Business context and reporting period
This is ReShape Lifesciences Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2022 (ticker RSLS). The request metadata names Vyome Holdings, Inc., but the filing itself is for ReShape Lifesciences; verify the intended issuer.
ReShape markets the Lap-Band system and reshape care virtual coaching, and has other products in development. Lap-Band accounted for nearly all revenue. The filing reports no revenue for the ReShape Vest or Diabetes Bloc-Stim device; the Obalon product line also had no reported revenue.
Key financial metrics
Amounts below are in millions of dollars, except per-share data and percentages.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $2.80 | $3.71 | $8.13 | $10.46 |
| Gross profit / margin | $2.10 / 75.1% | $2.14 / 57.6% | $5.20 / 64.0% | $6.57 / 62.8% |
| Operating loss | $(11.93) | $(14.98) | $(29.70) | $(20.94) |
| Net loss | $(11.81) | $(17.70) | $(29.60) | $(26.48) |
| Basic and diluted net loss per share | $(0.52) | $(1.04) | $(1.47) | $(3.07) |
| Cash used in operating activities | Not stated for quarter | Not stated for quarter | $(19.07) | $(11.95) |
Q3 operating expenses were $14.03 million, including a $6.95 million noncash impairment charge. Nine-month operating expenses were $34.90 million, including the same impairment. The filing’s MD&A expense comparison excludes the impairment from its operating-expense table, so those figures should not be confused with the financial statements.
At September 30, cash and cash equivalents were $6.15 million, restricted cash was $0.10 million, and receivables were $2.23 million. Current assets were $13.57 million and current liabilities $7.51 million (working capital approximately $6.1 million). Total liabilities were $7.51 million; the balance sheet reports no debt. Total assets were $28.46 million, versus $54.26 million at December 31, 2021. Stockholders’ equity was $20.94 million, down from $46.07 million.
Material changes versus prior comparable periods
- Revenue fell 24.5% in Q3 and 22.3% for the first nine months. Q3 declines were particularly pronounced in Europe; year-to-date revenue decreased in each reported geographic region.
- Gross margin improved to 75.1% in Q3 and 64.0% year to date, which management attributed mainly to a greater focus on higher-margin domestic sales; Q3 also benefited from lower payroll-related costs.
- Nine-month operating cash use increased to $19.07 million from $11.95 million. Cash and restricted cash declined $16.57 million during the first nine months to $6.25 million.
- Nine-month sales and marketing expense increased to $11.99 million from $6.19 million, primarily due to expanded direct-to-consumer advertising and commercial staffing. General and administrative expense decreased, substantially reflecting lower stock-based compensation and merger-related professional fees.
- In Q3, ReShape stopped ReShape Vest clinical trials and recorded a $6.95 million impairment, reducing the related in-process research and development asset to zero.
- Common shares outstanding at September 30 were 22.60 million, compared with 17.83 million at December 31, 2021. The company received approximately $2.49 million from warrant exercises during the nine-month period.
Outlook, risks, contingencies and unusual items
- Going concern: Management stated that available cash may not fund operations for more than twelve months from the filing date and that this raises substantial doubt about the company’s ability to continue as a going concern. Management was evaluating additional financing, but said financing was not assured and its plans did not alleviate the doubt.
- Operating plans: Management aimed to grow Lap-Band sales, emphasize digital marketing, improve efficiency, and promote reshape care. If sales do not improve, it may reduce marketing, clinical and product-development spending. Management expected revenue to increase through the remainder of 2022, but this was a forward-looking expectation, not a guarantee.
- Subsequent financing: An offering closed November 9, 2022, for $750,000 gross proceeds, alongside common shares, preferred stock, pre-funded warrants and warrants. Existing investor warrants were also amended, including a reduction in exercise price. Consider the financing terms and potential dilution when assessing liquidity.
- Nasdaq listing: The company received a July 2022 notice for failing the $1.00 minimum bid-price requirement and disclosed the risk of delisting. It was seeking stockholder approval for a possible 1-for-30 to 1-for-100 reverse split; approval or continued compliance was not assured.
- Controls: Management concluded internal control over financial reporting was not effective because of material weaknesses, including insufficient accounting resources and inadequate review of the weighted-average-share calculation. The company was implementing remediation. It also revised prior earnings-per-share calculations for an immaterial error; the revision did not affect net loss or accumulated deficit.
- Legal matters: The company paid $1.0 million in July 2022 to settle the Wainwright claim and accrued $1.0 million for potential legal settlements. Cowen claimed a $1.35 million advisory fee plus fees and interest; the company said it would defend the matter and could not predict the outcome.
- Other risks and items: Management cited potential COVID-related disruption to elective procedures. A $300,000 Small Business Innovation Research grant was awarded for development of the Diabetes Bloc-Stim device. The CEO changed in August 2022.
Important facts for investors to verify
- Confirm the intended issuer: the supplied metadata says Vyome Holdings, while the filing is for ReShape Lifesciences Inc. (RSLS).
- Review the full subsequent-offering and warrant terms, dilution implications, and cash runway after the November 2022 financing.
- Check the status of Nasdaq bid-price compliance, the proposed reverse split, and any subsequent listing notices.
- Assess whether revenue recovery, margin improvement, and planned expense reductions are sufficient to reduce cash burn; management provides no assured funding plan.
- Review progress on remediation of the disclosed material weaknesses and the outcome of the Cowen litigation.