PRESS RELEASE

Obalon Announces Fourth Quarter and Full Year 2020 Financial Results

SAN DIEGO, March 12, 2021 (GLOBE NEWSWIRE) -- Obalon Therapeutics, Inc. (NASDAQ:OBLN), a vertically integrated medical technology company with the first and only FDA-approved swallowable, gas-filled intragastric balloon system for the treatment of obesity, today announced its financial results for the fourth quarter and full year ended December 31, 2020. On November 10, 2020, the Company signed a non-binding term sheet for merger with ReShape Lifesciences Inc. and, on January 20, 2021, announced that a definitive agreement had been signed on January 19, 2020 for a merger with ReShape Lifesciences Inc.

Financial results for the fourth quarter of 2020
Revenue for the fourth quarter of 2020 was $0.1 million, compared to $0.8 million for the fourth quarter of 2019, with the decrease primarily due to the suspension of operations in the second quarter of 2020. Net loss for the fourth quarter of 2020 was $1.3 million, compared to $4.9 million for the fourth quarter of 2019. Net loss per share for the fourth quarter of 2020 was $0.17, compared to $0.64 for the fourth quarter of 2019.

Cost of revenue was $0 for the fourth quarter of 2020, down from $0.6 million for the fourth quarter of 2019. Gross profit for the fourth quarter of 2020 was $0.1 million compared to $0.2 million for the fourth quarter of 2019.

Research and Development expense for the fourth quarter of 2020 totaled $0.2 million, down from $1.5 million for the fourth quarter of 2019. Selling, General and Administrative expense decreased to $1.2 million for the fourth quarter of 2020, compared to $3.6 million for the fourth quarter of 2019.

Operating loss for the fourth quarter of 2020 was $1.4 million, down from a loss of $5.0 million for the fourth quarter of 2019.

As of December 31, 2020, the Company had cash and cash equivalents of $3.9 million and $0.4 million of debt related to its Payroll Protection Program loan.

Financial results for the full year of 2020
Revenue for the full year of 2020 was $1.6 million, compared to $3.3 million for the full year of 2019, with the decrease primarily due to the suspension of operations in the second quarter of 2020. Net loss for the full year of 2020 was $12.3 million, compared to $23.7 million for the full year of 2019. Net loss per share for the full year of 2020 was $1.59, compared to $5.03 for the full year of 2019.

Cost of revenue was $1.0 million for the full year of 2020, down from $3.0 million for the full year of 2019. Gross profit for the full year of 2020 was $0.6 million compared to $0.3 million for the full year of 2019.

Research and Development expense for the full year of 2020 totaled $2.5 million, down from $6.9 million for the full year of 2019. Selling, General and Administrative expense decreased to $8.8 million for the full year of 2020, compared to $16.7 million for the full year of 2019. Operating loss for the full year of 2020 was $12.0 million, down from a loss of $23.2 million for the full year of 2019.

Subsequent Events

From January 1, 2021 through March 2, 2021, the Company’s warrant holders covering 2.3 million shares exercised the warrants and common stock was issued in exchange for proceeds of $9.5 million.

About Obalon Therapeutics, Inc. 
Obalon Therapeutics, Inc. (NASDAQ:OBLN) is a San Diego-based company focused on developing and commercializing novel technologies for weight loss.

Cautionary Statement Regarding Forward Looking Statements
This press release contains forward-looking statements that are not purely historical regarding Obalon’s or its management’s intentions, beliefs, expectations and strategies for the future, including those related to the potential merger with ReShape Lifesciences Inc. All forward-looking statements and reasons why results might differ included in this press release are made as of the date of this release, based on information currently available to Obalon, deal with future events, are subject to various risks and uncertainties, and actual results could differ materially from those anticipated in those forward looking statements. The risks and uncertainties that may cause actual results to differ materially from Obalon’s current expectations are more fully described in Obalon’s annual report on Form 10-K for the period ended December 31, 2020, and its other reports, each as filed with the Securities and Exchange Commission. Except as required by law, Obalon assumes no obligation to update any such forward-looking statement after the date of this report or to conform these forward-looking statements to actual results.

OBALON THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(unaudited)
(in thousands, except shares and per share data)

  Three Months Ended December 31,   Twelve Months Ended December 31,
  2020      2019      2020      2019
Revenue $ 61     $ 787     $ 1,588     $ 3,281  
Cost of revenue   (1 )     627       1,004       2,950  
Gross profit (deficit)   62       (160 )     584       331  
Operating expenses:                      
Research and development   157       1,492       2,450       6,893  
Selling, general and administrative   1,230       3,643       8,776       16,668  
Asset impairment and other charges               1,310        
Total operating expenses   1,387       5,135       12,536       23,561  
Loss from operations   (1,326 )     (4,975 )     (11,952 )     (23,230 )
Interest (expense) income, net         63       29       (385 )
Other expense, net         (1 )     (411 )     (61 )
Net loss and comprehensive loss $ (1,326 )   $ (4,913 )   $ (12,334 )   $ (23,676 )
Net loss per share, basic and diluted $ (0.17 )   $ (0.64 )   $ (1.59 )   $ (5.03 )
Weighted-average common shares outstanding, basic and diluted   7,770,698       7,692,673       7,738,355       4,706,775  
                               

OBALON THERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except shares and par value data)

  December 31
  2020      2019
Assets          
Current assets:          
Cash and cash equivalents $ 3,905     $ 14,055  
Accounts receivable, net         285  
Inventory         1,936  
Other current assets   3,930       1,959  
Total current assets   7,835       18,235  
Lease right-of-use assets   521       1,077  
Property and equipment, net   957       1,081  
Other long-term assets   1,304        
Total assets $ 10,617     $ 20,393  
Liabilities and Stockholders’ Equity          
Current liabilities:          
Accounts payable $ 615     $ 648  
Accrued compensation   65       820  
Deferred revenue         424  
Other current liabilities   3,802       1,524  
Current portion of lease liabilities   564       561  
Total current liabilities   5,046       3,977  
Lease liabilities, long-term   438       567  
Long-term debt   430        
Other long-term liabilities   38        
Total liabilities   5,952       4,544  
           
Commitments and contingencies          
           
Stockholders’ equity:          
Common stock, $0.001 par value; 100,000,000 shares authorized as of December 31, 2020 and December 31, 2019; 7,770,698 and 7,724,100 shares issued and outstanding as of December 31, 2020 and December 31, 2019, respectively   8       8  
Additional paid-in capital   189,421       188,271  
Accumulated deficit   (184,764 )     (172,430 )
Total stockholders’ equity   4,665       15,849  
Total liabilities and stockholders’ equity $ 10,617     $ 20,393  
               

OBALON THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)

  Year ended December 31
  2020      2019
Operating activities:          
Net loss $ (12,334 )   $ (23,676 )
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation   340       479  
Stock-based compensation   1,089       2,983  
Fair value of cash-settled options   38        
Issuance of warrants for the purchase of common stock   45        
Amortization of right-of-use assets   503       415  
Loss on disposal of fixed asset         128  
Accretion of investment discount, net         (2 )
Amortization of debt discount         70  
Impairment of long-lived assets and other charges   1,257        
Impairment of inventory   53        
Change in operating assets and liabilities:          
Accounts receivable, net   285       585  
Inventory   (525 )     12  
Other current assets   (1,804 )     411  
Accounts payable   (33 )     (543 )
Accrued compensation   (740 )     (2,985 )
Deferred revenue   (424 )     72  
Lease liabilities, net   (427 )     (364 )
Other current and long-term liabilities   2,268       (451 )
Net cash used in operating activities   (10,409 )     (22,866 )
Investing activities:          
Maturities of short-term investments         2,550  
Purchases of property and equipment   (171 )     (194 )
Net cash (used in) provided by investing activities   (171 )     2,356  
Financing activities:          
Proceeds from issuance of common stock and warrants, net of issuance costs         23,377  
Proceeds from long-term loan, net of issuance costs   430       10,000  
Repayments of long-term loans         (20,000 )
Proceeds from sale of common stock upon exercise of stock options         1  
Net cash provided by financing activities   430       13,378  
Net (decrease) increase in cash and cash equivalents   (10,150 )     (7,132 )
Cash and cash equivalents at beginning of period   14,055       21,187  
Cash and cash equivalents at end of period $ 3,905     $ 14,055  
Supplemental cash flow information:          
Interest paid $     $ 719  
Income taxes paid $     $  
Property and equipment in accounts payable $     $ 32  
               

For Obalon Therapeutics, Inc.

Investor Contact:
Andrew Rasdal
President and Chief Executive Officer
Obalon Therapeutics, Inc.
Office: +1 844 362 2566
arasdal@obalon.com

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Source: Obalon Therapeutics, Inc.

IMPORTANT SAFETY INFORMATION
The Obalon Balloon System is intended for adults with a body mass index (BMI) of 30 to 40 kg/m2 willing to follow a diet and exercise program. All Obalon balloons must be removed in 6 months. Patients with prior weight loss surgeries are not eligible. The most common side effects reported were mild abdominal pain and nausea which typically resolved within two weeks. You must take daily acid-blocking medicine prescribed by your doctor. For full Important Safety Information click onSafety Information and Patient Labeling