Business context and reporting period
The supplied filing is ReShape Lifesciences Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2021. This does not match the request metadata naming Vyome Holdings, Inc.; the summary below reflects the filing text provided. ReShape sells the LAP-BAND product line and is developing additional obesity and diabetes offerings. On June 15, 2021, it completed its merger with Obalon, accounted for as a reverse acquisition.
Financial results and liquidity
Unless noted otherwise, amounts are in millions of dollars. Comparisons are with the corresponding 2020 period.
- Second quarter: Revenue was $3.529 million, up 107.3%; gross profit was $2.153 million, with a 61.0% gross margin versus 49.2%. Operating expenses rose to $5.855 million, including $2.277 million of Obalon merger-related professional fees. Operating loss was $3.702 million and net loss was $3.902 million, versus losses of $2.998 million and $3.604 million, respectively. Basic and diluted loss per share was $0.47 versus $0.52.
- First half: Revenue was $6.750 million, up 50.3%; gross profit was $4.436 million and gross margin was 65.7%, compared with 52.1%. Operating loss was $5.960 million and net loss was $8.776 million, compared with losses of $7.080 million and $7.915 million. The 2021 net loss included a $2.061 million net loss on debt extinguishment. Loss per share was $1.11 versus $1.15.
- Cash flow: First-half operating cash use was $4.149 million, compared with $5.812 million. Investing activities provided $5.011 million, principally reflecting $5.207 million of cash received with the Obalon acquisition, less capital expenditures. Financing activities provided $36.332 million, including warrant-exercise proceeds and repayment of credit-agreement debt. Cash, cash equivalents and restricted cash ended the period at $40.213 million.
- Balance sheet and debt: At June 30, cash and cash equivalents were $40.163 million, restricted cash $0.050 million, current assets $65.605 million and current liabilities $60.496 million; reported working capital was approximately $5.1 million. Total liabilities were $61.881 million. The $10.5 million credit-agreement balance was repaid in June; remaining debt of $2.936 million was current asset-purchase consideration payable. Current liabilities included a $43.218 million accrual for shares awaiting issuance, while $17.705 million of related issuance costs were deferred. The company said both amounts would be reclassified to equity after shares were issued in July.
Material changes and management commentary
- Revenue growth was attributed mainly to reduced COVID-19 restrictions on elective procedures and increased obesity awareness. U.S. revenue rose 80.6% in the quarter; Europe rose 375.8% from a low prior-year base.
- Management attributed higher gross margins to sales volume, lower overhead and, for the first half, a greater proportion of domestic sales.
- First-half research and development expense fell 61.7%, which management attributed primarily to slower ReShape Vest clinical trials during the pandemic.
- ReShape raised approximately $45.5 million gross through a June warrant exercise and new warrant sale, used about $10.8 million to repay debt and accrued interest, and intended to use the remainder for working capital and general corporate purposes. The transaction included new warrants for up to approximately 5.9 million shares; 7.1 million of the exercised shares were issued in July.
- Management expected to increase sales and marketing spending as a percentage of revenue for the rest of 2021 and anticipated more reshape care revenue in the second half. No quantified revenue, earnings or cash-flow guidance was provided. ReShape Vest and Diabetes Bloc-Stim remained in development and generated no revenue; the Obalon product line also recorded no revenue in the period.
Risks, contingencies and unusual items
- Management said COVID-19’s effects on 2021 results, liquidity and financial condition could not be estimated; renewed disruption to elective procedures could affect sales.
- The Obalon purchase-price allocation was preliminary and subject to measurement-period revisions. The merger generated $21.623 million of goodwill and $2.730 million of developed technology; acquisition-related costs were $2.3 million.
- The company reported no material litigation or material changes to the risk factors in its 2020 Form 10-K. Product-liability exposure is inherent in the medical-device business; management said it believes insurance coverage is adequate.
- Subsequent events included a July exchange of warrants for 504,861 shares and new warrants for up to 400,000 shares, and July grants of approximately 3.61 million restricted stock units to directors and management.
- Management stated that disclosure controls were effective as of June 30, 2021 and reported no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the issuer: the filing is for ReShape Lifesciences Inc., not Vyome Holdings, Inc.
- Review the June warrant transaction’s final share issuance, warrant terms, fees and resulting dilution, including the July issuance of shares held in abeyance.
- Check the subsequent-period equity reclassification of the $43.218 million share accrual and $17.705 million deferred issuance costs.
- Monitor cash burn, commercial sales and the impact of increased sales and marketing spending; the filing provides no quantified forward guidance.
- Track final purchase accounting for Obalon and progress, funding needs and regulatory or clinical milestones for products still in development.