UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2016
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) |
|
25 Hartwell Avenue Lexington, Massachusetts |
02421 | |
(Address of Principal Executive Offices) | (Zip Code) |
(781) 357-3300
(Registrants telephone number, including area code)
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 x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files): Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): ¨ Yes x No
As of August 1, 2016 there were 9,510,557 shares of common stock outstanding.
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 Managements 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 regulatory submissions and approvals; |
| our expectations with respect to our clinical trials, including the consequences of terminating the ENDO Trial (as defined herein); |
| our expectations with respect to our intellectual property position; |
| our ability to commercialize our products; |
| our ability to develop and commercialize new products; |
| our expectation with regard to 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 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 managements 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.
GI DYNAMICS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2016
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.
PART I FINANCIAL INFORMATION
GI Dynamics, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
(unaudited)
June 30,
2016 |
December 31,
2015 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
$ | 12,254 | $ | 19,590 | ||||
Restricted cash |
150 | | ||||||
Accounts receivable, net |
22 | 40 | ||||||
Inventory |
504 | 1,025 | ||||||
Prepaid expenses and other current assets |
487 | 726 | ||||||
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Total current assets |
13,417 | 21,381 | ||||||
Property and equipment, net |
95 | 401 | ||||||
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Total assets |
$ | 13,512 | $ | 21,782 | ||||
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Liabilities and stockholders equity |
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Current liabilities: |
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Accounts payable |
$ | 435 | $ | 435 | ||||
Accrued expenses |
1,518 | 2,810 | ||||||
Other current liabilities |
97 | 276 | ||||||
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Total current liabilities |
2,050 | 3,521 | ||||||
Other liabilities |
19 | 3 | ||||||
Commitments (Note 10) |
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Stockholders equity: |
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Preferred stock, $0.01 par value 500,000 shares authorized; no shares issued and outstanding at June 30, 2016 and December 31, 2015 |
| | ||||||
Common stock, $0.01 par value 13,000,000 shares authorized; 9,510,557 shares issued and outstanding at June 30, 2016 and 9,505,557 shares issued and 9,505,389 shares outstanding at December 31, 2015 |
95 | 95 | ||||||
Class B common stock, $0.01 par value 1,000,000 shares authorized; no shares issued and outstanding at June 30, 2016 and December 31, 2015 |
| | ||||||
Additional paid-in capital |
253,763 | 253,250 | ||||||
Accumulated deficit |
(242,415 | ) | (235,087 | ) | ||||
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Total stockholders equity |
11,443 | 18,258 | ||||||
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Total liabilities and stockholders equity |
$ | 13,512 | $ | 21,782 | ||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
1
GI Dynamics, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share amounts)
(unaudited)
Three Months Ended
June 30, |
Six Months Ended
June 30, |
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2016 | 2015 | 2016 | 2015 | |||||||||||||
Revenue |
$ | 132 | $ | 310 | $ | 341 | $ | 926 | ||||||||
Cost of revenue |
637 | 2,012 | 990 | 2,898 | ||||||||||||
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Gross loss |
(505 | ) | (1,702 | ) | (649 | ) | (1,972 | ) | ||||||||
Operating expenses: |
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Research and development |
1,181 | 4,631 | 2,031 | 10,277 | ||||||||||||
Sales and marketing |
610 | 1,482 | 1,274 | 3,142 | ||||||||||||
General and administrative |
1,559 | 2,437 | 3,366 | 4,731 | ||||||||||||
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Total operating expenses |
3,350 | 8,550 | 6,671 | 18,150 | ||||||||||||
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Loss from operations |
(3,855 | ) | (10,252 | ) | (7,320 | ) | (20,122 | ) | ||||||||
Other income (expense): |
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Interest income |
13 | 24 | 27 | 54 | ||||||||||||
Interest expense |
0 | | 0 | | ||||||||||||
Foreign exchange gain (loss) |
(14 | ) | 28 | 3 | (465 | ) | ||||||||||
Remeasurement of warrant liability |
(17 | ) | (8 | ) | (17 | ) | (10 | ) | ||||||||
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Other income (expense), net |
(18 | ) | 44 | 13 | (421 | ) | ||||||||||
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Loss before income tax expense |
(3,873 | ) | (10,208 | ) | (7,307 | ) | (20,543 | ) | ||||||||
Income tax expense |
17 | 26 | 21 | 40 | ||||||||||||
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Net loss |
$ | (3,890 | ) | $ | (10,234 | ) | $ | (7,328 | ) | $ | (20,583 | ) | ||||
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Basic and diluted net loss per common share |
$ | (0.41 | ) | $ | (1.08 | ) | $ | (0.77 | ) | $ | (2.17 | ) | ||||
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Weighted-average number of common shares used in basic and diluted net loss per common share |
9,510,557 | 9,481,171 | 9,508,296 | 9,481,099 | ||||||||||||
Comprehensive loss |
$ | (3,890 | ) | $ | (10,234 | ) | $ | (7,328 | ) | $ | (20,583 | ) | ||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
2
GI Dynamics, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
Six Months Ended
June 30, |
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2016 | 2015 | |||||||
Operating activities |
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Net loss |
$ | (7,328 | ) | $ | (20,583 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
155 | 312 | ||||||
Stock-based compensation expense |
508 | 1,613 | ||||||
Remeasurement of warrant liability |
17 | 10 | ||||||
Impairment loss on fixed assets |
145 | | ||||||
Change in inventory reserve |
(191 | ) | 1,487 | |||||
Gain on sale of property and equipment |
2 | | ||||||
Changes in operating assets and liabilities: |
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Accounts receivable |
18 | 187 | ||||||
Prepaid expenses and other current assets |
239 | 160 | ||||||
Inventory |
712 | 776 | ||||||
Accounts payable |
| 312 | ||||||
Accrued expenses |
(1,384 | ) | (2,111 | ) | ||||
Other current liabilities |
(82 | ) | (367 | ) | ||||
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Net cash used in operating activities |
(7,189 | ) | (18,204 | ) | ||||
Investing activities |
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Change in restricted cash |
(150 | ) | | |||||
Purchases of property and equipment |
| (169 | ) | |||||
Proceeds from sale of property and equipment |
4 | | ||||||
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Net cash used in investing activities |
(146 | ) | (169 | ) | ||||
Financing activities |
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Proceeds from exercise of stock options |
| 2 | ||||||
Payments on capital lease |
(1 | ) | (1 | ) | ||||
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Net cash (used in) provided by financing activities |
(1 | ) | 1 | |||||
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Net decrease in cash and cash equivalents |
(7,336 | ) | (18,372 | ) | ||||
Cash and cash equivalents at beginning of period |
19,590 | 51,191 | ||||||
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Cash and cash equivalents at end of period |
$ | 12,254 | $ | 32,819 | ||||
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Supplemental cash flow disclosures |
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Income taxes paid |
$ | 19 | $ | 52 | ||||
Equipment acquired under capital lease |
$ | | $ | 8 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
GI Dynamics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
1. Nature of Business
GI Dynamics, Inc. (the Company) was incorporated on March 24, 2003, as a Delaware corporation, with operations based in Lexington, Massachusetts. The Company is dedicated to restoring health and improving quality of life through the design and application of device and disease management solutions for treatment of metabolic disease. The Companys vision is to make our first product, EndoBarrier Therapy, a valued treatment option for patients suffering from type 2 diabetes and obesity by restoring more manageable blood sugar levels and reducing body weight. The Company is the developer of EndoBarrier ® , the first endoscopically-delivered device therapy approved for the treatment of obese type 2 diabetes with BMI > 30 kg/m 2 , or obese patients with BMI > 30 kg/m 2 with > 1 comorbidities, or obese patients with BMI >35 kg/m 2 . EndoBarrier is the only proven, incision-free, non-anatomy altering solution designed to specifically mimic the duodenal-jejunal exclusion created by gastric bypass surgery. Since incorporation, the Company has devoted substantially all of its efforts to research and development, business planning, clinical research, clinical study management, reimbursement development, product commercialization, acquiring operating assets, and raising capital. The Company currently operates in one reportable business segment which designs, manufactures and markets medical devices.
In 2011, the Company began commercial sales of its product, EndoBarrier, which is approved and commercially available in multiple countries outside the U.S.
In the U.S., the Company received approval from the Food and Drug Administration (FDA), to commence its pivotal trial of EndoBarrier Therapy (the ENDO Trial), which the Company began in 2013. The multi-center, randomized, double-blinded study planned to enroll 500 patients with uncontrolled type 2 diabetes and obesity at 25 sites in the U.S. The primary endpoint was improvement in diabetes control as measured by HbA1c levels.
On March 5, 2015, the Company announced that the FDA recommended discontinuing placement of any additional devices in the ENDO Trial as a result of, at that date, four cases of hepatic abscess among the 325 subjects then enrolled in the ENDO Trial. Hepatic abscess, a bacterial infection of the liver, is a known event related to the use of EndoBarrier. As a result, the Company stopped enrollment in the ENDO Trial, although monitoring and data collection of patients then enrolled in the ENDO Trial continued.
On July 30, 2015, the Company announced its decision to stop the ENDO Trial. The decision followed discussions with the FDA regarding resumption of ENDO Trial enrollment, which despite collaborative efforts by both parties were unable to yield a feasible path forward for the mitigation of a higher than anticipated incidence of hepatic abscess. The Company concluded that stopping the ENDO Trial was in the best interest of all stakeholders.
On August 21, 2015, the Company announced that it was reducing headcount by approximately 46% as part of its efforts to restructure its business and expenses in response to stopping the ENDO Trial and to ensure sufficient cash remains available for it to establish new priorities, continue limited market development and research, and to evaluate strategic options.
On May 10, 2016, the Company announced that it was reducing headcount by approximately 30% as part of its previously announced efforts to restructure its expenses in order to extend its cash runway.
The Company is subject to a number of risks similar to other medical device companies, including, but not limited to, market acceptance of the Companys products, development by its competitors of new technological innovations, safety and efficacy of the products in clinical trials, the regulatory approval process governing medical devices and protection of proprietary technology. In addition, the Company will require additional funding to support its operations. Any such financing may or may not be similar to transactions in which it has engaged in the past and there can be no assurance that any such financing opportunities will be available on acceptable terms, if at all.
4
GI Dynamics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
1. Nature of Business (continued)
The Company has incurred operating losses since inception and at June 30, 2016, had an accumulated deficit of approximately $242.4 million. Based on the Companys decision to stop the ENDO Trial, it continues to evaluate which markets are appropriate to continue pursuing reimbursement, market awareness and general market development efforts, and continues to restructure its business and costs, establish new priorities, continue limited research, and evaluate strategic options. As a result, the Company expects to incur significant operating losses for the next several years. At June 30, 2016, the Company had approximately $12.4 million in cash, cash equivalents and restricted cash. The Company does not expect its current cash balances will be sufficient to enable it to conduct an additional clinical trial for the purpose of seeking regulatory approval from the FDA and complete development of an improved EndoBarrier for its current use and potential new indications. The Company is restructuring its costs and will need to raise additional funds in order to implement its new business objectives and to continue to fund its operations in 2017. These factors raise substantial doubt about the Companys ability to continue as a going concern. The Company may seek to raise additional funds through any combination of collaborative arrangements, strategic alliances, and additional equity and debt financings or from other sources. There can be no assurance that any such financing opportunities will be available on acceptable terms, if at all. If the Company is unable to raise capital when needed, it could be forced to significantly delay or discontinue research and development activities and further commercialization of EndoBarrier, which could have a material adverse effect on its business, financial condition and results of operations. In addition, the Company could be required to cease operations if it is unable to raise capital when needed.
The accompanying condensed 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 condensed consolidated financial statements as of June 30, 2016 and December 31, 2015 and for the three and six months ended June 30, 2016, and 2015 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 Companys ability to continue as a going concern.
2. Summary of Significant Accounting Policies and Basis of Presentation
The accompanying condensed consolidated financial statements and the related disclosures as of June 30, 2016, and for the three and six months ended June 30, 2016 and 2015, 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 condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Companys Annual Report on Form 10-K (Form 10-K), filed with the SEC on March 30, 2016. The December 31, 2015 condensed 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.
The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments of a normal recurring nature considered necessary to present fairly the Companys financial position as of June 30, 2016, results of its operations for the three and six months ended June 30, 2016 and 2015, and its cash flows for the six months ended June, 2016 and 2015. The interim results for the three and six months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.
The Companys significant accounting policies are as described in Note 2, Summary of Significant Accounting Policies and Basis of Presentation , in the Companys Form 10-K.
5
GI Dynamics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
2. Summary of Significant Accounting Policies and Basis of Presentation (continued)
Error Correction
During the six months ended June 30, 2016, the Company recorded an out-of-period adjustment reducing the accrual for clinical trial related expenses and research and development expense by approximately $0.4 million. The adjustment corrected an error in the calculation of certain accrued expenses related to the Companys ENDO Trial during the fourth quarter of 2015. The Company evaluated the materiality of the error from a qualitative and quantitative perspective as required by authoritative guidance and does not believe that the amount is material to any prior period financial statements, and the impact of correcting the error in the six months ended June 30, 2016 is not material to those financial statements. As a result, the Company has not restated any prior period amounts.
Principles of Consolidation
The accompanying condensed 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 Companys 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 Companys management evaluates its estimates, including those related to revenue recognition, allowance for doubtful accounts, inventory valuation including reserves for excess and obsolete inventory, impairment of long-lived assets, income taxes including the valuation allowance for deferred tax assets, research and development, contingencies, stock-based compensation, going concern considerations, and warrant valuations. 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 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.
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 Companys 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.
The Company leases office space under non-cancelable operating leases. The Company has standard indemnification arrangements under these leases that require it to indemnify its landlords against all costs, expenses, fines, suits, claims, demands, liabilities, and actions directly resulting from any breach, violation, or nonperformance of any covenant or condition of the respective lease. The aggregate maximum potential future liability of the Company under such indemnification provisions is uncertain.
As of June 30, 2016 and December 31, 2015, 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.
Restricted Cash
Restricted balances of cash, which are shown under current financial assets as restricted funds, relate to funds set aside to secure a letter of credit to the lessor in lieu of a rental deposit for the property at 25 Hartwell Avenue, Lexington MA. The current/non-current classification is based on the expected timing of the expiration of the lease.
6
GI Dynamics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
2. Summary of Significant Accounting Policies and Basis of Presentation (continued)
Subsequent Events
The Company evaluates events occurring after the date of its condensed consolidated balance sheet for potential recognition or disclosure in its condensed consolidated financial statements. There have been no subsequent events that have occurred through the date the Company issued its condensed consolidated financial statements that require disclosure in or adjustment to its condensed consolidated financial statements.
New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the effect of recently issued standards that are not yet effective will not have a material effect on its consolidated financial position or results of operations upon adoption.
In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers , which supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition , and most industry-specific guidance. The new standard requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In July 2015, the FASB approved a one year deferral of the effective date of this standard to annual reporting periods, and interim reporting periods within those years, beginning after December 15, 2017. Early adoption is permitted to the original effective date of December 15, 2016, including interim reporting periods within those years. The Company is currently evaluating the potential impact that ASU 2014-09 may have on its consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern: Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern (ASU 2014-15). This new standard gives a companys management the final responsibilities to decide whether there is substantial doubt about the companys ability to continue as a going concern and to provide related footnote disclosures. The standard provides guidance to management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that companies commonly provide in their footnotes. Under the new standard, management must decide whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the companys ability to continue as a going concern within one year after the date that the financial statements are issued, or within one year after the date that the financial statements are available to be issued when applicable. This guidance is effective for annual reporting beginning after December 15, 2016, and interim periods thereafter, with early application permitted. The Company does not expect that the adoption of ASU 2014-15 will have a material impact on its financial position, results of operations or cash flows, but may require further disclosure in its financial statements once adopted.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 requires that lessees recognize in the statement of financial position for all leases (with the exception of short-term leases) a lease liability, which is a lessees obligation to make lease payments arising from a lease, measured on a discounted basis, and a right-of-use asset, which is an asset representing the lessees right to use the underlying asset for the lease term. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. Lessees must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees may not apply a full retrospective transition approach. The adoption of this guidance is not expected to have a significant impact on the Companys consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, CompensationStock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). ASU 2016-09 will simplify the income tax consequences, accounting for forfeitures and classification on the statements of consolidated cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods, with early adoption permitted. The Company is currently evaluating the potential impact that ASU 2016-09 may have on its consolidated financial statements.
7
GI Dynamics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
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, 2016 and 2015, 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, 2016 and 2015, as they would be anti-dilutive:
Three Months Ended
June 30, |
Six Months Ended
June 30, |
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2016 | 2015 | 2016 | 2015 | |||||||||||||
Warrants to purchase common stock |
78,532 | 50,000 | 78,532 | 50,000 | ||||||||||||
Options to purchase common stock and other stock-based awards |
1,034,070 | 1,506,880 | 1,034,070 | 1,506,880 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
1,112,602 | 1,556,880 | 1,112,602 | 1,556,880 | |||||||||||||
|
|
|
|
|
|
|
|
4. Common Stock Warrants
In connection with the Companys initial public offering (IPO) in September 2011, the Company issued warrants (IPO Warrants) in an aggregate amount of 50,000 shares of common stock at an exercise price of A$55.00 per share to the lead manager of the IPO and certain other investors. The IPO Warrants will expire on the fifth anniversary of their date of grant. The IPO Warrants may be converted on a cashless basis at the option of the holder. The Company has reserved 50,000 shares of common stock related to the IPO Warrants. As of June 30, 2016, no IPO Warrants had been exercised.
On May 4, 2016, the Company entered into a consulting agreement pursuant to which the consulting firm will provide 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, together with the IPO Warrants, the Warrants) to purchase up to 28,532 shares of the Companys common stock at an exercise price per share equal to $0.64. The Consultant Warrant vests on a monthly basis over two years and has a term of five years. The Company has reserved 28,532 shares of common stock related to the Consultant Warrant. As of June 30, 2016, no Consultant Warrants had been exercised.
The Company accounts for the Warrants under Accounting Standards Codification 815, Derivatives and Hedging (ASC 815). In accordance with the guidance included in ASC 815, because the Companys functional currency is the U.S. dollar and the exercise price of the IPO Warrants is in Australian dollars, the Company is exposed to currency exchange risk related to the IPO Warrants. As a result, the IPO Warrants are not considered indexed to the Companys own stock, and therefore, the IPO Warrants are classified as a liability. The Consultant Warrant contains a cashless exercise provision which meets the net settlement criteria of ASC 815 and is therefore considered a derivative and is classified as a liability.
Because the Warrants are classified as liabilities, the fair value of the Warrants must be remeasured at each reporting period. At the time the Warrants were issued, the Company estimated the fair value of the Warrants using the Black-Scholes option pricing model. The Company remeasures the fair value of the Warrants at each reporting period using current assumptions, and in the case of the IPO Warrants the current foreign exchange rates, with changes in value recorded as other income or expense (Note 5).
8
GI Dynamics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
5. Fair Value of Financial Instruments
The tables below present information about the Companys assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2016 and December 31, 2015, 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 |
||||||||||||||||
Description |
June 30,
2016 |
Quoted Prices in
Active Markets for Identical Assets (Level 1) |
Significant Other
Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
||||||||||||
Assets |
||||||||||||||||
Money market funds (included in cash, cash equivalents and restricted cash) |
$ | 9,881 | $ | 9,881 | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 9,881 | $ | 9,881 | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities |
||||||||||||||||
Warrants to purchase common stock
|
$ | 17 | $ | | $ | | $ | 17 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
$ | 17 | $ | | $ | | $ | 17 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Fair Value Measurements at
Reporting Date Using |
||||||||||||||||
Description |
December 31,
2015 |
Quoted Prices in
Active Markets for Identical Assets (Level 1) |
Significant Other
Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
||||||||||||
Assets |
||||||||||||||||
Money market funds (included in cash and cash equivalents) |
$ | 17,207 | $ | 17,207 | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 17,207 | $ | 17,207 | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities |
||||||||||||||||
Warrants to purchase common stock
|
$ | | $ | | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
$ | | $ | | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
9
GI Dynamics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
5. Fair Value of Financial Instruments (continued)
The assumptions used in the Black-Scholes option pricing model to determine the fair value of the IPO Warrants at June 30, 2016 and December 31, 2015 were as follows:
June 30,
2016 |
December 31,
2015 |
|||||||
Exercise price (A$55.00 at the then current exchange rate) |
$ | 40.84 | $ | 40.18 | ||||
Fair value of common stock |
$ | 0.89 | $ | 1.06 | ||||
Expected volatility |
128.4 | % | 165.6 | % | ||||
Expected term (in years) |
0.2 | 0.7 | ||||||
Risk-free interest rate |
0.2 | % | 0.5 | % | ||||
Expected dividend yield |
| % | | % |
The assumptions used in the Black-Scholes option pricing model to determine the fair value of the Consultant Warrant at the time the Consultant Warrant was issued and at June 30, 2016 were as follows:
At Issuance |
June 30,
2016 |
|||||||
Exercise price |
$ | 0.64 | $ | 0.64 | ||||
Fair value of common stock |
$ | 0.64 | $ | 0.89 | ||||
Expected volatility |
74.1 | % | 76.8 | % | ||||
Expected term (in years) |
5.0 | 4.9 | ||||||
Risk-free interest rate |
1.2 | % | 1.0 | % | ||||
Expected dividend yield |
| % | | % |
The following table rolls forward the fair value of the Warrants, where fair value is determined by Level 3 inputs (in thousands):
Balance at December 31, 2015 |
$ | | ||
Issuance of Consultant Warrant |
11 | |||
Increase in fair value of Warrants upon remeasurement included in other income (expense) |
6 | |||
|
|
|||
Balance at June 30, 2016 |
$ | 17 | ||
|
|
Cash equivalents, restricted cash, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities at June 30, 2016 and December 31, 2015 are carried at amounts that approximate fair value due to their short-term maturities and highly liquid nature of these instruments.
10
GI Dynamics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
6. Concentrations of Credit Risk, Accounts Receivable and Related Valuation Accounts
Financial instruments that subject the Company to credit risk primarily consist of cash and cash equivalents, restricted cash and accounts receivable. The Company maintains its cash and cash equivalents and restricted cash balances with high quality financial institutions, and consequently, the Company believes that such funds are subject to minimal credit risk.
Accounts receivable primarily consist of amounts due from customers, including distributors and health care providers in different countries. In light of the current economic state of many foreign countries, the Company continues to monitor the creditworthiness of its customers.
At June 30, 2016, one distributor accounted for approximately 44% of the Companys accounts receivable and one customer accounted for approximately 46% of the outstanding receivables. At December 31, 2015, one health care provider accounted for approximately 15% of the Companys accounts receivable, two health care providers accounted for approximately 11% each and a fourth health care provider accounted for approximately 10%. No other customer accounted for greater than 10% of the Companys accounts receivable at June 30, 2016 and December 31, 2015.
The Company grants credit to customers in the normal course of business but generally does not require collateral or any other security to support its receivables. The Company makes judgments as to its ability to collect outstanding receivables and provides an allowance for receivables when collection becomes doubtful. Provisions are made based upon a specific review of all significant outstanding invoices and the overall quality and age of those invoices not individually reviewed. Amounts determined to be uncollectible are written off against this reserve. In the three and six months ended June 30, 2015, the Company did not write-off any uncollectible accounts receivable. In the second quarter ending June 30, 2016 the Company wrote off approximately $48,000 in accounts receivable against the bad debt reserve. There were no adjustments against the reserve to write off accounts receivable in the first quarter ending March 31, 2016. As of June 30, 2016 and December 31, 2015, the Company believes its allowance for doubtful accounts of approximately $12,000 and $59,000, respectively, is adequate based on its review.
In certain circumstances the Company allows customers to return defective or nonconforming products for credit or replacement products. Defective or nonconforming products typically include those products that resulted in an unsuccessful implant procedure. The Company records an estimate for product returns based upon historical trends. The associated reserve for product returns is recorded as a reduction of the Companys accounts receivable. As of June 30, 2016 and December 31, 2015, the Company believes its allowance for sales returns of approximately $14,000 and $22,000, respectively, is adequate based on its review.
The following table shows the components of the Companys accounts receivable at June 30, 2016 and December 31, 2015 (in thousands):
June 30,
2016 |
December 31,
2015 |
|||||||
Accounts receivable |
$ | 48 | $ | 121 | ||||
Less: allowance for doubtful accounts |
(12 | ) | (59 | ) | ||||
Less: allowance for sales returns |
(14 | ) | (22 | ) | ||||
|
|
|
|
|||||
Total |
$ | 22 | $ | 40 | ||||
|
|
|
|
The following is a roll forward of the Companys allowance for doubtful accounts (in thousands):
Six Months Ended June 30, |
||||||||
2016 | 2015 | |||||||
Beginning balance |
$ | 59 | $ | 41 | ||||
Net charges to expenses |
1 | 73 | ||||||
Utilization of allowances |
(48 | ) | | |||||
|
|
|
|
|||||
Ending balance |
$ | 12 | $ | 114 | ||||
|
|
|
|
11
GI Dynamics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
7. Inventory
The Company states inventory at the lower of first-in, first-out cost or market. The Company records a provision for excess, expired, and obsolete inventory based primarily on estimates of forecasted revenues. A significant change in the timing or level of demand for products as compared to forecasted amounts may result in recording additional provisions for excess, expired, and obsolete inventory in the future. When capitalizing inventory, the Company considers factors such as status of regulatory approval, alternative use of inventory, and anticipated commercial use of the product.
The determination of obsolete or excess inventory requires the Company to estimate the future demand for its products within appropriate time horizons. The estimated future demand is compared to inventory levels to determine the amount, if any, of obsolete and excess inventory. The demand forecast includes the Companys estimates of market growth and various internal estimates, and is based on assumptions that are consistent with the plans and estimates the Company is using to manage its underlying business and short-term manufacturing plans. Forecasting demand for EndoBarrier in a market in which there are few, if any, comparable approved devices and for which reimbursement from third-party payers is limited has been difficult. To the extent the Companys demand forecast is less than its inventory on-hand, the Company could be required to record additional reserves for excess, expired or obsolete inventory in the future.
In 2015, the Company performed an analysis of its inventory on hand and due to current evidence that the utility of certain amounts of its inventory as it was expected to be used will be less than its cost recorded an approximately $3.2 million charge for excess, expired and obsolete inventory. Factors contributing to the inventory write-down included: the effect that the ENDO Trial enrollment hold and subsequent stopping of the ENDO Trial had on commercial activity and the Companys inventory levels, the expected timing of third-party payer reimbursement in its commercial markets, its conclusion that certain inventory will not be used for sales inside or outside the U.S. and the historical accuracy of its demand forecasts. As of June 30, 2016 and December 31, 2015, the Company has reserves totaling approximately $4.8 million and $5.0 million, respectively for excess, expired and obsolete inventory. The Company continues to review any evidence that may indicate that the utility of additional amounts of inventory, as it was expected to be used, will be less than cost.
Inventory, net, at June 30, 2016 and December 31, 2015 was as follows (in thousands):
June 30,
2016 |
December 31,
2015 |
|||||||
Finished goods |
$ | 504 | $ | 391 | ||||
Work-in-process |
| 605 | ||||||
Raw materials |
| 29 | ||||||
|
|
|
|
|||||
Total |
$ | 504 | $ | 1,025 | ||||
|
|
|
|
The Company has entered into consignment arrangements in which the Company delivers product to the customer but retains title to the product until it is implanted or otherwise consumed. At June 30, 2016 and December 31, 2015, approximately 6 % of the finished goods inventory was at customer locations pursuant to these arrangements.
12
GI Dynamics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
8. Property and Equipment
Property and equipment consisted of the following (in thousands):
June 30,
2016 |
December 31,
2015 |
|||||||
Laboratory equipment and manufacturing equipment |
$ | 339 | $ | 457 | ||||
Computer equipment and software |
1,116 | 1,118 | ||||||
Office furniture and equipment |
175 | 229 | ||||||
Leasehold improvements |
| 848 | ||||||
|
|
|
|
|||||
1,631 | 2,652 | |||||||
Less accumulated depreciation and amortization |
(1,536 | ) | (2,251 | ) | ||||
|
|
|
|
|||||
Total |
$ | 95 | $ | 401 | ||||
|
|
|
|
The Company plans to leave its facility in Lexington Massachusetts in the 3 rd quarter of 2016. As a result, in June 2015 the Company recognized a charge for impaired property and equipment related to the facility as follows for the three and six months ended June 30, 2016 (in thousands):
Three Months Ended
June 30, |
Six Months Ended
June 30, |
|||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Cost of revenue |
$ | 24 | $ | | $ | 24 | $ | | ||||||||
Research and development |
79 | | 74 | | ||||||||||||
Sales and marketing |
| | | | ||||||||||||
General and administrative |
42 | | 42 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 145 | $ | | $ | 145 | $ | | |||||||||
|
|
|
|
|
|
|
|
In January 2015, the Company entered into a capital lease for certain office equipment. As of June 30, 2016, the Company had approximately $8,000 of assets under capital leases with an accumulated amortization balance of approximately $3,400.
Depreciation and amortization expense of property and equipment, including equipment recorded under capital leases, totaled approximately $0.1 and $0.1 million for the three months ended June 30, 2016 and 2015, respectively. Depreciation and amortization expense of property and equipment, including equipment recorded under capital leases, totaled approximately $0.2 and $0.3 million for the six months ended June 30, 2016 and 2015, respectively.
13
GI Dynamics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
9. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
June 30,
2016 |
December 31,
2015 |
|||||||
Clinical trials |
$ | 395 | $ | 1,809 | ||||
Payroll and related liabilities |
543 | 501 | ||||||
Professional fees |
425 | 454 | ||||||
Deferred rent, current portion |
86 | 168 | ||||||
Other |
166 | 154 | ||||||
|
|
|
|
|||||
Total |
$ | 1,615 | $ | 3,086 | ||||
|
|
|
|
Included in payroll and related liabilities at December 31, 2015, were approximately $0.1 million of separation related expenses which were paid in the six months ended June 30, 2016.
10. Commitments and Contingencies
Lease Commitments
In June 2013, the Company entered into a noncancelable agreement to sublease 33,339 square feet of office, laboratory and manufacturing space in Lexington, Massachusetts. The sublease commenced in June 2013 and expires in December 2016, subject to earlier termination under certain conditions. Base rent during the initial rent period is approximately $0.6 million per year and increases annually by approximately $17,000. The space was delivered to the Company in June 2013 and rent payments commenced in May 2014. The rent expense, inclusive of the escalating rent payments and free rent period, is recognized on a straight-line basis over the term of the sublease agreement. In accordance with the terms of the sublease agreement, the Company maintains a secured letter of credit of approximately $0.2 million securing its obligations under the sublease agreement.
In June 2016, the Company entered into a noncancelable agreement to lease approximately 4,200 square feet of office and laboratory space in Boston, Massachusetts. The lease commenced in June 2016 and expires in April 2018. Rent during the term is $11,900 per month.
In March 2012, the Companys subsidiary, GID Germany GmbH, entered into a noncancelable operating lease for office space in Dusseldorf, Germany. The lease was renewed in September 2013 and again in January 2015. In April 2016 this lease expired and the Company vacated this space.
Rent expense on noncancelable operating leases was approximately $0.1 million for each of the three-month periods ended June 30, 2016 and 2015, respectively. Rent expense on noncancelable operating leases was approximately $0.2 million for each of the six-month periods ended June 30, 2016 and 2015, respectively.
In March 2015, the Company entered into a capital lease for certain office equipment totaling approximately $8,000. The capital lease has a three-year term and an interest rate of 14.1%.
Future minimum lease payments under all noncancelable lease arrangements at June 30, 2016, are as follows (in thousands):
Year Ending December 31, | ||||
2016 |
$ | 322 | ||
2017 |
146 | |||
2018 |
48 | |||
|
|
|||
Total |
$ | 516 | ||
|
|
14
GI Dynamics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
11. Stockholders Equity
The authorized capital stock of the Company consists of 14,500,000 shares, of which 13,000,000 shares are designated as common stock, 1,000,000 shares are designated as Class B common stock, and 500,000 shares are designated as preferred stock.
Common Stock
The Company authorized Class B common stock in order to meet the Listing Rules of the Australian Securities Exchange (ASX) so far as they apply to escrowed securities. In the event that holders of common stock, who were subject to ASX-imposed escrow, breached the terms of their escrow agreement or the Listing Rules as they apply to escrowed securities, their common stock would have been automatically converted into Class B common stock until the earlier to occur of the expiration of the escrow period or the breach being rectified. The Class B common stock is identical to and ranks equally with the common stock except that Class B common stock has no voting rights and is not entitled to any dividends. No shares of common stock are currently subject to such an escrow.
12. Stock Plans
The Company has two stock-based compensation plans under which incentive stock options, nonqualified stock options, restricted and unrestricted stock awards, and other stock-based awards are available for grant to employees, directors and consultants of the Company. At June 30, 2016, there were 1,304,275 shares available for future grant under both plans.
The 2011 Employee, Director and Consultant Equity Incentive Plan (the 2011 Plan, together with the 2003 Omnibus Stock Plan, the Plans) allows for an annual increase in the number of shares available for issue under the 2011 Plan commencing on the first day of each fiscal year during the period beginning in fiscal year 2012 and ending in fiscal year 2020. The annual increase in the number of shares shall be equal to the lowest of:
| 500,000 shares; |
| 4% of the number of common shares outstanding as of such date; and |
| an amount determined by the Board of Directors or the Companys compensation committee. |
Accordingly, in the first quarter of fiscal 2016, 380,222 options available for future grant were added to the 2011 Plan.
Stock-Based Compensation
Stock-based compensation is reflected in the condensed consolidated statements of operations and comprehensive loss as follows for the three and six months ended June 30, 2016 and 2015 (in thousands):
Three Months Ended
June 30, |
Six Months Ended
June 30, |
|||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Cost of revenue |
$ | 16 | $ | 25 | $ | 34 | $ | 47 | ||||||||
Research and development |
20 | 162 | 44 | 348 | ||||||||||||
Sales and marketing |
38 | 111 | 95 | 256 | ||||||||||||
General and administrative |
154 | 621 | 336 | 962 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 228 | $ | 919 | $ | 509 | $ | 1,613 | |||||||||
|
|
|
|
|
|
|
|
During the six months ended June 30, 2015, the Company modified the post-employment exercise period of stock awards previously granted to the Companys former chief financial officer in relation to his separation from the Company. The modification extended the exercise period to December 8, 2015. The modification resulted in an approximately $19,000 increase in stock-based compensation for the six months ended June 30, 2015. The Company accounted for the modification of these stock awards in accordance with the provisions of ASC 718, Stock Compensation (ASC 718).
15
GI Dynamics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
12. Stock Plans (continued)
In calculating stock-based compensation costs, the Company estimated the fair value of stock options using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model was developed for use in estimating the fair value of short-lived, exchange-traded options that have no vesting restrictions and are fully transferable. The Company estimates the number of awards that will be forfeited in calculating compensation costs. Such costs are then recognized over the requisite service period of the awards on a straight-line basis.
Determining the fair value of stock-based awards using the Black-Scholes option-pricing model requires the use of highly subjective assumptions, including the expected term of the award and expected stock price volatility. The weighted-average assumptions used to estimate the fair value of employee stock options using the Black-Scholes option-pricing model were as follows for the three and six months ended June 30, 2016 and 2015:
Three Months Ended
June 30, |
Six Months Ended
June 30, |
|||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Expected volatility |
69.6 | % | 56.8 | % | 68.9 | % | 56.8 | % | ||||||||
Expected term (in years) |
6.05 | 6.04 | 6.05 | 6.04 | ||||||||||||
Risk-free interest rate |
1.4 | % | 1.6 | % | 1.5 | % | 1.6 | % | ||||||||
Expected dividend yield |
| % | | % | | % | | % |
The Company uses historical data to estimate forfeiture rates. The Companys estimated forfeiture rates were 15% and 10% at June 30, 2016 and 2015, respectively.
Stock Options
The following table summarizes share-based activity under the Companys stock option plans:
Shares of
Common Stock Attributable to Options |
Weighted-
Average Exercise Price |
Weighted-
Average Contractual Life |
Aggregate
Intrinsic Value |
|||||||||||||
(in years) | (in thousands) | |||||||||||||||
Outstanding at December 31, 2015 |
779,028 | $ | 23.92 | 7.64 | $ | | ||||||||||
Granted |
345,106 | $ | 0.76 | |||||||||||||
Exercised |
| $ | | |||||||||||||
Cancelled |
(493,565 | ) | $ | 20.26 | ||||||||||||
|
|
|||||||||||||||
Outstanding at June 30, 2016 |
630,569 | $ | 14.11 | 7.12 | $ | 44 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Vested or expected to vest at June 30, 2016 |
574,093 | $ | 15.28 | 6.87 | $ | 38 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Exercisable at June 30, 2016 |
254,071 | $ | 31.73 | 3.39 | $ | | ||||||||||
|
|
|
|
|
|
|
|
As of June 30, 2016, there was approximately $0.4 million of unrecognized stock-based compensation, net of estimated forfeitures, related to unvested stock option grants having service-based vesting under the Plans which is expected to be recognized over a weighted-average period of 3.0 years. The total unrecognized stock-based compensation cost will be adjusted for future changes in estimated forfeitures.
16
GI Dynamics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
12. Stock Plans (continued)
The weighted-average grant date fair value of options granted during the three months ended June 30, 2016 and 2015 was $0.41 and $2.89, respectively, and $0.47 and $2.91 for the six months ended June 30, 2016 and 2015, respectively. No options were exercised during the three months ended June 30, 2016 and 2015. The total intrinsic value of options exercised during the six months ended June 30, 2016 and 2015, was none and approximately $10,000, respectively. The intrinsic value represents the difference between the fair value of the Companys common stock on the date of exercise and the exercise price of the stock option. Cash received from option exercises during the six months ended June 30, 2015 was approximately $1,500. No tax benefits were realized from options and other stock-based payment arrangements during these periods.
The stock-based compensation plans provide that grantees may have the right to exercise an option prior to vesting. Shares purchased upon the exercise of unvested options will be subject to the same vesting schedule as the underlying options, and are subject to repurchase at the original exercise price by the Company should the grantee discontinue providing services to the Company for any reason, prior to becoming fully vested in such shares. At June 30, 2016 and December 31, 2015, there were no shares and 168 shares of common stock, respectively, issued pursuant to the exercise of unvested options that remain unvested and subject to repurchase by the Company. The exercise of these unvested shares is not substantive and as a result, the cash paid for the exercise price is considered a deposit or prepayment of the exercise price and is recorded as a liability. The liability related to these shares was approximately $4,000 at December 31, 2015. Additionally, while the shares of common stock subject to repurchase are included in the legally issued shares, they are excluded from the calculation of outstanding shares.
Restricted Stock Units
Each restricted stock unit (RSU) represents a contingent right to receive one share of the Companys common stock. The RSUs outstanding at June 30, 2016 vest upon the achievement of certain product revenue, regulatory and reimbursement milestones. There is no consideration payable on the vesting of RSUs issued under the Plans. Upon vesting, the RSUs are exercised automatically and settled in shares of the Companys common stock.
The following table summarizes information related to the unvested RSUs and activity during the six months ended June 30, 2016:
Number
of Units |
Weighted-
Average Contractual Life |
Aggregate
Intrinsic Value |
||||||||||
(in years) | (in thousands) | |||||||||||
Outstanding at December 31, 2015 |
262,126 | 4.30 | $ | 278 | ||||||||
Granted |
392,659 | |||||||||||
Vested |
(5,000 | ) | ||||||||||
Cancelled |
(246,284 | ) | ||||||||||
|
|
|||||||||||
Outstanding at June 30, 2016 |
403,501 | 9.62 | $ | 359 | ||||||||
|
|
|
|
|
|
The aggregate intrinsic value at June 30, 2016 and December 31, 2015 noted in the table above represents the closing price of the Companys common stock multiplied by the number of RSUs outstanding.
The fair value of each RSU award equals the closing price of the Companys common stock on the date of grant. The weighted-average grant date fair value per share of RSUs granted in the three and six months ended June 30, 2016 was $0.66 and $0.75, respectively. The weighted average grant date fair value per share of RSUs granted during the three and six months ended June 30, 2015 was $5.39.
17
GI Dynamics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
12. Stock Plans (continued)
At June 30, 2016, all of the RSUs outstanding are subject to performance-based vesting criteria as described above. For these awards, the vesting will occur upon the achievement of certain product revenue, regulatory and reimbursement milestones. When achievement of the milestone is deemed probable, the Company expenses the compensation of the respective stock award over the implicit service period. During the three and six months ended June 30, 2016, the Company did not recognize any stock-based compensation for RSUs subject to performance-based vesting criteria. During the three months ended June 30, 2015 the Company did not recognize any stock-based compensation for RSUs subject to performance-based vesting criteria. During the six months ended June 30, 2015, the Company determined that a milestone previously deemed probable was now not probable of being achieved prior to the expiration of the award. This change in estimate was recognized through a cumulative adjustment in the six months ended June 30, 2015, resulting in a reduction of stock-based compensation of approximately $0.3 million, all of which was previously recognized in the year ended December 31, 2014.
During the six months ended June 30, 2016, the cancellation of RSUs having service-based vesting resulted in a reduction of stock-based compensation of approximately $0.1 million, all of which was previously recognized. During the three and six months ended June 30, 2015, the Company recognized stock-based compensation related to RSUs having service-based vesting of approximately $0.1 million and $0.2 million, respectively.
At June 30, 2016, no RSUs that have performance-based vesting criteria are considered probable of achievement and there remains approximately $0.3 million, net of estimated forfeitures, of unrecognized stock-based compensation.
13. Segment Reporting
Operating segments are components of an enterprise for which separate financial information is available and is evaluated regularly by the Companys chief operating decision-maker in deciding how to allocate resources and in assessing performance. The Company has one reportable segment which designs, develops, manufactures and markets medical devices for non-surgical approaches to treating type 2 diabetes and obesity.
Geographic Reporting
All the Companys revenue is attributable to customers outside the U.S. The Company is dependent on favorable economic and regulatory environments for its products. Products are sold to customers located in Europe, the Middle East, the Asia Pacific region and South America and sales are attributed to a country or region based on the location of the customer to whom the products are sold.
At June 30, 2016, long-lived assets, comprised of property and equipment, of approximately $0.1 million are all held in the U.S.
Product sales by geographic location for the three and six months ended June 30, 2016 and 2015 are listed in the table below (in thousands):
Three Months Ended
June 30, |
Six Months Ended
June 30, |
|||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Europe |
$ | 65 | $ | 242 | $ | 207 | $ | 683 | ||||||||
Middle East |
43 | 17 | 87 | 118 | ||||||||||||
South America |
| 5 | | 34 | ||||||||||||
Asia Pacific |
24 | 46 | 47 | 91 | ||||||||||||
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|
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|
|||||||||
Total Revenue |
$ | 132 | $ | 310 | $ | 341 | $ | 926 | ||||||||
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18
GI Dynamics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
13. Segment Reporting (continued)
Major Customers
For the three months ended June 30, 2016, one health care provider accounted for approximately 18% of the Companys revenue, and one distributor accounted for approximately 34%. For the three months ended June 30, 2015, one distributor and one health care provider each accounted for approximately 10% of the Companys revenue. No other customer accounted for greater than 10% of the Companys revenue during the three months ended June 30, 2016 and 2015.
For the six months ended June 30, 2016, one health care provider accounted for approximately 13% of the Companys revenue and two distributors each accounted for approximately 33%. For the six months ended June 30, 2015, one distributor accounted for approximately 18% of the Companys revenue. No other customer accounted for greater than 10% of the Companys revenue during the six months ended June 30, 2016 and 2015.
19
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Information
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes to those financial statements appearing elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and managements discussion and analysis of financial condition and results of operations for the year ended December 31, 2015 included in our Annual Report on Form 10-K. This discussion and analysis contains forward-looking statements that involve significant risks, uncertainties and assumptions. As a result of many factors, such as those set forth under Risk Factors in Item 1A. of our Annual Report on Form 10-K which are incorporated herein by reference, our actual results may differ materially from the results described in or implied by the forward-looking statements described in the following discussion and analysis.
Overview
We are a medical device company headquartered in Lexington, Massachusetts, which is dedicated to restoring health and improving quality of life through the design and application of device and disease management solutions for treatment of metabolic disease. Our vision is to make our first product, EndoBarrier Therapy, a valued treatment option for patients with type 2 diabetes and obesity by restoring healthier blood sugar levels and reducing body weight. EndoBarrier, the first endoscopically-delivered device therapy approved for the treatment of obese type 2 diabetes with BMI ● 30 kg/m 2 , or obese patients with BMI ● 30 kg/m 2 with ● 1 comorbidities, or obese patients with BMI >35 kg/m 2 . EndoBarrier is the only proven, incision-free, nonanatomy altering solution designed to specifically mimic the duodenal-jejunal exclusion created by gastric bypass surgery. We have commercially launched EndoBarrier which is approved and commercially available in multiple countries outside the U.S.
As part of our reorganization efforts in the third quarter of 2015, we decided to focus sales activity on a limited number of countries while disengaging from others. As a result, we are focused on the commercialization of EndoBarrier in selected countries in Europe, the Asia Pacific region and the Middle East. In certain geographies where reimbursement is necessary for clinical acceptance and commercial uptake, such as in Europe, we are already receiving partial reimbursement in certain markets at a local or national level, but we have not yet achieved full or national reimbursement in any market. In self-pay markets where we have regulatory approval, we are currently focusing on expanding the product use per center.
In the U.S., we commenced enrollment of patients in our pivotal trial of EndoBarrier Therapy, the ENDO Trial, in 2013. The multi-center, randomized, double-blinded study planned to enroll 500 patients with uncontrolled type 2 diabetes and obesity at 25 sites in the U.S. The primary endpoint was improvement in diabetes control as measured by HbA1c levels. On March 5, 2015, at the recommendation of the Food and Drug Administration, or FDA, as a result of the higher than anticipated incidence of hepatic abscess, a bacterial infection of the liver, we stopped enrollment in the ENDO Trial, although monitoring and data collection of patients then enrolled in the ENDO Trial continued.
On July 30, 2015, we announced our decision to stop the ENDO Trial. The decision followed discussions with the FDA regarding resumption of ENDO Trial enrollment, which despite collaborative efforts by both parties were unable to yield a feasible path forward for the mitigation of a higher than anticipated incidence of hepatic abscess. We concluded that stopping the ENDO Trial was in the best interest of all stakeholders. With seven cases of hepatic abscess in the ENDO Trial, the incidence rate was approximately 3.5%, which exceeded a previously established safety threshold of 2%. To date, 39 cases of hepatic abscess have occurred in the ~3,600 commercial shipments worldwide and our clinical trials, with seven of these occurring in patients who participated in the ENDO Trial. This represents a cumulative hepatic abscess rate of < 1.1%.
On August 21, 2015, we announced that we were reducing headcount by approximately 46% as part of our efforts to restructure our business and expenses in response to stopping the ENDO Trial and to ensure sufficient cash remains available for us to establish new priorities, continue limited market development and research, and to evaluate strategic options.
On May 10, 2016, we announced that we were reducing headcount by approximately 30% as part of our previously announced efforts to restructure our expenses in order to extend our cash runway.
For financial reporting purposes, we have one reportable segment which designs, manufactures and markets medical devices for the treatment of type 2 diabetes and obesity.
20
To date, we have devoted substantially all of our efforts to research and development, business planning, clinical research, clinical study management, reimbursement development, product commercialization, acquiring operating assets, and raising capital. We have incurred significant operating losses since our inception in 2003. As of June 30, 2016, we had an accumulated deficit of approximately $242.4 million. We expect to incur net losses for the next several years while we restructure our business and costs, establish new priorities, continue limited market development and research, and evaluate strategic options.
We have raised net proceeds of approximately $231.5 million through sales of our equity. We generated approximately $75.7 million in proceeds, net of expenses, through the sale of convertible preferred stock to a number of U.S. venture capital firms, two global medical device manufacturers and individuals. In September 2011, we raised approximately $72.5 million, net of expenses and repayment of $6.0 million of Convertible Term Promissory Notes, in our initial public offering, or IPO, in Australia and simultaneous private placement of CHESS Depositary Interests, or CDIs, to accredited investors in the U.S. In July and August 2013, we raised approximately $52.5 million, net of expenses, in an offering of our CDIs to sophisticated, professional and accredited investors in Australia, the U.S. and certain other jurisdictions. In May 2014, we raised approximately $30.8 million, net of expenses, in an offering of our CDIs to sophisticated, professional and accredited investors in Australia, Hong Kong, the United Kingdom and certain other jurisdictions. In connection with the IPO, all of our existing shares of preferred stock were converted into common stock.
In June 2011, we issued Convertible Term Promissory Notes to several of our shareholders totaling $6.0 million, which were repaid concurrent with the closing of our IPO with the associated gross proceeds.
Our corporate headquarters and manufacturing facility are located in Lexington, Massachusetts.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements prepared in accordance with generally accepted accounting principles in the U.S. The preparation of these financial statements requires us to make certain estimates and assumptions that may affect the reported amounts of assets and liabilities, and the reported amounts of revenues and expenses during the reported periods and related disclosures. These estimates and assumptions, including those related to revenue recognition, allowance for doubtful accounts, inventory valuation including reserves for excess and obsolete inventory, impairment of long-lived assets, income taxes including the valuation allowance for deferred tax assets, research and development expenses, contingencies and stock-based compensation, going concern considerations, and warrant valuations are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on our historical experience and various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from our estimates under different assumptions or conditions.
During the three months ended June 30, 2016, there were no material changes to our critical accounting policies as reported in our Annual Report on Form 10-K.
21
Results of Operations
The following is a description of significant components of our operations, including significant trends and uncertainties that we believe are important to an understanding of our business and results of operations (in thousands).
Three Months Ended
June 30, |
Six Months Ended
June 30, |
|||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Revenue |
$ | 132 | $ | 310 | $ | 341 | $ | 926 | ||||||||
Cost of revenue |
637 | 2,012 | 990 | 2,898 | ||||||||||||
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Gross loss |
(505 | ) | (1,702 | ) | (649 | ) | (1,972 | ) | ||||||||
Operating expenses: |
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Research and development |
1,181 | 4,631 | 2,031 | 10,277 | ||||||||||||
Sales and marketing |
610 | 1,482 | 1,274 | 3,142 | ||||||||||||
General and administrative |
1,559 | 2,437 | 3,366 | 4,731 | ||||||||||||
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Total operating expenses |
3,350 | 8,550 | 6,671 | 18,150 | ||||||||||||
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Loss from operations |
(3,855 | ) | (10,252 | ) | (7,320 | ) | (20,122 | ) | ||||||||
Other income (expense): |
||||||||||||||||
Interest income |
13 | 24 | 27 | 54 | ||||||||||||
Foreign exchange gain (loss) |
(14 | ) | 28 | 3 | (465 | ) | ||||||||||
Remeasurement of warrant liability |
(17 | ) | (8 | ) | (17 | ) | (10 | ) | ||||||||
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Other income (expense), net |
18 | 44 | 13 | (421 | ) | |||||||||||
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Loss before income tax expense |
(3873 | ) | (10,208 | ) | (7,307 | ) | (20,543 | ) | ||||||||
Income tax expense |
17 | 26 | 21 | 40 | ||||||||||||
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Net loss |
$ | (3,890 | ) | $ | (10,234 | ) | $ | (7,328 | ) | $ | (20,583 | ) | ||||
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Three and Six Months Ended June 30, 2016 Compared to Three and Six Months Ended June 30, 2015
Three Months Ended
June 30, |
Change |
Six Months Ended
June 30, |
Change | |||||||||||||||||||||||||||||
2016 | 2015 | $ | % | 2016 | 2015 | $ | % | |||||||||||||||||||||||||
(dollars in thousands) | (dollars in thousands) | |||||||||||||||||||||||||||||||
Revenue |
$ | 132 | $ | 310 | $ | (178 | ) | (57 | )% | $ | 341 | $ | 926 | $ | (585 | ) | (63 | )% | ||||||||||||||
Cost of revenue |
637 | 2,012 | (1,375 | ) | (68 | )% | 990 | 2,898 | (1,908 | ) | (65 | )% | ||||||||||||||||||||
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Gross loss |
$ | (505 | ) | $ | (1,702 | ) | $ | 1,197 | 70 | % | $ | (649 | ) | $ | (1,972 | ) | $ | 1,323 | 67 | % | ||||||||||||
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Revenue. The decrease in revenue of approximately $ 0.2 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 was primarily due to decreased unit volume across all markets. Revenue decreased approximately 73%, 153%, and 100% in Europe, Asia Pacific, and South Africa, respectively. During the three months ended June 30, 2016, there was a 154% increase in revenue in the Middle East.
The decrease in revenue of approximately $0.6 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 was primarily due to decreased unit volume across all markets. Revenue decreased approximately 70%, 48%, 100% and 26% in Europe, Asia Pacific, the Middle East and South Africa, respectively.
22
We believe the following factors adversely affected our commercial activities for the three and six months ended June 30, 2016:
| the stopping of the ENDO Trial; |
| the regulatory-related questions arising out of our decision to stop the ENDO Trial; and |
| our decision, as part of our reorganization efforts, to focus sales activity on a limited number of markets while disengaging from others. |
In the near-term, we intend to focus commercialization efforts on strategic centers while continuing to support efforts in collecting additional clinical evidence via the numerous ongoing investigator-initiated studies around the world, many of which are randomized controlled trials. We will also continue to work to secure reimbursement in our target markets. We believe that the collection of additional data via patient registries is important to help support the attainment of reimbursement, but will likely adversely affect our commercial operations as it may limit commercial expansion.
Cost of Revenue. Cost of revenue decreased by approximately $1.4 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015. Cost of revenue decreased by approximately $2.0 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2016, 2015. The decrease in cost of revenue for the three months ended June 30, 2016 compared to the same period in the prior year resulted from a decrease of approximately $1.3 million in excess, expired and obsolete inventory expense as well as a decrease of $0.1 million in standard cost variances. The decrease in cost of revenue for the six months ended June 30, 2016 compared to the same period in the prior year resulted from an approximately $0.1 million decrease in sales volume, an approximately $0.1 million decrease in personnel related expenses, $0.1 million in reduced absorption and a decrease of approximately $1.4 million in excess, expired and obsolete inventory expense.
Gross loss decreased by approximately $1.2 million and $1.3 million for the three and six months ended June 30, 2016, respectively, compared to the three and six months ended June 30, 2015 for the reasons discussed above. We expect that our gross margin will vary, and may vary significantly, quarter to quarter and year to year due to our current stage of commercial development and future plans. Specifically, factors such as our intention to focus on strategic centers and securing reimbursement in our target markets, our planned transition of production to a third-party manufacturer, changes in volume of inventory production, and overall economies of scale may result in variability in our gross margin.
Operating Expenses
Three Months Ended
June 30, |
Change |
Six Months Ended
June 30, |
Change | |||||||||||||||||||||||||||||
2016 | 2015 | $ | % | 2016 | 2015 | $ | % | |||||||||||||||||||||||||
(dollars in thousands) | (dollars in thousands) | |||||||||||||||||||||||||||||||
Research and development expense |
$ | 1,181 | $ | 4,631 | $ | (3,450 | ) | (74 | )% | $ | 2,031 | $ | 10,277 | $ | (8,246 | ) | (80 | )% | ||||||||||||||
Sales and marketing expense |
610 | 1,482 | (872 | ) | (59 | )% | 1,274 | 3,142 | (1,868 | ) | (59 | )% | ||||||||||||||||||||
General and administrative expense |
1,559 | 2,437 | (878 | ) | (36 | )% | 3,366 | 4,731 | (1,365 | ) | (29 | )% | ||||||||||||||||||||
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Total operating expenses |
$ | 3,350 | $ | 8,550 | $ | (5,200 | ) | (60 | )% | $ | 6,671 | $ | 18,150 | $ | (11,479 | ) | (63 | )% | ||||||||||||||
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Research and Development Expense. The decrease in research and development expense of approximately $3.5 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 was primarily due to a decrease of approximately $2.1 million in clinical trial and other clinical study related expenses, primarily made up of third-party expenses related to the ENDO Trial, a decrease of approximately $0.8 million in compensation and employee related expenses, as well as reductions in product development expenses of approximately $0.2 million, consulting expenses of approximately $0.1 million and proctoring and training expenses of $0.1 million.
The decrease in research and development expense of approximately $8.2 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 was primarily due to a decrease of approximately $5.2 million in clinical trial and other clinical study related expenses, primarily made up of third-party expenses related to the ENDO Trial, and a decrease of approximately $1.9 million in compensation and employee related expenses, including approximately $0.3 million in lower stock-based compensation expense, due to decreases in headcount. The decrease in clinical trial and other clinical study related expenses included a correction of an error which decreased research and development expense approximately $0.4 million in the three months ended March 31, 2016 (see Note 2 to the condensed consolidated financial statements). Additional expense reduction included decreases in product development expenses of approximately $0.3 million, consulting expenses of approximately $0.4 million, travel, lodging, and meals expense of approximately $0.1 million and proctoring and training expenses of approximately $0.1 million.
23
Though we expect to implement a more efficient cost structure in order to extend our cash runway, it may be partially offset by the costs associated with rebuilding the research and development management team and improving our regulatory relationships.
Sales and Marketing Expense. The decrease in sales and marketing expense of approximately $0.9 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 was primarily the result of a decrease of approximately $0.4 million in compensation and employee related expenses, including approximately $0.1 million in lower stock-based compensation expense, due to decreases in headcount, as well as a decrease of approximately $0.2 million in marketing related activities, a decrease of approximately $0.1 million of consulting and professional fees to support our commercialization efforts and a decrease in travel, lodging and meals expense of approximately $0.1 million.
The decrease in sales and marketing expense of approximately $1.9 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 was primarily the result of a decrease of approximately $0.9 million in compensation and employee related expenses, including approximately $0.2 million in lower stock-based compensation expense, due to decreases in headcount, as well as a decrease of approximately $0.4 million in marketing related activities, a decrease in consulting costs of $0.2 million, a decrease of approximately $0.3 million of travel, lodging and meals expense and a decrease in proctoring and training costs of approximately $0.1 million.
General and Administrative Expense. The decrease in general and administrative expense of approximately $0.9 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 was primarily a result of decreased compensation and employee related expenses of approximately $0.4 million as a result of headcount reductions which was attributable to stock based compensation, as well as an approximately $0.4 million decrease in consulting, professional services and expenses related to being a public company.
The decrease in general and administrative expense of approximately $1.4 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 was primarily a result of decreased compensation and employee related expenses of approximately $0.8 million as a result of headcount reductions, including approximately $0.6 million in lower stock-based compensation expense, as well as approximately $0.6 million decrease in consulting, professional services and expenses related to being a public company.
Other Income (Expense), Net
Three Months Ended
June 30, |
Change |
Six Months Ended
June 30, |
Change | |||||||||||||||||||||||||||||
2016 | 2015 | $ | % | 2016 | 2015 | $ | % | |||||||||||||||||||||||||
(dollars in thousands) | (dollars in thousands) | |||||||||||||||||||||||||||||||
Other income (expense): |
||||||||||||||||||||||||||||||||
Interest income |
$ | 13 | $ | 24 | $ | (11 | ) | (45 | )% | $ | 27 | $ | 54 | $ | (27 | ) | (50 | )% | ||||||||||||||
Foreign exchange gain (loss) |
(14 | ) | 28 | (42 | ) | (150 | )% | 3 | (465 | ) | 468 | 101 | % | |||||||||||||||||||
Remeasurement of warrant liability |
(17 | ) | (8 | ) | 9 | 113 | % | (17 | ) | (10 | ) | (7 | ) | (70 | )% | |||||||||||||||||
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|||||||||||||||||||
Total other income (expense), net |
$ | (18 | ) | $ | 44 | $ | (62 | ) | (141 | )% | $ | 13 | $ | (421 | ) | $ | 434 | 103 | % | |||||||||||||
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Interest Income. The decrease in interest income of approximately $11,000 and $27,000 for the three and six months ended June 30, 2016, respectively, compared to the three and six months ended June 30, 2015 was primarily due to decreases in average cash and cash equivalents balances.
Foreign Exchange Gain (Loss). The decrease in foreign exchange gain of approximately $42,000 for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 was a result of a strengthening U.S. dollar and lower average foreign currency balances. The change from a loss of approximately $0.5 million for the six months ended June 30, 2015 to a gain of approximately $3,000 for the six months ended June 30, 2016 for foreign exchange was the result of a strengthening U.S. dollar and large average foreign currency balances in the six months ended June 30, 2015 compared to significantly lower average foreign currency balances in the six months ended June 30, 2016.
Remeasurement of Warrant Liability. The change in the remeasurement of warrant liability was due to a decrease in the fair value of the warrants issued in connection with our IPO.
24
Liquidity and Capital Resources
We have incurred losses since our inception in March 2003 and, as of June 30, 2016, we had an accumulated deficit of approximately $242.4 million. We have financed our operations from a combination of sales of equity securities and issuances of convertible term notes. In June 2011, we generated approximately $6.0 million in net proceeds from the issuance of our Convertible Term Promissory Notes. In September 2011, we generated approximately $72.5 million in proceeds, net of expenses and repayment of $6.0 million of Convertible Term Promissory Notes, from our IPO in Australia and simultaneous private placement in the U.S. In July and August 2013, we generated approximately $52.5 million in proceeds, net of expenses, from a private placement and share purchase plan of our CDIs. In May 2014, we generated approximately $30.8 million in proceeds, net of expenses, from a private placement of our CDIs. As of June 30, 2016, we had approximately $12.4 million of cash, cash equivalents and restricted cash.
During the six months ended June 30, 2016, our cash and cash equivalents balance decreased by approximately $7.3 million as a result of funds utilized to support our operations and to cash collateralize our standby letter of credit. We made payments related to, among other things, research and development, sales and marketing, and general and administrative expenses as we continued to commercialize EndoBarrier and close out our ENDO Trial.
The following table sets forth the major sources and uses of cash for each of the periods set forth below:
Six Months Ended June 30, | ||||||||
2016 | 2015 | |||||||
(in thousands) | ||||||||
Net cash (used in) provided by: |
||||||||
Operating activities |
$ | (7,189 | ) | $ | (18,204 | ) | ||
Investing activities |
(146 | ) | (169 | ) | ||||
Financing activities |
(1 | ) | 1 | |||||
|
|
|
|
|||||
Net decrease in cash and cash equivalents |
$ | (7,336 | ) | $ | (18,372 | ) | ||
|
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|
|
Cash Flows From Operating Activities
Net cash used in operating activities totaled approximately $7.2 million for the six months ended June 30, 2016. The primary uses of cash were:
| to fund our net loss of approximately $7.3 million; |
| a net negative adjustment to cash flow from changes in working capital of approximately $0.5 million resulting primarily from decreases in accrued expenses and other current liabilities, partially offset by a decrease in inventory; and prepaid expenses. |
| a net positive adjustment to cash flow from non-cash items of approximately $0.6 million, primarily from stock-based compensation of approximately $0.5 million and depreciation and amortization of approximately $0.2 million. |
During the second quarter 2016 we expensed $0.7 million in restructuring and other employee departure costs. As we restructure our costs by reducing expenses, we expect our cash used in operating activities to decrease over the remaining months of our fiscal year ending December 31, 2016.
Net cash used in operating activities totaled approximately $18.2 million for the six months ended June 30, 2015. The primary uses of cash were:
| to fund our net loss of approximately $20.6 million; |
| a net negative adjustment to cash flow from changes in working capital of approximately $1.0 million resulting primarily from decreases in inventory, accounts receivable and prepaid expenses and an increase in accounts payable, partially offset by decreases in accrued expenses and other current liabilities, and |
| a net positive adjustment to cash flow from non-cash items of approximately $3.4 million, primarily from stock-based compensation expenses of approximately $1.6 million and increases in inventory reserves resulting from a charge of approximately $1.4 million for inventory in excess of our commercial requirements. |
Cash Flows From Investing Activities
Cash used in investing activities for the six months ended June 30, 2016 totaled approximately $0.1 million and primarily resulted from the change in restricted cash due to collateralizing our standby letter of credit.
Cash used in investing activities for the six months ended June 30, 2015 totaled approximately $0.2 million resulted from the purchase of property and equipment.
25
Cash Flows From Financing Activities
Cash of approximately $1,000 was used in financing activities for the six months ended June 30, 2016 for capital lease payments.
Cash provided by financing activities for the six months ended June 30, 2015 was approximately $1,000 and resulted from proceeds received upon the exercise of stock options partially offset by payments on our capital lease.
Funding Requirements
As of June 30, 2016, our primary source of liquidity was our cash, cash equivalents and restricted cash of approximately $12.4 million. Based on our decision to stop the ENDO Trial, we continue to evaluate which markets are appropriate to continue pursuing reimbursement, market awareness and general market development efforts, and continue to restructure our business and costs, establish new priorities, continue limited research, and evaluate strategic options. As a result, we expect to incur significant operating losses for the next several years. We do not expect our current cash balances will be sufficient to enable us to conduct an additional clinical trial for the purpose of seeking regulatory approval from the FDA and complete development of an improved EndoBarrier for its current use and potential new indications. We are restructuring our costs and will need to raise additional funds in order to implement our new business objectives and to continue to fund our operations in 2017. These factors raise substantial doubt about our ability to continue as a going concern. We may seek to raise additional funds through any combination of collaborative arrangements, strategic alliances, and additional equity and debt financings or from other sources. There can be no assurance that any such financing opportunities will be available on acceptable terms, if at all. If we are unable to raise capital when needed, we could be forced to significantly delay or discontinue research and development activities and further commercialization of EndoBarrier, which could have a material adverse effect on our business, financial condition and results of operations. In addition, we could be required to cease operations if we are unable to raise capital when needed
Our forecast of the period of time through which our financial resources will be adequate to support our operations are forward-looking statements and involve risks and uncertainties, and actual results could vary materially and negatively as a result of a number of factors, including the factors discussed in the Risk Factors in Item 1A. of our Annual Report on Form 10-K which is incorporated herein by reference. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.
Due to the numerous risks and uncertainties associated with the development and commercialization of EndoBarrier, at this time we are unable to estimate precisely the amounts of capital outlays and operating expenditures necessary to complete the development of, and to obtain regulatory approval for, EndoBarrier (other than in select markets in Europe, South America, the Middle East and the Asia Pacific region) for the U.S. and other markets for which we believe EndoBarrier is suited. Our funding requirements will depend on many factors, including, but not limited to, the following:
| the rate of progress and cost of our commercialization activities; |
| the expenses we incur in marketing and selling EndoBarrier; |
| the timing and decisions of payer organizations related to reimbursement; |
| the revenue generated by sales of EndoBarrier; |
| the product performance from a safety and efficacy standpoint in addressing diabetes and obesity; |
| the success of our investment in our manufacturing and supply chain infrastructure; |
| the time and costs involved in obtaining regulatory approvals for EndoBarrier in new markets; |
| the success of our research and development efforts; |
| the costs associated with stopping the ENDO Trial; |
| the costs associated with any additional clinical trial(s) required in the U.S.; |
| the ability to ship CE marked products; |
| the emergence of competing or complementary developments; and |
| the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights. |
We may seek to raise additional funds through a combination of collaborative arrangements, strategic alliances, and additional equity and debt financings or from other sources. We will continue to manage our capital structure and to consider all financing opportunities, whenever they may occur, that could strengthen our long-term liquidity profile. Any such capital transactions may or may not be similar to transactions in which we have engaged in the past and the ownership interests of our existing stockholders may be materially diluted. There can be no assurance that any such financing opportunities will be available on acceptable terms, if at all. If we are unable to raise capital when needed, we could be forced to significantly delay or discontinue research and development activities and further commercialization of EndoBarrier.
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OffBalance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships. We enter into guarantees in the ordinary course of business related to the guarantee of our own performance and the performance of our subsidiaries.
Contractual Obligations and Commitments
The disclosure of our contractual obligations and commitments is set forth under the heading Managements Discussion and Analysis of Financial Condition and Results of Operations Contractual Obligations and Commitments in our Annual Report on Form 10-K.
In June 2016, we entered into a noncancelable lease agreement for office and laboratory space in Boston, Massachusetts. The lease expires in April 2018 and rent during the term is $11,900 per month.
In June 2016, we entered into a purchase agreement to purchase certain furniture and fixtures for our new office space totaling approximately $48,000 based on shipping terms of FOB destination. The furniture and fixtures were delivered in July 2016. Other than these obligations, there have been no material changes from the contractual commitments and obligations previously disclosed in our Annual Report on Form 10-K.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements please refer to Note 2, Summary of Significant Accounting Policies and Basis of Presentation, to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers , which supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition , and most industry-specific guidance. The new standard requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In July 2015, the FASB approved a one year deferral of the effective date of this standard to annual reporting periods, and interim reporting periods within those years, beginning after December 15, 2017. Early adoption is permitted to the original effective date of December 15, 2016, including interim reporting periods within those years. We are currently evaluating the potential impact that ASU 2014-09 may have on our consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern: Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern (ASU 2014-15). This new standard gives a companys management the final responsibilities to decide whether there is substantial doubt about the companys ability to continue as a going concern and to provide related footnote disclosures. The standard provides guidance to management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that companies commonly provide in their footnotes. Under the new standard, management must decide whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the companys ability to continue as a going concern within one year after the date that the financial statements are issued, or within one year after the date that the financial statements are available to be issued when applicable. This guidance is effective for annual reporting beginning after December 15, 2016, and interim periods thereafter, with early application permitted. We do not expect that the adoption of ASU 2014-15 will have a material impact on our financial position, results of operations or cash flows, but may require further disclosure in our financial statements once adopted.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 requires that lessees recognize in the statement of financial position for all leases (with the exception of short-term leases) a lease liability, which is a lessees obligation to make lease payments arising from a lease, measured on a discounted basis, and a right-of-use asset, which is an asset representing the lessees right to use the underlying asset for the lease term. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. Lessees must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees may not apply a full retrospective transition approach. The adoption of this guidance is not expected to have a significant impact on our consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, CompensationStock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). ASU 2016-09 will simplify the income tax consequences, accounting for forfeitures and classification on the statements of consolidated cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods, with early adoption permitted. We are currently evaluating the potential impact that ASU 2016-09 may have on our consolidated financial statements.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
We develop, manufacture and sell EndoBarrier globally and our earnings and cash flows are exposed to market risk from changes in currency exchange rates and interest rates.
Interest Rate Sensitivity
Our cash, cash equivalents and restricted cash of approximately $12.4 million at June 30, 2016, consisted of cash and money market funds, all of which will be used for working capital purposes. We do not enter into investments for trading or speculative purposes. The goals of our investment policy are preservation of capital, fulfillment of liquidity needs and fiduciary control of cash and investments. We also seek to maximize income from our investments without assuming significant risk. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of interest rates in the U.S. and Australia. Because of the short-term nature of our cash, cash equivalents and restricted cash, we do not believe that we have any material exposure to changes in their fair values as a result of changes in interest rates. The continuation of historically low interest rates in the U.S. will limit our earnings on investments held in U.S. dollars.
Our capital lease bears interest at a fixed rate and therefore has minimal exposure to changes in interest rates.
Foreign Currency Risk
We conduct business in foreign countries. For U.S. reporting purposes, we translate all assets and liabilities of our non-U.S. entities at the period-end exchange rate and revenue and expenses at the average exchange rates in effect during the periods. The net effect of these translation adjustments is shown in the accompanying condensed consolidated financial statements as a component of net loss.
We generate a significant portion of our revenue and collect receivables in foreign currencies. Fluctuations in the exchange rate of the U.S. dollar against major foreign currencies, including the euro, British Pound and Australian dollar, can result in foreign currency exchange gains and losses that may significantly impact our financial results. These foreign currency transaction and translation gains and losses are presented as a separate line item in our condensed consolidated statements of operations and comprehensive loss. Continued fluctuation of these exchange rates could result in financial results that are not comparable from quarter to quarter. We do not currently utilize foreign currency contracts to mitigate the gains and losses generated by the re-measurement of non-functional currency assets and liabilities but do hold cash reserves in currencies in which those reserves are anticipated to be expended.
All of the proceeds from our 2011, 2013 and 2014 offerings were denominated in Australian dollars and as of June 30, 2016, we held the equivalent of approximately US$0.1 million denominated in Australian dollars and approximately US$0.2 million denominated in euros. Accordingly, we have had and will continue to have exposure to foreign currency exchange rate fluctuations. A change of 10% or more in foreign currency exchange rates of the Australian dollar or the euro would not have a material impact on our financial position and results of operations.
Effects of Inflation
We do not believe that inflation and changing prices over the three months ended June 30, 2016 and 2015 had a significant impact on our results of operations.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) of the Securities Exchange Act of 1934, or the Exchange Act, our management, including our principal executive officer and our principal financial officer, conducted an evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
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Changes in Internal Control
As required by Rule 13a-15(d) of the Exchange Act, our management, including our principal executive officer and our principal financial officer, conducted an evaluation of the internal control over financial reporting to determine whether any changes occurred during the quarter ended June 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, our principal executive officer and principal financial officer concluded no such changes during the quarter ended June 30, 2016 materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Controls and Procedures
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Thus, misstatements due to error or fraud may occur and not be detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of controls.
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In addition to the other information contained elsewhere in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks we face. Additional risks that we do not presently know or that we currently believe are immaterial could also materially and adversely affect any of our business, financial condition or future results. The trading price of our CDIs may decline due to these risks.
Item 2. Unregistered Sales of Equity Securities
None.
See the Exhibit Index following the signature page to this Quarterly Report on Form 10-Q, which is incorporated by reference herein.
30
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
GI Dynamics, Inc. | ||||||
Date: August 10, 2016 | By: |
/s/ SCOTT W. SCHORER |
||||
Scott W. Schorer | ||||||
President and Chief Executive Officer (principal executive officer) |
||||||
Date: August 10, 2016 | By: |
/s/ JAMES MURPHY |
||||
James Murphy | ||||||
Chief Financial Officer (principal financial officer and accounting officer) |
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EXHIBIT INDEX
Exhibit No: |
Description |
|
3.1.1 | Certificate of Incorporation of GI Dynamics, Inc. incorporated by reference to Exhibit 3.1 of GI Dynamics, Inc.s registration statement on Form 10, filed with the SEC on April 30, 2014 | |
3.1.2 | Certificate of Amendment to the Restated Certificate of Incorporation of GI Dynamics, Inc. incorporated by reference to Exhibit 3.1 of GI Dynamics, Inc.s Current Report on Form 8-K, filed with the SEC on April 9, 2015 | |
3.2 | Bylaws of GI Dynamics, Inc. incorporated by reference to Exhibit 3.2 of GI Dynamics, Inc.s registration statement on Form 10, filed with the SEC on April 30, 2014 | |
4.1* | Warrant dated May 4, 2016, between GI Dynamics, Inc. and Danforth Advisors, LLC | |
10.1* | Letter of Employment, dated May 9, 2016, between GI Dynamics, Inc. and Brian Callahan | |
10.2* | Lease Agreement, dated June 1, 2016, between GI Dynamics, Inc. and E F and C, LLC | |
31.1* | Certification of Chief Executive Officer pursuant to Rules 13a-14 or 15d-14 of the Exchange Act | |
31.2* | Certification of Chief Financial Officer pursuant to Rules 13a-14 or 15d-14 of the Exchange Act | |
32.1 | Certification of Chief Executive Officer pursuant to Rules 13a-14(b) or 15d-14(b) of the Exchange Act and 18 U.S.C. Section 1350 | |
32.2 | Certification of Chief Financial Officer pursuant to Rules 13a-14(b) or 15d-14(b) of the Exchange Act and 18 U.S.C. Section 1350 | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Database | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
* | Filed herewith. |
| Furnished herewith. |
| Management contract or compensatory arrangement. |
Exhibit 4.1
THIS WARRANT HAS BEEN, AND THE SHARES OF COMMON STOCK WHICH MAY BE RECEIVED PURSUANT TO THE EXERCISE OF THIS WARRANT WILL BE, ACQUIRED SOLELY FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF. NEITHER THIS WARRANT NOR SUCH SHARES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF SUCH REGISTRATION OR QUALIFICATION OR AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH DISPOSITION IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND ANY REGISTRATION OR QUALIFICATION REQUIREMENTS UNDER APPLICABLE STATE SECURITIES LAWS.
Dated as of May 4, 2016
W ARRANT T O P URCHASE C OMMON S TOCK
This Warrant to Purchase Common Stock (the Warrant ) certifies that, for good and valuable consideration, DANFORTH ADVISORS, LLC (along with its permitted assignees, the Holder ) is entitled to, and GI DYNAMICS, INC. , a Delaware corporation (the Company ), hereby grants the Holder the right to, purchase, as of the date of issuance set forth above (the Warrant Date ), Twenty-Eight Thousand Five Hundred Thirty-Two (28,532) fully paid and nonassessable shares of Common Stock, par value $0.01 ( Common Stock ), of the Company (as adjusted pursuant to Section 3 hereof) (the Warrant Shares ) at a price per share equal to $0.64 (as adjusted pursuant to Section 3) (the Exercise Price ). This Warrant is issued pursuant to the Consulting Agreement (the Consulting Agreement ) dated as of May 4, 2016 by and between the Company and Holder.
1. | Exercise; Payment. |
(a) Vesting of Warrant Shares . The Warrant Shares subject to this Warrant shall vest in equal installments of 1/24th of the Warrant Shares on the last day of each successive month during the term of the Consulting Agreement beginning May 31, 2016 and ending April 30, 2018; provided however, that all unvested Warrant Shares shall vest immediately upon a Change of Control. For purposes of this Warrant, the term Change of Control means the occurrence of any of the following events (which shall be interpreted, if applicable, in a manner, and limited to the extent necessary, so that it will not cause adverse tax consequences under Section 409A):
(i) Ownership . Any Person (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) becomes the Beneficial Owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Companys then outstanding voting securities (excluding for this purpose any such voting securities held by the Company or its Affiliates or by any employee benefit plan of the Company) pursuant to a transaction or a series of related transactions which the Board of Directors does not approve; or
(ii) Merger/Sale of Assets . (A) A merger or consolidation of the Company whether or not approved by the Companys Board of Directors, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or the parent of such corporation) more than 50% of the total voting power represented by the voting securities of the Company or such surviving entity or parent of such corporation, as the case may be, outstanding immediately after such merger or consolidation; or (B) the sale or disposition by the Company of all or substantially all of the Companys assets in a transaction requiring stockholder approval; or
(iii) Change in Board Composition . A change in the composition of the Companys Board of Directors, as a result of which fewer than a majority of the directors are Incumbent Directors. Incumbent Directors shall mean directors who either (A) are directors of the Company as of the date of this Warrant, or (B) are elected, or nominated for election, to the Companys Board of Directors with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company).
(b) Exercise Period . This Warrant may be exercised in whole or part by the Holder during the term (as set forth in Section 8) and in compliance with the provisions of this Warrant at any time after the Warrant Date for all or any part of the Warrant Shares that have vested pursuant to Section 1(a) above, by the surrender of this Warrant (with the notice of exercise form attached hereto as Exhibit A (the Notice of Exercise ) duly executed) at the principal office of the Company. If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the notice of book entry or certificate or certificates representing Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the then unpurchased Warrant Shares, which new Warrant shall in all other respects be identical with this Warrant, or at the request of the Holder, appropriate notation may be made on this Warrant and the same returned to the Holder.
(c) Cash Exercise . Upon exercise of this Warrant, the Holder shall pay the Company an amount ( Exercise Payment ) equal to the product of the Exercise Price multiplied by the total number of vested Warrant Shares purchased pursuant to such exercise of this Warrant, by wire transfer of immediately available funds or check payable to the order of the Company. The Holder shall be deemed to have become the holder of record of, and shall be treated for all purposes as the record holder of, the Warrant Shares represented by such exercise (and such Warrant Shares shall be deemed to have been issued) immediately prior to the close of business on the date upon which the Exercise Payment is paid to the Company.
(d) Net Exercise . The Exercise Payment also may be paid at the Holders election by surrender of all or a portion of the Warrant for the vested Warrant Shares to be exercised under this Warrant ( Net Exercise ). If the Holder elects the Net Exercise method, the Company will issue Warrant Shares in accordance with the following formula:
X = Y(A-B)
A
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Where:
X = | the number of Warrant Shares to be issued upon the Net Exercise of the Warrant |
Y = | the number of vested Warrant Shares to be surrendered |
A = | the fair market value of one (1) share of Common Stock on the date of exercise of this Warrant |
B = | the Exercise Price |
For purposes of the above calculation, fair market value of Common Stock shall mean the following ( Fair Market Value ):
(i) if CHESS Depository Interests representing interests in shares of the Companys Common Stock ( CDIs ) are then quoted on the Australian Securities Exchange ( ASX ), then the fair market value per share of Common Stock shall be equal to the result obtained by multiplying (A) the volume weighted average price of one CDI in Australian dollars over five (5) consecutive trading days ending three days before the day the Fair Market Value is being determined by (B) the number of CDIs (or fraction thereof) which equal an interest in exactly one share of Common Stock on such dates;
(ii) if CDIs are not then quoted on the ASX, then if the Common Stock is traded on another securities exchange, the Fair Market Value shall be deemed to be the average of the closing prices over the five (5) consecutive trading days ending three days before the day the Fair Market Value is being determined;
(iii) if CDIs are not then quoted on the ASX and the Common Stock is not then traded on another securities exchange, then if the Common Stock is traded over-the-counter, the Fair Market Value shall be deemed to be the average of the closing bid and asked prices quoted on the principal market on which or through which the Common Stock is traded over the five (5) consecutive trading days ending three days before the day the Fair Market Value is being determined;
(iv) if CDIs are not then quoted on the ASX and the Common Stock is not then listed on any securities exchange or traded in the over-the-counter market, the Fair Market Value of the Common Stock shall be the highest price per share which the Company could reasonably obtain from a willing buyer (other than an employee, director or Affiliate of the Company, as such term is defined in Rule 405 under the Securities Act of 1933, as amended (the Securities Act )) for Common Stock sold by the Company, as determined in good faith by its Board of Directors (which determination shall take into consideration any available appraisals);
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If any of the amounts used to calculate the Fair Market Value are expressed in Australian dollars and not the United States dollar, then each such amount shall be converted into United States dollars based on the closing exchange rate published by the Reserve Bank of Australia in their Official Bulletin at 4pm for the applicable date. The amounts used to calculate the Fair Market Value shall be equitably adjusted for the occurrence of any of the events for which an adjustment would be made pursuant Section 3 but which is not otherwise fully reflected in the Fair Market Value calculation.
(e) Election to receive CDIs. The Holder may include in their notice of exercise, the election to receive the corresponding number of CDIs for the vested Warrant Shares. In such case, the Holder may nominate a CHESS account or accounts for those CDIs to be issued into.
(f) Stock Certificates . In the event of the exercise of this Warrant, a notice of book entry for the vested Warrant Shares so purchased (or in the event that CDIs were elected, a Holding Statement to certify that CDIs were issued) shall be delivered to the Holder within a reasonable time (and in no event more than 5 Business Days) after the Exercise Payment is paid to the Company.
2. | Stock Fully Paid; Reservation of Shares . All of the Common Stock issuable upon the exercise of this Warrant, upon issuance and receipt by the Company of the Exercise Price therefor (or upon Net Exercise thereof, as provided in Section 1(d)), shall be fully paid and nonassessable, and free from all preemptive rights, rights of first refusal or first offer, taxes, liens and charges with respect to the issuance thereof. During the period within which the rights represented by this Warrant may be exercised, the Company shall at all times have authorized and reserved for issuance a sufficient number of shares of its Common Stock to provide for the exercise of this Warrant. |
3. | Adjustment of Exercise Price and Number of Shares . The number and kind of Warrant Shares to be issued upon the exercise of this Warrant and the Exercise Price payable therefor shall be subject to adjustment from time to time upon the occurrence of certain events, as follows: |
(a) Reclassification, Consolidation or Reorganization . In case of any reclassification of the Common Stock (other than a change in par value, or as a result of a subdivision or combination), or in case of any consolidation or merger of the Company with or into another corporation or sale of all or substantially all of the Companys assets (any of which is a Reorganization Transaction ), the Company, or such successor corporation as the case may be, shall execute a new warrant, providing that the Holder shall have the right to exercise such new warrant, and procure upon such exercise and payment of the same aggregate Exercise Price, in lieu of the Warrant Shares then issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money and property as would be received by the Holder for such Warrant Shares as if such Warrant Shares were outstanding immediately prior to the consummation of the Reorganization Transaction.
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(b) Stock Splits, Dividends and Combinations . In the event that the Company shall at any time subdivide the outstanding shares of Common Stock, or shall issue a stock dividend on its outstanding shares of Common Stock, the number of Warrant Shares issuable upon exercise of this Warrant immediately prior to such subdivision or to the issuance of such stock dividend shall be proportionately increased and the Exercise Price shall be proportionately decreased, and in the event that the Company shall at any time combine the outstanding shares of Common Stock, the number of Warrant Shares issuable upon exercise of this Warrant immediately prior to such combination shall be proportionately decreased and the Exercise Price shall be proportionately increased, effective at the close of business on the date of such subdivision, stock dividend or combination, as the case may be such that in each case, the result obtained by multiplying the Exercise Price by the number of Warrant Shares shall be the same immediately prior to, and immediately after, such event.
(c) Notice of Corporate Action . If at any time:
(i) the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend (other than a cash dividend payable out of earnings or earned surplus legally available for the payment of dividends under the laws of the jurisdiction of incorporation of the Company) or other distribution, or any right to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property, or to receive any other right; or
(ii) there shall be any Reorganization Transaction; or
(iii) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company,
then, in any one or more of such cases, the Company shall give to the Holder (i) at least five-days prior written notice of the date on which a record date shall be selected for such dividend, distribution or right or for determining rights to vote in respect of any such Reorganization Transaction or such dissolution, liquidation or winding up, and (ii) in the case of any such Reorganization Transaction or such dissolution, liquidation or winding up, at least five-days prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause also shall specify (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, the date on which the holders of Common Stock shall be entitled to any such dividend, distribution or right, and the amount and character thereof, and (ii) the date on which any such Reorganization Transaction or such dissolution, liquidation or winding up is to take place and the time, if any such time is to be fixed, as of which the holders of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such Reorganization Transaction or such dissolution, liquidation or winding up. Each such written notice shall be sufficiently given if addressed to the Holder at the last address of the Holder appearing on the books of the Company and delivered in accordance with Section 10(d).
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4. | Investment Representations of Holder; Transfer of Warrant and Resale of Warrant Shares. |
(a) Holder represents and warrants to the Company that:
(i) it has the ability to bear the economic risks of such Holders prospective investment, including a complete loss of Holders investment in the Warrants and the Warrant Shares; and
(ii) the Warrants and the Warrant Shares are purchased for the Holders own account, and not with view to distribution of either the Warrants or any securities purchasable upon exercise thereof; provided however that the Holder may transfer the Warrant and any Warrant Shares to any Affiliate of the Holder.
(b) This Warrant will be freely tradeable and only be subject to federal and state securities laws and any escrow imposed by the ASX.
(c) At the time of the surrender of this Warrant in connection with any transfer of this Warrant or the resale of the vested Warrant Shares (except to an Affiliate), the Company may require, as a condition of allowing such transfer (i) that the Holder or transferee of this Warrant or the Warrant Shares as the case may be, furnish to the Company a written opinion of counsel that is reasonably acceptable to the Company to the effect that such transfer may be made without registration under the Securities Act or qualification under any state securities laws and (ii) that the Holder or transferee execute and deliver to the Company an investment representation letter in form and substance acceptable to the Company and substantially in the form of Exhibit B hereto. Transfer of this Warrant and all rights hereunder, in whole or in part, in accordance with the foregoing provisions, shall be registered on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the principal office of the Company or the office or agency designated by the Company, together with a written assignment of this Warrant substantially in the form of Exhibit C hereto duly executed by the Holder or its attorney-in-fact. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination specified in such instrument of assignment, and shall issue to the Holder a new warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall be deemed cancelled.
5. | Legend. |
(a) Each certificate evidencing the vested Warrant Shares issued upon exercise of this Warrant shall be stamped or imprinted with a legend substantially in the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE SECURITIES ACT ) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
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(b) Removal of Legend and Transfer Restrictions. Any legend endorsed on a certificate pursuant to this Section 5 shall be removed, and the Company shall issue a certificate without such legend to the holder of such vested Warrant Shares if (i) such Warrant Shares are resold pursuant to an effective registration statement under the Securities Act, (ii) if such holder satisfies the requirements of Rule 144(b)(i) under the Securities Act or (iii) if such holder provides the Company with an opinion of counsel for such holder of the Warrant Shares, in form and substance reasonably satisfactory to the Company, to the effect that a sale, transfer or assignment of such Warrant Shares may be made without registration and that upon such sale, transfer or assignment such Warrant Shares will not be deemed restricted securities, as such term is defined in Rule 144 under the Securities Act.
6. | Fractional Shares . No fractional vested Warrant Shares will be issued in connection with any exercise of this Warrant, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Exercise Price then in effect. |
7. | Rights of Stockholders . The Holder shall not be entitled to vote or receive dividends or subscription rights or be deemed the holder of Common Stock or any other securities of the Company which may at any time be issuable on the exercise of this Warrant for any purpose, nor shall anything contained herein be construed to confer upon the Holder any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value, consolidation, merger, conveyance, or otherwise) with respect to the Warrant Shares until this Warrant shall have been exercised and the Warrant Shares purchasable upon the exercise of this Warrant shall have become deliverable, as provided in Section 1(c). |
8. | Term of Warrant. This Warrant shall become exercisable on the Warrant Date and shall terminate and no longer be exercisable from and after 5:00 p.m., Eastern Time, on the date that is the fifth (5 th ) anniversary of the Warrant Date. |
9. | Registry of Warrants. The Company shall maintain a registry showing the name and address of the registered holder of this Warrant. Holders initial address, for purposes of such registry, is set forth below Holders signature on this Warrant. Holder may change such address by giving written notice of such changed address to the Company. |
10. | Miscellaneous. |
(a) This Warrant is being delivered in the Commonwealth of Massachusetts, United States and shall be construed and enforced in accordance with and governed by the laws of the Commonwealth of Massachusetts, without giving effect to principles of conflicts of laws.
(b) The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof.
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(c) The terms of this Warrant shall be binding upon and shall inure to the benefit of any successors or assigns of the Company and of the Holder and of the Warrant Shares issued or issuable upon the exercise hereof.
(d) Any notice provided for or permitted under this Warrant shall be treated as having been given (i) upon receipt, when delivered personally, (ii) one day after sending, when sent by commercial overnight courier with written verification of receipt, (iii) upon confirmed transmission when sent via facsimile on a business day prior to 5:00 pm local time or, if sent after 5:00 pm local time, the next business day after confirmed transmission, or (iv) three business days after deposit with the United States Postal Service, when mailed postage prepaid by certified or registered mail, return receipt requested, in each case, addressed to the address or facsimile number set forth on the signature pages hereof or as otherwise furnished in writing.
(e) This Warrant and the Consulting Agreement constitute the full and entire understanding and agreement between the parties with regard to the matters contained herein.
(f) Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Company at the Holders expense will execute and deliver to the holder of record, in lieu thereof, a new Warrant of like date and tenor.
(g) This Warrant and any provision hereof may be amended, waived or terminated only by an instrument in writing signed by the Company and the Holder.
[continued and to be signed on following page]
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IN WITNESS WHEREOF , the Company has caused this Warrant to be signed by its duly authorized officer, all as of the day and year first above written.
COMPANY:
GI DYNAMICS, INC. |
a Delaware corporation |
By: |
Name: |
Title: |
Notice Address: | GI Dynamics, Inc. | |||
25 Hartwell Avenue | ||||
Lexington, MA 02421 |
WARRANTHOLDER: |
DANFORTH ADVISORS, LLC | |||||
By: |
/s/ Gregg Beloff |
|||||
Title: | Gregg Beloff, Managing Director |
Notice Address: | Danforth Advisors, LLC | |||
91 Middle Road | ||||
Southborough, MA 01772 | ||||
Attention: Mr. Gregg Beloff, Managing Partner |
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E XHIBIT A
N OTICE OF E XERCISE
TO: | GI DYNAMICS, INC. | |||
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1. Cash Exercise . The undersigned hereby elects to purchase shares of Common Stock, par value $0.01 per share ( Common Stock ), of GI DYNAMICS, INC., a Delaware corporation (the Company ) pursuant to the terms of Section 1(c) of the Warrant to Purchase Common Stock dated , (the Warrant ), and tenders herewith payment of the Exercise Price (as such term is defined in the Warrant) therefor.
2. Net Exercise . The undersigned hereby elects to effect a Net Exercise for shares of Common Stock pursuant to Section 1(d) of the Warrant.
Please issue a notice of book entry representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below:
Name: |
Address: |
3. CDI Election . By initialing here, the undersigned hereby elects to receive the number of CHESS Depository Interest corresponding to the shares of Common Stock noted above in lieu of the shares of Common Stock otherwise issuable:
The undersigned hereby represents and warrants that the aforesaid shares of Common Stock or CDIs, as the case may be, are being acquired for the account of the undersigned for investment and not with a view to, or for resale, in connection with the distribution thereof, and that the undersigned has no present intention of distributing or reselling such shares.
By: |
Name: |
Title: |
Date: |
E XHIBIT B
F ORM O F I NVESTMENT R EPRESENTATION L ETTER
In connection with the acquisition of shares of Common Stock of GI DYNAMICS, INC. (the Company ), par value $0.01 per share (or CHESS Depository Interests representing the same, the Common Stock ), by (the Holder ) from , the Holder hereby represents and warrants to the Company as follows:
The Holder has such knowledge and experience in financial and business matters that the Holder is capable of evaluating the merits and risks of an investment in the Common Stock (collectively, the Securities); and, has the ability to bear the economic risks of such Holders investment, including a complete loss of the Holders investment in Securities.
The Holder, by acceptance of the Securities, represents to the Company that the Securities are purchased for the Holders own account, and not with view to distribution of the Securities in violation of applicable securities laws.
The Holder acknowledges that (i) the Securities have not been registered under the Act, (ii) the certificate(s) representing the Securities shall bear a legend as set forth in the Warrant until such Securities shall have been registered for resale by the Holder under the Act that has been declared effective by the SEC; or (ii) in the opinion of counsel in form and substance reasonably satisfactory to the Company, such Securities may be sold without registration under the Act.
IN WITNESS WHEREOF, the Holder has caused this Investment Representation Letter to be executed in its corporate name by its duly authorized officer this day of 20 .
[Name] |
By: |
Name: |
Title: |
E XHIBIT C
A SSIGNMENT F ORM
FOR VALUE RECEIVED, the undersigned owner of this Warrant for the purchase of shares of Common Stock of GI DYNAMICS, INC. , a Delaware corporation (the Company ) hereby sells, assigns and transfers unto the assignee named below all of the rights of the undersigned under this Warrant, with respect to the number of shares of Common Stock set forth below:
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|
|
(Name and Address of Assignee) |
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(Number of Shares of Common Stock) |
and does hereby irrevocably constitute and appoint attorney-in-fact to register such transfer on the books of the Company, maintained for the purpose, with full power of substitution in the premises.
Dated: |
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BY: |
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(Print Name and Title) | ||
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(Signature) |
Exhibit 10.1
May 09, 2016
Brian Callahan
Re: | Offer Letter Agreement |
Dear Brian:
On behalf of GI Dynamics, Inc. (the Company ) I am pleased to offer you employment with the Company on the terms and conditions set forth below.
1. | Start Date; Term . Your employment will commence on May 09, 2016 and will continue until terminated by either party in accordance with Section 7 (such period of employment referred to herein as the Term ). |
2. | Title and Duties . During the Term, you will serve as the Chief Compliance Officer of the Company, reporting to the Chief Executive Officer of the Company (the CEO ). You will devote your best efforts and full business time, skill and attention to the performance of your duties, subject to the direction of the CEO. You will perform such executive, managerial, administrative and professional duties as are normally associated with those positions and customarily performed by those holding such offices at businesses similar to the Company. You will be expected to adhere to the written employment policies and practices of the Company that may be in effect from time to time, except that when the terms of this Offer Letter conflict with the Companys written employment policies or practices, this Offer Letter will control. You will be expected to comply with the Companys corporate governance policies and charters that may be in effect from time to time. |
3. | Base Compensation . You will be paid an annual base salary of three hundred fifty thousand dollars ($350,000) (the Base Salary ), less applicable deductions and withholdings, to be paid each month in accordance with the Companys payroll practices as may be in effect from time to time. Your total compensation will be reviewed by the Compensation Committee of the Board (the Compensation Committee ) at least annually, and you will be entitled to such increases in Base Salary during your employment as will be determined by the Compensation Committee in its sole discretion, taking into account your performance and that of the Company, and other factors considered relevant by the Board. |
4. |
Performance Bonus . Each calendar year, you will be eligible to earn an annual incentive bonus of up to thirty percent (30%) of your annual Base Salary (the Performance Bonus ). Whether you receive such a Performance Bonus, and the amount of any such Performance Bonus, will be determined by recommendations from the Compensation Committee and approval from the Board, and will be based upon achievement of performance objectives to be provided to you by the Compensation Committee following initial recommendation of proposed objectives to |
you, discussion of such objectives with you, and consideration of your input regarding such objectives, provided that, in the event you remain employed with the Company through the applicable payment date, you will receive a guaranteed Performance Bonus equal of 30% of your current Base Salary pro-rated for the amount of time employed during calendar year 2016. The amount, if any, of such earned Performance Bonus will be paid to you within forty five (45) days following the close of the calendar year to which it relates, and in no event later than March 15 th of the calendar year immediately following the calendar year in which it was earned. You must be employed on the last day of the calendar year to which it relates in order to earn any Performance Bonus. |
5. | Benefits . |
(a) | You will be eligible to participate in the Companys standard benefit programs made available to senior executives, subject to the terms and conditions of such plans. The Company may, from time to time, change these benefits in its discretion. Additional information regarding these benefits is available for your review upon request. |
(b) | The Company will reimburse you for all normal, usual and necessary expenses incurred by you in furtherance of the business and affairs of the Company, including reasonable travel and entertainment, upon timely receipt by the Company of appropriate vouchers or other proof of your expenditures and in accordance with the Companys policies with respect thereto as in effect from time to time. You must submit any request for reimbursement no later than thirty (30) days following the date that such business expense is incurred. All reimbursements provided under this Offer Letter will be made or provided in accordance with the requirements of Section 409A of the Internal Revenue Code ( Code Section 409A ) including, where applicable, the requirement that (i) any reimbursement is for expenses incurred during your lifetime (or during a shorter period of time specified in this Offer Letter); (ii) the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for reimbursement in any other calendar year; (iii) the reimbursement of an eligible expense will be made no later than the last day of the calendar year following the year in which the expense is incurred; and (iv) the right to reimbursement or in kind benefits is not subject to liquidation or exchange for another benefit. |
(c) | You will, during each calendar year of your employment, be entitled to four (4) weeks of vacation, in addition to nationally recognized holidays. |
6. | Equity . |
(a) |
The Company will grant you an option (the Option ) to purchase 95,106 shares of the Companys common stock, at a per share exercise price equal to the Fair Market Value (as defined in the Companys 2011 Employee, Director and Consultant Equity Incentive Plan (the 2011 Plan )) of the Companys common stock on the date of grant. The Option will vest over a four (4) year period, with one quarter (1/4) of the shares subject to the Option vesting on the one (1) year anniversary of the date of grant, and the remaining shares vesting on a quarterly basis over the following three (3) years of continuous service, provided that you are providing services to the Company as an employee or consultant on such vesting dates (no vesting will occur following the termination of employment or consulting services). The Option will be, to the |
2
maximum extent permissible, treated as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code. The Option will be evidenced in writing by, and subject to the terms and conditions of, the 2011 Plan and the Companys standard form of stock option agreement, which agreement will expire ten (10) years from the date of grant except as otherwise provided in the stock option agreement or the Plan. |
(b) | The Company will grant you a performance stock unit (the IDE PSU ) in the Company equal to 47,553 shares of the Companys common stock. The IDE PSU will provide for the issuance of (i) one hundred percent (100%) of the shares subject to the IDE PSU upon receipt by the Company of an Investigational Device Exemption (IDE) approval by the U.S. Food and Drug Administration of the Companys EndoBarrier therapy, provided that you are providing services to the Company as an employee or consultant on such issuance date (no issuance will occur following the termination of employment or consulting services). The IDE PSU will be evidenced in writing by, and subject to the terms and conditions of, the 2011 Plan and the Companys standard form of restricted stock unit agreement, which agreement will expire ten (10) years from the date of grant except as otherwise provided in the restricted stock unit agreement or the Plan. |
(c) | The Company will grant you a performance stock unit (the PMA PSU ) in the Company equal to 95,106 shares of the Companys common stock. The PMA PSU will provide for the issuance of (i) one hundred percent (100%) of the shares subject to the PMA PSU upon receipt by the Company of pre-market approval by the U.S. Food and Drug Administration of the Companys EndoBarrier therapy (the PMA Milestone) on or prior to June 30, 2019, (ii) seventy-five percent (75%) of the shares subject to the PMA PSU upon achievement of the PMA Milestone after June 30, 2019 and on or prior to June 30, 2020, and (iii) fifty percent (50%) of the shares subject to the PMA PSU upon achievement of the PMA Milestone after June 30, 2020 and on or prior to June 30, 2021, provided that you are providing services to the Company as an employee or consultant on such issuance date (no issuance will occur following the termination of employment or consulting services). If the PMA PSU has not vested prior to June 30, 2021, then the PMA PSU will lapse on that date. The PMA PSU will be evidenced in writing by, and subject to the terms and conditions of, the 2011 Plan and the Companys standard form of restricted stock unit agreement, which agreement will expire ten (10) years from the date of grant except as otherwise provided in the restricted stock unit agreement or the Plan. |
(d) | As described in the applicable stock option or restricted stock unit agreement(s) and subject to the terms and conditions thereof, if there is a Change of Control (as defined in each such agreement) involving the Company, then one hundred percent (100%) of all of your unvested options and performance stock units will vest and become immediately exercisable as of the consummation of the Change of Control. The parties acknowledge and agree that to the extent that this Section 6(c) conflicts with any term of an option agreement or grant document listed above (including but not limited to any term of such option agreement or grant document that permits or requires that a termination without Cause or as a result of a Good Reason occur following a Change of Control in order for unvested options to become vested and fully exercisable) then the terms of this Section 6(c) will govern. |
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7. | Termination; Severance . Your employment will continue during the Term until terminated in accordance with this Section 7. You and the Company each will be entitled to terminate your employment for any reason at any time, subject to the provisions of this Section 7. |
(a) | Termination for Cause; Resignation without Good Reason . If, at any time, the Company terminates your employment for Cause (as defined herein), or you resign without Good Reason (as defined herein), you will receive your Base Salary accrued through your last day of employment, any unused vacation (if applicable) accrued through your last day of employment, and any properly incurred business expenses through your last day of employment that remain unreimbursed. Under these circumstances, you will not be entitled to any other form of compensation from the Company, including any severance benefits. |
(b) | Termination without Cause; Resignation for Good Reason; Death or Disability . If your employment is terminated by the Company without Cause (as defined below) or by you for Good Reason (as defined below) or due to your death or Disability (as defined below) (collectively, such reasons for separation, an Involuntary Termination), then in addition to the payments and benefits described in Section 7(a) (which you will receive irrespective of the reason for termination), and subject to the conditions set forth in Section 7(c), you will be entitled to receive the following severance benefits (collectively, the Severance Benefits ): |
(i) | an amount equal to three (3) months of your then current Base Salary, less all applicable withholdings and deductions, paid over such three (3) month period on the schedule described below (the Salary Continuation ), provided that if the Involuntary Termination occurs after December 31, 2016 then the length of Salary Continuation automatically will be increased to six (6) months; and further provided that if the Involuntary Termination occurs after December 31, 2017 then the length of Salary Continuation automatically will be increased to twelve (12) months; and |
(ii) | a pro-rata portion of your at-target Performance Bonus (30% of your then-current annual Base Salary) for the calendar year in which the termination occurs, adjusted based on the period worked by you during such calendar year prior to termination; and |
(iii) |
if you timely elect continued coverage under COBRA for yourself and your covered dependents under the Companys group health plans following the Involuntary Termination, then the Company will pay the COBRA premiums necessary to continue your health insurance coverage in effect for yourself and your eligible dependents on the termination date until the earliest of (A) the close of the three (3) month period following the termination of your employment, (B) the expiration of your eligibility for the continuation coverage under COBRA, or (C) the date when you become eligible for substantially equivalent health insurance coverage in connection with new employment or self-employment (such period from the termination date through the earliest of (A) through (C), the COBRA Payment Period ), provided that if the Involuntary Termination occurs after December 31, 2016 then the length of the period described in subsection (A) automatically will be |
4
increased to six (6) months; and further provided that if the Involuntary Termination occurs after December 31, 2017 then the length of the period described in subsection (A) automatically will be increased to twelve (12) months. |
Notwithstanding the foregoing, if the Company determines, in its sole but good faith discretion, that the payment of the above-described COBRA premiums could result in a violation of the nondiscrimination rules of Section 105(h)(2) of the Code or any statute or regulation of similar effect (including but not limited to the 2010 Patient Protection and Affordable Care Act, as amended by the 2010 Health Care and Education Reconciliation Act), then in lieu of providing the COBRA premiums, the Company, in its sole discretion, may elect to instead pay you on the first day of each month of the COBRA Payment Period, a fully taxable cash payment equal to the COBRA premiums for that month, subject to applicable tax withholdings (such amount, the Special Severance Payment), for the remainder of the COBRA Payment Period. You may, but are not obligated to, use such Special Severance Payment toward the cost of COBRA premiums. On the sixtieth (60 th ) day following your Separation from Service, the Company will make the first payment under this clause equal to the aggregate amount of payments that the Company would have paid through such date had such payments commenced on the Separation from Service through such sixtieth (60 th ) day, with the balance of the payments paid thereafter on the schedule described above. If you become eligible for coverage under another employers group health plan or otherwise cease to be eligible for COBRA during the period provided in this clause, you must immediately notify the Company of such event, and all payments and obligations under this clause will cease.
(c) | Conditions to Receive Severance Benefits . The Severance Benefits are conditional upon (i) your continuing to comply with your obligations under your Nondisclosure, Nonsolicitation and Noncompete Agreement; (ii) your delivering to the Company of an effective separation agreement and general release of claims in favor of the Company in a mutually acceptable form within sixty (60) days following your termination date; and (iii) your compliance with all reasonable requests for transition assistance from the Company. The Salary Continuation will be paid in equal installments on the Companys regular payroll schedule over the applicable period following your termination date, and will be subject to applicable tax withholdings, provided that no payments will be made prior to the sixtieth (60 th ) day following your separation from service. On the 60 th day following your separation from service, the Company will pay you in a lump sum the Salary Continuation and other Severance Benefits that you would have received on or prior to such date under the original schedule but for the delay while waiting for the 60 th day in compliance with Code Section 409A and the effectiveness of the release, with the balance of the Salary Continuation and other Severance Benefits being paid as originally scheduled. |
(d) |
Definition of Cause . For purposes of this Offer Letter, Cause will mean one or more of the following: (i) your willful failure or refusal to abide in all material respects by lawful directions received from the CEO; (ii) your commission of any act of fraud, embezzlement or any other willful misconduct that has caused or is reasonably |
5
expected to result in material injury to the Company; (iii) your unauthorized use or disclosure of any proprietary information or trade secrets of the Company or any other party to whom you owe an obligation of nondisclosure as a result of your relationship with the Company; or (iv) your willful breach of any of your material obligations under any written agreement or written covenant with the Company. Cause will not exist under this Offer Letter unless the Company gives written notice to you describing with particularity the alleged act(s) at issue. The foregoing definition does not in any way limit the Companys ability to terminate your employment at any time. |
(e) | Definition of Good Reason . For purposes of this Offer Letter, Good Reason will mean your resignation from all positions you then hold with the Company based on an event described below, provided you give written notice of such event within ten (10) days after the first occurrence of such event and that you assert that grounds for a resignation for Good Reason exist as a result of such event, and provided such event is not corrected within thirty (30) days after the Company (or any successor thereto) receives written notice from you of: (A) a material reduction in your base compensation or target annual bonus eligibility (unless you are treated proportionately similarly to all other employees); (B) a change in your position with the Company that materially reduces your title, level of authority, responsibilities and/or duties; (C) a requirement that you relocate more than fifty (50) miles from the Companys principal place of business; or (D) any material breach of this Offer Letter by the Company. |
(f) | Definition of Disability . For purposes of this Offer Letter, Disability will mean your failure to perform your normal required services hereunder for a period of three (3) consecutive months during any calendar year by reason of your mental or physical disability, as determined by an independent physician reasonably satisfactory to you and the Company. |
8. | Non-Competition; Confidentiality . As a condition of employment hereunder, you will be required to sign and abide by the Companys standard Nondisclosure, Nonsolicitation and Noncompete Agreement. By signing this Offer Letter and accepting the consideration provided for herein, you expressly reaffirm your obligations under such Nondisclosure, Nonsolicitation and Noncompete Agreement. |
9. | At-Will Employment. Your employment with Company will be at-will. This means that either you or the Company may terminate your employment at any time, with or without Cause or Good Reason, and with or without advance notice. Notwithstanding the foregoing, you will be entitled to receive the Severance Benefits under this Agreement pursuant to the terms hereof. |
10. | Code Section 409A . |
(a) | It is intended that all of the severance benefits and other payments payable under this Offer Letter satisfy, to the greatest extent possible, the exemptions from the application of Code Section 409A provided under Treasury Regulations 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9), and this letter will be construed to the greatest extent possible as consistent with those provisions. |
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(b) | Any termination of your employment triggering payment of benefits under Section 7 must constitute a separation from service under Section 409A(a)(2)(A)(i) of the Code and Treas. Reg. §1.409A-1(h) before distribution of such benefits can commence. To the extent that the termination of your employment does not constitute a separation of service under Section 409A(a)(2)(A)(i) of the Code and Treas. Reg. §1.409A-1(h) (as the result of further services that are reasonably anticipated to be provided by you to the Company at the time your employment terminates), any such payments under Section 7 that constitute deferred compensation under Code Section 409A will be delayed until after the date of a subsequent event constituting a separation of service under Section 409A(a)(2)(A)(i) of the Code and Treas. Reg. §1.409A-1(h). For purposes of clarification, this section will not cause any forfeiture of benefits on your part, but will only act as a delay until such time as a separation from service occurs. |
(c) | For purposes of Code Section 409A (including, without limitation, for purposes of Treasury Regulation Section 1.409A-2(b)(2)(iii)), your right to receive any installment payments under this Offer Letter (whether severance payments, reimbursements or otherwise) will be treated as a right to receive a series of separate payments and, accordingly, each installment payment hereunder will at all times be considered a separate and distinct payment. Notwithstanding any provision to the contrary in this Offer Letter, if you are deemed by the Company at the time of your separation from service to be a specified employee for purposes of Code Section 409A(a)(2)(B)(i), and if any of the payments upon separation from service set forth herein and/or under any other agreement with the Company are deemed to be deferred compensation, then to the extent delayed commencement of any portion of such payments is required in order to avoid a prohibited distribution under Code Section 409A(a)(2)(B)(i) and the related adverse taxation under Code Section 409A, such payments will not be provided to you prior to the earliest of (i) the expiration of the six-month period measured from the date of your separation from service with the Company, (ii) the date of your death, or (iii) such earlier date as permitted under Code Section 409A without the imposition of adverse taxation. Upon the first business day following the expiration of such applicable Code Section 409A(a)(2)(B)(i) period, all payments deferred pursuant to this paragraph will be paid in a lump sum to you, and any remaining payments due will be paid as otherwise provided herein or in the applicable agreement. No interest will be due on any amounts so deferred. |
(d) | Notwithstanding any other provision herein to the contrary, in the event of any ambiguity in the terms of this Offer Letter, such term(s) will be interpreted and at all times administered in a manner that avoids the inclusion of compensation in income under Code Section 409A, or the payment of increased taxes, excise taxes or other penalties under Code Section 409A. |
(e) | The parties intend all payments and benefits hereunder to be in compliance with Code Section 409A; however, you acknowledge and agree that the Company does not guarantee the tax treatment or tax consequences associated with any payment or benefit arising under this Offer Letter, including but not limited to consequences related to Code Section 409A. |
11. |
Arbitration . To ensure the rapid and economical resolution of disputes that may arise in connection with your employment with the Company, you and the Company agree that any and all disputes, claims, or causes of action, in law or equity, arising from or relating to the enforcement, breach, performance, or interpretation of this Offer Letter, your employment with |
7
the Company, or the termination of your employment, will be resolved, to the fullest extent permitted by law, by final, binding and confidential arbitration in Boston, Massachusetts by JAMS, Inc. ( JAMS ) or its successor, under JAMS then applicable rules and procedures. You acknowledge that by agreeing to this arbitration procedure, both you and the Company waive the right to resolve any such dispute through a trial by jury or judge or administrative proceeding. You will have the right to be represented by legal counsel at any arbitration proceeding. The arbitrator will: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written statement signed by the arbitrator regarding the disposition of each claim and the relief, if any, awarded as to each claim, the reasons for the award, and the arbitrators essential findings and conclusions on which the award is based. Each party will bear its own attorneys fees and litigation costs, except to the extent the underlying law upon which any claim is based provides for the award of attorneys fees, in which case such fees will be recoverable as provided by law. The arbitrator will be authorized to award all relief that you or the Company would be entitled to seek in a court of law, including, but not limited to, allocating in the arbitrators discretion, between the parties, all costs of the arbitration, including facility fees and the fees and expenses of the arbitrator and reasonable attorneys fees, costs and expert witness fees of the parties, if permitted by applicable law. Nothing in this Offer Letter is intended to prevent either you or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. The parties further agree that this Section 11 may be specifically enforced in court. |
12. | Indemnification . The Company acknowledges and agrees that you will be entitled to indemnification under the Companys standard form of indemnification agreement. |
13. | Notices . Any notice to be given hereunder will be in writing and delivered or sent by certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or at such other address as such party may subsequently be designated by like notice: |
If to the Company :
GI Dynamics, Inc.
25 Hartwell Avenue
Lexington, MA 02421
Attention: Chief Executive Officer
With a copy to :
Daniel Follansbee, Esq.
Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C.
One Financial Center
Boston, MA 02111
If to you :
Brian Callahan
8
14. | Survivorship . The respective rights and obligations of the parties hereunder will survive any termination of this Offer Letter to the extent necessary to the intended preservation of such rights and obligations. |
15. | Miscellaneous . This Offer Letter and the other agreements specifically mentioned herein are the complete and exclusive statement of all of the terms and conditions of your employment with the Company, and supersede and replace any and all prior agreements or representations with regard to the subject matter hereof and thereof, whether written or oral. This Offer Letter is entered into without reliance on any promise or representation other than those expressly contained herein, and it cannot be modified, amended or extended except in a writing signed by you and a duly authorized member of the Board. This Offer Letter is intended to bind and inure to the benefit of and be enforceable by you and the Company, and our respective successors, assigns, heirs, executors and administrators, except that you may not assign any of your duties or rights hereunder without the express written consent of the Company. Whenever possible, each provision of this Offer Letter will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Offer Letter is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Offer Letter will be reformed, construed and enforced as if such invalid, illegal or unenforceable provisions had never been contained herein. This Offer Letter and the terms of your employment with the Company will be governed in all aspects by the laws of the Commonwealth of Massachusetts. |
This offer is subject to satisfactory proof of your right to work in the United States and satisfactory completion of a Company-required background check. Please sign and date this Offer Letter, and the enclosed Nondisclosure, Nonsolicitation and Noncompete Agreement and return them to me by May 05, 2016, if you wish to accept employment at the Company under the terms described above.
[Signature Page Follows]
9
If the foregoing correctly sets forth our agreement and understanding, please indicate your acceptance of this offer by signing and returning to me a copy of this Offer Letter.
Very truly yours, | ||
GI DYNAMICS, INC. | ||
By: |
/s/ Scott Schorer |
|
Scott Schorer | ||
Chief Executive Officer | ||
Accepted and Agreed: | ||
Name: |
/s/ Brian Callahan |
|
BRIAN CALLAHAN | ||
Date: |
9 May 2016 |
10
Exhibit 10.2
LEASE | ||
Dated as of: June 1, 2016 |
I PARTIES: E F and C, LLC , Landlord, which expression shall include its successors and assigns where the context so admits, does hereby lease to GI Dynamics, Inc. which expression shall include its successors and assigns where the context so admits, and the Tenant hereby leases the following described premises.
2. PREMISES : Those certain premises located within the building known as and numbered 355- Congress Street, Boston, Massachusetts (the Building), said demised premises consisting of 4,200 +/- rentable square feet located on the right and left side rear 5th level of the building with the right to use in common with others the stairways and elevators necessary for the Building.
3. TERM : The term of this Lease is for 2-years commencing on June 1 2016 and ending April 13 2018. On June 1, 2016 Landlord shall deliver possession of the Demised Premises to Tenant as is with a two double glass door.
4 RENT: The Tenant shall pay the Landlord rent at the rate of $11,900 per month payable monthly in advance on the first day of each calendar month. Upon execution of this Lease, the Tenant shall pay the first and, last months rent and security deposit The first monthly installment shall be for the month starting May 20, 2016.
5 Utilities. Tenant shall pay all charges for all utilities to the Premises, including without limitation, electricity used for lights, plugs and all HVAC, all charges for gas or steam to Heat the Premises, and all charges for telephone and other utilities required or desired by Tenant, whether designated as a charge, tax, assessment, fee or otherwise. Tenant acknowledges that none of the forgoing charges are included in the Annual Fixed Rent.
It is understood and agreed that Tenant shall make its own arrangements for the installation or provision of all utilities and services, and that the Landlord shall be under no obligation to furnish any utilities to the Premises. All utilities serving the premises Shall be separately metered if permitted by the utility company, and the cost of installing such separate metering equipment (to the extent not currently installed) shall be included as part of tenants work and shall be paid for by Tenant. If such separate metering is not available with respect to any particular utility service, then Tenant shall, during such portion of the term as such separate metering is not in effect, pay as Additional Rent the entire cost of each such utility supplied to the Premises as determined by Landlord by submetering or similar device, and the cost of installing, operating, maintaining and repairing any meter or other device used to measure Tenants utility consumption. Alternatively, at Landlords option, Tenant shall pay Tenants Percentage of the charges for each such utility allocable to those portions of the Building leased or intended to be leased to tenants, within ten days of invoice therefor, provide however, if some or all of the areas leased or intended to be leased to tenants are separately metered for electricity or any other utility, such Tenants Percentage for purposes of this section only shall be determined by dividing the rentable area of the Premises by the rentable area of the portions of the Building not separately metered for utility consumption.
6 Late Payment of Rent . If any installment of Annual Fixed Rent is paid more than ten (10) days after the date due, Tenant shall pay to Landlord a late charge equal to the greater of One Hundred Dollars ($100) or two and one-half percent (2.5%) of the delinquent amount. The parties agree that the amount of such late charge represents a reasonable estimate of the cost and expense that would be incurred by Landlord in processing and administration of each delinquent payment by Tenant, but the payment of such late charges shall not excuse or cure any default by Tenant under this lease. Absent specific provision to the contrary, all Additional Rent shall be due and payable in full ten (10) days after demand by Landlord.
7 SECURITY On or before May 13 2016 the Tenant shall pay to the Landlord the amount of $3,400 ($11,900 minus $8,500 already paid) which shall be held as a security for the Tenants performance as herein provided and refunded to the Tenant, at the end of this Lease subject to the Tenants satisfactory compliance with the conditions hereof. Said security deposit shall in no event be applied by Tenant against any rent due pursuant to this Lease, unless expressly so authorized in writing by Landlord. No interest will be paid on the Security Deposit.
8 USE OF DEMISED PREMISES: The Tenant shall use the demised premises only for the purpose of general office purposes, in accordance with all applicable building and zoning laws and ordinances.
9 USE OF FREIGHT ELEVATOR: The Tenant shall have use of freight elevator only if prescheduled and approved by the landlord. Tenant will allow access to the freight elevator by other tenants if prescheduled and approved by the landlord. The Tenant shall have the right to use the Passenger elevator at all times.
10 COMPLIANCE WITH LAWS: The Tenant agrees to take all steps necessary to comply with all laws applicable to their use of the space and alterations. The Tenant acknowledges that no trade or occupation shall be conducted in the demised premises or use made thereof which will be unlawful, improper noisy or offensive, or contrary to any law or any municipal by-law or ordinance in force in the City of Boston
11. FIRE INSURANCE: The Tenant shall not permit any use of the demised premises which will make voidable any insurance on the property of which the demised premises are a part, or on the contents of said property or which shall be contrary to any law or regulation from the time established by the New England Fire Insurance Rating Association, or any similar body succeeding to its powers. The Tenant shall on demand reimburse Landlord and all other tenants, all extra insurance premiums caused by the Tenants use of the premises and Building. Tenant will provide the Landlord with a waiver of subrogation from the tenants insurer.
12. MAINTENANCE OF PREMISES: The Tenant agrees to maintain the demised premises, in substantially the same conditions as they are at the commencement of the term, or as they may be put in during the term of this Lease, reasonable wear and tear, damage by fire and other casualty only accepted
The Tenant shall not permit the demised premises to be overloaded, damaged, stripped or defaced, nor suffer any waste.
13. ALTERATIONS- ADDITIONS: Tenant shall not make structural alterations or additions to the demised premises, but may make non-structural alterations provided the Landlord consents thereto in writing, which consent shall not be unreasonably withheld or delayed. All such allowed alterations shall be at Tenants expense and shall be in quality at least equal to the present
construction. Tenant shall not permit any mechanics liens, or similar liens, to remain upon the demised premises for labor and material furnished to Tenant or claimed to have been furnished to Tenant in connection with work of any character performed or claimed to have been performed at the direction of Tenant and shall cause any such lien to be released of record forthwith without cost to Landlord. Any additions, alterations or improvements made by the Tenant shall become the property of the Landlord at the termination of occupancy, as provided herein; unless Landlord requires that the tenant remove the same or agrees in writing at the time consent is requested that the Tenant may remove the same at the expiration of the term. With respect to any additions, alterations or improvements to be made by Tenant, Tenant agrees to carry appropriate builders risk insurance, liability insurance, workmans compensation insurance and in addition, any other insurance coverage reasonably requested by Landlord, specifically naming Landlord as an additional insured, as its interest may appear or, in the alternative, Tenant agrees to require similar coverage to be carried by any independent contractor performing additions, alterations or improvements on the demised premises, and, in all events Tenant agrees to indemnify and hold harmless Landlord from any damage to the demised premises, to the building and/or from and against all claims for damages allegedly insured by Tenant or by third parties for work done pursuant to this Section.
14. ASSIGNMENT AND SUBLETTING: Without the prior written consent of Landlord, which shall not be unreasonably withheld, Tenant shall not assign this Lease, sublease all or any part of the Premises, or otherwise transfer or encumber all or any of Tenants interest in this Lease, whether voluntarily, involuntarily or by operation of law, or permit the use or occupancy of the Premises by anyone other than Tenant. Any transfer or change in the ownership of Tenant or any transactions pursuant to which Tenant is merged or consolidated with another entity or pursuant to which all or substantially all of Tenants assets are transferred to any other entity shall be deemed to be an assignment of this Lease.
If Tenant desires to enter into a sublease, Tenant shall provide Landlord with a written description of all terms and conditions of the proposed transaction, copies of the proposed documentation, and the following information about the proposed subtenant (Transferee): (i) name and address, (ii) reasonably complete information about its business and business history, (iii) its proposed use of the Premises, (iv) banking, financial and other credit information
(v) general references sufficient to enable Landlord to determine the proposed Transferees creditworthiness and character, and (vi) such other information as Landlord may reasonably request.
Provided Tenant is not in default beyond applicable cure periods, Landlord shall not unreasonably withhold its consent to a proposed subletting as to which it does not elect to exercise its termination or recapture rights pursuant to the preceding paragraph. Without limiting the foregoing, Tenant agrees that it shall be reasonable for Landlord to withhold its consent to any proposed subletting if:
(i) The proposed Transferee does not have a credit worthiness and reputation acceptable to Landlord in Landlords reasonable business judgment, or
(ii) The proposed Transferee shall not use the Premises for the Permitted Uses only, or
(iii) The proposed. Transferee intends to use the Premises for a purpose or in a manner which is inconsistent with Landlords commitments to other tenants in the Building, or
(iv) The proposed Transferee is likely to cause an increase in Operating Costs, or
(v) The proposed Transferee shall increase the number of occupants in the Premises beyond one (1) person per two hundred feet, or
(vi) The proposed Transferee is another occupant of the Building or a prospective tenant with whom Landlord is then negotiating for a lease, or
(vii) In the case of a subletting, the portion of the Premises to be sublet is not configured and situated so that, with the installation of demising walls only, it may be leased by Landlord as a separate rental unit for office purposes.
If Landlord consents to a proposed subletting, then Tenant may enter into a sublease on the terms set forth in the documentation submitted to Landlord and Tenant shall provide Landlord with a complete copy of such fully executed sublease within thirty (30) days after Landlord gives its consent. No consent to any subletting in a particular instance shall be deemed to be a waiver of the obligation to obtain the Landlords written approval in the case of any other proposed subletting, and Landlord may withhold its consent to any further subletting by a subtenant in Landlords sole and absolute discretion.
Any proposed sublease shall include a written agreement in form reasonably satisfactory to Landlord whereby the Transferee expressly assumes Tenants obligations hereunder. Landlord, after default by Tenant hereunder, may collect the rents from any subtenant or occupant and apply the net amount collected to the rent due under this Lease, but no such collection shall be deemed a waiver of any terms of this Section or the acceptance by Landlord of such subtenant or occupant, as a tenant, or a release of Tenant from the future performance by Tenant of its agreements or obligations contained in this Lease. In the event of termination of this Lease or reentry or dispossession of Tenant by Landlord under this Lease, Landlord may, at its option, take over all of the right, title and interest of Tenant, as sublessor under such sublease, except that neither Landlord nor any mortgagee of the Property, as holder of a mortgage or as Landlord under this Lease if such mortgagee succeeds to that position, shall be liable for any act or omission of Tenant under such sublease or for any monies received or owed by Tenant.
No subletting shall in any way impair the continuing primary liability of Tenant hereunder, and Tenant shall at all times remain liable for the performance of all of the obligations of the tenant under this Lease.
Any subletting or other transfer of Tenants interest in this Lease in contravention of this Section shall be voidable at Landlords option.
Notwithstanding anything in this Section 13 to the contrary, Tenant shall have the right to assign this Lease or to sublet all or a portion of the demised premises to its corporate parent or any subsidiary or affiliated entity without the consent of Landlord being required.
15 SUBORDINATION: This Lease shall be subject and subordinated to any and all mortgages, deeds of trust and other instruments in the nature of a mortgage, now or at any time hereafter, lien or liens on the property of which the demised premises are a part and the Tenant shall, when requested, promptly execute and deliver such written instruments as shall be necessary to show the subordination of this Lease to said mortgages, deeds or trust or other such instruments in the nature of a mortgage.
16 LANDLORDS ACCESS : The Landlord or agents of the Landlord may, with at least twenty-four (24) hours notice to Tenant, at reasonable times enter to view the demised premises and may remove placards and signs not approved and affixed herein provided, and make repairs and alterations as Landlord should elect to do and may show the demised premises to others, and at any time within six (6) months before the expiration of the term, may affix to any suitable part of the demised premises a notice for letting or selling the demised premises or property of which the demised premises are a part and keep the same so affixed without hindrance or molestation.
17 INDEMNIFICATION AND LIABILITY : The Tenant shall save the Landlord harmless from any claims, costs, damages, arising from the tenants use of the premises and activities in the building and from claims, costs and damages arising from the acts of subtenants, employees or others that may be in the premises on behalf of the Tenant. Tenant shall save the Landlord harmless from all loss and damage occasioned by the use or escape of water by the bursting of pipes, as well as from any claim or damage resulting from snow and ice on the roof of the building or from the sidewalks bordering upon the demised premises, or by any nuisance made or suffered on the demised premises, unless such loss is caused by the neglect of the Landlord.
Tenants personal property is at Tenants sole risk.
Landlord shall save the Tenant harmless from any claims ,cost, damages, arising from the Landlords use of the premises and activities in the building and from claims, costs and damages arising from the acts of agents, employees or others that may be in the premises on behalf of the Landlord. Landlord shall save the Tenant harmless from all loss and damage occasioned by the use or escape of water by the bursting of pipes, as well as from any claim or damage resulting from snow and ice on the roof of the building or from the sidewalks bordering upon the demised premises, or by any nuisance made or suffered on the demised premises, unless such loss is caused by the neglect of the Tenant. Landlords personal property is at Landlords sole risk.
18 TENANTS LIABILI1Y INSURANCE : The Tenant shall maintain, with respect to the demised premises and the property of which the demised premises are part, comprehensive public liability insurance in the amount of One Million and 00/100 ($1,000,000.00) Dollars with property damage insurance in limits of One Hundred Thousand Dollars and 00/100 ($ 100,000.00) in responsible companies qualified to do business in Massachusetts and in good standing therein insuring the Landlord as well as Tenant against injury to persons or damage to property as provided. Landlord shall be named as additional insured on such policy. The Tenant shall deposit with the Landlord certificates for such Insurance at or prior to the commencement of the term, and thereafter, within thirty (30) days prior to the expiration of any such policies. All such insurance certificates shall provide that such policies shall not be canceled without at least thirty (30) days prior written notice to each assured named therein.
19 FIRE, CASUAL1Y-EMINENT DOMAIN : Should a substantial portion of the demised premises, or of the Building of which they are a part, be substantially damaged by fire or other casualty, or be taken by eminent domain, the Landlord may elect to terminate this Lease. When such fire, casualty or taking renders the demised premises substantially unsuitable for their intended use or results in Tenant having no reasonable access to the demised premises, a just and proportionate of rent shall be made, and the Tenant may elect to terminate this lease if:
a) The Landlord fails to give written notice within thirty (30) days of the casualty, fire or taking the Landlords intention to restore the leased premises, or
(b) The Landlord fails to restore the leased premises to a condition substantially suitable for their intended use within three (3) months of said fire, casualty, or taking.
The Landlord reserves, and the Tenant grants to the Landlord, all rights which the Tenant may have for damages or injury to the leased premises for any taking by eminent domain, except for damages to the Tenants fixtures, property or equipment.
20 DEFAULT AND BANKRUPTCY : In the event that:
(a) | The Tenant shall default in the payment of any installment of rent or other sum herein specified and such default shall continue for ten (I 0) days; or |
(b) | The Tenant shall default in the observance or performance of any other of the Tenants covenants, agreement or obligations hereunder and such default shall not be corrected within thirty (30) days after written notice thereof; or |
(c) | The Tenant shall be declared bankrupt or insolvent according to law, or, if any assignment shall be made of Tenants property for the benefit of creditors, then the Landlord shall have the right thereafter, which such default continues to re-enter and take complete possession of the demised premises, to declare the term of the Lease ended, and remove the Tenants effects, without prejudice to any remedies which might be otherwise used for arrears of rent or other default. The Tenant shall indemnify the Landlord against all loss of rent and other payments which the Landlord may incur by reason of such termination during the residue of the term. If the Tenant shall default after reasonable notice thereof, in the observance of performance of any conditions or covenants on Tenants part to be observed or performed under or by virtue of any of the provisions in any section of this Lease, the Landlord, without being under obligation to do so without thereby waiving such default, may remedy such default for the account and at the expense of the Tenant. If the Landlord makes any expenditures or incurs any obligations for payment of money in connection there with, including but not limited to reasonable attorneys fees in instituting, prosecuting or defending any action or proceeding, such sums paid or obligations incurred, with interest at the rate of twelve (12) percent per annum and costs, shall be paid to the Landlord by the Tenant as additional rent, hi the event of a default by the Tenant and re-entry and termination of the Lease, the value, at the time of termination, of the excess, if any, of the amount of rent and additional rent reserved in the Lease for the remainder of the stated term over the then reasonable rental value of the Premises for the remainder of the stated term shall become immediately due and payable at Landlords option and Tenant waives all rights and claims for anticipatory breach of the Lease. In all cases, Landlord shall use commercially reasonable efforts to mitigate its damages. |
21 SIGNS : Landlord shall have a right of prior approval of all signs to be utilized by Tenant on his door or outside of the demised premises. Landlord shall also have a right of prior approval of any signs placed by Tenant on the window areas of the demised premises for viewing from outside of the building. Any of such approvals shall not be unreasonably withheld. To the extent that any signs referred to in the Section are subject to local zoning ordinances or rules and regulations of any governmental agency or authority, all such signs will be in compliance therewith. Landlord at its cost shall install building standard signage on the first floor lobby and on the floor directory
22 NON-WAIVER : No waiver by the Landlord and no assent, express or implied, to any breach on the part of the Tenant of any covenant, agreement, condition or duty shall ever be held or construed as a waiver of or consent to any other breach of the same or of any other covenant, agreement, condition or duty. In the event of a breach by the Tenant of any covenant, agreement or condition which is conditioned upon the consent or approval of the Landlord neither the acceptance of rent by the Landlord nor failure by the Landlord to take action on account of such breach or to enforce its rights resulting therefrom shall be deemed a waiver, but such breach shall be a continuing breach until the written consent or approval of the Landlord or its agents shall be obtained.
23 CUMULATIVE RIGHTS: All rights and remedies of the parties pursuant to this Lease are intended in all events to cumulative.
24 LANDORD ASSIGNMENT: Landlord may at its sole option at any time during the term of this Lease assign its rights hereunder and in such event the Tenants obligation hereunder shall run to and Landlord and/or its assignee in accordance with appropriate application of the laws of the Commonwealth of Massachusetts. Landlord may also at its sole discretion utilize the leasehold created pursuant to this Indenture in order to obtain mortgage financing with respect to
the demised premises or to any part of the whole of the building of which the demised premises are a part. Landlord at its sole option has or may in the future assign any other party all rents, profits or other payments now or hereafter becoming due as a rent or otherwise from Tenant.
25 MARGINAL NOTATIONS : Marginal notations contained in this Lease are for the convenience of reference only, and are not intended to be included as part of the terms of this Lease.
26 NOTICES : Any notice from the Landlord to the Tenant relating to the demised premises or in the occupancy thereof, shall be deemed duly served, if (1) hand delivered to the Tenant or, (2) mailed to the demised premises, registered or certified mail, return receipt requested, postage prepaid addressed to the Tenant, or (3) by nationally recognized overnight courier service addressed to the Tenant. Any notice from the Tenant to the Landlord relating to the demised premises or the occupancy thereof, shall be deemed duly served, if (1) hand delivered to landlord, (2) mailed to the Landlord by registered or certified mail, return receipt requested, postage prepaid, addressed to the Landlord, or (3) by nationally recognized overnight courier service at such address as the Landlord may from time to time advise in writing. All rent and notices shall be paid and sent to the Landlord at:
27 SURRENDER : The Tenant shall, at the expiration or other termination of the Lease, remove all Tenants goods and effects from the demised premises (including without hereby limiting the generality of the foregoing, all signs and lettering affixed or painted by the Tenant either inside or outside the demised premises). Tenant shall deliver to the Landlord the demised premises and all keys, locks thereto and other fixtures; connected therewith and all alterations and additions made to or upon the demised premises, in the same condition as they were at the term hereof, reasonable wear and tear and damage by fire or other casual1y only excepted. In the event of the Tenants failure to remove any of Tenants property from the premises, Landlord is hereby authorized, without liability to Tenant for loss or damage thereto, and at the sole risk of Tenant, to remove and store any of the property at Tenants expense, or to retain same under Landlords control or to sell at public or private sale, without notice, any or all of the property not so removed and to apply the net proceeds of such sale to the payment of any sum due hereunder, or to destroy such property. In the event that Tenant remains in possession of all or part of the demised premises after the expiration of the term of this Lease, then said Tenant shall be deemed a tenant of the demised premises from month to month at the same rental and subject to all terms and provisions of the Lease, except only as to the lease term.
28 RULES AND REGULATIONS : Notwithstanding anything elsewhere contained in this Lease to the contrary, use of the premises will at all times be in strict conformity with applicable laws of governmental bodies having jurisdiction thereof and will also be subject from time to time to rules and regulations governing the operation of the building as conveyed to Tenant in writing by Landlord see Exhibit A. Any such rules and regulations will apply to all tenants of the building and compliance therewith is deemed a covenant of Tenant pursuant to this indenture of Lease. Tenant agrees to comply with all procedures conveyed by Landlord regarding the security of the building.
29 LANDLORDS OBLIGATION: If Landlord shall fail to perform any covenant, term or condition of this Lease upon Landlords part to be performed, and if as a consequence of such default Tenant shall recover a money judgment against Landlord, such judgment shall be satisfied only out of the proceeds of same received upon execution of such judgment and levied thereon against the right, title and interest of the Landlord in and to the Building and the land thereunder and out of rents or other income from such property receivable by Landlord. In any event Landlord will never be personally liable to tenant or anyone claiming under tenant.
In the event of a sale or conveyance by Landlord of the building of which the demised premises comprise a part, the same shall operate to release Landlord from any future liability upon any covenant or condition, express or implied, herein contained in favor of Tenant and in such event, Tenant shall look solely to the responsibility of Landlords successor in interest to this Lease for relief with respect to same; provided, however, that Landlord would not be released from liability for any breach which occurred prior to the sale or conveyance of the building.
30 TENANTS CERTIFICATE: Tenant agrees, at any time within ten (10) days of Landlords written request to execute, acknowledge and deliver to Landlord a written statement in form requested by Landlord, certifying that this Lease is unmodified and in full force and effect (or, if there have been modification, that this Lease is in full force and effect as modified and stating the modifications), and the dates to which the minimum rent and other charges have been paid in advance, if any, or whether or not there are then existing any setoffs or defenses against the enforcement of any of the agreements, terms or conditions hereof upon the part of Tenant to be performed or complied with (and, if so, specifying the same), it being intended that any such statement delivered pursuant to this Section may be relied upon by any prospective purchaser or mortgagee of the building and land or any part thereof.
31 BANK APPROVAL: Tenant agrees to complete the Estopple Certificate and Subordination, Non-Disturbance and Attornment Agreements for the Bank that has the mortgage on the Building and acknowledges that this lease may be subject to approval by the mortgage lender.
32 GO VERNING LAW: This Indenture of Lease is to be construed in accordance with the laws of the Commonwealth of Massachusetts.
33 The lease is subject in every respect to the Master Deed of the Condominium, The Declaration of Trust, and the By-Laws and Rules and Regulations thereto.
34 Parking. 3 spaces at $300 each per month when available
IN WITNESS WHEREOF the Landlord and Tenant have hereunto set their hands and common seals this day of
Tenant | Landlord | |
/s/ Scott Schorer | /s/ Francis X Crowley |
GI Dynamics Inc | E F and C LLC | |||
Scott Schorer | Francis X Crowley | |||
Signature | ||||
Printed Name | ||||
Company Position. CEO |
Rules and Regulations
1 The sidewalks, entrances, driveways, passages, loading areas, corridors, vestibules, halls, elevators or stairways in or about the Building shall not be obstructed by Tenant.
2. Tenant shall not place objects against glass partitions, doors or windows which would be unsightly from the Building corridor or from the exterior of the Building. No sign, advertisement, notice or other lettering shall be exhibited, inscribed, painted or fixed by Tenant on any window
Or
part of the outside or inside of the Buildings without prior consent of Landlord, not to be unreasonably withheld or delayed.
3. Tenant shall not place a load upon any floor of the Building exceeding the lesser of the floor load which such floor was designed to carry or that allowed by law.
4. Tenant shall not waste electricity or water in the Building and shall cooperate fully with Landlord to assure the most effective operation of the Building HVAC system. All regulating and adjusting of HVAC equipment shall be done by the Landlords agents or employees.
5. No additional or different locks or bolts shall be affixed on doors by Tenant. Tenant shall return all keys to Landlord upon termination of Tenants lease. Tenant shall not allow peddlers, solicitors or beggars in the Building and shall report such persons to the Landlords agent. Notwithstanding the foregoing, the Tenant may install, at its sole cost and expense, a card access or fob system to control access to the Premises; provided however , that Landlord shall a master key to access the Premises in the manner consistent with this Lease.
6. Tenant shall not use the Premises so as to cause any increase above normal insurance premiums on the Building.
7. No bicycles, vehicles or animals of any kind shall be brought into or kept in or about the Premises. No space in the Building shall be used for manufacturing or for the sale of merchandise of any kind at auction or for storage thereof preliminary to such sale.
8. Tenant shall not engage or pay any employees of the Building without approval from the Landlord. Tenant shall not employ any persons other than the janitor or employees of Landlord for the purpose of cleaning Premises without the prior written consent of Landlord.
9. removals from the Building or the carrying in or out of the Building or the Premises of any freight, furniture or bulky matter of any description must take place at such time and in such manner as Landlord may determine from time to time. Landlord reserves the right to inspect all freight to be brought into the Building and to exclude from the Building all freight which violates any of the rules and regulations or provisions of Tenants lease.
10. Normal Building Operating Hours for the office portion of the Building are 7:00 a.m. to 7:00 p.m. Mondays through Fridays and 9:00 a.m. to 1:00 p.m. on Saturdays excluding New Years Day, Martin Luther Kings Birthday, Presidents Day, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, Christmas Day (and the applicable weekday when any such day occurs on a weekend day) and all other federal, state, county or municipal holidays and all Sundays, except that Landlord reserves the option (at its sole election) to expand or alter Normal Building Operating Hours. Any day (other than a Saturday) on which Normal Building Operating Hours shall occur shall be a Business Day. Outside of Normal Building Operating Hours, Landlord reserves the right to exclude from the Building all persons connected with or calling upon Tenant who do not present a pass to the Building signed by Tenant. Landlord will furnish passes to persons designated by Tenant and Tenant shall be responsible to Landlord for all acts of such persons.
Elevator and stairway door shall be locked at 7 PM. Entering after that time will be Allowed by escort from some member already in the office. Exiting after 7 PM
Shall be via the stairway.
12 | Tenant shall cooperate with Landlord in minimizing loss and risk thereof from fire, flood and associated perils. |
13 | Tenant shall, at Tenants expense, provide artificial light and electric current for the Landlord and/or its contractors, agents and employees during the making of repairs, alterations, additions or improvements in or to the demised premises. |
14 The water and wash closets and other plumbing fixtures shall not be used for any purposes other than those for which they were designed and constructed and no sweepings, rubbish, rags, acid or like substance shall be deposited therein. All damages resulting from any misuse of the fixtures shall be borne by Tenant.
15 Landlord reserves the right to establish, modify and enforce parking rules and regulations.
16 All refuse from the Premises shall be disposed of in accordance with the requirements established therefor by Landlord.
17 Landlord reserves the right at any time to rescind, alter or waive any rule or regulation at any time prescribed for the Building and to impose additional rules and regulations when in its judgment Landlord deems it necessary, desirable or proper for its best interest and for the best interest of tenants and other occupants and invitees thereof. No alteration or waiver of any rule or regulation in favor of one Tenant shall operate as an alteration or waiver in favor of any other Tenant. Landlord shall not be responsible to any Tenant for the non-observance or violation by any other Tenant however resulting of any rules or regulations at any time prescribed for the Building.
Exhibit 31.1
CERTIFICATION PURSUANT
TO RULES 13a-14(a) OR 15d-14(a) UNDER
THE SECURITIES EXCHANGE ACT OF 1934
I, Scott W. Schorer, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of GI Dynamics, Inc. (the registrant); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: August 10, 2016
/s/ SCOTT W. SCHORER |
Scott W. Schorer |
Chief Executive Officer |
(principal executive officer) |
Exhibit 31.2
CERTIFICATION PURSUANT
TO RULES 13a-14(a) OR 15d-14(a) UNDER
THE SECURITIES EXCHANGE ACT OF 1934
I, James Murphy, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of GI Dynamics, Inc. (the registrant); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: August 10, 2016
/s/ JAMES MURPHY |
James Murphy |
Chief Financial Officer |
(principal accounting and financial officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of GI Dynamics, Inc. (the Company) on Form 10-Q for the period ended June 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Scott W. Schorer, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge that:
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ SCOTT W. SCHORER |
Scott W. Schorer |
Chief Executive Officer |
(principal executive officer) |
August 10, 2016 |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of GI Dynamics, Inc. (the Company) on Form 10-Q for the period ended June 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, James Murphy, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge that:
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ JAMES MURPHY |
James Murphy |
Chief Financial Officer |
(principal accounting and financial officer) |
August 10, 2016 |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.