ReShape Lifesciences Inc. (NASDAQ:RSLS) Q3 2021 Results Conference Call November 11, 2021 8:30 AM ET Company Participants Bart Bandy - Chief Executive Officer Tom Stankovich - Chief Financial Officer Operator Good morning, and thank you for joining the Third Quarter 2021 ReShape Lifesciences Earnings Webinar. I am pleased to be joined by Bart Bandy, Chief Executive Officer of ReShape Lifesciences Inc., who will provide an overview of the Company's recent activity during the third quarter of 2021. Tom Stanko ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 1-37897 RESHAPE LIFESCIENCES INC. (Exact name of registrant as specified in its charter) (State or other jurisdiction De ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 1-37897 RESHAPE LIFESCIENCES INC. (Exact name of registrant as specified in its charter) Delaware 26-1828101 (State or other ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 001-37897 OBALON THERAPEUTICS, INC. (Exact Name of Registrant as Specified in Its Charter) (Registrant's Telephone Number, Including Area Code) Securities reg ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission File Number: 001-37897 OBALON THERAPEUTICS, INC. (Exact Name of Registrant as Specified in Its Charter) (State of Incorporation) (I.R.S. Emp ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part provides the unaudited condensed consolidated financial statements and management's analysis of financial condition and operations [Item 1. Condensed Consolidated Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) This section presents Obalon Therapeutics' unaudited consolidated financial statements and accompanying notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20as%20of%20September%2030%2C%202020%20and%20December%2031%2C%202019) This section details the company's financial position, including assets, liabilities, and equity, for the specified periods Condensed Consolidated Balance Sheets (in thousands) | Metric | Sep 30, 2020 | Dec 31, 2019 | | :-------------------------- | :----------- | :----------- | | **Assets** | | | | Cash and cash equivalents | $5,514 | $14,055 | | Accounts receivable, net | — | 285 | | Inventory | — | 1,936 | | Total current assets | 9,031 | 18,235 | | Total assets | 11,962 | 20,393 | | **Liabilities & Equity** | | | | Total current liabilities | 5,050 | 3,977 | | Total liabilities | 6,040 | 4,544 | | Total stockholders' equity | 5,922 | 15,849 | | Total liabilities and stockholders' equity | $11,962 | $20,393 | - Total assets decreased by approximately **$8.4 million (41.3%)** from **$20.4 million** at December 31, 2019, to **$12.0 million** at September 30, 2020, primarily due to a significant reduction in cash and cash equivalents[7](index=7&type=chunk) - Cash and cash equivalents decreased by **$8.5 million (60.8%)** from **$14.1 million** at December 31, 2019, to **$5.5 million** at September 30, 2020[7](index=7&type=chunk) - Total stockholders' equity decreased by **$9.9 million (62.6%)** from **$15.8 million** at December 31, 2019, to **$5.9 million** at September 30, 2020[7](index=7&type=chunk) [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss%20for%20the%20Three%20and%20Nine%20months%20ended%20September%2030%2C%202020%20and%202019) This section presents the company's financial performance, including revenue, expenses, and net loss, for the specified periods Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands, except per share data) | Metric | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Revenue | $44 | $333 | $1,527 | $2,494 | | Cost of revenue | 41 | 412 | 1,005 | 2,323 | | Gross profit (deficit) | 3 | (79) | 522 | 171 | | Research and development | 271 | 1,174 | 2,293 | 5,401 | | Selling, general and administrative | 1,291 | 2,489 | 7,546 | 13,025 | | Asset impairment and other charges | — | — | 1,310 | — | | Total operating expenses | 1,562 | 3,663 | 11,149 | 18,426 | | Loss from operations | (1,559) | (3,742) | (10,627) | (18,255) | | Net loss and comprehensive loss | $(1,560) | $(3,706) | $(11,009) | $(18,763) | | Net loss per share, basic and diluted | $(0.20) | $(0.61) | $(1.42) | $(5.07) | - Revenue for the three months ended September 30, 2020, decreased by **$0.3 million (86.5%)** to **$44,000** compared to **$0.3 million** in the prior year, primarily due to the suspension of commercial operations[9](index=9&type=chunk)[144](index=144&type=chunk) - Net loss for the nine months ended September 30, 2020, was **$11.0 million**, a decrease from **$18.8 million** in the prior year, driven by significant reductions in operating expenses[9](index=9&type=chunk)[121](index=121&type=chunk) - Asset impairment and other charges of **$1.3 million** were recognized for the nine months ended September 30, 2020, related to the shift in business strategy[9](index=9&type=chunk)[155](index=155&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20for%20the%20Three%20and%20Nine%20months%20ended%20September%2030%2C%202020%20and%202019) This section outlines changes in stockholders' equity, including common stock, paid-in capital, and accumulated deficit, for the periods presented Condensed Consolidated Statements of Stockholders' Equity (in thousands, except shares) | Metric | Dec 31, 2019 | Mar 31, 2020 | Jun 30, 2020 | Sep 30, 2020 | | :-------------------------- | :----------- | :----------- | :----------- | :----------- | | Common stock (shares) | 7,724,100 | 7,731,633 | 7,731,633 | 7,770,698 | | Common stock (amount) | $8 | $8 | $8 | $8 | | Additional paid-in capital | $188,271 | $188,755 | $189,049 | $189,353 | | Accumulated deficit | $(172,430) | $(177,691) | $(181,879) | $(183,439) | | Total stockholders' equity | $15,849 | $11,072 | $7,178 | $5,922 | - Accumulated deficit increased from **$172.4 million** at December 31, 2019, to **$183.4 million** at September 30, 2020, reflecting ongoing net losses[12](index=12&type=chunk)[26](index=26&type=chunk)[122](index=122&type=chunk) - Total stockholders' equity decreased significantly from **$15.8 million** at December 31, 2019, to **$5.9 million** at September 30, 2020, primarily due to net losses[12](index=12&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20Nine%20months%20ended%20September%2030%2C%202020%20and%202019) This section details the company's cash inflows and outflows from operating, investing, and financing activities for the specified periods Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------------ | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(8,854) | $(17,987) | | Net cash (used in) provided by investing activities | (117) | 2,506 | | Net cash provided by financing activities | 430 | 13,674 | | Net decrease in cash and cash equivalents | $(8,541) | $(1,807) | | Cash and cash equivalents at end of period | $5,514 | $19,380 | - Net cash used in operating activities decreased by **$9.1 million (50.5%)** to **$8.9 million** for the nine months ended September 30, 2020, primarily due to a lower net loss and non-cash charges[18](index=18&type=chunk)[171](index=171&type=chunk)[172](index=172&type=chunk) - Net cash provided by financing activities decreased by **$13.2 million (96.5%)** to **$0.4 million** for the nine months ended September 30, 2020, mainly from the PPP loan, compared to significant equity issuances and loan activities in the prior year[18](index=18&type=chunk)[175](index=175&type=chunk)[176](index=176&type=chunk) [Notes to Unaudited Interim Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Interim%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the unaudited interim condensed consolidated financial statements [1. Organization and Basis of Presentation](index=9&type=section&id=1.%20Organization%20and%20Basis%20of%20Presentation) This section describes the company's business, its financial condition, and the basis for preparing the interim consolidated financial statements - Obalon Therapeutics, Inc. is a medical device company focused on developing and commercializing the Obalon® balloon system for obesity treatment, which is the first and only FDA-approved swallowable, gas-filled intragastric balloon[20](index=20&type=chunk) - The company has incurred operating losses and negative cash flows since inception, with an accumulated deficit of **$183.4 million** as of September 30, 2020[26](index=26&type=chunk) - Due to the COVID-19 pandemic, the company suspended commercial operations, shut down retail centers, halted manufacturing, and significantly reduced personnel, raising substantial doubt about its ability to continue as a going concern[27](index=27&type=chunk)[28](index=28&type=chunk) - The company has shifted its strategy to focus on pursuing third-party payor reimbursement for the Obalon Balloon System and evaluating other strategic options[28](index=28&type=chunk) [2. Summary of Significant Accounting Policies](index=10&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) This section outlines the key accounting principles and methods used in preparing the financial statements - No significant changes to accounting policies occurred during the nine months ended September 30, 2020, compared to the 2019 Annual Report on Form 10-K[29](index=29&type=chunk) - The company recognized **$0.1 million** in inventory impairment charges for the nine months ended September 30, 2020, due to excess inventory not expected for clinical trials, reclassifying remaining inventory to other current and long-term assets[38](index=38&type=chunk) - An impairment analysis on long-lived assets resulted in **$1.2 million** in impairment charges for the nine months ended September 30, 2020, following the shift from a retail treatment center model to a reimbursement model[40](index=40&type=chunk) - The company adopted ASU 2018-13, Fair Value Measurement, effective for fiscal years beginning after December 15, 2019, which did not have a material impact on its financial statements[45](index=45&type=chunk) [3. Fair Value Measurements](index=12&type=section&id=3.%20Fair%20Value%20Measurements) This section details the valuation methods and classifications of financial assets and liabilities measured at fair value Fair Value Measurements at September 30, 2020 (in thousands) | Asset/Liability | Balance | Level 1 | Level 2 | Level 3 | | :---------------------- | :------ | :------ | :------ | :------ | | Cash | $433 | $433 | $— | $— | | Money market funds | 5,081 | 5,081 | — | — | | Total assets | $5,514 | $5,514 | $— | $— | | Cash settled equity awards | $7 | $— | $— | $7 | - The company's Level 1 assets (cash and money market funds) are valued based on publicly available quoted market prices[51](index=51&type=chunk) - Cash-settled equity awards are measured at fair value using the Black-Scholes option pricing model, categorized as Level 3 inputs[52](index=52&type=chunk) [4. Net Loss per Share](index=14&type=section&id=4.%20Net%20Loss%20per%20Share) This section presents the calculation of basic and diluted net loss per common share for the periods presented Net Loss per Share (in thousands, except per share data) | Metric | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net loss | $(1,560) | $(3,706) | $(11,009) | $(18,763) | | Weighted-average common shares outstanding | 7,728,639 | 6,061,248 | 7,727,494 | 3,700,538 | | Net loss per share, basic and diluted | $(0.20) | $(0.61) | $(1.42) | $(5.07) | - Diluted net loss per share is the same as basic net loss per common share due to the company's net loss position, making potentially dilutive securities anti-dilutive[41](index=41&type=chunk) [5. Balance Sheet Details](index=15&type=section&id=5.%20Balance%20Sheet%20Details) This section provides disaggregated information for specific balance sheet accounts, including inventory and other current assets and liabilities Inventory (in thousands) | Category | Sep 30, 2020 | Dec 31, 2019 | | :--------------- | :----------- | :----------- | | Raw materials | $— | $1,835 | | Work in process | — | 12 | | Finished goods | — | 89 | | Total | $— | $1,936 | - Inventory was reclassified to other current and long-term assets as of September 30, 2020, with an impairment charge of **$0.1 million**, as the company plans to use it for clinical trials rather than sales[61](index=61&type=chunk) Other Current Assets (in thousands) | Category | Sep 30, 2020 | Dec 31, 2019 | | :-------------------- | :----------- | :----------- | | Prepaid expenses | $186 | $1,890 | | Insurance receivable | 3,150 | — | | Manufacturing use assets | 166 | — | | Other assets | 15 | 69 | | Total | $3,517 | $1,959 | - Other current assets significantly increased due to a **$3.15 million** insurance receivable related to a settlement accrual[62](index=62&type=chunk)[100](index=100&type=chunk) Other Current Liabilities (in thousands) | Category | Sep 30, 2020 | Dec 31, 2019 | | :-------------------------- | :----------- | :----------- | | Accrued legal and professional fees | $111 | $412 | | Accrued customer incentives | — | 198 | | Returns reserve liability | — | 315 | | Settlement accrual | 3,150 | — | | Other accrued expenses | 206 | 492 | | Total | $3,634 | $1,524 | - Other current liabilities increased by **$2.1 million**, primarily due to a **$3.15 million** settlement accrual, partially offset by decreases in other accrued expenses[65](index=65&type=chunk)[100](index=100&type=chunk) [6. Loan](index=16&type=section&id=6.%20Loan) This section describes the details of the Paycheck Protection Program loan received by the company - On April 22, 2020, the company received a **$0.4 million** unsecured loan under the Paycheck Protection Program (PPP) with a **1%** interest rate and maturity date of April 22, 2022[67](index=67&type=chunk)[68](index=68&type=chunk) - Loan payments may be deferred until August 2021, or until the SBA remits loan forgiveness, for which the company had not applied as of September 30, 2020[68](index=68&type=chunk) - Proceeds from the PPP Loan have been used to retain employees, maintain payroll, and make lease and utility payments, with no assurance of full or partial forgiveness[69](index=69&type=chunk)[70](index=70&type=chunk) [7. Stock-Based Compensation](index=18&type=section&id=7.%20Stock-Based%20Compensation) This section details the nature and amount of stock-based compensation expense recognized by the company Total Non-Cash Stock-Based Compensation (in thousands) | Category | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Cost of revenue | $— | $5 | $1 | $(21) | | Research and development | 73 | 158 | 230 | 568 | | Selling, general and administrative | 186 | 496 | 790 | 1,753 | | Total | $259 | $659 | $1,021 | $2,300 | - Total non-cash stock-based compensation decreased by **$1.3 million** for the nine months ended September 30, 2020, compared to the prior year, primarily due to reduced operations and personnel[72](index=72&type=chunk)[154](index=154&type=chunk) - As of September 30, 2020, unrecognized stock-based compensation expense for options was approximately **$0.8 million**, expected to be recognized over a weighted-average term of **2.5 years**[72](index=72&type=chunk) [8. Stockholders' Equity](index=19&type=section&id=8.%20Stockholders'%20Equity) This section provides details on changes in common stock, warrants, and equity incentive plans affecting stockholders' equity - On August 11, 2020, the company issued a warrant to Blue Ox Healthcare Partners, LLC, to purchase up to **100,000 shares** of common stock at an exercise price of **$0.8285**, in exchange for consulting services focused on securing reimbursement agreements[77](index=77&type=chunk) - In August 2019, the company completed a public offering, selling common stock and warrants, generating approximately **$15.4 million** in gross proceeds[80](index=80&type=chunk) - In February 2020, the company entered into a new purchase agreement with Lincoln Park Capital Fund, LLC, committing to purchase up to **$15.0 million** of common stock over **36 months**, but no shares had been sold as of September 30, 2020, due to adverse market conditions[82](index=82&type=chunk)[83](index=83&type=chunk)[85](index=85&type=chunk) Common Stock Reserved for Future Issuance as of September 30, 2020 | Category | Shares | | :------------------------------------------ | :------- | | Stock options issued and outstanding | 1,100,137 | | Warrants issued and outstanding | 3,371,875 | | Authorized for future option and award grants | 163,512 | | Authorized for future issuance under ESPP | 190,222 | | Total | 4,825,746 | [9. Income Taxes](index=21&type=section&id=9.%20Income%20Taxes) This section discusses the company's income tax provision and the treatment of deferred tax assets - The company did not record an income tax provision for the three and nine months ended September 30, 2020 and 2019[87](index=87&type=chunk) - U.S. federal and California deferred tax assets from net operating losses are fully reserved due to the unlikelihood of realization[87](index=87&type=chunk) [10. Commitments and Contingencies](index=21&type=section&id=10.%20Commitments%20and%20Contingencies) This section outlines the company's contractual obligations, lease commitments, and legal proceedings - The company terminated leases for two retail treatment centers in Sacramento and San Diego in April and May 2020, respectively, due to a shift in strategy[88](index=88&type=chunk) - The company has not paid rent for its Orange County lease or Carlsbad headquarters since April 2020, resulting in a demand letter and an unlawful detainer action from the Carlsbad landlord for over **$113,000**[88](index=88&type=chunk)[190](index=190&type=chunk) - A **$0.4 million** charge was recorded to fully write off the Orange County right-of-use asset as the center will not be functioning[89](index=89&type=chunk) Future Minimum Annual Lease Payments as of September 30, 2020 (in thousands) | Year | Operating Leases | Finance Leases | | :----------- | :--------------- | :------------- | | Remainder of 2020 | $351 | $6 | | 2021 | 564 | 24 | | 2022 | 219 | — | | 2023 | 105 | — | | 2024 | 108 | — | | 2025 | 37 | — | | Total undiscounted | $1,384 | $30 | - The company reached a settlement in a securities class action lawsuit for **$3.15 million**, which is expected to be covered by insurance policies, and recorded a corresponding settlement accrual and insurance receivable[99](index=99&type=chunk)[100](index=100&type=chunk) [11. Variable Interest Entity](index=24&type=section&id=11.%20Variable%20Interest%20Entity) This section explains the company's consolidation of a professional corporation as a variable interest entity - The company consolidated a professional corporation (PC) operating a weight loss treatment center as a variable interest entity (VIE) because the PC's equity investment was insufficient, and the company was the sole funding source and provided daily oversight[101](index=101&type=chunk)[102](index=102&type=chunk) - For the nine months ended September 30, 2020, the PC recognized **$0.3 million** of deferred revenue from prepaid services, fully presented in the company's consolidated balance sheet[103](index=103&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, highlighting strategic shifts and liquidity [OVERVIEW](index=25&type=section&id=OVERVIEW) This section provides a high-level summary of the company's business, strategic changes, and current financial challenges - Obalon Therapeutics is a medical device company focused on the Obalon Balloon System, an FDA-approved swallowable, gas-filled intragastric balloon for weight loss in obese adults[110](index=110&type=chunk)[111](index=111&type=chunk) - The company suspended all new patient treatments, closed retail centers, halted manufacturing, and terminated its international distributor agreement due to the COVID-19 pandemic and economic uncertainty[117](index=117&type=chunk)[118](index=118&type=chunk) - The company is shifting its strategy to pursue third-party payor reimbursement for the Obalon Balloon System, believing it could significantly expand market opportunity, and is exploring other strategic alternatives[119](index=119&type=chunk)[120](index=120&type=chunk) - As of September 30, 2020, the company had an accumulated deficit of **$183.4 million** and faces substantial doubt about its ability to continue as a going concern[122](index=122&type=chunk)[123](index=123&type=chunk) - The company received Nasdaq delisting notices for failing to meet minimum stockholders' equity (**$7.2 million** vs. **$10.0 million**) and minimum bid price (**$1.00**) requirements[124](index=124&type=chunk)[126](index=126&type=chunk) [COMPONENTS OF OUR RESULTS OF OPERATIONS](index=28&type=section&id=COMPONENTS%20OF%20OUR%20RESULTS%20OF%20OPERATIONS) This section explains the key drivers and trends impacting the company's revenue, cost of revenue, and operating expenses - Revenue for the nine months ended September 30, 2020, primarily resulted from reversing reserves related to customer incentive programs and returns, following the termination of all commercial operations[131](index=131&type=chunk) - The company does not expect meaningful revenue in the foreseeable future due to the suspension of retail treatment centers, manufacturing, and shipments[132](index=132&type=chunk) - Cost of revenue is expected to be higher than revenue in the foreseeable future as the company focuses on reimbursement activities over commercial sales[134](index=134&type=chunk) - Research and development (R&D) expenses are expected to be lower than historical averages due to suspended business operations but will continue for post-approval studies and clinical data for reimbursement[137](index=137&type=chunk) - Selling, general and administrative (SG&A) expenses significantly decreased in Q2 2020 due to reduced operations and personnel, and are expected to remain lower[141](index=141&type=chunk) - Impairment expense was recognized for inventory and long-lived assets in Q2 2020 due to the shift away from the Obalon-branded retail center model[142](index=142&type=chunk) [RESULTS OF OPERATIONS](index=30&type=section&id=RESULTS%20OF%20OPERATIONS) This section provides a detailed analysis of the company's financial performance, including revenue, expenses, and net loss Key Financial Results (in thousands) | Metric | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Revenue | $44 | $333 | $1,527 | $2,494 | | Cost of revenue | 41 | 412 | 1,005 | 2,323 | | Gross profit (deficit) | 3 | (79) | 522 | 171 | | Research and development | 271 | 1,174 | 2,293 | 5,401 | | Selling, general and administrative | 1,291 | 2,489 | 7,546 | 13,025 | | Asset impairment and other charges | — | — | 1,310 | — | | Net loss | $(1,560) | $(3,706) | $(11,009) | $(18,763) | - Revenue decreased by **$0.3 million (86.5%)** for the three months ended September 30, 2020, and by **$1.0 million (40.3%)** for the nine months, primarily due to the suspension of commercial operations[144](index=144&type=chunk)[151](index=151&type=chunk) - R&D expenses decreased by **$0.9 million (76.7%)** for the three months and **$3.1 million (57.4%)** for the nine months, driven by significant reductions in operations and personnel due to COVID-19[146](index=146&type=chunk)[153](index=153&type=chunk) - SG&A expenses decreased by **$1.2 million (48.2%)** for the three months and **$5.5 million (42.2%)** for the nine months, mainly due to reduced payroll, facility costs, and marketing, partially offset by consulting fees[147](index=147&type=chunk)[148](index=148&type=chunk)[154](index=154&type=chunk) - Asset impairment expenses increased by **$1.3 million** for the nine months ended September 30, 2020, due to charges related to inventory and long-lived assets from the business strategy shift[155](index=155&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=31&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section assesses the company's ability to meet its short-term and long-term financial obligations and its capital-raising efforts - As of September 30, 2020, the company had **$5.5 million** in cash and cash equivalents and an accumulated deficit of **$183.4 million**[158](index=158&type=chunk) - The company believes current cash and cash equivalents are sufficient to fund operations through the end of 2020, but substantial doubt exists about its ability to continue as a going concern beyond that[159](index=159&type=chunk)[162](index=162&type=chunk) - The company's ability to continue as a going concern depends on raising additional capital or engaging in strategic alternatives, with a high likelihood of liquidation or bankruptcy if unsuccessful[123](index=123&type=chunk)[160](index=160&type=chunk) - In April 2020, the company received a **$0.4 million** PPP Loan, which has been used for payroll, lease, and utility payments, with no assurance of forgiveness[163](index=163&type=chunk)[164](index=164&type=chunk) - A public offering in August 2019 generated approximately **$14.7 million** in net proceeds from the sale of common stock and warrants[166](index=166&type=chunk) - A new purchase agreement with Lincoln Park Capital Fund in February 2020 allows for the sale of up to **$15.0 million** of common stock, but no shares have been sold as of September 30, 2020, due to adverse market conditions[167](index=167&type=chunk)[169](index=169&type=chunk) [CASH FLOWS](index=33&type=section&id=CASH%20FLOWS) This section analyzes the company's cash generation and usage from operating, investing, and financing activities Summary of Net Cash Flow Activity (in thousands) | Activity | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------------ | :-------------------------- | :-------------------------- | | Operating activities | $(8,854) | $(17,987) | | Investing activities | (117) | 2,506 | | Financing activities | 430 | 13,674 | | Net decrease in cash and cash equivalents | $(8,541) | $(1,807) | - Net cash used in operating activities decreased by **$9.1 million (50.5%)** to **$8.9 million** for the nine months ended September 30, 2020, primarily due to a lower net loss and non-cash charges[171](index=171&type=chunk)[172](index=172&type=chunk) - Net cash provided by financing activities decreased by **$13.2 million (96.5%)** to **$0.4 million** for the nine months ended September 30, 2020, mainly from the PPP loan, compared to significant equity issuances and loan activities in the prior year[175](index=175&type=chunk)[176](index=176&type=chunk) [OFF-BALANCE SHEET ARRANGEMENTS](index=34&type=section&id=OFF-BALANCE%20SHEET%20ARRANGEMENTS) This section confirms the absence of off-balance sheet arrangements that could materially impact the company's financial position - The company currently has no off-balance sheet arrangements, such as structured finance, special purpose entities, or variable interest entities[177](index=177&type=chunk) [CRITICAL ACCOUNTING POLICIES AND ESTIMATES](index=34&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) This section identifies accounting policies and estimates requiring significant management judgment that could materially affect financial results - Critical accounting policies include revenue recognition, accrued research and development costs, stock-based compensation expense, and income taxes, which involve significant management judgments and estimates[178](index=178&type=chunk)[179](index=179&type=chunk) - There have been no significant changes in critical accounting policies and estimates compared to the 2019 Annual Report on Form 10-K[180](index=180&type=chunk) [RECENT ACCOUNTING PRONOUNCEMENTS](index=35&type=section&id=RECENT%20ACCOUNTING%20PRONOUNCEMENTS) This section discusses the impact of recently issued accounting standards on the company's financial statements - No new accounting pronouncements or changes to existing ones materially impacted the company during the nine months ended September 30, 2020, other than those described in Note 2[181](index=181&type=chunk) [JOBS ACT ACCOUNTING ELECTION](index=35&type=section&id=JOBS%20ACT%20ACCOUNTING%20ELECTION) This section clarifies the company's election regarding the extended transition period for new accounting standards under the JOBS Act - The company has elected not to use the extended transition period for complying with new or revised accounting standards provided by the JOBS Act, adopting them on the same dates as other public companies[182](index=182&type=chunk) [Item 3. Quantitative and Qualitative Disclosure about Market Risk](index=35&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosure%20about%20Market%20Risk) This section confirms the absence of material quantitative and qualitative disclosures regarding market risk for the company - The company has no applicable quantitative and qualitative disclosures about market risk[183](index=183&type=chunk) [Item 4. Controls and Procedures](index=35&type=section&id=Item%204.%20Controls%20and%20Procedures) This section reports on the effectiveness of the company's disclosure controls and procedures and internal control over financial reporting - Management concluded that disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2020[184](index=184&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2020[185](index=185&type=chunk) [PART II. OTHER INFORMATION](index=36&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part provides additional information beyond the financial statements, including legal proceedings, risk factors, and other disclosures [Item 1. Legal Proceedings](index=36&type=section&id=Item%201.%20Legal%20Proceedings) This section details the company's involvement in a consolidated securities class action lawsuit and its settlement - A securities class action lawsuit, consolidated in July 2018, alleged false and misleading statements and failure to disclose material adverse facts[188](index=188&type=chunk) - On June 16, 2020, the parties reached a settlement for **$3.15 million**, which the company expects to be covered by its insurance policies[188](index=188&type=chunk) - A stockholder demand letter in December 2019 asserted similar wrongdoing, leading the board to implement corporate governance updates to avoid litigation[198](index=198&type=chunk) [Item 1A. Risk Factors](index=36&type=section&id=Item%201A.%20Risk%20Factors) This section updates the company's key risks, including ongoing lease obligations, potential Nasdaq delisting, and litigation impacts - The company has ongoing lease obligations for its headquarters and a retail treatment center, with unpaid rent since April 2020, leading to an unlawful detainer action for over **$113,000**[190](index=190&type=chunk) - Nasdaq issued two notifications on August 6, 2020, for non-compliance with the minimum stockholders' equity requirement (**$7.2 million** vs. **$10.0 million**) and the minimum bid price requirement (below **$1.00** for **30 consecutive business days**)[191](index=191&type=chunk)[192](index=192&type=chunk) - Failure to regain Nasdaq compliance could lead to delisting, adversely affecting market liquidity, stock price, and ability to raise additional capital[194](index=194&type=chunk) - Securities class action litigation, settled for **$3.15 million**, could subject the company to substantial costs and divert management resources, negatively impacting business and stock price[197](index=197&type=chunk)[199](index=199&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=38&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section confirms that there were no unregistered sales of equity securities or reportable use of proceeds during the period - There were no unregistered sales of equity securities during the period[200](index=200&type=chunk) - There was no use of proceeds to report[201](index=201&type=chunk) [Item 3. Defaults Upon Senior Securities](index=38&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section states that there are no defaults upon senior securities to report for the period - There are no defaults upon senior securities[202](index=202&type=chunk) [Item 4. Mine Safety Disclosures](index=38&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section indicates that mine safety disclosures are not applicable to the company's operations - Mine safety disclosures are not applicable[203](index=203&type=chunk) [Item 5. Other Information](index=38&type=section&id=Item%205.%20Other%20Information) This section confirms that there is no other material information to report for the period - There is no other information to report[204](index=204&type=chunk) [Item 6. Exhibits](index=39&type=section&id=Item%206.%20Exhibits) This section lists all documents filed as exhibits, including corporate governance, agreements, and certifications - Exhibits include the Restated Certificate of Incorporation, Amended and Restated Bylaws, Form of Warrant, Amended and Restated 2016 Equity Incentive Plan, and a Consulting Agreement with Blue Ox Healthcare Partners, LLC[206](index=206&type=chunk) - Certifications from the Principal Executive Officer and Principal Financial Officer pursuant to the Sarbanes-Oxley Act (Sections 302 and 906) are included[206](index=206&type=chunk) - XBRL Instance Document and Taxonomy Extension Documents (Schema, Calculation, Definition, Labels, Presentation) are filed[206](index=206&type=chunk) [SIGNATURES](index=41&type=section&id=SIGNATURES) This section contains the official signatures certifying the accuracy and completeness of the report - The report was signed on November 6, 2020, by Andrew Rasdal, President & Chief Executive Officer of Obalon Therapeutics, Inc[211](index=211&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 001-37897 WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2020 OBALON THERAPEUTICS, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 26-1828101 (State of Incorporation) (I.R.S. Employer 5421 Avenida Encinas, Su ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 001-37897 OBALON THERAPEUTICS, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 26-1828101 (State of Incorporation) (I.R.S. Employer 5421 Avenida Encinas, S ...

PART I [Item 1. Business](index=5&type=section&id=Item%201.%20Business) Obalon Therapeutics, a medical device company, outlines its FDA-approved Obalon Balloon System, market, and operations, having shifted to a retail treatment center commercial strategy in 2019 [OVERVIEW](index=5&type=section&id=OVERVIEW) - Obalon Therapeutics is a vertically integrated medical device company focused on developing and commercializing innovative medical devices for obesity treatment[19](index=19&type=chunk) - The core product, Obalon Balloon System, is the first and only FDA-approved swallowable, inflatable intragastric balloon in the U.S., designed for gradual and sustained weight loss in obese patients with a BMI between 30 and 40[19](index=19&type=chunk)[20](index=20&type=chunk) - In 2019, the company shifted its commercialization strategy from a direct sales team to establishing company-owned or managed Obalon-branded retail treatment centers, opening the first in San Diego in September 2019 and a second in Orange County in February 2020[27](index=27&type=chunk)[28](index=28&type=chunk) Obalon Balloon System Clinical and Commercial Weight Loss Results | Metric | SMART Trial (Average) | Commercial Registry (Average) | | :------------------- | :------------------ | :------------------- | | Weight Loss | 15.1 pounds | 21.7 pounds | | Total Body Weight Loss Percentage | 6.9% | 10.2% | | BMI Reduction | 2.4 points | 3.5 points | | Weight Maintenance After 6 Months | 89.5% | Not Applicable | [THE OBESITY EPIDEMIC](index=6&type=section&id=THE%20OBESITY%20EPIDEMIC) - Obesity is recognized as an epidemic by the U.S. Surgeon General, posing a significant threat to American quality of life, with half of the U.S. population projected to be obese by 2030[29](index=29&type=chunk) - In 2016, over **650 million adults globally were obese** and over **1.9 billion were overweight**, with the number of obese adults nearly quadrupling worldwide since 1975[29](index=29&type=chunk) - National medical costs for obesity-related diseases (e.g., cardiovascular disease, diabetes, cancer) were estimated at **$210 billion in 2008**, with a global economic impact estimated at **$2 trillion in 2014**[31](index=31&type=chunk) [CURRENT TREATMENTS AND LIMITATIONS](index=7&type=section&id=CURRENT%20TREATMENTS%20AND%20LIMITATIONS) - Lifestyle interventions (diet, exercise) are often difficult to sustain, leading to weight regain[34](index=34&type=chunk) - Pharmacological treatments may have limited efficacy due to poor patient adherence, safety risks, and side effects (e.g., gastrointestinal, cardiovascular, central nervous system issues)[35](index=35&type=chunk) - Bariatric surgeries (e.g., gastric bypass, sleeve gastrectomy), while effective, are invasive, expensive, irreversible, and associated with high reoperation rates and severe side effects like nausea, vomiting, and dumping syndrome[36](index=36&type=chunk) - Traditional liquid-filled intragastric balloons (e.g., ORBERA®) have limitations including a high incidence of serious adverse events, poor comfort and tolerability, insufficient progressive weight loss, and inconvenient placement procedures[38](index=38&type=chunk) [OUR SOLUTION](index=8&type=section&id=OUR%20SOLUTION) - The Obalon Balloon System demonstrates a favorable safety profile, with a serious adverse event (SADE) rate of **0.3% in the SMART trial** and **0.14% in commercial use**[39](index=39&type=chunk) - Patient tolerability and comfort are enhanced through the inflatable, lightweight balloons and the staged placement of three balloons[39](index=39&type=chunk) - Both clinical study and commercial registry data show progressive and sustained weight loss, with an average of **15.1 pounds lost in the SMART trial** and **21.7 pounds in commercial registry**[39](index=39&type=chunk) - The placement procedure is simple and convenient, requiring no anesthesia or endoscopy (mild sedation needed for removal), typically completed within **15 minutes**, allowing patients to quickly resume daily activities[39](index=39&type=chunk) [OUR STRATEGY](index=9&type=section&id=OUR%20STRATEGY) - Expand the company-owned or managed Obalon-branded retail treatment center commercialization model to standardize care quality and patient pricing, enhancing operational and financial control[41](index=41&type=chunk) - Continuously increase patient awareness and interest through digital, offline, and social marketing, along with the Obalon Ambassador Center (call center), converting patient interest into appointments[41](index=41&type=chunk) - Optimize manufacturing for increased operating leverage by establishing a high-leverage manufacturing facility at the Carlsbad headquarters, aiming for faster innovation, greater cost-effectiveness, and higher quality products[41](index=41&type=chunk) - Protect and expand a robust intellectual property portfolio, including granted patents and pending applications, and safeguard key proprietary technology as trade secrets[41](index=41&type=chunk) [OUR PRODUCTS AND TECHNOLOGY](index=9&type=section&id=OUR%20PRODUCTS%20AND%20TECHNOLOGY) - The Obalon Balloon System consists of a swallowable capsule, inflatable balloon, microcatheter, Obalon Navigation System console (for tracking balloon position), Obalon Touch Inflation Dispenser (for inflation), and proprietary gas tank[40](index=40&type=chunk)[21](index=21&type=chunk) - Balloon placement is typically completed within **15 minutes** without sedation or endoscopy; patients swallow the capsule, and its position is confirmed and inflated via the Obalon Navigation System. Patients receive a total of three balloons in three separate placements over 8-12 weeks, with all balloons endoscopically removed within six months of the first placement[49](index=49&type=chunk)[50](index=50&type=chunk) - The company is developing a balloon with a potential treatment duration of up to one year, having completed initial engineering and animal testing[52](index=52&type=chunk) Research and Development Expenses | Year | R&D Expenses (Millions of USD) | | :--- | :------------------- | | 2019 | 6.9 | | 2018 | 10.7 | [CLINICAL TRIALS AND DATA](index=12&type=section&id=CLINICAL%20TRIALS%20AND%20DATA) - The SMART trial, a pivotal study for FDA approval of the Obalon Balloon System, showed an average weight loss of **15.1 pounds (6.9% total body weight loss)**, with **89.5% of weight loss maintained six months post-balloon removal**[54](index=54&type=chunk)[57](index=57&type=chunk)[64](index=64&type=chunk) - SMART trial safety data indicated only **1 serious adverse event (SADE) (0.3%)** among 336 patients, with the most common other adverse events being mild to moderate abdominal pain, nausea, and vomiting[66](index=66&type=chunk)[67](index=67&type=chunk) - Commercial registry data from 1,411 patients showed an average weight loss of **21.7 pounds** and **10.2% total body weight loss** for patients receiving three balloons and treated for at least 20 weeks[24](index=24&type=chunk)[73](index=73&type=chunk) - The FDA requires post-market studies for the Obalon Balloon System (200 patients) and Obalon Navigation System (1,000 commercial patients, 4,000 balloon administrations) to continuously assess safety and efficacy[76](index=76&type=chunk)[78](index=78&type=chunk) [SALES AND MARKETING](index=16&type=section&id=SALES%20AND%20MARKETING) - In April 2019, the company eliminated its direct sales force, transitioning to a centralized customer support model and focusing on establishing company-owned or managed Obalon-branded treatment centers[79](index=79&type=chunk) - The Obalon Ambassador Center (call center) launched in Q4 2018, aiming to convert patient interest generated by marketing activities into treatment appointments[80](index=80&type=chunk) Digital Marketing Activity Comparison (2019 vs. 2018) | Metric | 2019 | 2018 | | :------------------- | :----------- | :----------- | | Digital Ad Views | >10.5 million | 49 million | | Digital Video Views | >3.5 million | >6 million | | Website Visits | >300 thousand | ~1.7 million | | Doctor Searches | >43 thousand | 580 thousand | | Patient Leads | >20 thousand | 71 thousand | [COMPETITION](index=16&type=section&id=COMPETITION) - The medical device industry and weight loss market are highly competitive, facing competition from pharmaceuticals (e.g., Vivus, Eisai), surgical procedures (e.g., Ethicon, Medtronic), and devices (e.g., ORBERA Balloon, Allurion Technologies, Spatz Medical, Aspire Bariatrics, Gelesis Plenity, BAROnova)[84](index=84&type=chunk)[212](index=212&type=chunk) - Many competitors possess significant financial and resource advantages, including established reputations, customer bases, products supported by long-term data, longer operating histories, and broader product lines[87](index=87&type=chunk)[214](index=214&type=chunk) - The company plans to compete effectively by developing new products, enhancing existing systems, competitive pricing, and maintaining adequate R&D and sales and marketing resources[88](index=88&type=chunk) [INTELLECTUAL PROPERTY](index=17&type=section&id=INTELLECTUAL%20PROPERTY) - As of December 31, 2019, the company held **24 granted U.S. patents** and **19 pending U.S. patent applications**, along with **32 granted international patents** and **54 pending international patent applications**[91](index=91&type=chunk) - Granted patents, expiring between 2023 and 2038, cover technical features of the Obalon Balloon System, including balloon attachment mechanisms, balloon wall structure and composition, and initial fill gas composition[91](index=91&type=chunk) - The company also owns **2 registered U.S. trademarks** and **41 registered international trademarks**, along with **5 pending U.S. trademark applications**[93](index=93&type=chunk) [MANUFACTURING](index=18&type=section&id=MANUFACTURING) - All products, except the Obalon Navigation System console, are manufactured or assembled at a single facility in Carlsbad, but rely on single suppliers for critical components such as extruded film, swallowable capsules, molded silicone valves, and catheter hydrophilic coating[94](index=94&type=chunk) - The company is registered with the FDA as a medical device manufacturer and holds a manufacturing license from the California Department of Health Care Services, with all product manufacturing complying with FDA Quality System Regulations (QSR)[95](index=95&type=chunk) - Reliance on single suppliers and long lead times for components could lead to supply shortages, production interruptions, and commercialization delays[94](index=94&type=chunk)[96](index=96&type=chunk) [GEOGRAPHIC REGIONS](index=19&type=section&id=GEOGRAPHIC%20REGIONS) - In 2019 and 2018, the vast majority of the company's assets, revenues, and expenses were derived from operations within the United States[99](index=99&type=chunk) International Revenue as Percentage of Total Revenue | Year | International Revenue Percentage | | :--- | :----------- | | 2019 | 27.1% | | 2018 | 48.4% | - The agreement with Middle East distributor Bader terminated in December 2019, but a new distribution agreement was signed with Al Danah Medical Company in Qatar[99](index=99&type=chunk) [SEASONALITY](index=19&type=section&id=SEASONALITY) - Due to limited experience selling products in the U.S. and significant quarterly revenue fluctuations, the company cannot currently identify seasonal variations in product demand[100](index=100&type=chunk) [GOVERNMENT REGULATION](index=19&type=section&id=GOVERNMENT%20REGULATION) - The Obalon Balloon System is classified by the FDA as a Class III medical device, requiring a rigorous Pre-Market Approval (PMA) process, which is more expensive, time-consuming, and uncertain than 510(k) clearance[106](index=106&type=chunk)[117](index=117&type=chunk)[288](index=288&type=chunk) - Post-market, the company remains subject to extensive FDA regulatory requirements, including Quality System Regulations (QSR), Medical Device Reporting (MDR) for adverse events, post-market studies, and advertising and promotion regulations[118](index=118&type=chunk)[119](index=119&type=chunk)[117](index=117&type=chunk) - The FDA has issued three warning letters regarding serious adverse events (including deaths) with liquid-filled intragastric balloons, which could negatively impact the entire intragastric balloon category and potentially lead to additional warnings or approval withdrawal for Obalon products[119](index=119&type=chunk)[272](index=272&type=chunk) - The company is also subject to U.S. federal and state, as well as foreign, healthcare laws and regulations such as health information privacy (e.g., HIPAA, GDPR, CCPA), anti-kickback laws, false claims laws, and transparency laws, with non-compliance potentially resulting in significant fines and penalties[133](index=133&type=chunk)[136](index=136&type=chunk)[137](index=137&type=chunk)[140](index=140&type=chunk)[142](index=142&type=chunk)[145](index=145&type=chunk)[146](index=146&type=chunk)[147](index=147&type=chunk)[148](index=148&type=chunk) [EMPLOYEES](index=27&type=section&id=EMPLOYEES) - As of December 31, 2019, the company had **34 full-time employees** across manufacturing operations, sales and marketing, R&D, clinical affairs, regulatory affairs and quality assurance, and finance and administration departments[155](index=155&type=chunk) - None of the company's employees are unionized or covered by collective bargaining agreements, and the company considers its employee relations to be good[155](index=155&type=chunk) [FINANCIAL INFORMATION](index=27&type=section&id=FINANCIAL%20INFORMATION) - The company manages its operations and resource allocation as a single reporting segment[156](index=156&type=chunk) - Financial information regarding the company's operations, assets, and liabilities, including net losses for 2019 and 2018 and total assets as of December 31, 2019 and 2018, is included in Item 8, Consolidated Financial Statements, of this annual report[156](index=156&type=chunk) [CORPORATE INFORMATION](index=27&type=section&id=CORPORATE%20INFORMATION) - The company was incorporated in Delaware on January 2, 2008, with its principal executive offices located in Carlsbad, California[157](index=157&type=chunk) [AVAILABLE INFORMATION](index=27&type=section&id=AVAILABLE%20INFORMATION) - The company files annual reports (Form 10-K), quarterly reports (Form 10-Q), current reports (Form 8-K), and other information with the U.S. Securities and Exchange Commission (SEC)[158](index=158&type=chunk) - These filings are available free of charge on the SEC's website (www.sec.gov) and in the "Investor Information" section of the company's website[159](index=159&type=chunk) [Item 1A. Risk Factors](index=28&type=section&id=Item%201A.%20Risk%20Factors) Investing in Obalon common stock carries high risks, including going concern doubts, new strategy execution failures, financing needs, single product reliance, regulatory compliance, intellectual property challenges, and stock ownership risks [RISKS RELATED TO OUR BUSINESS](index=28&type=section&id=RISKS%20RELATED%20TO%20OUR%20BUSINESS) - Substantial doubt exists about the company's ability to continue as a going concern, with the audit report including an explanatory paragraph highlighting recurring losses and liquidity issues[162](index=162&type=chunk) - The new commercial strategy of establishing company-owned or managed retail treatment centers may be unsuccessful, introducing new risks such as recruiting medical personnel, building brand awareness, identifying suitable properties, timely obtaining licenses, and achieving site profitability[164](index=164&type=chunk)[165](index=165&type=chunk) - The company anticipates needing additional financing to support its operating plans, and failure to obtain funds on acceptable terms in a timely manner could force delays in product development and commercialization activities[168](index=168&type=chunk)[171](index=171&type=chunk) - As a single-product company, any negative impact on the Obalon Balloon System would severely affect the business, financial condition, and operating results[179](index=179&type=chunk) - Patient acceptance of intragastric balloons may be slow, and adverse events with other companies' intragastric balloons or obesity treatments could further hinder acceptance; the FDA has issued warnings regarding serious adverse events with liquid-filled intragastric balloons[184](index=184&type=chunk)[185](index=185&type=chunk) - Products could cause serious patient harm due to misuse, malfunction, or design defects, leading to costly litigation, diverting management attention, and damaging the company's reputation and business[191](index=191&type=chunk)[193](index=193&type=chunk) - The company does not expect patients to receive third-party reimbursement, so success depends on patients' ability and willingness to pay for treatment out-of-pocket[196](index=196&type=chunk) - The company relies on third-party suppliers, including single-source suppliers, for manufacturing certain components and subassemblies, which could lead to supply shortages, production interruptions, and price fluctuations[206](index=206&type=chunk) [RISKS RELATED TO REGULATORY MATTERS](index=48&type=section&id=RISKS%20RELATED%20TO%20REGULATORY%20MATTERS) - Despite FDA approval for the Obalon Balloon System, the company remains subject to extensive FDA regulation, including Medical Device Reporting (MDR), post-market studies, and advertising and promotion regulations[267](index=267&type=chunk)[269](index=269&type=chunk) - FDA warnings regarding liquid-filled intragastric balloons could negatively impact the entire intragastric balloon category, potentially leading to additional warnings or approval withdrawal for Obalon products[272](index=272&type=chunk) - Failure to comply with FDA and international quality system requirements could result in manufacturing operational delays or shutdowns, impacting Obalon Balloon System sales[280](index=280&type=chunk)[281](index=281&type=chunk) - Uncertainty exists regarding FDA or other regulatory approvals for the company's future products and product improvements, and failure to obtain timely approvals will harm financial performance[285](index=285&type=chunk)[286](index=286&type=chunk) - The company is subject to healthcare regulations and anti-fraud and abuse laws, with non-compliance potentially leading to substantial fines and penalties, adversely affecting business operations[296](index=296&type=chunk)[297](index=297&type=chunk) - The company's retail arrangements may violate state laws prohibiting the corporate practice of medicine or fee-splitting, adversely impacting its business, financial condition, and ability to operate in those states[306](index=306&type=chunk) - The company is subject to data privacy and security laws and regulations, and failure to fully comply could result in penalties and restricted business operations[309](index=309&type=chunk)[311](index=311&type=chunk)[312](index=312&type=chunk) [RISKS RELATED TO OUR INTELLECTUAL PROPERTY](index=58&type=section&id=RISKS%20RELATED%20TO%20OUR%20INTELLECTUAL%20PROPERTY) - If the company cannot adequately protect its proprietary technology or maintain sufficient granted patents, competitors may compete more directly, significantly harming the business[318](index=318&type=chunk) - The company may infringe or be accused of infringing others' intellectual property, potentially leading to costly and time-consuming litigation, delaying product development, or preventing commercialization of the Obalon Balloon System[325](index=325&type=chunk)[327](index=327&type=chunk) - Granted patents covering the company's products may be found invalid or unenforceable if challenged in court or administrative proceedings[335](index=335&type=chunk) - The company does not seek intellectual property protection in all global jurisdictions, and even where sought, it may not be able to adequately enforce its intellectual property[337](index=337&type=chunk)[338](index=338&type=chunk) [RISKS RELATED TO OWNERSHIP OF OUR COMMON STOCK](index=61&type=section&id=RISKS%20RELATED%20TO%20OWNERSHIP%20OF%20OUR%20COMMON%20STOCK) - The sale or issuance of common stock to Lincoln Park may result in dilution, and Lincoln Park's sale of acquired shares or market anticipation of such sales could cause the company's common stock price to decline[341](index=341&type=chunk)[342](index=342&type=chunk)[343](index=343&type=chunk) - The company's stock price may fluctuate due to various factors, including medical device industry slowdowns, commercial strategy execution, clinical trial results, safety concerns, regulatory decisions, competition, and changes in key personnel[344](index=344&type=chunk) - Failure to meet all applicable Nasdaq Global Market requirements could lead to Nasdaq delisting the company's common stock, adversely affecting its market liquidity and price[347](index=347&type=chunk) - Future sales and issuances of common stock or other securities may result in significant dilution and could cause the common stock price to decline[350](index=350&type=chunk) - The company's management has broad discretion over the use of net proceeds from common stock sales to Lincoln Park, and investors may disagree with its use, with proceeds potentially not being successfully invested[354](index=354&type=chunk) - As an emerging growth company, utilizing reduced disclosure requirements may make common stock less attractive to investors[355](index=355&type=chunk)[356](index=356&type=chunk) - The company faces securities class action lawsuits, which could result in substantial costs, divert management's attention, and harm its business, operating results, financial condition, reputation, and cash flows[364](index=364&type=chunk)[367](index=367&type=chunk) - Provisions in the company's charter documents and Delaware law may make it more difficult to acquire the company and could deter attempts by shareholders to replace or remove the current board or management[368](index=368&type=chunk)[369](index=369&type=chunk) - The company does not intend to pay cash dividends on common stock in the foreseeable future, so capital appreciation, if any, will be the sole source of return[372](index=372&type=chunk) [Item 1B. Unresolved Staff Comments](index=68&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments as of the filing date of this annual report - No unresolved staff comments[373](index=373&type=chunk) [Item 2. Properties](index=68&type=section&id=Item%202.%20Properties) Obalon's principal executive offices are located in a 20,200 square foot leased facility in Carlsbad, California, with additional leased retail treatment centers across the state - The principal executive offices are located in Carlsbad, California, occupying **20,200 square feet** with a lease term until March 2022[374](index=374&type=chunk) - As of February 27, 2020, the company leased **3 Obalon-branded retail treatment centers** in California, totaling approximately **6,725 square feet**, with lease terms ranging from 2021 to 2025[375](index=375&type=chunk) [Item 3. Legal Proceedings](index=68&type=section&id=Item%203.%20Legal%20Proceedings) Obalon is involved in a consolidated securities class action lawsuit alleging violations of securities laws, which the company intends to vigorously defend despite partial dismissals - The company is involved in a consolidated securities class action lawsuit filed in February 2018, alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act and Section 11 of the Securities Act[378](index=378&type=chunk) - On September 25, 2019, the court partially granted and partially denied the defendants' motion to dismiss, dismissing all Section 11 claims and some Section 10 claims[378](index=378&type=chunk) - The company believes the remaining claims lack merit and intends to vigorously defend them[378](index=378&type=chunk) - On December 12, 2019, the company received a shareholder demand letter asserting alleged wrongdoing similar to that in the securities class action lawsuit[366](index=366&type=chunk) [Item 4. Mine Safety Disclosures](index=69&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The company reports no mine safety disclosure matters - No mine safety disclosure matters[379](index=379&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=70&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Obalon's common stock trades on Nasdaq, with approximately 38 record holders, no dividends paid, and IPO proceeds primarily used for commercialization and R&D, with no equity repurchases during the period [Market Information](index=70&type=section&id=Market%20Information) - The company's common stock has traded on the Nasdaq Global Market under the symbol "**OBLN**" since October 6, 2016[382](index=382&type=chunk) [Holders of Record](index=70&type=section&id=Holders%20of%20Record) - As of February 18, 2020, the company had approximately **38 record holders** of common stock[383](index=383&type=chunk) [Dividend Policy](index=70&type=section&id=Dividend%20Policy) - The company has never declared or paid any cash dividends on its common stock and currently does not intend to pay any cash dividends in the foreseeable future[384](index=384&type=chunk) - The company plans to retain all available funds and future earnings for the development and expansion of its business[384](index=384&type=chunk) [Securities Authorized for Issuance under Equity Compensation Plans](index=70&type=section&id=Securities%20Authorized%20for%20Issuance%20under%20Equity%20Compensation%20Plans) - The information required by this item is incorporated by reference into the company's definitive proxy statement for its 2020 Annual Meeting of Stockholders[385](index=385&type=chunk) [Recent Sales of Unregistered Securities](index=70&type=section&id=Recent%20Sales%20of%20Unregistered%20Securities) - No recent sales of unregistered securities[385](index=385&type=chunk) [Use of Proceeds](index=70&type=section&id=Use%20of%20Proceeds) - On October 5, 2016, the company sold **5,000,000 shares of common stock** at **$15.00 per share** through an initial public offering (IPO), generating net proceeds of approximately **$67.2 million** after deducting underwriting discounts, commissions, and offering expenses[386](index=386&type=chunk) - As of December 31, 2019, all net proceeds have been primarily used for the commercialization of the Obalon Balloon System, ongoing R&D efforts, working capital, and other general corporate purposes[387](index=387&type=chunk) [Purchases of Equity Securities by the Issuer and Affiliated Purchasers](index=70&type=section&id=Purchases%20of%20Equity%20Securities%20by%20the%20Issuer%20and%20Affiliated%20Purchasers) - No purchases of equity securities by the issuer and affiliated purchasers[388](index=388&type=chunk) [Item 6. Selected Consolidated Financial Data](index=70&type=section&id=Item%206.%20Selected%20Consolidated%20Financial%20Data) Obalon's selected consolidated financial data from 2016 to 2019 shows continuous losses, increasing accumulated deficit, and declining cash and total assets, reflecting ongoing going concern challenges and liquidity pressures Selected Consolidated Financial Data (2016-2019, in thousands of USD) | Metric | 2019 | 2018 | 2017 | 2016 | | :--------------------------------- | :----- | :----- | :----- | :----- | | Revenue | 3,281 | 9,101 | 9,914 | 3,393 | | Cost of sales | 2,950 | 5,423 | 4,829 | 2,809 | | Gross profit | 331 | 3,678 | 5,085 | 584 | | Research and development expenses | 6,893 | 10,697 | 10,647 | 9,872 | | Selling, general and administrative expenses | 16,668 | 29,946 | 28,829 | 10,217 | | Loss from operations | (23,230) | (36,965) | (34,391) | (19,505) | | Net loss | (23,676) | (37,380) | (34,765) | (20,467) | | Net loss per share (basic and diluted) | (5.03) | (19.64) | (20.80) | (48.47) | | Cash and cash equivalents and short-term investments | 14,055 | 23,735 | 44,400 | 75,475 | | Working capital | 14,258 | 11,416 | 41,744 | 73,469 | | Total assets | 20,393 | 30,386 | 53,101 | 78,778 | | Accumulated deficit | (172,430) | (148,754) | (111,374) | (76,609) | | Total stockholders' equity | 15,849 | 13,107 | 35,113 | 64,305 | [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=72&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section discusses Obalon's financial condition and operating results, highlighting the 2019 commercial strategy shift, resulting in revenue decline but narrowed net loss, ongoing going concern doubts, and key accounting policies [OVERVIEW](index=72&type=section&id=OVERVIEW) - Obalon Therapeutics is a medical device company focused on developing and commercializing the Obalon Balloon System for obesity treatment, an FDA-approved swallowable, inflatable intragastric balloon[393](index=393&type=chunk)[394](index=394&type=chunk) - In 2019, the company shifted its commercialization strategy from direct sales to physicians to establishing company-owned or managed Obalon-branded retail treatment centers, opening its first center in San Diego in September 2019[399](index=399&type=chunk)[400](index=400&type=chunk)[401](index=401&type=chunk) Financial Performance Overview (2019 vs. 2018, in thousands of USD) | Metric | 2019 | 2018 | | :----- | :----- | :----- | | Total Revenue | 3,281 | 9,101 | | Net Loss | (23,676) | (37,380) | | Accumulated Deficit (as of December 31) | (172,430) | (148,754) | | Cash and Cash Equivalents (as of December 31) | 14,055 | 21,187 | - The company has incurred losses since inception, with an accumulated deficit of **$172.4 million** as of December 31, 2019, and cash levels raising substantial doubt about its ability to continue as a going concern[403](index=403&type=chunk)[406](index=406&type=chunk) - In August 2019, the company raised approximately **$14.7 million in net proceeds** through a public offering of stock and warrants, and repaid **$20 million in term loans** during the second and third quarters of 2019[404](index=404&type=chunk) - In April 2019, the company underwent an internal reorganization, reducing its workforce by approximately **50% (49 employees)**, to address liquidity issues and streamline operations[405](index=405&type=chunk) [COMPONENTS OF OUR RESULTS OF OPERATIONS](index=74&type=section&id=COMPONENTS%20OF%20OUR%20RESULTS%20OF%20OPERATIONS) Revenue, Cost, and Gross Profit (2019 vs. 2018, in thousands of USD) | Metric | 2019 | 2018 | Change | Change % | | :----- | :----- | :----- | :----- | :----- | | Revenue | 3,281 | 9,101 | (5,820) | -64% | | Cost of sales | 2,950 | 5,423 | (2,473) | -46% | | Gross profit | 331 | 3,678 | (3,347) | -91% | | Gross margin | 10.1% | 40.4% | -30.3% | -75% | - The decline in revenue was primarily due to the shift in commercialization strategy (reduced sales to physicians and institutions) and a **$3.5 million decrease in sales** to a Middle East distributor[428](index=428&type=chunk) - The decrease in cost of sales was primarily due to lower product sales volume, a **$1.1 million reduction in scrap and obsolescence inventory reserves**, and a **$1.4 million decrease in personnel costs** due to workforce reductions, partially offset by a **$2.2 million increase in absorbed inventory**[429](index=429&type=chunk) Operating Expenses (2019 vs. 2018, in thousands of USD) | Metric | 2019 | 2018 | Change | Change % | | :------------------- | :----- | :----- | :----- | :----- | | Research and development expenses | 6,893 | 10,697 | (3,804) | -36% | | Selling, general and administrative expenses | 16,668 | 29,946 | (13,278) | -44% | | Total operating expenses | 23,561 | 40,643 | (17,082) | -42% | - The decrease in R&D expenses was primarily due to a **$2.1 million reduction in compensation-related expenses** from workforce reductions, a **$0.4 million decrease in stock-based compensation**, a **$0.6 million reduction in Obalon Navigation System development costs**, and a **$0.5 million decrease in clinical trial expenses**[430](index=430&type=chunk) - The decrease in selling, general and administrative expenses was primarily due to a **$5.7 million reduction in marketing and advertising expenses**, a **$5.5 million decrease in compensation-related expenses**, a **$1.1 million decrease in stock-based compensation**, and a **$1.1 million decrease in variable compensation**, all related to the April 2019 internal reorganization[431](index=431&type=chunk) [CRITICAL ACCOUNTING POLICIES AND ESTIMATES](index=75&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) - The company recognizes revenue under ASC 606 when control of products transfers to customers, estimating variable consideration for customer incentives and returns[417](index=417&type=chunk)[422](index=422&type=chunk) - The company offers a swallow guarantee program, deferring revenue for replacement balloons based on the expected swallow failure rate[409](index=409&type=chunk)[421](index=421&type=chunk) - Effective January 1, 2019, the company adopted ASC 842 (Leases), recognizing right-of-use assets and corresponding liabilities for operating leases with terms exceeding 12 months[424](index=424&type=chunk) - The company consolidates variable interest entities (VIEs) for which it is the primary beneficiary, such as its company-managed Obalon-branded retail treatment centers[426](index=426&type=chunk) [RESULTS OF OPERATIONS](index=77&type=section&id=RESULTS%20OF%20OPERATIONS) Operating Results Comparison (2019 vs. 2018, in thousands of USD) | Metric | 2019 | 2018 | | :------------------- | :----- | :----- | | Revenue | 3,281 | 9,101 | | Cost of sales | 2,950 | 5,423 | | Gross profit | 331 | 3,678 | | Research and development expenses | 6,893 | 10,697 | | Selling, general and administrative expenses | 16,668 | 29,946 | | Loss from operations | (23,230) | (36,965) | | Net loss | (23,676) | (37,380) | - **Revenue decreased by $5.8 million to $3.3 million in 2019**, primarily due to the commercialization strategy shift and reduced sales to a Middle East distributor[428](index=428&type=chunk) - **Gross profit decreased by $3.4 million to $0.3 million in 2019**, with gross margin falling from **40.4% in 2018 to 10.1%**[429](index=429&type=chunk) - **R&D expenses decreased by $3.8 million to $6.9 million in 2019**, primarily due to reductions in compensation-related expenses, stock-based compensation, Obalon Navigation System development costs, and clinical trial expenses[430](index=430&type=chunk) - **Selling, general and administrative expenses decreased by $13.2 million to $16.7 million in 2019**, primarily due to reductions in marketing and advertising expenses, compensation-related expenses, stock-based compensation, and variable compensation[431](index=431&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=79&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) - As of December 31, 2019, the company had **$14.1 million in cash and cash equivalents** and an accumulated deficit of **$172.4 million**, raising substantial doubt about its ability to continue as a going concern[434](index=434&type=chunk)[435](index=435&type=chunk) - In August 2019, the company raised approximately **$14.7 million in net proceeds** through a public offering of stock and warrants[436](index=436&type=chunk) - In the second and third quarters of 2019, the company fully repaid its **$20 million term loan** with Pacific Western Bank, releasing associated risks and restrictions[434](index=434&type=chunk)[444](index=444&type=chunk)[445](index=445&type=chunk) - On December 27, 2019, the company entered into an equity distribution agreement with Canaccord to sell up to **$10 million of common stock**, having sold **377,615 shares** for **$2.8 million in gross proceeds** as of December 31, 2019[438](index=438&type=chunk)[440](index=440&type=chunk) - In February 2020, the company terminated its old purchase agreement with Lincoln Park and entered into a new one, committing to purchase up to **$15 million of common stock** over 36 months[442](index=442&type=chunk)[622](index=622&type=chunk)[623](index=623&type=chunk) [CASH FLOWS](index=80&type=section&id=CASH%20FLOWS) Cash Flow Overview (2019 vs. 2018, in thousands of USD) | Activity | 2019 | 2018 | | :----------------------- | :----- | :----- | | Net cash used in operating activities | (22,866) | (29,432) | | Net cash provided by investing activities | 2,356 | 19,517 | | Net cash provided by financing activities | 13,378 | 9,994 | | Net (decrease) increase in cash and cash equivalents | (7,132) | 79 | - **Net cash used in operating activities was $22.9 million in 2019**, primarily comprising a **net loss of $23.7 million** and a **$3.3 million increase in net operating assets**, partially offset by **$4.1 million in non-cash expenses**[451](index=451&type=chunk) - **Net cash provided by investing activities was $2.4 million in 2019**, primarily from short-term investment maturities, partially offset by capital expenditures[453](index=453&type=chunk) - **Net cash provided by financing activities was $13.4 million in 2019**, primarily from **$17 million in proceeds from common stock and warrant issuances**, **$6.4 million from prepaid warrant exercises**, and **$10 million from long-term loan proceeds**, offset by **$20 million in long-term loan repayments**[454](index=454&type=chunk) [OFF-BALANCE SHEET ARRANGEMENTS](index=81&type=section&id=OFF-BALANCE%20SHEET%20ARRANGEMENTS) - The company currently has no off-balance sheet arrangements, such as structured finance, special purpose entities, or variable interest entities[456](index=456&type=chunk) [EFFECTS OF INFLATION](index=81&type=section&id=EFFECTS%20OF%20INFLATION) - The company believes inflation and price changes did not have a significant impact on operating results for the periods presented[457](index=457&type=chunk) [RECENT ACCOUNTING PRONOUNCEMENTS](index=81&type=section&id=RECENT%20ACCOUNTING%20PRONOUNCEMENTS) - Refer to Note 2, "Recent Accounting Pronouncements," in the annual financial statements for detailed information[458](index=458&type=chunk) [JOBS ACT ACCOUNTING ELECTION](index=81&type=section&id=JOBS%20ACT%20ACCOUNTING%20ELECTION) - As an emerging growth company, the company has irrevocably elected not to use the extended transition period for complying with new or revised accounting standards, thus adopting these standards concurrently with other public companies[459](index=459&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=81&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is not applicable - Not applicable[460](index=460&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=82&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) The financial statements and supplementary data required by this item are included in Item 15(a)(1) of Part IV of this annual report - The financial statements and supplementary data required by this item are included in Item 15(a)(1) of Part IV of this annual report[461](index=461&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=82&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with accountants on accounting and financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure[462](index=462&type=chunk) [Item 9A. Controls and Procedures](index=82&type=section&id=Item%209A.%20Controls%20and%20Procedures) Obalon management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2019, with no material changes during the quarter [Evaluation of Disclosure Controls and Procedures](index=82&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) - As of December 31, 2019, the company's management assessed and concluded that its disclosure controls and procedures were effective at a reasonable assurance level[463](index=463&type=chunk) [Management's Report on Internal Control over Financial Reporting](index=82&type=section&id=Management%27s%20Report%20on%20Internal%20Control%20over%20Financial%20Reporting) - Management is responsible for establishing and maintaining adequate internal control over financial reporting and assessed its effectiveness based on the COSO (2013) framework[465](index=465&type=chunk)[467](index=467&type=chunk) - Management's assessment concluded that the company's internal control over financial reporting was effective as of December 31, 2019[468](index=468&type=chunk) - As an emerging growth company, this annual report does not include an attestation report from the company's registered public accounting firm regarding internal control over financial reporting[468](index=468&type=chunk) [Changes in Internal Control over Financial Reporting](index=83&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) - No material changes occurred in internal control over financial reporting during the quarter ended December 31, 2019[469](index=469&type=chunk) [Item 9B. Other Information](index=83&type=section&id=Item%209B.%20Other%20Information) The company reports no other information requiring disclosure - No other information disclosure[470](index=470&type=chunk) PART III [Item 10. Directors, Executive Officers and Corporate Governance](index=84&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) The information required by this item is incorporated by reference into the company's definitive proxy statement for its 2020 Annual Meeting of Stockholders - The information required by this item is incorporated by reference into the company's definitive proxy statement for its 2020 Annual Meeting of Stockholders[473](index=473&type=chunk) [Item 11. Executive Compensation](index=84&type=section&id=Item%2011.%20Executive%20Compensation) The information required by this item is incorporated by reference into the company's definitive proxy statement for its 2020 Annual Meeting of Stockholders - The information required by this item is incorporated by reference into the company's definitive proxy statement for its 2020 Annual Meeting of Stockholders[474](index=474&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=84&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) The information required by this item is incorporated by reference into the company's definitive proxy statement for its 2020 Annual Meeting of Stockholders - The information required by this item is incorporated by reference into the company's definitive proxy statement for its 2020 Annual Meeting of Stockholders[475](index=475&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=84&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) The information required by this item is incorporated by reference into the company's definitive proxy statement for its 2020 Annual Meeting of Stockholders - The information required by this item is incorporated by reference into the company's definitive proxy statement for its 2020 Annual Meeting of Stockholders[476](index=476&type=chunk) [Item 14. Principal Accountant Fees and Services](index=84&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) The information required by this item is incorporated by reference into the company's definitive proxy statement for its 2020 Annual Meeting of Stockholders - The information required by this item is incorporated by reference into the company's definitive proxy statement for its 2020 Annual Meeting of Stockholders[477](index=477&type=chunk) PART IV [Item 15. Exhibits and Financial Statement Schedules](index=85&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements and schedules included in Obalon's annual report, along with a detailed exhibit index covering various agreements and certifications [Financial Statements and Financial Statement Schedules](index=85&type=section&id=Financial%20Statements%20and%20Financial%20Statement%20Schedules) - This annual report includes the following financial statements and financial statement schedules: Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Consolidated Statements of Operations and Comprehensive Loss, Consolidated Statements of Stockholders' Equity, Consolidated Statements of Cash Flows, and Notes to Consolidated Financial Statements[480](index=480&type=chunk) [Exhibits](index=85&type=section&id=Exhibits) - The Exhibit Index lists various documents filed as part of or incorporated by reference into this annual report, including equity distribution agreements, articles of incorporation, warrants, securities purchase agreements, registration rights agreements, employment agreements, lease agreements, and various certification documents[481](index=481&type=chunk)[635](index=635&type=chunk)[636](index=636&type=chunk)[639](index=639&type=chunk) [Report of Independent Registered Public Accounting Firm](index=86&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) - KPMG LLP has served as the company's auditor since 2015, issuing an unqualified opinion on the consolidated financial statements as of December 31, 2019 and 2018[489](index=489&type=chunk)[484](index=484&type=chunk) - The report includes an explanatory paragraph highlighting substantial doubt about the company's ability to continue as a going concern due to recurring losses and net capital deficiency[485](index=485&type=chunk) - The report also notes the company's change in lease accounting method effective January 1, 2019, adopting Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842)[486](index=486&type=chunk) [Consolidated Balance Sheets](index=87&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheets (as of December 31, in thousands of USD) | Metric | 2019 | 2018 | | :--------------------------- | :----- | :----- | | Cash and cash equivalents | 14,055 | 21,187 | | Short-term investments | — | 2,548 | | Accounts receivable, net | 285 | 870 | | Inventory | 1,936 | 1,580 | | Other current assets | 1,959 | 2,462 | | Total current assets | 18,235 | 28,647 | | Right-of-use assets (leases) | 1,077 | — | | Property and equipment, net | 1,081 | 1,739 | | Total assets | 20,393 | 30,386 | | Accounts payable | 648 | 1,159 | | Accrued compensation | 820 | 3,805 | | Deferred revenue | 424 | 352 | | Other current liabilities | 1,524 | 1,985 | | Lease liabilities (current portion) | 561 | — | | Long-term loan (current portion) | — | 9,930 | | Total current liabilities | 3,977 | 17,231 | | Lease liabilities (long-term) | 567 | — | | Total liabilities | 4,544 | 17,279 | | Common stock | 8 | 2 | | Additional paid-in capital | 188,271 | 161,859 | | Accumulated deficit | (172,430) | (148,754) | | Total stockholders' equity | 15,849 | 13,107 | | Total liabilities and stockholders' equity | 20,393 | 30,386 | [Consolidated Statements of Operations and Comprehensive Loss](index=88&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) Consolidated Statements of Operations and Comprehensive Loss (for the years ended December 31, in thousands of USD) | Metric | 2019 | 2018 | | :--------------------------- | :----- | :----- | | Revenue | 3,281 | 9,101 | | Cost of sales | 2,950 | 5,423 | | Gross profit | 331 | 3,678 | | Research and development expenses | 6,893 | 10,697 | | Selling, general and administrative expenses | 16,668 | 29,946 | | Loss from operations | (23,230) | (36,965) | | Interest expense, net | (385) | (226) | | Other expense, net | (61) | (189) | | Net loss | (23,676) | (37,380) | | Other comprehensive income (loss) | — | 5 | | Net loss and comprehensive loss | (23,676) | (37,375) | | Net loss per share (basic and diluted) | (5.03) | (19.64) | | Weighted-average common shares outstanding (basic and diluted) | 4,706,775 | 1,903,734 | [Consolidated Statements of Stockholders' Equity](index=89&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity) Consolidated Statements of Stockholders' Equity (December 31, 2018 to December 31, 2019, in thousands of USD) | Change Item | Common Stock (Shares) | Common Stock (Amount) | Additional Paid-in Capital | Accumulated Deficit | Total Stockholders' Equity | | :--------------------------------- | :----------- | :----------- | :----------- | :----------- | :----------- | | Balance at December 31, 2018 | 2,351,333 | 2 | 161,859 | (148,754) | 13,107 | | Stock-based compensation expense | — | — | 2,983 | — | 2,983 | | Issuance of common stock upon stock option exercise | 119 | — | — | — | — | | Vesting of early exercised stock options | — | — | 58 | — | 58 | | Issuance of common stock and warrants, net of issuance costs | 3,661,238 | 4 | 23,362 | — | 23,366 | | Exercise of warrants to purchase common stock | 1,735,000 | 2 | — | — | 2 | | Cancellation of restricted stock awards | (26,910) | — | — | — | — | | Issuance of common stock for reverse stock split rounding | 3,320 | — | 9 | — | 9 | | Net loss | — | — | — | (23,676) | (23,676) | | Balance at December 31, 2019 | 7,724,100 | 8 | 188,271 | (172,430) | 15,849 | [Consolidated Statements of Cash Flows](index=90&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Statements of Cash Flows (for the years ended December 31, in thousands of USD) | Activity | 2019 | 2018 | | :--------------------------- | :----- | :----- | | Net cash used in operating activities | (22,866) | (29,432) | | Net cash provided by investing activities | 2,356 | 19,517 | | Net cash provided by financing activities | 13,378 | 9,994 | | Net (decrease) increase in cash and cash equivalents | (7,132) | 79 | | Cash and cash equivalents at beginning of period | 21,187 | 21,108 | | Cash and cash equivalents at end of period | 14,055 | 21,187 | - **Net cash used in operating activities was $22.9 million in 2019**, primarily comprising a **net loss of $23.7 million** and a **$3.3 million increase in net operating assets**, partially offset by **$4.1 million in non-cash expenses**[451](index=451&type=chunk) - **Net cash provided by investing activities was $2.4 million in 2019**, primarily from **$2.55 million in short-term investment maturities**, partially offset by **$0.194 million in property and equipment purchases**[453](index=453&type=chunk) - **Net cash provided by financing activities was $13.4 million in 2019**, primarily from **$23.38 million in net proceeds from common stock and warrant issuances** and **$10 million in long-term loan proceeds**, offset by **$20 million in long-term loan repayments**[454](index=454&type=chunk) [Notes to Consolidated Financial Statements](index=91&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) - The company has incurred continuous operating losses since inception, with an accumulated deficit of **$172.4 million** as of December 31, 2019, and cash levels raising substantial doubt about its ability to continue as a going concern[507](index=507&type=chunk) - On July 24, 2019, the company effected a **one-for-ten reverse stock split**[505](index=505&type=chunk) - In April 2019, the company underwent an internal reorganization, reducing its workforce by approximately **50%**, and shifted its commercialization focus to company-owned or managed Obalon-branded retail treatment centers[510](index=510&type=chunk) - In August 2019, the company raised approximately **$14.7 million in net proceeds** through a public offering of stock and warrants, and repaid **$20 million in term loans** during the second and third quarters of 2019[509](index=509&type=chunk) - As of December 31, 2019, the company had federal net operating loss carryforwards of approximately **$147.9 million** and state net operating loss carryforwards of approximately **$114.6 million**, along with federal and California R&D tax credit carryforwards totaling **$3.4 million** and **$2.7 million**, respectively[596](index=596&type=chunk) - The company has established a **$45.6 million valuation allowance** against deferred tax assets due to uncertainty regarding their realization[595](index=595&type=chunk) - In January 2020, the company approved the grant of **816,081 restricted stock units** to executives; in February 2020, the company opened its second Obalon-branded treatment center in Orange County and entered into a lease agreement for a third center near Sacramento[619](index=619&type=chunk)[620](index=620&type=chunk)[621](index=621&type=chunk) - On February 5, 2020, the company terminated its old purchase agreement with Lincoln Park and entered into a new one, committing to sell up to **$15 million of common stock** to Lincoln Park over 36 months[622](index=622&type=chunk)[623](index=623&type=chunk) [Item 16. Form 10-K Summary](index=113&type=section&id=Item%2016.%20Form%2010-K%20Summary) This annual report does not contain a Form 10-K summary - No Form 10-K summary[624](index=624&type=chunk) [SIGNATURES](index=115&type=section&id=SIGNATURES) This annual report was formally signed on February 27, 2020, by Obalon Therapeutics, Inc.'s President and CEO, CFO, and Board members - This annual report was signed on February 27, 2020[629](index=629&type=chunk)[631](index=631&type=chunk)[633](index=633&type=chunk) - Signatories include William Plovanic, President and Chief Executive Officer, Nooshin Hussainy, Chief Financial Officer, and members of the Board of Directors[629](index=629&type=chunk)[631](index=631&type=chunk)[633](index=633&type=chunk)

ReShape Lifesciences Inc. (NASDAQ:RSLS) Q3 2019 Earnings Conference Call November 14, 2019 4:30 PM ET Company Participants Philip Taylor – Gilmartin Group Bart Bandy – Chief Executive Officer Tom Stankovich – Chief Financial Officer Conference Call Participants Operator Ladies and gentlemen, thank you for standing by, and welcome to the ReShape Lifesciences Third Quarter of 2019 Earnings Conference Call. At this time all participants are in a listen-only mode, and please be advised that today's conference i ...