GI DYNAMICS, INC. - FORM 10-Q

Attached files

file	filename
EX-10.1 - SEVENTH AMENDMENT TO NOTE PURCHASE AGREEMENT, DATED JUNE 15, 2017, BETWEEN GI DY - GI DYNAMICS, INC.	f10q0620ex10-1_gidynamics.htm
EX-32.2 - CERTIFICATION - GI DYNAMICS, INC.	f10q0620ex32-2_gidynamics.htm
EX-32.1 - CERTIFICATION - GI DYNAMICS, INC.	f10q0620ex32-1_gidynamics.htm
EX-31.2 - CERTIFICATION - GI DYNAMICS, INC.	f10q0620ex31-2_gidynamics.htm
EX-31.1 - CERTIFICATION - GI DYNAMICS, INC.	f10q0620ex31-1_gidynamics.htm
EX-10.10 - TENTH AMENDMENT TO SENIOR SECURED CONVERTIBLE PROMISSORY NOTE, DATED JUNE 15, 20 - GI DYNAMICS, INC.	f10q0620ex10-10_gidynamics.htm
EX-10.9 - TENTH AMENDMENT TO NOTE PURCHASE AGREEMENT, DATED JUNE 15, 2017, BETWEEN GI DYNA - GI DYNAMICS, INC.	f10q0620ex10-9_gidynamics.htm
EX-10.6 - NINTH AMENDMENT TO SENIOR SECURED CONVERTIBLE PROMISSORY NOTE, DATED JUNE 15, 20 - GI DYNAMICS, INC.	f10q0620ex10-6_gidynamics.htm
EX-10.5 - NINTH AMENDMENT TO NOTE PURCHASE AGREEMENT, DATED JUNE 15, 2017, BETWEEN GI DYNA - GI DYNAMICS, INC.	f10q0620ex10-5_gidynamics.htm
EX-10.4 - EIGHTH AMENDMENT TO SENIOR SECURED CONVERTIBLE PROMISSORY NOTE, DATED JUNE 15, 2 - GI DYNAMICS, INC.	f10q0620ex10-4_gidynamics.htm
EX-10.3 - EIGHTH AMENDMENT TO NOTE PURCHASE AGREEMENT, DATED JUNE 15, 2017, BETWEEN GI DYN - GI DYNAMICS, INC.	f10q0620ex10-3_gidynamics.htm
EX-10.2 - SEVENTH AMENDMENT TO SENIOR SECURED CONVERTIBLE PROMISSORY NOTE, DATED JUNE 15, - GI DYNAMICS, INC.	f10q0620ex10-2_gidynamics.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2020

☐ 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)

320 Congress Street, 3^rd Floor
Boston, Massachusetts		02210
(Address of Principal Executive Offices)		(Zip Code)

(781) 357-3300

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act: None

Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, $0.01 par value per share

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

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

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

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

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

The total number of shares of the registrant’s common stock outstanding on August 1, 2020, was 75,000,000.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements as defined in Section 27A of the United States Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. These forward-looking statements concern Company business, operations, financial performance and condition as well as plans, objectives and expectations for Company business, operations and financial performance and condition. Any statements contained in this Quarterly Report on Form 10-Q that are not of historical facts may be deemed to be forward-looking statements. The forward-looking statements are contained principally in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements include, but are not limited to, statements about the Company’s:

●

expectations with respect to the Company’s intellectual property position;

●

expectations with respect to clinical trials for EndoBarrier^®;

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

	●	the severity, magnitude and duration of the COVID-19 pandemic, including impacts of the pandemic and of businesses’ and governments’ responses to the pandemic on our clinical trials and personnel;

	●	our inability to predict the extent to which the COVID-19 pandemic and related impacts will continue to adversely impact our business operations, financial performance, results of operations, financial position and the achievement of our strategic objectives;

	●	ability to commercialize products;

●

ability to develop and commercialize new products;

●

expectation with regard to product manufacture and inventory; and

●

estimates regarding capital requirements and need for additional financing.

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

These forward-looking statements are based on current expectations, estimates, forecasts and projections about the Company’s business and the industry in which the Company operates and management’s beliefs and assumptions. These forward-looking statements are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond the Company’s control. As a result, any or all forward-looking statements in this Quarterly Report on Form 10-Q may later become inaccurate. The Company may not actually achieve the plans, intentions or expectations disclosed in the forward-looking statements and actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements made. The Company has 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 the Company’s 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 made by the Company.

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 filed as exhibits to the Company’s Annual Report on Form 10-K completely and with the understanding that actual future results may be materially different from what is stated as expectation. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Unless required by law, the Company does 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 described in the reports the Company 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, 2020

TABLE OF CONTENTS

		Page

	PART I – FINANCIAL INFORMATION	1

Item 1.	Financial Statements (unaudited)	1
	Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019	1
	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2019	2
	Consolidated Statements of Changes in Stockholders’ Deficit for the Three and Six Months Ended June 30, 2020 and 2019	3
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019	4
	Notes to Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	28

	PART II – OTHER INFORMATION	29

Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 6.	Exhibits	29
	Signatures	30

References

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

Dates

Unless indicated otherwise in this Quarterly Report on Form 10-Q, all dates are stated as the date representing business hours in the Eastern Daylight Time zone or Eastern Standard Time zones.

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.

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

Item 1. Financial Statements.

GI Dynamics, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(unaudited)

	June 30,			December 31,
	2020			2019
Assets
Current assets:
Cash	$	733		$	2,499
Restricted cash		30			30
Prepaid expenses and other current assets		3,698			1,230
Total current assets		4,461			3,759
Property and equipment, net		27			42
Operating lease right-of-use assets, net of amortization		316			386
Total assets	$	4,804		$	4,187
Liabilities and stockholders’ deficit
Current liabilities:
Accounts payable	$	901		$	636
Accrued expenses		1,230			1,353
Short term debt to related party		5,784			5,000
Short term debt, other		195			—
Derivative liabilities		—			10
Short term operating lease liabilities		171			169
Total current liabilities		8,281			7,168
Long term debt to related party, net of debt discount		2,088			—
Long term lease liabilities		145			217
Total liabilities		10,514			7,385
Commitments and contingencies
Stockholders’ deficit:
Common stock, $0.01 par value – 75,000,000 shares authorized; 36,598,291 shares issued and outstanding		366			366
Additional paid-in capital		284,089			280,928
Accumulated deficit		(290,165	)		(284,492	)
Total stockholders’ deficit		(5,710	)		(3,198	)
Total liabilities and stockholders’ deficit	$	4,804		$	4,187

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

GI Dynamics, Inc. and Subsidiaries

Consolidated Statements of Operations

(In thousands, except share and per share amounts)

(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Operating expenses:
Research and development	$	858		$	810		$	2,031		$	1,620
Sales and marketing		—			6			—			22
General and administrative		1,628			1,393			3,171			2,737
Total operating expenses		2,486			2,209			5,202			4,379
Loss from operations		(2,486	)		(2,209	)		(5,202	)		(4,379	)

Other income (expense):
Interest income		—			—			—			3
Interest expense		(352	)		(5,912	)		(636	)		(6,089	)
Foreign exchange gain (loss)		(2	)		15			(12	)		6
Gain on write-off of accounts payable		—			61			—			90
Re-measurement of derivative liabilities		—			(1,687	)		—			(1,688	)
Other income		13			—			187			—
Other income (expense), net		(341	)		(7,523	)		(461	)		(7,678	)
Loss before income taxes		(2,827	)		(9,732	)		(5,663	)		(12,057	)
Provision for income taxes		5			26			10			32
Net loss	$	(2,832	)	$	(9,758	)	$	(5,673	)	$	(12,089	)

Basic and diluted net loss per common share	$	(0.08	)	$	(0.51	)	$	(0.16	)	$	(0.63	)
Weighted-average number of common shares used in basic and diluted net loss per common share		36,598,291			19,277,545			36,598,291			19,277,545

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

GI Dynamics, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Deficit

(In thousands, except share amounts)

(unaudited)

	Common Stock				Common Stock subscribed but unissued				Additional					Total
THREE MONTHS ENDED JUNE 30, 2020	Shares		Par Value		Shares		Carrying Value		Paid-in Capital		Accumulated Deficit			Stockholders’ Deficit
Balance at April 1, 2020		36,598,291	$	366		—	$	—	$	283,905	$	(287,333	)	$	(3,062	)
Stock-based compensation expense		—		—		—		—		184		—			184
Net loss		—		—		—		—		—		(2,832	)		(2,832	)
Balance at June 30, 2020		36,598,291	$	366		—	$	—	$	284,089	$	(290,165	)	$	(5,710	)

	Common Stock				Common Stock subscribed but unissued				Additional					Total
THREE MONTHS ENDED JUNE 30, 2019	Shares		Par Value		Shares		Carrying Value		Paid-in Capital		Accumulated Deficit			Stockholders’ Deficit
Balance at April 1, 2019		19,277,545	$	193		—	$	—	$	263,580	$	(269,490	)	$	(5,717	)
Reclassification of derivative liabilities to additional paid-in capital upon stockholder approval		—		—		—		—		5,784		—			5,784
Conversion of notes payable to related party		—		—		9,072,197		5,991				—			5,991
2017 Note modification		—		—		—		—		55		—			55
Stock-based compensation expense		—		—		—		—		57		—			57
Net loss		—		—		—		—		—		(9,758	)		(9,758	)
Balance at June 30, 2019		19,277,545	$	193		9,072,197	$	5,991	$	269,476	$	(279,248	)	$	(3,588	)

	Common Stock				Common Stock subscribed but unissued				Additional					Total
SIX MONTHS ENDED JUNE 30, 2020	Shares		Par Value		Shares		Carrying Value		Paid-in Capital		Accumulated Deficit			Stockholders’ Deficit
Balance at January 1, 2020		36,598,291	$	366		—	$	—	$	280,928	$	(284,492	)	$	(3,198	)
Relative fair value of warrants and beneficial conversion feature in connection with August 2019 Note		—		—		—		—		2,765		—			2,765
Stock-based compensation expense		—		—		—		—		396		—			396
Net loss		—		—		—		—		—		(5,673	)		(5,673	)
Balance at June 30, 2020		36,598,291	$	366		—	$	—	$	284,089	$	(290,165	)	$	(5,710	)

	Common Stock				Common Stock subscribed but unissued				Additional					Total
SIX MONTHS ENDED JUNE 30, 2019	Shares		Par Value		Shares		Carrying Value		Paid-in Capital		Accumulated Deficit			Stockholders’ Deficit
Balance at January 1, 2019		19,277,545	$	193		—	$	—	$	263,521	$	(267,159	)	$	(3,445	)
Reclassification of derivative liabilities to additional paid-in capital upon stockholder approval		—		—		—		—		5,784		—			5,784
Conversion of notes payable to related party		—		—		9,072,197		5,991		—		—			5,991
2017 Note modification		—		—		—		—		55		—			55
Stock-based compensation expense		—		—		—		—		116		—			116
Net loss		—		—		—		—		—		(12,089	)		(12,089	)
Balance at June 30, 2019		19,277,545	$	193		9,072,197	$	5,991	$	269,476	$	(279,248	)	$	(3,588	)

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

GI Dynamics, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

	Six Months Ended June 30,
	2020			2019
Operating activities:
Net loss	$	(5,673	)	$	(12,089	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		15			17
Re-measurement of derivative liabilities		—			1,688
Reclassification of warrant from derivative liabilities to other income		(10	)		—
Non-cash interest expense		633			6,086
Stock-based compensation expense		396			116
Non-cash change in accrued compensation		—			(22	)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(2,468	)		(204	)
Accounts payable		265			(136	)
Accrued expenses		(466	)		(743	)
Net cash used in operating activities		(7,308	)		(5,287	)
Investing activities
Purchases of property and equipment		—			(5	)
Net cash used in investing activities		—			(5	)
Financing activities
Debt issuance costs		—			(87	)
Proceeds from Paycheck Protection Program loan		195			—
Proceeds from short term and long term debt, related party		5,347			4,000
Net cash provided by financing activities		5,542			3,913
Net decrease in cash		(1,766	)		(1,379	)
Cash and restricted cash at beginning of period		2,529			3,836
Cash and restricted cash at end of period	$	763		$	2,457
Supplemental disclosures of cash flow information and non-cash activities
Income taxes paid		10			32
Interest paid		3			394
Warrants issuance recorded to APIC and debt discount		2,330			—
Beneficial conversion feature discount associated with August 2019 Note		435			—
Modification of 2017 Note		—			55
Right-of-use asset obtained in exchange for lease liability		—			509
Conversion of notes payable to related party		—			5,991
Reclassification of warrant from derivative liabilities to additional paid-in capital		—			5,784
Fair value of warrants issued with Notes to Related Party		—			4,072

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

GI Dynamics, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited)

1. Nature of Business

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

Diabetes mellitus type 2 (also known as type 2 diabetes) is a long-term progressive metabolic disorder characterized by high blood sugar, insulin resistance, and reduced insulin production. People with type 2 diabetes represent 90-95% of the worldwide diabetes population; only 5-10% of this population is diagnosed with type 1 diabetes (a form of diabetes mellitus wherein little to no insulin is produced).

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

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

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

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

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

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

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

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

Going Concern Evaluation

As of June 30, 2020, the Company’s primary source of liquidity is its cash and restricted cash balances. GI Dynamics is currently focused primarily on obtaining CE mark approval to allow commercialization in select markets and on conducting its clinical trials which will support future regulatory submissions and potential commercialization activities. Until the Company is successful in gaining regulatory approvals, including CE mark, it is unable to sell the Company’s product in any market at this time. Without revenues, GI Dynamics is reliant on funding obtained from investment in the Company to maintain business operations until the Company can generate positive cash flows from operations. The Company cannot predict the extent of future operating losses and accumulated deficit, and it may never generate sufficient revenues to achieve or sustain profitability.

GI Dynamics has incurred operating losses since inception and at June 30, 2020, had an accumulated deficit of approximately $290 million and a working capital deficit of approximately $3.8 million. The Company expects to incur significant operating losses for the next several years. At June 30, 2020, the Company had approximately $760 thousand in cash and restricted cash.

The Company completed an initial public offering on the Australian Securities Exchange (“ASX”) on September 2, 2011. The Company’s Chess Depository Interests (“CDIs”), which represented 1/50^th of a share of the Company’s Common Stock were publicly traded until July 22, 2020, when the Company completed all requirements and was removed from the Official List of the ASX (the “Delisting”, described more fully in Note 10 of the consolidated financial statements). On Delisting, all CDIs were automatically converted to shares of Common Stock with any resulting fractional shares being redeemed by the Company for cash payment. Although the Company is not listed on any public exchange, the Company remains subject to all SEC reporting requirements.

Currently, the Company and Crystal Amber Fund Limited (“Crystal Amber”) have executed a non-binding term sheet for the sale of up to $10 million of shares of Series A Preferred Stock (the “Proposed Offering”) which is expected to close in August or September 2020. Additionally, Crystal Amber has purchased the June 2020 Convertible Note and the August 2020 Convertible Note (together the “2020 Notes”, individually described in detail in Note 8 of the consolidated financial statements) which is expected to fund operations until the anticipated Series A Preferred Stock offering initial close date (the “Initial Close”). On Initial Close, Crystal Amber will provide $5 million, less the 2020 Notes principal balance and any legal fees incurred by Crystal Amber to be paid by the Company in connection with the Proposed Offering. Crystal Amber may sell a portion of the remaining $5 million in the Proposed Offering to additional investors and will purchase any shares of the Proposed Offering that remain unsubscribed by additional investors at October 31, 2020. The Company expects that the cash received in the Proposed Offering will be sufficient to fund the Company’s operations through the later of obtaining of CE mark approval or March 31, 2021, after which additional financing will be required to continue the Company’s operations. Further additional financing will be required to fund operations until the Company achieves sustainably positive cash flow. There can be no assurance that any potential financing opportunities will be available on acceptable terms, if at all. If the Company is unable to raise sufficient capital on the Company’s required timelines and on acceptable terms to stockholders and the Board of Directors, it could be forced to reduce or cease operations that may include activities essential to support regulatory applications to commercialize EndoBarrier, file for bankruptcy, or undertake a combination of the foregoing.

These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these consolidated financial statements are issued.

The accompanying consolidated financial statements have been prepared assuming GI Dynamics will continue as a going concern, which contemplates the realization of assets and liabilities and commitments in the normal course of business. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern.

2. Significant Accounting Policies and Basis of Presentation

The consolidated financial statements and related notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain information and footnote disclosures normally included in complete financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted pursuant to such rules and regulations. These interim consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on March 27, 2020. The Company’s balance sheet at December 31, 2019 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by GAAP for complete financial statements.

In our opinion, the consolidated financial statements included herein contain all adjustments necessary to present fairly our financial position as of June 30, 2020 and the results of our operations and cash flows for the three and six months ended June 30, 2020 and 2019. Such adjustments are of a normal recurring nature. In addition, certain reclassifications of prior period balances have been made to conform to the current period presentation.

Accounting policy relating to authorized share allocation to outstanding shares and instruments

In determining the sufficiency of the number of shares of common stock authorized by shareholders for issuance, the Company accounts for all issued and outstanding shares of common stock as well as all shares of common stock underlying any convertible or exercisable instruments. In order to determine the sufficiency of authorized shares of common stock, the authorized shares are allotted first to the issued and outstanding shares, then sequentially to any additional relevant instruments in order of decreasing time to maturity or termination. Any instrument that does not have sufficient authorized shares of common stock to allow conversion or exercise is reclassified, if needed, as a liability recorded at fair value until sufficient shares of common stock are authorized, at which time the classification returns to the classification determined in the original accounting analysis of the instrument.

Recently Adopted Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, or ASU 2018-13, which provides guidance focused on the disclosure requirements for disclosing fair value estimates, assumptions, and methodology. This ASU removed requirements to disclose details around amount and reasoning for level 1 to level 2 transfers, timing policies for transfer between levels and the valuation processes for level 3 fair value measurements. Modified requirements include details regarding net asset redemption restrictions and timing related to uncertainty disclosures. Further, this ASU added required disclosures of changes in unrealized gains and losses for recurring level 3 measurements held as of the reporting date and disclosures around the range and weighted average of significant inputs used to develop level 3 fair value measurements. These amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption was permitted upon issuance of this update, however the Company declined early adoption. The Company adopted this ASU on January 1, 2020 and concluded that it had no impact on its consolidated financial statements.

3. Net Loss per Common Share

Basic net loss per common share is computed by dividing net loss by the weighted-average number of shares of Common Stock outstanding during the period. Potential common stock equivalents are determined using the treasury stock method. For diluted net loss per share purposes, stock options and other stock-based awards are excluded, 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. For diluted net loss per share purposes, derivatives to purchase shares of common stock or CDIs are treated identically because shares of common stock and CDIs are interchangeable at the sole election of the stockholder. For diluted net loss per share purposes, options and warrants conferring the right to purchase shares of common stock or CDIs are excluded from diluted net loss per share calculations as inclusion would have an anti-dilutive effect. During the three and six months ended June 30, 2020 and 2019, 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, 2020 and 2019, as they would be anti-dilutive:

	Six Months Ended June 30,
	2020		2019
Warrants to purchase common stock		4,625,425		8,277,081
Options to purchase common stock and other stock-based awards		3,274,221		1,545,719
Total		7,899,646		9,822,800

4. Warrants to Purchase Common Stock or CDIs

The following series of warrants were outstanding and exercisable at June 30, 2020 and 2019 (warrants to purchase CDIs presented as shares at a 50 CDI per share ratio):

		Number of underlying		Exercise price per		June 30,
Warrant Series	Issue Date	shares		share		2020		2019
Consultant warrant	May 4, 2016		28,532	$	0.64		28,532		28,532
2018 Warrant (1)	May 24, 2018		1,944,444	$	0.72		—		1,944,444
August 2019 Warrant (2)	January 13, 2020		4,596,893	$	1.00		4,596,893		—
March 2019 Warrant	March 15, 2019		1,579,696	$	0.64		—		1,579,696
May 2019 Warrant	May 8, 2019		4,724,409	$	0.64		—		4,724,409
Total Outstanding and Exercisable							4,625,425		8,277,081
Weighted average exercise price						$	1.00	$	0.66

(1)

Exercise price was initially $0.90 per share, but was adjusted to $0.72 in November 2018

(2)

Financing arranged in August 2019, but funding and the associated issuance of the related warrant did not occur until January 13, 2020

On May 4, 2016, the Company entered into a consulting agreement pursuant to which a consulting firm provides strategic advisory, finance, accounting, human resources and administrative functions, including chief financial officer services, to the Company. In connection with the consulting agreement, the Company granted the consulting firm a warrant (“Consultant Warrant”) to purchase up to 28,532 shares of the Company’s common stock at an exercise price per share equal to $0.64. The Consultant Warrant is fully vested and expires on May 4, 2021. As of June 30, 2020, the Consultant Warrants had not been exercised.

On August 21, 2019, GI Dynamics and Crystal Amber entered into a securities purchase agreement for a total funding of up to approximately $10 million (the “August 2019 SPA”) comprised of the scheduled exercise of the 2018 Warrant, the March 2019 Warrant, and the May 2019 Warrant (totaling 8,248,549 shares of common stock purchased for approximately $5.4 million) and the issue and sale of an Unsecured Convertible Note for up to approximately $4.6 million (the “August 2019 Note”), which included an agreement to issue a warrant (the “August 2019 Warrant”) to purchase up to 229,844,650 CDIs (representing 4,596,893 shares of common stock) for an exercise price of $0.02 per CDI issued on exercise. On December 16, 2019, stockholders approved the issuance of the August 2019 Warrant, which was issued on January 13, 2020 upon funding of the August 2019 Note.

5. Fair Value Measurements

Information about the Company’s assets and liabilities that are measured at fair value initially or on a recurring basis as of June 30, 2020 and December 31, 2019 is provided below and includes 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.

On March 31, 2020, the classification of the Consultant Warrant was re-evaluated, and the Company re-classified it as an equity instrument. On March 31, 2020, this reclassification resulted in a credit to Other Income.

On June 18, 2020, a convertible note was issued to Crystal Amber, the terms of which included a mandatory conversion of outstanding principal and interest into shares issued in the next Qualified Financing, and currently expected to be the Series A Preferred Stock contemplated in the Proposed Financing, at a conversion price equal to 80% of the price per share of Series A Preferred Stock. The fair value of the convertible note was determined using directly observable Level 2 inputs including the time period to the Proposed Offering, accrued interest and the fixed conversion premium. The Company has elected the interest method of accretion to approximate fair value, so the June 2020 Note is not re-measured on a recurring basis.

Cash, restricted cash, prepaid expenses and other current assets, accounts payable, accrued expenses, short-term debt to related party, excluding the June 2020 convertible note, and other current liabilities at June 30, 2020 and December 31, 2019 are carried at amounts that approximate fair value due to their short-term maturities and highly liquid nature of these instruments.

6. Concentrations of Credit Risk and Related Valuation Account

Financial instruments that subject the Company to credit risk primarily consist of cash and restricted cash. Cash balances are maintained with high quality financial institutions, and consequently, the Company believes that such funds are subject to minimal credit risk. The Company’s short-term investments potentially subject the Company to concentrations of credit risk. GI Dynamics has adopted an investment policy that limits the amounts it may invest in any one type of investment and requires all held investments to hold at least an A rating from a recognized credit rating agency, thereby reducing credit risk concentration.

7. Accrued Expenses

Accrued expenses consisted of the following (in thousands):

	June 30,		December 31,
	2020		2019
Payroll and related liabilities	$	362	$	531
Professional fees		162		335
Credit refunds		—		164
Interest payable		594		250
Other		112		73
Total	$	1,230	$	1,353

In 2017, following notification by the Medicines and Healthcare Products Regulatory Agency (“MHRA”), the Company notified its customers to return their inventory on hand. The Company calculated an estimate for returns, reversed its revenue and recorded an accrued expense estimate of $202 thousand of product return related costs in addition to $77 thousand of credit memos granted to customers. Through December 31, 2019, this reserve had various claims and adjustments of $115 thousand. On March 31, 2020, the Company reversed the remaining accrual for $164 thousand and recognized Other Income as the Company concluded that the likelihood that further claims will be made was remote, given the amount of time having lapsed since product expiry, during which the Company has not received any such claims.

Accrued interest at June 30, 2020 includes interest on the 2017 Note since January 1, 2019, the August 2019 Note since January 13, 2020, and the June 2020 Note since June 18, 2020.

8. Notes Payable

2017 Convertible Note Financing

On June 15, 2017, the Company entered into a Note Purchase Agreement (“2017 NPA”) by and between the Company and Crystal Amber, a Related Party. Pursuant to the 2017 NPA, the Company issued and sold to Crystal Amber, a Senior Secured Convertible Promissory Note in an aggregate original principal amount of $5.0 million (the “2017 Note”).

The 2017 Note accrues interest at an annually compounded rate of 5% per annum, other than during the continuance of an event of default, when the 2017 Note accrues interest at a rate of 8% per annum. The entire outstanding principal balance and all unpaid accrued interest thereon was initially due on the original maturity date of December 31, 2018, and, as announced on July 1, 2020, was most recently amended to extend the maturity date to July 31, 2020.

The 2017 Note is secured by a first priority security interest in substantially all tangible and intangible assets of the Company, including intellectual property (the “Collateral”). In the event of an uncured default, Crystal Amber, is authorized to sell, transfer, assign or otherwise deal in or with the Collateral or the proceeds thereof or any related goods securing the Collateral, as fully and effectually as if Crystal Amber were the absolute owner thereof.

The ASX provided the Company with a waiver to allow all asset liens (the “Security”) to be granted to Crystal Amber, without the customary requirement of having to obtain stockholder approval for the grant of a security to a Related Party of the Company. As a result of the waiver, the Security contains a provision that provides that if an event of default occurs and Crystal Amber exercises its rights under the Security, neither Crystal Amber nor any of its associates can acquire any legal or beneficial interest in an asset of the Company or its subsidiaries in full or partial satisfaction of the Company’s obligations under the Security, or otherwise deal with the assets of the Company or its subsidiaries, without the Company first having complied with any applicable ASX Listing Rules, including ASX Listing Rule 10.1, other than as required by law or through a receiver, manager, or analogous person appointed by Crystal Amber exercising its power of sale under the Security and selling the assets to an unrelated third party on arm’s length commercial terms and conditions and distributing the cash proceeds to Crystal Amber or any of its associates in accordance with their legal entitlements.

The entire outstanding principal balance under the 2017 Note and all unpaid accrued interest thereon is convertible into CDIs (i) prior to the maturity date, at the option of Crystal Amber at a conversion price calculated based on the five-day volume weighted average price of the Company’s CDIs traded on the ASX (“Optional Conversion Price”), or (ii) automatically upon the occurrence of an equity financing in which the Company raises at least $10 million (a “Qualified Financing”) at the price per CDI of the CDIs issued and sold in such financing.

On July 13, 2020, Crystal Amber provided the Company with a notice of optional conversion of the 2017 Note. On the conversion date, the principal of $5 million and the accrued and unpaid interest of $390,240 totaled $5,390,240. The conversion price was based on the 5-day volume weighted average close price (“VWAP”) per CDI for the 5 trading days immediately preceding the date of notice. The price per CDI closed at A$0.003 each day, making the VWAP A$0.003, which equaled $0.002093 per CDI or $0.10467 per share of Common Stock. The Note converted into 2,574,873,400 CDIs, which is equal to 51,497,468 shares of Common Stock.

On receipt of the notice of conversion, the Company did not have sufficient authorized shares to issue to CHESS Depository Nominees, Ltd. (“CDN”) to enable the required number of CDIs to be allotted to Crystal Amber. The available 38,401,704 shares were issued to CDN, allowing the allotment of 1,920,085,200 CDIs to Crystal Amber. The Company and Crystal Amber executed a Right to Shares and Waiver Agreement in which the Company agreed to issue the remaining 13,095,764 shares of Common Stock owed under the conversion when the Company has filed an amended and restated certification of incorporation with the Delaware Secretary of State in connection with the consummation of the Proposed Financing and the Company has been delisted from the ASX. On July 22, 2020, the Company was removed from the Official List of the ASX (“Delisted”) and the CDN trust was subsequently dissolved, causing all CDIs to automatically convert to shares of Common Stock. The additional securities owed under the conversion will be issued as shares of Common Stock.

For the three and six months ended June 30, 2020, the Company recognized interest expense of $65 and $131 thousand, respectively, related to the 2017 Note. For the three and six months ended June 30, 2019, the Company recognized interest expense of $63 and $126 thousand, respectively, related to the 2017 Note as well as interest expense related to the additional debt discount liability of $55 thousand and $55 thousand, respectively.

August 2019 Securities Purchase Agreement

On August 21, 2019, the Company entered into the August 2019 SPA by and between the Company and Crystal Amber. The August 2019 SPA detailed a timeline wherein Crystal Amber would exercise the 2018 Warrant, the March 2019 Warrant, and the May 2019 Warrant. Additionally, pursuant to the August 2019 SPA, the Company issued and sold to Crystal Amber a senior unsecured convertible promissory note in an aggregate principal amount of approximately $4.6 million, or such lesser amount as may be set forth in a notice delivered by the Company to Crystal Amber (the “August 2019 Note”), to be funded on December 6, 2019, or such earlier or later date as may be requested by the Company (the “Funding Date”). In conjunction with the August 2019 Note, the Company agreed to issue to Crystal Amber a Warrant (the “August 2019 Warrant”) to purchase CDIs, subject to the receipt of required stockholder approval approving the issuance of the August 2019 Warrant and the funding of the August 2019 Note (see Note 4).

The August 2019 Note accrues interest at a rate equal to 10% per annum from the August 2019 Note Funding Date, compounded annually, other than during the continuance of an event of default, when the August 2019 Note accrues interest at a rate of 16% per annum. The entire outstanding principal balance and all unpaid accrued interest thereon is due on the fifth anniversary of the Funding Date. The entire outstanding principal balance under the August 2019 Note and all unpaid accrued interest thereon is immediately convertible into CDIs at the option of Crystal Amber at a conversion price equal to US$0.02 per CDI. In the event that the Company issues additional CDIs to a stockholder other than Crystal Amber in a subsequent equity financing at a price per CDI that is less than the conversion price under the August 2019 Note, the conversion price shall be reduced to the lowest such price per CDI. In addition, upon a change of control of the Company resulting in cash proceeds, Crystal Amber may, at its option, demand that the Company prepay all accrued and unpaid interest plus 110% of the remaining outstanding unconverted principal balance. The Company may not prepay the August 2019 Note without the consent of Crystal Amber, a Related Party. If the stockholder approvals required to issue the August 2019 Warrant or to approve the conversion rights under the August 2019 Note are not obtained, the Company is obligated to prepay all accrued and unpaid interest plus 110% of the remaining outstanding unconverted principal balance on the earlier of the Funding Date or the date that is six months following the date of the stockholder meeting at which the requisite approvals were not obtained. The Company considers the change in control premium and the stockholder approval premium to each represent a cash settleable feature, thereby requiring derivative liability classification. On applying a probability adjusted present value of the premiums, the fair value was considered immaterial upon issuance and through the end of this reporting period.

The August 2019 SPA contains customary events of default. If a default occurs and is not cured within the applicable cure period or is not waived, any outstanding obligations under the August 2019 Note may be accelerated. The August 2019 SPA and related August 2019 Note and August 2019 Warrant documents also contain additional representations and warranties, covenants and conditions, in each case customary for transactions of this type.

Prior to December 6, 2019, the Company notified Crystal Amber that it had elected to receive the full amount of approximately $4.6 million under the August 2019 Note, but agreed to timing extensions.

On December 16, 2019, stockholder approval was obtained pursuant to ASX Listing Rule 10.11, for the August 2019 Note conversion feature and the issuance of the August 2019 Warrant, contingent on receipt of the August 2019 Note proceeds.

On January 13, 2020, the full amount of approximately $4.6 million was received as proceeds from the August 2019 Note. On receipt of funds, the August 2019 Note was immediately convertible. On January 13, 2020, the Company issued to Crystal Amber an immediately exercisable August 2019 Warrant to purchase 229,844,650 CDIs (representing 4,596,893 shares of common stock) for an exercise price of $0.02 per CDI (see Note 4).

On issuance, having already obtained the required stockholder approval to reserve the CDIs underlying the conversion feature and the August 2019 Warrant, the August 2019 Warrant was determined to be a freestanding instrument meeting the requirements for equity classification in accordance with ASC 480-10 Distinguishing Liabilities from Equity, ASC 815-40 Contracts in an Entity’s Own Equity and ASC 470-20 Debt with Conversion and Other Options. Accordingly, proceeds from the August 2019 SPA were allocated to the August 2019 Note and Warrant based on their relative fair values. The relative fair value of the August 2019 Warrant of approximately $2.3 million was recorded as a debt discount with the offset to additional paid-in capital. Additionally, the Company analyzed the conversion features of the August 2019 Note to determine whether a beneficial conversion feature (BCF) existed. The Company determined a BCF with a value of $435 thousand existed and was recorded as a debt discount with the offset to additional paid-in capital. The total debt discount will be amortized to interest expense through the January 2025 maturity of the August 2019 Note.

For the three and six months ended June 30, 2020, the Company recorded accrued interest expense of $115 and $213 thousand, respectively, related to the August 2019 Note. For the three and six months ended June 30, 2020, the Company recognized interest expense of $138 and $256 thousand, respectively, from the amortization of the debt discount.

Paycheck Protection Program (“PPP”) Loan

On March 27, 2020, the CARES Act was signed into law in the United States providing economic assistance for American workers and families, small businesses, and preserves jobs for American industries. On April 4, 2020, GI Dynamics submitted an application to a lending institution for a loan of approximately $200 thousand under the Paycheck Protection Program (“PPP”). In accordance with the provisions of the PPP, the loan accrues interest at a rate of 1% and all or a portion of the loan may be forgiven if it is used to pay for qualifying costs such as payroll, rent and utilities. Amounts that are not forgiven will be repaid 2 years from the date of the loan. The loan was granted by the lending institution on May 8, 2020 and funds were received into the Company’s bank account on May 11, 2020. The Company believes expenditures of the loan proceeds are fully compliant with the terms for loan forgiveness.

To date, the Company’s lender has been unable to accept forgiveness applications and the Company intends to submit a forgiveness application as soon as the lender is able to receive and process forgiveness applications.

June 2020 Convertible Note

On June 18, 2020, the Company entered into a Note Purchase Agreement (“June 2020 NPA”) by and between the Company and Crystal Amber. Pursuant to the June 2020 NPA, the Company issued and sold to Crystal Amber, a Convertible Promissory Note in an aggregate original principal amount of $750,000 (the “June 2020 Note”).

The June 2020 Note accrues interest at an annually compounded rate of 5% per annum, other than during the continuance of an event of default, when the June 2020 Note accrues interest at a rate of 8% per annum. The entire outstanding principal balance and all unpaid accrued interest thereon becomes immediately due and payable at the sole discretion of Crystal Amber any time after December 18, 2020. The entire outstanding principal balance and all unpaid accrued interest under the June 2020 Note will mandatorily convert at the Initial Close of the Proposed Offering into shares of Series A Preferred Stock at a conversion price equal to 80% of the price per share of Series A Preferred Stock sold in the Proposed Offering.

The Company analyzed the June 2020 Note and its settlement features under ASC 480-10 Distinguishing Liabilities from Equity, and having determined that the predominant settlement feature is the mandatory conversion into shares of Series A Preferred Stock at the close of the Proposed Financing, the June 2020 Note and settlement features should be recorded at fair value as a liability. The Company initially recorded the fair value of the June 2020 Note as the principal value of the Note and will subsequently use the effective interest rate method to accrete the value of the conversion premium, recorded as a debt discount, and nominal interest over the period to expected conversion.

Prior to December 18, 2020, if a Company change of control event generates cash proceeds for the Company, Crystal Amber may, at its option, demand that the Company pay all accrued and unpaid interest plus 110% of the remaining outstanding unconverted principal balance. The Company may not prepay the June 2020 Note without the consent of Crystal Amber.

The Company considers the change in control premium to represent a cash settleable feature, thereby requiring derivative liability classification. On applying a probability adjusted present value of the premiums, the fair value was considered immaterial upon issuance and through the end of this reporting period.

For the three and six months ended June 30, 2020, the Company recorded interest expense of $2 thousand and $34 thousand for amortization of the debt discount.

August 2020 Convertible Note

On August 4, 2020, the Company entered into a Note Purchase Agreement (“August 2020 NPA”) by and between the Company and Crystal Amber. Pursuant to the August 2020 NPA, the Company issued and sold to Crystal Amber, a Convertible Promissory Note in an aggregate original principal amount of $500,000 (the “August 2020 Note”). The Company received $250 thousand on August 3, 2020 and the remaining $250 thousand on August 6, 2020.

The August 2020 Note accrues interest at an annually compounded rate of 5% per annum, other than during the continuance of an event of default, when the June 2020 Note accrues interest at a rate of 8% per annum. The entire outstanding principal balance and all unpaid accrued interest thereon becomes immediately due and payable at the sole discretion of Crystal Amber any time after February 4, 2021. The entire outstanding principal balance and all unpaid accrued interest under the June 2020 Note will mandatorily convert at the Initial Close of the Proposed Offering into shares of Series A Preferred Stock at a conversion price equal to 80% of the price per share of Series A Preferred Stock sold in the Proposed Offering.

The Company analyzed the August 2020 Note and its settlement features under ASC 480-10 Distinguishing Liabilities from Equity, and having determined that the predominant settlement feature is the mandatory conversion into shares of Series A Preferred Stock at the close of the Proposed Financing, the August 2020 Note and settlement features should be recorded at fair value as a liability. The Company initially recorded the fair value of the August 2020 Note as the principal value of the Note and will subsequently use the effective interest rate method to accrete the value of the conversion premium, recorded as a debt discount, and nominal interest over the period to expected conversion.

Prior to February 4, 2021, if a Company change of control event generates cash proceeds for the Company, Crystal Amber may, at its option, demand that the Company pay all accrued and unpaid interest plus 110% of the remaining outstanding unconverted principal balance. The Company may not prepay the August 2020 Note without the consent of Crystal Amber.

9. Commitments and Contingencies

Lease Commitments

In December 2018, the Company entered into a 6-month membership agreement with WeWork for 985 square feet of office space located in Boston, Massachusetts. The committed lease term expired in May 2019. The WeWork agreement contained no explicit or guaranteed extension provisions.

On April 22, 2019, the Company entered into a right-of-use lease for 3,520 square feet of office space in Boston, Massachusetts. The lease period contractually commenced June 1, 2019 and expires on May 31, 2022, but the space was available for occupancy on May 1, 2019 resulting in an effective period of May 2019 through May 2022, with no rent payment assessed in May 2019. The lease has defined escalating rent payments and contains no extension or expansion rights. On lease execution, the Company recorded the approximately $463 thousand present value of the lease liability in short-term and long-term liabilities and recorded a related right-of-use asset. The right-of-use asset will be amortized to lease expense and the liability will be reduced by the rent payments over the term of the lease.

The Company’s leases generally do not provide an implicit interest rate and therefore the Company uses 10% as an estimate of its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease in a similar economic environment. The Company had no leases currently classified as finance leases or previously classified as capital leases in either reporting period.

The Company’s operating lease is reflected in the balance sheets. In the three and six months ended June 30, 2020, $44 and $88 thousand of lease expense was incurred and an additional $7 thousand of tax expense was accrued for property taxes associated with the leased facility. Other information related to leases was as follows (in 2019, other leases were all short term and excluded from the scope of ASC 842, Leases):

	Six Months Ended June 30,
	2020			2019
	(in thousands)
Operating cash flows from operating leases in lease liability measurement	$	88		$	16
Operating cash flows from short term leases		88			92
Remaining long-term lease term in years		1.9			2.8
Discount rate		10	%		10	%

The maturity of the Company’s operating lease liability as of June 30, 2020 is as follows:

	June 30, 2020
	(in thousands)
2020	$	90
2021		182
2022		76
Total future minimum lease payments		348
Less: imputed interest		32
Total liabilities	$	316

Rent expense on non-cancelable operating leases was approximately $45 and $90 thousand for the three and six months ended June 30, 2020. Rent expense on non-cancelable operating leases was approximately $55 and $92 thousand for the three and six months ended June 30, 2019.

10. Stockholders’ Deficit

On December 19, 2019, GI Dynamics stockholders approved an increase of its authorized shares of common stock from 50 million to 75 million.

As of June 30, 2020, the authorized capital stock of the Company consists of 75.5 million shares, of which 75 million shares are designated as common stock and 500 thousand shares are designated as preferred stock.

On May 26, 2020, the Company filed a definitive proxy statement and Notice of Stockholder Meeting with the Securities and Exchange Commission in the United States and with ASX in Australia. The proposal to be voted by shareholders was to formally apply for removal from the Official List of the ASX (the “Delisting”). On June 20, 2020, stockholders approved the Delisting and notice was given to the market that a formal Delisting application had been submitted to ASX. The Company was not offering any share purchase facilities under the Delisting plan. After a 30-day trading period ending 4:00 p.m. July 22, 2020 Australian Eastern Standard Time, the Company was Delisted. All CDIs were converted to shares of Common Stock before the CDN was dissolved. Registered holders converting CDIs such that a fractional common share is generated will receive cash payment for such fractional share. The Company’s SEC reporting requirements shall still be in effect, even though the Company’s securities are not listed on any exchange.

11. Share-Based Compensation

The Company has two stock-based compensation plans. The Board of Directors adopted the 2003 Omnibus Stock Plan (the “2003 Plan”), which provides for the grant of qualified incentive stock options and nonqualified stock options or other awards to the Company’s employees, officers, directors, advisors, and outside consultants to purchase up to an aggregate of 922,086 shares of the Company’s common stock.

In August 2011, the Board of Directors adopted the 2011 Employee, Director and Consultant Equity Incentive Plan (the “2011 Plan”, together with the 2003 Plan, the “Plans”) as the successor to the 2003 Plan. Under the 2011 Plan, the Company may grant incentive stock options, nonqualified stock options, restricted and unrestricted stock awards and other stock-based awards. As of June 30, 2020, an additional 554,866 shares of common stock were available for grant under the Company’s 2011 Plan.

In addition, the 2011 Plan 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 thousand shares;

●

4% of the number of shares of Common Stock outstanding as of such date; and

●

an amount determined by the Board of Directors or the Company’s compensation committee. Accordingly, during each of the quarters ended March 31, 2020 and March 31, 2019, 500 thousand shares were added to the 2011 Plan.

Stock-Based Compensation

Stock-based compensation is reflected in the consolidated statements of operations as follows for the three and six months ended June 30, 2020 and 2019 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Research and development	$	15	$	16	$	28	$	32
General and administrative		169		41		368		84
	$	184	$	57	$	396	$	116

The stock options granted under the Plans generally vest over a four-year period and expire ten years from the date of grant.

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, 2020 and 2019:

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Expected volatility		164.9	%		126.1	%		164.9	%		126.1	%
Expected term (in years)		5.84			6.05			5.84			6.05
Risk-free interest rate		0.9	%		1.8	%		0.9	%		1.8	%
Expected dividend yield		0	%		0	%		0	%		0	%

Stock Options

The following table summarizes share-based activity under the Company’s stock option plans for the six months ended June 30, 2020:

	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, 2019		3,096,154		$	1.47		8.3	$	—
Granted		90,000		$	0.23		—	$	—
Cancelled		(161,933	)	$	0.83		—	$	—
Outstanding at June 30, 2020		3,024,221		$	1.47		8.4	$	—
Vested or expected to vest at June 30, 2020		3,024,221		$	—		—	$	—
Exercisable at June 30, 2020		775,930		$	2.74		6.6	$	—

The majority of the Company’s option grants vest 25% on the first anniversary of the grant date, and in a quarterly straight-line rate thereafter until fully vested on the fourth anniversary of the grant date. The weighted average grant date fair value for options granted in the six-month period ended June 30, 2020, was $0.18. The unrecognized stock compensation expense at June 30, 2020 was $1.8 million and was expected to be recognized over a weighted average period of 2.9 years from June 30, 2020.

The Company has recorded non-employee stock-based compensation expense of approximately $1 thousand and $nil during the six-month period ended June 30, 2020 and 2019, respectively, which is included in total stock-based compensation expense. The unrecognized compensation expense associated with outstanding non-employee grants was $2 thousand and $nil at June 30, 2020 and 2019, respectively.

On February 28, 2020, the Company’s Board of Directors approved, subject to stockholder approval per ASX Listing Rule 10.14, the grant of stock options (“NED Options”) conferring the right to purchase up to 30 thousand shares of the Company’s common stock to Praveen Tyle, a non-executive director pursuant to the Company’s 2011 Plan. The exercise price is $0.20 per share of common stock and the NED Options will vest in full on February 28, 2021 if Dr. Tyle remains a director of the Company through that date. The NED Options will vest immediately on a change in control event. The NED Options are immediately exercisable, subject to repurchase rights if purchased prior to vesting. The NED Options will be cancelled immediately upon termination of service as a director, unless such termination is the result of a defined change in control event, in which case the NED Options will be cancelled 12 months after such termination. As of June 30, 2020, stockholders had not yet approved the NED Options.

On February 15, 2020, the Company granted a consultant an option to purchase up to 10 thousand shares of common stock at a price of $0.40 per share. The option vests in equal monthly amounts over a 24-month period and expires in 10 years.

At June 30, 2020, the Company had unvested outstanding options to purchase 7,915 shares of common stock granted to non-employees.

Performance Stock Units

Each performance stock unit (“PSU”) represents a contingent right to receive one share of the Company’s common stock. There is no consideration payable on the vesting of PSUs issued under the Plans. Upon vesting, the PSUs are exercised automatically and settled in shares of the Company’s common stock. During the six months ended June 30, 2020, the Company awarded no PSUs to employees and directors of the Company.

The following table summarizes information related to PSU activity for the six months ended June 30, 2020:

	Number of Units		Weighted- Average Contractual Life		Aggregate Intrinsic Value
			(in years)		(in thousands)
Outstanding at December 31, 2019		250,000		6.23	$	149
Granted		—
Exercised		—
Cancelled		—		—		—
Outstanding at June 30, 2020		250,000		5.73	$	25

The aggregate intrinsic value at June 30, 2020 noted in the table above represents the closing price of the Company’s common stock multiplied by the number of PSUs outstanding. The fair value of each PSU award equals the closing price of the Company’s common stock on the date of grant.

At June 30, 2020, 250 thousand of the PSUs outstanding vest on the achievement of certain milestones. When achievement of the milestone is deemed probable, the Company will expense the compensation of the respective stock award over the implicit service period.

At June 30, 2020, the Company recognized no stock-based compensation related to performance-based vesting of PSUs.

As of June 30, 2020, there was approximately $200 thousand of unrecognized stock-based compensation expense related to non-vested PSU awards that have performance-based vesting.

12. Segment Reporting

Operating segments are components of an enterprise for which separate financial information is available and is evaluated regularly by the Company’s 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

The Company has historically reported various geographic segments but does not do so currently as the right-of-use asset of approximately $463 thousand and all long-lived assets, comprised of property and equipment of approximately $27 thousand are all held in the U.S. at June 30, 2020. Additionally, the Company did not have revenue in any geography for the three and six months ended June 30, 2020 and 2019, respectively.

Major Customers

The Company did not recognize any revenue for the three and six months ended June 30, 2020 and 2019, respectively.

13. Subsequent Events

Material events occurring subsequent to June 30, 2020 detailed within the relevant sections above include the conversion of the 2017 Note and the issuance of the August 2020 Note (both described in Note 8 of the Notes to the Consolidated Financial Statements), and the Company Delisting from the ASX (described in Note 10 of the Notes to the Consolidated Financial Statements).

On July 13,2020, Crystal Amber and the Company entered into a non-binding term sheet that establishes agreement on key terms of the Proposed Financing. Components of the term sheet include, but are not limited to, shareholders authorizing the necessary shares included in the Proposed Financing transaction; Delisting from the Official List of ASX, which occurred on July22, 2020; Exchange or amendment of the August 2019 Convertible Note to new terms and a conversion price per share of Common Stock of 200% of the per share price of the Series A Preferred Stock sold in the Proposed Financing; cancellation of the Warrant issued to Crystal Amber on January 13, 2020 and the Company agreement to negotiate the cancellation of the Consultant Warrant. The non-binding term sheet also addresses certain rights and preferences of the Series A Preferred Stock, including, but not limited to, liquidation preference of 120% of the price paid in the Proposed Financing and subsequent participation on an as-converted basis; automatic 1:1 conversion to shares of Common Stock in the event of a qualified IPO; Board of Director appointment rights, and other terms customary for Preferred Stock in this type of transaction. The ASX announcement outlining the terms of the non-binding term sheet is available on the Company website using the link http://investor.gidynamics.com/investors/financial-information/default.aspx or on the ASX announcement website at https://www.asx.com.au/asxpdf/20200720/pdf/44knm99nrgt4md.pdf

On July 16, 2020, the four then-current members of the Board of Directors of the Company advised the Company of their intent, subsequent to Delisting, to appoint a new member to the Board of Directors, then resign. On July 23, 2020, each member of the Board of Directors submitted a resignation letter to be effective at 5:00 p.m. July 29, 2020. On July 29, prior to 5:00 p.m. each Board member retracted their resignation and withdrew the corresponding resignation letter given that the Board believed that each member should continue to serve for proper corporate governance practices until the definitive documentation for the proposed $10 million Series A Preferred Stock financing is executed.

The intentions to resign are not a result of any dispute or disagreement with the Company or the Board on any matter relating to the operations, policies or practices of the Company.

On July 23, 2020 the Company entered into a Retention Bonus Agreement and Amendment with Scott Schorer, the Company’s Chief Executive Officer, setting forth the terms of Mr. Schorer’s continued employment as CEO through at least December 31, 2020 (the “Retention Period”). In lieu of any severance benefits Mr. Schorer would otherwise be entitled to per the Amended and Restated Offer Letter of September 19, 2019 (the “Offer Letter”), the Company paid Mr. Schorer a one-time cash bonus of approximately $609 thousand, subject to tax withholding (“the Retention Bonus”). The Retention Bonus is subject to pro-rata forfeiture and repayment if Mr. Schorer leaves the Company prior to December 31, 2020, without Good Cause as defined in the Offer Letter or if terminated for Cause. The pro-rata forfeiture and repayment schedule is as follows: (i) termination between August 1, 2020 and August 31, 2020: 5/6 of Retention Bonus to be repaid (i.e., approximately $508 thousand); (ii) termination between September 1, 2020 and September 30, 2020: 4/6 of Retention Bonus to be repaid (i.e., approximately $406 thousand); (iii) termination between October 1, 2020 and October 31, 2020: 3/6 of Retention Bonus to be repaid (i.e., approximately $305 thousand); (iv) termination between November 1, 2020 and November 30, 2020: 2/6 of Retention Bonus to be repaid (i.e., approximately $203 thousand); (v) termination between December 1, 2020 and December 31, 2020: 1/6 of Retention Bonus to be repaid (i.e., approximately $102 thousand); and (vi) termination after December 31, 2020: 0/6 of Retention Bonus to be repaid (i.e., $0.00). Additionally, in lieu of any performance bonus Mr. Schorer may be entitled to per the Offer Letter, Mr. Schorer is eligible for a milestone bonus of up to $100 thousand, subject to tax withholding, for achieving the receipt of European CE mark approval and/or achieving approval of the I-Step clinical trial in India during the Retention Period. If Mr. Schorer’s employment is terminated without cause or if Mr. Schorer resigns for Good Reason as defined in the Offer Letter, and a milestone is subsequently attained, Mr. Schorer will be entitled to a pro-rata portion of the Milestone Bonus based on the percentage of the Retention Period that Mr. Schorer remained employed by the company. Mr. Schorer’s salary will remain at an annualized $450 thousand and should Mr. Schorer continue employment after the Retention Period, the performance bonus provision in the Offer Letter resumes January 1, 2021. In the event Mr. Schorer’s employment is terminated for any reason following the Effective Date of the Retention Bonus Agreement and Amendment, whether voluntarily or involuntarily, then Mr. Schorer will provide consulting services to the Company at a rate of $325 per hour on a part-time basis averaging ten hours per month, subject to adjustment by the parties (the “Consulting Services”), for a period of six months following such termination (the “Consulting Term”), subject to earlier termination by mutual agreement of the parties.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Information

The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the 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 management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2019 included in the Company’s 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” Item 1A. of the Company’s Annual Report on Form 10-K, which are incorporated herein by reference, 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

GI Dynamics is a clinical stage medical device company located in Boston, Massachusetts. The Company has developed EndoBarrier, a medical device intended to treat patients with type 2 diabetes and to reduce obesity. GI Dynamics is taking the steps necessary to obtain the regulatory approvals required to market this product. In order to market EndoBarrier in the U.S., GI Dynamics must obtain approval from the FDA. In order to market EndoBarrier outside of the U.S., GI Dynamics is required to comply with various regulations imposed by the countries in which it seeks to sell the product.

In 2010, EndoBarrier received CE Marking for sale in the European Union and in 2011, EndoBarrier was listed on the Australian Register of Therapeutic Goods. As a result, during 2013 and 2014, the Company received approximately $2.8 million and $2.3 million, respectively, in revenue from the sale of EndoBarrier in Europe, South America and the Asia Pacific region. In the U.S. in 2013, the Company began enrollment of patients in the initial pivotal trial of EndoBarrier, which is referred to as the ENDO trial.

In the third quarter of 2015, the Company announced its decision to discontinue the ENDO trial because patients were experiencing a higher than previously observed level of hepatic (liver) abscesses. In the fourth quarter of 2016, GI Dynamics received formal notification from the TGA of the Australian government of the cancellation of EndoBarrier’s inclusion on the ARTG. In the fourth quarter of 2017 the Company received formal notification of CE mark withdrawal from its notified body in Europe, preventing the sale of EndoBarrier in Europe and select Middle Eastern countries. The Company undertook comprehensive cost-cutting measures throughout 2015 and 2016, including significantly reducing the number of its employees.

Following the decision to discontinue the ENDO trial, GI Dynamics undertook significant investigational and scientific analyses with the goal of reducing the incidence rate and severity of hepatic abscess concurrent with the EndoBarrier treatment. This investigational work focused on understanding the root cause of hepatic abscess and how to reduce the rate of occurrence. This included: DNA analysis of normal EndoBarrier removals as well as hepatic abscess EndoBarrier removals, numerous meta-analyses and responder cohort analyses, investigation into the contributing factors represented by proton pump inhibitors (PPIs), leaky gut syndrome and microbiome analyses, among other research. This allowed the Company to modify the medications utilized with EndoBarrier, most notably discontinuation of chronic double-dose PPI usage during EndoBarrier implant.

As a result of the efforts described above, in August 2018, GI Dynamics received an IDE from the FDA to begin enrollment in a pivotal trial evaluating the safety and efficacy of EndoBarrier in the United States pending IRB approval, which was received on February 13, 2019. In this report, the Company refers to this pivotal trial as the GI Dynamics STEP-1 clinical trial. On January 27, 2020, the first patient was randomized into the STEP-1 Trial Protocol.

For financial reporting purposes, the Company has one reportable segment, which designs, manufactures and plans to market EndoBarrier.

To date, GI Dynamics 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. GI Dynamics has incurred significant operating losses since its inception in 2003. As of June 30, 2020, the Company had an accumulated deficit of approximately $290 million. The Company expects to incur net losses for the next several years while 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.

GI Dynamics has raised net proceeds of approximately $279.3 million through sales of the Company’s equity and placement of debt, of which $9.3 million was raised through the Company’s 2019 financings and approximately $1.3 million has been raised in 2020 financings, inclusive of the August 2020 Note.

On August 21, 2019, the Company and Crystal Amber entered into a securities purchase agreement for a total funding of up to approximately $10 million (the “August 2019 SPA”). The initial $5.4 million was comprised of existing warrant exercises scheduled between August 25, 2019 and November 15, 2019. The remaining amount of the August 2019 funding was represented by a Convertible Term Promissory Note (“August 2019 Note”) of up to approximately $4.6 million and a related Warrant (“August 2019 Warrant”). Under the terms of the August 2019 SPA and August 2019 Note, the Company, at its sole discretion, could elect to request any of the $4.6 million to be funded at any date on or before December 6, 2019. The conversion feature allows the conversion of the August 2019 Note’s unpaid principal and interest at $0.02 per CDI and the August 2019 Warrant, upon its issue, allowed the purchase for $0.02 per CDI a number of CDIs represented by the August 2019 Note principal divided by $0.02 per CDI.

On August 21, 2019, the maturity date of the 2017 Note was extended to March 31, 2020.

On December 2, 2019, GI Dynamics provided notice to Crystal Amber that the Company elected to place the August 2019 Note at the full amount, on or before December 6, 2019. In December, the Company and Crystal Amber agreed to confer the right to tranche the funding of the August 2019 Note in amounts and per timing chosen solely by Crystal Amber, provided the August 2019 Note total was funded on or before January 15, 2020.

On December 16, 2019, GI Dynamics’ stockholders approved the August 2019 Note conversion feature and the issuance of the August 2019 Warrant, pending funding of the August 2019 Note by Crystal Amber.

On January 13, 2020, GI Dynamics received approximately $4.6 million in cash representing the full funding of the August 2019 Note. As stockholder approval had been obtained in December 2019, the August 2019 Note became convertible at Crystal Amber’s sole discretion until maturity in January 2025. Additionally, the August 2019 Warrant was issued to Crystal Amber, providing for the purchase of up to 229,844,650 CDIs (representing 4,596,893 shares of common stock) at $0.02 per CDI.

On March 31, 2020, the maturity date of the 2017 Note was extended to May 1, 2020. On April 30 , 2020, the maturity date of the 2017 Note was extended to May 15, 2020. On May 15, 2020, the maturity date of the 2017 Note was extended to June 15, 2020. On June 15, 2020, the maturity date of the 2017 Note was extended to June 29, 2020. On June 29, 2020, the maturity date of the 2017 Note was extended to July 31, 2020.

On May 11, 2020, the Company received approximately $200 thousand from a lender under the Paycheck Protection Program (“PPP”) Loan program of the 2020 CARES Act. The PPP loan accrues interest at 1% with payments deferred for six months and a maturity date two years from loan approval. The Company may apply for loan forgiveness subject to completion of an application and appropriate use of the loan proceeds as defined in the PPP loan structure. The Company must use a defined portion of the proceeds for payroll and the remainder for qualified facilities expenses during a defined measurement period. The Company has completed the measurement period and believes all conditions for forgiveness were met. The Company will apply for loan forgiveness when the lender accepts applications for forgiveness.

On June 18, 2020, the Company entered into a Note Purchase Agreement (“June 2020 NPA”) with Crystal Amber, pursuant to which, the Company issued and sold to Crystal Amber, a Convertible Promissory Note in an aggregate original principal amount of $750 thousand (the “June 2020 Note”). The note and accrued interest will mandatorily convert at the Initial Close of the Proposed Offering into shares of Series A Preferred Stock at a conversion price equal to 80% of the price per share of Series A Preferred Stock sold in the Proposed Offering, otherwise, the note and accrued interest become immediately due and payable at the sole discretion of Crystal Amber any time after December 18, 2020.

On July 13, 2020, Crystal Amber provided the Company with a notice of optional conversion of the 2017 Note, thereby converting the principal of $5 million and the accrued and unpaid interest of $390 thousand into 2,574,873,400 CDIs, which is equal to 51,497,468 shares of Common Stock. On receipt of the notice of conversion, the Company did not have sufficient authorized shares to allow full conversion. The available 38,401,704 shares were issued to CDN, allowing the allotment of 1,920,085,200 CDIs to Crystal Amber and a Right to Shares and Waiver Agreement in which the Company agreed to issue the remaining 13,095,764 shares of Common Stock owed under the conversion when the Company has filed an amended and restated certification of incorporation with the Delaware Secretary of State in connection with the consummation of the Proposed Financing and the Company has been delisted from the ASX.

On July 22, 2020, GI Dynamics was removed from the Official List of the ASX and all CDIs were converted to shares of Common Stock. Although the Company’s securities are not traded on any exchange, the Company remains subject to SEC reporting requirements.

On August 4, 2020, the Company entered into a Note Purchase Agreement (“August 2020 NPA”) with Crystal Amber, pursuant to which, the Company issued and sold to Crystal Amber, a Convertible Promissory Note in an aggregate original principal amount of $500 thousand (the “August 2020 Note”). The note and accrued interest will mandatorily convert at the Initial Close of the Proposed Offering into shares of Series A Preferred Stock at a conversion price equal to 80% of the price per share of Series A Preferred Stock sold in the Proposed Offering, otherwise, the note and accrued interest become immediately due and payable at the sole discretion of Crystal Amber any time after February 4, 2021.

The Company’s costs include employee salaries and benefits, compensation paid to consultants, materials and supplies for research, costs associated with development activities including materials, sub-contractors, travel and administration, legal expenses, sales and marketing costs, general and administrative expenses, and other costs associated with an early stage, medical technology company. As of June 30, 2020, GI Dynamics has 15 full-time employees. The number of employees required to support the Company’s activities as it moves the EndoBarrier through the GI Dynamics STEP-1 clinical trial, as well as in the areas of research and development, sales and marketing, and general and administrative functions, may increase. GI Dynamics expects to continue to incur consulting expenses related to technology development that will increase as it enters into the recruitment phase of the STEP-1 and India clinical trials, and the Company expects to continue to incur expenses to protect its intellectual property.

On March 11, 2020, the World Health Organization declared the outbreak of a coronavirus (“COVID-19”) pandemic. As a result, economic uncertainties have arisen which, as of June 30, 2020, have negatively impacted GI Dynamics short term-operations, for example in delays in timing of regulatory audits and other key operational activities due to widespread sequestration and in facing enrollment pauses in our clinical trials due to the clinic-level restriction of elective procedures, for which EndoBarrier implantation qualifies. When operational activities are delayed, expenditures on certain items may decrease, such as travel. There is no certainty which reduced expenditures will result in higher than usual expenditures as activities resume and which will return to the expected rate. If the restrictions are limited in duration, the Company anticipates an ability to overcome delays and return to original timing estimates, but there can be no guarantee the duration and operational impact will be limited to the degree required. Additionally, market-level impacts may affect the timing or the negotiation of terms in the Company’s financing efforts. These and other financial impacts that could occur may appear as positive or negative impacts to the Company’s future financial statements.

The amount that GI Dynamics spends for any specific purpose may vary significantly from quarter to quarter or year to year, and could depend on a number of factors including, but not limited to, the pace of progress of the GI Dynamics STEP-1 and India clinical trials, commercialization and development efforts and actual needs with respect to development and research.

Research, development, and commercial acceptance of new medical technologies are, by their nature, unpredictable. Although the Company will undertake development and commercialization efforts with reasonable diligence, there can be no assurance that the net proceeds from the Company’s securities offerings will be sufficient to enable the Company to develop the Company’s technology to the extent needed to create future sales to sustain operations. If the net proceeds from these offerings are insufficient for this purpose, GI Dynamics will consider other options to continue its path to commercialization, including, but not limited to, additional financing through additional equity offerings, debt financing, co-development agreements, sale or licensing of developed intellectual or other property, or other alternatives.

GI Dynamics cannot assure that its technology will be accepted, that it will ever earn revenues sufficient to support its operations, or that it will ever be profitable. Furthermore, the Company has no ongoing committed source of financing and cannot assure that it will be able to raise money as and when it needs it to continue operations. If the Company cannot raise funds as and when it needs them, it may be required to scale back development plans by reducing expenditures for employees, consultants, business development and marketing efforts or to otherwise severely curtail, or even to cease, business operations.

The Company’s corporate headquarters are located in Boston, Massachusetts. The Company leases 3,520 square feet of office space with a lease expiration in May 2022. This space is adequate for current operations.

Critical Accounting Policies and Estimates

The Company’s discussion and analysis of its financial condition and results of operations is based upon the Company’s consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States. GI Dynamics believes that its application of the following accounting policies, each of which require significant judgments and estimates on the part of management, are the most critical to aid in fully understanding and evaluating the Company’s reported financial results. The Company’s significant accounting policies are more fully described in Note 2, “Summary of Significant Accounting Policies and Basis of Presentation”, to the Company’s consolidated financial statements appearing elsewhere in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. There have been no material changes to these policies since December 31, 2019.

Results of Operations

The following is a description of significant components of Company operations, including significant trends and uncertainties that are believed to be important to an understanding of the Company’s business and results of operations:

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
	(in thousands)						(in thousands)
Operating expenses:
Research and development	$	858		$	810		$	2,031		$	1,620
Sales and marketing		—			6			—			22
General and administrative		1,628			1,393			3,171			2,737
Total operating expenses		2,486			2,209			5,202			4,379
Loss from operations		(2,486	)		(2,209	)		(5,202	)		(4,379	)
Other income (expense):
Interest income		—			—			—			3
Interest expense		(352	)		(5,912	)		(636	)		(6,089	)
Foreign exchange gain (loss)		(2	)		15			(12	)		6
Gain on write-off of accounts payable		—			61			—			90
Re-measurement of derivative liabilities		—			(1,687	)		—			(1,688	)
Other income		13			—			187			—
Other income (expense), net		(341	)		(7,523	)		(461	)		(7,678	)
Loss before income tax expense		(2,827	)		(9,732	)		(5,663	)		(12,057	)
Provision for income taxes		5			26			10			32
Net loss	$	(2,832	)	$	(9,758	)	$	(5,673	)	$	(12,089	)

Basic and diluted net loss per common share		(0.08	)	$	(0.51	)		(0.16	)	$	(0.63	)
Weighted-average number of common shares used in basic and diluted net loss per common share		36,598,291			19,277,545			36,598,291			19,277,545

Three and six months ended June 30, 2020 compared to three and six months ended June 30, 2019

Revenue. The Company did not record any revenues or associated cost of revenue during the three and six months ended June 30, 2020 and 2019, respectively.

Operating expenses

	Three Months Ended										Six Months Ended
	June 30,				Change						June 30,				Change
	2020		2019		$			%			2020		2019		$			%
	(in thousands)										(in thousands)
Research and development	$	858	$	810	$	48			5.9	%	$	2,031	$	1,620	$	411			25.4	%
Sales and marketing		—		6		(6	)		(100.0	)%		—		22		(22	)		(100.0	)%
General and administrative		1,628		1,393		235			16.9	%		3,171		2,737		434			15.9	%
Total operating expenses	$	2,486	$	2,209	$	277			12.5	%	$	5,202	$	4,379	$	823			18.8	%

Research and Development Expense. The increase in research and development expense for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 was primarily due to an increase in spending on internal and external resources as the Company initiated the STEP-1 trial in the United States, submitted the protocol for the I-Step trial (under joint venture with Apollo Sugar) in India to the regulatory agency and preparing to file for CE Mark designation under the Medical Device Directive standard revision.

The increase in research and development expense for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 was primarily due to an increase in headcount and employee-related expenses and clinical trial-related expenses as the Company initiated the STEP-1 trial in the United States.

Sales and Marketing Expense. The decrease in sales and marketing expense for the three and six months ended June 30, 2020 compared to the three and six months ended June 30, 2019 was primarily due to a reclassification of existing overseas employee efforts from sales and marketing support to research and development.

General and Administrative Expense. The increase in general and administrative expense for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 was primarily due to increased headcount and employee-related expenses as well as corporate insurance expenses due to a higher directors’ and officers’ premium.

The increase in general and administrative expense for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 was primarily due to an increase in headcount and employee-related expenses, increased insurance premiums, increased legal expenses related to patents, financings and general corporate matters.

The Company continues to look for ways to realize a more efficient cost structure in order to extend the Company’s cash runway. Cost reductions may not be achievable in all instances as the Company executes clinical development in support of commercial regulatory approvals. Additionally, on March 11, 2020, the World Health Organization declared the outbreak of a COVID-19 pandemic. As a result, economic uncertainties have arisen which, as of June 30, 2020, have negatively impacted GI Dynamics short term-operations, for example in delays in timing of regulatory audits and other key operational activities due to widespread sequestration and in facing enrollment pauses in our clinical trials due to the clinic-level restriction of elective procedures, for which EndoBarrier implantation qualifies. When operational activities are delayed, expenditures on certain items may decrease, such as travel. There is no certainty which reduced expenditures will result in higher than usual expenditures as activities resume and which will return to the expected rate. If the restrictions are limited in duration, the Company anticipates an ability to overcome delays and return to original timing estimates, but there can be no guarantee the duration and operational impact will be limited to the degree required. Additionally, market-level impacts may affect the timing or the negotiation of terms in the Company’s financing efforts. These and other financial impacts that could occur may appear as positive or negative impacts to the Company’s future financial statements.

Other income (expense)

	Three Months Ended												Six Months Ended
	June 30,						Change						June 30,						Change
	2020			2019			$			%			2020			2019			$			%
	(in thousands)												(in thousands)
Other income (expense):
Interest income	$	—		$	—		$	—			(—	)%	$	—		$	3		$	(3	)		(100.0	)%
Interest expense		(352	)		(5,912	)		5,560			(94.0	)%		(636	)		(6,089	)		5,453			(89.6	)%
Foreign exchange gain (loss)		(2	)		15			(17	)		(113.3	)%		(12	)		6			(18	)		(300.0	)%
Gain on write-off of accounts payable		—			61			(61	)		100.0	%		—			90			(90	)		100.0	%
Re-measurement of derivative liabilities		—			(1,687	)		1,687			(100.0	)%		—			(1,688	)		1,688			(100.0	)%
Other income		13			—			—			100.0	%		187			—			187			100.0	%
Total other income (expense), net	$	(341	)	$	(7,523	)	$	7,169			(95.3	)%	$	(461	)	$	(7,678	)	$	7,217			(94.0	)%

Other income (expense). The change to other expense, net, for the three and six months ended June 30, 2020 compared to the three and six months ended June 30, 2019 is primarily due to the changes in gain on write off of accounts payable, increases in non-cash interest, re-measurement of derivative liabilities, reclass of derivative liabilities to equity and the elimination of the right of product return reserves of $164 thousand, which is included in other income.

Liquidity and Capital Resources

As of June 30, 2020, the Company’s primary source of liquidity is its cash and restricted cash balances. GI Dynamics is currently focused primarily on its clinical trials, which will support future regulatory submissions and potential commercialization activities. Until the Company is successful in gaining regulatory approvals, it is unable to sell the Company’s product in any market at this time. Without revenues, GI Dynamics is reliant on funding obtained from investment in the Company to maintain business operations until the Company can generate positive cash flows from operations. The Company cannot predict the extent of future operating losses and accumulated deficit, and it may never generate sufficient revenues to achieve or sustain profitability.

Currently, the Company and Crystal Amber Fund Limited have executed a non-binding term sheet for the sale of up to $10 million of shares of Series A Preferred Stock (the Proposed Offering) which is expected to close in August or September 2020. Additionally, Crystal Amber has purchased the June 2020 Convertible Note and the August 2020 Convertible Note (together the “2020 Notes”, individually described in detail in Note 8 of the consolidated financial statements) which is expected to fund operations until the anticipated Series A Preferred Stock offering initial close date (the “Initial Close”). On Initial Close, Crystal Amber will provide $5 million, less the 2020 Notes principal balance and any legal fees incurred by Crystal Amber to be paid by the Company in connection with the Proposed Offering. Crystal Amber may sell a portion of the remaining $5 million in the Proposed Offering to additional investors and will purchase any shares of the Proposed Offering that remain unsubscribed by additional investors at October 31, 2020. The Company expects that the cash received in the Proposed Offering will be sufficient to fund the Company’s operations through the later of obtaining of CE mark approval or March 31, 2021, after which additional financing will be required to continue the Company’s operations. Further additional financing will be required to fund operations until the Company achieves sustainably positive cash flow. There can be no assurance that any potential financing opportunities will be available on acceptable terms, if at all. If the Company is unable to raise sufficient capital on the Company’s required timelines and on acceptable terms to stockholders and the Board of Directors, it could be forced to reduce or cease operations that may include activities essential to support regulatory applications to commercialize EndoBarrier, file for bankruptcy, or undertake a combination of the foregoing.

These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these consolidated financial statements are issued.

During the six months ended June 30, 2020 the Company’s cash and restricted cash balance decreased by approximately $1.8 million primarily due to receipt of the relevant funding amount under the convertible notes issued to Crystal Amber and funded on January 13, 2020 and June 18, 2020 less cash payments related to, among other things, research and development and general and administrative expenses as GI Dynamics continued to focus on clinical and regulatory strategies that exceeded its various financings.

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,
	2020			2019
	(in thousands)
Net cash (used in) provided by:
Operating activities	$	(7,308	)	$	(5,287	)
Investing activities		—			(5	)
Financing activities		5,542			3,913
Net increase (decrease) in cash, cash equivalents and restricted cash	$	(1,766	)	$	(1,379	)

Cash Flows Used in Operating Activities

The primary uses of cash for operating activities for the six months ended June 30, 2020 were:

●

to fund the Company’s net loss of approximately $5.7 million;

●

a net negative adjustment to cash flow from changes in working capital of approximately $2.7 million resulting primarily from increases in prepaid expenses and accounts payable offset by decreases in accrued expenses and;

●

a net positive adjustment to cash flow from non-cash items of approximately $1 million, primarily from non-cash interest expense and stock-based compensation.

The primary uses of cash for operating activities for the six months ended June 30, 2019 were:

●

to fund the Company’s net loss of approximately $12.1 million and;

●

a net positive adjustment to cash flow of approximately $7.8 million due to non-cash interest expense and revaluation of derivative liabilities and;

●

a net negative adjustment to cash flow from changes in working capital of approximately $1.1 million resulting primarily from decreases in accounts payable and accrued expenses.

Cash Flows Used in Investing Activities

No cash was used in investing activities for the six months ended June 30, 2020. Cash used in investing activities for the six months ended June 30, 2019 was approximately $5 thousand related to capital expenditures.

Cash Flows Provided by Financing Activities

Cash provided by financing activities for the six months ended June 30, 2020 totaled approximately $6 million and resulted from proceeds received from the August 2019 Note, the June 2020 Note and the Paycheck Protection Program loan.

Cash provided by financing activities for the six months ended June 30, 2019 totaled approximately $3.9 million and primarily resulted from proceeds received in March 2019 from the March 2019 Note and May and June 2019 from the May 2019 Note payable to a related party.

Funding Requirements

As of June 30, 2020, the Company’s primary source of liquidity is its cash and restricted cash balances. GI Dynamics is currently focused primarily on gaining CE mark and executing its clinical trials, which will support future regulatory submissions and potential commercialization activities. Until the Company is successful in gaining CE mark and various regulatory approvals, it is unable to sell the Company’s product in any market at this time. Without revenues, GI Dynamics is reliant on funding obtained from investment in the Company to maintain business operations until the Company can generate positive cash flows from operations. The Company cannot predict the extent of future operating losses and accumulated deficit, and it may never generate sufficient revenues to achieve or sustain profitability.

GI Dynamics has incurred operating losses since inception and at June 30, 2020, had an accumulated deficit of approximately $290 million and working capital of approximately $3.8 million. The Company expects to incur significant operating losses for the next several years. At June 30, 2020, the Company had approximately $760 thousand in cash and restricted cash.

Due to the numerous risks and uncertainties associated with securing regulatory approval for EndoBarrier^®, at this time the Company is unable to estimate precisely the amounts of capital outlays and operating expenditures necessary to complete the task of obtaining regulatory approval for EndoBarrier^®. Funding requirements will depend on many factors, including, but not limited to, the following:

●

the timing and conditions related to COVID-19 restrictions on clinical development and corporate activities;

●

the timing, cost, and resulting success of research and development efforts;

●

the rate of progress and cost of commercialization activities after regulatory approval;

●

the expenses the Company may incur in marketing and selling EndoBarrier subject to future regulatory approvals;

●

the timing and decisions of payer organizations related to reimbursement;

●

the revenue generated by sales of EndoBarrier;

●

the safety and efficacy of the Company’s product in treating diabetes and reducing obesity;

●

the success of the Company’s investment in its manufacturing and supply chain infrastructure;

●

the time and costs involved in obtaining regulatory approvals for EndoBarrier in new markets;

●

the costs associated with any additional clinical trial(s) required in the U.S. and other countries on a case by case basis;

●

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.

GI Dynamics will continue to manage its capital structure and to consider all financing opportunities, whenever they may occur, that could strengthen its long-term liquidity profile. Any such capital transactions may or may not be similar to transactions in which the Company has engaged in the past and the ownership interests of existing stockholders may be materially diluted.

Off–Balance Sheet Arrangements

The Company does 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, the Company is not exposed to any financing, liquidity, market or credit risk that could arise if the Company had engaged in those types of relationships. Guarantees are provided in the ordinary course of business related to the guarantee of the performance of the Company and its subsidiaries.

Contractual Obligations and Commitments

The disclosure of contractual obligations and commitments is set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Contractual Obligations and Commitments” in the Company Annual Report on Form 10-K for the year ended December 31, 2019.

There have been no material changes from the contractual commitments and obligations previously disclosed in the Company’s 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 the consolidated financial statements included in this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The Company conducts business in foreign countries and cash flows are thereby exposed to market risk from changes in currency exchange and interest rates.

Interest Rate Sensitivity

The Company’s unrestricted cash of approximately $730 thousand at June 30, 2020, which will be used for working capital purposes. The Company does not enter into investments for trading or speculative purposes. The goals of the Company’s investment policy are preservation of capital, fulfillment of liquidity needs and fiduciary control of cash and investments. The Company also seeks to maximize income from investments without assuming significant risk. The Company’s 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 the Company’s cash and restricted cash, GI Dynamics does not believe that it has any material exposure to changes in their fair values as a result of changes in interest rates.

Foreign Currency Risk

GI Dynamics conducts business in foreign countries. For U.S. reporting purposes, all assets and liabilities of non-U.S. entities are remeasured at the period-end exchange rate and income and expenses at the average exchange rates in effect during the periods. The net effect of these remeasurement adjustments is shown in the accompanying consolidated financial statements as a component of net loss. Continued fluctuation of these exchange rates could result in financial results that are not comparable from quarter to quarter. The Company does not currently utilize foreign currency contracts to mitigate the gains and losses generated by the remeasurement of non-functional currency assets and liabilities and do not currently hold material cash reserves in currencies in which certain expenditures are denominated.

Effects of Inflation

The Company does not believe that inflation and price fluctuations over the three and six months ended June 30, 2020 and 2019 had a significant impact on the results of operations.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

In accordance with Exchange Act Rules 13a-15 and 15d-15(f), GI Dynamics carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer (the “Certifying Officers”), of the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Company’s Certifying Officers concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2020 in enabling GI Dynamics to record, process, summarize and report information required to be included in its periodic SEC filings within the required time period.

Changes in Internal Control Over Financial Reporting

As required by Rule 13a-15(d) of the Exchange Act, the Certifying Officers conducted an evaluation of the internal control over financial reporting to determine whether any changes occurred during the second fiscal quarter of 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The evaluation performed by the Certifying Officers resulted in a conclusion that no such changes occurred.

Inherent Limitations on Controls and Procedures

Company management, including the principal executive officer and principal financial and accounting officer, does not expect that the Company’s disclosure controls and procedures or internal control over financial reporting will prevent all error and all fraud. Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. It is a process that involves human diligence and compliance and is subject to lapses in judgment or breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. While process safeguards can reduce risks, because of inherent limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

GI Dynamics is currently not involved in any litigation that it believes could have a materially adverse effect on its financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of the Company or any of its subsidiaries, threatened against or affecting the Company, its common stock, any of its subsidiaries or of the Company’s or its subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect. From time to time, the Company may become involved legal proceedings, lawsuits, claims and regulations in the ordinary course of its business.

Item 1A. Risk Factors.

In addition to the other information contained elsewhere in this Quarterly Report on Form 10-Q and as set forth below, you should carefully consider the factors discussed in “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 27, 2020, which could materially affect the Company business, financial condition or future results. The risks described in the Company’s Annual Report on Form 10-K are not the only risks faced by the Company. Additional risks that we do not presently know or that we currently believe are immaterial could also materially and adversely affect any of the Company business, financial condition or future results.

The Company has delisted its CHESS Depositary Interests (“CDIs”) from the Australian Securities Exchange (the “ASX”), which may reduce the liquidity and value of the Company’s securities.

In view of the significant costs associated with maintaining an ASX listing, the lack of liquidity in the CDIs, amplified CDI volatility, no current nexus with Australia and the fact that potential financing opportunities were limited by such listing, the Company delisted, with the consent of ASX and its stockholders, CDIs from the ASX on July 23, 2020 (U.S. Eastern Time). The absence of a listing on the ASX may reduce the ability of Australian residents to own shares of the Company’s common stock. In addition, there is no established public trading market for the Company’s common stock and the Company does not currently expect a market to develop. At this time, the Company does not intend to apply for listing of the shares of common stock on any securities exchange. Without an active market, stockholders may be unable to readily sell the shares of common stock.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Other than as previously disclosed on the Company’s Current Reports on Form 8-K filed with the SEC, the Company did not issue any unregistered equity securities during the three months ended June 30, 2020.

Item 6. Exhibits.

Exhibit No:		Description

10.1*		Seventh Amendment to Note Purchase Agreement, dated June 15, 2017, between GI Dynamics, Inc. and Crystal Amber Fund Limited, as purchaser, dated May 1, 2020.

10.2*		Seventh Amendment to Senior Secured Convertible Promissory Note, dated June 15, 2017, by and between GI Dynamics, Inc. and Crystal Amber Fund Limited, dated May 1, 2020.

10.3*		Eighth Amendment to Note Purchase Agreement, dated June 15, 2017, between GI Dynamics, Inc. and Crystal Amber Fund Limited, as purchaser, dated May 15, 2020.

10.4*		Eighth Amendment to Senior Secured Convertible Promissory Note, dated June 15, 2017, by and between GI Dynamics, Inc. and Crystal Amber Fund Limited, dated May 15, 2020.

10.5*		Ninth Amendment to Note Purchase Agreement, dated June 15, 2017, between GI Dynamics, Inc. and Crystal Amber Fund Limited, as purchaser, dated June 15, 2020.

10.6*		Ninth Amendment to Senior Secured Convertible Promissory Note, dated June 15, 2017, by and between GI Dynamics, Inc. and Crystal Amber Fund Limited, dated June 15, 2020.

10.7		Convertible Note Purchase Agreement, dated June 18, 2020, between the Company and Crystal Amber Fund Limited, incorporated by reference to Exhibit 10.1 of GI Dynamics, Inc.’s Current Report on Form 8-K filed with the SEC on June 19, 2020.

10.8		Unsecured Convertible Promissory Note, dated June 18, 2020, between GI Dynamics, Inc. and Crystal Amber Fund Limited, incorporated by reference to Exhibit 10.2 of GI Dynamics, Inc.’s Current Report on Form 8-K filed with the SEC on June 19, 2020.

10.9*		Tenth Amendment to Note Purchase Agreement, dated June 15, 2017, between GI Dynamics, Inc. and Crystal Amber Fund Limited, as purchaser, dated June 29, 2020.

10.10*		Tenth Amendment to Senior Secured Convertible Promissory Note, dated June 15, 2017, by and between GI Dynamics, Inc. and Crystal Amber Fund Limited, dated June 29, 2020.

31.1*		Certification of principal executive officer pursuant to Rules 13a-14 or 15d-14 of the Exchange Act.

31.2*		Certification of principal financial officer pursuant to Rules 13a-14 or 15d-14 of the Exchange Act.

32.1‡		Certification of principal 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 principal 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.

SIGNATURES

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 7, 2020	By:	/s/ SCOTT W. SCHORER
		Scott W. Schorer
		President and Chief Executive Officer
		(principal executive officer)

Date: August 7, 2020	By:	/s/ CHARLES R. CARTER
		Charles R. Carter
		Chief Financial Officer, Secretary
		(principal financial and accounting officer)

GI DYNAMICS, INC. - FORM 10-Q - August 7, 2020

Attached files

GI DYNAMICS, INC. Reports