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Stock-based Compensation

6 Months Ended

Jun. 30, 2022

(12) Stock-based Compensation

Stock-based compensation expense related to stock options and RSUs issued under the ReShape Lifesciences Inc. Second Amended and Restated 2003 Stock Incentive Plan (the “Plan”) for the three months and six ended June 30, 2022 and 2021 were as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Sales and marketing	$	152	$	—	$	257	$	—
General and administrative		550		(364)		1,120		(263)
Research and development		121		—		193		—
Total stock-based compensation expense	$	823	$	(364)	$	1,570	$	(263)

Stock Options

A summary of the status of the Company’s stock options as of June 30, 2022, and changes during the six months ended June 30, 2022 are as follows:


				Weighted
		Weighted		Average	Aggregate
		Average		Remaining	Intrinsic
		Exercise Price		Contractual	Value
	Shares	Per Share		Life (years)	(in thousands)
Outstanding at December 31, 2021	885,039		7.97		$	—
Options granted	560,154		1.18
Options exercised	—		—
Options cancelled	(136,862)		2.83
Outstanding at June 30, 2022	1,308,331		5.60	8.9	$	—
Exercisable at June 30, 2022	617,796		9.83	8.1		—
Vested and expected to vest at June 30, 2022	1,308,331		5.60	8.9		—

There was no intrinsic value of the outstanding stock options at June 30, 2022. The unrecognized share-based expense at June 30, 2022 was $1.1 million and will be recognized over a weighted average period of 3.0 years.

Stock option awards outstanding under the Company’s incentive plans have been granted at exercise prices that are equal to the market value of its common stock on the date of grant. Such options generally vest over a period of four years and expire at ten years after the grant date. The Company recognized compensation expense ratably over the vesting period. The Company uses a Black-Scholes option-pricing model to estimate the fair value of stock options granted, which requires the input of both subjective and objective assumptions as follows:

Expected Term – The estimate of expected term is based on the historical exercise behavior of grantees, as well as the contractual life of the options granted.

Expected Volatility – The expected volatility factor is based on the volatility of the Company’s common stock for a period equal to the term of the stock options.

Risk-free Interest Rate – The risk-free interest rate is determined using the implied yield for a traded zero-coupon U.S. Treasury bond with a term equal to the expected term of the stock options.

Expected Dividend Yield – The expected dividend yield is based on the Company’s historical practice of paying dividends on its common stock.

Restricted Stock Units

During the six months ended June 30, 2022, the Company granted 200,417 RSUs and cancelled 142,604 RSUs.

A summary of the Company’s unvested RSUs award activity for the six months ended June 30, 2022, were as follows:


		Weighted
		Average
		Grant Date
	Shares	Fair Value
Unvested RSUs at December 31, 2021	1,711,318	$	4.36
Granted	200,417		1.18
Vested ⁽¹⁾	(949,039)		4.36
Cancelled/Forfeited	(142,604)		4.36
Non-vested RSUs at June 30, 2022	820,092		3.58

(1)	At June 30, 2022, there were 39,848 shares of common stock related to RSU awards that had vested and the shares were not distributed to the participants until July of 2022.

The fair value of each RSU is the closing stock price on the Nasdaq of the Company’s common stock on the date of grant. Upon vesting, a portion of the RSU award may be withheld to satisfy the statutory income tax withholding obligation. The remaining RSUs will be settled in shares of the Company’s common stock after the vesting period. The unrecognized compensation cost related to the RSUs at June 30, 2022 was $2.9 million and expected to be recognized over a period of 2.0 years.