ReShape Lifesciences 10-Q 14 Nov 17 2017 Q3 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2017	Oct. 31, 2017
Document And Entity Information
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2017
Document Fiscal Year Focus	2,017
Document Fiscal Period Focus	Q3
Trading Symbol	RSLS
Entity Registrant Name	ReShape Lifesciences Inc.
Entity Central Index Key	1,371,217
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		21,718,713

Condensed Consolidated Balance

Condensed Consolidated Balance Sheets - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents	$ 23,433,297	$ 3,310,787
Accounts receivable (net of allowance for bad debts of $20,000 at September 30, 2017 and December 31, 2016)	333,057	143,692
Inventory	1,586,629	1,789,578
Prepaid expenses and other current assets	252,473	476,624
Total current assets	25,605,456	5,720,681
Property and equipment, net	195,514	200,720
Goodwill	6,397,671
Other intangible assets (net of accumulated amortization of $44,777 at September 30, 2017)	21,842,409
Other assets	1,142,304	1,119,405
Total assets	55,183,354	7,040,806
Current liabilities:
Accounts payable	706,520	1,311,706
Accrued expenses	3,427,245	2,751,415
Total current liabilities	4,133,765	4,063,121
Common stock warrant liability	2,159	39,119
Total liabilities	4,135,924	4,102,240
Commitments and contingencies (Note 5)
Stockholders' equity:
Common stock, $0.01 par value; 300,000,000 shares authorized; 12,208,671 and 2,736,621 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively	122,087	27,366
Additional paid-in capital	376,057,278	303,852,582
Accumulated deficit	(325,142,047)	(300,941,382)
Total stockholders' equity	51,047,430	2,938,566
Total liabilities and stockholders' equity	55,183,354	7,040,806
Series A convertible preferred stock
Stockholders' equity:
Preferred stock, 5,000,000 shares authorized:
Conditional convertible preferred stock
Stockholders' equity:
Preferred stock, 5,000,000 shares authorized:	10,002
Series B convertible preferred stock
Stockholders' equity:
Preferred stock, 5,000,000 shares authorized:	$ 110

Condensed Consolidated Balance3

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2017	Dec. 31, 2016
Net of allowance for bad debts	$ 20,000	$ 20,000
Accumulated amortization	$ 44,777
Preferred stock, authorized	5,000,000	5,000,000
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	300,000,000	300,000,000
Common stock, shares issued	12,208,671	2,736,621
Common stock, shares outstanding	12,208,671	2,736,621
Series A convertible preferred stock
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, issued	12,531	0
Preferred stock, outstanding	0	0
Conditional convertible preferred stock
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, issued	1,000,181	0
Preferred stock, outstanding	1,000,181	0
Series B convertible preferred stock
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, issued	20,000
Preferred stock, outstanding	11,003	0

Condensed Consolidated Statemen

Condensed Consolidated Statements of Operations - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Condensed Consolidated Statements of Operations
Sales revenue	$ 110,020	$ 296,760	$ 243,120	$ 644,760
Service revenue	250,000		250,000
Total revenue	360,020	296,760	493,120	644,760
Cost of revenue	214,511	146,631	298,506	342,070
Gross profit	145,509	150,129	194,614	302,690
Operating expenses:
Selling, general and administrative	4,595,538	3,361,572	16,085,311	15,088,297
Research and development	1,109,641	1,253,390	3,586,129	3,879,378
Total operating expenses	5,705,179	4,614,962	19,671,440	18,967,675
Operating loss	(5,559,670)	(4,464,833)	(19,476,826)	(18,664,985)
Other income (expense):
Interest income		1,493	100	4,991
Interest expense		(1,391,134)		(3,393,374)
Warrants expense	(4,438,149)		(4,438,149)
Change in value of warrant liability	5,047	241,741	(283,688)	3,330,254
Change in value of convertible notes payable		(909,030)		(200,004)
Other, net	(904)	(700)	(2,102)	(3,272)
Net loss	$ (9,993,676)	$ (6,522,463)	$ (24,200,665)	$ (18,926,390)
Net loss per share-basic and diluted	$ (1.06)	$ (11.77)	$ (3.19)	$ (69.14)
Shares used to compute basic and diluted net loss per share	9,470,807	554,028	7,589,239	273,751

Condensed Consolidated Stateme5

Condensed Consolidated Statements of Cash Flows	9 Months Ended
	Sep. 30, 2017USD ($)shares	Sep. 30, 2016USD ($)
Cash flows from operating activities:
Net loss	$ (24,200,665)	$ (18,926,390)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	113,831	109,382
Stock-based compensation	3,483,451	2,201,949
Warrants issued to former holders of convertible notes	4,438,149
Amortization of commitment fees, debt issuance costs and original issue discount		1,596,093
Amortization of intangible assets	44,777
Change in value of convertible notes payable		200,004
Change in value of warrant liability	283,688	(3,330,254)
Change in operating assets and liabilities:
Accounts receivable	(189,365)	(133,752)
Inventory	(257,157)	(447,537)
Prepaid expenses and other current assets	224,151	459,970
Other assets	443,033	(290,480)
Accounts payable	(788,186)	508,769
Accrued expenses	675,829	(744,036)
Accrued interest payable		1,673,793
Net cash used in operating activities	(15,728,464)	(17,122,489)
Cash flows from investing activities:
Acquisition, net of cash acquired	(1,848,720)
Purchases of property and equipment	(108,625)	(11,544)
Net cash used in investing activities	(1,957,345)	(11,544)
Cash flows from financing activities:
Proceeds from warrants exercised	3,334,176
Proceeds from sale of common stock and warrants for purchase of common stock (January 2017)	6,468,148
Proceeds from convertible notes payable		17,250,000
Repayments on convertible notes payable		(446,867)
Debt issuance costs		(726,793)
Net cash provided by financing activities	37,808,319	16,048,340
Net increase in cash and cash equivalents	20,122,510	(1,085,693)
Cash and cash equivalents:
Beginning of period	3,310,787	7,927,240
End of period	23,433,297	6,841,547
Supplemental disclosure:
Cash paid for interest		169,259
Noncash investing and financing activities:
Issuance of convertible preferred shares and common shares for acquisition	$ 26,258,963
Conversion of convertible preferred shares to common stock | shares	21,528,000
Conversion of convertible notes and interest payable		14,234,201
Series A convertible preferred stock
Cash flows from financing activities:
Proceeds from sale of convertible preferred stock	$ 12,531,000
Series B convertible preferred stock
Cash flows from financing activities:
Proceeds from sale of convertible preferred stock	18,400,000
Common Stock
Cash flows from financing activities:
Payment of stock financing costs	(2,505,244)	$ (28,000)
Preferred Stock
Cash flows from financing activities:
Payment of stock financing costs	$ (419,761)

Summary of Significant Accounti

Summary of Significant Accounting Policies	9 Months Ended
	Sep. 30, 2017
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies	(1) Summary of Significant Accounting Policies Description of Business ReShape Lifesciences Inc. (the Company) is focused on the development and commercialization of minimally invasive medical devices to treat obesity, metabolic diseases and other gastrointestinal disorders. The Company was incorporated in the state of Minnesota on December 19, 2002 and was reincorporated in Delaware on July 22, 2004. In January 2006, the Company established EnteroMedics Europe Sárl, a wholly-owned subsidiary located in Switzerland. Prior to October 23, 2017, the Company was known as EnteroMedics Inc. While the Company is currently headquartered in St. Paul, Minnesota, in conjunction with its acquisition of ReShape Medical, Inc. (ReShape Medical) on October 2, 2017, it announced its intention to move its headquarters to San Clemente, California. See further information regarding the Company’s acquisition of ReShape Medical in Note 11, Subsequent Events. The Company’s board of directors and stockholders approved a 1-for-70 reverse split (the Reverse Stock Split) of the Company’s outstanding common stock that became effective after trading on December 27, 2016. The Reverse Stock Split did not change the par value of the Company’s stock or the number of preferred shares authorized by the Company’s Fifth Amended and Restated Certificate of Incorporation. An amendment to the Certificate of Incorporation was also approved in connection with the Reverse Stock Split to increase the number of shares of the Company’s common stock authorized for issuance to 300 million shares, effective immediately after the Reverse Stock Split. All share and per share amounts have been retroactively adjusted to reflect the Reverse Stock Split for all periods presented. On October 26, 2017, the Company filed a Certificate of Amendment to its Sixth Amended and Restated Certificate of Incorporation to reduce the number of authorized shares of the Company’s common stock from 300 million to 275 million Risks and Uncertainties The Company is focused on the development and commercialization of minimally invasive medical devices to treat obesity, metabolic diseases and other gastrointestinal disorders. vBloc ® Neurometabolic Therapy (vBloc Therapy), delivered by a U.S. Food and Drug Administration (FDA)-approved pacemaker-like device called the vBloc ® System, is designed to help patients feel full and eat less by intermittently blocking hunger signals on the vagus nerve. We have a limited operating history and only recently received FDA approval to sell the vBloc System in the United States. In addition, we have regulatory approval to sell the vBloc System in the European Economic Area and other countries that recognize the European CE Mark and do not have any other significant source of revenue currently. We have devoted substantially all of our resources to the development and commercialization of the vBloc System, which was formerly known as the Maestro or vBloc Rechargeable System. On May 22, 2017 the Company acquired the Gastric Vest System™ (Gastric Vest) through the acquisition of BarioSurg, Inc. The Gastric Vest is an investigational, minimally invasive, laparoscopically implanted medical device being studied for weight loss in obese and morbidly obese patients. The Gastric Vest wraps around a plicated stomach, emulating the effect of conventional weight-loss surgery, and is intended to enable gastric volume reduction without permanently changing patient anatomy. On October 2, 2017 the Company acquired ReShape Medical, Inc., a privately-held medical technology company that develops, manufactures and markets the ReShape® Dual Weight Loss Balloon (the ReShape Balloon), an FDA-approved, minimally invasive intragastric balloon designed to treat obesity patients with a body mass index (BMI) between 30 and 40, with one or more related comorbid conditions. Because the closing of this acquisition was after September 30, 2017, the Company’s Consolidated Balance Sheets and Statements of Operations included with this Quarterly Report on Form 10-Q do not reflect the acquisition of ReShape Medical. The Company’s products require approval from the U.S. Food and Drug Administration (FDA) or corresponding foreign regulatory agencies prior to commercial sales. The Company received FDA approval on January 14, 2015 for vBloc Therapy, delivered via the vBloc System, and has begun a controlled commercial launch at select surgical centers in the United States. The vBloc System has also received CE Mark and was previously listed on the Australian Register of Therapeutic Goods (ARTG). The ReShape Balloon received FDA approval on July 28, 2015. The medical device industry is characterized by frequent and extensive litigation and administrative proceedings over patent and other intellectual property rights. Whether a product infringes a patent involves complex legal and factual issues, the determination of which is often difficult to predict, and the outcome may be uncertain until the court has entered final judgment and all appeals are exhausted. The Company’s competitors may assert that its products or the use of the Company’s products are covered by U.S. or foreign patents held by them. The Company’s activities are subject to significant risks and uncertainties, including the ability to obtain additional financing, and there can be no assurance that the Company will be successful in obtaining additional financing on favorable terms, or at all. If adequate funds are not available, the Company may have to further reduce its cost structure until financing is obtained and/or delay development or commercialization of products or license to third parties the rights to commercialize products or technologies that the Company would otherwise seek to commercialize. Basis of Presentation The Company has prepared the accompanying condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. The Company’s fiscal year ends on December 31. The accompanying condensed consolidated financial statements and notes thereto are unaudited. In the opinion of the Company’s management, these statements include all adjustments, which are of a normal recurring nature, necessary to present a fair presentation. Interim results are not necessarily indicative of results for a full year. The condensed consolidated balance sheet as of December 31, 2016 was derived from audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The information included in this Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Principles of Consolidation The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All intercompany transactions and accounts have been eliminated in consolidation. Fair Value of Financial Instruments Carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued liabilities approximate fair value due to their short maturities. Certain of the Company’s common stock warrants are required to be reported at fair value and the Company has elected to report its senior amortizing convertible notes at fair value. The fair values of common stock warrants and investments in debt and equity securities, if any, are disclosed in Note 4. The fair values of senior amortizing convertible notes (the Notes) outstanding, if any, are valued using a Binomial Lattice model. Common Stock Warrant Liability Common stock warrants that were issued in connection with the July 8, 2015 public offering (the Series A Warrants) and the common stock warrants issued in connection with the November 9, 2015, January 11, 2016 and May 2, 2016 7% senior amortizing convertible notes (the Note Warrants) are classified as a liability in the condensed consolidated balance sheets, as the common stock warrants issued provide for certain anti-dilution protections in the event shares of common stock or securities convertible into shares of common stock are issued below the then-existing exercise price. The fair value of these common stock warrants is re-measured at each financial reporting period and immediately before exercise, with any changes in fair value being recognized as a component of other income (expense) in the condensed consolidated statements of operations. Cash and Cash Equivalents The Company considers highly liquid investments generally with maturities of 90 days or less when purchased to be cash equivalents. Cash equivalents are stated at cost, which approximates market value. The Company’s cash equivalents are primarily in money market funds and certificates of deposit. The Company deposits its cash and cash equivalents in high-quality credit institutions. Inventory The Company accounts for inventory at the lower of cost or market and records any long-term inventory as other assets in the condensed consolidated balance sheets. Property and Equipment, Net Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation of property and equipment is computed using the straight-line method over their estimated useful lives of five to seven years for furniture and equipment and three to five years for computer hardware and software. Leasehold improvements are amortized on a straight-line basis over the lesser of their useful life or the term of the lease. Upon retirement or sale, the cost and related accumulated depreciation or amortization are removed from the condensed consolidated balance sheets and the resulting gain or loss is reflected in the condensed consolidated statements of operations. Repairs and maintenance are expensed as incurred. Impairment of Long-Lived Assets, Intangible Assets and Goodwill The Company evaluates its long-lived assets, including its 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. The Company has not identified any such impairment losses to date. The Company tests Goodwill and indefinite-lived intangible assets for impairment annually as required. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance for deferred income tax assets is recorded when it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The Company has provided a full valuation allowance against the gross deferred tax assets. The Company’s policy is to classify interest and penalties related to income taxes as income tax expense in the condensed consolidated statements of operations. Medical Device Excise Tax On January 14, 2015, the Company received FDA approval for vBloc Therapy, delivered via the vBloc System, and starting in the second quarter of 2015 revenues were generated from sales in the United States. As a result, the Company is now required to pay a quarterly Medical Device Tax which is a part of the Affordable Care Act, which imposes a 2.3% excise tax on the sale of certain medical devices by device manufactures, producers or importers. The excise tax was effective on sales of devices made after December 31, 2012. The Company records the Medical Device Tax as an operating expense in the condensed consolidated statements of operations. A moratorium was placed on the Medical Device Tax for 2016 and 2017. Comprehensive Loss Comprehensive loss is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from investment owners and distributions to owners. There was no difference from reported net loss for the three and nine months ended September 30, 2017 and 2016. Revenue Recognition Sales revenue is recognized when persuasive evidence of an arrangement exists, title or risk of loss has passed, the selling price is fixed or determinable, and collection is reasonably assured. Products are sold through direct sales or medical device distributors and revenue is recognized upon sale to a bariatric center of excellence or a medical device distributor when no right of return or price protection exists. Terms of sales to international distributors are generally EXW, reflecting that goods are shipped “ex works,” in which risk of loss is assumed by the distributor at the shipping point. A provision for returns is recorded only if product sales provide for a right of return. No provision for returns was recorded for the three and nine months ended September 30, 2017 and 2016, as the product sales recorded did not provide for rights of return. Revenues for services are recognized when earned, subject to limitations, if any, related to multiple deliverables. We evaluate each element in these multiple-element arrangements to determine whether they represent a separate unit of accounting and recognize each element as the services are performed. Research and Development Expenses Research and development expenses are charged to expense as incurred. Research and development expenses include, but are not limited to, product development, clinical trial expenses, including supplies, devices, explants and revisions, quality assurance, regulatory expenses, payroll and other personnel expenses, materials and consulting costs. Patent Costs Costs associated with the submission of a patent application are expensed as incurred given the uncertainty of the patents resulting in probable future economic benefits to the Company. Stock-Based Compensation The fair value method is applied to all share-based payment awards issued to employees and where appropriate, nonemployees, unless another source of literature applies. All option grants are expensed on a straight-line basis over the vesting period. Net Loss Per Share Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is based on the weighted-average common shares outstanding during the period plus dilutive potential common shares calculated using the treasury stock method. Such potentially dilutive shares are excluded when the effect would be to reduce a net loss per share. The Company’s potential dilutive shares, which include outstanding common stock options and warrants, have not been included in the computation of diluted net loss per share for all periods as the result would be anti-dilutive. The following table sets forth the computation of basic and diluted net loss per share for the three and nine months ended September 30, 2017 and 2016: Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Numerator: Net loss $ (9,993,676) $ (6,522,463) $ (24,200,665) $ (18,926,390) Denominator for basic and diluted net loss per share: Weighted-average common shares outstanding 9,470,807 554,028 7,589,239 273,751 Net loss per share—basic and diluted $ (1.06) $ (11.77) $ (3.19) $ (69.14) 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: September 30, 2017 2016 Stock options outstanding 1,331,166 1,414,918 Common shares underlying convertible preferred stock 9,787,210 — Warrants to purchase common stock 14,308,337 3,953,413 Recently Issued or Adopted Accounting Standards In May 2014, FASB issued Revenue from Contracts with Customers, Topic 606 (Accounting Standards Update No. 2014-09 (ASU 2014-09)), which provides a framework for the recognition of revenue, with the objective that recognized revenues properly reflect amounts an entity is entitled to receive in exchange for goods and services. This guidance will be effective for interim and annual reporting periods beginning after December 15, 2017. The Company intends to use the modified retrospective approach when it adopts the standard as required January 1, 2018. The Company’s accounting for revenue related to vBloc products is not expected to materially change. The implications of the adoption of the new standard related to sales of ReShape Medical’s products are currently being evaluated. Additionally, the new standard will likely require incremental revenue disclosures that may be significant. In March 2016, FASB issued Improvements to Employee Share-Based Payment Accounting, (Accounting Standards Update No. 2016-09 (ASU 2016-09)), which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, the estimation of forfeitures, shares withheld for taxes and classification of shares withheld for taxes on the statement of cash flows. As part of the adoption of this guidance the Company has elected to account for forfeitures of share-based awards as they occur. The Company prospectively adopted ASU 2016-09 as required on January 1, 2017 and the adoption did not have a material effect on its consolidated financial statements. In July 2017, FASB issued ASU 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. The amendments in this update are intended to simplify the accounting for certain equity-linked financial instruments and embedded features with down round features that result in the strike price being reduced on the basis of the pricing of future equity offerings. Under the new guidance, a down round feature will no longer need to be considered when determining whether certain financial instruments or embedded features should be classified as liabilities or equity instruments. That is, a down round feature will no longer preclude equity classification when assessing whether an instrument or embedded feature is indexed to an entity's own stock. In addition, the amendments clarify existing disclosure requirements for equity-classified instruments. These amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. We early adopted the applicable amendments in the third quarter of 2017 on a retrospective basis. There have been no other significant changes in recent accounting pronouncements during the nine months ended September 30, 2017 as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

Liquidity and Management's Plan

Liquidity and Management's Plans	9 Months Ended
	Sep. 30, 2017
Liquidity and Management's Plans
Liquidity and Management's Plans	(2) Liquidity and Management’s Plans The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company currently is not generating revenue from operations that is significant relative to its level of operating expenses, and does not anticipate generating revenue sufficient to offset operating costs in the short-term to mid-term. The Company has financed its operations to date principally through the sale of equity securities, debt financing and interest earned on investments. The Company’s history of operating losses, limited cash resources and lack of certainty regarding obtaining significant third-party reimbursement for the vBloc System or timing thereof, raise substantial doubt about our ability to continue as a going concern absent a strengthening of our cash position. On January 23, 2017, the Company closed an underwritten public offering consisting of units of common stock, convertible preferred stock and warrants to purchase common stock. Gross proceeds of the offering were $19.0 million, prior to deducting underwriting discounts and commissions and offering expenses of $2.5 million. On August 16, 2017, the Company closed an underwritten public offering consisting of units of Series B Convertible Preferred Stock and warrants to purchase common stock. Gross proceeds of the offering were $20.0 million, prior to deducting underwriting discounts and commissions and offering expenses of approximately $2.0 million. During the nine months ended September 30, 2017, common stock warrants for 599,670 shares of common stock were exercised by warrant holders of warrants issued January 23, 2017 with proceeds to the Company of $3.3 million. As of September 30, 2017, the Company had $23.4 million of cash and cash equivalents to fund its operations through 2017 early 2018. The Company’s anticipated operations include plans to (i) integrate the sales and operations of the Company with the newly acquired ReShape Medical in order to expand sales of both the ReShape Balloon and vBloc as well as to obtain cost savings synergies, (ii) expand the controlled commercial launch of vBloc Therapy, delivered via the vBloc System, (iii) continue development of the Gastric Vest, (vi) seek opportunities to leverage the Company’s intellectual property portfolio and custom development services to provide third party sales and licensing opportunities, and (v) explore and capitalize on synergistic opportunities to expand our portfolio and offer future minimally invasive treatments and therapies in the obesity continuum of care. 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. However, the Company will ultimately need to achieve sufficient revenues from product sales and obtain additional debt or equity financing to support its operations. Management is currently pursuing various funding options, including seeking additional equity financing as well as a strategic merger or other transaction to obtain additional funding or expand its product line to continue the development of, and to successfully commercialize, the ReShape Balloon, the vBloc System and the Gastric Vest. While the acquisition of ReShape Medical does provide incremental revenues to the Company, the cost to further develop and commercialize the ReShape Balloon is expected to significantly exceed revenues for the foreseeable future. While there can be no assurance that the Company will be successful in its efforts, the Company has a long history of raising equity financing to fund its development activities. Should the Company be unable to obtain adequate financing in the near term, the Company’s business, result of operations, liquidity and financial condition would be materially and negatively affected, and the Company would be unable to continue as a going concern. Additionally, there can be no assurance that, assuming the Company is able to strengthen its cash position, it will achieve sufficient revenue or profitable operations to continue as a going concern.

Acquisition

Acquisition	9 Months Ended
	Sep. 30, 2017
Acquisition
Acquisition	(3) Acquisition On May 22, 2017, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") to acquire all of the ownership interests of BarioSurg, Inc. ("BarioSurg"), a company developing the Gastric Vest System (the “Gastric Vest”), an investigational, minimally invasive, laparoscopically implanted medical device being studied for weight loss in obese and morbidly obese patients. The consideration paid by the Company for all of the outstanding shares of capital stock and outstanding options of BarioSurg consisted of: (i) 1.38 million shares of common stock, par value $0.01 per share, of the Company ("Company Common Stock"), (ii) 1.0 million shares of newly created conditional convertible preferred stock, par value $0.01 per share, of the Company ("Company Preferred Stock"), which shares will convert into 5.0 million shares of Company Common Stock subject to and contingent upon the post-closing approval of the Company's stockholders in accordance with the NASDAQ Stock Market Rules, and (iii) $2.0 million in cash. At the closing of the Merger, 100,018 shares of Company Preferred Stock were deposited with an escrow agent to fund-post closing indemnification obligations of BarioSurg’s former stockholders. The total consideration paid by the Company, preliminarily valued at $28.3 million, includes: (a) $2.0 million in cash paid from our existing cash balances and (b) $26.3 million from the issuance of Company Common Stock and Company Preferred Stock. The preliminary valuation of the Company Common Stock and Company Preferred Stock took into account (i) the conversion ratio of the Company Preferred Stock, (ii) the average closing prices of our common stock on the NASDAQ Stock Market on the date the transaction was announced and the three trading days following the announcement, and (iii) a 19% discount for lack of marketability related to the shares issued in the transaction. The purchase price consideration of $28.3 million does not include expenses of $131,000 and $367,000 for legal, accounting, audit, valuation and other services that were incurred during the three and nine months ended September 30, 2017 as part of the transaction and were expensed as incurred. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as a result of the BarioSurg acquisition. The excess of the cost of the acquisition over the fair value of assets acquired was recorded as goodwill. The assessment of fair value is preliminary and is based on information that was available at the time the consolidated condensed financial statements were prepared. Accordingly, the allocation of purchase price is preliminary and, therefore, subject to adjustment in future periods. Cash $ 151,280 Property and equipment 3,000 Goodwill 6,397,671 In Process Research & Development 20,720,939 Trademarks/tradenames 1,090,363 Covenant not to compete 75,884 Other assets 5,826 Current liabilities assumed (186,000) Net assets acquired $ 28,258,963 We believe that the amount of goodwill relative to identifiable intangible assets relates to several factors including (i) potential synergies related to market opportunities for multiple product offerings, (ii) future technology, and (iii) initial relationships and awareness of the Gastric Vest. In-process research and development (“IPR&D”) consists of the Gastric Vest, which has not yet been clinically tested in the United States and has not yet been approved by the FDA. Acquired IPR&D assets are initially recognized at fair value and are classified as indefinite-lived assets until the successful completion or abandonment of the associated research and development efforts. The value assigned to IPR&D was determined by estimating the net cash flows from the Gastric Vest development project and discounting the net cash flows to their present value. During the development period, this asset will not be amortized as charges to earnings; instead, this asset will be subject to periodic impairment testing. Upon successful completion of the development process for the acquired IPR&D, the asset would then be considered a finite-lived intangible asset and amortization will commence. Trademarks/tradenames were valued using the relief from royalty method and are being amortized over a 10-year period. The covenant not to compete is being amortized over a three-year period. The values of these intangible assets are considered Level 3 measurements. The results of this acquisition, a $443,000 loss for the 2017 year-to-date period through September 30, is included in our consolidated operations beginning May 22, 2017. Unaudited Pro Forma Information The following unaudited pro forma financial information presents our combined results of operations as if the acquisition of BarioSurg and the related issuance of Company Common Stock had occurred on January 1, 2016. Pro forma information reflects adjustments that give effect to pro forma events that are directly attributable to the acquisition, factually supportable and expected to have a continuing impact on the combined results following the acquisition. In addition, the unaudited pro forma financial information do not purport to be indicative of the results that would have actually been obtained if the acquisition had occurred as of January 1, 2016 or that may be obtained in the future, and do not reflect future synergies, integration costs, or other such costs or savings. Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Revenues $ 360,020 $ 296,760 $ 493,120 $ 644,760 Net loss $ (9,895,138) $ (6,691,689) $ (24,230,493) $ (19,406,642) Net loss per share—basic and diluted $ (1.04) $ (3.46) $ (2.92) $ (11.73) The unaudited pro forma results include adjustments due to increases in amortization expense and acquisition related costs. The per share unaudited pro forma results also reflect adjustment of weighted average common shares outstanding to reflect the assumed issuance of 1.38 million shares of Company Common Stock as of January 1, 2016.

Fair Value Measurements

Fair Value Measurements	9 Months Ended
	Sep. 30, 2017
Fair Value Measurements
Fair Value Measurements	(4) Fair Value Measurements Fair value of financial assets and liabilities is defined as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy has been established that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below: · Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. · Level 2—Quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active or model-derived valuations for which all significant inputs are observable, either directly or indirectly. · Level 3—Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable. The Company’s assets that are measured at fair value on a recurring basis are classified within Level 1 or Level 2 of the fair value hierarchy. The Company does not hold any recurring assets that are measured at fair value using Level 3 inputs. The Company did not hold any short-term investments classified as available for sale or held to maturity as of September 30, 2017 and December 31, 2016. The fair value of the Company’s common stock warrant liability is calculated using a Black-Scholes valuation model and is classified as Level 2 in the fair value hierarchy. The fair values are presented below along with the valuation assumptions: Series A Warrants September 30, 2017 December 31, 2016 Risk-free interest rates 1.31 % 1.20 % Expected life 15 months 24 months Expected dividends — % — % Expected volatility 194.28 % 122.03 % Fair value $ 2,159 $ 36,000 The following were the fair value assumptions used by the Company in calculating values of Note Warrants as of December 31, 2016: December 31, 2016 November 2015 Note Warrants January 2016 Note Warrants May 2016 Note Warrants Risk-free interest rates 1.47 % 1.93 % 1.93 % Expected life 46 months 48 months 52 months Expected dividends — % — % — % Expected volatility 102.29 % 108.57 % 106.37 % Fair value $ 449 $ 1,633 $ 1,037 The following table summarizes fair value measurements of the Series A Warrants and Note Warrants by level at December 31, 2016 and September 30, 2017: Level 1 Level 2 Level 3 Total Common stock warrants at December 31, 2016 $ — $ 39,119 $ — $ 39,119 Common stock warrants at September 30, 2017 $ — $ 2,159 $ — $ 2,159 During the three and nine months ended September 30, 2016, the Company had amounts outstanding from 7% senior amortizing convertible notes (the Notes) related to Note issuances on November 9, 2015 (the First Closing) and January 11, 2016 (the Second Closing) and May 2, 2016 (the Third Closing), when the Company issued Notes with principal amounts of $1.5 million, $11.0 million and $6.25 million, respectively. As of December 31, 2015, the fair value of the outstanding Notes from the First Closing was determined to be $1.3 million. The fair value of the Notes issued with the Second Closing was determined to be $9.9 million on the January 11, 2016 issue date and $2.4 million on September 30, 2016. The fair value of the Notes issued with the Third Closing was determined to be $6.0 million on the May 2, 2016 issue date and $3.2 million on September 30, 2016. The fair values were calculated using a Binomial Lattice model and the following assumptions: November 2015 Notes January 2016 Notes September 30, 2016 December 31, 2015 September 30, 2016 January 11, 2016 Risk-free interest rates N/A % 0.65 % % Expected life N/A years 1.11 years years Expected dividends N/A — % — % — % Expected volatility N/A 57.5 % 70.0 % 60.0 % Fair value per share of common stock N/A $ 0.03 $ 0.002 $ 0.02 May 2016 Notes September 30, 2016 May 2, 2016 Risk-free interest rates 0.65 % % Expected life 1.11 years years Expected dividends — % — % Expected volatility 70.0 % 65.0 % Fair value per share of common stock $ 0.002 $ 0.01

Inventory

Inventory	9 Months Ended
	Sep. 30, 2017
Inventory
Inventory	(5) Inventory From the Company’s inception, inventory related purchases had been used for research and development related activities and had accordingly been expensed as incurred. In December 2011, the Company began receiving ARTG listings for components of the vBloc Rechargeable System from the Australian Therapeutic Goods Administration, with the final components being listed on the ARTG in January 2012. As a result, the Company determined certain assets were recoverable as inventory beginning in December 2011. The Company accounts for inventory at the lower of cost or market and records any long-term inventory as other assets in the condensed consolidated balance sheets. There was $1.1 million and $676,000 of long-term inventory, primarily consisting of raw materials, as September 30, 2017 and December 31, 2016, respectively. Current inventory consists of the following as of: September 30, December 31, 2017 2016 Raw materials $ 207,758 $ 335,606 Work-in-process 1,362,399 1,437,957 Finished goods 16,472 16,015 Inventory $ 1,586,629 $ 1,789,578

Commitments and Contingencies

Commitments and Contingencies	9 Months Ended
	Sep. 30, 2017
Commitments and Contingencies
Commitments and Contingencies	(6) Commitments and Contingencies Operating Lease The Company rents its headquarters office, warehouse and laboratory facilities under an operating lease, which was originally set to expire on September 30, 2015. On August 25, 2015, the Company entered into an amendment extending the term of the operating lease for three years until September 30, 2018, with monthly base rent ranging from $18,925 to $20,345. With the acquisition of BarioSurg, the Company also leases space in Lake Forest, California under an operating lease with monthly base rent of approximately $2,200 per month through September 30, 2018. With the October 2, 2017 acquisition of ReShape Medical, the Company leases separate office and manufacturing/warehouse space in San Clemente, California. The operating lease for office space has a term that runs through June 30, 2022 with base rent of approximately $24,600 per month and with annual rent escalations of approximately 3%. The operating lease for manufacturing/warehouse space has a term that runs through October 31, 2019 with base rent of approximately $10,900 per month. Total rent expense recognized for each of the three month periods ended September 30, 2017 and 2016 was $64,893 and $58,905 and for each of the nine-month periods was $185,436 and $176,175. At September 30, 2017, future minimum payments for the Company, including the lease obligations related to the October 2, 2017 acquisition of ReShape Medical (see also Note11, Subsequent Events) are as follows: Year ending December 31, Remaining three months of 2017 $ 173,832 2018 633,695 2019 419,082 2020 319,262 2021 327,949 2022 165,061 $ 2,038,881 vBloc Clinical Trials The Company continues to evaluate the vBloc System in human clinical trials, including the EMPOWER trial and ReCharge trial. Both of these clinical trials require patients to be followed out to 60 months. The Company is required to pay for patient follow up visits only to the extent they occur. In the event a patient does not attend a follow up visit, the Company has no financial obligation. The Company is also required to pay for explants or revisions, including potential conversions of ReCharge control devices to active devices, should a patient request or be required to have one during the course of the clinical trials. The Company has no financial obligation unless an explant, revision or conversion is requested or required. Clinical trial costs are expensed as incurred. 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 could have a material adverse effect on the Company’s business, operating results or financial condition. Litigation On February 28, 2017, the Company received a class action and derivative complaint filed on February 24, 2017 in U. S. District Court for the District of Delaware by Vinh Du, one of the Company’s shareholders. The complaint names as defendants ReShape Lifesciences, the board of directors and four members of our senior management, namely, Scott Youngstrom, Nick Ansari, Peter DeLange and Paul Hickey, and contains a purported class action claim for breach of fiduciary duty against the board of directors and derivative claims for breach of fiduciary duty against the board of directors and unjust enrichment against our senior management. The allegations in the complaint relate to the increase in the number of shares authorized for grant under our Second Amended and Restated 2003 Stock Incentive Plan (the “Plan”), which was approved by our shareholders at the Special Meeting of Shareholders held on December 12, 2016 (the “Special Meeting”), and to our subsequent grant of stock options on February 8, 2017, to the Company’s Directors and senior management to purchase an aggregate of 1,093,450 shares of our common stock (the “Option Grants”). In the complaint, the plaintiff contends that (i) the number of shares authorized for grant under the Plan, as adjusted by the board of directors after the Special Meeting for the subsequent recapitalization of the Company, resulted from an alleged breach of fiduciary duties by the board of directors, and (ii) our senior management was allegedly unjustly enriched by the subsequent Option Grants. The plaintiff seeks relief in the form of an order rescinding the Plan as approved by the shareholders at the Special Meeting, an order cancelling the Option Grants, and an award to plaintiff for his costs, including fees and disbursements of attorneys, experts and accountants. On April 17, 2017, we filed a motion to dismiss the complaint based on the plaintiff’s failure to satisfy Delaware’s demand requirement for a derivative action and failure to state a valid claim. The motion is now fully briefed and the Court will hear oral argument on November 28, 2017. We believe the allegations in the complaint are without merit, and intend to defend the action vigorously. On April 20, 2017, Fulfillium, Inc., filed a Complaint in the United States District Court for the District of Delaware accusing ReShape Medical, Inc., which the Company acquired on October 2, 2017 and is now a wholly-owned subsidiary of the Company, of trade secret misappropriation under the California Uniform Trade Secrets Act (CA. Civ. Code §3426 et seq.) and/or Delaware law (Code Ann. Title 6 §2001 et seq); and infringement of U.S. Patent Nos. 9,445,930 and 9,456,915. On July 28, 2017, Reshape Medical, Inc. filed a Rule 12(b)(6) motion to dismiss the trade secrets claims as time-barred and/or for failure to state a claim and to dismiss most of the patent infringement claims for failure to state a claim. ReShape Medical, Inc., also filed a motion to transfer the litigation to the United States District Court for the Central District of California. On October 10, 2017, Fulfillium filed a motion seeking leave to amend its complaint to add an investor in ReShape Medical, Inc. as a co-defendant, but did not amend the substantive allegations of its original Complaint that are the basis of the pending motion to dismiss. ReShape Medical, Inc. filed an opposition to the motion for leave to amend on October 24, 2017 and Fulfillium filed its Reply on October 31, 2017. The motions to dismiss and transfer were heard on November 7, 2017, and on November 9, 2017, the Court issued an Order granting-in-part the motion to dismiss, dismissing the trade secret claim and allegations of willful infringement, with leave to amend, and transferring the case to the United States District Court for the Central District of California. The Court did not rule on the motion for leave to amend the complaint to add the proposed new party, which remains fully briefed. Management of the Company intends to vigorously defend against the claims and believes the risk of loss remote. Except as disclosed in the foregoing paragraphs, the Company is not currently a party to any litigation and 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. 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.

Senior Amortizing Convertible N

Senior Amortizing Convertible Notes	9 Months Ended
	Sep. 30, 2017
Senior Amortizing Convertible Notes
Senior Amortizing Convertible Notes	(7) Senior Amortizing Convertible Notes On November 9, 2015, January 11, 2016 and May 2, 2016 the Company issued 7% senior amortizing convertible notes (the “Notes”) with principal amounts of $1.5 million, $11.0 million and $6.25 million. Warrants were also issued in connection with each of the three Notes (the “Note Warrants”). As of December 31, 2016 the Notes were fully amortized, primarily through non-cash conversions of the Notes into shares of common stock. For the nine months ended September 30, 2016, the condensed consolidated statement of operations includes interest expense related to the Notes. See further details regarding the Notes and Note Warrants in footnote 8 to the Company’s Consolidated Financial Statements contained in our Annual Report on Form 10-K for the Year Ended December 31, 2016.

Stock-based Compensation

Stock-based Compensation	9 Months Ended
	Sep. 30, 2017
Stock-based Compensation
Stock-based Compensation	(8) Stock-based Compensation The fair value method of accounting for share-based payments is applied to all share-based payment awards issued to employees and where appropriate, nonemployees, unless another source of literature applies. Based on the application of these standards, stock-based compensation expense for stock-based awards under the Company’s Amended and Restated 2003 Stock Incentive Plan (the Plan) and inducement grants for the three and nine months ended September 30, 2017 and 2016, including $138,000 and $4,000 for nonemployees, respectively, was allocated to operating expenses follows: Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Selling, general and administrative $ 599,767 $ 310,133 $ 3,412,820 $ 1,731,768 Research and development 17,584 45,203 70,631 470,181 Total $ 617,351 $ 355,336 $ 3,483,451 $ 2,201,949 As of September 30, 2017 there was approximately $5.2 million of total unrecognized compensation costs, related to employee unvested stock option awards, which are expected to be recognized over a weighted-average period of 2.4 years. The estimated grant-date fair values of the stock options were calculated using the Black-Scholes valuation model, based on the following assumptions for the three and nine months ended September 30, 2017 and 2016: Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Risk-free interest rates 1.88%-1.99% 1.03% 1.88%-2.34% 0.87%–1.64% Expected life 6.25 years 4.00 years 6.00 years–10.00 years 4.00 years–6.25 years Expected dividends 0% 0% 0% 0% Expected volatility 90.93% 96.64% 90.93%–131.24% 88.43%–96.10% Option activity under the Plan for the nine months ended September 30, 2017 was as follows: Outstanding Options Shares Available For Number of Weighted-Average Grant Shares (1) Exercise Price (1) Balance, December 31, 2016 2,988,243 19,840 $ 770.35 Shares reserved — — — Options granted (1,333,450) 1,333,450 6.71 Options exercised — — — Options cancelled 22,124 (22,124) 55.73 Balance, September 30, 2017 1,676,917 1,331,166 $ 22.63 _________________ (1) Outstanding option amounts as of December 31, 2016 and September 30, 2017 include both 2003 Plan options as well as inducement options granted in November 2015 and January 2016 to executive officers in conjunction with their recruitment.

Stock Sales

Stock Sales	9 Months Ended
	Sep. 30, 2017
Stock Sales
Stock Sales	(9) Stock Sales January 2017 Issuance of Common Stock, Convertible Preferred Stock and Warrants On January 23, 2017, the Company closed an underwritten public offering consisting of units of common stock, convertible preferred stock and warrants to purchase common stock. Gross proceeds of the offering were $19.0 million, prior to deducting underwriting discounts and commissions and offering expenses of $2.5 million. The offering was comprised of Class A Units, priced at a public offering price of $5.31 per unit, with each unit consisting of one share of common stock and one five-year warrant (each, a "2017 Warrant") to purchase one share of common stock with an exercise price of $5.84 per share, and Class B Units, priced at a public offering price of $1,000 per unit, with each unit comprised of one share of Series A Preferred Stock (the Preferred Stock), which was convertible into 188 shares of common stock, and 2017 Warrants to purchase 188 shares of common stock. The conversion price of the Preferred Stock issued in the transaction as well as the exercise price of the 2017 Warrants are fixed priced and do not contain any variable pricing features nor any price based anti-dilutive features apart from customary adjustments for splits and reverse splits of common stock and both have been recorded within Shareholders’ Equity in the condensed consolidated balance sheet. The Preferred Stock included a beneficial ownership limitation of 4.99%, but had no dividend preference (except to extent dividends are also paid on the common stock), liquidation preference or other preferences over common stock. The securities comprising the units were issued separately in the offering. A total of 1,218,107 shares of common stock, 12,531 shares of Preferred Stock convertible into 2,359,894 shares of common stock, and 2017 Warrants to purchase 3,577,994 shares of common stock were issued in the offering including the underwriters’ exercise of their over-allotment option to purchase 466,695 shares of common stock and 2017 Warrants to purchase an additional 466,695 shares of common stock. On January 23 and January 24, 2017 all shares of Preferred Stock issued in conjunction with the offering were converted by their holders into 2,359,894 shares of common stock. August 2017 Issuance of Convertible Preferred Stock and Warrants On August 16, 2017, the Company closed a firm commitment underwritten public offering (the “Offering”) of 20,000 units consisting of one share of Series B Convertible Preferred Stock, par value $0.01 per share (the “Series B Preferred Stock”), which is convertible into 435 shares of common stock, par value $0.01 share (the “Common Stock”), at a conversion price of $2.30 per share, and one seven-year warrant to purchase 435 shares of Common Stock at an exercise price of $2.30 per share (the “Warrants”), at a public offering price of $1,000 per unit The net proceeds received by the Company from the sale of the units was approximately $18.0 million, after deducting underwriting discounts and offering expenses. The Series B Preferred Stock was determined to not be mandatorily redeemable under ASC 480. Additionally, the Company identified two embedded features within the Series B Preferred Stock: (1) optional conversion by the holder, and (2) redemption in the event of a fundamental change and the Company determined that neither of these embedded features required bifurcation under ASC 815. Since the Series B Preferred Stock is only redeemable in an ordinary liquidation, upon the occurrence of a fundamental transaction which is solely within the Company’s control, or in circumstances when all common shareholders are entitled to receive the same form of consideration, the Series B Preferred Stock is presented within permanent equity. The warrants issued with the Series B Preferred Stock were also classified in stockholders’ equity as they are both indexed to the Company’s own stock and meet the scope exception in ASC 815-10-15-74(a) and, accordingly, do not require derivative liability accounting pursuant to ASC 815. Prior to the closing and subsequent to the Offering, certain purchasers of the units sold in the Offering notified the Company of their election to convert the shares of Series B Preferred Stock underlying such units into shares of Common Stock. As of September 30, 2017, 8,997 of the 20,000 shares of the Series B Preferred Stock issued in the offering had been converted into 3,913,695 shares of Common Stock. On August 16, 2017, the Company also issued warrants to purchase an aggregate of 2,575,000 shares of Common Stock to certain parties (each, a “Holder”) to the Securities Purchase Agreement (as amended, the “Purchase Agreement”), dated November 4, 2015, between the Company and the other parties named therein, as consideration for the waiver by each of the Holders of their right to participate in future securities offerings by the Company, which rights were granted pursuant to the Purchase Agreement. These warrants are in substantially the same form, and on the same terms as, the Warrants issued pursuant to the Offering. Because the Company received no additional consideration or future rights related to the warrants issued to the Holders, the Black Scholes value of the warrants was recorded as $4.4 million of expense as of the August 16, 2017 issuance date. The Black Scholes value was estimated using a risk-free interest rate of 2.03%, an expected life of 7.0 years, expected dividends of zero and expected volatility of 112.03%.

Warrants

Warrants	9 Months Ended
	Sep. 30, 2017
Warrants
Warrants	(10) Warrants During the nine months ended September 30, 2017, common stock warrants for 599,670 shares of common stock were exercised by warrant holders with proceeds to the Company of $3.3 million. Stock warrant activity for the nine months ended September 30, 2017 is as follows: Weighted Average Common Exercise Shares Price Balance, December 31, 2016 55,049 $ 238.90 Granted (1) 14,852,994 3.15 Exercised (599,670) 5.56 Cancelled (36) 238.90 Balance, September 30, 2017 14,308,337 $ 3.51 _______________ (1) See Note 9 regarding the issuance of warrants in January and August 2017

Subsequent Events

Subsequent Events	9 Months Ended
	Sep. 30, 2017
Subsequent Events
Subsequent Events	(11) Subsequent Events Acquisition of ReShape Medical, Inc. On October 2, 2017 the Company acquired ReShape Medical, Inc., a privately-held medical technology company that develops, manufactures and markets the ReShape® Dual Weight Loss Balloon, an FDA and CE marked approved, minimally invasive intragastric balloon designed to treat obesity patients with a body mass index (BMI) between 30 and 40, with one or more related comorbid conditions. Under the terms of the agreement, the consideration paid by the Company for ReShape Medical consisted of 2,356,729 shares of common stock, 187,772 shares of series C convertible preferred stock (which will be convertible into 18,777,200 shares of common stock upon the receipt of the required approval of the Company’s stockholders under NASDAQ rules), and approximately $5.0 million in cash, which amount was immediately used to pay ReShape Medical’s outstanding senior secured indebtedness and certain transaction expenses of ReShape Medical. The Company agreed to hold a special meeting of its stockholders by December 31, 2017 to seek the required approval of the conversion of the series C convertible preferred stock into shares of common stock. The Company expects that the ReShape Medical acquisition will be accounted for as a business combination and the Company will record the assets and liabilities acquired at their respective fair values during the fourth quarter of 2017. Name Change of EnteroMedics Inc. to ReShape Lifesciences Inc. On October 23, 2017, the Company announced that it filed a Certificate of Amendment to its Certificate of Incorporation with the Secretary of State of the State of Delaware to amend Article I of the Company’s Certificate of Incorporation to change the name of the corporation to “ReShape Lifesciences Inc.” effective on October 23, 2017. In addition, in connection with the name change, the Company’s ticker symbol was changed to “RSLS” which became effective at the start of trading on October 23, 2017, and the Company’s common stock will continue to trade on The NASDAQ Capital Market. Special Meeting of Shareholders on October 25, 2017 At a Special Meeting of Shareholders on October 25, 2017, the Company’s shareholders approved the following proposals set forth in the Company’s Definitive Proxy Statement on Schedule 14A, which was filed with Securities and Exchange Commission and mailed to the Company’s stockholders on or about October 6, 2017: Proposal 1: Approval of the conversion of 1,000,181 shares of the Company’s conditional convertible preferred stock issued to the former equity holders of BarioSurg, Inc. (“BarioSurg”) in connection with the Company’s May 22, 2017 acquisition of BarioSurg into 5,000,905 shares of the Company’s common stock. Proposal 2: Approval of the issuance of 916,834 shares of the Company’s common stock upon the exercise of outstanding warrants issued to certain parties (each, a "Holder") to the Securities Purchase Agreement, dated November 4, 2015, between the Company and the other parties named therein, as consideration for the waiver by each of the Holders of their right to participate in future securities offerings by the Company. Proposal 3: Approval of an amendment to the Company’s Sixth Amended and Restated Certificate of Incorporation to reduce the number of authorized shares of common stock from 300,000,000 to 275,000,000.

Summary of Significant Accoun17

Summary of Significant Accounting Policies (Policies)	9 Months Ended
	Sep. 30, 2017
Summary of Significant Accounting Policies
Description of Business	Description of Business ReShape Lifesciences Inc. (the Company) is focused on the development and commercialization of minimally invasive medical devices to treat obesity, metabolic diseases and other gastrointestinal disorders. The Company was incorporated in the state of Minnesota on December 19, 2002 and was reincorporated in Delaware on July 22, 2004. In January 2006, the Company established EnteroMedics Europe Sárl, a wholly-owned subsidiary located in Switzerland. Prior to October 23, 2017, the Company was known as EnteroMedics Inc. While the Company is currently headquartered in St. Paul, Minnesota, in conjunction with its acquisition of ReShape Medical, Inc. (ReShape Medical) on October 2, 2017, it announced its intention to move its headquarters to San Clemente, California. See further information regarding the Company’s acquisition of ReShape Medical in Note 11, Subsequent Events. The Company’s board of directors and stockholders approved a 1-for-70 reverse split (the Reverse Stock Split) of the Company’s outstanding common stock that became effective after trading on December 27, 2016. The Reverse Stock Split did not change the par value of the Company’s stock or the number of preferred shares authorized by the Company’s Fifth Amended and Restated Certificate of Incorporation. An amendment to the Certificate of Incorporation was also approved in connection with the Reverse Stock Split to increase the number of shares of the Company’s common stock authorized for issuance to 300 million shares, effective immediately after the Reverse Stock Split. All share and per share amounts have been retroactively adjusted to reflect the Reverse Stock Split for all periods presented. On October 26, 2017, the Company filed a Certificate of Amendment to its Sixth Amended and Restated Certificate of Incorporation to reduce the number of authorized shares of the Company’s common stock from 300 million to 275 million
Risks and Uncertainties	Risks and Uncertainties The Company is focused on the development and commercialization of minimally invasive medical devices to treat obesity, metabolic diseases and other gastrointestinal disorders. vBloc ® Neurometabolic Therapy (vBloc Therapy), delivered by a U.S. Food and Drug Administration (FDA)-approved pacemaker-like device called the vBloc ® System, is designed to help patients feel full and eat less by intermittently blocking hunger signals on the vagus nerve. We have a limited operating history and only recently received FDA approval to sell the vBloc System in the United States. In addition, we have regulatory approval to sell the vBloc System in the European Economic Area and other countries that recognize the European CE Mark and do not have any other significant source of revenue currently. We have devoted substantially all of our resources to the development and commercialization of the vBloc System, which was formerly known as the Maestro or vBloc Rechargeable System. On May 22, 2017 the Company acquired the Gastric Vest System™ (Gastric Vest) through the acquisition of BarioSurg, Inc. The Gastric Vest is an investigational, minimally invasive, laparoscopically implanted medical device being studied for weight loss in obese and morbidly obese patients. The Gastric Vest wraps around a plicated stomach, emulating the effect of conventional weight-loss surgery, and is intended to enable gastric volume reduction without permanently changing patient anatomy. On October 2, 2017 the Company acquired ReShape Medical, Inc., a privately-held medical technology company that develops, manufactures and markets the ReShape® Dual Weight Loss Balloon (the ReShape Balloon), an FDA-approved, minimally invasive intragastric balloon designed to treat obesity patients with a body mass index (BMI) between 30 and 40, with one or more related comorbid conditions. Because the closing of this acquisition was after September 30, 2017, the Company’s Consolidated Balance Sheets and Statements of Operations included with this Quarterly Report on Form 10-Q do not reflect the acquisition of ReShape Medical. The Company’s products require approval from the U.S. Food and Drug Administration (FDA) or corresponding foreign regulatory agencies prior to commercial sales. The Company received FDA approval on January 14, 2015 for vBloc Therapy, delivered via the vBloc System, and has begun a controlled commercial launch at select surgical centers in the United States. The vBloc System has also received CE Mark and was previously listed on the Australian Register of Therapeutic Goods (ARTG). The ReShape Balloon received FDA approval on July 28, 2015. The medical device industry is characterized by frequent and extensive litigation and administrative proceedings over patent and other intellectual property rights. Whether a product infringes a patent involves complex legal and factual issues, the determination of which is often difficult to predict, and the outcome may be uncertain until the court has entered final judgment and all appeals are exhausted. The Company’s competitors may assert that its products or the use of the Company’s products are covered by U.S. or foreign patents held by them. The Company’s activities are subject to significant risks and uncertainties, including the ability to obtain additional financing, and there can be no assurance that the Company will be successful in obtaining additional financing on favorable terms, or at all. If adequate funds are not available, the Company may have to further reduce its cost structure until financing is obtained and/or delay development or commercialization of products or license to third parties the rights to commercialize products or technologies that the Company would otherwise seek to commercialize.
Basis of Presentation	Basis of Presentation The Company has prepared the accompanying condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. The Company’s fiscal year ends on December 31. The accompanying condensed consolidated financial statements and notes thereto are unaudited. In the opinion of the Company’s management, these statements include all adjustments, which are of a normal recurring nature, necessary to present a fair presentation. Interim results are not necessarily indicative of results for a full year. The condensed consolidated balance sheet as of December 31, 2016 was derived from audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The information included in this Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
Use of Estimates	Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Principles of Consolidation	Principles of Consolidation The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All intercompany transactions and accounts have been eliminated in consolidation.
Fair Value of Financial Instruments	Fair Value of Financial Instruments Carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued liabilities approximate fair value due to their short maturities. Certain of the Company’s common stock warrants are required to be reported at fair value and the Company has elected to report its senior amortizing convertible notes at fair value. The fair values of common stock warrants and investments in debt and equity securities, if any, are disclosed in Note 4. The fair values of senior amortizing convertible notes (the Notes) outstanding, if any, are valued using a Binomial Lattice model.
Common Stock Warrant Liability	Common Stock Warrant Liability Common stock warrants that were issued in connection with the July 8, 2015 public offering (the Series A Warrants) and the common stock warrants issued in connection with the November 9, 2015, January 11, 2016 and May 2, 2016 7% senior amortizing convertible notes (the Note Warrants) are classified as a liability in the condensed consolidated balance sheets, as the common stock warrants issued provide for certain anti-dilution protections in the event shares of common stock or securities convertible into shares of common stock are issued below the then-existing exercise price. The fair value of these common stock warrants is re-measured at each financial reporting period and immediately before exercise, with any changes in fair value being recognized as a component of other income (expense) in the condensed consolidated statements of operations.
Cash and Cash Equivalents	Cash and Cash Equivalents The Company considers highly liquid investments generally with maturities of 90 days or less when purchased to be cash equivalents. Cash equivalents are stated at cost, which approximates market value. The Company’s cash equivalents are primarily in money market funds and certificates of deposit. The Company deposits its cash and cash equivalents in high-quality credit institutions.
Inventory	Inventory The Company accounts for inventory at the lower of cost or market and records any long-term inventory as other assets in the condensed consolidated balance sheets.
Property and Equipment, Net	Property and Equipment, Net Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation of property and equipment is computed using the straight-line method over their estimated useful lives of five to seven years for furniture and equipment and three to five years for computer hardware and software. Leasehold improvements are amortized on a straight-line basis over the lesser of their useful life or the term of the lease. Upon retirement or sale, the cost and related accumulated depreciation or amortization are removed from the condensed consolidated balance sheets and the resulting gain or loss is reflected in the condensed consolidated statements of operations. Repairs and maintenance are expensed as incurred.
Impairment of Long-Lived Assets, Intangible Assets and Goodwill	Impairment of Long-Lived Assets, Intangible Assets and Goodwill The Company evaluates its long-lived assets, including its 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. The Company has not identified any such impairment losses to date. The Company tests Goodwill and indefinite-lived intangible assets for impairment annually as required.
Income Taxes	Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance for deferred income tax assets is recorded when it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The Company has provided a full valuation allowance against the gross deferred tax assets. The Company’s policy is to classify interest and penalties related to income taxes as income tax expense in the condensed consolidated statements of operations.
Medical Device Excise Tax	Medical Device Excise Tax On January 14, 2015, the Company received FDA approval for vBloc Therapy, delivered via the vBloc System, and starting in the second quarter of 2015 revenues were generated from sales in the United States. As a result, the Company is now required to pay a quarterly Medical Device Tax which is a part of the Affordable Care Act, which imposes a 2.3% excise tax on the sale of certain medical devices by device manufactures, producers or importers. The excise tax was effective on sales of devices made after December 31, 2012. The Company records the Medical Device Tax as an operating expense in the condensed consolidated statements of operations. A moratorium was placed on the Medical Device Tax for 2016 and 2017.
Comprehensive Loss	Comprehensive Loss Comprehensive loss is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from investment owners and distributions to owners. There was no difference from reported net loss for the three and nine months ended September 30, 2017 and 2016.
Revenue Recognition	Revenue Recognition Sales revenue is recognized when persuasive evidence of an arrangement exists, title or risk of loss has passed, the selling price is fixed or determinable, and collection is reasonably assured. Products are sold through direct sales or medical device distributors and revenue is recognized upon sale to a bariatric center of excellence or a medical device distributor when no right of return or price protection exists. Terms of sales to international distributors are generally EXW, reflecting that goods are shipped “ex works,” in which risk of loss is assumed by the distributor at the shipping point. A provision for returns is recorded only if product sales provide for a right of return. No provision for returns was recorded for the three and nine months ended September 30, 2017 and 2016, as the product sales recorded did not provide for rights of return. Revenues for services are recognized when earned, subject to limitations, if any, related to multiple deliverables. We evaluate each element in these multiple-element arrangements to determine whether they represent a separate unit of accounting and recognize each element as the services are performed.
Research and Development Expenses	Research and Development Expenses Research and development expenses are charged to expense as incurred. Research and development expenses include, but are not limited to, product development, clinical trial expenses, including supplies, devices, explants and revisions, quality assurance, regulatory expenses, payroll and other personnel expenses, materials and consulting costs.
Patent Costs	Patent Costs Costs associated with the submission of a patent application are expensed as incurred given the uncertainty of the patents resulting in probable future economic benefits to the Company.
Stock-Based Compensation	Stock-Based Compensation The fair value method is applied to all share-based payment awards issued to employees and where appropriate, nonemployees, unless another source of literature applies. All option grants are expensed on a straight-line basis over the vesting period.
Net Loss Per Share	Net Loss Per Share Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is based on the weighted-average common shares outstanding during the period plus dilutive potential common shares calculated using the treasury stock method. Such potentially dilutive shares are excluded when the effect would be to reduce a net loss per share. The Company’s potential dilutive shares, which include outstanding common stock options and warrants, have not been included in the computation of diluted net loss per share for all periods as the result would be anti-dilutive. The following table sets forth the computation of basic and diluted net loss per share for the three and nine months ended September 30, 2017 and 2016: Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Numerator: Net loss $ (9,993,676) $ (6,522,463) $ (24,200,665) $ (18,926,390) Denominator for basic and diluted net loss per share: Weighted-average common shares outstanding 9,470,807 554,028 7,589,239 273,751 Net loss per share—basic and diluted $ (1.06) $ (11.77) $ (3.19) $ (69.14) 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: September 30, 2017 2016 Stock options outstanding 1,331,166 1,414,918 Common shares underlying convertible preferred stock 9,787,210 — Warrants to purchase common stock 14,308,337 3,953,413
Recently Issued or Adopted Accounting Standards	Recently Issued or Adopted Accounting Standards In May 2014, FASB issued Revenue from Contracts with Customers, Topic 606 (Accounting Standards Update No. 2014-09 (ASU 2014-09)), which provides a framework for the recognition of revenue, with the objective that recognized revenues properly reflect amounts an entity is entitled to receive in exchange for goods and services. This guidance will be effective for interim and annual reporting periods beginning after December 15, 2017. The Company intends to use the modified retrospective approach when it adopts the standard as required January 1, 2018. The Company’s accounting for revenue related to vBloc products is not expected to materially change. The implications of the adoption of the new standard related to sales of ReShape Medical’s products are currently being evaluated. Additionally, the new standard will likely require incremental revenue disclosures that may be significant. In March 2016, FASB issued Improvements to Employee Share-Based Payment Accounting, (Accounting Standards Update No. 2016-09 (ASU 2016-09)), which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, the estimation of forfeitures, shares withheld for taxes and classification of shares withheld for taxes on the statement of cash flows. As part of the adoption of this guidance the Company has elected to account for forfeitures of share-based awards as they occur. The Company prospectively adopted ASU 2016-09 as required on January 1, 2017 and the adoption did not have a material effect on its consolidated financial statements. In July 2017, FASB issued ASU 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. The amendments in this update are intended to simplify the accounting for certain equity-linked financial instruments and embedded features with down round features that result in the strike price being reduced on the basis of the pricing of future equity offerings. Under the new guidance, a down round feature will no longer need to be considered when determining whether certain financial instruments or embedded features should be classified as liabilities or equity instruments. That is, a down round feature will no longer preclude equity classification when assessing whether an instrument or embedded feature is indexed to an entity's own stock. In addition, the amendments clarify existing disclosure requirements for equity-classified instruments. These amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. We early adopted the applicable amendments in the third quarter of 2017 on a retrospective basis. There have been no other significant changes in recent accounting pronouncements during the nine months ended September 30, 2017 as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

Summary of Significant Accoun18

Summary of Significant Accounting Policies (Tables)	9 Months Ended
	Sep. 30, 2017
Summary of Significant Accounting Policies
Computation of Basic and Diluted Net Loss per Share	Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Numerator: Net loss $ (9,993,676) $ (6,522,463) $ (24,200,665) $ (18,926,390) Denominator for basic and diluted net loss per share: Weighted-average common shares outstanding 9,470,807 554,028 7,589,239 273,751 Net loss per share—basic and diluted $ (1.06) $ (11.77) $ (3.19) $ (69.14)
Antidilutive Securities	September 30, 2017 2016 Stock options outstanding 1,331,166 1,414,918 Common shares underlying convertible preferred stock 9,787,210 — Warrants to purchase common stock 14,308,337 3,953,413

Acquisition (Tables)

Acquisition (Tables)	9 Months Ended
	Sep. 30, 2017
Acquisition
Schedule of allocation of purchase price	Cash $ 151,280 Property and equipment 3,000 Goodwill 6,397,671 In Process Research & Development 20,720,939 Trademarks/tradenames 1,090,363 Covenant not to compete 75,884 Other assets 5,826 Current liabilities assumed (186,000) Net assets acquired $ 28,258,963
Schedule of unaudited pro forma financial information	Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Revenues $ 360,020 $ 296,760 $ 493,120 $ 644,760 Net loss $ (9,895,138) $ (6,691,689) $ (24,230,493) $ (19,406,642) Net loss per share—basic and diluted $ (1.04) $ (3.46) $ (2.92) $ (11.73)

Fair Value Measurements (Tables

Fair Value Measurements (Tables)	9 Months Ended
	Sep. 30, 2017
Summary of Fair Value Measurements of Senior Amortizing Convertible Notes and Common Stock Warrants	Level 1 Level 2 Level 3 Total Common stock warrants at December 31, 2016 $ — $ 39,119 $ — $ 39,119 Common stock warrants at September 30, 2017 $ — $ 2,159 $ — $ 2,159
Warrants
Fair Value Calculated Using Valuation Model	Series A Warrants September 30, 2017 December 31, 2016 Risk-free interest rates 1.31 % 1.20 % Expected life 15 months 24 months Expected dividends — % — % Expected volatility 194.28 % 122.03 % Fair value $ 2,159 $ 36,000 The following were the fair value assumptions used by the Company in calculating values of Note Warrants as of December 31, 2016: December 31, 2016 November 2015 Note Warrants January 2016 Note Warrants May 2016 Note Warrants Risk-free interest rates 1.47 % 1.93 % 1.93 % Expected life 46 months 48 months 52 months Expected dividends — % — % — % Expected volatility 102.29 % 108.57 % 106.37 % Fair value $ 449 $ 1,633 $ 1,037
Notes
Fair Value Calculated Using Valuation Model	November 2015 Notes January 2016 Notes September 30, 2016 December 31, 2015 September 30, 2016 January 11, 2016 Risk-free interest rates N/A % 0.65 % % Expected life N/A years 1.11 years years Expected dividends N/A — % — % — % Expected volatility N/A 57.5 % 70.0 % 60.0 % Fair value per share of common stock N/A $ 0.03 $ 0.002 $ 0.02 May 2016 Notes September 30, 2016 May 2, 2016 Risk-free interest rates 0.65 % % Expected life 1.11 years years Expected dividends — % — % Expected volatility 70.0 % 65.0 % Fair value per share of common stock $ 0.002 $ 0.01

Inventory (Tables)

Inventory (Tables)	9 Months Ended
	Sep. 30, 2017
Inventory
Current Inventory	September 30, December 31, 2017 2016 Raw materials $ 207,758 $ 335,606 Work-in-process 1,362,399 1,437,957 Finished goods 16,472 16,015 Inventory $ 1,586,629 $ 1,789,578

Commitments and Contingencies (

Commitments and Contingencies (Tables)	9 Months Ended
	Sep. 30, 2017
Commitments and Contingencies
Future Minimum Lease Payments	Year ending December 31, Remaining three months of 2017 $ 173,832 2018 633,695 2019 419,082 2020 319,262 2021 327,949 2022 165,061 $ 2,038,881

Stock-based Compensation (Table

Stock-based Compensation (Tables)	9 Months Ended
	Sep. 30, 2017
Stock-based Compensation
Summary of Operating Expenses and Employee and Nonemployees	Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Selling, general and administrative $ 599,767 $ 310,133 $ 3,412,820 $ 1,731,768 Research and development 17,584 45,203 70,631 470,181 Total $ 617,351 $ 355,336 $ 3,483,451 $ 2,201,949
Stock Option Valuation Assumptions	Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Risk-free interest rates 1.88%-1.99% 1.03% 1.88%-2.34% 0.87%–1.64% Expected life 6.25 years 4.00 years 6.00 years–10.00 years 4.00 years–6.25 years Expected dividends 0% 0% 0% 0% Expected volatility 90.93% 96.64% 90.93%–131.24% 88.43%–96.10%
Summary of Stock Option Activity	Outstanding Options Shares Available For Number of Weighted-Average Grant Shares (1) Exercise Price (1) Balance, December 31, 2016 2,988,243 19,840 $ 770.35 Shares reserved — — — Options granted (1,333,450) 1,333,450 6.71 Options exercised — — — Options cancelled 22,124 (22,124) 55.73 Balance, September 30, 2017 1,676,917 1,331,166 $ 22.63 _________________ (1) Outstanding option amounts as of December 31, 2016 and September 30, 2017 include both 2003 Plan options as well as inducement options granted in November 2015 and January 2016 to executive officers in conjunction with their recruitment.

Warrants (Tables)

Warrants (Tables)	9 Months Ended
	Sep. 30, 2017
Warrants
Stock Warrants Activity	Weighted Average Common Exercise Shares Price Balance, December 31, 2016 55,049 $ 238.90 Granted (1) 14,852,994 3.15 Exercised (599,670) 5.56 Cancelled (36) 238.90 Balance, September 30, 2017 14,308,337 $ 3.51 _______________ (1) See Note 9 regarding the issuance of warrants in January and August 2017

Summary of Significant Accoun25

Summary of Significant Accounting Policies (Detail)	Oct. 02, 2017item	Jan. 14, 2015	Sep. 30, 2017USD ($)shares	Oct. 26, 2017shares	Dec. 31, 2016itemshares	Sep. 30, 2016USD ($)	May 02, 2016	Jan. 11, 2016	Jan. 06, 2016shares	Nov. 09, 2015
Schedule Of Significant Accounting Policies [Line Items]
Reverse Stock Split Ratio					0.0142
Common stock authorized for issuance | shares			300,000,000		300,000,000				300,000,000
Convertible notes, interest rate						7.00%
Cash equivalents maturity period			90 days
Excise tax rate on medical devices		2.30%
Provision for returns | $			$ 0			$ 0
Subsequent Event
Schedule Of Significant Accounting Policies [Line Items]
Common stock authorized for issuance | shares				275,000,000
ReShape Medical, Inc | Subsequent Event
Schedule Of Significant Accounting Policies [Line Items]
Minimum number of obesity or related comorbid conditions	1
ReShape Medical, Inc | Minimum | Subsequent Event
Schedule Of Significant Accounting Policies [Line Items]
BMI index	30
ReShape Medical, Inc | Maximum | Subsequent Event
Schedule Of Significant Accounting Policies [Line Items]
BMI index	40
Furniture and Fixtures | Minimum
Schedule Of Significant Accounting Policies [Line Items]
Property and equipment estimated useful lives			5 years
Furniture and Fixtures | Maximum
Schedule Of Significant Accounting Policies [Line Items]
Property and equipment estimated useful lives			7 years
Computer hardware and software | Minimum
Schedule Of Significant Accounting Policies [Line Items]
Property and equipment estimated useful lives			3 years
Computer hardware and software | Maximum
Schedule Of Significant Accounting Policies [Line Items]
Property and equipment estimated useful lives			5 years
Senior Amortizing Convertible Notes
Schedule Of Significant Accounting Policies [Line Items]
Convertible notes, interest rate							7.00%	7.00%		7.00%

Summary of Significant Accoun26

Summary of Significant Accounting Policies - Computation of Basic and Diluted Net Loss Per Share (Detail) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Numerator:
Net loss	$ (9,993,676)	$ (6,522,463)	$ (24,200,665)	$ (18,926,390)
Denominator for basic and diluted net loss per share:
Weighted-average common shares outstanding	9,470,807	554,028	7,589,239	273,751
Net loss per share-basic and diluted	$ (1.06)	$ (11.77)	$ (3.19)	$ (69.14)

Summary of Significant Accoun27

Summary of Significant Accounting Policies - Additional Information (Detail) - shares	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Stock options outstanding
Anti-dilutive Securities
Anti-dilutive as of end of each period	1,331,166	1,414,918
Common shares underlying convertible preferred stock
Anti-dilutive Securities
Anti-dilutive as of end of each period	9,787,210
Warrants to purchase common stock
Anti-dilutive Securities
Anti-dilutive as of end of each period	14,308,337	3,953,413

Liquidity and Management's Pl28

Liquidity and Management's Plans (Detail) - USD ($)	Aug. 16, 2017	Jan. 23, 2017	Sep. 30, 2017	Dec. 31, 2016	Sep. 30, 2016	Dec. 31, 2015
Liquidity and Managements Plans [Line Items]
Gross proceeds before deducting estimate offering expenses		$ 19,000,000
Offering costs		$ 2,500,000
Common stock warrants	2,575,000		599,670
Proceeds from warrants exercised			$ 3,334,176
Cash and cash equivalents			23,433,297	$ 3,310,787	$ 6,841,547	$ 7,927,240
Series B convertible preferred stock
Liquidity and Managements Plans [Line Items]
Proceeds from Issuance of Convertible Preferred Stock	$ 20,000,000		$ 18,400,000
Underwriting discounts and commissions and offering expenses	$ 2,000,000

Acquisition (Detail)

Acquisition (Detail) - USD ($)	May 22, 2017	Jan. 01, 2016	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2017	Sep. 30, 2016	Dec. 31, 2016
Acquisition
Common stock, par value			$ 0.01		$ 0.01	$ 0.01		$ 0.01
Conversion of convertible preferred shares to common stock			21,528,000		21,528,000	21,528,000
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract]
Goodwill			$ 6,397,671		$ 6,397,671	$ 6,397,671
Amortization period						3 years
Results of acquisition					$ (443,000)
Trademarks/tradenames
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract]
Amortization period						10 years
Conditional convertible preferred stock
Acquisition
Preferred stock, par value			$ 0.01		$ 0.01	$ 0.01		$ 0.01
BarioSurg
Acquisition
Conversion of convertible preferred shares to common stock	5,000,000
Cash consideration	$ 2,000,000
Number of preferred stock deposited with an escrow agent	100,018
Total consideration	$ 28,300,000
Value of equity consideration	$ 26,300,000
Number of trading days	3 days
Discount for lack of marketability (in percentage)	19.00%
Acquisition related cost			$ 131,000			$ 367,000
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract]
Cash			151,280		$ 151,280	151,280
Property and equipment			3,000		3,000	3,000
Goodwill			6,397,671		6,397,671	6,397,671
Other assets			5,826		5,826	5,826
Current liabilities assumed			(186,000)		(186,000)	(186,000)
Net assets acquired			28,258,963		28,258,963	28,258,963
Business Acquisition, Pro Forma Information [Abstract]
Sales			360,020	$ 296,760		493,120	$ 644,760
Net loss			$ (9,895,138)	$ (6,691,689)		$ (24,230,493)	$ (19,406,642)
Net loss per share—basic			$ (1.04)	$ (3.46)		$ (2.92)	$ (11.73)
BarioSurg | In Process Research & Development
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract]
Intangible assets			$ 20,720,939		20,720,939	$ 20,720,939
BarioSurg | Trademarks/tradenames
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract]
Intangible assets			1,090,363		1,090,363	1,090,363
BarioSurg | Covenant not to compete
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract]
Intangible assets			$ 75,884		$ 75,884	$ 75,884
BarioSurg | Common Stock
Acquisition
Number of shares issued	1,380,000	1,380,000
Common stock, par value	$ 0.01
BarioSurg | Conditional convertible preferred stock
Acquisition
Number of shares issued	1,000,000
Preferred stock, par value	$ 0.01
Conversion of convertible preferred shares to common stock	5,000,905

Fair Value Measurements (Detail

Fair Value Measurements (Detail) - USD ($)	Aug. 16, 2017	May 02, 2016	Jan. 11, 2016	Sep. 30, 2017	Sep. 30, 2016	Dec. 31, 2016	Dec. 31, 2015
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Risk-free interest rates	2.03%
Expected life	7 years
Expected dividends	0.00%
Expected volatility	112.03%
Convertible notes, interest rate					7.00%
Notes Issued November 2015
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Risk-free interest rates							1.11%
Expected life					0 years		1 year 10 months 10 days
Expected volatility							57.50%
Fair value per share of common stock							$ 0.03
Notes Issued November 2015 | First closing
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Debt Instrument Carrying Amount					$ 1,500,000
Fair value outstanding notes							$ 1,300,000
Notes Issued January 11, 2016
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Risk-free interest rates			1.01%		0.65%
Expected life			1 year 9 months 29 days		1 year 1 month 10 days
Expected volatility			60.00%		70.00%
Fair value per share of common stock			$ 0.02		$ 0.002
Notes Issued January 11, 2016 | Second closing
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Debt Instrument Carrying Amount					$ 11,000,000
Fair value outstanding notes			$ 9,900,000		2,400,000
Notes Issued May 2, 2016 | Third closing
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Debt Instrument Carrying Amount					6,250,000
Fair value outstanding notes		$ 6,000,000			$ 3,200,000
Warrants Issued July 8, 2015
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Risk-free interest rates				1.31%		1.20%
Expected life				15 months		24 months
Expected volatility				194.28%		122.03%
Fair value				$ 2,159		$ 36,000
Warrants Issued November 9, 2015
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Risk-free interest rates						1.47%
Expected life						46 months
Expected volatility						102.29%
Fair value						$ 449
Warrants Issued January 11, 2016
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Risk-free interest rates						1.93%
Expected life						48 months
Expected volatility						108.57%
Fair value						$ 1,633
Warrants Issued May 2, 2016
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Risk-free interest rates		0.69%			0.65%	1.93%
Expected life		1 year 6 months 7 days			1 year 1 month 10 days	52 months
Expected volatility		65.00%			70.00%	106.37%
Fair value						$ 1,037
Fair value per share of common stock		$ 0.01			$ 0.002

Fair Value Measurements - Serie

Fair Value Measurements - Series A Warrants and Note Warrants (Detail) - Common Stock - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	$ 2,159	$ 39,119
Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	$ 2,159	$ 39,119

Inventory (Detail)

Inventory (Detail) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Inventory
Long-term inventory	$ 1,100,000	$ 676,000

Inventory - Additional Informat

Inventory - Additional Information (Detail) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Inventory
Raw materials	$ 207,758	$ 335,606
Work-in-process	1,362,399	1,437,957
Finished goods	16,472	16,015
Inventory	$ 1,586,629	$ 1,789,578

Commitments and Contingencies34

Commitments and Contingencies (Detail)	Oct. 02, 2017USD ($)	Aug. 25, 2015USD ($)	Feb. 28, 2017shareholderdefendantshares	Sep. 30, 2017USD ($)	Sep. 30, 2016USD ($)	Sep. 30, 2017USD ($)	Sep. 30, 2016USD ($)
Loss Contingencies [Line Items]
Operating lease agreement expiration date		Sep. 30, 2018				Sep. 30, 2015
Operating lease agreement term		3 years
Total rent expense				$ 64,893	$ 58,905	$ 185,436	$ 176,175
Number of months that require patients to be followed out in clinical trials							60 months
Lake Forest, California
Loss Contingencies [Line Items]
Operating lease agreement expiration date						Sep. 30, 2018
Operating lease, monthly base rent						$ 2,200
Du Litigation
Loss Contingencies [Line Items]
Number of shareholders | shareholder			1
Number of Senior Management members | defendant			4
Number of Shares | shares			1,093,450
Minimum
Loss Contingencies [Line Items]
Operating lease, monthly base rent		$ 18,925
Maximum
Loss Contingencies [Line Items]
Operating lease, monthly base rent		$ 20,345
ReShape Medical, Inc | Office space | Subsequent Event
Loss Contingencies [Line Items]
Operating lease agreement expiration date	Jun. 30, 2022
Operating lease, monthly base rent	$ 24,600
Annual rent escalations, percentage	3.00%
ReShape Medical, Inc | Manufacturing/warehousing space | Subsequent Event
Loss Contingencies [Line Items]
Operating lease, monthly base rent	$ 10,900

Commitments and Contingencies -

Commitments and Contingencies - Additional Information (Detail)	Sep. 30, 2017USD ($)
Commitments and Contingencies
Remaining six months of 2017	$ 173,832
2,018	633,695
2,019	419,082
2,020	319,262
2,021	327,949
2,022	165,061
Operating Leases, Future Minimum Payments Due, Total	$ 2,038,881

Senior Amortizing Convertible36

Senior Amortizing Convertible Notes (Detail) $ in Thousands	May 02, 2016USD ($)item	Jan. 11, 2016USD ($)item	Nov. 09, 2015USD ($)item	Sep. 30, 2016
Debt Instrument [Line Items]
Convertible notes, interest rate				7.00%
Senior Amortizing Convertible Notes
Debt Instrument [Line Items]
Convertible notes, interest rate	7.00%	7.00%	7.00%
Senior amortizing convertible notes issued principal amounts | $	$ 6,250	$ 11,000	$ 1,500
Number of Senior Amortizing Convertible Notes | item	3	3	3

Stock-based Compensation - Expe

Stock-based Compensation - Expense for Stock-Based Awards (Detail) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation	$ 617,351	$ 355,336	$ 3,483,451	$ 2,201,949
Total unrecognized compensation costs related to non-vested stock options	5,200,000		$ 5,200,000
Total unrecognized compensation costs related to non-vested stock options, weighted-average period of recognition			2 years 4 months 24 days
Selling, general and administrative
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation	599,767	310,133	$ 3,412,820	1,731,768
Research and development
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation	17,584	45,203	70,631	470,181
Nonemployees
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation	$ 138,000	$ 4,000	$ 138,000	$ 4,000

Stock-based Compensation - Esti

Stock-based Compensation - Estimated Grant-Date Fair Values of Employee Stock Options (Detail)	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk-free interest rates, minimum	1.88%	1.03%	1.88%	0.87%
Risk-free interest rates, maximum	1.99%		2.34%	1.64%
Expected life	6 years 3 months	4 years
Expected dividends	0.00%	0.00%	0.00%	0.00%
Expected volatility, minimum	90.93%	96.64%	90.93%	88.43%
Expected volatility, maximum			131.24%	96.10%
Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected life			6 years	4 years
Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected life			10 years	6 years 3 months

Stock-based Compensation - Summ

Stock-based Compensation - Summary of Stock Option Activity (Detail) - Stock Incentive Plan 2003	9 Months Ended
	Sep. 30, 2017$ / sharesshares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares Available For Grant, Beginning Balance	2,988,243
Shares Available For Grant, Options granted	(1,333,450)
Shares Available For Grant, Options cancelled	22,124
Shares Available For Grant, Ending Balance	1,676,917
Outstanding Options, Number of Shares, Beginning Balance	19,840
Outstanding Options, Number of Shares, Options granted	1,333,450
Outstanding Options, Number of Shares, Options cancelled	(22,124)
Outstanding Options, Number of Shares, Ending Balance	1,331,166
Outstanding Options, Weighted-Average Exercise Price, Beginning Balance | $ / shares	$ 770.35
Outstanding Options, Weighted-Average Exercise Price, Options granted | $ / shares	6.71
Outstanding Options, Weighted-Average Exercise Price, Options cancelled | $ / shares	55.73
Outstanding Options, Weighted-Average Exercise Price, Ending Balance | $ / shares	$ 22.63

Stock Sales (Detail)

Stock Sales (Detail)	Aug. 16, 2017USD ($)$ / sharesshares	Jan. 24, 2017shares	Jan. 23, 2017USD ($)$ / sharesshares	Aug. 16, 2016item	Sep. 30, 2017USD ($)$ / sharesshares	Sep. 30, 2017USD ($)$ / sharesshares	Dec. 31, 2016$ / sharesshares
Class of Stock [Line Items]
Gross proceeds before deducting estimate offering expenses | $			$ 19,000,000
Offering costs | $			$ 2,500,000
Number of common stock					12,208,671	12,208,671	2,736,621
Common stock upon the exercise of outstanding warrants	2,575,000				599,670	599,670
Beneficial ownership percentage			4.99%
Common stock (in shares)			1,218,107		12,208,671	12,208,671	2,736,621
Common stock, par value | $ / shares					$ 0.01	$ 0.01	$ 0.01
Conversion of convertible preferred shares to common stock					21,528,000	21,528,000
Warrants expense | $	$ 4,400,000				$ 4,438,149	$ 4,438,149
Estimated assumptions
Risk-free interest rates	2.03%
Expected life	7 years
Expected dividends	0.00%
Expected volatility	112.03%
Class A Units
Class of Stock [Line Items]
Offer price | $ / shares			$ 5.31
Number of common stock			1
Common stock upon the exercise of outstanding warrants			1
Warrant Term			5 years
Exercise price | $ / shares			$ 5.84
Shares issued upon conversion (in shares)			188
Class B Units
Class of Stock [Line Items]
Offer price | $ / shares			$ 1,000
Common stock upon the exercise of outstanding warrants			3,577,994
Shares issued upon conversion (in shares)			2,359,894
Preferred Stock.
Class of Stock [Line Items]
Shares issued upon conversion (in shares)		2,359,894	2,359,894
Preferred stock ( in shares)			12,531
Series B convertible preferred stock
Class of Stock [Line Items]
Preferred stock ( in shares)					11,003	11,003	0
Number of common stock					20,000	20,000
Preferred stock, par value | $ / shares					$ 0.01	$ 0.01	$ 0.01
Warrants 2,017
Class of Stock [Line Items]
Common stock upon the exercise of outstanding warrants			188
Over-allotment option
Class of Stock [Line Items]
Common stock shares issued (in shares)			466,695
Net proceeds | $	$ 18,000,000
Over-allotment option | Series B convertible preferred stock
Class of Stock [Line Items]
Shares issued upon conversion (in shares)	435					3,913,695
Preferred stock ( in shares)					8,997	8,997
Common stock shares issued (in shares)	20,000
Number of common stock	1
Preferred stock, par value | $ / shares	$ 0.01
Common stock, par value | $ / shares	0.01
Conversion Price Per Share | $ / shares	2.30
Number of embedded features | item				2
Over-allotment option | Warrants to purchase common stock
Class of Stock [Line Items]
Offer price | $ / shares	$ 1,000
Common stock upon the exercise of outstanding warrants	1
Warrant Term	7 years
Exercise price | $ / shares	$ 2.30
Conversion of convertible preferred shares to common stock	435
Over-allotment option | Warrants 2017
Class of Stock [Line Items]
Common stock shares issued (in shares)			466,695

Warrants (Detail)

Warrants (Detail) - USD ($)	9 Months Ended
	Sep. 30, 2017	Aug. 16, 2017
Class of Warrant or Right [Line Items]
Common stock warrants	599,670	2,575,000
Proceeds from warrants exercised	$ 3,334,176
Common Stock
Class of Warrant or Right [Line Items]
Beginning Balance	55,049
Granted	14,852,994
Exercised	(599,670)
Cancelled	(36)
Ending Balance	14,308,337
Beginning Balance	$ 238.90
Granted	3.15
Exercised	5.56
Cancelled	238.90
Ending Balance	$ 3.51

Subsequent Events (Detail)

Subsequent Events (Detail) $ in Millions	Oct. 02, 2017USD ($)itemshares	May 22, 2017USD ($)shares	Oct. 26, 2017shares	Oct. 25, 2017shares	Sep. 30, 2017shares	Aug. 16, 2017shares	Jan. 23, 2017shares	Dec. 31, 2016shares	Jan. 06, 2016shares
Conversion of convertible preferred shares to common stock					21,528,000
Common stock upon the exercise of outstanding warrants					599,670	2,575,000
Common Stock, Shares Authorized					300,000,000			300,000,000	300,000,000
BarioSurg
Number of shares issued | $		$ 26.3
Conversion of convertible preferred shares to common stock		5,000,000
Payment in cash | $		$ 2
Scenario, Plan [Member]
Common stock upon the exercise of outstanding warrants				916,834
Common Stock, Shares Authorized			275,000,000
Class A Units
Common stock upon the exercise of outstanding warrants							1
Class B Units
Common stock upon the exercise of outstanding warrants							3,577,994
Conditional convertible preferred stock | BarioSurg
Conversion of convertible preferred shares to common stock		5,000,905
Conditional convertible preferred stock | Scenario, Plan [Member] | BarioSurg
Conversion of convertible preferred shares to common stock				1,000,181
Subsequent Event
Common Stock, Shares Authorized			275,000,000
Subsequent Event | ReShape Medical, Inc
Conversion of convertible preferred shares to common stock	18,777,200
Payment in cash | $	$ 5
Minimum number of obesity or related comorbid conditions | item	1
Subsequent Event | ReShape Medical, Inc | Common Stock
Common stock upon the exercise of outstanding warrants	2,356,729
Subsequent Event | Minimum | ReShape Medical, Inc
BMI index | item	30
Subsequent Event | Maximum | ReShape Medical, Inc
BMI index | item	40
Subsequent Event | Series C convertible preferred stock | ReShape Medical, Inc
Conversion of convertible preferred shares to common stock	187,772