Company Quick10K Filing
Quick10K
GI Dynamics
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
8-K 2019-10-03 Regulation FD, Exhibits
8-K 2019-09-19 Officers, Regulation FD, Exhibits
8-K 2019-08-21 Enter Agreement, Off-BS Arrangement, Sale of Shares, Regulation FD, Exhibits
8-K 2019-07-01 Sale of Shares, Exhibits
8-K 2019-06-30 Enter Agreement, Shareholder Vote, Exhibits
8-K 2019-06-30 Enter Agreement, Exhibits
8-K 2019-06-20
8-K 2019-05-22 Regulation FD, Exhibits
8-K 2019-05-08 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-04-30 Enter Agreement, Exhibits
8-K 2019-03-31 Enter Agreement, Exhibits
8-K 2019-03-15 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-12-31 Enter Agreement, Exhibits
8-K 2018-12-07 Officers, Exhibits
8-K 2018-10-29 Shareholder Vote
8-K 2018-09-19 Sale of Shares, Exhibits
8-K 2018-08-20 Regulation FD, Exhibits
8-K 2018-08-13 Other Events, Exhibits
8-K 2018-05-30 Enter Agreement, Off-BS Arrangement, Sale of Shares, Exhibits
8-K 2018-05-24 Shareholder Vote
8-K 2018-05-01 Enter Agreement, Exhibits
8-K 2018-04-30 Earnings, Exhibits
8-K 2018-04-13 Officers
8-K 2018-02-27 Shareholder Vote
8-K 2018-01-31 Earnings, Exhibits
8-K 2018-01-22 Sale of Shares, Exhibits
8-K 2018-01-15 Other Events, Exhibits
FBNK First Connecticut Bancorp 495
NWIN Northwest Indiana Bancorp 152
NMUS Nemus Bioscience 38
PVCT Provectus Biopharmaceuticals 23
BRTI Blackridge Technology 19
SCND Scientific Industries 10
VGRBF VGrab 6
GDSI Global Digital Solutions 6
CLTH Cleantech Biofuels 2
ATLS Atlas Energy Group 0
GIDYL 2019-06-30
Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1A. Risk Factors:
Item 2. Unregistered Sales of Equity Securities:
Item 6. Exhibits
EX-10.1 gidyl-ex101_99.htm
EX-10.2 gidyl-ex102_98.htm
EX-10.3 gidyl-ex103_97.htm
EX-10.4 gidyl-ex104_96.htm
EX-10.5 gidyl-ex105_95.htm
EX-10.6 gidyl-ex106_94.htm
EX-10.7 gidyl-ex107_93.htm
EX-10.8 gidyl-ex108_92.htm
EX-31.1 gidyl-ex311_8.htm
EX-31.2 gidyl-ex312_13.htm
EX-32.1 gidyl-ex321_11.htm
EX-32.2 gidyl-ex322_7.htm

GI Dynamics Earnings 2019-06-30

GIDYL 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 gidyl-10q_20190630.htm 10-Q gidyl-10q_20190630.htm

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

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: 000-55195

 

GI DYNAMICS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

Delaware

 

84-1621425

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

 

PO Box 51915

 

 

Boston, Massachusetts

 

02205

(Address of Principal Executive Offices)

 

(Zip Code)

(781) 357-3300

(Registrant’s telephone number, including area code)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class

         Trading symbol(s)

Name of each exchange on which registered

    Common Stock, par value $0.01

         GID.ASX

Australia Securities Exchange

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files):    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):       Yes      No

As of August 10, 2019, there were 28,349,745 shares of common stock outstanding.

 

 


Table of Contents

 

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements concerning our business, operations, financial performance and condition as well as our plans, objectives and expectations for our business, operations and financial performance and condition. Any statements contained in this Quarterly Report on Form 10-Q that are not of historical facts may be deemed to be forward-looking statements. The forward-looking statements are contained principally in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements include, but are not limited to, statements about:

 

our expectations with respect to our intellectual property position;

 

our expectations with respect to our clinical trials;

 

our expectations with respect to regulatory submissions and receipt and maintenance of regulatory approvals;

 

our ability to commercialize our products;

 

our ability to develop and commercialize new products;

 

our expectation with regard to product manufacture and inventory; and

 

our estimates regarding our capital requirements and our need for additional financing.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “aims,” “assumes,” “goal,” “intends,” “objective,” “potential,” “positioned,” “target,” “continue,” “seek,” “vision” and similar expressions intended to identify forward-looking statements.

These forward-looking statements are based on current expectations, estimates, forecasts and projections about our business and the industry in which we operate and our management’s beliefs and assumptions. These forward-looking statements are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this Quarterly Report on Form 10-Q may later become inaccurate. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly in the “Risk Factors” section (which incorporates by reference to our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC), that could cause actual results or events to differ materially from the forward-looking statements that we make.

You are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on the forward-looking statements. You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to our Annual Report on Form 10-K completely and with the understanding that our actual future results may be materially different from what we expect. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Unless required by law, we do not intend to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this Quarterly Report on Form 10-Q.

 


Table of Contents

 

 

GI DYNAMICS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2019

TABLE OF CONTENTS

 

 

 

 

  

Page

 

 

PART I – FINANCIAL INFORMATION

  

1

Item 1.

 

Financial Statements (unaudited)

  

1

 

 

Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018

  

1

 

 

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018

  

2

 

 

Consolidated Statements of Stockholders’ Deficit for the Three and Six Months Ended June 30, 2019 and 2018

 

3

 

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018

  

4

 

 

Notes to Consolidated Financial Statements

  

5

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

22

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

  

27

Item 4.

 

Controls and Procedures

  

27

 

 

PART II – OTHER INFORMATION

  

29

Item 1A.

 

Risk Factors

  

29

Item 2.

 

Unregistered Sales of Equity Securities

  

29

Item 6.

 

Exhibits

  

29

 

 

Signatures

  

30

 


Table of Contents

 

References

Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “GI Dynamics,” “the Company,” “we,” “us” and “our” refer to GI Dynamics, Inc. and its consolidated direct and indirect subsidiaries.

Currency

Unless indicated otherwise in this Quarterly Report on Form 10-Q, all references to “$”, “US$” or “dollars” refer to United States dollars, the lawful currency of the United States of America. References to “A$” refer to Australian dollars, the lawful currency of the Commonwealth of Australia. References to “€” or “euros” means euros, the single currency of Participating Member States of the European Union.

Trademarks

EndoBarrier ® and various company logos are the trademarks of the Company, in the United States and other countries. All other trademarks and trade names mentioned in this Quarterly Report on Form 10-Q are the property of their respective owners.

 

 

 


Table of Contents

 

PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements

GI Dynamics, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,427

 

 

$

3,806

 

Restricted cash

 

 

30

 

 

 

30

 

Prepaid expenses and other current assets

 

 

734

 

 

 

530

 

Total current assets

 

 

3,191

 

 

 

4,366

 

Property and equipment, net

 

 

51

 

 

 

63

 

Right-of-use assets, net of amortization

 

 

497

 

 

 

 

Total assets

 

$

3,739

 

 

$

4,429

 

Liabilities and stockholders’ deficit

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

914

 

 

$

1,050

 

Accrued expenses

 

 

902

 

 

 

1,645

 

Short term debt to related party, net of debt discount

 

 

5,000

 

 

 

4,960

 

Derivative liabilities

 

 

14

 

 

 

51

 

Short term lease liabilities

 

 

179

 

 

 

 

Total current liabilities

 

 

7,009

 

 

 

7,706

 

Long term debt to related party, net of debt discount

 

 

 

 

 

168

 

Long term lease liabilities

 

 

318

 

 

 

 

Total liabilities

 

 

7,327

 

 

 

7,874

 

Commitments

 

 

 

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value – 500,000 shares authorized; no shares issued and

   outstanding at June 30, 2019 and December 31, 2018

 

 

 

 

 

 

Common stock, $0.01 par value – 50,000,000 shares authorized; 19,277,545 shares issued

   and outstanding at June 30, 2019 and December 31, 2018, respectively

 

 

193

 

 

 

193

 

Common stock – subscribed but unissued, 9,072,197 shares

 

 

5,991

 

 

 

 

Additional paid-in capital

 

 

269,476

 

 

 

263,521

 

Accumulated deficit

 

 

(279,248

)

 

 

(267,159

)

Total stockholders’ deficit

 

 

(3,588

)

 

 

(3,445

)

Total liabilities and stockholders’ deficit

 

$

3,739

 

 

$

4,429

 

 

The accompanying notes are an integral part of these consolidated financial statements.

1

 


Table of Contents

 

GI Dynamics, Inc. and Subsidiaries

Consolidated Statements of Operations

(In thousands, except share and per share amounts)

(unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

810

 

 

$

254

 

 

$

1,620

 

 

$

627

 

Sales and marketing

 

 

6

 

 

 

312

 

 

 

22

 

 

 

516

 

General and administrative

 

 

1,393

 

 

 

855

 

 

 

2,737

 

 

 

2,040

 

Total operating expenses

 

 

2,209

 

 

 

1,421

 

 

 

4,379

 

 

 

3,183

 

Loss from operations

 

 

(2,209

)

 

 

(1,421

)

 

 

(4,379

)

 

 

(3,183

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

9

 

 

 

3

 

 

 

16

 

Interest expense

 

 

(5,912

)

 

 

(207

)

 

 

(6,089

)

 

 

(288

)

Foreign exchange gain (loss)

 

 

15

 

 

 

(2

)

 

 

6

 

 

 

8

 

Gain on write-off of accounts payable

 

 

61

 

 

 

 

 

 

90

 

 

 

 

Re-measurement of derivative liabilities

 

 

(1,687

)

 

 

2

 

 

 

(1,688

)

 

 

3

 

Other income (expense), net

 

 

(7,523

)

 

 

(198

)

 

 

(7,678

)

 

 

(261

)

Loss before benefit from income taxes

 

 

(9,732

)

 

 

(1,619

)

 

 

(12,057

)

 

 

(3,444

)

(Benefit from) Provision for income taxes

 

 

26

 

 

 

15

 

 

 

32

 

 

 

(3

)

Net loss

 

$

(9,758

)

 

$

(1,634

)

 

$

(12,089

)

 

$

(3,441

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per common share

 

$

(0.51

)

 

$

(0.13

)

 

$

(0.63

)

 

$

(0.29

)

Weighted-average number of common shares used in basic and

   diluted net loss per common share

 

 

19,277,545

 

 

 

12,333,101

 

 

 

19,277,545

 

 

 

12,069,624

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

2

 


Table of Contents

 

GI Dynamics, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Deficit

(In thousands, except share and per share amounts)

(unaudited)

 

 

 

Common Stock

 

 

Common Stock subscribed but unissued

 

 

 

 

 

 

 

 

 

 

 

 

 

THREE MONTHS ENDED JUNE 2019

 

Shares

 

 

Par Value

 

 

Shares

 

 

Carrying Value

 

 

Additional

Paid-in

Capital

 

 

Accumulated

Deficit

 

 

Total

Stockholders'

Deficit

 

Balance at April 1, 2019

 

 

19,277,545

 

 

$

193

 

 

 

 

 

$

 

 

$

263,580

 

 

$

(269,490

)

 

$

(5,717

)

Reclassification of derivative liabilities to

  additional paid-in capital upon stockholder approval

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,784

 

 

 

 

 

 

5,784

 

Conversion of notes payable to related party

 

 

 

 

 

 

 

 

9,072,197

 

 

 

5,991

 

 

 

 

 

 

 

 

 

5,991

 

2017 Note modification

 

 

 

 

 

 

 

 

 

 

 

 

 

 

55

 

 

 

 

 

 

55

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

57

 

 

 

 

 

 

57

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,758

)

 

 

(9,758

)

Balance at June 30, 2019

 

 

19,277,545

 

 

$

193

 

 

 

9,072,197

 

 

$

5,991

 

 

$

269,476

 

 

$

(279,248

)

 

$

(3,588

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Common Stock subscribed but unissued

 

 

 

 

 

 

 

 

 

 

 

 

 

THREE MONTHS ENDED JUNE 2018

 

Shares

 

 

Par Value

 

 

Shares

 

 

Carrying Value

 

 

Additional

Paid-in

Capital

 

 

Accumulated

Deficit

 

 

Total

Stockholders'

Deficit

 

Balance at April 1, 2018

 

 

12,333,101

 

 

$

124

 

 

 

 

 

$

 

 

$

256,814

 

 

$

(260,929

)

 

$

(3,991

)

Beneficial conversion feature discount associated with

  2018 Note

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,007

 

 

 

 

 

 

1,007

 

Relative fair value of warrant issued with 2018 Note

 

 

 

 

 

 

 

 

 

 

 

 

 

 

743

 

 

 

 

 

 

743

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

35

 

 

 

 

 

 

35

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,634

)

 

 

(1,634

)

Balance at June 30, 2018

 

 

12,333,101

 

 

$

124

 

 

 

 

 

$

 

 

$

258,599

 

 

$

(262,562

)

 

$

(3,839

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Common Stock subscribed but unissued

 

 

 

 

 

 

 

 

 

 

 

 

 

SIX MONTHS ENDED JUNE 2019

 

Shares

 

 

Par Value

 

 

Shares

 

 

Carrying Value

 

 

Additional

Paid-in

Capital

 

 

Accumulated

Deficit

 

 

Total

Stockholders'

Deficit

 

Balance at January 1, 2019

 

 

19,277,545

 

 

$

193

 

 

 

 

 

$

 

 

$

263,521

 

 

$

(267,159

)

 

$

(3,445

)

Reclassification of derivative liabilities to

  additional paid-in capital upon stockholder approval

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,784

 

 

 

 

 

 

5,784

 

Conversion of notes payable to related party

 

 

 

 

 

 

 

 

9,072,197

 

 

 

5,991

 

 

 

 

 

 

 

 

 

5,991

 

2017 Note modification

 

 

 

 

 

 

 

 

 

 

 

 

 

 

55

 

 

 

 

 

 

55

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

116

 

 

 

 

 

 

116

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,089

)

 

 

(12,089

)

Balance at June 30, 2019

 

 

19,277,545

 

 

$

193

 

 

 

9,072,197

 

 

$

5,991

 

 

$

269,476

 

 

$

(279,248

)

 

$

(3,588

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Common Stock subscribed but unissued

 

 

 

 

 

 

 

 

 

 

 

 

 

SIX MONTHS ENDED JUNE 2018

 

Shares

 

 

Par Value

 

 

Shares

 

 

Carrying Value

 

 

Additional

Paid-in

Capital

 

 

Accumulated

Deficit

 

 

Total

Stockholders'

Deficit

 

Balance at January 1, 2018

 

 

11,157,489

 

 

$

112

 

 

 

 

 

$

 

 

$

255,294

 

 

$

(259,121

)

 

$

(3,715

)

Issuance of shares upon private placement, net

  of issuance costs

 

 

1,175,612

 

 

 

12

 

 

 

 

 

 

 

 

 

1,491

 

 

 

 

 

 

1,503

 

Beneficial conversion feature discount associated with

  2018 Note

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,007

 

 

 

 

 

 

1,007

 

Relative fair value of warrant issued with 2018 Note

 

 

 

 

 

 

 

 

 

 

 

 

 

 

743

 

 

 

 

 

 

743

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

64

 

 

 

 

 

 

64

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,441

)

 

 

(3,441

)

Balance at June 30, 2018

 

 

12,333,101

 

 

$

124

 

 

 

 

 

$

 

 

$

258,599

 

 

$

(262,562

)

 

$

(3,839

)

 

 

3

 


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GI Dynamics, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

Operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(12,089

)

 

$

(3,441

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

17

 

 

 

11

 

Re-measurement of derivative liabilities

 

 

1,688

 

 

 

(3

)

Loss on disposal of leasehold improvements

 

 

 

 

 

2

 

Amortization of debt issuance costs non-cash interest expense

 

 

 

 

 

122

 

Non-cash interest expense

 

 

6,086

 

 

 

163

 

Stock-based compensation expense

 

 

116

 

 

 

64

 

Non-cash change in accrued compensation

 

 

(22

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

 

 

 

40

 

Prepaid expenses and other current assets

 

 

(204

)

 

 

27

 

Accounts payable

 

 

(136

)

 

 

(484

)

Accrued expenses

 

 

(743

)

 

 

(43

)

Net cash used in operating activities

 

 

(5,287

)

 

 

(3,542

)

Investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(5

)

 

 

 

Net cash used in investing activities

 

 

(5

)

 

 

 

Financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net of issuance costs

 

 

 

 

 

1,503

 

Debt issuance costs

 

 

(87

)

 

 

(85

)

Proceeds from short term and long term debt, related party

 

 

4,000

 

 

 

1,750

 

Net cash provided by financing activities

 

 

3,913

 

 

 

3,168

 

Net decrease in cash and cash equivalents

 

 

(1,379

)

 

 

(374

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

3,836

 

 

 

3,064

 

Cash, cash equivalents and restricted cash at end of period

 

$

2,457

 

 

$

2,690

 

Supplemental cash flow disclosures

 

 

 

 

 

 

 

 

Income taxes paid

 

 

32

 

 

 

23

 

Beneficial conversion feature discount associated with 2018 Note

 

 

 

 

 

1,007

 

Relative fair value of warrant issued with 2018 Note

 

 

 

 

 

743

 

Interest paid

 

 

394

 

 

 

 

Modification of 2017 Note

 

 

55

 

 

 

 

Right-of-use asset obtained in exchange for lease liability

 

 

509

 

 

 

 

Conversion of notes payable to related party

 

 

5,991

 

 

 

 

Reclassification of warrant from derivative liabilities to additional paid-in capital

 

 

5,784

 

 

 

 

Fair value of warrants issued with Notes to Related Party

 

 

4,072

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

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GI Dynamics, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited)

1. Nature of Business

GI Dynamics® is a clinical stage medical device company focused on the development and commercialization of EndoBarrier, a medical device intended for treatment of patients with type 2 diabetes and obesity.

Diabetes mellitus type 2 (also known as type 2 diabetes) is a long-term progressive metabolic disorder characterized by high blood sugar, insulin resistance, and reduced insulin production. According to the Centers for Disease Control and Prevention (CDC), people with type 2 diabetes represent 90% of the worldwide diabetes population, whereas 10% of this population is diagnosed with type 1 diabetes (a form of diabetes mellitus in which not enough insulin is produced).

Being overweight is a condition where the patient’s body mass index (BMI) is greater than 25 (kg/m2); obesity is a condition where the patient’s BMI is greater than 30, according to the CDC. Obesity and its comorbidities contribute to the progression of type 2 diabetes. Many experts believe obesity contributes to higher levels of insulin resistance, which creates a feedback loop that increases the severity of type 2 diabetes.

When considering treatment for type 2 diabetes, it is optimal to address obesity concurrently with diabetes.

EndoBarrier® is intended for the treatment of type 2 diabetes and obesity in a minimally invasive and reversible manner.

The current treatment paradigm for type 2 diabetes is lifestyle therapy combined with pharmacological treatment, whereby treating clinicians prescribe a treatment regimen of one to four concurrent medications that could include insulin for patients with higher levels of blood sugar. Insulin carries a significant risk of increased mortality and may contribute to weight gain, which in turn may lead to higher levels of insulin resistance and increased levels of blood sugar. Fewer than 50% of patients treated pharmacologically for type 2 diabetes are adequately managed, meaning that medication does not lower blood sugar adequately and does not halt the progressive nature of diabetes of these patients.

The current pharmacological treatment algorithms for type 2 diabetes fall short of ideal, creating a large and unfilled treatment gap.

Our vision is to make EndoBarrier the essential nonpharmacological and non-anatomy-altering treatment for patients with type 2 diabetes and obesity. We intend to achieve this vision by providing a safe and effective device, focusing on optimal patient care, supporting treating clinicians, adding to the extensive body of clinical evidence around EndoBarrier, gaining appropriate regulatory approvals, continuing to improve our products and systems, operating the company in a lean fashion, and maximizing stockholder value.

EndoBarrier® is intended for the treatment of type 2 diabetes and obesity in a minimally invasive and reversible manner and is designed to mimic the mechanism of action of duodenal-jejunal exclusion created by gastric bypass surgery.

Since incorporation, the Company has devoted substantially all of its efforts to product commercialization, research and development, business planning, recruiting management and technical staff, acquiring operating assets, and raising capital. The Company currently operates in one reportable business segment.  

EndoBarrier History

In 2011, the Company began commercial sales of its product, EndoBarrier, which was approved and commercially available in multiple countries outside the U.S. at the time.

In 2013, the Company received approval from the U.S. Food and Drug Administration (“FDA”) to commence its initial pivotal trial of EndoBarrier (the “ENDO Trial”). The Company announced its decision to stop the ENDO Trial in the second half of fiscal year 2015 and thereafter announced that it was reducing headcount by approximately 46% as part of its efforts to restructure its business and expenses and to ensure sufficient cash remained available for it to establish new priorities, continue limited market development and research, and to evaluate strategic options.

In the second and third quarters of fiscal year 2016, the Company took additional actions that it thought necessary to evolve strategic options. These actions resulted in non-recurring charges totaling approximately $1.1 million, including $0.4 million related to restructuring charges in our second quarter, $0.6 million related to employee departures in both our second and third quarters and $0.1 million related to the early exit from our former headquarters in Lexington, MA.

In October 2016, the Company received final cancellation notification from the Therapeutic Goods Administration (“TGA”) for the listing of EndoBarrier on the Australian Register of Therapeutic Goods (“ARTG”).

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In May 2017, the Company received notification from its notified body, SGS United Kingdom Limited (“SGS”), that the CE Mark for EndoBarrier had been suspended pending closure of non-conformances related to its quality management system required under International Organization for Standardization (“ISO”) regulations.  

On November 10, 2017, the Company received notification from SGS that SGS was withdrawing the Certificate of Conformance for EndoBarrier, ending the CE Marking of EndoBarrier in Europe and select Middle East countries.

In December 2017, the Company received notification from the Medicines and Healthcare Products Regulatory Agency (“MHRA”) that all EndoBarrier delivery systems (liners) in inventory needed to be returned to the Company.

In August 2018, the Company received approval of an investigational device exemption (“IDE”) from the FDA to begin enrollment in a pivotal trial evaluating the safety and efficacy of EndoBarrier in the United States pending Institutional Review Board (“IRB”) approval, which was received in February 2019.

Financing History

From its inception in 2003 to its initial public offering (“IPO”) in 2011, the Company was financed by a series of preferred stock financings. In September 2011, the Company completed its IPO of common stock in the form of CHESS Depositary Interests (“CDIs”) in Australia. As a result of the IPO and simultaneous private placement in the U.S., the Company raised a total of approximately $72.5 million in proceeds, net of expenses and repayment of $6.0 million of the Company’s convertible term promissory notes. Additionally, in July and August 2013, the Company issued CDIs on the Australian Securities Exchange (“ASX”) through a private placement and share purchase plan, which raised a total of approximately $52.5 million, net of expenses. In May 2014, the Company raised an additional total of approximately $30.8 million, net of expenses, when it issued CDIs on the ASX through a private placement.

On December 20, 2016, the Company completed a private placement issue of 69,865,000 CDIs (1,397,300 shares) at an issue price of A$0.022 per CDI raising approximately $1.0 million, net of issuance costs. In January 2017, the Company completed the issue of 12,481,600 CDIs (249,632 shares) to eligible investors under a Security Purchase Plan for approximately $0.83 per share of common stock (A$0.022 per CDI) resulting in net proceeds after issuance costs of approximately $0.2 million.

In June 2017, the Company completed a Convertible Term Promissory Note (the “2017 Note”) secured financing with its largest stockholder Crystal Amber Fund Limited (“Crystal Amber”) for a gross amount of $5.0 million. The 2017 Note accrues interest at 5% per annum compounded annually. Crystal Amber is deemed a Related Party of the Company for ASX purposes due to the size of its ownership position. The 2017 Note was originally due on December 31, 2018 and contains provisions for conversion during its term and is also subject to security arrangements in favor Crystal Amber (See Note 10 of the Consolidated Financial Statements for a more complete description of the terms and conditions of the financing).

In January and March 2018, the Company raised approximately $1.6 million in an offering of its CDIs to sophisticated and professional investors, including certain existing investors in Australia, the United States and the United Kingdom.    

In May 2018, the Company completed a Convertible Term Promissory Note (the “2018 Note”) and Warrant (the “2018 Warrant”) financing with its largest stockholder Crystal Amber for a gross amount of $1.75 million. The 2018 Note accrued annually compounded interest at 10% per annum until its conversion into CDIs on June 30, 2019 (as described further below). The 2018 Warrant will expire on May 30, 2023. Crystal Amber is deemed a Related Party of the Company for ASX purposes due to the size of its ownership position. (See Note 10 of the Consolidated Financial Statements for a more complete description of the terms and conditions of the financing).

In September 2018, the Company received commitments for a private placement of approximately $5 million in an offering of its CDIs to sophisticated and professional investors, including certain existing investors in Australia, the United States and the United Kingdom. The first tranche of $2.2 million closed and cash was received in September 2018. The second and final tranche of $2.8 million was contingent upon stockholder approval, which was obtained in October 2018. Cash proceeds from the second tranche were received in November 2018.

In December 2018, the maturity date of the 2017 Note was extended from December 31, 2018 to March 31, 2019 in exchange for payment of $394 thousand, the total accrued interest on the 2017 Note at December 31, 2018.

In March 2019, the Company completed a Convertible Term Promissory Note (the “March 2019 Note”) and Warrant (the “March 2019 Warrant”) financing with its largest stockholder, Crystal Amber, for a gross amount of $1.0 million. The March 2019 Note accrued annually compounded interest at 10% until its conversion into CDIs on June 30, 2019 (as described further below). Certain specific conversion terms related to the March 2019 Note and issuance of the March 2019 Warrant required stockholder approval, which was obtained during the Annual Meeting of Stockholders held on June 30, 2019 (at which stage the March 2019 Warrant was immediately issued). The March 2019 Warrant will expire on June 30, 2024. Crystal Amber is deemed a Related Party of the Company for ASX purposes due to the size of its ownership position (see Note 10 of the Consolidated Financial Statements for a more complete description of the terms and conditions of the financing).

In March 2019, the maturity date of the 2017 Note was extended to May 1, 2019. In April 2019, the maturity date of the 2017 Note was extended to July 1, 2019. A further extension of the maturity date of the 2017 Note is described below.

In May 2019, the Company completed a Convertible Term Promissory Note (the “May 2019 Note”) and Warrant (the “May 2019 Warrant”) financing with its largest stockholder, Crystal Amber, for a gross amount of up to $3.0 million. The May 2019 Note was funded in four tranches between

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May 10, 2019 and June 28, 2019, during which period 10% per annum interest was accrued on daily outstanding principal balances. Upon funding completion on June 28, 2019, accrued interest began to compound annually at a rate of 10% per annum until its conversion into CDIs on June 30, 2019 (as described further below). Certain specific terms associated with the conversion of the May 2019 Note and issuance of the May 2019 Warrant required stockholder approval, which was obtained during the Annual Meeting of Stockholders held on June 30, 2019 (at which stage the May 2019 Warrant was immediately issued). The May 2019 Warrant will expire on June 30, 2024. Crystal Amber is deemed a Related Party of the Company for ASX purposes due to the size of its ownership position (see Note 10 of the Consolidated Financial Statements for a more complete description of the terms and conditions of the financing).

In June 2019, the maturity date of the 2017 Note was extended to October 1, 2019.

On June 30, 2019, Crystal Amber elected to convert the 2018 Note, the March 2019 Note and the May 2019 Note to CDIs. Under the terms of the respective notes, an aggregate of 453,609,963 CDIs (representing approximately 9,072,197 common shares) were subscribed but unissued on conversion and concurrent cancellation of the 2018 Note, the March 2019 Note and the May 2019 Note.

Going Concern

As of June 30, 2019, the Company’s primary source of liquidity is its cash and cash equivalents balances. The Company continues to evaluate which markets are appropriate to pursue regulatory approvals, pursue reimbursement, raise market awareness and conduct general market development and selling efforts. The Company continues to restructure its business and costs, establish new priorities, and evaluate strategic options. As a result, if the Company remains in business, it expects to incur significant operating losses for the next several years. The Company has incurred operating losses

since inception and at June 30, 2019 had an accumulated deficit of approximately $279 million, a working capital deficit of approximately $3.8 million, cash used in operating activities of approximately $5.3 million and cash and cash equivalents of approximately $2.5 million. Cash provided by these activities will be used predominantly to prepare for and conduct the Company’s clinical trial, which will result in increased expenses. The Company does not expect its current cash balances will be sufficient to operate beyond the end of September 2019. The Company will need to raise additional funds through any combination of collaborative arrangements, strategic alliances, and additional equity and debt financings or from other sources. 

Furthermore, if the Company raises insufficient funds and is required to make payment to Crystal Amber under the 2017 Note on its maturity date of October 1, 2019. the Company will be required either to renegotiate the maturity date of the loan or to potentially cease operations. The Company expects to discuss further extension of the maturity date of the 2017 Note with Crystal Amber, but there can be no assurance that any extension will occur.

The Company has no guaranteed source of capital that will sustain operations beyond September 2019. There can be no assurance that other potential financing opportunities will be available on acceptable terms, if at all. As such, if access to capital is not achieved to satisfy cash needs in the near term, the Company’s business, financial condition and results of operations will be materially harmed or the Company may be required to cease operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these financial statements are issued.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and liabilities and commitments in the normal course of business. The consolidated financial statements as of June 30, 2019 and December 31, 2018 and the three and six months ended June 30, 2019 and 2018 do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.

2. Summary of Significant Accounting Policies and Basis of Presentation

The accompanying interim consolidated financial statements and related disclosures as of June 30, 2019, and for the three and six months ended June 30, 2019 and 2018, are unaudited and have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K (“Form 10-K”), filed with the SEC on March 13, 2019. The December 31, 2018 consolidated balance sheet included herein was derived from the audited financial statements as of that date but does not include all disclosures including notes required by GAAP for complete financial statements.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of GI Dynamics, Inc. and its wholly owned subsidiaries. All intercompany transactions and balances are eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements in accordance with GAAP requires the Company’s management to make estimates and judgments that may affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. On an ongoing basis, the Company’s management evaluates its estimates, including those related to impairment of long-lived assets, income taxes including the valuation allowance for deferred tax assets, research and development, contingencies, lease liabilities, valuation of derivative liabilities, estimates used to assess its ability to continue as a going concern and stock-based compensation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the

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carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. Changes in estimates are reflected in reported results in the period in which they become known.

Cash and Cash Equivalents

The Company considers all highly liquid investment instruments with an original maturity when purchased of three months or less to be cash equivalents. Investments qualifying as cash equivalents primarily consist of money market funds and have a carrying amount that approximates fair value. The amount of cash equivalents included in cash and cash equivalents was approximately $4 thousand at June 30, 2019 and $1.1 million at December 31, 2018.

The Company has $30 thousand in restricted cash used to secure a corporate credit card account.

Inventory

When the Company resumes commercial activity, the Company will state inventory at the lower of first-in, first-out cost or net realizable value. When capitalizing inventory, the Company will consider factors such as status of regulatory approval, alternative use of inventory, and anticipated commercial use of the product. At June 30, 2019 and December 31, 2018, there was no inventory or reserves against inventory on the balance sheet.  

Property and Equipment

Property and equipment, including leasehold improvements, are recorded at cost and are depreciated when placed in service using the straight-line method based on their estimated useful lives.

Included in property and equipment are certain costs of software obtained for internal use. Costs incurred during the preliminary project stage are expensed as incurred, while costs incurred during the application development stage are capitalized and amortized over the estimated useful life of the software. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality. Maintenance and training costs related to software obtained for internal use are expensed as incurred.

Leasehold improvements are amortized over the shorter of the estimated useful life of the asset or the remaining lease term. Costs for capital assets not yet placed into service are capitalized as construction in progress and will be subsequently depreciated in accordance with the above guidelines once placed into service. Maintenance and repair costs are expensed as incurred.

Lease Liabilities and Related Assets

The Company adopted Accounting Standards Codification (“ASC”), Topic 842, Leases (“ASC 842”) on January 1, 2019, but had no long-term leases to which it would apply. In May 2019, the Company entered into the first Right of Use Lease requiring the adoption of Accounting Standards Codification (“ASC”), Topic 842, Leases (“ASC 842”).  

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. The Company has elected not to recognize on the balance sheet leases with terms of one year or less. Leases with a non-cancellable term greater than one year are recognized on the balance sheet as lease assets, short-term lease liabilities and long-term lease liabilities. Using criteria defined in ASC 842, the Company determines whether the lease is a Financing Lease or an Operating Lease.

Lease liabilities and their corresponding Right-of-Use assets are recorded based on the present value of lease payments over the expected remaining lease term. Options to renew an Operating lease are not included in the Company’s initial lease term assessment unless there is reasonable certainty that the Company will renew. However, certain adjustments to the Right-of-Use operating asset may be required for items such as incentives received. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes an estimated incremental borrowing rate, which is the rate it is expected to incur to borrow an amount equal to the lease payments on a collateralized basis (or on an unsecured basis if existing debt covenants prevent further securitization) over a similar term in a similar economic environment.  

In accordance with the guidance in ASC 842, components of a lease are split into lease components and non-lease components. A policy election is available pursuant to which an entity may elect to not separate lease and non-lease components. For new and amended leases beginning in 2019 and after, the Company has not made the election to combine lease and non-lease components.  

Research and Development Costs

Research and development costs are expensed when incurred. Research and development costs include costs of all basic research activities as well as other research, engineering, and technical effort required to develop a new product or service or make significant improvement to an existing product or manufacturing process. Research and development costs also include preapproval regulatory and clinical trial expenses incurred prior to regulatory approval.

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Patent Costs

The Company expenses as incurred all costs, including legal expenses, associated with obtaining patents until the patented technology becomes feasible. All costs incurred after the patented technology is feasible will be capitalized as an intangible asset. As of June 30, 2019 and December 31, 2018, no such costs had been capitalized. The Company expensed patent costs within general and administrative expenses of $54 and $41 thousand for the three months ended June 30, 2019 and 2018, respectively, and $95 and $80 thousand for the six months ended June 30, 2019 and 2018, respectively.    

Stock-Based Compensation

We account for stock-based compensation in accordance with the Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, 718, Stock Compensation, or ASC 718, which requires that stock-based compensation be measured and recognized as an expense in the financial statements and that such expense be measured at the grant date fair value.

For awards that vest based on service conditions, we use the straight-line method to allocate compensation expense to reporting periods. The grant date fair value of options granted is calculated using the Black-Scholes option pricing model, which requires the use of subjective assumptions including volatility, expected term and the fair value of the underlying Common Stock, among others.

The assumptions used in determining the fair value of stock-based awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change, and we use different assumptions, our stock-based compensation could be materially different in the future. The risk-free interest rate used for each grant is based on a zero-coupon U.S. Treasury instrument with a remaining term similar to the expected term of the stock-based award. Because we do not have a sufficient history to estimate the expected term, we use the simplified method for estimating the expected term. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. We estimate our expected stock volatility based on our to-date historical price volatility. We have not paid and do not anticipate paying cash dividends on our shares of Common Stock; therefore, the expected dividend yield is assumed to be zero. In 2017, the Company elected to use an actual occurrence method of recording award forfeitures rather than the prior standard of estimating forfeitures as of the grant date.

We periodically issue performance-based awards. For these awards, vesting will occur upon the achievement of certain milestones. When achievement of the milestone is deemed probable, we expense the compensation of the stock award over the implicit service period.

Stock awards to non-employees are accounted for in accordance with ASC 505-50, Equity-Based Payments to Non-Employees (“ASC 505-50”). The measurement date for non-employee awards is generally the date performance of services required from the non-employee is complete. For non-employee awards that vest based on service conditions, the Company expenses the value of the awards over the related service period, provided they expect the service condition to be met. The Company records the expense of services rendered by non- employees based on the estimated fair value of the stock option using the Black-Scholes option pricing model over the contractual term of the non-employee. The fair value of unvested non-employee awards is remeasured at each reporting period and expensed over the vesting term of the underlying stock options on a straight-line basis.

Impairment of Long-Lived Assets

The Company regularly reviews the carrying amount of its long-lived assets to determine whether indicators of impairment may exist that warrant adjustments to carrying values or estimated useful lives. If indications of impairment exist, projected future undiscounted cash flows associated with the asset are compared to the carrying amount to determine whether the asset’s value is recoverable. If the carrying value of the asset exceeds such projected undiscounted cash flows, the asset will be written down to its estimated fair value.

Loss Contingencies

In accordance with ASC 450, Contingencies, the Company accrues anticipated costs of settlement, damages, and losses for loss contingencies based on historical experience or to the extent specific losses are probable and estimable. Otherwise, the Company expenses these costs as incurred. If the estimate of a probable loss is a range, and no amount within the range is more likely, the Company accrues the minimum amount of the range.

Income Taxes

The Company provides for income taxes under the liability method. The Company records deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the Company’s financial reporting and the tax bases of assets and liabilities measured using the enacted tax rates expected to be in effect in the years in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to reflect the uncertainty associated with their ultimate realization.

The Company accounts for uncertain tax positions recognized in the consolidated financial statements by applying a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

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Guarantees

The Company has identified the guarantees described below as disclosable, in accordance with ASC 460, Guarantees.

As permitted under Delaware law, the Company indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The maximum potential amount of future payments the Company could be required to make is unlimited; however, the Company has directors’ and officers’ insurance coverage that should limit its exposure and enable it to recover a portion of any future amounts paid.

The Company is a party to a number of agreements entered into in the ordinary course of business that contain typical provisions that obligate the Company to indemnify the other parties to such agreements upon the occurrence of certain events. Such indemnification obligations are usually in effect from the date of execution of the applicable agreement for a period equal to the applicable statute of limitations. The aggregate maximum potential future liability of the Company under such indemnification provisions is uncertain.

For the three and six months ended June 30, 2019 and 2018, the Company had not experienced any material losses related to these indemnification obligations, and no material claims with respect thereto were outstanding. The Company does not expect significant claims related to these indemnification obligations and, consequently, concluded that the fair value of these obligations is negligible. As a result, no related reserves have been established.

Issuance Costs Related to Equity and Debt

The Company allocates issuance costs between the individual freestanding instruments identified on the same basis as proceeds were allocated. Issuance costs associated with the issuance of stock or equity contracts (i.e., equity-classified warrants and convertible preferred stock) are recorded as a charge against the gross proceeds of the offering. Any issuance costs associated with the issuance of liability-classified warrants are expensed as incurred. Issuance costs associated with the issuance of debt (i.e., convertible debt) is recorded as a direct reduction of the carrying amount of the debt liability but limited to the notional value of the debt. The Company accounts for debt as liabilities measured at amortized cost and amortizes the resulting debt discount to interest expense using the effective interest method over the expected term of the notes pursuant to ASC 835, Interest ("ASC 835"). To the extent that the reduction from issuance costs of the carrying amount of the debt liability would reduce the carrying amount below zero, such excess is recorded as interest expense.

Embedded Conversion Features

The Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options.” Under ASC 470-20, an entity must separately account for the liability and equity components of the convertible debt instruments that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for our convertible debt instruments is that the equity component is required to be included in the additional paid-in capital section of stockholders’ equity on the consolidated balance sheets and the value of the equity component is treated as original issue discount for purposes of accounting for the debt component of the notes. Therefore, we are required to record as non-cash interest expense the amortization of the discounted carrying value of the convertible debt to the face amount over the term of the convertible debt. We report higher interest expense in our financial results because ASC 470-20 requires interest to include both the current period’s amortization of the debt discount and the instrument’s coupon interest.

For conventional convertible debt where the rate of conversion is below market value, the Company values and records a "beneficial conversion feature" ("BCF") and related debt discount on issuance. When the Company records a BCF, the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument (offset to additional paid in capital) and amortized to interest expense over the life of the debt.

Subsequent Events

The Company evaluates events occurring after the date of its consolidated balance sheet for potential recognition or disclosure in its consolidated financial statements. There have been no material subsequent events that occurred through the date the Company issued its consolidated financial statements that require disclosure in or adjustment to its consolidated financial statements.

New Accounting Pronouncements

In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements, or ASU 2018-09, which affects a wide variety of topics, including the following: Amendments to Subtopic 220-10, Income Statement— Reporting Comprehensive Income—Overall relates to income taxes not payable in cash; Amendments to Subtopic 470-50, Debt—Modifications and Extinguishments relates to debt extinguishment and requires that the net carrying amount of extinguished fair value elected debt equals its fair value at reacquisition and related gains or losses in other comprehensive income must be included in net income upon extinguishment of the debt; Amendments to Subtopic 480-10, Distinguishing Liabilities from Equity—Overall relates to combinations of freestanding financial instruments with non-controlling interests; Amendments to Subtopic 718-740, Compensation—Stock Compensation—Income Taxes relate to recognition timing clarification for excess tax benefits or deficiencies for compensation expense; Amendments to Subtopic 805-740, Business Combinations— Income Taxes relate to allocating tax provisions to an acquired entity; Amendments to Subtopic 815-10, Derivatives and Hedging— Overall relate to accounting for offsetting derivatives; Amendments to Subtopic 820-10, Fair Value Measurement— Overall

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relate to the wording with respect to how transfer restrictions effect the fair value of an asset and adds explicit wording to allow entities to measure fair value on a net basis for those portfolios in which financial assets and financial liabilities and nonfinancial instruments are managed and valued together; Amendments to Subtopic 940-405, Financial Services—Brokers and Dealers—Liabilities relate to guidance about offsetting on the balance sheet; and Amendments to Subtopic 962-325, Plan Accounting—Defined Contribution Pension Plans—Investments—Other relate to plan evaluation of whether a readily determinable fair value exists to determine whether those investments may qualify for the practical expedient to measure at net asset value in accordance with Topic 820. The transition and selection of an effective date is based on the facts and circumstances of each amendment, but many of the amendments have transition guidance with effective dates for annual periods beginning after December 15, 2018, for public business entities. The Company is currently evaluating the relevance of each component and potential impact of ASU 2018-09 components on its consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, or ASU 2018-13, which provides guidance focused on the disclosure requirements for disclosing fair value estimates, assumptions, and methodology. Requirements removed include the requirement to disclose details around amount and reasoning for level 1 to level 2 transfers, timing policies for transfer between levels, and the valuation processes for level 3 fair value measurements. Requirements modified include details regarding net asset redemption restrictions and timing related to uncertainty disclosures. Requirement added include disclosures of changes in unrealized gains and losses for recurring level 3 measurements held as of the reporting date and disclosures around the range and weighted average of significant inputs used to develop level 3 fair value measurements. These amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty will be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments will be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this Update and an entity is permitted to early adopt any removed or modified disclosures upon issuance of this Update and delay adoption of the additional disclosures until their effective date. The Company has not elected early adoption and is currently evaluating the individual components and as these are disclosure refinements, expects no impact to its consolidated financial statements on adoption.

3. Net Loss per Common Share

Basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Potential common stock equivalents are determined using the treasury stock method. For diluted net loss per share purposes, the Company excludes stock options and other stock-based awards, including shares issued as a result of option exercises but which are subject to repurchase by the Company, whose effect would be anti-dilutive from the calculation. During the three and six months ended June 30, 2019 and 2018, common stock equivalents were excluded from the calculation of diluted net loss per common share, as their effect was anti-dilutive due to the net loss incurred. Therefore, basic and diluted net loss per share was the same in all periods presented.

The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares outstanding as of June 30, 2019 and 2018, as they would be anti-dilutive:

 

 

 

As of June 30,

 

 

 

2019

 

 

2018

 

Warrants to purchase common stock

 

 

8,277,081

 

 

 

1,972,976

 

Options to purchase common stock and other stock-based

   awards

 

 

1,545,719

 

 

 

1,668,219

 

Total

 

 

9,822,800

 

 

 

3,641,195

 

 

4. Warrants to Purchase Common Stock and CDIs

On May 4, 2016, the Company entered into a consulting agreement pursuant to which a consulting firm provides strategic advisory, finance, accounting, human resources and administrative functions, including chief financial officer services, to the Company. In connection with the consulting agreement, the Company granted the consulting firm a warrant (“Consultant Warrant”) to purchase up to 28,532 shares of the Company’s common stock at an exercise price per share equal to $0.64. The Consultant Warrant is fully vested and expires on May 4, 2021. The Company has reserved 28,532 shares of common stock related to the Consultant Warrant. As of June 30, 2019, the Consultant Warrants had not been exercised.

On May 30, 2018, the Company entered into a Note and Warrant Purchase agreement that included a warrant to purchase 97,222,200 CDIs (representing 1,944,444 shares of common stock). The exercise price was initially US$0.018 per CDI and the exercise price was subsequently reset to US$0.0144 when the Company issued securities at the lower price in September 2018. The warrant can be exercised with cash or as a net exercise. The warrant was immediately exercisable on issuance and expires on May 30, 2023.

On March 15, 2019, the Company entered into a Note and Warrant Purchase agreement that included a form of warrant to purchase 78,984,823 CDIs (representing 1,579,696 shares of common stock). The warrant was subsequently approved by stockholders and issued on June 30, 2019. The warrant’s exercise price is US$0.0127 per CDI, and the warrant can be exercised with cash or as a net exercise. The warrant was immediately exercisable on issuance and will expire on June 30, 2024.

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On May 8, 2019, the Company entered into a Note and Warrant Purchase agreement that included a form of warrant to purchase up to 236,220,472 CDIs (representing 4,724,409 shares of common stock), or a lesser number of CDIs proportional to the amount finally funded under the simultaneously issued $3 million note. The Note was fully funded and the warrant for the maximum number of CDIs was subsequently both approved by stockholders and issued on June 30, 2019. The warrant’s exercise price is US$0.0127 per CDI, and the warrant can be exercised with cash or as a net exercise. The warrant was immediately exercisable on issuance and will expire on June 30, 2024.

5. Fair Value of Assets and Liabilities

The tables below present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2019 and December 31, 2018 and indicates the fair value hierarchy of the valuation techniques the Company used to determine such fair value. In general, fair values determined by Level 1 inputs utilize observable inputs such as quoted prices in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are either directly or indirectly observable, such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs utilize unobservable data points in which there is little or no market data, requiring the Company to develop its own assumptions for the asset or liability.

The following tables present the assets and liabilities the Company has measured at fair value on a recurring basis (in thousands):

 

 

 

 

 

 

 

Fair Value Measurements at

 

 

 

 

 

 

 

Reporting Date Using

 

 

 

 

 

 

 

Quoted Prices in

 

 

Significant Other

 

 

Significant

 

 

 

 

 

 

 

Active Markets for

 

 

Observable

 

 

Unobservable