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Organization and Basis of Presentation
9 Months Ended
Sep. 30, 2019
Accounting Policies [Abstract]  
Organization and Basis of Presentation
Organization and Basis of Presentation
Obalon Therapeutics, Inc., or the Company, was incorporated in the state of Delaware on January 2, 2008. The Company is a vertically-integrated medical device company focused on developing and commercializing innovative medical devices to treat obese and overweight people. Using its patented technology, the Company has developed the Obalon® balloon system, the first and only U.S. Food and Drug Administration, or FDA, approved swallowable, gas-filled intragastric balloon designed to provide progressive and sustained weight loss in obese patients.
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, and include the Company's accounts and accounts of its wholly-owned subsidiaries. The Company also consolidates variable interest entities (“VIE”) for which it is the primary beneficiary. The primary beneficiary has both (a) the power to direct the activities of the VIE that most significantly affect the entity’s economic performance and (b) either the obligation to absorb losses or the right to receive benefits. Refer to Note 11, “Variable Interest Entities” for further details. All intercompany transactions and balances have been eliminated in consolidation.
The Company’s principal operations are located in Carlsbad, California, and it operates in one business segment.

Reverse Stock Split
On July 24, 2019, the Company filed a certificate of amendment to its certificate of incorporation with the Secretary of State of the State of Delaware to effect a one-for-ten reverse split of its issued and outstanding common stock. The accompanying consolidated financial statements and notes thereto give retrospective effect to the reverse stock split for all periods presented. All issued and outstanding common stock, options exercisable for common stock, restricted stock units, performance restricted stock units, and per share amounts contained in the consolidated financial statements have been retrospectively adjusted to reflect this reverse stock split for all periods presented. The number of authorized shares of common stock will not be changed by virtue of the reverse stock split and will remain at 100.0 million shares.
Liquidity
As of September 30, 2019, the Company has devoted a substantial portion of its efforts to product development, raising capital, and building infrastructure, and, since January 2017, U.S. commercialization. The Company has incurred operating losses and has experienced negative cash flows from operations since its inception. In July 2012, the Company realized initial revenue from its planned principal operations. The Company recognized total revenue of $0.3 million and $3.0 million for the three months ended September 30, 2019 and 2018, respectively, and $2.5 million and $7.1 million for the nine months ended September 30, 2019 and 2018, respectively. However, the Company has not yet established an ongoing source of revenue sufficient to cover its operating costs and has funded its activities to date almost exclusively from debt and equity financings.
As reflected in the accompanying condensed consolidated financial statements, the Company has a limited operating history and the sales and income potential of the Company’s business are unproven. The Company has not been profitable since inception, and as of September 30, 2019, its accumulated deficit was $167.5 million. Since inception, the Company has financed its operations primarily through private placements of preferred securities, the sale of common stock through its initial public offering (IPO), and a subsequent public and private placements, and, to a lesser extent, debt financing arrangements.

In August 2019, the Company issued and sold an aggregate of (i) 2,427,500 shares of its common stock (including 412,500 shares of common stock pursuant to the partial exercise of the underwriters’ over-allotment option to purchase 562,500 additional shares), (ii) pre-funded warrants to purchase up to 1,735,000 shares of common stock, (iii) accompanying warrants to purchase up to 3,234,375 shares of common stock (including the exercise in full of the underwriters’ over-allotment option to purchase additional warrants to purchase 421,875 shares of common stock) and (iv) an additional warrant to the underwriters for the purchase 37,500 shares of common stock, for net proceeds from the offering of approximately $14.7 million after deducting underwriting discounts and commissions and offering expenses payable by the Company. As of September 30, 2019, the Company had cash and cash equivalents of $19.4 million. Additionally, during the second quarter of 2019, the Company paid down $15.0 million of the principal balance due under the loan and security agreement with Pacific Western Bank (as successor-in-interest to Square 1 Bank) and during the third quarter of 2019, the Company paid down the remaining $5.0 million of principal balance due under the loan and security agreement with Pacific Western Bank, thereby removing the risks and restrictions of carrying long-term debt. See Note 8 for further detail regarding the equity financing transactions.
In an effort to address the Company's liquidity concerns, and pay expenses relating to its operating activities, including selling, general and administrative expenses and research and development expenses, on April 2, 2019, the Company commenced an internal restructuring and notified approximately 49 employees, or approximately 50% of the Company's workforce, that their employment would be terminated. This restructuring included the elimination of the Company's field sales force and a transition to more centralized customer support and marketing program strategy. Going forward, rather than focusing on selling to physicians, the Company intends to focus its commercialization efforts on the establishment and operation of company-owned or managed Obalon-branded retail treatment centers.
The consolidated financial statements as of and for the nine months ended September 30, 2019 have been prepared on the basis that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Based on the Company's cash balances and recurring losses since inception, there is substantial doubt about its ability to continue as a going concern and if the Company is not able to continue to raise sufficient capital, it will not be able to support ongoing operations.