		481		108		(1,073)
Prepaid expenses and other current assets		353		(267)		(365)		(137)
Accounts payable and accrued liabilities		1,681		1,853		344		240
Warranty liability		(185)		(219)		(144)		(25)
Other		158		316		(11)		—
Net cash used in operating activities		(13,800)		(4,149)		(5,061)		(7,378)
Cash flows from investing activities:
Capital expenditures		(19)		(196)		(7)		(7)
Proceeds from acquisition		—		5,207
Proceeds from sale of capital assets		39		—		—		9
Cash provided by investing activities:		20		5,011
Cash (used in) provided by investing activities:						(7)		2
Cash flows from financing activities:
Proceeds from warrants exercised		2,489		45,616
Proceeds from stock options exercised		—		216
Proceeds from credit agreement		—		1,000
Payment of credit agreement		—		(10,500)
Proceeds from sale and issuance of securities						10,201		—
Net cash provided by financing activities		2,489		36,332		10,201		—
Effect of currency exchange rate changes on cash and cash equivalents		20		12		(5)		21
Net (decrease) increase in cash, cash equivalents and restricted cash		(11,271)		37,206
Net increase (decrease) in cash, cash equivalents and restricted cash						5,128		(7,355)
Cash, cash equivalents and restricted cash at beginning of period		22,815		3,007		3,955		22,815
Cash, cash equivalents and restricted cash at end of period	$	11,544	$	40,213	$	9,083	$	15,460
Supplemental disclosure:
Cash paid for income taxes	$	—	$	31	$	—	$	—
Cash paid for interest				296		—		—
Noncash investing and financing activities:
Capital expenditures accruals	$	14	$	51	$	5	$	9
Purchase price, net of cash received		—		25,355
Deferred issuance cost related to abeyance of shares		—		17,705
Fair value of warrants included as a component of loss on extinguishment of debt		—		2,974

See accompanying notes to Condensed Consolidated Financial Statements.

Table of Contents

ReShape Lifesciences Inc.

Notes to Condensed Consolidated Financial Statements

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

(1) Basis of Presentation

The accompanying interim condensed consolidated financial statements and related disclosures of Reshape Lifesciences Inc. (the “Company” or “ReShape”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, filed on April ~~8, 2022.~~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.

~~Revision of Previously Issued Financial Statement for Correction of Immaterial Errors~~

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

~~Table of Contents~~

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

Condensed Consolidated Statement of Operations

As Previously

Reported

Adjustment

As Revised
For the year ended December 31, 2020

Net loss per share - basic and diluted:

Net loss per share - basic and diluted

$
(5.54)

$
(0.01)

$
(5.55)
Shares used to compute basic and diluted net loss per share

3,904,762

(6,612)

3,898,150
Three months ended March 31, 2021

Net loss per share - basic and diluted:

Net loss per share - basic and diluted

$
(1.24)

$
—

$
(1.24)
Shares used to compute basic and diluted net loss per share

3,927,986

10,159

3,938,145
Three months ended June 30, 2021

Net loss per share - basic and diluted:

Net loss per share - basic and diluted

$
(0.47)

$
(0.39)

$
(0.86)
Shares used to compute basic and diluted net loss per share

8,226,144

(3,672,168)

4,553,976
Six months ended June 30, 2021

Net loss per share - basic and diluted:

Net loss per share - basic and diluted

$
(1.11)

$
(0.96)

$
(2.07)
Shares used to compute basic and diluted net loss per share

7,928,702

(3,682,642)

4,246,060
Three months ended September 30, 2021

Net loss per share - basic and diluted:

Net loss per share - basic and diluted

$
(1.48)

$
0.44

$
(1.04)
Shares used to compute basic and diluted net loss per share

11,997,370

5,090,884

17,088,254
Nine months ended September 30, 2021

Net loss per share - basic and diluted:

Net loss per share - basic and diluted

$
(2.51)

$
(0.56)

$
(3.07)
Shares used to compute basic and diluted net loss per share

10,546,683

(1,932,362)

8,614,321
For the year ended December 31, 2021

Net loss per share - basic and diluted:

Net loss per share - basic and diluted

$
(5.00)

$
(0.67)

$
(5.67)
Shares used to compute basic and diluted net loss per share

12,378,502

(1,452,519)

10,925,983
Three months ended March 31, 2022

Net loss per share - basic and diluted:

Net loss per share - basic and diluted

$
(0.44)

$
0.00

$
(0.44)
Shares used to compute basic and diluted net loss per share

18,539,568

11,700

18,551,268

Reverse Stock Split and Merger Exchange Ratio

On ~~June 15, 2021, and immediately prior to~~December 23, 2022, at the ~~closing~~commencement of ~~the merger of Obalon Therapeutics, Inc. and ReShape Lifesciences Inc.,~~trading, the Company effected a 1~~-for-3~~-for-50 reverse stock split. Accordingly, all share and per share amounts for the ~~period~~periods presented in the accompanying consolidated financial ~~statements~~statement 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. Unless otherwise noted, all references to shares of the Company’s common stock and per share amounts have also been adjusted to reflect the exchange ratio of 0.5367 Obalon shares for one ReShape share in connection with the merger.

Summary of Significant Accounting Policies

The Company’s significant accounting policies are described in Note 24 to its audited consolidated financial statements for the year ended December 31, ~~2021,~~2022, which are included in the Company’s Annual Report on Form 10-K which was filed with the SEC on April ~~8, 2022.~~17, 2023.

~~Table of Contents~~

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.

~~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

~~Table of Contents~~

impairment loss, if any, when it is more likely than not that a goodwill impairment exists. The Company did 0t record any impairment loss for goodwill or indefinite-lived intangible assets for the three months and six months ended June 30, 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~~7 regarding fair value measurements and inputs of warrants.

Table of Contents

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,		March 31,
	2022	2021	2023	2022
Stock options	820,092	256,881	18,594	16,670
Unvested restricted stock units			3,424	17,987
Convertible preferred stock	38	742	10	10
Warrants	6,952,328	6,181,997	531,164	139,047

Recent Accounting Pronouncements

~~There were no new accounting standards adopted by the Company during the six months ended June 30, 2022.~~

New accounting standards ~~not yet~~ adopted are discussed below.

In June 2016, the FASB issued ~~ASU~~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 isbecame effective ~~for~~on January 1, 2023 and did not have a material impact to 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.

(2) Liquidity and Management’s Plans

The Company currently does not generate revenue sufficient to offset operating costs and anticipates such shortfalls to continue ~~primarily due~~as the Company has modified its strategy to ~~the unpredictability of new variants of COVID-19, which may result in~~ a ~~slow-down of elective surgeries~~metrics-driven approach through a sustainable and ~~restrictions in some locations.~~scalable business model, via a digital lead generation and re-engagement strategy. As of ~~June 30, 2022,~~March 31, 2023, the Company had net working capital of approximately ~~$10.3~~$7.6 million, primarily due to cash and cash equivalents and restricted cash of ~~$11.5 million. The Company’s principal source~~$9.1 million, and $2.1 million of ~~liquidity as of June 30, 2022, consisted of~~accounts receivable. On February 8, 2023, the Company completed a public offering, which the Company received approximately ~~$11.5~~$9.4 million ofin cash and cash equivalents after deducting underwriting expenses, commissions and ~~restricted cash, and $2.4 million of accounts receivable.~~offering expenses. 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 believes in the viability of its business strategy and in its ability to raise additional funds, however, there can be no assurance to that effect.~~

~~Given the~~ Company’s ~~projected operating requirements and its existing cash and cash equivalents management’s plans include evaluating different strategies to obtain the required funding of future operations. Our~~ anticipated operations include plans to (i) ~~integrate the~~grow sales and operations of the Company with the Lap-Band product line ~~in order to expand sales~~both domestically and internationally as well as to obtain cost savings synergies, (ii) ~~improve operational efficiencies, resulting~~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 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 ~~reduction of~~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.

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Table of Contents

operational expenses, as well as a reduction to marketing and advertising costs, primarily due to focusing on digital media rather than television and print and (iii) to continue promoting reshapecare as an addition to bariatric surgery or as an alternative to individuals that do not meet the criteria and/or do not want to go through bariatric surgery. If sales do not improve, we will reduce our expenditures for marketing, clinical and product development activities to maintain operational activities until a period of time in which we could obtain additional debt or equity financing to support our operations. However, there can be no assurance that the Company will be able to secure such additional financing. 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.

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 ~~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 reimplement restrictions and other requirements in light of the continuing spread~~impact of the COVID-19 ~~pandemic. Due~~outbreak has subsided substantially in the U.S. but continues to result in reduced activity levels outside of the ~~uncertainty caused by the COVID-19 pandemic, the full extent to which the pandemic will directly or indirectly impact the Company’s~~U.S., such as continued restrictions on travel and 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 difficultadvising or requiring individuals to ~~predict. These developments include, but are not limited to, the duration and spread~~limit or forego their time outside of ~~the outbreak (including new and more contagious variants~~their homes or places of COVID-19), its severity, the actions to contain the virus or address its impact, the 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.business.

On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, included 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.

~~Table of Contents~~

(3) Supplemental Balance Sheet Information

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

Inventory:


	June 30,		December 31,		March 31,		December 31,
	2022		2021		2023		2022
Raw materials	$	1,050	$	829	$	825	$	832
Sub-assemblies		1,202		682		1,009		864
Finished goods		1,974		1,492		1,659		1,915
Total inventory	$	4,226	$	3,003	$	3,493	$	3,611

Prepaid expenses and other current assets:


	June 30,		December 31,		March 31,		December 31,
	2022		2021		2023		2022
Prepaid insurance	$	716	$	736	$	129	$	78
Patents						92		—
Prepaid advertising and marketing		356		698		71		3
Taxes						70		—
Other current assets		197		188		168		84
Total prepaid expenses and other current assets	$	1,269	$	1,622	$	530	$	165

Accrued and other liabilities:


	June 30,		December 31,		March 31,		December 31,
	2022		2021		2023		2022
Payroll and benefits	$	2,362	$	1,527	$	1,652	$	1,829
Accrued legal settlements		2,000		—		2,025		1,775
Customer deposits		605		549		573		510
Taxes		190		307		122		119
Accrued insurance premium		151		301
Accrued professional		284		300		602		316
Other liabilities		222		185		345		491
Total accrued and other liabilities	$	5,814	$	3,169	$	5,319	$	5,040

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Table of Contents

(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 March 31, 2023 and 2022, was $11 thousand and $0.5 million, respectively.


	March 31, 2023
	Weighted Average Useful Life (years)	Gross Carrying Amount		Accumulated Amortization		Net Book Value
Finite-lived intangible assets:
Developed technology	10.0	$	5,989	$	(5,813)	$	176
Trademarks/Tradenames	10.0		462		(389)		73
Total		$	6,451	$	(6,202)	$	249


	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

~~(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 June 30, 2022 and 2021, were $0.5 million and $0.4 million, respectively, and the six months ended June 30, 2022 and 2021 were $0.9 million and $0.8 million, respectively.

June 30, 2022


Weighted Average Useful Life (years)

Gross Carrying Amount

Accumulated Amortization

Net Book Value
Finite-lived intangible assets:

Developed technology

10.8

$
17,092

$
(5,276)

$
11,816
Trademarks/Tradenames

10.0

2,045

(893)

1,152
Covenant not to compete

3.0

76

(76)

—

19,213

(6,245)

12,968
Indefinite-lived intangible assets:

In-process research and development

indefinite

6,947

—

6,947
Total

$
26,160

$
(6,245)

$
19,915

December 31, 2021


Weighted Average Useful Life (years)

Gross Carrying Amount

Accumulated Amortization

Net Book Value
Finite-lived intangible assets:

Developed technology

10.8

$
17,092

$
(4,467)

$
12,625
Trademarks/Tradenames

10.0

2,045

(790)

1,255
Covenant not to compete

3.0

76

(76)

—

19,213

(5,333)

13,880
Indefinite-lived intangible assets:

In-process research and development

indefinite

6,947

—

6,947
Total

$
26,160

$
(5,333)

$
20,827

(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, certified that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. This certification further required the Company to take into account our then-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 carried a 1.00% interest rate per annum, matured on April 24, 2022, and was 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

~~Table of Contents~~

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 fewer 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 was 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.

~~(6)~~ Leases

The Company has a noncancelable operating ~~leases~~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, ~~as well as noncancelable operating leases~~which expired June 30, 2022. On March 13, 2023, the Company entered into a lease for ~~certain~~approximately 5,038 square feet of office ~~equipment that expire~~and warehouse space at ~~various dates through 2022.~~ 18 Technology Drive, Suite 110, Irvine California 92618 and intend to relocate our principal executive offices from our current 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. 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~~$0.1 million and ~~$0.1~~$0.2 million for the three months ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and $0.4 million and $0.3 million for the six months ended June 30, 2022 and 2021,~~ respectively. Variable lease costs were not material.

Supplemental information related to operating leases is as follows:


	March 31,		December 31,
Balance Sheet information	2023		2022
Operating lease ROU assets	$	86	$	171

Operating lease liabilities, current portion	$	86	$	171
Total operating lease liabilities	$	86	$	171

Cash flow information for the three months ended March 31,	2023		2022
Cash paid for amounts included in the measurement of operating leases liabilities	$	87	$	200

1611

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Maturities of operating lease liabilities were as follows:


2023		87
Total lease payments		87
Less: imputed interest		1
Total lease liabilities	$	86

Weighted-average remaining lease term at end of period (in years)		0.3
Weighted-average discount rate at end of period		5.1	%

(6) Equity

Common Stock Issued Related to Restricted Stock Units

During the three months ended March 31, 2023 and 2022, the Company issued 834 shares of common stock and 16,265 shares of common stock, respectively, subject to vesting of the restricted stock units. For further details see Note 10.

February Public Offering of Common Stock and Warrants

On February 8, 2023, the Company closed a public offering of 1,275,000 units, with each consisting of one share of its common stock, or one pre-funded warrant to purchase one share of its common stock, and one warrant to purchase one and one-half shares of its common stock. Each unit was sold at public offering price of $8.00. The warrants in the units are immediately exercisable at a price of $8.00 per share and expire five years from the date of issuance. Alternatively, each warrant can be exercised pursuant to the “alternative cashless exercise” provision, to which the holders would receive an aggregate number of shares of common stock equal the product of (x) the aggregate number of shares of common stock that would be issuable upon a cash exercise and (y) 0.50. For purposes of clarity, one common warrant to purchase one and one-half shares would be exercisable for 0.75 shares under this alternative cashless exercise provision. The shares of common stock (or pre-funded warrants in lieu thereof) and accompanying warrants were only purchasable together in this offering but were issued separately and immediately separable upon issuance. As of March 31, 2023, warrants to purchase 1,670,626 shares of common stock have been exercised under the alternative cashless exercise for a total of 835,313 shares of common stock.

Gross proceeds, before deducting underwriting discounts and commissions and estimated offering expenses, are approximately $10.2 million. The Company intends to use the net proceeds of this offering to continue implementation of its growth strategies, for working capital and general corporate purposes.

The Company also granted the underwriters an option to purchase an additional 191,250 shares of common stock and/or additional warrants to purchase up to 286,875 shares of common stock, to cover over-allotments, of which Maxim Group LLC exercised its option to purchase additional warrants to purchase 286,875 shares of common stock.

(7) Warrants

On February 8, 2023, the Company completed a public offering in which three classes of warrants were issued. There were 2,199,375 common stock purchase warrants issued with an alternative cashless exercise provision. The alternative cashless exercise allows the holder to exercise one warrant share for 0.5 shares of common stock or exercise via the cash exercise price of $8.00 per share of common stock per warrant. These warrants we classified as a liability, and the Company utilized a bifurcated Black-Scholes option pricing model to consider the cash exercise option and cashless exercise option. The bifurcated Black-Scholes option pricing model used an exercise price where the two exercise methods would be indifferent with market inputs of the stock price on the issuance, risk free interest rate, expected share price volatility and dividend yield. The Company calculates the fair value of the warrants at each reporting period and when a warrant is exercised, with the changes in fair value recognized in the statement of operations. Below is a summary of the initial inputs used in the bifurcated Black-Scholes option pricing model.

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~~Supplemental information related to operating leases is as follows:~~

June 30,

December 31,
Balance Sheet information

2022

2021
Operating lease ROU assets

$
338

$
266

Operating lease liabilities, current portion

$
338

$
279
Operating lease liabilities, long-term portion

—

—
Total operating lease liabilities

$
338

$
279

Cash flow information for the six months ended June 30,

2022

2021
Cash paid for amounts included in the measurement of operating leases liabilities

$
386

$
165


	Cash Exercise		Cashless Exercise
Stock Price	$	5.905	$	5.905
Exercise Price	$	16.00	$	0.00
Term (years)		5.00		5.00
Volatility		96.50%		96.50%
Risk Free Rate		3.784%		3.784%
Dividend Yield		0%		0%

~~Maturities of operating lease liabilities were as follows:~~

Remainder of 2022

$
174

2023

173

2024

—

Total lease payments

347

Less: imputed interest

9

Total lease liabilities

$
338

Weighted-average remaining lease term at end of period (in years)

0.9

Weighted-average discount rate at end of period

5.1
%

~~(7) Acquisition~~

~~On June 15, 2021,~~The following table presents 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 accountingchanges 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 0 acquisition related costs recognized for the three months and six months ended June 30, 2022.

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~~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:warrant liabilities:

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


	Common Stock
	Purchase Warrants
Fair value as of February 8, 2023 (issuance date)	$	10,363
Exercises of liability warrants		(6,242)
Gain on changes in fair value of liability warrants		(3,129)
Fair value as of March 31, 2023	$	992

~~As part~~In addition, one of the ~~warrant agreements there was~~investors purchased 90,000 pre-funded warrants at 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 1 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.

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.

~~(8) Equity~~

~~Common Stock Issued Related to Restricted Stock Units~~

During the three and six months ended June 30, 2022, the Company issued 143,544 shares of common stock and 909,191 shares of common stock subject to vesting of the restricted stock units. There were 0 shares issued during the three and six months ended June 30, 2021. For further details see Note 12.

~~June 2022 Exercises of Warrants for Common Stock~~

On June 16, 2022, the Company entered into a warrant exercise agreement with an existing accredited investor to exercise certain outstanding warrants to purchase up to an aggregate of 3.7 million shares of common stock, of which 0.9 million shares were issued in June in accordance with the terms of the warrant exercise agreement, and 2.9 shares are held in abeyance. 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 3.7 million shares (equal to 100% of the shares of common shares exercised) of the Company’s common stock (the “New Warrants”) in a private placement pursuant to Section (4)(2) of the Securities Act. In connection with the exercise, the Company also agreed to reduce the exercise price of ~~the existing~~$7.999 per warrant. These warrants ~~and 1.6 million remaining unexercised warrants from $6.00 to $0.6665 per share, which is~~

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~~equal to the most recent closing price of the Company’s common stock on the Nasdaq 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 was approximately $2.5 million, prior to deducting warrant inducement agent frees and estimated offering expenses. The Company intends to use the remainder of the net proceeds for commercial growth, working capital and general corporate purposes.

~~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 athave 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 2021, 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$0.0001 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 onand do not expire. 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 2 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 2 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.~~

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~~(9) Warrants~~

On June 16, 2022, the Company entered into a warrant exercise agreement with an existing accredited investor to exercise certain outstanding warrants. As part of this agreement the Company modified the warrants issued June 28, 2021, from an exercise price of $6.00 to $0.6665 per share. The Company issued a total of 3,738,642 shares of common stock in connection with this transaction and issued an additional 3,738,642 new warrants. These new warrants were valued at ~~$1.7~~$0.5 million using the fair value approach at the time of issuance. The fair value of the ~~new~~pre-funded warrants was determined using a Black Scholes option pricing model using a risk free rate of ~~3.32%~~3.784%, ~~and~~an expected term of ~~7.5~~5.0 years, expected dividends of 0zero and expected volatility of ~~64.8%~~96.5%.

~~On July 16, 2021,~~As part of the terms of the offering the Company ~~entered into an exchange agreement~~issued 73,313 representative’s warrants 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~~$8.80 per share ~~with a term of 5 years. These new~~and expiration date on February 3, 2028. The representative’s warrants were valued at ~~$1.5~~$ $0.3 million using the fair value approach at the time of issuance. The fair value of the ~~new~~representative’s warrants was determined using a Black Scholes option pricing model using a risk free rate of ~~0.79%~~3.786%, an expected term of 54.99 years, expected dividends of 0zero 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 5 years, expected dividends of 0 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 5 years; expected dividends of 0 and expected volatility of 97.1%96.5%.

~~(10)~~(8) 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, 2023 and ~~six months ended June 30,~~ 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				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
	2022		2021		2022		2021		2023		2022
United States	$	2,308	$	2,633	$	4,152	$	5,153	$	1,813	$	1,844
Australia		188		277		369		570		157		181
Europe		389		590		803		969		304		414
Rest of world		7		29		8		58		13		1
Total revenue	$	2,892	$	3,529	$	5,332	$	6,750	$	2,287	$	2,440

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 ~~and six~~ months ended ~~June 30, 2022~~March 31, 2023 and ~~2021.~~2022. During the three ~~and six~~ months ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021,~~ there was minimal revenue for ~~reshape~~~~care~~.ReShapeCare. There was 0no revenue or gross profit recorded for the ~~ReShape Vest or Diabetes Bloc-Stim Neuromodulation~~DBSN device for the three months ended March 31, 2023 and 2022 as this product is still in the development stage. There was also no revenue recorded for the Obalon line.

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~~and six months ended June 30, 2022 and 2021 as these 2 products are still in the development stage. There was also 0 revenue recorded for the recently acquired Obalon line.~~

~~(11)~~(9) Income Taxes

During the three months ~~June 30,~~ended March 31, 2023 and March 31, 2022, the Company recorded income tax expense ~~was insignificant,~~of $14 thousand and ~~during the six months ended June 30, 2022, a $0.1 million tax benefit,~~$30 thousand, respectively, ~~was recorded primarily due to a reduction in the valuation allowance~~ related to ~~an impairment of indefinite lived assets partially offset by~~minimum state taxes and ~~foreign taxes. During the three months~~projected Australian and ~~six months ended June, 2021, a $28 thousand and $53 thousand, respectively, tax expense was recorded, primarily due to projected~~Netherlands income, ~~in Australia and the Netherlands.~~respectively. The income tax provisions for the ~~six~~three months ended ~~June 30, 2022, and year ended December~~March 31, ~~2021,~~2023, 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 ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022.

~~(12)~~(10) 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, 2023 and ~~six ended June 30,~~ 2022 ~~and 2021~~ were as follows:


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
	2022		2021		2022		2021		2023		2022
Sales and marketing	$	152	$	—	$	257	$	—	$	30	$	91
General and administrative		550		(364)		1,120		(263)		128		557
Research and development		121		—		193		—		64		71
Total stock-based compensation expense	$	823	$	(364)	$	1,570	$	(263)	$	222	$	719

Stock Options

A summary of the status of the Company’s stock options as of ~~June 30, 2022,~~March 31, 2023, and changes during the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 are as follows:


				Weighted						Weighted
		Weighted		Average	Aggregate			Weighted		Average	Aggregate
		Average		Remaining	Intrinsic			Average		Remaining	Intrinsic
		Exercise Price		Contractual	Value			Exercise Price		Contractual	Value
	Shares	Per Share		Life (years)	(in thousands)		Shares	Per Share		Life (years)	(in thousands)
Outstanding at December 31, 2021	885,039		7.97		$	—
Outstanding at December 31, 2022							21,416		311.65		$	—
Options granted	560,154		1.18				—		—
Options exercised	—		—				—		—
Options cancelled	(136,862)		2.83				(2,822)		144.38
Outstanding at June 30, 2022	1,308,331		5.60	8.9	$	—
Exercisable at June 30, 2022	617,796		9.83	8.1		—
Vested and expected to vest at June 30, 2022	1,308,331		5.60	8.9		—
Outstanding at March 31, 2023							18,594		337.03	7.7	$	—
Exercisable at March 31, 2023							13,314		435.38	7.3		—
Vested and expected to vest at March 31, 2023							18,594		337.03	7.7		—

There was no intrinsic value of the outstanding stock options at ~~June 30, 2022.~~March 31, 2023. The unrecognized share-based expense at ~~June 30, 2022~~March 31, 2023 was ~~$1.1~~$0.3 million, and will be recognized over a weighted average period of ~~3.0~~2.3 years.

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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:

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Expected Term – The estimate of expected term is based on the historical exercise behavior of grantees, as well as the contractual life of the options granted.

Expected Volatility – The expected volatility factor is based on the volatility of the Company’s common stock for a period equal to the term of the stock options.

Risk-free Interest Rate – The risk-free interest rate is determined using the implied yield for a traded zero-coupon U.S. Treasury bond with a term equal to the expected term of the stock options.

Expected Dividend Yield – The expected dividend yield is based on the Company’s historical practice of paying dividends on its common stock.

Restricted Stock Units

~~During the six months ended June 30, 2022, the Company granted 200,417 RSUs and cancelled 142,604 RSUs.~~

A summary of the Company’s unvested RSUs award activity for the ~~six~~three months ended ~~June 30, 2022, were~~March 31, 2023, is as follows:


		Weighted			Weighted
		Average			Average
		Grant Date			Grant Date
	Shares	Fair Value		Shares	Fair Value
Unvested RSUs at December 31, 2021	1,711,318	$	4.36
Unvested RSUs at December 31, 2022				4,544	$	174.15
Granted	200,417		1.18	—		—
Vested ⁽¹⁾	(949,039)		4.36	(1,112)		196.26
Cancelled/Forfeited	(142,604)		4.36	—		—
Non-vested RSUs at June 30, 2022	820,092		3.58
Non-vested RSUs at March 31, 2023				3,432		166.99

(1)	At ~~June 30, 2022,~~March 31, 2023, there were ~~39,848~~278 shares of common stock related to RSU awards that had vested and the shares were not distributed to the participants until ~~July~~April of ~~2022.~~2023.

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 ~~June 30, 2022~~March 31, 2023 was ~~$2.9~~$0.6 million and expected to be recognized over a period of ~~2.0~~1.4 years.

~~(13)~~(11) Commitment and Contingencies

Litigation

On August 6, 2021, Cowen and Company, LLC ~~(“Cowen”)~~ 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 and the Company intends to vigorously defend this matter.~~

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On ~~August 18, 2021, H.C. Wainwright & Co., LLC (“Wainwright”) filed a complaint against ReShape in~~May 11, 2023, the Supreme Court of the State of New York ~~based on an alleged breach~~issued the final judgement in favor of ~~contract arising out~~Cowen & Company in the amount of ~~Wainwright’s prior engagement by ReShape~~$1.35 million, plus interest at the statutory rate of 9% per annum from June 16, 2021 until judgement is paid in ~~connection~~full, and reimbursement of $675,000 of Cowen’s attorneys’ fees, with ~~certain capital raising transactions by ReShape. The complaint alleged that Wainwright was entitled~~$275,000 to be paid ~~a fee in connection with ReShape’s capital raising transaction under~~upfront, $200,000 paid after six months and $200,000 paid after 12 months, subject to the warrant exercise agreement that ReShape entered into on June 28, 2021. Wainwright alleged that its June and September 2019 engagement agreements with ReShape require ReShape to pay Wainwright a cash fee equal to 8.0%final order of the ~~gross proceeds that ReShape received from~~Court. The Company has accrued the ~~exercise of warrants issued pursuant to those engagement agreements, including warrants that were exercised in~~$1.35 million, for the ~~June 2021 transaction. The complaint also sought reimbursement of Wainwright’s~~ruling, $0.7 million for the attorneys’ fees, and $0.2 million of accrued interest ~~in connection with its claim. On July 19, 2022,~~at March 31, 2023, and paid the ~~Company entered into a definitive settlement and release agreement with Wainwright pursuant to which the Company made a one-time cash payment~~first installment of ~~$1.0~~$1.9 million ~~to fully and finally resolve such matter.~~on May 12, 2023.

The Company is not aware of any pending or threatened litigation against it that could have a material adverse effect on the Company’s business, operating results or financial condition, other than what iswas disclosed above. The medical device industry in which the Company operates is characterized by frequent claims and litigation, including claims regarding patent and other intellectual property rights as well as improper hiring practices. As a result, the Company may be involved in various legal proceedings from time to time. As

Table of ~~June 30, 2022, the Company has accrued $2.0 million for potential legal settlements.~~Contents

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.

~~(14)~~(12) Subsequent Events

On July 27, 2022, the Company announced that its Board of Directors has appointed Paul F. Hickey as President and Chief Executive Officer and a member of the Board of Directors, effective August 15, 2022. Mr. Hickey succeeds Bart Bandy, who has separated from the Company to pursue other opportunities. Within the terms of the separation agreement, Mr. Bandy is entitled to a severance package which has been accrued for in July 2022. Thomas Stankovich, Chief Financial Officer of the Company, will serve as Interim President and Chief Executive Officer until Mr. Hickey joins the Company. Dan W. Gladney, current Chair of the Board of Directors, will assume a more active role as Executive Chair, supporting Mr. Hickey and the Company on strategic matters.

~~On July 19, 2022, the Company~~April 20, 2023, ReShape Lifesciences Inc. (the “Company”) entered into a ~~definitive settlement and release agreement~~Securities Purchase Agreement (the “Purchase Agreement”) with ~~Wainwright~~a certain institutional investor (the “Investor”), pursuant to which the Company ~~made~~agreed to issue and sell to the Investor in a ~~one-time~~registered direct offering (the “Registered Offering”) (i) 291,395 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), and (ii) pre-funded warrants to purchase an aggregate of 509,300 shares of Common Stock (the “Pre-funded Warrants”). Each share of Common Stock was sold at a price of $3.07 per share and each Pre-funded Warrant was sold at an offering price of $3.069 per share underlying such Pre-funded Warrants, for aggregate gross proceeds of approximately $2.5 million before deducting the placement agent’s fees and the offering expenses. Under the Purchase Agreement, the Company also agreed to issue and sell to the Investor in a concurrent private placement (the “Private Placement,” and together with the Registered Offering, the “Offering”) warrants to purchase an aggregate of 800,695 shares of Common Stock (the “Common Warrants,” and together with the Prefunded Warrants, the “Warrants”).

In connection with the Offering, the Company also agreed that certain existing warrants to purchase up to an aggregate of 164,656 shares of Common Stock that were issued to the Investor, at an exercise price of $15.00 per share, were amended effective upon the closing of the Offering so that the amended warrants have an exercise price of $3.07.

The Company’s exclusive placement agent in connection with the Offering, Maxim Group LLC, received a cash ~~payment~~fee equal to 7.0% of ~~$1.0 million,~~the gross proceeds received by the Company from the sale of the securities in Offering, as well as reimbursement for ~~further details~~certain expenses, and warrants to purchase up to 40,035 shares of Common Stock, which is equal to 5.0% of the aggregate amount of shares of Common Stock (or Common Stock equivalents in the form of Pre-funded Warrants) issued in the Offering, at an exercise price of $3.38 per share.

The Offering closed on ~~this settlement see Note 13 above.~~April 24, 2023.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q.

Except for the historical information contained herein, the matters discussed in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are forward-looking statements that involve risks and uncertainties. In some cases, these statements may be identified by terminology such as “may,” “will,” “should,” “expects,” “could,” “intends,” “might,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of such terms and other comparable terminology. These statements involve known and unknown risks and uncertainties that may cause our results, level of activity, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. Factors that may cause or contribute to such differences include, among others, those discussed in the “Risk Factors” section included in Item 1A of our most recent Annual Report on Form 10-K.

Except as may be required by law, we undertake no obligation to update any forward-looking statement to reflect events after the date of this report.

Overview

We are the premier global weight-loss solutions company, offering an integrated portfolio of proven products and services that manage and treat obesity and associated metabolic disease. Our primary operations are in the following geographical areas: United States, Australia and certain European and Middle Eastern countries. Our current portfolio includes the Lap-Band Adjustable Gastric Banding System, the ~~reshape~~~~care~~ReShapeCare virtual health coaching program, the ReShape Marketplace, the Obalon Balloon System, ~~the ReShape Vest, an investigational device to help treat more patients with obesity,~~ and the Diabetes Bloc-Stim Neuromodulation device, a technology under development as a new treatment for type 2 diabetes mellitus. There has been no revenue recorded for the ~~ReShape Vest or~~Obalon Balloon System, and there has been no revenue recorded for the Diabetes Bloc-Stim Neuromodulation as ~~these products are~~this product is still in the development stage. ~~We continue to explore the compliance requirements, manufacturing viability and quality system controls necessary for re-introducing the Obalon Balloon System.~~

Recent Developments

On ~~July 27, 2022, the Company announced that its Board~~March 13, 2023 we entered into a lease for approximately 5,038 square feet of ~~Directors has appointed Paul F. Hickey as President~~office/warehouse space at 18 Technology Drive, Suite 110, Irvine, California 92618 and ~~Chief Executive Officer and a member of the Board of Directors, effective August 15, 2022. Mr. Hickey succeeds Bart Bandy, who has separated~~intend to relocate our principal executive offices from the Company to pursue other opportunities. Thomas Stankovich, Chief Financial Officer of the Company, will serve as Interim President and Chief Executive Officer until Mr. Hickey joins the Company. Dan W. Gladney,our current ~~Chair of the Board of Directors, will assume a more active role as Executive Chair, supporting Mr. Hickey and the Company on strategic matters.~~

~~On February 16, 2022, the Company renewed the office space lease in~~ San Clemente, California ~~for one year. This~~location to the Irvine, California location. The Irvine California lease ~~renewal will commence~~has a term of 36 months commencing on ~~July~~May 1, ~~2022, and end on June 30,~~ 2023.

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Results of Operations

The following table sets forth certain data from our unaudited consolidated statements of operations expressed as percentages of revenue (in thousands):


	Three Months Ended June 30,								Six Months Ended June 30,								Three Months Ended March 31,
	2022				2021				2022				2021				2023				2022
Revenue	$	2,892	100.0	%	$	3,529	100.0	%	$	5,332	100.0	%	$	6,750	100.0	%	$	2,287	100.0	%	$	2,440	100.0	%
Cost of goods sold		1,009	34.9	%		1,376	39.0	%		2,231	41.7	%		2,314	34.3	%
Cost of revenue																		1,063	46.5	%		1,222	50.1	%
Gross profit		1,883	65.1	%		2,153	61.0	%		3,101	58.3	%		4,436	65.7	%		1,224	53.5	%		1,218	49.9	%
Operating expenses:
Sales and marketing		4,663	161.2	%		1,441	40.8	%		9,371	175.8	%		2,691	39.9	%		2,182	95.4	%		4,694	192.4	%
General and administrative		5,454	188.6	%		4,311	122.2	%		9,616	180.3	%		7,031	104.2	%		4,220	184.5	%		3,892	159.5	%
Research and development		761	26.3	%		103	2.9	%		1,508	28.3	%		674	10.0	%		453	19.8	%		745	30.5	%
Loss on disposal of assets, net		381	13.2	%		—	—	%		381	7.1	%		—	—	%
Total operating expenses		11,259	389.3	%		5,855	165.9	%		20,876	391.5	%		10,396	154.1	%		6,855	299.7	%		9,331	382.4	%
Operating loss		(9,376)	(324.2)	%		(3,702)	(104.9)	%		(17,775)	(333.2)	%		(5,960)	(88.4)	%		(5,631)	(246.2)	%		(8,113)	(332.5)	%
Other expense (income), net:
Interest expense, net		(14)	(0.5)	%		172	4.9	%		(15)	(0.3)	%		771	11.4	%
Loss on extinguishment of debt, net		—	—	%		101	2.9	%		—	—	%		2,061	30.5	%
Gain on foreign currency		204	7.1	%		(101)	(2.9)			188	3.5	%		(69)	(1.0)	%
Other, net		1	—	%		—	—	%		(9)	(0.2)	%		—	—	%
Interest expense (income), net																		5	0.2	%		(1)	—	%
Gain on changes in fair value of liability warrants																		(2,965)	(129.6)	%		—	—	%
Gain on foreign currency exchange, net																		(21)	(0.9)	%		(16)	(0.7)	%
Other																		(2)	(0.1)	%		(11)	(0.5)	%
Loss before income tax provision		(9,567)	(330.8)	%		(3,874)	(109.8)	%		(17,939)	(336.6)	%		(8,723)	(129.3)	%		(2,648)	(115.8)	%		(8,085)	(331.4)	%
Income tax expense (benefit)		9	0.3	%		28	0.8	%		(148)	(2.8)	%		53	0.8	%
Income tax benefit																		14	0.6	%		30	1.2	%
Net loss	$	(9,576)	(331.1)	%	$	(3,902)	(110.6)	%	$	(17,791)	(333.9)	%	$	(8,776)	(130.1)	%	$	(2,662)	(116.5)	%	$	(8,115)	(332.6)	%

Non-GAAP Disclosures

In addition to the financial information prepared in conformity with GAAP, we provide certain historical non-GAAP financial information. Management believes that these non-GAAP financial measures assist investors in making comparisons of period-to-period operating results.

Management believes that the presentation of this non-GAAP financial information provides investors with greater transparency and facilitates comparison of operating results across a broad spectrum of companies with varying capital structures, compensation strategies, and amortization methods, which provides a more complete understanding of our financial performance, competitive position, and prospects for the future. However, the non-GAAP financial measures presented in the Form 10-Q have certain limitations in that they do not reflect all of the costs associated with the operations of our business as determined in accordance with GAAP. Therefore, investors should consider non-GAAP financial measures in addition to, and not a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. Further, the non-GAAP financial measures presented by the Company may be different from similarly named non-GAAP financial measures used by other companies.

Adjusted EBITDA

Management uses adjusted EBITDA in its evaluation of the Company’s core results of operations and trends between fiscal periods and believes that these measures are important components of its internal performance measurement process. Adjusted EBITDA is defined as net loss before interest, taxes, depreciation and amortization, stock-based compensation, and other one-time costs.

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The following table contains a reconciliation of GAAP net loss to ~~non-GAAP~~Adjusted EBITDA net loss attributable to common stockholders for the ~~three and six~~ months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~ (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2022		2021		2022		2021		2023		2022
GAAP net loss	$	(9,576)	$	(3,902)	$	(17,791)	$	(8,776)	$	(2,662)	$	(8,115)
Adjustments:
Interest (income) expense, net		(14)		172		(15)		771
Income tax expense (benefit)		9		28		(148)		53
Interest expense (income), net										5		(1)
Income tax benefit										14		30
Depreciation and amortization		545		450		1,095		868		48		550
Stock-based compensation expense		823		(364)		1,570		(263)		222		719
Loss on disposal of assets, net		381		—		381		—
Loss on extinguishment of debt, net		—		101		—		2,061
Professional fees incurred in connection with the Obalon merger		—		2,277		—		2,277
Non-GAAP loss	$	(7,832)	$	(1,238)	$	(14,908)	$	(3,009)
Gain on changes in fair value of liability warrants										(2,965)		—
Adjusted EBITDA									$	(5,338)	$	(6,817)

Comparison of Results of Operations

Three months ended ~~June 30,~~March 31, 2023 and March 31, 2022 ~~and June 30, 2021~~

Revenue. The following table summarizes our unaudited revenue by geographic location based on the location of customers for the three months ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021,~~ as well as the percentage of each location to total revenue and the amount of change and percentage of change (dollars in thousands):


	Three Months Ended June 30,								Amount		Percentage		Three Months Ended March 31,								Amount		Percentage
	2022				2021				Change		Change		2023				2022				Change		Change
United States	$	2,308	79.8	%	$	2,633	74.6	%	$	(325)	(12.3)	%	$	1,813	79.3	%	$	1,844	75.6	%	$	(31)	(1.7)	%
Australia		188	6.5	%		277	7.8	%		(89)	(32.1)	%		157	6.9	%		181	7.4	%		(24)	(13.3)	%
Europe		389	13.5	%		590	16.7	%		(201)	(34.1)	%		304	13.3	%		414	17.0	%		(110)	(26.6)	%
Rest of world		7	0.2	%		29	0.8	%		(22)	(75.9)	%		13	0.5	%		1	—	%		12	1,200.0	%
Total revenue	$	2,892	100.0	%	$	3,529	99.9	%	$	(637)	(18.1)	%	$	2,287	100.0	%	$	2,440	100.0	%	$	(153)	(6.3)	%

Revenue totaled ~~$2.9~~$2.3 million for the three months ended ~~June 30, 2022,~~March 31, 2023, which represents a contraction of ~~18.1%~~6.3%, or ~~$0.6~~$0.2 million ~~for~~compared to the same period in ~~2021.~~2022. The primary reason for the decrease, is due to a decrease in sales throughout Europe. During the ~~emergence in late 2021 of~~three months ended March 31, 2023, the ~~fast-spreading omicron variant of COVID-19~~Company placed more focus on domestic sales, resulting in a significant rise in global cases causing a significant number of bariatric centers to close December 2021 through February 2022. We did see revenue begin to increase, as the omicron variant began to subside.lower international sales. Our expectation is revenue will continue to increase through the remainder of ~~2022,~~2023, as we are focusing on a targeted digital media campaign near bariatric surgical centers that sell the Lap-Band system and have ~~witnessed a significant growth in~~fully launched our ~~web traffic and doctor consultations, attributable to the direct to consumer marketing campaign we launched during the fourth quarter~~three new sizes of ~~2021.~~calibration tubes.

Cost of Goods Sold and Gross Profit. The following table summarizes our unaudited cost of revenue and gross profit for the three months ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021,~~ as well as the percentage compared to total revenue and amount of change and percentage of change (dollars in thousands):


	Three Months Ended June 30,								Amount		Percentage		Three Months Ended March 31,								Amount		Percentage
	2022				2021				Change		Change		2023				2022				Change		Change
Revenue	$	2,892	100.0	%	$	3,529	100.0	%	$	(637)	(18.1)	%	$	2,287	100.0	%	$	2,440	100.0	%	$	(153)	(6.3)	%
Cost of goods sold		1,009	34.9	%		1,376	39.0	%		(367)	(26.7)	%
Cost of revenue														1,063	46.5	%		1,222	50.1	%		(159)	(13.0)	%
Gross profit	$	1,883	65.1	%	$	2,153	61.0	%	$	(270)	(12.5)	%	$	1,224	53.5	%	$	1,218	49.9	%	$	6	0.5	%

Gross Profit. Gross profit for both the three months ended ~~June 30,~~March 31, 2023 and 2022, was ~~$1.9 million, compared to $2.2 million for the same period in 2021, a decrease of $0.3~~$1.2 million. Gross profit as a percentage of total revenue for the three months ended ~~June 30, 2022,~~March 31, 2023, was ~~65.1%~~53.5% compared to ~~61.0%~~49.9% for the same period in ~~2021.~~2022. The ~~decrease~~increase in gross profit percentage is due to athe Company becoming more efficient and looking for cost reduction within our manufacturing processes.

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reduction in revenue. However, the gross profit margin increased over the same period from the prior year, as during the three months ended June 30, 2022 we had a higher percentage of domestic sales than the same period in the prior year, which has a greater margin than international sales.

Operating Expense. The following table summarizes our unaudited operating expenses for the three months ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021,~~ as well as the percentage of total revenue and the amount of change and percentage of change (dollars in thousands):


	Three Months Ended June 30,								Amount		Percentage		Three Months Ended March 31,								Amount		Percentage
	2022				2021				Change		Change		2023				2022				Change		Change
Sales and marketing	$	4,663	161.2	%	$	1,441	40.8	%	$	3,222	223.6	%	$	2,182	95.4	%	$	4,694	192.4	%	$	(2,512)	(53.5)	%
General and administrative		5,454	188.6	%		4,311	122.3	%		1,143	26.5	%		4,220	184.5	%		3,892	159.6	%		328	8.4	%
Research and development		761	26.3	%		103	2.9	%		658	638.8	%		453	19.8	%		745	30.5	%		(292)	(39.2)	%
Loss on disposal of assets, net		381	13.2	%		—	—	%		381	100.0	%
Total operating expenses	$	11,259	389.3	%	$	5,855	166.0	%	$	5,404	92.3	%	$	6,855	299.7	%	$	9,331	382.5	%	$	(2,476)	(26.5)	%

Sales and Marketing Expense. Sales and marketing expenses for the three months ended ~~June 30, 2022, increased~~March 31, 2023, decreased by ~~$3.2~~$2.5 million, or ~~223.6%~~53.5%, to ~~$4.7~~$2.2 million, compared to ~~$1.4~~$4.7 million for the same period in ~~2021.~~2022. The ~~increase~~decrease is primarily due to ~~an increase~~a decrease of $2.4 million in advertising and marketing ~~costs of $1.8 million,~~expenses, as the Company ~~launched~~has reevaluated its ~~direct~~marketing approach and has moved to ~~consumer~~a targeted digital marketing campaign, ~~during the fourth quarter~~resulting in a reduction of 2021 and expanded this campaign during 2022, increasing its presence within video, print and social media platforms, and starting during the second quarter of 2022 the Company is expanding into digital media. In addition, wecosts. We also had ~~an increase~~a reduction in payroll ~~related expenses~~expenditure, including commissions of ~~$0.6~~$0.2 million, ~~as we continue~~due to ~~strengthen our commercial organization and have hired a senior VP of Commercial Operations, as well as additional~~changes in sales personnel and lower sales. There was also a reduction in stock based compensation expenses of $0.1 million. This was offset by an increase ~~of $0.2 million in travel expenditures due to the relaxing of COVID-19 travel restrictions. The Company also had an increase of $0.4 million~~ in consulting and professional ~~fees regarding~~services of $0.2 million, as we are working on developing the ~~launching of the digital media platforms.~~ReShape Care platform.

General and Administrative Expense. General and administrative expenses for the three months ended ~~June 30, 2022, increased~~March 31, 2023, increase by ~~$1.1~~$0.3 million, or ~~26.5%~~8.4%, to ~~$5.4~~$4.2 million, compared to ~~$4.3~~$3.9 million for the same period in ~~2021.~~2022. The increase is ~~primarily~~ due to ~~the Company recording litigation losses during the three months ended June 30, 2022~~one-time adjustments for professional services of ~~$2.0~~$1.7 million an increase in stock-based compensation expense of $0.9 million, an increase in payroll expenses of $0.5 million, as the Company is making strategic organizational changes, and an increase in rent and facilities, directly attributableprimarily related to the ~~merger with Obalon.~~February public offering. This iswas offset by a decrease of ~~$2.3~~$0.4 million in ~~audit, consulting~~stock-based compensation expense and ~~other professional fees,~~$0.4 million in payroll related expenditure due to changes in personnel. Additionally, we had a decrease in amortization cost of $0.4 million as we ~~had significant related costs~~impaired our finite lived intangible assets during the ~~second~~fourth quarter of ~~2021 due to the merger with Obalon.~~2022. We also had a decrease in ~~bad debt expense~~rent of ~~$0.2~~$0.1 million as the ~~Company has focused~~lease in Carlsbad, California terminated during June 2022. We had many miscellaneous reductions in general and administrative expenses, as we are continuously working on ~~collections which has resulted in better collections of many past due accounts.~~efficiencies and cost reduction efforts.

Research and Development Expense. Research and development expenses for the three months ended ~~June 30, 2022, increased~~March 31, 2023, decreased by ~~$0.7~~$0.3 million, or ~~638.8%~~39.2%, to ~~$0.8~~$0.5 million, compared to ~~$0.1~~$0.8 million for the same period in ~~2021.~~2022. The increase is due to an increase of $0.4 million in clinical trials and related consulting fees, and an increase of approximately $0.3 million in payroll expenses including a stock-based compensation expense.

~~Loss on Disposal of Assets, net~~~~. During the three months ended June 30, 2022, the Company disposed of $0.4 million of assets that were acquired from the merger with Obalon.~~

~~Net Interest (Income) Expense.~~ Net interest income for the three months ended June 30, 2022, was minimal, compared to an expense of $0.2 million in 2021, which related to the debt that was extinguished during the second quarter of 2021.

~~(Gain) Loss on Foreign Currency.~~ ~~The Company had a loss on foreign currency of $0.2 million for the three months ended June 30, 2022, compared to a gain of $.1 million for the same period in 2021.~~

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~~Six months ended June 30, 2022 and June 30, 2021~~

~~Revenue.~~ The following table summarizes our unaudited revenue by geographic location based on the location of customers for the six months ended June 30, 2022 and 2021, as well as the percentage of each location to total revenue and the amount of change and percentage of change (dollars in thousands):

Six Months Ended June 30,

Amount

Percentage

2022

2021

Change

Change

United States
$
4,152

77.9
%

$
5,153

76.3
%

$
(1,001)

(19.4)
%
Australia

369

6.9
%

570

8.4
%

(201)

(35.3)
%
Europe

803

15.2
%

969

14.5
%

(166)

(17.1)
%
Rest of world

8

0.2
%

58

0.9
%

(50)

(86.2)
%
Total revenue
$
5,332

100.2
%

$
6,750

100.1
%

$
(1,418)

(21.0)
%

Revenue totaled $5.3 million for the six months ended June 30, 2022, which represents a contraction of 21.0%, or $1.4 million for the same period in 2021. The primary reason, is due to the emergence in late 2021 of the fast-spreading omicron variant of COVID-19 resulting in a significant rise in global cases causing a significant number of bariatric centers to close December 2021 through February 2022. We have been experiencing an increase in revenue compared to January and February 2022, as the omicron variant began to subside. Our expectation is revenue will continue to increase through the remainder of 2022, as we have witnessed a significant growth in our web traffic and doctor consultations, attributable to the direct to consumer marketing campaign we launched during the fourth quarter of 2021.

~~Cost of Goods Sold and Gross Profit.~~ The following table summarizes our unaudited cost of revenue and gross profit for the six months ended June 30, 2022 and 2021, as well as the percentage compared to total revenue and amount of change and percentage of change (dollars in thousands):

Six Months Ended June 30,

Amount

Percentage

2022

2021

Change

Change

Revenue
$
5,332

100.0
%

$
6,750

100.0
%

$
(1,418)

(21.0)
%
Cost of goods sold

2,231

41.8
%

2,314

34.3
%

(83)

(3.6)
%
Gross profit
$
3,101

58.2
%

$
4,436

65.7
%

$
(1,335)

(30.1)
%

~~Gross Profit.~~ ~~Gross profit for the six months ended June 30, 2022, was $3.1 million, compared to $4.4 million for the same period in 2021, a~~ decrease ~~of $1.3 million. Gross profit as a percentage of total revenue for the six months ended June 30, 2022, was 58.2% compared to 65.7% for the same period in 2021. The decrease in gross profit margin~~ is primarily due to a ~~reduction~~decrease of $0.2 million in ~~revenue compiled with department~~payroll expenses and ~~during the first quarter of 2022 we had~~ a ~~significant increase in consulting services, reducing our margin.~~

~~Operating Expenses.~~ The following table summarizes our unaudited operating expenses for the six months ended June 30, 2022, and 2021, as well as the percentage of total revenue and the amount of change and percentage of change (dollars in thousands):

Six Months Ended June 30,

Amount

Percentage

2022

2021

Change

Change

Sales and marketing
$
9,371

175.8
%

$
2,691

39.9
%

$
6,680

248.2
%
General and administrative

9,616

180.3
%

7,031

104.2
%

2,585

36.8
%
Research and development

1,508

28.3
%

674

10.0
%

834

123.7
%
Loss on disposal of assets, net

381

7.1
%

—

—
%

381

—
%
Total operating expenses
$
20,876

391.5
%

$
10,396

154.0
%

$
10,480

100.8
%

~~Sales and Marketing Expense.~~ Sales and marketing expenses for the six months ended June 30, 2022, increased by $6.7 million, or 248.2%, to $9.4 million, compared to $2.7 million for the same period in 2021. The increase is primarily due to an increase in advertising and marketing costs of $4.6 million. The Company launched its direct to consumer marketing campaign during the fourth quarter of 2021 and expanded this campaign during 2022. This increased its presence within video, print and social media platforms, and during the second quarter of 2022, the Company is

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expanding into digital media. In addition, we had an increase in payroll related expenses of $1.0 million, as we continue to strengthen our commercial organization and have hired a senior VP of Commercial Operations, as well as additional sales personnel. We also had an increase in stock-based compensation expense of $0.3 million. The Company had an increase of travel expensesreduction of $0.1 million ~~primarily due to relaxing of COVID-19 restrictions.~~

~~General and Administrative Expense.~~ ~~General and administrative expenses for the six months ended June 30, 2022, increased by $2.6 million, or 36.8%, to $9.6 million, compared to $7.0 million for the same period~~ in 2021. The increase is primarily due to the Company recording litigation losses during the six months ended June 30, 2022 of $2.0 million, an increase of $1.4 million in stock-based compensation expense, an increase in payroll of $0.9 million, as the Company is making strategic organizational changes, and an increase of $0.5 million in rent and facilities and insurance, directly attributable to the merger with Obalon, and $0.2 million in legal expenses. This was offset by a decrease in audit, consulting and ~~other professional fees of $2.2 million, as we had significant~~clinical related costs during the second quarter of 2021 due to the merger with Obalon. We also had a decrease in bad debt expense of $0.2 million, as the Company has focused on collections which has resulted in better collections of many past due accounts.

~~Research and Development Expense~~. Research and development expenses for the six months ended June 30, 2022, increased by $0.8 million, or 123.7%, to $1.5 million, compared to $0.7 million for the same period in 2021. The increase is primarily due to an increase of $0.4 million in clinical trials and related consulting fees of $0.4 million and an increase of $0.4 million in payroll related expenses including an increase in stock-based compensation expense.

~~Loss on Disposal of Assets, net~~~~. During the six months ended June 30, 2022, the Company disposed of $0.4 million of assets that were acquired from the merger with Obalon.~~

~~Net Interest Expense.~~ Net interest income for the six months ended June 30, 2022, was minimal, compared to an expense of $0.8 million in 2021, which related to the debt that was extinguished during the second quarter of 2021.

~~(Gain) Loss on Foreign Currency.~~ The Company had a minimal gain on foreign currency during the six months ended June 30, 2022 as the gains recognized during the first quarter were offset by loss on foreign currency during the second quarter of 2022.

~~Income Tax (Benefit) Expense~~. The Company had an income tax benefit of $0.1 million for the six months ended June 30, 2022, due to a reduction in the valuation allowance related to an impairment of indefinite lived assets, offset by income tax expense related to projected income in the Netherlands and Australia.expenses.

Liquidity and Capital Resources

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~~as the Company has modified its strategy to ~~the unpredictability of new variants of COVID-19, which may result in~~ a ~~slow-down of elective surgeries~~metrics-driven approach through a sustainable and ~~restrictions in some locations.~~scalable business model, via a digital lead generation and re-engagement strategy As of ~~June 30, 2022,~~March 31, 2023, the Company had net working capital of approximately ~~$10.3~~$7.6 million, primarily due to cash and cash equivalents and restricted cash of ~~$11.5~~$9.1 million. The Company’s principal source of liquidity as of ~~June 30, 2022,~~March 31, 2023, consisted of approximately ~~$11.5~~$9.1 million of cash and cash equivalents and restricted cash, and ~~$2.4~~$2.1 million of accounts receivable. 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 believes in the viability of its business strategy and in its ability to raise additional funds, however, there can be no assurance to that effect.

~~The Company is also evaluating further funding options, including seeking additional equity or debt financing to support the expansion of the Lap-Band system, reshape~~~~care~~~~, and the continued development of the ReShape Vest and the ReShape Diabetes Bloc-Stim Neuromodulation; and the re-introduction of the Obalon Balloon System and other strategic market opportunities.~~

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The following table summarizes our change in cash and cash equivalents and restricted cash (in thousands):


					Three Months Ended
	Six Months Ended				March 31,
	June 30,				2023		2022
	2022		2021				As Restated
Net cash used in operating activities	$	(13,800)	$	(4,149)	$	(5,061)	$	(7,378)
Net cash provided by investing activates		20		5,011
Net cash (used in) provided by investing activates						(7)		2
Net cash provided by financing activities		2,489		36,332		10,201		—
Effect of exchange rate changes		20		12		(5)		21
Net change in cash and cash equivalents	$	(11,271)	$	37,206
Net change in cash and cash equivalents and restricted cash					$	5,128	$	(7,355)

Net Cash Used in Operating Activities

Net cash used in operating activities from operations was ~~$13.8~~$5.1 million and ~~$4.1~~$7.4 million for the ~~six~~three months ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively. For the ~~six~~three months ended ~~June 30,~~March 31, 2023, net cash used in operating activities was primarily the result of our net loss of $2.7 million, partially offset by non-cash adjustments for stock-based compensation expense of $0.2 million and non-cash offering cost of $0.3 million, offset by a negative cash impact related to gains recognized for changes in fair value of liability warrants of $3.0 million. We show a negative cash impact to prepaid expenses of $0.4 million. This was offset by a positive cash impact to inventory of $0.1 million and accounts payable and accrued liabilities of $0.3 million.

For the three months ended March 31, 2022, net cash used in operating activities was primarily the result of our net loss of ~~$17.8~~$8.1 million, partially offset by non-cash adjustments for stock-based compensation expense of ~~$1.6~~$0.7 million, amortization of intangible assets of ~~$0.9~~$0.5 million, depreciation expense of ~~$0.2~~$0.1 million, and provision for excess and obsolete inventory ~~of $0.1 million, loss on disposal of assets of $0.4 million and a charge in deferred income tax of $0.2 million, offset by non-cash reduction of expense for bad debt expense~~ of $0.1 million. We show a negative cash impact to inventory of ~~$1.4~~$1.1 million, as the Company is building up its inventory to meet the expected increase in demand due to the direct to consumer marketing campaign and ~~warranty liability~~a negative cash impact to prepaid and other current assets of ~~$0.2~~$0.1 million. This was offset by a positive cash impact to accounts ~~payable and accrued liabilities of $1.7 million, accounts~~ and other receivables of ~~$0.5~~$0.4 million and ~~prepaid expenses of $0.4 million.~~

For the six months ended June 30, 2021, net cash used in operating activities was primarily the result of our net loss of $8.8 million, partially offset by non-cash adjustments for amortization of intangible assets of $0.8 million, net loss on extinguishment of debt of $2.1 million, and amortization of debt discount of $0.5 million, offset by the cancellation of unvested stock options of $0.3 million. In addition, we had an increase in sales that resulted in a cash inflow related to inventory of $0.5 million, as well as a positive cash effect related to accounts payable and accrued liabilities of $1.9 million and other long-term assets of $0.3 million. This was offset by a $0.9 million negative cash effect from increased accounts receivable primarily attributable to late sales during the second quarter and an increase in prepaids and current assets of $0.3$0.2 million.

Net Cash ~~Provided~~ (Used in) Provided by Investing Activities

Net cash (used in) and provided by investing activities for the ~~six~~three months ended ~~June 30,~~March 31, 2023 and 2022, was minimal.

Net cash provided by investing activities for the six months ended June 30, 2021 was $5.0 million, which comprised of $5.2 million of cash received in connection with the merger with Obalon, offset by capital expenditures $0.2 million related to the process of moving manufacturing from Costa Rica to the United States, and product development.

Net Cash Provided by Financing Activities

Net cash provided by financing activities was ~~$2.5~~$10.2 million for the ~~six~~three months ended ~~June 30, 2022,~~March 31, 2023, due to the proceeds received from ~~an exercise of warrants from an institutional investor.~~the public offering completed during February 2023, less costs to complete the transaction.

~~Net~~There was no cash ~~provided by~~flows financing activities ~~was $36.3 million for~~during the ~~six~~three months ended ~~June 30, 2021, due~~March 31, 2022.

Operating Capital and Capital Expenditure Requirements

The Company currently does not generate revenue sufficient to ~~proceeds~~offset operating costs and anticipates such shortfalls to continue as the Company has modified its strategy. The Company’s anticipated operations include plans to (i) grow sales and operations of ~~$45.6 million received from exercises~~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) ramp up a focused approach of ~~warrants from institutional investors, $1.0 million received from~~marketing to increase brand recognition, create customer awareness and increase the ~~credit agreement with an institutional investor,~~patient demand, (iv) continue development of the DBSN device, (v) seek opportunities to leverage our intellectual property portfolio and ~~$0.2 million~~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 ~~proceeds received from stock option exercises, offset by~~ the ~~early payment~~obesity continuum of ~~$10.5 million~~care, including Lap-Band 2.0 and the Obalon Balloon System. The Company believes that it has the flexibility to ~~pay off~~manage the ~~credit agreement.~~growth of its expenditures and operations depending on the

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~~Operating Capital and Capital Expenditure Requirements~~

~~Given the Company’s projected operating requirements and its existing~~amount of available cash ~~and cash equivalents management’s plans~~flows, which could include evaluating different strategies to obtain the required funding of future operations. Our anticipated operations include plans to (i) integrate the sales and operations of the Company with the Lap-Band product line in order to expand sales domestically and internationally (ii) improve operational efficiencies, resulting in a reduction of operational expenses, as well as a reduction to marketing and advertising costs, primarily due to focusing on digital media rather than television and print and (iii) to continue promoting reshapecare as an addition to bariatric surgery or as an alternative to individuals that do not meet the criteria and/or do not want to go through bariatric surgery. If sales do not improve, we will reduce ourreducing expenditures for marketing, clinical and product development activities to maintain operational activities until a period of time in which we could obtain additional debt or equity financing to support our operations. However, there can be no assurance that the Company will be able to secure such additional financing. 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.

Our forecast of the period of time through which our financial resources will be adequate to support our operations, the costs to complete development of products and the cost to commercialize our products are forward-looking statements and involve risks and uncertainties, and actual results could vary materially and negatively as a result of a number of factors, including the factors discussed in Part I, Item 1A, “~~Risk Factors”~~~~, of our Annual Report on Form 10-K. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.~~activities.

Because of the numerous risks and uncertainties associated with the development of medical devices, such as our ~~ReShape Vest and~~ Diabetes Bloc-Stim Neuromodulation, we are unable to estimate the exact amounts of capital outlays and operating expenditures necessary to complete the development of the ~~ReShape Vest and~~ Diabetes Bloc-Stim Neuromodulation or other additional products and successfully deliver a commercial product to the market. Our future capital requirements will depend on many factors, including, but not limited to, the following:

●

the cost and timing of establishing sales, marketing and distribution capabilities;

●

the cost of establishing clinical and commercial supplies of our ~~ReShape Vest and~~ Diabetes Bloc-Stim Neuromodulation, and any ~~products that we may develop;~~product candidates;

●

the rate of market acceptance of our ~~ReShape Vest and~~ Diabetes Bloc-Stim Neuromodulation, and any other product candidates;

●

the cost of filing and prosecuting patent applications and defending and enforcing our patent and other intellectual property rights;

●

the cost of defending, in litigation or otherwise, any claims that we infringe third-party patent or other intellectual property rights;

●

the effect of competing products and market developments;

●

the cost of explanting clinical devices;

●

the terms and timing of any collaborative, licensing or other arrangements that we may establish;

●

any revenue generated by sales of our Lap-Band, ~~reshape~~~~care~~,ReShapeCare, ReShape Marketplace, Obalon Balloon System, ~~ReShape Vest,~~ Diabetes Bloc-Stim Neuromodulation or our future products;

●

the scope, rate of progress, results and cost of our clinical trials and other research and development activities;

●

the cost and timing of obtaining any further required regulatory approvals; and

●

the extent to which we invest in products and technologies, although we currently have no commitments or agreements relating to any of these types of transactions.

~~Table of Contents~~

Critical Accounting Policies and Estimates

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. Information with respect to our critical accounting policies and estimates which we believe could have the most significant effect on our reported results and require subjective or complex judgments by management is contained in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” of our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. There have been no significant changes from the information discussed therein.

During the three ~~and six~~ months ended ~~June 30, 2022~~March 31, 2023 there were no material changes to our significant accounting policies above, which are fully described in Note 24 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Recent Accounting Pronouncements

See Note 1 to our condensed consolidated financial statements for a discussion of recent accounting pronouncements.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required to provide disclosure pursuant to this item.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), defines the term “disclosure controls and procedures” as those controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Our internal control system was designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. An internal control material weakness is a significant deficiency, or aggregation of deficiencies, that does not reduce to a relatively low level the risk that material misstatements in financial statements will be prevented or detected on a timely basis by employees in the normal course of their work. An internal control significant deficiency, or aggregation of deficiencies, is one that could result in a misstatement of the financial statements that is more than inconsequential. In making its assessment of internal control over financial reporting management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013). Our management assessed the effectiveness of our internal control over financial reporting as of ~~June 30, 2022,~~March 31, 2023, and determined that our internal control over financial reporting was not effective at a reasonable assurance level due to the following material ~~weaknesses~~weakness in our internal control over financial reporting:

Control Environment: We had insufficient internal resources with appropriate accounting and finance knowledge and expertise to design, implement, document and operate effective internal controls around our financial reporting process. The insufficient internal resources resulted in ~~a lack~~misstatements of ~~review over~~ our revenue recognition, stock based compensation, weighted average share calculation, ~~spreadsheet which included~~disclosures of income taxes and expense cut off at period end.

Purchase Accounting: The Company did not design and maintain effective management review controls at a ~~formula error resulting~~sufficient level of precision over the accounting for transactions related to the prepaid D&O insurance policy purchased in connection with the merger transaction in June 2021. This material weakness resulted in certain material corrections to the financial statements and in the ~~inaccurate reporting~~restatement of ~~our earnings per share.~~the Company’s financial statements for the annual and interim consolidated financial statements for the year ended December 31, 2021, and the interim consolidated financial statements in the quarters in the year ended December 31, 2022.

~~Table~~Income Taxes: The Company did not design and maintain effective management review controls at a sufficient level of ~~Contents~~precision over the accounting for income taxes.

Journal entry access and review: The Company did not have effective processes to ensure that all journal entries were properly approved prior to being posted to the general ledger. Furthermore, a segregation of duties conflict is present as certain individuals have the ability to both prepare and post journal entries to the general ledger.

Information technology access and change management: A segregation of duties conflict is present as access and approval rights to the Company’s information technology systems are not reviewed on a timely basis. Furthermore, certain individuals have the ability to develop and deploy changes to production which could create a segregation of duties risk.

We are currently implementing our remediation plan to address the material weaknesses identified above. Such measures include:

●

Hiring additional accounting personnel to ensure timely reporting of significant matters.

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●

Designing and implementing controls to formalize roles and review responsibilities to align with our team's skills and experience and designing and implementing formalized controls.

●

Designing and implementing formal processes, policies and procedures supporting our financial close process.

●

Design a formal review of a monthly journal entry report to ensure journal entries are appropriately approved within a timely manner.

Changes in Internal Control over Financial Reporting

Other than in connection with executing upon the continued implementation of the remediation measures referenced above, there have been no changes in our internal controls over financial reporting during the quarter ended ~~June 30, 2022,~~March 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors set forth in Item 1A. “Risk Factors” of our ~~2021~~2022 Annual Report on Form 10-K filed on April ~~8, 2022.~~17, 2023.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales of Equity Securities

None, except as described above in this Form 10-Q.

Uses of Proceeds from Sale of Registered Securities

None.

Purchases of Equity Securities

None.

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

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ITEM 6. EXHIBITS


Exhibit No.		Description

4.1		Form of ~~New~~Common Warrant (incorporated by reference to Exhibit 4.1 to Amendment No. 3 to Registration Statement on Form S-1 filed by ReShape Lifesciences Inc. on February 3, 2023).

4.2	Form of Pre-Funded Warrant (incorporated by reference to Exhibit 4.2 to Amendment No. 1 to Registration Statement on Form S-1 filed by ReShape Lifesciences Inc. on January 27, 2023)

4.3	Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on ~~June 23, 2022).~~April 26, 2023)

4.4	Form of Pre-funded Warrant (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 26, 2023)

10.1	~~Warrant Exercise~~Lease Agreement, dated ~~June 16, 2022,~~March 13, 2023, by and ~~among ReShape Lifesciences Inc.~~between The Irvine Company LLC and the ~~investor party thereto~~Company (incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 17, 2023)

10.2	Form of Securities Purchase Agreement, dated April 20, 2023, by and between the Company and the Investor (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on ~~June 23, 2022).~~April 26, 2023)

31.1**		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2**		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101**		Financial statements from the Quarterly Report on Form 10-Q of the Company for the quarter ended ~~June 30, 2022,~~March 31, 2023, formatted in Inline XBRL: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Stockholders’ Equity, (iv) the Condensed Consolidated Statements of Cash Flows and (v) the Notes to Condensed Consolidated Financial Statements.

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

**	Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	RESHAPE LIFESCIENCES INC.

	BY:	/S/ paul f. hickey
		Paul F. Hickey
		President and Chief Executive Officer
		(principal executive officer)

	BY:	/S/ thomas stankovich
		Thomas Stankovich
		Senior Vice President and Chief Financial Officer
		(principal financial and accounting officer)

Dated: ~~August 19, 2022~~May 15, 2023

3627


	Three 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 March 31, 2022	95,388	$	—	18,597,522	$	19	$	623,652	$	(584,975)	$	(71)	$	38,625
Net loss	—		—	—		—		—		(9,576)		—		(9,576)
Other comprehensive loss, net of tax	—		—	—		—		—		—		(1)		(1)
Stock compensation	—		—	—		—		823		—		—		823
Issuance of stock from RSUs	—		—	143,544		—		—		—		—		—
Exercise of warrants	—		—	888,642		1		2,491		—		—		2,492
Balance June 30, 2022	95,388	$	—	19,629,708	$	20	$	626,966	$	(594,551)	$	(72)	$	32,363


	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	$	—	17,831,875	$	18	$	622,906	$	(576,760)	$	(92)	$	46,072
Net loss	—		—	—		—		—		(17,791)		—		(17,791)
Other comprehensive income, net of tax	—		—	—		—		—		—		20		20
Stock compensation	—		—	—		—		1,570		—		—		1,570
Issuance of stock from RSUs	—		—	909,191		1		(1)		—		—		—
Exercise of warrants	—		—	888,642		1		2,491		—		—		2,492
Balance June 30, 2022	95,388	$	—	19,629,708	$	20	$	626,966	$	(594,551)	$	(72)	$	32,363


	Three Months Ended June 30, 2021
	Series B Convertible			Series C Convertible						Additional				Accumulated		Total
	Preferred Stock			Preferred Stock			Common Stock			Paid-in		Accumulated		Comprehensive		Stockholders’
	Shares	Amount		Shares	Amount		Shares	Amount		Capital		Deficit		Income (Loss)		Equity
Balance March 31, 2021	3	$	—	95,388	$	1	3,486,253	$	3	$	532,507	$	(519,701)	$	(102)	$	12,708
Net loss	—		—	—		—	—		—		—		(3,902)		—		(3,902)
Other comprehensive income (loss), net of tax	—		—	—		—	—		—		—		—		(7)		(7)
Issuance of common stock pursuant to reverse acquisition	(3)		—	—		(1)	3,340,035		4		30,558		—		—		30,561
Reversal of stock compensation	—		—	—		—	—		—		(364)		—		—		(364)
Deferred issuance cost of shares held in abeyance	—		—	—		—	—		—		17,705		—		—		17,705
Exercise of warrants	—		—	—		—	1,250,470		1		1,202		—		—		1,203
Stock options exercised	—		—	—		—	91,864		—		215		—		—		215
Balance June 30, 2021	—	$	—	95,388	$	—	8,168,622	$	8	$	581,823	$	(523,603)	$	(109)	$	58,119


	Six Months Ended June 30, 2021
	Series B Convertible			Series C Convertible						Additional				Accumulated Other		Total
	Preferred Stock			Preferred Stock			Common Stock			Paid-in		Accumulated		Comprehensive		Stockholders’
	Shares	Amount		Shares	Amount		Shares	Amount		Capital		Deficit		Loss		Equity
Balance December 31, 2020	3	$	—	95,388	$	1	3,486,253	$	3	$	529,432	$	(514,827)	$	(121)	$	14,488
Net loss	—		—	—		—	—		—		—		(8,776)		—		(8,776)
Other comprehensive income, net of tax	—		—	—		—	—		—		—		—		12		12
Issuance of common stock pursuant to reverse acquisition	(3)		—	—		(1)	3,340,035		4		30,558		—		—		30,561
Reversal of stock compensation	—		—	—		—	—		—		(263)		—		—		(263)
Issuance of warrants	—		—	—		—	—		—		2,974		—		—		2,974
Deferred issuance cost for shares held in abeyance	—		—	—		—	—		—		17,705		—		—		17,705
Institutional exercise of warrants	—		—	—		—	1,250,470		1		1,202		—		—		1,203
Stock options exercised	—		—	—		—	91,864		—		215		—		—		215
Balance June 30, 2021	—	$	—	95,388	$	—	8,168,622	$	8	$	581,823	$	(523,603)	$	(109)	$	58,119


	Condensed Consolidated Statement of Operations
	As Previously
	Reported		Adjustment		As Revised
For the year ended December 31, 2020
Net loss per share - basic and diluted:
Net loss per share - basic and diluted	$	(5.54)	$	(0.01)	$	(5.55)
Shares used to compute basic and diluted net loss per share		3,904,762		(6,612)		3,898,150
Three months ended March 31, 2021
Net loss per share - basic and diluted:
Net loss per share - basic and diluted	$	(1.24)	$	—	$	(1.24)
Shares used to compute basic and diluted net loss per share		3,927,986		10,159		3,938,145
Three months ended June 30, 2021
Net loss per share - basic and diluted:
Net loss per share - basic and diluted	$	(0.47)	$	(0.39)	$	(0.86)
Shares used to compute basic and diluted net loss per share		8,226,144		(3,672,168)		4,553,976
Six months ended June 30, 2021
Net loss per share - basic and diluted:
Net loss per share - basic and diluted	$	(1.11)	$	(0.96)	$	(2.07)
Shares used to compute basic and diluted net loss per share		7,928,702		(3,682,642)		4,246,060
Three months ended September 30, 2021
Net loss per share - basic and diluted:
Net loss per share - basic and diluted	$	(1.48)	$	0.44	$	(1.04)
Shares used to compute basic and diluted net loss per share		11,997,370		5,090,884		17,088,254
Nine months ended September 30, 2021
Net loss per share - basic and diluted:
Net loss per share - basic and diluted	$	(2.51)	$	(0.56)	$	(3.07)
Shares used to compute basic and diluted net loss per share		10,546,683		(1,932,362)		8,614,321
For the year ended December 31, 2021
Net loss per share - basic and diluted:
Net loss per share - basic and diluted	$	(5.00)	$	(0.67)	$	(5.67)
Shares used to compute basic and diluted net loss per share		12,378,502		(1,452,519)		10,925,983
Three months ended March 31, 2022
Net loss per share - basic and diluted:
Net loss per share - basic and diluted	$	(0.44)	$	0.00	$	(0.44)
Shares used to compute basic and diluted net loss per share		18,539,568		11,700		18,551,268


	June 30, 2022
	Weighted Average Useful Life (years)	Gross Carrying Amount		Accumulated Amortization		Net Book Value
Finite-lived intangible assets:
Developed technology	10.8	$	17,092	$	(5,276)	$	11,816
Trademarks/Tradenames	10.0		2,045		(893)		1,152
Covenant not to compete	3.0		76		(76)		—
			19,213		(6,245)		12,968
Indefinite-lived intangible assets:
In-process research and development	indefinite		6,947		—		6,947
Total		$	26,160	$	(6,245)	$	19,915


	December 31, 2021
	Weighted Average Useful Life (years)	Gross Carrying Amount		Accumulated Amortization		Net Book Value
Finite-lived intangible assets:
Developed technology	10.8	$	17,092	$	(4,467)	$	12,625
Trademarks/Tradenames	10.0		2,045		(790)		1,255
Covenant not to compete	3.0		76		(76)		—
			19,213		(5,333)		13,880
Indefinite-lived intangible assets:
In-process research and development	indefinite		6,947		—		6,947
Total		$	26,160	$	(5,333)	$	20,827


Remainder of 2022	$	174
2023		173
2024		—
Total lease payments		347
Less: imputed interest		9
Total lease liabilities	$	338

Weighted-average remaining lease term at end of period (in years)		0.9
Weighted-average discount rate at end of period		5.1	%


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