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 |
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20192020
OR
◻ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐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 001-36714
JAGUAR HEALTH, INC.
(Exact name of registrant as specified in its charter)
Delaware | | 46-2956775 |
(State or other jurisdiction of | | (I.R.S. Employer |
incorporation or organization) | | Identification No.) |
201 Mission Street, Suite 2375
San Francisco, California 94105
(Address of principal executive offices, zip code)
(415) 371-8300
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒⌧ 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 (§232.405 of this chapter) 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, 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 ☒⌧
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: | Trading Symbol(s) | Name of each exchange on which registered: | ||
Common Stock, Par Value $0.0001 Per Share |
| JAGX |
| The NASDAQ Capital Market |
As of August 2, 20196, 2020 there were 6,062,95840,269,721 shares of voting common stock, par value $0.0001 per share, outstanding, 40,301,237 shares of non-voting common stock, par value $0.0001 per share, outstanding (convertible into 38,382 shares of voting common stock), 5,524,926 shares of Series A redeemable convertible preferred stock, par value $0.0001 per share, outstanding (convertible into 473,565 shares of voting common stock, subject to certain voting restrictions as provided in the Certificate of Designation for the convertible preferred stock), and 8,6367,534 shares of Series BB-2 convertible preferred stock, par value $0.0001 per share, outstanding (convertible into 4,318,0001,431,460 shares of voting common stock, subject to certain voting restrictions as provided in the Certificate of Designation for the convertible preferred stock).
PART I. — FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
JAGUAR HEALTH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
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| June 30, |
| December 31, | ||||||||
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| 2019 |
| 2018 | ||||||||
| | | | | | | ||||||
| | June 30, | | December 31, | ||||||||
(In thousands, except share and per share data) |
| 2020 |
| 2019 | ||||||||
Assets |
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| (Unaudited) |
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| | | (unaudited) | | | |
Current assets: |
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| | | | | | |
Cash |
| $ | 1,606,627 |
| $ | 2,568,191 | | $ | 3,015 | | $ | 3,495 |
Restricted cash | | | — | | | 388 | ||||||
Accounts receivable |
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| 2,097,213 |
|
| 995,683 | |
| 2,212 | |
| 1,692 |
Accounts receivable - pledged | | | 1,738 | | | — | ||||||
Other receivable |
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| 92,744 |
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| 6,118 | | | 5 | | | 2 |
Inventory |
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| 2,393,233 |
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| 3,342,177 | | | 2,354 | | | 2,129 |
Deferred offering costs |
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| 335,768 |
|
| — | ||||||
Operating lease - right-of-use asset | | | 188 | | | 553 | ||||||
Prepaid expenses and other current assets |
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| 822,796 |
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| 1,237,772 | | | 2,094 | | | 1,263 |
Total current assets |
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| 7,348,381 |
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| 8,149,941 | |
| 11,606 | |
| 9,522 |
Property and equipment, net |
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| 737,317 |
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| 760,617 | | | 697 | | | 710 |
Operating lease - right-of-use asset |
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| 905,711 |
|
| — | ||||||
Intangible assets, net |
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| 26,867,222 |
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| 31,710,556 | | | 25,181 | | | 26,024 |
Other assets |
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| 208,316 |
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| 420,831 | |
| 96 | |
| 154 |
Total assets |
| $ | 36,066,947 |
| $ | 41,041,945 | | $ | 37,580 | | $ | 36,410 |
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Liabilities, convertible preferred stock and stockholders' equity/(deficit) |
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Liabilities, convertible preferred stock and stockholders' equity | | | | | | | ||||||
Current liabilities: |
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Accounts payable |
| $ | 6,390,289 |
| $ | 5,414,260 | | $ | 5,240 | | $ | 5,352 |
Deferred revenue | | | 1,500 | | | — | ||||||
Accrued liabilities |
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| 5,273,615 |
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| 4,939,441 | | | 4,856 | | | 2,922 |
Warrant liability |
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| 5,182,273 |
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| 220,376 | | | 4,086 | | | 3 |
Convertible debt - current, net of discount |
|
| — |
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| 11,239,170 | ||||||
Operating lease liability - current |
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| 425,755 |
|
| — | ||||||
Operating lease liability | | | 116 | | | 337 | ||||||
Notes payable, net of discount |
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| 3,563,068 |
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| 4,845,575 | |
| 8,960 | |
| 6,778 |
Total current liabilities |
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| 20,835,000 |
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| 26,658,822 | |
| 24,758 | |
| 15,392 |
Notes payable long term, net of discount |
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| 7,759,642 |
|
| — | ||||||
Operating lease liability - long-term |
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| 116,328 |
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| — | ||||||
Notes payable long term | | | 400 | | | 450 | ||||||
Total liabilities |
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| 28,710,970 |
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| 26,658,822 | | | 25,158 | | | 15,842 |
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Commitments and contingencies (See Note 6) |
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Series A convertible preferred stock: $0.0001 par value, 10,000,000 shares authorized at June 30, 2019 and December 31, 2018; 5,524,926 shares issued and outstanding at June 30, 2019 and December 31, 2018; (redemption value and liquidation preference of $12,738,822 and $9,199,002 at June 30, 2019 and December 31, 2018, respectively) |
|
| 9,000,002 |
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| 9,000,002 | ||||||
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Stockholders' equity/(deficit): |
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Common stock - voting: $0.0001 par value, 150,000,000 shares authorized at June 30, 2019 and December 31, 2018, respectively; 1,799,381 and 351,472 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively |
|
| 180 |
|
| 35 | ||||||
Common stock - non-voting: $0.0001 par value, 50,000,000 shares authorized at June 30, 2019 and December 31, 2018; 40,301,237 shares issued and outstanding at June 30, 2019 and December 31, 2018 |
|
| 4,030 |
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| 4,030 | ||||||
| | | | | | | ||||||
Series A redeemable convertible preferred stock: $0.0001 par value, 5,524,926 shares authorized at June 30, 2020 and December 31, 2019; 5,524,926 shares issued and outstanding at June 30, 2020 and December 31, 2019; (redemption amount of $12,738,822 at June 30, 2020 and December 31, 2019; liquidation preference of $9,199,002 at June 30, 2020 and December 31, 2019) | | | 10,878 | | | 9,895 | ||||||
| | | | | | | ||||||
Stockholders' equity | | | | | | | ||||||
Series B convertible preferred stock: $0.0001 par value, 11,000 shares authorized at June 30, 2020 and December 31, 2019; no shares and 1,971 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively | | | — | | | 476 | ||||||
Series B-2 convertible preferred stock: $0.0001 par value, 10,165 shares authorized at June 30, 2020 and December 31, 2019; 7,534 and 10,165 Series B-2 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively | | | 916 | | | 1,236 | ||||||
Common stock - voting: $0.0001 par value, 150,000,000 shares authorized at June 30, 2020 and December 31, 2019; 32,408,421 and 14,273,061 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively | |
| 3 | |
| 1 | ||||||
Common stock - non-voting: $0.0001 par value, 50,000,000 shares authorized at June 30, 2020 and December 31, 2019; 40,301,237 shares issued and outstanding at June 30, 2020 and December 31, 2019 | | | 4 | | | 4 | ||||||
Additional paid-in capital |
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| 117,927,532 |
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| 99,929,835 | |
| 150,885 | |
| 142,046 |
Accumulated deficit |
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| (119,575,767) |
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| (94,550,779) | |
| (150,264) | |
| (133,090) |
Total stockholders' equity/(Deficit) |
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| (1,644,025) |
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| 5,383,121 | ||||||
Total liabilities, convertible preferred stock and stockholders' equity/(deficit) |
| $ | 36,066,947 |
| $ | 41,041,945 | ||||||
Total stockholders' equity | | | 1,544 | | | 10,673 | ||||||
Total liabilities, convertible preferred stock and stockholders' equity | | $ | 37,580 | | $ | 36,410 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
JAGUAR HEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Unaudited)
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| Three Months Ended |
| Six Months Ended |
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| June 30, |
| June 30, |
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| 2019 |
| 2018 |
| 2019 |
| 2018 |
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| | | | | | | | | | | | | |||||||||||||
| | Three Months Ended | | Six Months Ended | |||||||||||||||||||||
| | June 30, | | June 30, | |||||||||||||||||||||
(In thousands, except share and per share data) |
| 2020 |
| 2019 |
| 2020 |
| 2019 | |||||||||||||||||
Product revenue |
| $ | 1,705,694 |
| $ | 883,846 |
| $ | 3,295,427 |
| $ | 1,510,813 |
| | $ | 3,167 | | $ | 1,706 | | $ | 4,036 | | $ | 3,295 |
Collaboration revenue |
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| — |
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| — |
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| — |
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| 177,389 |
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Total revenue |
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| 1,705,694 |
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| 883,846 |
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| 3,295,427 |
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| 1,688,202 |
| | | 3,167 | | | 1,706 | | | 4,036 | | | 3,295 |
Operating expenses |
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Cost of product revenue |
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| 1,260,362 |
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| 608,024 |
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| 2,125,305 |
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| 1,072,185 |
| | | 1,031 | | | 1,260 | | | 1,707 | | | 2,125 |
Research and development |
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| 1,697,653 |
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| 1,604,886 |
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| 3,119,013 |
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| 2,362,752 |
| |
| 1,405 | |
| 1,698 | |
| 2,987 | |
| 3,119 |
Sales and marketing |
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| 2,173,071 |
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| 2,690,262 |
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| 3,738,195 |
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| 4,402,452 |
| | | 1,730 | | | 2,173 | | | 3,199 | | | 3,738 |
General and administrative |
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| 3,196,861 |
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| 3,059,748 |
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| 6,710,275 |
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| 6,058,148 |
| | | 3,756 | | | 3,197 | | | 6,905 | | | 6,711 |
Impairment of indefinite-lived intangible assets |
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| 4,000,000 |
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| — |
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| 4,000,000 |
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| — |
| | | — | | | 4,000 | | | — | | | 4,000 |
Series B convertible preferred stock inducement expense | | | — | | | — | | | 1,647 | | | — | |||||||||||||
Series 3 warrants inducement expense | | | 3,696 | | | — | | | 3,696 | | | — | |||||||||||||
Total operating expenses |
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| 12,327,947 |
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| 7,962,920 |
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| 19,692,788 |
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| 13,895,537 |
| |
| 11,618 | |
| 12,328 | |
| 20,141 | |
| 19,693 |
Loss from operations |
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| (10,622,253) |
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| (7,079,074) |
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| (16,397,361) |
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| (12,207,335) |
| |
| (8,451) | |
| (10,622) | |
| (16,105) | |
| (16,398) |
Interest expense |
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| (3,656,978) |
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| (711,802) |
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| (4,204,108) |
|
| (1,313,824) |
| |
| (479) | |
| (3,657) | |
| (678) | |
| (4,204) |
Other income, net |
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| 14,224 |
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| 15,204 |
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| 20,608 |
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| 312,704 |
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Change in fair value of warrants, derivative liability and conversion option liability |
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| 207,088 |
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| 118,489 |
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| 161,031 |
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| (145,365) |
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Other income (expense) | | | 78 | | | 14 | | | (4) | | | 21 | |||||||||||||
Change in fair value of financial instruments | | | (386) | | | 207 | | | (387) | | | 161 | |||||||||||||
Loss on extinguishment of debt |
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| (2,663,198) |
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| — |
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| (4,605,158) |
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| — |
| | | — | | | (2,663) | | | — | | | (4,605) |
Net loss |
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| (16,721,117) |
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| (7,657,183) |
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| (25,024,988) |
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| (13,353,820) |
| | | (9,238) | | | (16,721) | | | (17,174) | | | (25,025) |
Deemed dividend attributable to preferred stock |
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| — |
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| (995,000) |
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| — |
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| (995,000) |
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Deemed dividend attributable to accretion of Series A convertible preferred stock | | | (503) | | | — | | | (983) | | | — | |||||||||||||
Deemed dividend attributable to Series 1, Series 2 and Bridge warrant holders | | | (856) | | | — | | | (856) | | | — | |||||||||||||
Net loss attributable to common shareholders |
| $ | (16,721,117) |
| $ | (8,652,183) |
| $ | (25,024,988) |
| $ | (14,348,820) |
| | $ | (10,597) | | $ | (16,721) | | $ | (19,013) | | $ | (25,025) |
Net loss per share, basic and diluted |
| $ | (15.11) |
| $ | (53.24) |
| $ | (31.22) |
| $ | (100.33) |
| | $ | (0.44) | | $ | (15.11) | | $ | (0.97) | | $ | (31.22) |
Weighted-average common shares outstanding, basic and diluted |
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| 1,106,374 |
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| 162,506 |
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| 801,482 |
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| 143,012 |
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| 23,890,931 | | | 1,106,374 | | | 19,516,419 | | | 801,482 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
JAGUAR HEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES
IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY/EQUITY(DEFICIT)
(Unaudited)
(Unaudited)
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| Series A |
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| Common |
| Common |
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| Total | ||||||||||||
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| Preferred Stock |
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| stock - voting |
| stock - non-voting |
| Additional |
| Accumulated |
| Stockholders' | ||||||||||||
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| Shares |
| Amount |
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| Shares |
| Amount |
| Shares |
| Amount |
| paid-in capital |
| deficit |
| Equity | ||||||
Beginning Balance March 31, 2018 |
| 5,524,926 |
| $ | 9,000,002 |
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| 122,602 |
| $ | 12 |
| 42,617,893 |
| $ | 4,262 |
| $ | 89,104,730 |
| $ | (68,101,359) |
| $ | 21,007,645 |
Conversion of non-voting common stock to voting common stock |
| — |
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| — |
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| 2,206 |
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| — |
| (2,316,656) |
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| (232) |
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| 232 |
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| — |
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| — |
Issuance of common stock in exchange for redemption of convertible debt |
| — |
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| — |
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| — |
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| — |
| — |
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| — |
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| 203,408 |
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| — |
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| 203,408 |
Fractional common stock shares repurchased |
| — |
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| — |
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| — |
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| — |
| — |
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| — |
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| (30) |
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| — |
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| (30) |
Stock-based compensation |
| — |
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| — |
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| — |
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| — |
| — |
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| — |
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| 464,454 |
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| — |
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| 464,454 |
Net loss |
| — |
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| — |
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| — |
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| — |
| — |
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| — |
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| — |
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| (7,657,183) |
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| (7,657,183) |
Three Months Ended June 30, 2018 |
| 5,524,926 |
| $ | 9,000,002 |
|
| 124,808 |
| $ | 12 |
| 40,301,237 |
| $ | 4,030 |
| $ | 89,772,794 |
| $ | (75,758,542) |
| $ | 14,018,294 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Series A | | | Series B | | | Series B-2 | | | | | | | | | | | | ||||||||||||||||||
| | Convertible | | | Convertible | | | Convertible | | | Common | | Common | | Additional | | Accumulated | | Total | ||||||||||||||||||
(In thousands, except share data) |
| Shares |
| Amount |
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| Shares |
| Amount | | | Shares |
| Amount | | | Shares |
| Amount | | Shares |
| Amount | | paid-in capital | | deficit | | Equity | ||||||||
Balances as of March 31, 2020 | | 5,524,926 | | $ | 10,375 | | | 1,971 | | $ | 476 | | | 7,534 | | $ | 916 | | | 18,286,196 | | $ | 2 | | 40,301,237 | | $ | 4 | | $ | 145,861 | | $ | (141,026) | | $ | 6,233 |
Shares issued on exercise of Series 1, Series 2, and 2019 Bridge Note warrants, net of issuance costs of $461; May 2020 | | — | | | — | | | — | | | — | | | — | | | — | | | 8,670,852 | | | 1 | | — | | | — | | | 3,787 | | | — | | | 3,788 |
Shares issued on conversion of Series 1, Series 2, and 2019 Bridge Note warrants; June 2020 | | — | | | — | | | — | | | — | | | — | | | — | | | 732,315 | | | — | | — | | | — | | | 359 | | | — | | | 359 |
Shares issued in Underwriter settlement agreement | | — | | | — | | | — | | | — | | | — | | | — | | | 100,000 | | | — | | — | | | — | | | 45 | | | — | | | 45 |
Warrants issued in Underwriter settlement agreement | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | — | | | — | | | 31 | | | — | | | 31 |
Conversion of Series B convertible preferred stock into common stock | | — | | | — | | | (1,971) | | | (476) | | | — | | | — | | | 4,423,251 | | | — | | — | | | — | | | 476 | | | — | | | — |
Shares issued to Oasis as consideration under the March 2020 equity purchase agreement | | — | | | — | | | — | | | — | | | — | | | — | | | 68,807 | | | — | | — | | | — | | | 33 | | | — | | | 33 |
Shares issued to Oasis under the March 2020 equity purchase agreement, put option exercise, net of issuance costs of $13 | | — | | | — | | | — | | | — | | | — | | | — | | | 52,000 | | | — | | — | | | — | | | 10 | | | — | | | 10 |
Shares issued to third party for services | | — | | | — | | | — | | | — | | | — | | | — | | | 75,000 | | | — | | — | | | — | | | 37 | | | — | | | 37 |
Accretion to redemption value of redeemable preferred stock | | — | | | 503 | | | — | | | — | | | — | | | — | | | — | | | — | | — | | | — | | | (503) | | | — | | | (503) |
Stock-based compensation | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | — | | | — | | | 749 | | | — | | | 749 |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | — | | | — | | | — | | | (9,238) | | | (9,238) |
Balances as of June 30, 2020 | | 5,524,926 | | $ | 10,878 | | | — | | $ | — | | | 7,534 | | $ | 916 | | | 32,408,421 | | $ | 3 | | 40,301,237 | | $ | 4 | | $ | 150,885 | | $ | (150,264) | | $ | 1,544 |
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| | Series A | | Series B | | Series B-2 | | | | | | | | | | | | ||||||||||||||||||||
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| Series A |
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| Common |
| Common |
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| Total | | Convertible | | Convertible | | Convertible | | | Common | | Common | | Additional | | Accumulated | | Total | ||||||||||||||||||||||||||||||||
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| Preferred Stock |
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| stock - voting |
| stock - non-voting |
| Additional |
| Accumulated |
| Stockholders' | |||||||||||||||||||||||||||||||||||||||||||||||||
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| Shares |
| Amount |
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| Shares |
| Amount |
| Shares |
| Amount |
| paid-in capital |
| deficit |
| Equity | |||||||||||||||||||||||||||||||||||||||||||
Beginning Balance March 31, 2019 |
| 5,524,926 |
| $ | 9,000,002 |
|
| 848,785 |
| $ | 85 |
| 40,301,237 |
| $ | 4,030 |
| $ | 109,646,413 |
| $ | (102,854,650) |
| $ | 6,795,878 | |||||||||||||||||||||||||||||||||||||
(In thousands, except share data) |
| Shares |
| Amount |
|
| Shares |
| Amount | | Shares |
| Amount | | | Shares |
| Amount | | Shares |
| Amount | | paid-in capital | | deficit | | Equity | ||||||||||||||||||||||||||||||||||
Balances as of March 31, 2019 | | 5,524,926 | | $ | 9,000 | | | — | | $ | — | | — | | $ | — | | | 848,785 | | $ | 1 | | 40,301,237 | | $ | 4 | | $ | 109,644 | | $ | (102,855) | | $ | 6,794 | ||||||||||||||||||||||||||
Issuance of common stock to Oasis, put exercise |
| — |
|
| — |
|
| 4,843 |
|
| — |
| — |
|
| — |
|
| 99,967 |
|
| — |
|
| 99,967 | | — | | | — | | | — | | | — | | — | | | — | | | 4,843 | | | — | | — | | | — | | | 100 | | | — | | | 100 | |
Issuance of common stock in exchange of CVP Notes |
| — |
|
| — |
|
| 127,904 |
|
| 13 |
| — |
|
| — |
|
| 2,151,037 |
|
| — |
|
| 2,151,050 | |||||||||||||||||||||||||||||||||||||
Issuance of common stock in exchange of CVP debt | | — | | | — | | | — | | | — | | — | | | — | | | 127,904 | | | — | | — | | | — | | | 2,151 | | | — | | | 2,151 | ||||||||||||||||||||||||||
Issuance of common stock in exchange of CVP Exchange Notes |
| — |
|
| — |
|
| 817,863 |
|
| 82 |
| — |
|
| — |
|
| 5,583,747 |
|
| — |
|
| 5,583,829 | | — | | | — | | | — | | | — | | — | | | — | | | 817,863 | | | — | | — | | | — | | | 5,584 | | | — | | | 5,584 | |
Fractional common stock shares repurchased |
| — |
|
| — |
|
| (14) |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — | |||||||||||||||||||||||||||||||||||||
Fractional shares | | — | | | — | | | — | | | — | | — | | | — | | | (14) | | | — | | — | | | — | | | — | | | — | | | — | ||||||||||||||||||||||||||
Stock-based compensation |
| — |
|
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| 446,368 |
|
| — |
|
| 446,368 | | — | | | — | | | — | | | — | | — | | | — | | | — | | | — | | — | | | — | | | 446 | | | — | | | 446 | |
Net loss |
| — |
|
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| (16,721,117) |
|
| (16,721,117) | | — | | | — | | | — | | | — | | — | | | — | | | — | | | — | | — | | | — | | | — | | | (16,721) | | | (16,721) | |
Three Months Ended June 30, 2019 |
| 5,524,926 |
| $ | 9,000,002 |
|
| 1,799,381 |
| $ | 180 |
| 40,301,237 |
| $ | 4,030 |
| $ | 117,927,532 |
| $ | (119,575,767) |
| $ | (1,644,025) | |||||||||||||||||||||||||||||||||||||
Balances as of June 30, 2019 | | 5,524,926 | | $ | 9,000 | | | — | | $ | — | | — | | $ | — | | | 1,799,381 | | $ | 1 | | 40,301,237 | | $ | 4 | | $ | 117,925 | | $ | (119,576) | | $ | (1,646) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Series A |
|
| Common |
| Common |
|
|
|
|
| Total | ||||||||||||
|
| Preferred Stock |
|
| stock - voting |
| stock - non-voting |
| Additional |
| Accumulated |
| Stockholders' | ||||||||||||
|
| Shares |
| Amount |
|
| Shares |
| Amount |
| Shares |
| Amount |
| paid-in capital |
| deficit |
| Equity | ||||||
Beginning Balance January 1, 2018 |
| — |
| $ | — |
|
| 59,721 |
| $ | 6 |
| 42,617,893 |
| $ | 4,262 |
| $ | 79,661,456 |
| $ | (62,404,722) |
| $ | 17,261,002 |
Issuance of preferred stock and common stock |
| 5,524,926 |
|
| 9,000,002 |
|
| 28,011 |
|
| 3 |
| — |
|
| — |
|
| 4,999,997 |
|
| — |
|
| 5,000,000 |
Beneficial conversion feature of the series A convertible preferred stock |
| — |
|
| (995,000) |
|
| — |
|
| — |
| — |
|
| — |
|
| 995,000 |
|
| — |
|
| 995,000 |
Deemed dividend on the series A convertible preferred stock |
| — |
|
| 995,000 |
|
| — |
|
| — |
| — |
|
| — |
|
| (995,000) |
|
| — |
|
| (995,000) |
Issuance of common stock |
| — |
|
| — |
|
| 17,075 |
|
| 2 |
| — |
|
| — |
|
| 2,259,280 |
|
| — |
|
| 2,259,282 |
Issuance of common stock in exchange for redemption of convertible debt |
| — |
|
| — |
|
| 13,665 |
|
| 1 |
| — |
|
| — |
|
| 1,404,012 |
|
| — |
|
| 1,404,013 |
Issuance of common stock in exchange for services |
| — |
|
| — |
|
| 48 |
|
| — |
| — |
|
| — |
|
| 6,425 |
|
| — |
|
| 6,425 |
Issuance of common stock in exchange for payment of interest expense |
| — |
|
| — |
|
| 4,082 |
|
| — |
| — |
|
| — |
|
| 704,725 |
|
| — |
|
| 704,725 |
Conversion of non-voting common stock to voting common stock |
| — |
|
| — |
|
| 2,206 |
|
| — |
| (2,316,656) |
|
| (232) |
|
| 232 |
|
| — |
|
| - |
Fractional common stock shares repurchased |
| — |
|
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| (30) |
|
| — |
|
| (30) |
Stock-based compensation |
| — |
|
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| 736,697 |
|
| — |
|
| 736,697 |
Net loss |
| — |
|
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| (13,353,820) |
|
| (13,353,820) |
Six Months Ended June 30, 2018 |
| 5,524,926 |
| $ | 9,000,002 |
|
| 124,808 |
| $ | 12 |
| 40,301,237 |
| $ | 4,030 |
| $ | 89,772,794 |
| $ | (75,758,542) |
| $ | 14,018,294 |
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Series A |
|
| Common |
| Common |
|
|
|
|
| Total | ||||||||||||
|
| Preferred Stock |
|
| stock - voting |
| stock - non-voting |
| Additional |
| Accumulated |
| Stockholders' | ||||||||||||
|
| Shares |
| Amount |
|
| Shares |
| Amount |
| Shares |
| Amount |
| paid-in capital |
| deficit |
| Equity | ||||||
Balances - January 1, 2019 |
| 5,524,926 |
| $ | 9,000,002 |
|
| 351,472 |
| $ | 35 |
| 40,301,237 |
| $ | 4,030 |
| $ | 99,929,835 |
| $ | (94,550,779) |
| $ | 5,383,121 |
Issuance of common stock to Oasis, put exercise |
| — |
|
| — |
|
| 195,319 |
|
| 20 |
| — |
|
| — |
|
| 2,602,876 |
|
| — |
|
| 2,602,896 |
Issuance of common stock, registered offering |
| — |
|
| — |
|
| 19,019 |
|
| 2 |
| — |
|
| — |
|
| 266,264 |
|
| — |
|
| 266,266 |
Issuance of common stock in exchange of CVP Notes |
| — |
|
| — |
|
| 395,970 |
|
| 40 |
| — |
|
| — |
|
| 8,224,884 |
|
| — |
|
| 8,224,923 |
Issuance of common stock to Kingdon in lieu of interest |
| — |
|
| — |
|
| 19,752 |
|
| 2 |
| — |
|
| — |
|
| 446,727 |
|
| — |
|
| 446,729 |
Issuance of common stock in exchange of CVP Exchange Notes |
| — |
|
| — |
|
| 817,863 |
|
| 81 |
| — |
|
| — |
|
| 5,584,070 |
|
| — |
|
| 5,584,152 |
Fractional common stock shares repurchased |
| — |
|
| — |
|
| (14) |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Stock-based compensation |
| — |
|
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| 872,876 |
|
| — |
|
| 872,876 |
Net loss |
| — |
|
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| (25,024,988) |
|
| (25,024,988) |
Six Months Ended June 30, 2019 |
| 5,524,926 |
| $ | 9,000,002 |
|
| 1,799,381 |
| $ | 180 |
| 40,301,237 |
| $ | 4,030 |
| $ | 117,927,532 |
| $ | (119,575,767) |
| $ | (1,644,025) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
43
JAGUAR HEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSCHANGES
(Unaudited) IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) (continued)
(Unaudited)
|
|
|
|
|
|
|
|
| Six Months Ended | ||||
|
| June 30, |
| June 30, | ||
|
| 2019 |
| 2018 | ||
Cash flows from operating activities |
|
|
|
| ||
Net loss |
| $ | (25,024,988) |
| $ | (13,353,820) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
Depreciation and amortization expense |
|
| 873,142 |
|
| 659,230 |
Impairment of indefinite-lived intangible assets |
|
| 4,000,000 |
|
| — |
Interest paid on the conversion of debt to equity |
|
| — |
|
| 59,737 |
Common stock issued in exchange for services rendered |
|
| — |
|
| 6,425 |
Loss on extinguishment of debt |
|
| 4,605,158 |
|
| — |
Amortization of operating lease right-of-use-assets |
|
| 362,884 |
|
| — |
Stock-based compensation |
|
| 872,876 |
|
| 736,697 |
Amortization of debt issuance costs and debt discount |
|
| 3,879,353 |
|
| 817,927 |
Change in fair value of warrants, conversion option and derivative liability |
|
| (161,031) |
|
| (141,230) |
Change in fair value of derivative liability |
|
| — |
|
| (3,000) |
Changes in assets and liabilities |
|
|
|
|
|
|
Accounts receivable |
|
| (1,101,530) |
|
| (115,954) |
Other receivable |
|
| (86,626) |
|
| (69,075) |
Inventory |
|
| 948,945 |
|
| (771,688) |
Prepaid expenses and other current assets |
|
| 247,628 |
|
| (785,711) |
Deferred collaboration revenue |
|
| — |
|
| (177,389) |
Operating lease liabilities |
|
| (230,351) |
|
| — |
Accounts payable |
|
| 976,027 |
|
| (2,354,183) |
Accrued expenses |
|
| 1,067,296 |
|
| 473,521 |
Total cash used in operating activities |
|
| (8,771,217) |
|
| (15,018,513) |
Cash flows from investing activities |
|
|
|
|
|
|
Purchase of equipment |
|
| (6,508) |
|
| (6,527) |
Total cash used in investing activities |
|
| (6,508) |
|
| (6,527) |
Cash flows from financing activities |
|
|
|
|
|
|
Proceeds from issuance of short-term notes payable |
|
| 5,050,000 |
|
| — |
Proceeds from issuance of long-term debt |
|
| — |
|
| 2,310,000 |
Repayment of notes payable |
|
| (100,000) |
|
| (1,689,200) |
Proceeds from issuance of common stock through a stock purchase agreement with a private investor |
|
| — |
|
| 1,305,774 |
Proceeds from the issuance of common stock in a private investment in public entities with existing investors |
|
| — |
|
| 750,100 |
Proceeds from the issuance of common stock, March 2018 |
|
| — |
|
| 5,000,000 |
Proceeds from the issuance of convertible preferred stock, March 2018 |
|
| — |
|
| 9,000,002 |
Proceeds from the issuance of common stock, January to April 2019 |
|
| 2,602,895 |
|
| — |
Proceeds from the issuance of common stock, March 2019 |
|
| 266,266 |
|
| — |
Fractional common shares repurchased |
|
| — |
|
| (30) |
Payment of offering costs for July 2019 registered offering |
|
| (3,000) |
|
| — |
Total cash provided by financing activities |
|
| 7,816,161 |
|
| 16,676,646 |
Net increase (decrease) in cash |
|
| (961,564) |
|
| 1,651,606 |
Cash at beginning of period |
|
| 2,568,191 |
|
| 759,867 |
Cash at end of period |
| $ | 1,606,627 |
| $ | 2,411,473 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Series A | | | Series B | | | Series B-2 | | | | | | | | | | | | ||||||||||||||||||
| | Convertible | | | Convertible | | | Convertible | | | Common | | Common | | Additional | | Accumulated | | Total | ||||||||||||||||||
(In thousands, except share data) |
| Shares | | Amount |
|
| Shares | | Amount | | | Shares | | Amount | | | Shares | | Amount | | Shares | | Amount | | paid-in capital | | deficit | | Equity | ||||||||
Balances as of January 1, 2020 | | 5,524,926 | | $ | 9,895 | | | 1,971 | | $ | 476 | | | 10,165 | | $ | 1,236 | | | 14,273,061 | | $ | 1 | | 40,301,237 | | $ | 4 | | $ | 142,046 | | $ | (133,090) | | $ | 10,673 |
Shares issued on exercise of Series 1, Series 2, and 2019 Bridge Note warrants | | — | | | — | | | — | | | — | | | — | | | — | | | 548,962 | | | — | | — | | | — | | | 392 | | | — | | | 392 |
Shares issued on exercise of Series 2 warrants and inducement offer conversion of Series B-1 convertible preferred stock | | — | | | — | | | — | | | — | | | — | | | — | | | 1,250,000 | | | 1 | | — | | | — | | | 2,340 | | | — | | | 2,341 |
Shares issued on exercise of Series 1, Series 2, and 2019 Bridge Note warrants, net of issuance costs of $461; May 2020 | | — | | | — | | | — | | | — | | | — | | | — | | | 8,670,852 | | | 1 | | — | | | — | | | 3,787 | | | — | | | 3,788 |
Shares issued on conversion of Series 1, Series 2, and 2019 Bridge Note warrants; June 2020 | | | | | — | | | — | | | — | | | — | | | — | | | 732,315 | | | — | | — | | | — | | | 359 | | | — | | | 359 |
Issuance of common stock in PIPE financing, net of issuance costs of $51 | | — | | | — | | | — | | | — | | | — | | | — | | | 1,714,283 | | | — | | — | | | — | | | 668 | | | — | | | 668 |
Shares issued in Underwriter settlement agreement | | — | | | — | | | — | | | — | | | — | | | — | | | 100,000 | | | — | | — | | | — | | | 45 | | | — | | | 45 |
Warrants issued in Underwriter settlement agreement | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | — | | | — | | | 31 | | | — | | | 31 |
Underwriter settlement offering cost | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | — | | | — | | | (185) | | | — | | | (185) |
Conversion of Series B-2 convertible preferred stock into common stock | | — | | | — | | | — | | | — | | | (2,631) | | | (320) | | | 499,890 | | | — | | — | | | — | | | 320 | | | — | | | — |
Conversion of Series B convertible preferred stock into common stock | | — | | | — | | | (1,971) | | | (476) | | | — | | | — | | | 4,423,251 | | | — | | — | | | — | | | 476 | | | — | | | — |
Shares issued to Oasis as consideration under the March 2020 equity purchase agreement | | — | | | — | | | — | | | — | | | — | | | — | | | 68,807 | | | — | | — | | | — | | | 33 | | | — | | | 33 |
Shares issued to Oasis under the March 2020 equity purchase agreement, put option exercise, net of issuance costs of $13 | | — | | | — | | | — | | | — | | | — | | | — | | | 52,000 | | | — | | — | | | — | | | 10 | | | — | | | 10 |
Shares issued to third party for services | | — | | | — | | | — | | | — | | | — | | | — | | | 75,000 | | | — | | — | | | — | | | 37 | | | — | | | 37 |
Accretion to redemption value of redeemable preferred stock | | — | | | 983 | | | — | | | — | | | — | | | — | | | — | | | — | | — | | | — | | | (983) | | | — | | | (983) |
Stock-based compensation | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | — | | | — | | | 1,509 | | | — | | | 1,509 |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | — | | | — | | | — | | | (17,174) | | | (17,174) |
Balances as of June 30, 2020 | | 5,524,926 | | $ | 10,878 | | | — | | $ | — | | | 7,534 | | $ | 916 | | | 32,408,421 | | $ | 3 | | 40,301,237 | | $ | 4 | | $ | 150,885 | | $ | (150,264) | | $ | 1,544 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Series A | | | Series B | | | Series B-2 | | | | | | | | | | | | ||||||||||||||||||
| | Convertible | | | Convertible | | | Convertible | | | Common | | Common | | Additional | | Accumulated | | Total | ||||||||||||||||||
(In thousands, except share data) |
| Shares |
| Amount |
|
| Shares | | Amount | | | Shares |
| Amount | | | Shares | | Amount | | Shares | | Amount | | paid-in capital | | deficit | | Equity | ||||||||
Balances as of January 1, 2019 | | 5,524,926 | | $ | 9,000 | | | — | | $ | — | | | — | | $ | — | | | 351,472 | | $ | — | | 40,301,237 | | $ | 4 | | $ | 99,930 | | $ | (94,551) | | $ | 5,383 |
Issuance of common stock, net of offering costs | | — | | | — | | | — | | | — | | | — | | | — | | | 195,319 | | | — | | — | | | — | | | 2,602 | | | — | | | 2,602 |
Issuance of common stock, net of offering costs, March 2019 | | — | | | — | | | — | | | — | | | — | | | — | | | 19,019 | | | — | | — | | | — | | | 266 | | | — | | | 266 |
Issuance of common stock in exchange of notes payable and accrued interest | | — | | | — | | | — | | | — | | | — | | | — | | | 395,970 | | | 1 | | — | | | — | | | 8,223 | | | — | | | 8,224 |
Issuance of common stock in exchange of accrued interest, January 2019 | | — | | | — | | | — | | | — | | | — | | | — | | | 19,752 | | | — | | — | | | — | | | 447 | | | — | | | 447 |
Issuance of common stock in exchange of CVP Exchange Notes | | — | | | — | | | — | | | — | | | — | | | — | | | 817,863 | | | — | | — | | | — | | | 5,584 | | | — | | | 5,584 |
Fractional shares | | — | | | — | | | — | | | — | | | — | | | — | | | (14) | | | — | | — | | | — | | | — | | | — | | | — |
Stock-based compensation | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | — | | | — | | | 873 | | | — | | | 873 |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | — | | | — | | | — | | | (25,025) | | | (25,025) |
Balances as of June 30, 2019 | | 5,524,926 | | $ | 9,000 | | | — | | $ | — | | | — | | $ | — | | | 1,799,381 | | $ | 1 | | 40,301,237 | | $ | 4 | | $ | 117,925 | | $ | (119,576) | | $ | (1,646) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
54
JAGUAR HEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
|
|
|
|
|
|
|
|
| Six Months Ended | ||||
|
| June 30, |
| June 30, | ||
|
| 2019 |
| 2018 | ||
Supplemental schedule of non-cash financing and investing activities |
|
|
|
|
|
|
Interest paid on long-term debt |
| $ | - |
| $ | 19,344 |
Common stock issued as redemption of notes payable and related interest |
| $ | - |
| $ | 1,153,408 |
Common stock issued as redemption of notes payable and related interest |
| $ | - |
| $ | 1,158,738 |
Deemed dividend attributable to preferred stock |
| $ | - |
| $ | 995,000 |
Common stock exchanged for CVP Exchange Note 1 and related interest |
| $ | 5,584,153 |
| $ | - |
Repayment of accrued interest on Kingdon notes payable by issuance of common stock |
| $ | 446,729 |
| $ | - |
Repayment of CVP Note Payable principal and interest by issuance of common stock |
| $ | 8,224,924 |
| $ | - |
Issuance of March 2019 letter of credit warrant |
| $ | 116,297 |
| $ |
|
Issuance of warrants with short-term Notes Payable |
| $ | 5,005,739 |
| $ | - |
Unpaid offering costs for July 2019 registered offering |
| $ | 332,768 |
| $ | - |
| | | | | | |
| | Six Months Ended | ||||
| | June 30, | | June 30, | ||
(in thousands) |
| 2020 |
| 2019 | ||
Cash flows from operating activities | | | | | ||
Net loss | | $ | (17,174) | | $ | (25,025) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | |
Depreciation and amortization expense | |
| 863 | |
| 873 |
Impairment of indefinite-lived intangible assets | | | — | | | 4,000 |
Loss on assignment of receivables | | | 15 | | | — |
Loss on extinguishment of debt | | | — | | | 4,605 |
Amortization of operating lease right-of-use-assets | | | 365 | | | 363 |
Expense on modification of warrants | | | 86 | | | — |
Series B convertible preferred stock inducement expense | | | 1,647 | | | — |
Series 3 warrants issued as an inducement to exercise equity-classified Series 1, Series 2 and Bridge warrants | | | 3,696 | | | — |
Stock-based compensation | |
| 1,509 | |
| 873 |
Issuance of common stock in exchange for services | | | 37 | | | — |
Issuance of warrants and common stock in Underwriter settlement agreement | | | 76 | | | — |
Issuance of common stock as consideration paid under the Oasis Capital Equity Purchase Agreement | | | 33 | | | — |
Amortization of debt issuance costs and debt discount | | | 309 | | | 3,879 |
Change in fair value of warrants, conversion option and derivative liability | | | 387 | | | (161) |
Changes in assets and liabilities | |
| | |
| |
Accounts receivable | | | (2,258) | | | (1,102) |
Other receivable | | | (3) | | | (87) |
Inventory | |
| (225) | |
| 949 |
Prepaid expenses and other current assets | |
| (831) | |
| 248 |
Other non-current assets | | | 58 | | | — |
Operating lease liabilities | | | (221) | | | (230) |
Deferred revenue | | | 1,500 | | | — |
Accounts payable | | | (76) | | | 976 |
Accrued expenses | |
| 1,909 | |
| 1,069 |
Total cash used in operating activities | |
| (8,298) | |
| (8,770) |
Cash flows from investing activities | | | | | | |
Purchase of equipment | | | (7) | | | (7) |
Total cash used in investing activity | |
| (7) | |
| (7) |
Cash flows from financing activities | |
| | |
| |
Proceeds from issuance of notes payable, net of issuance costs and debt discount | | | 350 | | | 5,050 |
Proceeds from insurance premium financing | | | 776 | | | — |
Proceeds from sale of receivables, net of debt discount and issuance costs of $331 | | | 2,222 | | | — |
Repayment of notes payable | | | (1,515) | | | (100) |
Proceeds from issuance of common stock | | | — | | | 2,869 |
Proceeds from issuance of common stock in PIPE financing, net of issuance costs | | | 668 | | | — |
Proceeds from shares issued on exercise of 2019 Bridge warrants; February 2020 | | | 173 | | | — |
Proceeds from shares issued on exercise of Series 1 warrants; February 2020 | | | 144 | | | — |
Proceeds from shares issued on exercise of Series 2 warrants; March 2020 | | | 708 | | | — |
Payment of offering costs for July 2019 registered offering | | | — | | | (3) |
Issuance costs of Ionic Series 2 Warrants; March 24, 2020 | | | (25) | | | — |
Shares issued on exercise of Series 1, Series 2, and 2019 Bridge Note warrants, net of issuance costs of $461; May 2020 | | | 3,752 | | | — |
Shares issued on conversion of Series 1, Series 2, and 2019 Bridge Note warrants; June 2020 | | | 359 | | | — |
Issuance costs from shares issued on Underwriter settlement agreement | | | (185) | | | — |
Proceeds from shares issued on exercise of Oasis Capital an Equity Purchase Agreement put options, net of issuance costs of $13 | | | 10 | | | — |
Total cash provided by financing activities | | | 7,437 | | | 7,816 |
Net decrease in cash | |
| (868) | |
| (961) |
Cash at beginning of period | | | 3,883 | | | 2,568 |
Cash at end of period | | $ | 3,015 | | $ | 1,607 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
65
JAGUAR HEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
| | | | | | |
Supplemental schedule of cash flow information | | | | | | |
Cash paid for interest | | $ | 181 | | $ | — |
Supplemental schedule of non-cash financing and investing activities | | | | | | |
Common stock issued as redemption of notes payable and related interest | | $ | — | | $ | 14,256 |
Issuance of March 2019 letter of credit warrant | | $ | — | | $ | 116 |
Issuance of warrants with Notes Payable | | $ | — | | $ | 5,006 |
Accretion to redemption value of Series A contingently redeemable convertible preferred stock | | $ | 983 | | $ | — |
Offering costs included in accounts payable and accrued expenses | | $ | 36 | | $ | 333 |
Conversion of Oasis Series B-2 convertible preferred stock into common stock | | $ | 320 | | $ | — |
Shares issued on exercise of Series B convertible preferred shares | | $ | 476 | | $ | — |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
JAGUAR HEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Business
Jaguar Health, Inc. (“Jaguar”, “we” or the “Company”), formerly known as Jaguar Animal Health, Inc., was incorporated on June 6, 2013 (inception) in Delaware. The Company was a majority-owned subsidiary of Napo Pharmaceuticals, Inc. (“Napo” or the “Former Parent”) until the close of the Company's initial public offering on May 18, 2015. The Company was formed to develop and commercialize first-in-class gastrointestinal products for companion and production animals and horses. The Company's first commercial product, Neonorm Calf, was launched in 2014 and Neonorm Foal was launched in the first quarter of 2016. The Company's activities are subject to significant risks and uncertainties, including failing to secure additional funding in order to timely complete the development and commercialization of products.
On July 31, 2017, Jaguar completed a merger with Napo pursuant to the Agreement and Plan of Merger dated March 31, 2017 by and among Jaguar, Napo, Napo Acquisition Corporation (“Merger Sub”), and Napo's representative (the “Merger Agreement”). In accordance with the terms of the Merger Agreement, upon the completion of the merger, Merger Sub merged with and into Napo, with Napo surviving as ourthe Company’s wholly-owned subsidiary (the “Merger” or “Napo Merger”). Immediately following the Merger, Jaguar changed its name from “Jaguar Animal Health, Inc.” to “Jaguar Health, Inc.” Napo now operates as a wholly-owned subsidiary of Jaguar focused on human health and the ongoing commercialization of Mytesi, a Napo drug product approved by the U.S. FDAFood and Drug Administration (“FDA”) for the symptomatic relief of noninfectious diarrhea in adults with HIV/AIDS on antiretroviral therapy.
The Company manages its operations through two segments—human health and animal health and is headquartered in San Francisco, California.
Nasdaq Communicationand Compliance
On May 13,December 30, 2019, the Company received written notice from the Staff of the Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that based uponthe bid price for the Company’s common stock for the last 30 consecutive business days had closed below the minimum $1.00 per share required for continued non-compliancelisting under Nasdaq Listing Rule 5550(a)(2).
Under Nasdaq Listing Rule 5810(c)(3)(A), the Company has been granted a 180 calendar day grace period, or until June 29, 2020, to regain compliance with the minimum bid price requirement. The continued listing standard will be met if the Company evidences a closing bid price of at least $1.00 per share for a minimum of 10 consecutive business days during the 180 calendar day grace period. In order for Nasdaq to consider granting the Company additional time beyond June 29, 2020, the Company would be required, among other things, to meet the continued listing requirement for market value of publicly held shares as well as all other standards for initial listing on Nasdaq, with the exception of the minimum bid price requirement. In the event the Company does not regain compliance with the $1.00 bid price requirement by June 29, 2020, eligibility for Nasdaq’s consideration of a second 180 day grace period would be determined on the Company’s compliance with the above referenced criteria on June 29, 2020.
On April 17, 2020, the Company received a letter from Nasdaq indicating that given the extraordinary market conditions from COVID19, Nasdaq has determined to toll the compliance periods for bid price and market value of publicly held shares through June 30, 2020. As a result, companies presently in compliance period for any Price-based Requirements will remain at that stage of the process and will not be subject to being delisted for these concerns. Starting on July 1, 2020, companies received the balance of any pending compliance period in effect at the start of the tolling period to regain compliance. Accordingly, since the Company had 72 calendar days remaining in its Bid compliance period as of April 16, 2020, it still has 72 calendar days from July 1, 2020, or until September 10, 2020, to regain compliance.
7
The Company is diligently working to evidence compliance with the minimum bid price requirement for continued listing on TheNasdaq; however, there can be no assurance that the Company will be able to regain compliance or that Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Rule”), aswill grant the Company a further extension of May 8, 2019, and notwithstandingtime to regain compliance, if necessary. If the Company’sCompany fails to regain compliance with the quantitative criteria necessary to obtain a second 180-day period within which to evidence compliance with the Rule, as set forth in Nasdaq Listing Rule 5810(c)(3)(A), the Staff had determined to delist the Company’s securities from Nasdaq unless the Company timely requests a hearing before the Nasdaq Hearings Panel (the “Panel”).
On June 21, 2019, the Company received a letter from The Nasdaq Stock Market that the Company has regained compliance with Listing Rule 5450(a)(1), which requires the Company’scontinued listing standards, its common stock will be subject to maintain a minimum bid price of $1.00 per share. The notification letter confirmed that the minimum bid price deficiency had been cured and that the Company was in compliance with all applicable listing standards. Nasdaq had previously notified the Company of its non‑compliance with Listing Rule 5450(a)(1) on November 14, 2018, following 30 consecutive business days for which the closing bid price of the Company’s common stock did not meet the $1.00 per share minimum requirement.
Reverse stock-splits
On May 29, 2018, the Company filed the Certificate of Second Amendment to its Third Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a 1-for-15 reverse stock split of the Company’s issued and outstanding shares of voting common stock, effective June 1, 2018. The reverse split has been retrospectively reflected in all voting common stock, warrants, and common stock option shares disclosed in these condensed consolidated financial statements. The non-voting common stock and the convertible preferred stock were excludeddelisting from the reverse split.
7
On June 3, 2019, the Company filed the Certificate of Fifth Amendment to its Third Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a 1-for-70 reverse stock split of the Company’s issued and outstanding shares of voting common stock, effective June 7, 2019. The reverse split has been retrospectively reflected in all voting common stock, warrants, and common stock option shares disclosed in these condensed consolidated financial statements. The non-voting common stock and the convertible preferred stock were excluded from the reverse split.Nasdaq.
Liquidity and Going Concern
The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue ason a going concern.concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The Company, since its inception, has incurred recurring operating losses since inceptionand negative cash flows from operations and has an accumulated deficit of $119.6$150.3 million as of June 30, 2019. The net loss for the six months ended June 30, 2019 was $25.0 million.2020. The Company expects to incur substantial losses and negative cash flows in future periods. Further, the Company'sCompany’s future operations are dependent on the success of the Company'sCompany’s ongoing development and commercialization efforts, as well as securing of additional financing.financing and generating positive cash flows from operations. There is no assurance that profitable operations, if ever achieved,the Company will have adequate cash balances to maintain its operations. In addition, as a result of the recent outbreak of novel COVID-19, the Company may experience disruptions in fiscal year 2020 and beyond that could be sustained on a continuing basis.severely impact its supply chain, ongoing and future clinical trials and commercialization of Mytesi.
TheAlthough the Company plans to finance its operations and capital fundingcash flow needs through equity and/or debt financing, collaboration arrangements with other entities, license royalty agreements, as well as revenue from future product sales. We dosales, the Company does not believe ourits current capital, supplemented by our recent financing of $14.3 million net proceeds, iscash balances are sufficient to fund ourits operating plan through one year from August 14, 2019.the issuance of these unaudited condensed consolidated financial statements. The Company has an immediate need to raise cash. There can be no assurance that additional funding will be available to the Company on acceptable terms, or on a timely basis, if at all, or that the Company will generate sufficient cash from operations to adequately fund operating needs or ultimately achieve profitability.needs. If the Company is unable to obtain an adequate level of financing needed for short-term operations and the long-term development and commercialization of its products, the Company will need to curtail planned activities and reduce costs. Doing so will likely have an adverse effect on the Company's ability to execute on its business plan. These matters raiseplan; accordingly, there is substantial doubt about the ability of the Company to continue in existence as a going concern within one year after the issuance date of the condensed consolidated financial statements.concern. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Transactions with Oasis Capital
On January 7, 2019, Jaguar entered into a common stock purchase agreement with Oasis Capital, relating to an offering of an aggregate of up to 76,190 shares of common stock via an equity line of credit. Under the terms of the purchase agreement, the Company has the right to "put," or sell, up to 76,190 shares of common stock to Oasis Capital for an amount equal to the product of (i) the number of shares set forth on the applicable put notice (minus the deposit and clearing fees associated with such purchase) and (ii) a fixed price of $52.50 per share or such other price agreed upon between the Company and Oasis Capital. Jaguar had the option to increase the equity line of credit by an additional 114,285 shares of common stock by notifying Oasis Capital at any time after the effective date of the purchase agreement. In March 2019, Jaguar exercised this option. As of March 31, 2019, the Company had sold all of the 76,190 shares of common stock of the equity line and all 114,286 shares of common stock from the option to Oasis Capital.
In March 2019, Jaguar entered into a securities purchase agreement with Oasis Capital pursuant to which Jaguar agreed to issue and sell, in a registered public offering by Jaguar directly to Oasis, an aggregate of 19,019 shares of common stock at an offering price of $14.00 for gross proceeds of approximately $266,266.
On April 1, 2019, the Company entered into another common stock purchase agreement (the “April CSPA”) with Oasis Capital relating to an offering (the “April Equity Line Offering”) of an aggregate of up to 285,714 shares (the “April Purchase Shares”) of the Company’s common stock, all of which are being offered in a primary offering consisting of an equity line of credit. Under the terms of the April CSPA, the Company has the right to “put,” or sell, the April Purchase Shares to Oasis Capital for an amount equal to the product of (i) the number of April Purchase Shares set forth in the applicable put notice (minus the deposit and clearing fees associated with such purchase) and (ii) a fixed price of $19.60 per share or such other price agreed upon between the Company and Oasis Capital. The Company had
8
the option to increase the equity line of credit by an additional 285,714 shares of Common Stock by notifying Oasis Capital at any time after the effective date of the April CSPA.
Effective June 14, 2019, we halted all future offers and sales of our voting common stock, par value $0.0001 per share under the April CSPA and terminated the April CSPA. Between April 1, 2019, the date of the April CSPA, and June 14, 2019, we sold an aggregate of 4,843 shares of Common Stock pursuant to the CSPA for aggregate gross proceeds of approximately $100,000.
Kingdon Debt Refinancing
On May 28, 2019, Jaguar entered into a guaranty and suretyship agreement, pursuant to which it guaranteed payment and performance of all obligations of Napo, arising under and in connection with approximately $10.5 million outstanding aggregate amount of convertible promissory notes issued by Napo pursuant to the Amended and Restated Note Purchase Agreement, dated March 31, 2017, by and between Napo, Kingdon Associates, M. Kingdon Offshore Master Fund L.P., Kingdon Family Partnership, L.P., and Kingdon Credit Master Fund L.P. (collectively, the “Existing Notes”). The Existing Notes bear interest at a rate of 10% per annum and mature on December 31, 2019.
On May 28, 2019, Jaguar and Napo (collectively, the “Borrower”) entered into an exchange agreement with Chicago Venture Partners, L.P. (“CVP”), the holder of the Existing Notes, pursuant to which CVP exchanged the Existing Notes for a secured promissory note in the original principal amount of $10,535,900 (“Exchange Note 1”) and a secured promissory note in the original principal amount of $2,296,926 (“Exchange Note 2” and together with Exchange Note 1, the “Exchange Notes”). The Exchange Notes bear interest at the rate of 10% per annum and mature on December 31, 2020. The outstanding balance of Exchange Note 2 is equal to the exchange fee that Jaguar agreed to pay CVP in consideration of certain accommodations granted to Jaguar and Napo, including but not limited to the extension of the maturity dates of the Existing Notes and the legal and other fees incurred by CVP in connection with the effectuation of the transactions contemplated under the Exchange Agreement. Through June 30, 2019, Jaguar has issued 817,863 shares of Common Stock to CVP in exchange for a reduction of approximately $5.1 million of the Exchange Notes. The shares of Common Stock that were exchanged for portions of the Exchange Notes were issued in reliance on the exemption from registration provided under Section 3(a)(9) of the Securities Act.
CVP also entered into security agreements with Jaguar (the “Jaguar Security Agreement”) and Napo (the “Napo Security Agreement”, and together with the Jaguar Security Agreement, the “Security Agreements”), pursuant to which CVP will receive (i) a security interest in substantially all of the Company’s assets as security for the Company’s obligations under Exchange Note 2 and (ii) a security interest in substantially all of Napo’s assets as security for Napo’s obligations under Exchange Note 1 and Exchange Note 2. Notwithstanding the foregoing, (a) the amount owing under Exchange Note 2 will not be considered part of the obligations secured by the Napo Security Agreement until such time as Jaguar receives permission from a third party and (b) the security interest granted under the Jaguar Security Agreement will be automatically terminated and released upon Jaguar’s receipt of a waiver from such third party.
Exchange of CVP Notes for Common Stock
Between January and June 30, 2019, Jaguar entered into exchange agreements with CVP pursuant to which the Company issued 395,970 shares of Common Stock to CVP in exchange for a reduction of $6.4 million in principal and related accrued interest of the CVP Notes (collectively, the June 2017 CVP Note, The December 2017 CVP Note, the February 2018 Note and the March 2018 Note). As of June 30, 2019, all four of the CVP Notes had been entirely extinguished.
2019 Bridge Notes and Warrants
Between March and June 30, 2019, Jaguar entered into securities purchase agreements (“the Bridge Notes”) with selected accredited investors, pursuant to which the Company issued $5.1 million in principal amount of short-term promissory notes to such Investors. As an inducement for entering into the Securities Purchase Agreement, each investor also received warrants exercisable into shares of the Company’s common stock. As of June 30, 2019, the net carrying value of the 2019 Bridge Notes was $3,563,068, or principal of $5,050,000 offset by a discount of $1,486,932.
9
2019 PoC Capital Note and Integrium Contract
On June 25, 2019, the Company entered into a securities purchase agreement with a California-based investment group, PoC Capital, LLC. pursuant to which we sold a promissory note as part of the Bridge Notes. Refer to Note 1 Organization and Business under Notes and Warrants Issuance about Bridge Notes. The proceeds of $775,000 was received by the Company subsequent to the signing of the agreement. On June 26, 2019, Jaguar and PoC Capital signed an agreement with Integrium, LLC, a clinical research organization, in support of a study to evaluate the effect of Mytesi on the gastrointestinal microbiome in people living with HIV. The study is being funded by the proceeds the Company received from PoC Capital underlying the Bridge Note. In July 2019, the Company paid Integrium $750,000 as a prepayment for their services and expenses starting on July 1, 2019 through April 16, 2020. The contract is comprised of services fees in the amount of $332,033, investigator grants or site expenses for $162,619, pass-through expenses $239,573 and $15,775 of other expenses. The Company will receive monthly progress reports to validate the expenses against the prepayment. We did not record any expenses related to this transaction during the three and six months ended June 30, 2019.
2. Summary of Significant Accounting Policies
Basis of Presentation
The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and on a basis consistent with the annual consolidated financial statements, and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair presentation of the periods presented. These interim financial results are not necessarily indicative of the results to be expected for the year ending December 31, 2019,2020, or for any other future annual or interim period. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in ourthe Annual Report on Form 10-K for the year ended December 31, 2018.2019. The unaudited condensed consolidated balance sheet at December 31, 2019 has been derived from the audited consolidated financial statements at that date, but does not include all disclosures, including notes, required by GAAP for complete financial statements.
There has been ano material change to the Company's significant accounting policies during the three and six months ended June 30, 2019,2020, as compared to the significant accounting policies described in Note 2 of the “Notes to Condensed Consolidated Financial Statements” in the Company's Annual Report on Form 10-K for the year ended December 31, 2018. The Company adopted ASC 842 “Leases”2019.
8
Except as noted above, the unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, implementedin the opinion of management, reflect all adjustments of a new policynormal recurring nature considered necessary to accountpresent fairly the financial position as of June 30, 2020, results of operations for modifications ofthe six months ended June 30, 2020 and 2019, changes in convertible preferred stock usingand stockholders' equity for the model in ASC 470-50.three and six months ended June 30, 2020 and 2019, and cash flows for the six months ended June 30, 2020 and 2019. The interim results are not necessarily indicative of the results for any future interim periods or for the entire year.
PrincipalsPrinciples of Consolidation
The unaudited interim condensed consolidated financial statements have been prepared in accordance with USU.S. GAAP and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) and include the accounts of the Company and its wholly ownedwholly-owned subsidiary. All inter-company transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires the Company’s management to make judgments, assumptions and estimates that affect the amounts reported in its unaudited condensed consolidated financial statements and the accompanying notes. The accounting policies that reflect the Company’s more significant estimates and judgments and that the Company believes are the most critical to aid in fully understanding and evaluating its reported financial results are valuation of stock options;options, valuation of warrant liabilities; valuation of derivative liability, impairment testing of goodwill,liabilities, acquired in-process research and development (“IPR&D"), and long lived assets; useful lives for depreciation and amortization;assigned to long-lived assets; valuation adjustments for excess and obsolete inventory; allowance for doubtful accounts; deferred taxes and valuation allowances on deferred tax assets; evaluation and measurement of contingencies; and recognition of revenue, including estimates for product returns. Those estimates could change, and as a result, actual results could differ materially from those estimates.
The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including sales, expenses, reserves and allowances, manufacturing, research and development costs and employee-related amounts, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international customers, markets and economies.
Cash and Restricted Cash
Our cash on deposit may exceed United States federally insured limits at certain times during the year. We maintain cash accounts with certain major financial institutions in the United States. Restricted cash represents cash not available to us for immediate and general use.
Accounts Receivable
Accounts receivable is recorded net of allowances for chargebacks and discounts for prompt payment and credit losses. The Company estimates an allowance for credit losses by considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay. The corresponding expense for the credit loss allowance is reflected in general and administrative expenses. The credit loss allowance was immaterial as of June 30, 2020.
109
Deferred Offering Costs
Deferred offering costs are costs incurred in filings of registration statements with the Securities and Exchange Commission. These deferred offering costs are offset against proceeds received upon the closing of the offerings. Deferred costs of $335,768 as of June 30, 2019, include legal, accounting, printer and filing fees associated with the Company's registration issued in July 2019.
Concentrations
Cash is the financial instrument that potentially subjects the Company to a concentration of credit risk as cash is deposited with a bank and cash balances are generally in excess of Federal Deposit Insurance Corporation insurance limits. The carrying value of cash approximates fair value at June 30, 2019 and December 31, 2018.
For the three and six months ended June 30, 20192020 and 2018,2019, substantially all of the Company’s revenue has been derived from the sale of Mytesi. For the three months and six months ended June 30, 2019,2020, the Company earned Mytesi revenue primarily from one pharmaceutical distributor in the United States. For the three and six months ended June 30, 2018, the Company earned Mytesi revenue primarily from three pharmaceutical distributors in the United States, each of whom amounted to a percentage of total net revenue of at least 10%. Revenue earned from each as a percentage of total net revenue is as follows:
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Consolidated (percentage of total net sales) |
| Three Months Ended |
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| Six Months Ended |
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| June 30, |
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| 2019 |
| 2018 |
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| 2019 |
| 2018 |
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Customer 1 |
| 100 | % | 34 | % |
| 89 | % | 33 | % |
Customer 2 |
| — | % | 29 | % |
| — | % | 30 | % |
Customer 3 |
| — | % | 27 | % |
| — | % | 28 | % |
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| | Three Months Ended | | | Six Months Ended |
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| | June 30, | | | June 30, |
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| | (unaudited) | | | (unaudited) | | ||||
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| 2020 |
| 2019 |
| | 2020 |
| 2019 |
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Customer 1 | | 100 | % | 100 | % | | 99 | % | 89 | % |
TheThe Company is subject to credit risk from its accounts receivable related to its sales. The Company generally does not perform evaluations of customers' financial condition and generally does not require collateral. The Company's significant pharmaceutical distributors and their related accounts receivable balance as a percentage of total accounts receivable were as follows:
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| As of |
| As of |
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| June 30, |
| June 30, |
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| 2019 |
| 2018 |
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Customer 1 |
| 99.6 | % | * | % |
Customer 2 |
| * | % | * | % |
Customer 3 |
| * | % | * | % |
* Less than 10% |
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| | June 30, 2020 | | December 31, | |
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| (unaudited) | | 2019 |
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Customer 1 | | 100 | % | 99 | % |
No other customer represented more than 10% of the Company's accounts receivable balances as of those dates.
The Company is subject to creditconcentration risk from its inventory suppliers. The Company sources drug substanceraw material used to produce the active pharmaceutical ingredient in Mytesi from atwo suppliers and is dependent on single supplier and drug product from a single supplier.third-party contract manufacturers, both for the supply of the active pharmaceutical ingredient in Mytesi, as well as for the supply of finished products for commercialization.
Fair ValuesValue
The Company’s financial instruments include cash, accounts receivable, accounts payable, accrued expenses, warrant liabilities, derivative liability, debt conversion option liability,assets and liabilities, equity-linked financial instruments and debt. The recorded carrying amount of accounts receivable, accounts payable and accrued expenses reflect their fair value due to their short-term nature. The carrying value of the interest-bearing debt approximates fair value based upon the borrowing rates currently available to the Company for bank loans with similar terms and maturities. See Note 3 for the fair value measurements.
11
Inventory
Inventories
Inventories areInventory is stated at the lower of cost or net realizable value. Cost is initially recorded at invoiced amount of raw materials or active pharmaceutical ingredient, including the sum of qualified expenditures and charges in bringing the inventory to its existing condition and location. The Company calculates inventory valuation adjustments when conditions indicate that net realizable value is less than cost due to physical deterioration, usage, obsolescence, reductions in estimated future demand or reduction in selling price. Inventory write-downs are measured as the difference between the cost of inventory and net realizable value.
Land, Property and Equipment
Land is stated at cost, reflecting fair value of the property at July 31, 2017, the date of the Napo merger. Equipment is stated at cost, lessnet of accumulated depreciation. Equipment begins to be depreciated when it is
10
placed into service. Depreciation is calculated using the straight-line method over the estimated useful lives ofranging between 3 to 10 years.
Expenditures for repairs and maintenance of assets are charged to expense as incurred. Costs of major additions and betterments are capitalized and depreciated on a straight-line basis over their estimated useful lives. Upon retirement or sale, the cost and related accumulated depreciation of assets disposed of are removed from the accounts and any resulting gain or loss is included in the condensed consolidated statements of operations and comprehensive loss.operations.
Long-Lived Assets
The Company regularly reviews the carrying value and estimated lives of all of its long-lived assets, including property and equipment to determine whether indicators of impairment may exist that warrant adjustments to carrying values or estimated useful lives. The determinants used for this evaluation include management’s estimate of the asset’s ability to generate positive income from operations and positive cash flow in future periods as well as the strategic significance of the assets to the Company’s business objectives.
Definite-lived intangible assets are amortized on a straight-line basis over the estimated periods benefited,useful lives of intangible assets and are reviewed when appropriate for possible impairment.
Goodwill and Indefinite-lived Intangible Assets
Goodwill is tested for impairment on an annual basis and in between annual tests if events or circumstances indicate that an impairment loss may have occurred. The test is based on a comparison of the reporting unit's book value to its estimated fair value. The Company performs the annual impairment test during the fourth quarter of each fiscal year using the opening consolidated balance sheet as of the first day of the fourth quarter, with any resulting impairment recorded in the fourth quarter of the fiscal year. The Company did not record an impairment of goodwill during the three and six months ended June 30, 2019 and 2018.
Acquired in-process research and development (IPR&D)(“IPR&D”) are intangible assets acquired in the July 2017 Napo merger. Under ASC 805, IPR&D are initially recognized at fair value and classified as indefinite-lived assets until the successful completion or abandonment of the associated research and development efforts. During the development period, these assets will not be amortized as charges to earnings; instead these assets will be tested for impairment on an annual basis or more frequently if impairment indicators are identified. In connection with each annual impairment assessment and any interim impairment assessment in which indicators of impairment have been identified, we compare the fair value of the asset as of the date of the assessment with the carrying value of the asset on the condensed consolidated balance sheet. If impairment is indicated by this test, the intangible asset is written down by the amount by which the discounted cash flows expected from the intangible asset exceeds its carrying value. Fair value determinations require considerable judgement and are sensitive to changes in underlying assumptions, estimates regarding our future plans, as well as industry and economic conditions. These assumptions and estimates include projected revenues and income growth rates, terminal growth rates, competitive and consumer trends, market-based discount rates, and other factors. If current expectations of growth rates are not met or market factors outside of our control, such as discount rates, change significantly, this may lead to a further impairment in the future. Acquired in-process research and development (“IPR&D”) are intangible assets initially recognized at fair value and classified as indefinite-lived assets until the successful completion or abandonment of the associated research and development efforts. During the development period, these assets will not be amortized as charges to earnings; instead
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these assets will be tested for impairment on an annual basis or more frequently if impairment indicators are identified. We recorded an impairment of $4,000,000 in the three and six months ended June 30, 2019. There were no impairment charges recorded in the three and six months ended June 30, 2018. TheAn impairment loss is measured based on the excess of the carrying amount over the asset’s fair value. Definite-lived intangible assets are amortized on a straight-line basis overThere were no impairment charges recorded in the estimated periods benefitedthree and are reviewed when appropriate for possible impairment.six months ended June 30, 2020. The Company recorded an impairment of $4,000,000 in the three and six months ended June 30, 2019.
Leases
ASC 842, Leases, requires lessees to recognize right-of-use assets and lease liabilities for all leases with a term of greater than 12 months regardless of their classification on the balance sheet and to provide expanded disclosures about leasing arrangements. The Company adopted ASC 842 effectiveon January 1, 2019 using the optional transition method and did not restatewith no restatements of comparative periods. There was no effect on accumulated deficit at adoption.
The Company has elected to adopt the package of practical expedients to (i) not reassess whether expired or existing contracts are or contain leases, (ii) not reassess the lease classification for any expired or existing leases and (iii) not reassess the accounting for initial direct costs.
The adoption of the new leases standard resulted in the following adjustments to the consolidated balance sheet as of January 1, 2019:
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| December 31, 2018 |
| Adoption Impact |
| January 1, 2019 | |||||||||||
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| | | | | | | | | ||||||||
(in thousands) | December 31, 2018 |
| Adoption Impact |
| January 1, 2019 | |||||||||||
Operating lease right-of-use assets | $ | — |
| $ | 1,111,214 |
| $ | 1,111,214 | $ | — | | $ | 1,111 | | $ | 1,111 |
Operating leases liabilities, current portion |
| — |
|
| 336,647 |
|
| 336,647 | | — | | | 337 | | | 337 |
Operating leases liabilities, long term |
| — |
|
| 394,703 |
|
| 394,703 | | — | | | 395 | | | 395 |
Deferred rent |
| 379,864 |
|
| (379,864) |
|
| — | | 380 | | | (380) | | | — |
At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. TheBecause the interest rate implicit in lease contracts is typically not readily determinable. As such,determinable, the Company utilizes its incremental borrowing rate,
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which is the rate incurred to borrow on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received.
Operating Lease
The Company has a non-cancelable operating lease with CA-Mission Street Limited Partnership for its offices in San Francisco, California through September 1,30, 2020. The lease agreement calls for monthly base rents between $38,391$38,000 and $40,730$41,000 over the term of the lease.
Prior The Company has engaged a realtor to assist us in relocating to new office space starting on or near the Company’s adoptiontermination of ASC 842 on January 1, 2019, the Company recordedcurrent lease expense for its operating leases in accordance with ASC 840.CA-Mission Street Limited Partnership.
Research and Development Expense
Research and development expense consistsconsist of expenses incurred in performing research and development activities including related salaries, clinical trialtrials and related drug and non-drug product costs, contract services and other outside service expenses. Research and development expense is charged to operating expense in the period incurred.
Revenue Recognition
The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), which was adopted on January 1, 2018, using the modified retrospective method, which was elected to
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apply to all active contracts as of the adoption date. Application of the modified retrospective method did not impact amounts previously reported by the Company, nor did it require a cumulative effect adjustment upon adoption, as the Company's method of recognizing revenue under ASC 606 yielded similar results to the method utilized immediately prior to adoption. Accordingly, there was no effect to each financial statement line item as a result of applying the new revenue standard..
Practical Expedients, Elections, and Exemptions
The Company recognizes revenue in accordance with the core principle of ASC 606 or when there is a transfer of control of promised goods or services to customers in an amount that reflects the consideration that the Company expects to be entitled to in exchange for those goods or services.
The Company elected a practical expedient available under ASC 606‑10‑65‑1(f)4 that permits it to consider the aggregate effect of all contract modifications that occurred before the beginning of the earliest period presented when identifying satisfied and unsatisfied performance obligations, transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations.
The Company also elected a practical expedient available under ASC 606‑10‑32‑18606-10-32-18 that permits it to not adjust the amount of consideration for the effects of a significant financing component if, at contract inception, the expected period between the transfer of promised goods or services and customer payment is one year or less.
The Company has elected to treat shipping and handling activities as fulfillment costs.
Additionally, the Company elected to record revenue net of sales and other similar taxes.
Contracts - Cardinal Health
Effective January 16, 2019, Napo Pharmaceuticals, Inc. engaged Cardinal Health as its exclusive third party logistics distribution agent for commercial sales for the Company’s Mytesi product and to perform certain other services which include, without limitation, storage, distribution, returns, customer support, financial support, EDIElectronic Data Interchange (“EDI”) and system access support (the “Exclusive Distribution Agreement”) .
In addition to the terms and conditions of the Exclusive Distribution Agreement, Cardinal Health’s purchase of products, and assumption of title therein, is set forth in the Title Model Addendum. The Title Model Addendum states that upon receipt of product at the 3PL Facility (Cardinal Health in La Vergne, Tennessee) from the Company, title and risk of loss for the Mytesi product purchased by Cardinal Health (excluding consigned inventory) shall pass to Cardinal Health, and title and risk of loss for consigned inventory shall remain with the Company until purchased by Cardinal Health in accordance with the Title Model Addendum. Napo Pharmaceuticals, Inc. considers Cardinal Health the Company’s exclusive customer for Mytesi products per the Exclusive Distribution Agreement.
Jaguar's Neonorm and botanical extract products are primarily sold to distributors, who then sell the products to the end customers. Since 2014, the Company has entered into several distribution agreements with established
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distributors such as Animart, Vedco, VPI, RJ Matthews, Henry Schein, and Stockmen Supply to distribute the Company's products in the United States, Japan, and China. The distribution agreements and the related purchase order together meet the contract existence criteria under ASC 606‑10‑25‑1.606-10-25-1. Jaguar sells directly to its customers without the use of an agent.
Performance obligations
For animal products sold by Jaguar Health, the single performance obligation identified above is the Company’s promise to transfer the Company’s animal products to distributors based on specified payment and shipping terms in the arrangement. Product warranties are assurance type warranties that do not represent a performance obligation. For the Company’s human product, Mytesi, which is sold by Napo, Pharmaceuticals Inc., the single performance obligation identified above is the Company’s promise to transfer Mytesi to Cardinal Health, the Company’s
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exclusive distributor for the product, based on specified payment and shipping terms as outlined in the Exclusive Distribution Agreement. The product warranties are assurance type warranties that do not represent a performance obligation.
Transaction price
For contracts with Cardinal Health, for both Jaguar and Napo, the transaction price is the amount of consideration to which the Company expects to collect in exchange for transferring the promised goods or services to a customer. The transaction price of Mytesi and Neonorm is the Wholesaler Acquisition Cost (“WAC”), net of discounts, returns, and price adjustments.
Allocate transaction price
For contracts with Cardinal Health, for both Napo and Jaguar, the entire transaction price is allocated to the single performance obligation contained in each contract.
Point in timeRevenue recognition
For contracts with Cardinal Health, for both Napo and Jaguar, a single performance obligation is satisfied at a point in time, upon the free on board (“FOB”) terms of each contract when control, including title and all risks, has transferred to the customer.
Disaggregation of Product Revenue
Human
Sales of Mytesi are recognized as revenue when the products are delivered to the wholesaler. RevenuesNet revenues from the sale of Mytesi were $1,684,732$3,153,000 and $854,170$1,685,000 for the three months ended June 30, 20192020 and 2018,2019, respectively. Revenues from the sale of Mytesi were $3,227,853$3,988,000 and $1,437,439$3,228,000 for the six months ended June 30, 2020 and 2019, and 2018, respectively. The increase in sales of Mytesi is due to the more streamlined distribution channel and increased sales presence.
Animal
The Company recognized Neonorm revenues of $20,962$14,000 and $29,676$21,000 for the three months ended June 30, 20192020 and 2018,2019, respectively. Revenues from the sale of Neonorm were $67,574$48,000 and $73,374$67,000 for the six months ended June 30, 20192020 and 2018,2019, respectively. Revenues are recognized upon shipment which is when title and control is transferred to the buyer. Sales of Neonorm Calf and Foal to distributors are made under agreements that may provide distributor price adjustments and rights of return under certain circumstances.
Collaboration RevenueContracts - Atlas Sciences
On January 27, 2017,Effective April 15, 2020 (the “Effective Date”), the Company entered into a licensing, development, co-promotion and commercializationpatent purchase agreement with Elanco US Inc.Atlas Sciences, LLC (“Elanco”Atlas”), pursuant to which Atlas agreed to purchase certain patents and patent applications relating to the Napo’s NP-500 drug product candidate (the “Patent Rights”) for an upfront cash payment of $1,500,000.
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Concurrent with the Patent Rights sale, the Company entered into a license agreement with Atlas (the “License Agreement”), pursuant to which Atlas granted the Company an exclusive 10-year license to use the Patent Rights and improvements thereon to develop and commercialize Canalevia,NP-500 in all territories worldwide except Greater China (i.e., China, Hong Kong, Taiwan and Macau), inclusive of the Company's drug product candidate under investigationright to sublicense NP-500 development and commercialization rights (“the License”). Except for treatment of acute and chemotherapy-induced diarrhea in dogs, and other drug product formulations of crofelemer for treatment of gastrointestinal diseases, conditions and symptoms in cats and other companion animals. On November 1, 2017,the License retained by the Company, receivedAtlas retains all rights, title and interest in and to the Patent Rights, including all improvements and enhancements to the Patent Rights made or created by the Company under the License Agreement or made or created by or on behalf of Atlas during the term of the License Agreement.
Included in the arrangement with Atlas, the Company is obligated to initiate a letterproof of concept Phase 2 study of NP-500 under an investigational new drug (“IND”) application with the U.S. Food and Drug Administration or an IND-equivalent dossier under appropriate regulatory authorities (the “Phase 2 study”) within nine months of April 15, 2020. If the Company fails to initiate the Phase 2 study by this date, for any reason, including the timely receipt of adequate funding to initiate the Phase 2 study, the Company will incur a trial delay fee equal to $2,515,000 (the “Trial Delay Fee”), which amount is payable beginning on the nine-month anniversary of the Effective Date and continuing until the payment in full of the Trial Delay Fee, in an amount equal to: (a) from Elanco serving as formal noticethe nine- month anniversary of their decisionthe Effective Date until the fifteenth-month anniversary of the Effective Date, $200,000; and (b) from the fifteenth -month anniversary of the Effective Date until payment in full of the Trial Delay Fee, $350,000. Atlas has the right to terminate the agreement by givingLicense in the event that the Company 90 days written notice. According(i) fails to complete the Phase 2 study within five years of April 15, 2020 or (ii) has not timely initiated the Phase 2 study and thereafter fails to make three or more consecutive Trial Delay Payments.
Performance obligations
The Patent Rights sale to Atlas and the Phase 2 study to be performed by the Company, identified above, represent a single transaction with two separate performance obligations; with the sale of the Patent Rights, the Company transferred control of the internally generated Patent Rights to Atlas at the date of sale; and with the Phase 2 study, the services will be transferred to Atlas over an estimated 13.2 months.
Transaction price
For the contract with Atlas, the upfront payment of $1,500,000 from Atlas as consideration for the Patent Rights sale and the Phase 2 study, is variable consideration that is fully constrained due to the agreement, termination became effective onpotential incurrence of a Trial Delay Fee of $2,515,000 if the Phase 2 study had not been initiated by January 30, 2018. Under15, 2021. The Company’s method was the termsmost likely amount. The Company fully constrained the value of the agreement,variable consideration based on inherent uncertainty of timing of clinical trials. In addition, due to the estimated 13.2-month term over which the Company receivedwill perform the Phase 2 study, the upfront payment resulted in a significant financing component of $279,000. Accordingly, at inception, the total transaction price of $1,779,000 is deferred and the transaction price is zero.
Allocate transaction price
For the contract with Atlas, the transaction price of $1,779,000 is allocated as follows: (i) $1,196,000 was allocated to the Phase 2 study using the cost-plus margin approach based on the price quoted by a third party contract research organization, and (ii) $583,000 was allocated to the Patent sale using the Residual method.
Revenue recognition
For the contract with Atlas, control of the Patent Rights transferred to Atlas on the date of sale (at a point-in-time); and with the Phase 2 study, the services will be transferred to Atlas over the estimated 13.2 months of the study, which is set to run between October 2020 and November 2021. However, due to the full constraint on the $1,500,000 variable consideration, all revenue was deferred at inception of $0the transaction and $177,389as of June 30, 2020. When the Company is able to conclude that it is probable that it will initiate the Phase 2 study on or before January 15, 2021, the upfront payment of $1,500,000 will no longer be variable, nor constrained, and at which point the Company can
14
immediately recognize the $583,000 allocated to the Patent Rights and in turn can start to recognize revenue from the Phase 2 services.
Disaggregation of Patent Sales and Clinical Trial Services
Patent Rights Sale
Patent Rights sales are recognized when control of the Patent Rights are transferred to the purchaser (at a point-in-time). Due to the full constraint on the variable consideration of $1,500,000, there was no revenue recognized from the sale of Patent Rights to Atlas for the three and six months ended June 30, 2020 and 2019, respectively.
Clinical Trials
Revenue from clinical trials are recognized over time, as the services are performed, as the Company's performance enhances the Patent Rights asset that Atlas controls. The Phase 2 study to be performed under the Atlas License is expected to begin in October 2020 and 2018, respectively. Thererun through November 2021. The expected first patient dose in the study is expected to occur in December 2020, at which point revenue from the Phase 2 study can begin to be recognized. Due to the Phase 2 study having not begun and the full constraint on the variable consideration of $1,500,000, for the three and six months ended June 30, 2020 and 2019, there was no revenue recognized infrom the three months ended June 30, 2019 and 2018.Phase 2 services.
Collaboration Revenue
On September 24, 2018, the Company entered into a Distribution, License and Supply Agreement ("(“License Agreement"Agreement”) with Knight Therapeutics Inc. ("Knight"). The License Agreement has a term of 15 years (with automatic renewals) and provides Knight with an exclusive right to commercialize current and future Jaguar human health products (including Crofelemer, Lechlemer, and any product containing a proanthocyanidin or with an anti-secretory mechanism)
15
in Canada and Israel. In addition, Knight was granted a right of first negotiation for expansion to Latin America. Under the License Agreement, Knight is responsible for applying for and obtaining necessary regulatory approvals in the territory of Canada and Israel, as well as marketing, sales and distribution of the licensed products. Knight will pay a transfer price for all licensed products, and upon achievement of certain regulatory and sales milestones, Jaguar may receive payments from Knight in an aggregate amount of up to approximately $18 million payable throughout the initial 15-year term of the agreement. The Company did not have any licensecollaboration revenues infor the three months and six months ended June 30, 20192020 and 2018.2019.
Modifications to equity-classified instruments
In the six months ending June 30, 2020, the Company modified certain equity-classified warrants (see Note 8). It is the Company’s policy to determine the impact of modifications to equity-classified warrants by analogy to the share-based compensation guidance of ASC 718, Compensation - Stock Compensation (“ASC 718”). The model for a modified share-based payment award that is classified as equity and remains classified in equity after the modification is addressed in ASC 718-20-35-3. Pursuant to that guidance, the incremental fair value from the modification is recognized as an expense in the statements of operations to the extent the modified instrument has a higher fair value; however, in certain circumstances, such as when an entire class of warrants are modified, the measured increase in fair value may be more appropriately recorded as a deemed dividend, depending upon the nature of the warrant modification.
In the six months ending June 30, 2020, the Company modified the terms of its Series B convertible preferred stock, and Series 1, 2 and Bridge warrants (see Note 9). For amendments to preferred stock, it is the Company’s policy to measure the impact by analogy to ASC 470-50 in determining if such an amendment is an extinguishment or a modification. If the amendment results in an extinguishment, the Company follows the SEC staff guidance in ASC 260-
15
10-S99-2 and ASC 470-20. If the amendment results in a modification, the Company follows the model in either ASC 718 or ASC 470-50, depending on the nature of the amendment.
Stock-Based Compensation
The Company's 2014 Stock Incentive Plan (see Note 11) provides for the grant of stock options, restricted stock and restricted stock unit awards.
The Company measures stock awards granted to employees, non-employees and directors at fair value on the date of grant and recognizes the corresponding compensation expense of the awards, net of estimated forfeiture over the requisite service periods, which correspond to the vesting periods of the awards. The Company issues stock awards with only service-based vesting conditions, and records compensation expense for these awards using the straight-line method.
The Company uses the grant date fair market value of its common stock to determine the grant date fair value of options granted to employees, non-employees and directors.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.
Comprehensive Income (Loss)Loss
For all periods presented, the comprehensive income (loss)loss was equal to the net income (loss);loss; therefore, a separate statement of comprehensive income (loss)loss is not included in the accompanying unaudited condensed consolidated financial statements.
Recent Accounting Pronouncements
Except as described in Note 2 – Basis of Presentation, there have been no other new accounting pronouncements adopted by the Company besides the adoption of ASC 842 “Leases” and implementation of a new policy to account for modifications of preferred stock using the model in ASC 470-50 during the three months and six months ended June 30, 2019, that the Company believes are of significance or potential significance to the Company.
In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This update expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC 606. The amendments in ASU 2018-07 are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted. The Company adopted this standard on January 1, 2019, and this standard did not have a material impact on the Company’s financial position, results of operations or disclosures. The Company is evaluating the impact of the adoption of ASU 2016-13 on its Condensed Consolidated Financial Statements.
In August 2018, the FASB issued ASU 2018-15, Intangible - Goodwill and Other - Internal-Use Software (Subtopic 350-40), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU2018-15 is effective for the Company in the first quarter of 2020. Early adoption is permitted. ASU2018-15 permits either a prospective or retrospective transition approach. The Company is currently evaluating ASU2018-15 to determine the impact to its condensed consolidated financial statements and related disclosures. The Company is evaluating the impact of the adoption of ASU 2016-13 on its Condensed Consolidated Financial Statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820).: Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The new guidance modifiesprimary focus of the standard is to improve the effectiveness of the disclosure requirements onfor fair value measurements. The changes affect all companies that are required to include fair value measurement disclosures. The standard requires the use of the prospective method of transition for disclosures related to changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop fair value measurements categorized within Level 3 of the fair value hierarchy, and narrative description of measurement uncertainty. All other amendments in the standard are required to be adopted retrospectively. We adopted the standard on January 1, 2020. Adoption of this standard did not have a material effect on the Company’s unaudited condensed consolidated financial statements and related disclosures.
In November 2018, the FASB issued ASU 2018-132018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606. ASU 2018-18 provides guidance on how to assess whether certain transactions between collaborative arrangement participants should be accounted for within the revenue recognition standard. The standard also provides more comparability in the presentation of revenue for certain transactions between collaborative arrangement participants. The standard is to be applied retrospectively to the date of the initial application of Topic 606 which also requires recognition of the cumulative effect of applying the amendments as an adjustment to the opening balance of retained earnings of the later or the earliest annual period presented and the annual period inclusive of the initial application of Topic 606. We adopted the standard on January 1, 2020. Adoption of this standard did not have a material effect on the Company’s unaudited condensed consolidated financial statements and related disclosures.
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In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. The standard also removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application. The pronouncement is effective for the Company beginning in the first quarter of 2020 and must be adopted on a modified retrospective basis,January 1, 2021 with certain exceptions. Earlyearly adoption is permitted. The Company does not expect ASU 2018-13 to have a significantis still evaluating the impact to its condensed consolidated financial statements and related disclosures.of the adoption of this standard.
3. Fair Value Measurements
ASC 820 “Fair Value Measurements,” defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit
16
price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
| Level 1— Observable inputs such as quoted prices (unadjusted) for identical instruments in active markets. |
| Level 2— Observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or model derived valuations whose significant inputs are observable. |
| Level 3— Unobservable inputs that reflect the reporting entity’s own assumptions. |
The following tables set forth the fair value of the Company’s financial instruments that were measured at fair value on a recurring basis as of June 30, 20192020 and December 31, 2018.2019.
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| ||||||||||||
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| June 30, 2019 | ||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | June 30, 2020 | ||||||||||||||||||||||
| | (unaudited) | ||||||||||||||||||||||
(in thousands) |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||||||||||
Warrant liability |
| $ | — |
| $ | — |
| $ | 5,182,273 |
| $ | 5,182,273 | | $ | — | | $ | — | | $ | 4,086 | | $ | 4,086 |
Total fair value |
| $ | — |
| $ | — |
| $ | 5,182,273 |
| $ | 5,182,273 | | $ | — | | $ | — | | $ | 4,086 | | $ | 4,086 |
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| ||||||||||||
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| December 31, 2018 | ||||||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | December 31, 2019 | ||||||||||||||||||||||
(in thousands) |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||||||||||
Warrant liability |
| $ | — |
| $ | — |
| $ | 220,376 |
| $ | 220,376 | | $ | — | | $ | — | | $ | 3 | | $ | 3 |
Total fair value |
| $ | — |
| $ | — |
| $ | 220,376 |
| $ | 220,376 | | $ | — | | $ | — | | $ | 3 | | $ | 3 |
The change in the estimated fair value of Level 3 liabilities is summarized below:
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|
|
| |||
|
| Six Months Ended | ||||
|
| June 30, 2019 | ||||
|
| Warrant | ||||
|
| Liability | ||||
|
| (unaudited) | ||||
| | | | |||
| | Six Months Ended | ||||
| | June 30, 2020 | ||||
| | Warrant | ||||
| | Liability | ||||
(in thousands) |
| (unaudited) | ||||
Beginning fair value of Level 3 liability |
| $ | 220,376 |
| $ | 3 |
Additions |
|
| 5,122,928 | | | 3,696 |
Extinguishment |
|
| — | |||
Change in fair value |
|
| (161,031) |
|
| 387 |
Ending fair value of Level 3 liability |
| $ | 5,182,273 |
| $ | 4,086 |
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Warrant Liability
The warrants associated with the Level 3 warrant liability were the November 2016 Series A Warrants,warrants, the October 2018 Underwriter Warrants, the LOC warrantwarrants and the 2019 Bridge NoteMay 2020 Series 3 warrants, which, at June 30, 20192020, were valued at $1,053, $52,265, $150,970,$1, $1,566 and $4,977,985,$4,084,478 respectively, in the Company’s unaudited condensed consolidated balance sheet. At December 31, 2018, thesheets. The warrants associated with the Level 3 warrant liability activity for the year ended December 31, 2019 were the November 2016 Series A Warrants,warrants, the October 2018 Underwriter Warrants,warrants, the March 2019 LOC warrants and the Bridge warrants, which at December 31, 2019 were valued at $7,388$10, $3,482, zero and $212,988,zero, respectively in the Company’s consolidated balance sheet.sheets.
17
The Series A Warrants
The Series A warrant valuation of $7,388$1 at December 31, 2018June 30, 2020 was computed using the Black-Scholes-Merton pricing model using a stock price of $16.10,$0.49, a strike price of $787.50 per share, an expected term of 3.411.90 years, volatility of 135.63%141% and a risk-free discount rate of 2.46%0.16%. The Series A warrant valuation of $1,053$10 at June 30,December 31, 2019 was computed using the Black-Scholes-Merton pricing model using a stock price of $4.70,$0.65, a strike price of $787.50 per share, an expected term of 2.922.41 years, volatility of 145.60%143.41% and a risk-free discount rate of 1.71%1.62%. The net changedecrease in the fair value of the warrants of $9,941 was recorded as a net loss$2 and $6,335 was recorded as a net gain$9 for the three and six months ended June 30, 2019,2020, respectively, was recorded as a gain in the change in fair value of warrants, derivative liability and conversion option liabilityfinancial instruments in the condensed consolidated statements of operations.
The October 2018 Underwriter Warrants
The October 2018 Underwriter Warrants valuation of $212,988$1,566 at December 31, 2018June 30, 2020 was computed using the Black-Scholes-Merton pricing model using a stock price of $16.10,$0.49, a strike price of $52.50 per share, an expected term of 4.763.30 years, volatility of 135.63%141% and a risk freerisk-free discount rate of 2.51%0.18%. The October 2018 Underwriter Warrants valuation of $52,265$3,482 at June 30,December 31, 2019 was computed using the Black-Scholes-Merton pricing model using a stock price of $4.70,$0.65, a strike price of $52.50 per share, an expected term of 4.263.76 years, volatility of 145.60%143.41% and a risk-free discount rate of 1.76%1.69%. The net changedecrease in the fair value of the warrants of $221,753$530 and $160,723$735 for the three and six months ended June 30, 2019,2020, respectively, iswas recorded as a net gain to in the change in fair value of warrants, derivative liability and conversion option liabilityfinancial instruments in the condensed consolidated statements of operationsoperations.
The May 2020 Series 3 Warrants
The LOC Warrants were issued on March 29, 2019 with a valuation at issuance and at March 31, 2019 of $116,297, computed using the Black-Scholes-Merton pricing model using a stock price of $19.60, a strike price of $17.50 per share, an expected term of 5.0 years, volatility of 145.72% and a risk-free discount rate of 2.23%. The LOCMay 2020 Series 3 Warrants valuation of $150,970$4,084,478 at June 30, 20192020 was computed using the Black-Scholes-Merton pricing model using a stock price of $4.70,$0.49, a strike price of $4.70$0.05 per share, an expected term of 4.755.39 years, volatility of 145.60%141% and a risk-free discount rate of 1.76%0.29%. The May 2020 Series 3 Warrants valuation of $3,695,723 at issuance on May 22, 2020 was computed using the Black-Scholes-Merton pricing model using a stock price of $0.44, a strike price of $0.05 per share, an expected term of 5.50 years, volatility of 143% and a risk-free discount rate of 0.34%. The net changeincrease in the fair value of the warrants of $34,673$386,755 for the three and six months ended June 30, 20192020 was recorded as a loss in the change in fair value of warrants, derivative liability and conversion option liabilityfinancial instruments in the condensed consolidated statements of operations.
The 2019 Bridge Warrants were issued between March and June 2019, concurrent to the Company entering into Promissory Notes
18
4. Balance Sheet Components
Inventory
Inventory at June 30, 2020 and December 31, 2019 computed using the Black-Scholes-Merton pricing model using a stock price of $4.70, a strike price of $4.70 per share, an expected term of 4.77 years, volatility of 145.60% and a risk-free discount rate of 1.76%. The warrants for all twenty-one Bridge Notes had a collective issuance date fair value of $5,005,742, computed using the Black-Scholes-Merton pricing model using a range of stock prices between $4.84 and $32.90, a range of strike prices between $4.84 and $32.90 per share, an expected term of 5.0 years, a range of volatilities between 145.60% and 145.72%, and a range of risk-free discount rates between 1.76% and 2.23%. The net change in fair valueconsisted of the warrantsfollowing:
| | | | | | |
| | June 30, | | December 31, | ||
(in thousands) |
| 2020 |
| 2019 | ||
| | (unaudited) | | | | |
Raw Material | | $ | 631 | | $ | 457 |
Work in Process | | | 875 | | | 1,211 |
Finished Goods | | | 848 | | | 461 |
Inventory | | $ | 2,354 | | $ | 2,129 |
Property and Equipment
Property and equipment at June 30, 2020 and December 31, 2019 consisted of $27,754the following:
| | | | | | |
| | June 30, | | December 31, | ||
(in thousands) |
| 2020 |
| 2019 | ||
| | (unaudited) | | | | |
Land | | $ | 396 | | $ | 396 |
Lab equipment | | | 418 | | | 411 |
Clinical equipment | |
| 65 | |
| 65 |
Software | | | 63 | | | 63 |
Total property and equipment at cost | |
| 942 | |
| 935 |
Accumulated depreciation | |
| (245) | |
| (225) |
Property and equipment, net | | $ | 697 | | $ | 710 |
Depreciation expense was $10,000 and $20,000 in the three and six months ended June 30, 2020. Depreciation expense was $15,000 and $30,000 for the three and six months ended June 30, 2019, was recorded as a gain in the change in fair value of warrants, derivative liability and conversion option liability in the consolidated statements of operations.
18
4. Balance Sheet Components
Goodwill
The change in the carrying amount of goodwill at June 30, 2019 and December 31, 2018 was as follows:
|
|
|
|
|
|
|
|
|
| June 30, |
|
|
|
| |
|
| 2019 |
| December 31, |
| ||
|
| (unaudited) |
| 2018 |
| ||
Beginning balance |
| $ | — |
| $ | 5,210,821 |
|
Impairment |
|
| — |
|
| (5,210,821) |
|
Ending balance |
| $ | — |
| $ | — |
|
respectively.
Intangible assetsAssets
Intangible assets at June 30, 20192020 and December 31, 20182019 consisted of the following:
|
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|
|
|
|
| ||||||
|
| June 30, |
|
|
| |||||||
|
| 2019 |
| December 31, | ||||||||
|
| (unaudited) |
| 2018 | ||||||||
| | | | | | | ||||||
| | June 30, | | December 31, | ||||||||
(in thousands) |
| 2020 |
| 2019 | ||||||||
| | (unaudited) | | | | |||||||
Developed technology |
| $ | 25,000,000 |
| $ | 25,000,000 | | $ | 25,000 | | $ | 25,000 |
Accumulated developed technology amortization |
|
| (3,194,445) |
|
| (2,361,111) | |
| (4,861) | |
| (4,028) |
Developed technology, net |
|
| 21,805,555 |
|
| 22,638,889 | |
| 20,139 | |
| 20,972 |
In-process research and development |
|
| 8,800,000 |
|
| 8,800,000 | | | 4,800 | | | 8,800 |
Impairment |
|
| (4,000,000) |
|
| — | | | — | | | (4,000) |
In process research and development, net |
|
| 4,800,000 |
|
| 8,800,000 | |
| 4,800 | |
| 4,800 |
Trademarks |
|
| 300,000 |
|
| 300,000 | |
| 300 | |
| 300 |
Accumulated trademark amortization |
|
| (38,333) |
|
| (28,333) | |
| (58) | |
| (48) |
Trademarks, net |
|
| 261,667 |
|
| 271,667 | |
| 242 | |
| 252 |
Total intangible assets, net |
| $ | 26,867,222 |
| $ | 31,710,556 | | $ | 25,181 | | $ | 26,024 |
In June 2019, the Company determined that In-processin-process research and development was impaired and recorded an impairment loss of $4.0 million$4,000,000 in the statements of operations for the three and six months ended June 30, 2019. Amortization expense was $421,667$422,000 and $843,334$843,000 for the three and six months ended June 30, 20192020 and 2018, respectively.
The following table summarizes the Company’s estimated future amortization expense of intangible assets with finite lives as of June 30, 2019:
|
|
|
|
|
| Amounts | |
2019 (remaining) |
| $ | 871,667 |
2020 |
|
| 1,743,334 |
2021 |
|
| 1,743,334 |
2022 |
|
| 1,736,670 |
2023 |
|
| 1,666,668 |
2024 |
|
| 1,666,668 |
Thereafter |
|
| 12,638,881 |
|
| $ | 22,067,222 |
2019.
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5. Related Party Transactions
Management Services Agreement
In March 2018, concurrent with the issuance of the Company’s Series A convertible participating preferred stock to Sagard Capital Partners, L.P. (“Sagard Capital”), the Company entered into a Management Services Agreement with Sagard Capital Partners.Capital. Under the agreement, Sagard PartnersCapital will provide consulting and management advisory service to the Company from March 2018 through March 2021. These services include assistance with strategic planning regarding the Company’s commercial strategy, research and due diligence regarding human resource activities, and strategic advice in financial matters. In consideration for such services, the Company will pay Sagard Capital Partners an annual fee of $450,000, with total fees over the term of the agreement not to exceed $1,350,000. For the six months ended June 30, 2020, total fees incurred were $225,000. As of June 30, 2020, the Company had a balance due of $1,013,000.
Letter of Credit
ToIn August 2018, to satisfy thea letter of credit requirement in the Company’s new office lease agreement (see Note 6), Pacific Capital Management, LLC, one of the Company’s existing shareholders, caused its financial institution to issue a letter of credit in the amount of $475,000 on behalf of the Company, dated August 28, 2018.Company. In consideration of the letter of credit, in August 2018, the Company issued to Pacific Capital Management, LLC a warrant (see Note 8) to purchase 9,580 shares of the Company’s voting common stock. The warrant is exercisable on or afterAs additional consideration, a payment of $45,000 was made to Pacific Capital Management, LLC in November 2019.
On March 28, 2019 at an exercise price24, 2020, the Company entered into a letter of $49.00 per common sharecredit agreement with Dr. Conte, the brother of Lisa Conte, the Company’s President, CEO and has a five year term. The $493,688 fair valuemember of the Warrant was classifiedCompany’s board of directors, pursuant to which the Company will, subject to Pacific Capital Management, LLC’s consent, replace the existing letter of credit in stockholders’ equity (see Note 6).the amount of $475,000 entered into on August 28, 2018 by the Company with Pacific Capital Management, LLC to satisfy the letter of credit requirement in the Company’s office lease agreement with a new letter of credit in the amount of $475,000. In consideration of the new letter of credit, the Company will pay Dr. Conte an amount equal to $10,000 per month and reimburse up to $7,500 for reasonable out-of-pocket expenses incurred. The letter of credit will expire no earlier than December 31, 2020, provided, however that the Company, at no additional cost, may replace it on an earlier date. For the three and six months ended June 30, 2020, total fees incurred were $30,000 and $35,000, respectively. As of June 30, 2020, the Company had no balance due.
2019 Bridge Notes
Between March 18, 2019 and June 26, 2019, three members of the Board of Directors of the Company entered into short-term Promissory Note Purchase Agreements with certain accredited investors under which the Company issued (i) fourteen Notes with a principal balance of $3,550,000 and warrant coverage at 125% of principal, and (ii) seven Notes with a principal balance of $1,500,000 and warrant coverage at 75% of principal. Collectively, cash proceeds from the twenty-one Promissory Notes (the “Note”) was $5,050,000. The Notes are not convertible and bear interest at 12% with a maturity date of July 18, 2019, at which date all principal and accrued interest are due (see Note 7).
Three members of7, the Board of Directors of the Company had entered into short-term Promissory Note Purchase Agreements“2019 Bridge Notes”) with the Company: (i) Lisa Conte, the Company’s CEO & President, purchased a short-term Promissory Note of $100,000 which the Company settled in July 2019. In consideration for the short-term financing, the Company issued Ms. Conte a warrant that became exercisable into 37,500 shares of the Company’s common stock; (ii) James Bochnowski, purchased a short-term Promissory Note of $350,000 which the Company settled in July 2019. In consideration for the short-term financing, the Company issued Mr. Bochnowski a warrant that became exercisable into 218,750 shares of the Company’s common stock; and (iii) Jonathan Siegel DBA JBS Healthcare Ventures. As of June 30, 2019, Lisa Conte heldVentures, purchased a short-term Promissory Note of $100,000 and$75,000 which the Company settled in July 2019. In consideration for the short-term financing, the Company issued Mr. Siegel a warrant that became exercisable into 15,95734,375 shares of the Company’s common stock; James Bochnowski held a Promissory Note of $350,000 and a warrant exercisable into 93,085 shares of the Company’s common stock; and Jonathan Siegel held Promissory Notes of $75,000 and warrants exercisable into 14,628 shares of the Company’s common stock.
In addition, Sagard Capital Partners heldpurchased a short-term Promissory Note of $500,000, andwhich the Company settled in July 2019. In consideration for the short-term financing, the Company issued Sagard Capital a warrant that became exercisable into 79,787187,500 shares of the Company’s common stock; and Jonathan Glaser, held a held aan existing shareholder, purchased short-term Promissory NoteNotes of $500,000 and a warrantwhich the Company settled in July 2019. In consideration for the short-term financing, the Company issued Mr. Glaser warrants that became exercisable into 106,383250,000 shares of the Company’s common stock. In July 2019, Mr. Bochnowski, JBG Ventures, and JBS Healthcare exchanged their outstanding principal and related accrued interest for common stock
20
6. Commitments and Contingencies
Commitments
Leases
On August 28, 2018, the Company entered into an office lease extension agreement for approximately 6,311 square feet of office space in San Francisco, CA. The term of the Lease began on September 1, 2018 and will expire on September 30, 2020, unless earlier terminated in accordance therewith. The monthly base rent under the Lease is as follows: $38,392$38,000 for the first twelve months, $39,544$40,000 for the subsequent twelve months, and $40,730$41,000 for the final month. The Company will also pay an additional monthly amount for the Company’s proportionate share of the building’s operating charges. An existing shareholder provided a standby letter of credit in the amount of $475,000 to the Lessor as collateral for the full performance by the Company of all of its obligations under the Lease. In consideration of the Letter of Credit, the Company issued the existing shareholder a five-year warrant (see Note 8) to purchase 9,580 shares of the Company’s voting common stock (see Note 5).stock. The Warrant is exercisable on or after March 28, 2019 at an exercise
20
price of $49.00 per share. The fair value of the warrant was determined to be $493,688 using the Black-Scholes-Merton model with the following criteria: stock price of $58.80 per share, expected life of 5 years, volatility of 132%, risk-free rate of 2.77% and dividend rate of 0%. The $493,688$494,000 fair value of the Warrant was classified in stockholders’ equity with an offset to Operating lease –deferred rent. With the Company’s adoption of ASC 842 on January 1, 2019, the offset to the deferred balance was classified as a right-of-use asset. Each month, $19,748$20,000 of this rent will be recognized as non-cash lease expense.
In December 2018, the Company did not meet a covenant per the terms of the $475,000 Letter of Credit, the result of which required the Company to issue a Letter of Credit of $122,000 to the shareholder who issued the original $475,000 letter of credit. In March 2019, the Company canceled the $122,000 letter of credit in lieu of issuing the shareholder a promissory note for that amount in April 2019, as well as issuing the shareholder a warrant (see Note 7)8).
The Company recognizes leaserent expense on a straight-line basis over the non-cancelable lease period. LeaseRent expense was $191,133$191,000 and $362,884$382,000 for the three and six months ended June 30, 2020, respectively, and $230,000 and $402,000 for the three and six months ended June 30, 2019, and $90,278 and $180,556 for the three and six months ended June 30, 2018. Leaserespectively. Rent expense is included in general and administrative expenseexpenses in the condensed consolidated statements of operations. Future minimum lease payments under the non-cancelable operating leases as of June 30, 2020, and through to the end of the lease in September 2020 are $119,000.
Angel Pond Agreement
In October 2019, the Company engaged Angel Pond Capital LLC to explore potential licensing agreements and collaborations for Mytesi in China. In consideration of these services, the Company compensated Angel Pond Capital LLC with $140,000, paid via the issuance of 166,667 shares of the Company’s common stock, for the initial four-month term of the agreement. The Company had the option to extend the agreement term for two months for $30,000 payable in shares of the Company’s common stock. As of June 30, 2020, no qualifying amounts were raised in China and no amounts are owed to Angel Pond as compensation. The Company did not extend the agreement with Angel Pond Capital LLC and it has expired.
Asset transfer and transition commitment update
On September 25, 2017, Napo entered into the Termination, Asset Transfer and Transition Agreement dated September 22, 2017 with Glenmark Pharmaceuticals Ltd. (“Glenmark”). As a result of the agreement, Napo now controls commercial rights for Mytesi® for all indications, territories and patient populations globally, and also holds commercial rights to the existing regulatory approvals for crofelemer in Brazil, Ecuador, Zimbabwe and Botswana. In exchange, Napo agrees to pay Glenmark 25% of any payment it receives from a third party to whom Napo grants a license or sublicense or with whom Napo partners in respect of, or sells or otherwise transfers any of the transferred assets, subject to certain exclusions, until Glenmark has received a total of $7.0 million. No payments have been made to date.
21
Revenue sharing commitment update
On December 14, 2017, the Company announced its entry into a collaboration agreement with Seed Mena Businessmen Services LLC (“SEED”) for Equilevia™, the Company's non-prescription, personalized, premium product for total gut health in equine athletes. According to the terms of the Agreement, the Company will pay SEED 15% of total revenue generated from any clients or partners introduced to the Company by SEED in the form of fees, commissions, payments or revenue received by the Company or its business associates or partners, and the agreed-upon revenue percentage increases to 20% after the first million dollars of revenue. In return, SEED will provide the Company access to its existing UAE (“United Arab Emirates”Emirates (“UAE”) network and contacts and assist the Company with any legal or financial requirements. The agreement became effective on December 13, 2017 and will continue indefinitely until terminated by either party pursuant to the terms of the Agreement. Upon termination for any reason, the Company remains obligated to make Revenue Sharing Payments to SEED until the end of 2018. No payments have been made to date.
Purchase Commitment
As of June 30, 2019, the Company had no material purchase orders to vendors.
On July 20, 2017, a putative class action complaint was filed in the United States District Court, Northern District of California, Civil Action No. 3:17‑cv‑17 cv 04102, by Tony Plant (the “Plaintiff”) on behalf of shareholders of the Company who held shares on April 12, 2017 and were entitled to vote at the 2017 Special Shareholders Meeting, against the Company and certain individuals who were directors as of the date of the vote (collectively, the “Defendants”), in a matter captioned Tony Plant v. Jaguar Animal Health, Inc., et al., making claims arising under Section 14(a) and Section 20(a) of the Exchange Act and Rule 14a‑14a 9, 17 C.F.R. § 240.14a‑240.14a 9, promulgated thereunder by the SEC. The claims alleged false and misleading information provided to investors in the Joint Proxy Statement/Prospectus on
21
Form S‑4S-4 (File No. 333‑333 217364) declared effective by the Commission on July 6, 2017 related to the solicitation of votes from shareholders to approve the merger and certain transactions related thereto. The Company accepted service of the complaint and summons on behalf of itself and the United States-based director Defendants on November 1, 2017. The Company has not accepted service on behalf of, and Plaintiff has not yet served, the non-U.S.-based director Defendants.
On October 3, 2017, Plaintiff filed a motion seeking appointment as lead plaintiff and appointment of Monteverde & Associates PC as lead counsel. That motion was granted. Plaintiff filed an amended complaint against the Company and the United States-basedStates based director Defendants on January 10, 2018. The Defendants filed a motion to dismiss on March 12, 2018, for which oral arguments were held on June 14, 2018. The court dismissed the amended complaint on September 20, 2018 but gave2018. Plaintiff leavewas entitled to amend thethat complaint within 20 days from the date of dismissal. On October 10, 2018, Plaintiff filed a second amended the complaint to focus on the Company’s commercial strategy in support of Equilevia and the related disclosure statements in the Form S-4 described above. On November 6, 2018, the Defendants moved to dismiss the second amended complaint. The Defendants arguedargue in their motion that the second amended complaint fails to state a claim upon which relief can be granted because the omissions and misrepresentations alleged in the complaint are immaterial as a matter of law. The court denied the Defendants’ motion to dismiss on June 28, 2019. The defendantsCompany answered the second amended complaint on August 2, 2019. Discovery will2019; the answer denied the material allegations of the second amended complaint. The parties are now proceed.engaged in discovery. If the Plaintiff were able to prove his allegations in this matter and to establish the damages he asserts, then an adverse ruling could have a material adverse impact on the Company. The Company believes that it is not probable that an asset has been impaired or a liability has been incurred as of the date of the financial statements and the amount of any potential loss is not reasonably estimable.
Other than as described above, there are currently no claims or actions pending against us,Settlement of Underwriter Fee
In August 2018, the ultimate dispositionCompany entered into an agreement with an underwriter pursuant to which the underwriter would aid the Company in identifying certain financing transactions, in exchange for a percentage fee of any such financing and warrants. In the first quarter of 2020, the Company and the underwriter agreed on a final settlement for the underwriter services comprised of a cash payment, warrants and common stock. The cash payment amount totaled $386,560, of which could have$201,650 had been paid in September 2019, and $184,910 was accrued in March 2020 and was paid in April 2020. The total warrant issuance payment consisted of the Company issuing 1,096 equity-classified warrants to the underwriter in August 2018 and, in April 2020, issuing an additional 100,780 equity-classified warrants (see Note 8) to the underwriter to purchase shares of common stock at an exercise price of $2.50 per share. The common stock issuance payment consisted of the Company, in April 2020, issuing 100,000 shares of the Company’s common stock to
22
the underwriter with a material adverse effect on our resultsfair value of operations, financial condition or$44,900. The Company classified the cash flows.payments, warrant and commons stock issuance payments as issuance costs in the unaudited condensed consolidated statements of changes in convertible preferred stock and stockholders’ equity.
Contingencies
From time to time, the Company may be involved in legal proceedings (other than those noted above) arising in the ordinary course of business. The Company believes there is no litigation pending that could have, individually or in the aggregate, a material adverse effect on the financial position, results of operations or cash flows.
7. Debt and Warrants
Convertible NotesDebt
Convertible notes at June 30, 2019 and December 31, 2018 consist of the following:
|
|
|
|
|
|
|
|
| June 30, |
|
|
| |
|
| 2019 |
| December 31, | ||
|
| (unaudited) |
| 2018 | ||
June 2017 convertible debt |
| $ | — |
| $ | 740,882 |
Napo convertible debt |
|
| — |
|
| 10,553,888 |
|
|
| — |
|
| 11,294,770 |
Less: unamortized debt discount and debt issuance costs |
|
| — |
|
| (55,600) |
Net convertible debt obligation |
| $ | — |
| $ | 11,239,170 |
Convertible debt - non-current, net of discount |
|
| — |
|
| — |
Convertible debt - current, net of discount |
| $ | — |
| $ | 11,239,170 |
February 2015 Convertible Note
In February 2015, the Company issued a convertible promissory note to an accredited investor in the aggregate principal amount of $150,000. This note was issued pursuant to the convertible note purchase agreement dated December 23, 2014. In March of 2018, the debtor agreed to accept 1,937 shares of the Company’s common stock as payment for all outstanding principal and interest in the amount of $203,408.
22
June 2017 Convertible Note
On June 29, 2017, the Company issued a secured convertible promissory note to CVPChicago Venture Partners, L.P.(“CVP”) in the aggregate principal amount of $2,155,000 less an original issue discount of $425,000 and less $30,000 to cover the lender's legal fees for net cash proceeds of $1,700,000 (the “June 2017 Note”). Interest on the outstanding balance will be paid 8% per annum from the purchase price date until the balance is paid in full.
The Note provides for two separate features that result in a derivative liability:
|
|
|
|
The Company computed fair values at the date of issuance of $15,000 and $5,000 for the repayment and the interest rate increase feature, respectively, using the Binomial Lattice Model, which was based on the generalized binomial option pricing formula. The $20,000 combined fair value was carved out and was included as a derivative liability on the Balance Sheet. At September 30, 2018, the derivatives were determined to have a de-minimis fair value and were written-off.
On August 2, 2018, the Company and CVP agreed to an amendment extending the maturity date to August 26, 2019, and limiting the aggregate amount that CVP is permitted to redeem on a monthly basis to $500,000, which is the maximum aggregate redemption amount for all notes outstanding with CVP. This amendment resulted in the Company accounting for the transaction as a troubled debt restructuring, under which the carrying amount of the note payable remained unchanged but interest expense is computed using a new effective rate that equates the present value of the future cash payments specified by the new terms with the carrying amount of the note.
Between October 2018 and December 2018, the Company and CVP renegotiated the terms of the June 2017 Note agreement such that CVP agreed not to make any redemptions of the June 2017 NoteN-ote until March 2019. In consideration of this standstill arrangement, the Company paid CVP a total standstill fee of $499,403 for all four CVP Notes.Notes (collectively, the June 2017 CVP Note, The December 2017 CVP Note, the February 2018 Note and the March 2018 Note). The standstill fee allocated to the June 2017 Note was $63,296, of which $37,296 increased the principal balance and $26,000 was paid in cash. These restructurings in whole represented four separate restructurings of the June 2017 ConvertibleNote agreement, resulting in two troubled debt restructurings accounted for under ASC 470-60 and two modificationsaccounted for under ASC 470-50. For the two modifications resulting in troubled debt restructurings, the changes wereaccounted for prospectively and a new effective interest rate was determined that equated the present value of the futurecash payments specified by the new terms with the carrying amount of the June 2017 Note. For the two modifications that resultedin modification accounting, a new effective rate was determined at the date of modification that equated the revisedcash flows to the carrying amount of the Note.
In May 2019,, the Company and CVP amended the June 2017 Note agreement such that the Company made three separate exchanges of principal and related accrued interest for shares of the Company’s common stock. The first two exchanges of principal and accrued interest for common stock were not considered a substantial change to the June 2017 Note and therefore resulted in modification accounting and the determination of a new effective interest rate; the third exchange on May 29, 2019 resulted in the extinguishment of the entire June 2017 Note with a corresponding
23
extinguishment loss of $27,176 for the three months ended June 30, 2019.$7,566. At June 30, 20192020 and December 31, 2018,2019, the net carrying value of the June 2017 Note was zero and $685,282, respectively.
23
zero.
Napo Convertible Notes
March 2017 Convertible NotesDebt
In March 2017, Napo entered into an exchangeable Note Purchase Agreement with two lenders for the funding of face amount of $1,312,500 in two $525,000 tranches of face amount $656,250. The notes bearbore interest at 3% and mature onhad an original maturity date of December 1, 2017. The Company assumed the notes at fair value of $1,312,500 as part of the Napo Merger.
First Amendment to Note Purchase Agreement and Notes
In December 2017, Napo amended the exchangeable note purchase agreement to extend the maturity of the first tranche and second tranche of notes to February 15, 2018 and April 1, 2018, respectively, increase the principal amount by 12%, and reduce the conversion price from $39.20 per share to $14.00 per share. The Company also issued 35,601166,139 shares of common stock to the lenders in connection with this amendment to partially redeem $299,050 from the first tranche of the notes. The amended face value of the notes was $1,170,950. This amendment resulted in the Company treating the notes as having been extinguished and replaced with new notes for accounting purposes due to meeting the 10% cash flow test. The conversion option in the notes was bifurcated and accounted for as a conversion option liability at its fair value.
Second Amendment to Note Purchase Agreement and Notes
On February 16, 2018, Napo amended the exchangeable note purchase agreement to extend the maturity date of the Second Tranche Notes from April 1, 2018 to May 1, 2018. In addition, the Company also issued 54,0493,603 shares of common stock to the Purchasers as repayment of the remaining $435,950 aggregate principal amount and $18,063 in accrued and unpaid interest thereon. On March 23, 2018, the Company paid off the remaining $735,000 of principal and $20,699 in interest due on the second tranche debt in cash with proceeds from the March 23, 2018 equity financing. The fair value of the conversion option liability was again revalued at March 23, 2018 using the Black-Scholes-Merton model using the following criteria: stock price of $14.70 per share, expected life of 0.11 years, volatility of 288.16%, risk freerisk-free rate of 1.69% and dividend rate of 0%, resulting in an increase of $174,754 to the fair value of the conversion option liability and included in the change in fair value of warrants and conversion option liability in the statements of operations. The underlying debt was paid off in March of 2018 and the $286,595 conversion option liability was written off to other incomeloss from operations in the unaudited condensed consolidated statements of operations.
December 2016 Convertible NotesDebt
In December 2016, Napo entered into a note purchase agreement which provided for the sale of up to $12,500,000 face amount of notes and issued convertible promissory notes (the Napo“Napo December 2016 Notes)Notes”) in the aggregate face amount of $2,500,000 to three lenders and received proceeds of $2,000,000 which resulted in $500,000 of original issue discount. In July 2017, Napo issued convertible promissory notes (the Napo“Napo July 2017 Notes)Notes”) in the aggregate face amount of $7,500,000 to four lenders and received proceeds of $6,000,000 which resulted in $1,500,000 of original issue discount. The Napo December 2016 Notes and the Napo July 2017 Notes mature on December 30, 2019 and bear interest at 10% with interest due each six-month period after December 30, 2016. On June 30, 2017, the accrued interest of $125,338 was added to principal of the Napo December Notes, and the new principal balance became $2,625,338. Interest may be paid in cash or in the stock of Jaguar per terms of the note purchase agreement. In each one year period beginning December 30, 2016, up to one-third of the principal and accrued interest on the notes may be converted into the common stock of the merged entity at a conversion price of $64.75 per share. The Company assumed these convertible notes at fair value of $11,161,000 as part of the Napo Merger. The $1,035,661 difference between the fair value of the notes and the principal balance was being amortized over the twenty-nine (29) month period from July 31, 2017 to December 31, 2019. Interest expense is paid every nine months through the issuance of common stock. On March 16, 2018, $534,775 of interest accrued through January 31, 2018 and $169,950 of certain legal expenses were
24
paid through the issuance of 4,081 shares of the Company's common stock. In August 2018, the Company paid $479,808 of accrued interest through July 31, 2018 with the issuance of 4,582 shares of the Company’s common stock. In January 2019, $446,729 of accrued interest was paid through the issuance of 19,751 shares of the Company's common stock.
24
Extinguishment and Exchange of the Napo Convertible Notes
In May 2019, in a restructuring of the Notes, Chicago Venture Partners (“CVP”)CVP acquired the Napo December 2016 and Napo July 2017 Notes, as well as all rights thereof, and immediately extinguished the two Notes; in their place, the Company issued to CVP a new note (“Exchange Note 1”). The collective carrying amount of the Napo December 2016 and Napo July 2017 Note immediately before the exchange was $10,375,326, or principal of $10,125,339 and unamortized premium of $249,987. The new Exchange Note 1 had an opening principal balance of $10,535,900,10,535,900, consisting of the $10,125,339 principal balance of the extinguished notes plus $410,562 in accrued but unpaid interest from the Napo December 2016 and Napo July 2017 Notes. At June 30, 20192020 and December 31, 2018,2019, the balance of the Napo December 2016 and Napo July 2017 Notes was zerozero.
Concurrent with the restructuring, CVP also entered into security agreements with Jaguar (the “Jaguar Security Agreement”) and $10,553,888, respectively.Napo (the “Napo Security Agreement”, and together with the Jaguar Security Agreement, the “Security Agreements”), pursuant to which CVP will receive (i) a security interest in substantially all of the Company’s assets as security for the Company’s obligations under Exchange Note 2 and (ii) a security interest in substantially all of Napo’s assets as security for Napo’s obligations under Exchange Note 1 and Exchange Note 2. Notwithstanding the foregoing, (a) the amount owing under Exchange Note 2 will not be considered part of the obligations secured by the Napo Security Agreement until such time as Jaguar receives permission from a third party and (b) the security interest granted under the Jaguar Security Agreement will be automatically terminated and released upon Jaguar’s receipt of a waiver from such third party.
Notes Payable
Notes payable at June 30, 20192020 and December 31, 20182019 consist of the following:
|
|
|
|
|
|
| ||||||
|
| June 30, |
|
| ||||||||
|
| 2019 |
| December 31, | ||||||||
|
| (unaudited) |
| 2018 | ||||||||
December 2017 note payable |
| $ | — |
| $ | 1,673,237 | ||||||
February 2018 note payable |
|
| — |
|
| 2,359,750 | ||||||
March 2018 note payable |
|
| — |
|
| 1,147,870 | ||||||
March 2019 bridge note payable |
|
| 5,050,000 |
|
| — | ||||||
| | | | | | | ||||||
|
| | |
| | | ||||||
| | June 30, | | December 31, | ||||||||
(in thousands) | | 2020 | | 2019 | ||||||||
| | | (unaudited) | | | | ||||||
2019 Exchange Note 1 |
|
| 5,462,716 |
|
| — | | | 4,381 | | | 4,381 |
2019 Exchange Note 2 |
|
| 2,296,926 |
|
| — | | | 2,297 | | | 2,297 |
|
|
| 12,809,642 |
|
| 5,180,857 | ||||||
Insurance Premium Financing | | | 776 | | | — | ||||||
Tempesta Note Payable | | | 500 | | | 550 | ||||||
Royalty Interest | | | 217 | | | — | ||||||
Oasis Secured Borrowing | | | 1,371 | | | — | ||||||
| | | 9,542 |
| | 7,228 | ||||||
Less: unamortized discount and debt issuance costs |
|
| (1,486,932) |
|
| (335,282) | |
| (182) |
|
| — |
Note payable, net |
| $ | 11,322,710 |
| $ | 4,845,575 | ||||||
Note payable, net of discount | | $ | 9,360 |
| $ | 7,228 | ||||||
Notes payable - non-current, net |
| $ | 3,563,068 |
| $ | — | | $ | 400 | | $ | 450 |
Notes payable - current, net |
| $ | 7,759,642 |
| $ | 4,845,575 | | $ | 8,960 | | $ | 6,778 |
December 2017 Note
On December 8, 2017, the Company entered into a securities purchase agreement with CVP pursuant to which the Company issued a promissory note (the “December 2017 Note”) in the aggregate principal amount of $1,587,500$1,588,000 for an aggregate purchase price of $1,100,000. The December 2017 Note carriescarried an original issue discount of $462,500, and the initial principal balance also includesincluded $25,000 to cover CVP’s transaction expenses. The Company used the proceeds for general corporate purposes. The December 2017 Note bearsbore interest at the rate of 8% per annum and matures onhad an original maturity date of August 26, 2019.
25
On August 2, 2018, the Company and CVP amended the December 2017 Note agreement, extending the maturity date from September 8, 2018 to August 26, 2019, and limiting the aggregate amount that CVP is permitted to redeem on a monthly basis to $500,000, which amount iswas the maximum aggregate amount for the CVP Notes collectively. This amendment resulted in the Company accounting for the transaction as a troubled debt restructuring, under which the carrying amount of the note payable remained unchanged but interest expense iswas computed using a new effective rate that equates the present value of the future cash payments specified by the new terms with the carrying amount of the note. The principal balance of the December 2017 Note isnote was included in notes payable in the current liabilities section of the condensed consolidated balance sheet.sheets.
Between October 2018 and December 2018, the Company and CVP renegotiated the terms of the December 2017 Note agreement such that CVP agreed not to make any redemptions of the December 2017 Note until March 2019. In consideration of this standstill arrangement, the Company paid CVP a total standstill fee of $499,403$499,000 for all four CVP Notes. The standstill fee allocated to the December 2017 Note was $141,737,$142,000, of which $85,737$86,000 increased the principal balance and $56,000 was paid in cash. These modifications in whole represented four separate restructurings of the December 2017 Note agreement, resulting in two troubled debt restructurings accounted for under ASC 470-60 and two modifications accounted for under ASC 470-50. For the two restructurings resulting in troubled debt restructurings, the
25
changes were accounted for prospectively and a new effective interest rate was determined that equated the present value of the future cash payments specified by the new terms with the carrying amount of the December 2017 Note. For the two modifications that resulted in modification accounting, a new effective rate was determined at the date of modification that equated the revised cash flows to the carrying amount of the December 2017Note.Note.
In March 2019, the Company and CVP amended the December 2017 Note agreement such that the Company prepaid principal and accrued interest of $811,065$811,000 and $178,755,$179,000, respectively, in shares of the Company’s common stock. The exchange of debt for common stock was considered a substantial change to the December 2017 Note and therefore the exchange resulted in extinguishment accounting and a corresponding extinguishment loss of $243,419. $243,000.
In April 2019,, the Company and CVP amended the December 2017 Note agreement such that the Company made two separate exchanges of principal and related accrued interest for shares of the Company’s common stock. The first exchange resulted in changes to cash flows that were considered substantial, resulting in extinguishment accounting with an extinguishment loss of $100,148; the second exchange on April 17, 2019 resulted in the extinguishment of the entire December 2017 Note with a corresponding extinguishment loss of $19,494. At June 30, 20192020 and December 31, 2018,2019, the net carrying value of the December 2017 Note was zero and $1,548,829, respectively.zero.
February 2018 Note
On February 26, 2018, the Company entered into a securities purchase agreement with CVP, pursuant to which the Company issued to CVP a promissory note in the aggregate principal amount of $2,240,909$2,241,000 for an aggregate purchase price of $1,560,000 (the “February 2018 Note”).$1,560,000. The February 2018 Note carriescarried an original issue discount of $655,909,$656,000, and the initial principal balance also includesincluded $25,000 to cover CVP's transaction expenses. The February 2018Company used the proceeds for general corporate purposes and working capital. The Note bearsbore interest at the rate of 8% per annum and matures onhad an original maturity date of August 26, 2019.
Between October 2018 and December 2018, the Company and CVP renegotiated the terms of the February 2018 Note agreement such that CVP agreed not to make any redemptions of the February 2018 Note until March 2019. In consideration of this standstill arrangement, the Company paid CVP a total standstill fee of $499,403$499,000 for all four CVP Notes. The standstill fee allocated to the February 2018 Note was $198,841,$199,000, of which $118,841$119,000 increased the principal balance and $80,000 was paid in cash. These modifications in whole represented four separate restructurings of the February 2018 Note agreement, resulting in a debt extinguishment accounted for under ASC 470-50, two troubled debt restructurings accounted for under ASC 470-60 and a debt modification accounted for under ASC 470-50. For the debt extinguishment, the Company recorded an extinguishment loss of $102,296.$102,000. For the two troubled debt restructurings, the changes were accounted for prospectively and a new effective interest rate was determined that equated the present value of the future cash payments specified by the new terms with the carrying amount of the February 2018 Note. For the modification that resulted in modification accounting, a new effective rate was determined at the date of modification that equated the revised cash flows to the carrying amount of the February 2018 Note.
26
In March 2019, the Company and CVP amended the February 2018 Note agreement such that the Company prepaid principal and accrued interest of $2,044,627$2,045,000 and $203,866,$204,000, respectively, in shares of the Company’s common stock. The exchange of debt for common stock was considered a substantial change to the February 2018 Note and therefore the exchange resulted in extinguishment accounting and a corresponding extinguishment loss of $487,865. $488,000.
In April 2019,, the Company and CVP amended the February 2018 Note agreement such that the Company made a single exchange of principal and related accrued interest for shares of the Company’s common stock. The first exchange on April 16, 2019 resulted in the extinguishment of the entire February 2018 Note with a corresponding extinguishment loss of $37,740. At June 30, 20192020 and December 31, 2018,2019, the net carrying value of the February 2018 Note was zero and $2,290,865, respectively.zero.
March 2018 Note
On March 21, 2018, the Company entered into a securities purchase agreement with CVP, pursuant to which the Company issued to CVP a promissory note in the aggregate principal amount of $1,090,341$1,090,000 for an aggregate purchase price of $750,000 (the “March 2018 Note” and together with the June 2017$750,000. The Note the December 2017 Note and
26
the February 2018 Note, the “CVP Notes”). The March 2018 Note carriescarried an original issue discount of $315,341,$315,000, and the initial principal balance also includesincluded $25,000 to cover CVP's transaction expenses. The March 2018Company used the proceeds to fully repay certain prior secured and unsecured indebtedness. The Note bearsbore interest at the rate of 8% per annum and matures onhad an original maturity date of September 21, 2019.
Between October 2018 and December 2018, the Company and CVP renegotiated the terms of the March 2018 Note agreement such that CVP agreed not to make any redemptions of the March 2018 Note until March 2019. In consideration of this standstill arrangement, the Company paid CVP a total standstill fee of $499,403$499,000 for all four CVP Notes. The standstill fee allocated to the March 2018 Note was $95,529,$96,000, of which $57,529$58,000 increased the principal balance and $38,000 was paid in cash. These modifications in whole represented four separate restructurings of the March 2018 Note agreement, resulting in a debt extinguishment accounted for under ASC 470-50, two troubled debt restructurings accounted for under ASC 470-60, and a debt modification accounted for under ASC 470-50. For the debt extinguishment, the Company recorded an extinguishment loss of $223,824.$224,000. For the two troubled debt restructurings, the changes were accounted for prospectively and a new effective interest rate was determined that equated the present value of the future cash payments specified by the new terms with the carrying amount of the March 2018 Note. For the modification that resulted in modification accounting, a new effective rate was determined at the date of modification that equated the revised cash flows to the carrying amount of the March 2018 Note.Note
Between January 2019 and March 2019, the Company and CVP amended the March 2018 Note agreement such that the Company prepaid principal and accrued interest of $1,050,114$1,050,000 and $85,681,$86,000, respectively, in shares of the Company’s common stock. These exchanges in whole represented four separate prepayments of principal and accrued interest, resulting in a three debt extinguishments and one debt modification accounted.modification. For the debt extinguishments, the Company recorded an aggregate extinguishment loss of $1,210,676.$1,211,000. For the modification, a new effective rate was determined at the date of modification that equated the revised cash flows to the carrying amount of the March 2018 Note. At June 30,December 31, 2019, the March 2018 Note had been fully extinguished. At December 31, 2018, the net carrying value of the March 2018 Note was $1,005,880.
2019 Bridge Notes
Between March 18, 2019 and June 26, 2019 the Company entered into Promissory Note Purchase Agreements with certain accredited investors under which the Company issued (i) fourteen promissory notes with a principal balance of $3,550,000 and warrant coverage at 125% of principal, and (ii) seven promissory notes with a principal balance of $1,500,000 and warrant coverage at 75% of principal. Collectively, cash proceeds from the twenty-one promissory notes (collectively, the “Bridge Notes”) was $5,050,000. The Bridge Notes are not convertible and bear interest at 12% with a maturity date of July 18, 2019, at which date all principal and accrued interest are due. The exercise price of the warrants is either (i) the price the Company issues common shares in its next public offering subject to a registration statement or (ii) if no such offering is consummated by the four-month maturity date of the Notes, then the exercise price is equal to the closing price of the Company’s common stock on the Notes four-month maturity date. The warrants for all twenty-one Bridge Notes had an issuance date fair value of $5,005,739 (see Note 3). At June 30, 2019, the net carrying value of the 2019 Bridge Notes was $3,563,068, or principal of $5,050,000 offset by a discount of $1,486,932.
In July 2019, the maturity date of the Bridge Notes was extended from July 18, 2019 to July 31, 2019. On July 19, 2019, upon the Company’s registered offering (see Note 13), the exercise price of the warrants became fixed at the offering price of $2.00. In addition, in July 2019, all the holders of the fourteen Bridge Notes with a principal balance of $3,550,000 and warrant coverage at 125% of principal exchanged their Bridge Notes for shares of the Company’s common stock.
2019 Exchange Notes
In May 2019, the Company and CVP entered into an Exchange Agreement whereby CVP purchased the two outstanding Napo convertible notes and all rights thereof from the current debt holders. Subject to the terms of the Exchange Agreement, CVP and the Company agreed to exchange the two Napo convertible notes for a single CVP Note (“CVP Exchange Note 1”). At the Exchange date, the principal balance of the two Napo convertible notes was $10,125,339,$10,125,000, or $10,535,900$10,536,000 inclusive of accrued but unpaid interest of $410,562.$411,000. The beginning principal balance of CVP Exchange Note 1 was $10,535,900,$10,536,000, or equal to the principal balance of the two Napo convertible notes and accrued
27
interest thereon. The maturity date of CVP Exchange Note 1 was December 31, 2020, with an interest rate of 10%. Per the terms of the Exchange Agreement, CVP agreed to extend the maturity date of CVP Exchange Note 1 from December 31, 2019 (the same maturity date carried over from the two Napo convertible notes ) to December 31, 2020; in consideration of this extension, the Company issued CVP Exchange Note 2 with a principal balance of $2,296,926.$2,297,000. The maturity date of CVP Exchange Note 2 wasis December 31, 2020, with an interest rate of 10%. The exchange
27
Between May 2019 and JuneJuly 2019, the Company and CVP entered into note exchange agreements pursuant to which the Company in lieu of making a cash payment to CVP, made a prepaymentprepayments of principal and related accrued interest of $5,144,175$6,154,000 and $90,000, respectively, in lieu of making cash payments to CVP on Exchange Note 1, by issuing 817,8631,119,440 shares of the Company’s common stock to CVP. These exchanges of principal and related accrued interest resulted in a debt extinguishment accounted for under ASC 470-50, with the accompanying recording of a loss on extinguishment of $439,978. At June 30, 2020 and December 31, 2019, the net carrying value of Exchange Note 1 and Exchange Note 2 was $7,759,642.$4,381,000 and $2,297,000, respectively, or an aggregate principal balance of $6,678,000.
Warrants2019 Tempesta Note
A summaryIn October 2019, the Company entered into a License Termination and Settlement Agreement with Dr. Michael Tempesta, pursuant to which certain royalty payment disputes between Napo and Tempesta were settled. Per the terms of the Agreement, Tempesta received $50,000 in cash, an unsecured promissory note issued by the Company in the aggregate principal amount of $550,000 and 40,000 shares of the Company’s common stock in exchange for the cessation of all royalty payments by Napo to Dr. Tempesta under the License Agreements. The $550,000 promissory note bears interest at the rate of 2.5% per annum and matures on March 1, 2025. The promissory note provides for the Company to make semi-annual payments equal to $50,000 plus accrued interest beginning on March 1, 2020 until the Note is paid in full. At June 30, 2020, the net carrying value of the Tempesta note was $500,000.
Sale of Future Royalty Interest
In March 2020, the Company entered into a royalty interest purchase agreement (the “Purchase Agreement”) with Iliad Research and Trading, L.P. (“Iliad”), pursuant to which the Company sold to Iliad a royalty interest entitling Iliad to receive $500,000 of future royalties on sales of Mytesi and certain up-front license fees and milestone payments from licensees and/or distributors (the “Royalty Repayment Amount”) for an aggregate purchase price of $350,000.
Until such time as the Royalty Repayment Amount has been paid in full, the Company will pay Iliad ten percent (10%) of the Company’s Net Sales on Included Products and ten percent (10%) of worldwide revenues related to upfront licensing fees and milestone payments from licensees and/or distributors, but specifically excluding licensing fees and/or milestone payments that are reimbursements of clinical trial expenses (the “Royalty Payments”). Beginning on the six-month anniversary of the Purchase Price Date and continuing until the 12-month anniversary of the Purchase Price Date, the monthly Royalty Payment shall be the greater of (a) $25,000, and (b) the actual Royalty Payment amount Investor is entitled to for such month. Beginning on the 12-month anniversary of the Purchase Price Date and continuing until the Revenue Repayment Amount has been paid in full, the monthly Royalty Payment shall be the greater of (a) $43,750, and (b) the actual Royalty Payment amount Investor is entitled to for such month.
The Royalty Interest amount of $500,000 (or $350,000 in cash received) is classified as debt, net of a $150,000 discount. Under ASC 470-10-35-3, royalty payments to Iliad will be amortized under the interest method per ASC 835-30. Because there is no set interest rate, and because the royalty payments are variable, the discount rate is variable. After each royalty payment, the Company will use a prospective method to determine a new discount rate based on the revised estimate of remaining cash flows. The new rate is the discount rate that equates the present value of the revised estimate of remaining cash flows with the carrying amount of the debt, and it will be used to recognize interest expense for the remaining periods. At issuance, based on projected cash outflows from future revenue streams, the discount rate was 105%.
Oasis Secured Borrowing
The Purchase Agreement
In May 2020, the Company, entered into a one-year Accounts Receivable Purchase Agreement (the “Purchase Agreement”) with Oasis Capital (“Oasis”), pursuant to which Oasis may from time to time at its discretion purchase accounts receivable of the Company on a recourse basis, at a purchase price equal to 37.5% of the face amount of the first purchase, and at a purchase price equal to 42.5% for subsequent purchased accounts (“Purchase Price”). With respect to purchased accounts, in the event that Oasis receives more than an amount equal to the sum of (i) the face amount of such purchased account multiplied by 0.0545 and (ii) the Purchase Price (such amount, the “Threshold Price”)
28
from collection on such purchased accounts, then Oasis will return any such excess overage amount (the “Overage”) to the Company, as applicable, within five days after Oasis’s receipt thereof.
In the event Oasis does not receive at least the Threshold Price for a purchased account on or before such account becomes due and payable, the Company will, at Oasis’s election, be obligated to either (i) pay the difference between the Threshold Price and the amount received by Oasis for such account (the “Shortfall”) within 30 days thereof, (ii) assign or transfer to Oasis additional accounts receivable with a Purchase Price equal to (A) the Shortfall plus (B) an amount equal to 25% of the Shortfall (the “Additional Amount”).
The initial term of the Purchase Agreement is one year, which will automatically renew for successive one-year periods unless notice of non-renewal is provided by the Company at least 30 days prior to the expiration of a term. Notwithstanding the foregoing, either Oasis or the Company may terminate the Purchase Agreement on 60 days’ prior written notice. Under the Purchase Agreement, Oasis is entitled to a transaction fee of $25,000 and may be entitled to additional transaction fees to the extent Oasis acquires additional accounts receivable under the Purchase Agreement, which fees will not exceed $5,000 per transaction.
Per the Purchase Agreement, the Company will service and administer the purchased accounts receivable for Oasis. Oasis appointed the Company to be its agent and servicer for monitoring and collecting the Accounts Receivable subject to the terms of the Purchase Agreement. The Company will perform its duties in a commercially reasonable manner and agrees that Company will not commence any legal action with respect to such servicing and collection efforts and shall not terminate, discharge, discount or write off any accounts receivable without Oasis's prior written consent.
The Company, having determined that it did not meet the criteria per ASC 860-10-40-5 to account for the transactions under the Purchase Agreement as sales, will account for such transactions as secured borrowings in accordance with ASC 860-30, “Transfers – Secured Borrowings and Collateral.”
May 2020 Oasis Secured Note - Tranche #1
In May 2020, for the first sale under the terms of the Purchase Agreement, the Company received cash proceeds of $1,007,000 from Oasis, or $1,032,000 less a $25,000 transaction fee (the “Tranche #1 Secured Note”). Oasis purchased accounts receivable with a carrying value of $1,673,627, or gross accounts receivable of $2,753,639 net of chargeback and discounts of $1,080,012. The purchase was effectuated pursuant to an Assignment Agreement, dated May 12, 2020, between the Company and Oasis. The Maturity Date, by which date Oasis must collect the $1,182,000 Threshold Price, is on or before July 10, 2020.
The Company recorded the sale as a short-term secured borrowing with a principal amount of $1,007,000, or $1,182,000 net of a $175,000 discount. Though there was no stated interest rate, the effective interest rate was 147.89%. The Tranche #1 Secured Note had a maturity date of July 10, 2020, or earlier if the Threshold amount was received by Oasis prior to that date (payment of the Threshold amount was the maturity date). Accordingly, during the term of the Tranche #1 Secured Note, the effective interest rate was variable, dependent on the amount of any principal payment and payment dates.
On June 30, 2020, the Company made its final required payment to Oasis under the Tranche #1 Secured Note, with total payments equaling the $1,182,000 Threshold amount, and the Tranche #1 Secured Note was extinguished.
June 2020 Oasis Secured Note - Tranche #2
In June 2020, for its second sale under the terms of the Purchase Agreement, the Company received cash proceeds of $1,215,131 from Oasis (the “Tranche #2 Secured Note”). Oasis purchased accounts receivable with a carrying value of $1,737,745, or gross accounts receivable of $2,859,132 net of chargeback and discounts of $1,121,387. The purchase was effectuated pursuant to an amended Assignment Agreement, effective June 26, 2020, between Napo and Oasis. The Maturity Date, by which date Oasis must collect the $1,370,954 Threshold Price, was September 2, 2020.
29
The Company recorded the sale to Oasis as a short-term secured borrowing with a principal amount of $1,215,131, or $1,370,954 net of a $155,823 discount. Though there was no stated interest rate, the effective interest rate at issuance was 77.73%. The Tranche #2 Secured Note had a maturity date of September 2, 2020, or earlier if the Threshold amount was received by Oasis prior to that date (payment of the Threshold amount is the maturity date). Accordingly, during the term of the Tranche #2 Secured Note, the effective interest rate is variable, dependent on the amount of any principal payment and payment dates.
As of June 30, 2020, the Tranche #2 Secured Note had an outstanding warrant sharesbalance of $1,215,131, or $1,370,954 net of a $145,473 discount, in the Company’s condensed consolidated balance sheet.
Insurance Premium Financing
In May 2020, the Company entered into a financing agreement for $873,000 for a portion of the Company’s annual insurance premiums. The balance is due in monthly installments over 9 months with an annual interest rate of 4.15% and the first installment of $97,000 was paid in June 2020. The financing balance was $776,000 as of June 30, 2020.
8. Warrants
The following table summarizes information about warrants outstanding and exercisable into shares of the Company’s common stock as of June 30, 2019 and December 31, 2018 is as follows:
|
|
|
|
|
|
|
|
|
| Six Months Ended |
| Year Ended |
| ||
|
| June 30, |
| December 31, |
| ||
|
| 2019 |
| 2018 |
| ||
|
| (unaudited) |
|
|
|
| |
Warrants outstanding, beginning balance |
|
| 34,682 |
|
| 4,590 |
|
Issuances |
|
| 1,203,740 |
|
| 30,951 |
|
Expirations and cancellations |
|
| (551) |
|
| (859) |
|
Warrants outstanding, end of period |
|
| 1,237,871 |
|
| 34,682 |
|
November 2016 Series A Warrants
In November 2016, the Company entered into a Securities Purchase Agreement with certain institutional investors pursuant to which the Company issued an aggregate of 1,587 shares of the Company’s common stock. The investors also received warrants to purchase up to an aggregate of 1,587 shares of the Company’s common stock, at an exercise price of $787.50 per share, and the Placement Agent received warrants to purchase 127 shares of our common stock in lieu of cash for service fees with the same terms as the investors. The Series A warrants and placement agent warrants were initially valued using the Black-Scholes warrant pricing model using the following assumptions: 1,587 warrant shares with a strike price of $787.50 per share and an expiration date of May 29, 2022; and 127 warrant shares to the placement agent with a strike price of $787.50 and an expiration date of May 29, 2022; the expected life was 5.5 years, the volatility was 71.92% and the risk free rate was 1.87%. The warrants had an issuance date fair value of $756,000 and were classified as a liability. As of June 30, 2019 and December 31, 2018, the warrant liability was valued at $1,053 and $7,388, respectively. The net change of $9,941 was recorded as a gain in the Company’s statements of operations (see Note 3) for the three months ended June 30, 2019. The net change of $6,335 was recorded as a gain in the Company’s statements of operations (see Note 3) for the six months ended June 30, 2019.2020 and for the year ended December 31, 2019:
August 2018 Financing
| | | | |
| | June 30, 2020 | | December 31, 2019 |
| | (unaudited) | | |
Warrants outstanding, beginning balance | | 19,421,892 | | 34,682 |
Issuances | | 8,771,632 | | 20,637,761 |
Exercises | | (11,202,129) | | (1,250,000) |
Expirations and cancelations | | — | | (551) |
Warrants outstanding, ending balance | | 16,991,395 | | 19,421,892 |
May 2020 Series 3 Warrants
In August 2018, in considerationMay 2020, concurrent with the May 2020 modification of services provided,the exercise price of the Series 1, Series 2 and Bridge Warrants and inducement offer, the Company issued a warrantunregistered Series 3 warrants to purchase 4298,670,852 shares of common stock which werestock. The Series 3 Warrants have an exercise price of $0.53 per share and are exercisable only inbeginning the event thatearlier of (i) six months from their May 22, 2020 issuance date and (ii) receipt of the Company raised new financing of at least $3.0 million,requisite Stockholder Approval (defined below), and expiredexpire five years fromthereafter. In addition to the datefixed settlement method at $0.53 per warrant share, the Series 3 Warrants have two contingent settlement methods: (i) if at the time of issuance. exercise there is no effective registration statement, then the holders of the 8,670,852 warrants may exercise the warrants in a “cashless exercise,” under which the holders will receive the aggregate warrants less the number of warrants equal to the exercise price; or (ii) a cashless exercise feature wherein, regardless if there is an effective registration agreement, following the requisite Stockholder Approval, each such Series 3 Warrant will be exercisable into one share of common stock for no consideration (a one-for-one exchange). See Note 14 for information about subsequent events.
The Series 3 warrants were valued at $17,582$3,695,723 using the Black-ScholesBlack- Scholes option pricing model as follows: probability-weighted exercise price of $74.20$0.05 per share, stock price of $74.20$0.44 per share, expected life of five5.50 years, volatility of 126%141%, and a risk-free rate of 3.83%0.34%. The Series 3 warrants were classified in stockholders’ equity. In October 2018, in a public offering,as liabilities on the Company met the $3.0 million new financing threshold and the warrants became exercisable.
Company’s condensed consolidated balance sheets.
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August 2018 License TransactionThe April 2020 Underwriter Warrants
In August 2018,April 2020, in consideration of services provided, the Company issuedsettlement of a warrant the exercise of which was contingent upon either (i) the Company consummating a Licensing Transaction within six months of August 2018, the occurrence of which would result in the warrant becoming immediately exercisable for 952 shares of common stock, or (ii) the Company consummating a Licensing Transaction after six months and within twelve months of August 2018, the occurrence of which would result in the warrant becoming immediately exercisable for 476 shares of common stock. The warrant was valued at $6,312 using the Black-Scholes option pricing model as follows: exercise price of $74.20 per share, stock price of $74.20 per share, expected life of five years, volatility of 126%dispute regarding underwriting fee’s (see Note 6), and a risk-free rate of 3.83%. The warrants were classified in stockholders’ equity.
October 2018 Underwriter Warrants
In October 2018, in consideration of services provided leading up to the Company’s October 2018 public offering, the Company issued warrants to various service providers to purchase an aggregate of 17,142100,780 shares of common stock at an exercise price of $52.50$2.50 per common share. The warrants were valued at $611,286$31,363 using the Black- Scholes option pricing model as follows: exercise price of $52.50$2.50 per share, stock price of $41.30$0.45 per share, expected life of five4.25 years, volatility of 138%141%, and a risk-free rate of 2.51%0.29%. The warrants were equity classified as liabilities pursuant to ASC 815-40 as there was potential cash settlement. As of June 30, 2019 and December 31, 2018, the warrant liability was valued at $52,265 and $212,988, respectively. The net change of $160,723 was recorded as a gain in the Company’scondensed consolidated statements of operations.changes in convertible preferred stock and stockholders’ equity.
March 2019 Ladenburg Warrants
In March 2019, in consideration of services provided in the Company’s March 2019 public offering of 19,019 common shares, the Company issued to Ladenburg Thalmann & Co. warrants to purchase an aggregate of 746761 shares of common stock at an exercise price of $17.50 per common share. The warrants were valued at $13,028$13,000 using the Black-ScholesBlack- Scholes option pricing model as follows: exercise price of $17.50 per share, stock price of $18.90 per share, expected life of five years, volatility of 146%, and a risk-free rate of 2.21%. The warrants were classified in stockholders’ equity.
March 2019 LOC WarrantsWarrant
In March 2019, in consideration of a letter of credit cancellationcancelation related to the Company’s office lease, the Company issued a warrant to purchase warrant shares equal to 75% of the $122,000a fixed principal amount of the Letter of Credit, divided by thea variable exercise price. The exercise price is either (i) the price the Company issues common shares in its next public offering subject to a registration statement or (ii) if no such offering is consummated by the four-month maturity date of the warrant, then the exercise price is equal to the closing price of the Company’s common stock on the warrants four-month anniversary date. The warrants were initially classified as liabilities pursuant to ASC 480-10 as atdue to their issuance date settlement is in a variable number of the Company’s common stock worth a fixed amount, a feature that does not represent a residual interest. The warrants were initially valued at $116,297 using the Black-Scholes option pricing model as follows: exercise price of $17.50 per share, stock price of $19.60 per share, expected life of five years, volatility of 146%, and a risk-free rate of 2.23%. As of June 30, 2019, the warrant had a fair value of $150,970. The net change in fair value of the warrants of $34,673 between their issuance date and June 30, 2019 was recorded as a loss in the Company’s statements of operations.
debt-like nature. On July 19,23, 2019, upon the Company’s registered offering (see Note 13), the exercise price of the warrants becoming fixed, the warrants became fixed atexercisable into 45,750 shares of the offering priceCompany’s common stock and were reclassified to additional paid-in-capital with a fair value of $2.00. $71,000.
2019 Bridge Note Warrants
Between March 18, 2019 and June 26, 2019, concurrent to the Company entering into Promissory Notes of $5,050,000, the Company issued (i) fourteen Notes with a principal balance of $3,550,000 andtwenty-one warrants to purchase warrant coverage at 125% of principal, and (ii) seven Notes with a principal balance of $1,500,000 and warrant coverage at 75% of principal. The exercise price of the warrants is either (i) the price the Company issues common shares in its next public offering
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subjectequal to a registration statement or (ii) if no such offering is consummatedfixed principal amount divided by the four-month maturity date of the Notes, then thea variable exercise price is equal to the closing price of the Company’s common stock on the Notes four-month maturity date.price. The warrants for all twenty-one Bridge Notes arewere initially liability classified pursuant to ASC 480-10 due to their debt-like nature. On July 23, 2019, upon the exercise price of the warrants becoming fixed, the warrants became exercisable into 2,781,250 shares of the Company’s common stock and were reclassified to additional paid-in-capital with a collective issuance date fair value of $5,005,739 (see$4,259,000.
February 2020 Modification of Certain 2019 Bridge Note 3)Warrants
In February 2020, the Company entered into a warrant exercise agreement with a holder of its Bridge warrants, pursuant to which the holder agreed to exercise 250,000 Bridge warrants in consideration of the Company lowering the exercise price of the 250,000 warrants from $2.00 to $0.692. Upon exercise of the warrants, the Company received cash proceeds of $173,000 and in turn issued 250,000 common shares. It is the Company’s policy to determine the impact of modifications to equity-classified warrants by analogy to the share-based compensation guidance per ASC 718, Compensation – Stock Compensation. Pursuant to that guidance, and due to the modification being applicable only to a single holder of the Bridge warrants, the incremental increase of $9,000 in fair value of the modified warrants was recorded as an expense in the condensed consolidated statements of operations for the six months ended June 30, 2020.
May 2020 Modification of the 2019 Bridge Note Warrants and Inducement Offer
In May 2020, the Company reduced the exercise price of all outstanding 2019 Bridge Warrants from $2.00 per share to $0.49 per share. The Company determined the impact of this modification to be an increase in the fair value of the warrants of $165,716. Because the modification applied to the entire class of Bridge Warrant holders, the increase in fair value represented a deemed dividend to the entire class of Bridge Warrant holders. The modification did not result in the reclassification of the equity-classified Bridge warrants from additional paid-in-capital to liability classification.
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In May 2020, concurrent with the reduction of the exercise price of the Bridge Warrant, the Company entered into a warrant exercise inducement offer with certain holders of the Bridge Warrants, pursuant to which such holders agreed to exercise for cash Bridge Warrants to purchase 93,750 shares of common stock, in exchange for the Company’s issuing to the exercising holders new unregistered Series 3 warrants to purchase 93,750 shares of common stock.
July 2019 Series 1 Warrants
In July 2019, the Company entered into an underwriting agreement, relating to a public offering, which was comprised of (1) 2,886,500 Class A Units, priced at $2.00 per unit, with each unit consisting of (i) one share of the Company’s voting common stock, (ii) one Series 1 warrant to purchase one share of common stock, and (iii) one Series 2 warrant to purchase one share of common stock, and (2) 10,787 Class B Units, priced at a price of $1,000 per unit, with each unit consisting of (i) one share of Series B convertible preferred stock, convertible into 500 shares of common stock, (ii) 500 Series 1 Warrants and (iii) 500 Series 2 Warrants.
The Series 1 Warrants had an exercise price of $2.00 and expire on the earlier of (a) 5 years from the date of issuance and (b) 30 calendar days following the public announcement of Positive Interim Results related to the diarrhea results from the HALT-D investigator initiated trial, if and only if certain trading benchmarks are achieved during such 30 calendar day period.
In the offering, the Company sold (i) 2,886,500 Class A Units, which included Series 1 warrants to purchase 2,886,500 shares of the Company’s common stock and (ii) 10,787 Class B Units, which included Series 1 warrants to purchase 5,393,500 shares of the Company’s common stock. In total, 8,280,000 Series 1 warrants were issued, with an initial valuation of $5,025,000 computed using the Black-Scholes-Merton pricing model using assumptions derived betweena stock price of $1.73, a strike price of $2.00, an expected term of 5.0 years, volatility of 109.25% and a risk-free discount rate of 1.83%. Upon issuance, the issuance datesSeries 1 warrants were classified in additional paid-in-capital.
September 2019 Modification of March through June 2019. As of June 30,the July 2019 Series 1 Warrants
In September 2019, the warrants had a fair valueCompany reduced the exercise price all 8,280,000 Series 1 Warrants from $2.00 to $1.40. The Company determined the impact of $4,977,985. At March 31, 2019, the warrants had a fair value of $892,713. The net change in fair value of the warrants of $4,085,269 for the three and six months ended March 31, 2019 and June 30, 2019 was duethis modification to the addition of new warrants with a fair value of $4,113,026 offset by a $27,757 lossbe an increase in the fair value of the warrants as measured on June 30, 2019.of $522,000. Because the modification applied to the entire class of Series 1 Warrant holders, the increase in fair value represented a deemed dividend to the entire class of Series 1 Warrant holders. The gain of $27,757 was recordedmodification did not result in the Company’s statementsreclassification of operations.the equity-classified Series 1 warrants from additional paid-in-capital to liability classification.
OnFebruary 2020 Modification of the July 19, 2019 uponSeries 1 Warrants
In February 2020, the Company’s registered offering (see Note 13),Company entered into a warrant exercise agreement with a holder of its Series 1 Warrants, pursuant to which the holder agreed to exercise 208,022 Series 1 Warrants in consideration of the Company lowering the exercise price of the 208,022 warrants became fixed atfrom $2.00 to $0.6920. Upon exercise of the offeringwarrants, the Company received cash proceeds of $144,000 and in turn issued 208,022 common shares. It is the Company’s policy to determine the impact of modifications to equity-classified warrants by analogy to share-based compensation guidance per ASC 718, Compensation – Stock Compensation. Pursuant to that guidance, and due to the modification being applicable only to a single holder of the Series 1 Warrants, the incremental increase of $6,413 in fair value of the modified warrants was recorded as an expense in the condensed consolidated statements of operations for the three months ended March 31, 2020.
May 2020 Modification of the July 2019 Series 1 Warrants and Inducement Offer
In May 2020, the Company reduced the exercise price of $2.00. all outstanding Series 1 Warrants from $1.40 per share to $0.49 per share. The Company determined the impact of this modification to be an increase in the fair value of the warrants of $284,338. Because the modification applied to the entire class of Series 1 Warrant holders, the increase in fair value represented a deemed dividend to the entire class of Series 1 Warrant holders. The modification did not result in the reclassification of the equity-classified Series 1 Warrants from additional paid-in-capital to liability classification.
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In May 2020, concurrent with the reduction of the exercise price of the Series 1 Warrants, the Company entered into a warrant exercise inducement offer with certain holders of the Series 1 Warrants, pursuant to which such holders agreed to exercise for cash Series 1 Warrants to purchase 4,572,040 shares of common stock, in exchange for the Company’s issuing to the exercising holders new unregistered Series 3 warrants to purchase 4,572,040 shares of common stock.
July 2019 Series 2 Warrants
The Series 2 Warrants have an exercise price of $2.00 and expire on the first date on the earlier of (a) 5 years from the date of issuance and (b) 30 calendar days following the public announcement by the Company that a pivotal phase 3 clinical trial using crofelemer (Mytesi, or the same or similar product with a different name) for the treatment of cancer therapy-related diarrhea in humans has met its primary endpoint in accordance with the protocol, if and only if certain trading benchmarks are achieved during such 30 calendar day period. In addition, each Series 2 Warrant has an embedded call option that allows the Company to redeem any unexercised warrants if certain contingencies are met.
8.In the July 2019 offering, the Company sold (i) 2,886,500 Class A Units, which included Series 2 warrants to purchase 2,886,500 shares of the Company’s common stock and (ii) 10,787 Class B Units, which included Series 2 warrants to purchase 5,393,500 shares of the Company’s common stock. In total, 8,280,000 Series 2 warrants were issued, with an initial valuation of $5,026,000 computed using the Black-Scholes-Merton pricing model using a stock price of $1.73, a strike price of $2.00, an expected term of 5.0 years, volatility of 109.25% and a risk-free discount rate of 1.83%. Upon issuance, the Series 2 Warrants were classified in additional paid-in-capital.
March 5, 2020 Modification of the July 2019 Series 2 Warrants
On March 5, 2020, the Company entered into a warrant exercise agreement with a holder of its Series 2 Warrants, pursuant to which the holder agreed to exercise 90,940 Series 2 Warrants in consideration of the Company lowering the exercise price of the 90,940 warrants from $2.00 to $0.6050. Upon exercise of the warrants, the Company received cash proceeds of $55,000 and in turn issued 90,940 common shares. It is the Company’s policy to determine the impact of modifications to equity-classified warrants by analogy to share-based compensation guidance per ASC 718, Compensation – Stock Compensation. Pursuant to that guidance, and due to the modification being applicable only to a single holder of the Series 2 Warrants, the incremental increase of $6,000 in fair value of the modified warrants was recorded as an expense in the condensed consolidated statements of operations for the six months ended June 30, 2020.
March 23, 2020 Modification of the July 2019 Series 2 Warrants
On March 23, 2020, the Company entered into a Warrant Exercise and Preferred Stock Amendment Agreement (see Note 9) with a holder of its Series 2 Warrants, pursuant to which the holder agreed to exercise in cash its Series 2 Warrants to purchase an aggregate of 1,250,000 shares of common stock, in consideration of the Company reducing the Series 2 Warrant exercise price from $2.00 to $0.5227 per share, for gross proceeds to the Company of approximately $653,000, or $628,000 net of $25,000 of issuance costs. The Company determined the impact of this modification to be an increase in the fair value of the warrants of $65,000. Because the modification applied to a sole holder of Series 2 Warrants, the $65,000 increase in fair value was recorded as an expense in the condensed consolidated statements of operations for the six months ended June 30, 2020. The modification did not result in the reclassification of the equity-classified Series 1 Warrants from additional paid-in-capital to liability classification, and as of March 31, 2020, all 8,280,000 Series 2 Warrants have been exercised.
May 2020 Modification of the July 2019 Series 2 Warrants and Inducement Offer
In May 2020, the Company reduced the exercise price of all outstanding Series 2 Warrants from $2.00 per share to $0.49 per share. The Company determined the impact of this modification to be an increase in the fair value of the warrants of $406,002. Because the modification applied to the entire class of Series 2 Warrant holders, the increase in fair value represented a deemed dividend to the entire class of Series 2 Warrant holders. The modification did not result in the reclassification of the equity-classified Series 2 Warrants from additional paid-in-capital to liability classification.
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In May 2020, concurrent with the reduction of the exercise price of the Series 2 Warrants, the Company entered into a warrant exercise inducement offer with certain holders of the Series 2 Warrants, pursuant to which such holders agreed to exercise for cash Series 2 Warrants to purchase 4,005,062 shares of common stock, in exchange for the Company’s issuing to the exercising holders new unregistered Series 3 warrants to purchase 4,005,062 shares of common stock.
December 2019 PIPE Financing Warrants
In December 2019, the Company entered into a securities purchase agreement with certain investors pursuant to which the Company, in a Private Placement, sold (i) an aggregate of 2,500,000 unregistered shares of the Company’s common stock, and (ii) Warrants to purchase up to an aggregate of approximately 1,250,000 shares of common stock, for an aggregate purchase price of $1,500,000 (see Note 10). The warrants have an exercise price of $0.78 per share and became exercisable on June 24, 2020 (6 months after their issuance date) and have a five-year term.
The warrants were valued at $686,000 using the Black-Scholes option pricing model as follows: exercise price of $0.78 per share, stock price of $0.62 per share, expected life of five years, volatility of 143%, and a risk-free rate of 2.42%. As the common stock and warrants were issued in a unit structure, the aggregate proceeds of $1,500,000 were allocated to the two securities using the relative fair value method, resulting with the common stock and warrants being allocated $1,035,000 and $465,000, respectively. The warrants were classified in stockholders’ equity.
9. Convertible Preferred Stock
At June 30, 2020, convertible preferred stock consisted of the following:
| | | | | | | | | | | | |
| | | | | | | | | | | | Liquidation |
(in thousands, except share data) | | Shares |
| Issued and |
| Carrying | | | Preference | |||
Series | | Authorized | | Outstanding | | Value | | | per Share | |||
A | | | 5,524,926 | | | 5,524,926 | | $ | 10,878 | | $ | 1.665 |
B | | | 11,000 | | | — | | | — | | | — |
B-1 | | | 63 | | | — | | | — | | | — |
B-2 | | | 10,165 | | | 7,534 | | | 916 | | | — |
Non-designated | | | 4,453,846 | | | — | | | — | | | — |
Total | | | 10,000,000 | | | 5,532,460 | | $ | 11,794 | | | |
At December 31, 2019, convertible preferred stock consisted of the following:
| | | | | | | | | | | | |
| | | | | | | | | | | | Liquidation |
(in thousands, except share data) | | Shares |
| Issued and |
| Carrying | | | Preference | |||
Series | | Authorized | | Outstanding | | Value | | | per Share | |||
A | | | 5,524,926 | | | 5,524,926 | | $ | 9,895 | | $ | 1.665 |
B | | | 11,000 | | | 1,971 | | | 476 | | | — |
B-1 | | | 63 | | | — | | | — | | | — |
B-2 | | | 10,165 | | | 10,165 | | | 1,236 | | | — |
Non designated | | | 4,453,846 | | | — | | | — | | | — |
Total | | | 10,000,000 | | | 5,537,062 | | $ | 11,607 | | | |
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Series A Redeemable Convertible Preferred Stock
In March 2018, the Company entered into a stock purchase agreement with Sagard Capital Partners, L.P. pursuant to which the Company, in a private placement, agreed to issue and sell to Sagard Capital 5,524,926 shares of the Company's Series A convertible participating preferred stock, $0.0001 par value per share, for gross proceeds of $9,199,002,$9,199,000, or $9,000,002$9,000,000 net of issuance costs. The preferred stock is convertible into approximately 473,565 shares of common stock at the option of the holder at an effective conversion price of $19.425 per share, provided that, at any time prior to the time the Company obtains stockholder approval, as required pursuant to Nasdaq Rule 5635(b) any conversion of Preferred Stock by a holder into shares of the common stock would be prohibited if, as a result of such conversion, the holder, together with such holder's attribution parties, would beneficially own more than 19.99% of the total number of shares of the common stock issued and outstanding after giving effect to such conversion.share. Subject to certain limited exceptions, the shares of Preferred Stock cannotcould not be offered, pledged or sold by Sagard Capital for one year from the date of issuance. The conversion price is subject to certain adjustments in the event of any stock dividend, stock split, reverse stock split, combination or other similar recapitalization.
Holders of the Series A shares are entitled to participate equally and ratably with the holders of shares of common stock shares in all dividends paid and distributions made to the holders of the common stock as if, immediately prior to each record date of the common stock, the shares of Series A then outstanding were converted into shares of common stock.
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or deemed liquidation event, the holders of Series A shares then outstanding shall be entitled to be paid in cash out of the assets of the Company before any payment shall be made to the holders of common stock or shares of any series or class of preferred or other capital stock then outstanding that by its terms is junior to the Series A in respect of the preferences as to distributions and payments upon such liquidation event by reason of their ownership, an amount per share of Series A equal to one times the Series A original issue price.
The redemption and liquidation valueSeries A convertible preferred shares are redeemable by Sagard Capital upon a Redemption Event that is not solely within the control of the Series A preferred stock is $12,738,822 and $9,199,002, respectively, as of June 30, 2019 and December 31, 2018.Company. If a Redemption Event occurswere to occur as of the Measurement Date (the later of April 30, 2021 and the date on which the Company files its Form 10‑Q for the three months ending March 31, 2021, but in no event later than September 30, 2021), the holders of at least a majority of the shares of Series A convertible preferred stock then outstanding may require the Company to redeem all Series A shares for cash at a per share purchase price equal to $2.3057; any$2.3057. Any one of the following conditions can result in a Redemption Event that is not solely within the Company's control: RevenuesEvent: (i) revenue attributable to the Mytesi product for the six-month period ended March 31, 2021 areis less than $22.0 million ormillion; (ii) the daily volume weighted average price (“VWAP”) of the Company's common stock on Nasdaq for the 30 days prior to a Measurement Date is less than $105.00.$105.00; (iii) the Company fails to file with the SEC on or before June 30, 2021, its Form 10-Q for the three months ending March 31, 2021.
During the three months ended December 31, 2019, the Company determined that a Redemption Event was probable as of July 1, 2019. The Company is accreting the carrying value to the redemption amount of $12,738,822.
The redemption amount of the Series A convertible preferred stock is $12,738,822 as of June 30, 2020 and December 31, 2019. The carrying value of the Series A convertible preferred stock was $10,878,000 and $9,895,000 as of June 30, 2020 and December 31, 2019, respectively.
In March 2019, the Company and Sagard Capital amended certain terms of the agreement, such that the effective conversion price was adjusted to $19.425 per share.
The preferred stock has been classified outside of stockholders' equity in accordance with authoritative guidance for the classification and measurement of potentially redeemable securities at the option of the holder.
Series B Convertible Preferred Stock
In July 2019, the Company entered into an underwriting agreement relating to the public offering comprised of (1) 2,886,500 Class A Units, priced at a public offering price of $2.00 per unit, with each unit consisting of (i) one share of the Company’s voting common stock, (ii) one Series 1 warrant to purchase one share of common stock and (2) 10,787 Class B Units, priced at a public offering price of $1,000 per unit, with each Class B unit consisting of (i) one share of
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Series B convertible preferred stock with a stated value of $1,000 and convertible into 500 shares of common stock, (ii) 500 Series 1 Warrants and (iii) 500 Series 2 Warrants, at a public offering price of $1,000 per Class B Unit.
The Company sold 10,787 Class B Units, comprised of 10,787 shares of Series B convertible preferred stock, Series 1 warrants to purchase 5,393,500 shares of common stock and Series 2 warrants to purchase 5,393,500 shares of common stock. The total gross proceeds to the Company from the offering of the Class B Units were $10,787,000, of which $4,240,000 was allocated to the Series B convertible preferred stock, $3,274,000 to the Series 1 Warrants and $3,274,000 to the Series 2 Warrants. Issuance costs of $1,635,000 were allocated to the Class B Units.
Holders of the Series B shares are entitled to participate equally and ratably with the holders of shares of common stock in all dividends paid and distributions made to the holders of the common stock as if, immediately prior to each record date of the common stock, the shares of Series B then outstanding were converted into shares of common stock. With certain exceptions, the shares of Series B Convertible Preferred Stock have no voting rights. However, as long as any shares of Series B Convertible Preferred Stock remain outstanding, the Company shall not, without the affirmative vote of holders of a majority of the then outstanding shares of Series B Convertible Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Series B Convertible Preferred Stock or alter or amend the Series B Certificate of Designation or (b) enter into any agreement with respect to any of the foregoing. Each share of Series B Convertible Preferred Stock is convertible at any time at the holder’s option into 500 shares of common stock, which conversion ratio will be subject to adjustment for stock splits, stock dividends, distributions, subdivisions and combinations and other similar transactions.
On the MarchJuly 23, 20182019 issuance date, the effective conversion price per share was less than the fair value of the underlying common stock. As a result, the Company determined that there was a Beneficial Conversion Feature (“BCF”) of approximately $995,000. $4,240,000.
Because the Company's Series AB Convertible Preferred Stock does not have a stated conversion date and was immediately convertible at the issuance date, the Company recorded a deemed dividend charge of $995,000$4,240,000 for the accretion of the discount on the Series AB Convertible Preferred Stock.
The deemed dividendpreferred stock has been classified in stockholders' equity in accordance with authoritative guidance.
During July and August 2019, certain investors converted 8,816 Series B convertible preferred shares into 4,408,000 shares of the Company’s common stock at the stated conversion ratio. There were zero and 1,971 shares of Series B Convertible Preferred Stock outstanding as of June 30, 2020 and December 31, 2019, respectively.
In March 2020, the Company entered into a Warrant Exercise and Preferred Stock Amendment Agreement (“Amendment Agreement”) with a holder of its Series 2 Warrants, pursuant to which the holder agreed to exercise in cash its Series 2 Warrants to purchase an aggregate of 1,250,000 shares of common stock, in consideration of the Company reducing the warrant exercise price from $2.00 to $0.5227 per share, for gross proceeds to the Company of approximately $653,000 (see Note 8). As a further inducement to enter into the Amendment Agreement, the Company agreed to reduce the conversion price of the Company’s Series B convertible preferred stock from $2.00 to $0.4456, resulting in the application of accounting per ASC 260-10-S99-2. Because the reduction to the conversion price was a non-cash transaction and is
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reflected below net loss to arrive at net loss available to common stockholders onan inducement charge of $1,647,000 in the Company'sunaudited condensed consolidated statements of operations for the three and six months ended June 30, 2018.2020.
Series B-1 Convertible Preferred Stock
In MarchOctober 2019, the Company and Sagard Capital Partners, L.P. amended certainentered into a Warrant Exercise Agreement with the sole remaining holder of the Series B Convertible Preferred Stock (the “Exercising Holder”), who owned Series 1 Warrants exercisable for 1,250,000 shares of common stock. Pursuant to the terms of the Warrant Exercise Agreement, the Company had the right (a purchased put option) to require the Exercising Holder to exercise all or a portion of its Series 1 Warrants in accordance with the existing terms of the Series 1 Warrants, in exchange for the Company’s agreement suchto issue to the Exercising Holder a number of shares of the Company’s Series B-1 Convertible Preferred Stock, with a stated value of $12,000, in an amount equal to one Series B-1 Preferred Share for every 19,841 Series 1 Warrant Shares issued by the
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Company to the Exercising Holder. The purpose of the Company entering into the agreement was to enable the Company to monetize the remaining Series 1 Warrants. To the extent that all Series 1 Warrants held by the Exercising Holder were exercised at their $1.40 exercise price, the Company would receive aggregate gross proceeds of approximately $1,750,000 and, in turn, have issued 63 shares of Series B-1 Preferred Stock to the Exercising Holder.
On October 3 and October 9, 2019, in two separate transactions, the Company exercised its purchased put option (see Note 3) to require the Exercising Holder to exercise all of its 1,250,000 Series 1 warrants (see Note 8), upon which the Company issued 1,250,000 common shares to the Exercising Holder in return for aggregate gross proceeds of $1,750,000. In consideration (the strike price) of the exercising the warrants, the Company issued 63 shares of Series B-1 Convertible Preferred Stock to the Exercising Holder.
On the October 3, 2019 issuance date, the effective conversion price was adjusted to $19.425 per share. Theless than the fair value of the underlying common stock. As a result, the Company determined that there was a Beneficial Conversion Feature of $146,000. Because the amendment represented an immaterial modification.Company's Series B-1 Convertible Preferred Stock does not have a stated conversion date and was immediately convertible at the issuance date, the Company recorded a deemed dividend charge of $146,000 for the accretion of the discount on the Series B-1 Convertible Preferred Stock.
On the October 9, 2019 issuance date, the effective conversion price was less than the fair value of the underlying common stock. As a result, the Company determined that there was a Beneficial Conversion Feature of $385,000. Because the Company's Series B-1 Preferred Stock does not have a stated conversion date and was immediately convertible at the issuance date, the Company recorded a deemed dividend charge of $385,000 for the accretion of the discount on the Series B-1 Preferred Stock.
The preferred stock has beenSeries B-1 Preferred Stock was classified outside ofin stockholders' equity/(deficit)equity in accordance with authoritative guidance forguidance.
In December 2019, the classification and measurementsole investor in the Series B-1 Preferred Stock converted its entire holding of potentially redeemable securities.
9. Stockholders' Equity/(Deficit)
Common63 shares of the Series B-1 Preferred Stock
On May 18, 2018, into 630,063 shares of the stockholders of Jaguar approvedCompany’s common shares at the 2018 Annual Meetingstated conversion ratio. As of StockholdersDecember 31, 2019, there were no shares of the Series B-1 Preferred Stock outstanding.
Series B-2 Convertible Preferred Stock
In December 2019, the Company entered into an exchange agreement with Oasis Capital, LLC (“Oasis Capital”), pursuant to which Oasis Capital gave up (i) its remaining unexercised Prepaid Forward contracts (see Note 10) exercisable for 1,236,223 shares of the Company’s common stock and (ii) 695,127 common shares held as an investment by Oasis Capital, in exchange for 10,165 shares of the Company’s newly authorized Series B-2 Convertible Preferred Stock.
The holders of the Series B-2 Convertible Preferred Stock are entitled to receive dividends on shares of Series B-2 Convertible Preferred Stock equal (on an as-if-converted-to-Common-Stock basis) to and in the same form as dividends actually paid on shares of the common stock when, as and if such dividends are paid on shares of the common stock. No other dividends shall be paid on shares of the Series B-2 Convertible Preferred Stock.
The shares of Series B-2 Convertible Preferred Stock have no voting rights. However, as long as any shares of Series B-2 Convertible Preferred Stock remain outstanding, the Company shall not, without the affirmative vote of holders of a majority of the then outstanding shares of Series B-2 Convertible Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Series B-2 Convertible Preferred Stock or alter or amend the Series B-2 Certificate of Designation or (b) enter into any agreement with respect to any of the foregoing.
Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of the Series B-2 Convertible Preferred Stock are entitled to receive out of the assets, whether capital or surplus, of the Company the same amount that a holder of common stock would receive if the Series B-2 Convertible Preferred Stock were fully converted to common stock which amounts shall be paid pari passu with all holders of common stock.
37
Each share of Series B-2 Convertible Preferred Stock is convertible at any time at the holder’s option into 190 shares of common stock, as determined by dividing the $153.90 stated value of each Series B-2 Convertible Preferred Share by the $0.81 conversion price ($153.90 divided by 0.81 = 190 conversion ratio), and which conversion ratio is subject to adjustment for stock splits, stock dividends, distributions, subdivisions and combinations and other similar transactions as specified in the Board approved,Series B-2 Certificate of Designation.
The Series B-2 Convertible Preferred Stock was classified in stockholders' equity in accordance with the authority granted by the Company's stockholders at the Annual Meeting,authoritative guidance.
In January 2020, a 1‑for‑15 reverse stock splitholder of the Company’s issued and outstandingSeries B-2 convertible preferred stock converted 2,631 preferred shares into 499,890 shares of common stock. On May 29, 2018,
10. Stockholders' Equity
Common Stock
As of June 30, 2020 and December 31, 2019, the Company filed the Certificatehad reserved shares of Second Amendment to its Third Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to effect the reverse stock split, effective June 1, 2018. The reverse split has been retrospectively reflected in all voting common stock warrants, andfor issuance as follows:
| | | | |
|
| June 30, |
| |
| | 2020 | | December 31, |
| | (unaudited) | | 2019 |
Options issued and outstanding |
| 4,455,101 |
| 3,902,675 |
Inducement options issued and outstanding | | 3,392 | | 74 |
Options available for grant under stock option plans |
| 710,299 |
| 479,829 |
Restricted stock unit awards issued and outstanding |
| 5,613 |
| 5,613 |
Warrants issued and outstanding |
| 16,991,395 |
| 19,421,892 |
Series A convertible preferred stock | | 473,565 | | 473,565 |
Series B convertible preferred stock | | — | | 985,500 |
Series B-2 convertible preferred stock | | 1,431,460 | | 1,931,350 |
Total |
| 24,070,825 |
| 27,200,498 |
The holders of common stock option shares disclosed in these condensed consolidated financial statements.are entitled to one vote for each share of common stock held. The common stockholders are also entitled to receive dividends whenever funds and assets are legally available and when declared by the Board of directors.
The holders of non-voting common stock andare not entitled to vote, except on an as converted basis with respect to any change of control of the convertible preferred stock were excluded from the reverse split.
On May 18, 2018,Company that is submitted to the stockholders of the Company approvedfor approval. Shares of the Company's non-voting common stock have the same rights to dividends and other distributions and are convertible into shares of the Company's common stock on a 1,050-for-one basis upon transfers to non-affiliates of Nantucket ("former creditor of Napo"), upon the release from escrow of certain non-voting shares held by the former creditors of Napo to the legacy stockholders of Napo under specified conditions and at any time on or after April 1, 2018 at the Annual Meeting a proposal to decrease the number of authorized shares of common stock to 150,000,000 shares, contingent upon the approvaloption of the 2018 Reverse Stock Split. On June 1, 2018, therespective holders thereof.
The Company filedis authorized to issue a certificate of third amendment (the “Third Amendment”) to its certificate of incorporation, (“COI”), with the Secretary of State of the State of Delaware to decrease the total number of authorized shares of common stock so that the total number of the shares that the Company has authority to issue is 210,000,000 shares, of which 150,000,000 shares are
common stock, 50,000,000 are non-voting common stock and 10,000,000 shares are “blank check” preferred stock.
Reverse stock-splits
On June 3, 2019, the Company filed the Certificate of Fifth Amendment to its Third Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a 1-for-70 reverse stock split of the Company’s issued and outstanding shares of voting common stock, effective June 7, 2019. The reverse split has been retrospectivelyretroactively reflected in all voting common stock, warrants, and common stock option shares disclosed in these
38
unaudited condensed consolidated financial statements. The non-voting common stock and the convertible preferred stock were excluded from the reverse split.
As
Transactions with Oasis Capital
January 2019 SPA
On January 7, 2019, Jaguar entered into a common stock purchase agreement with Oasis Capital, relating to an offering of June 30, 2019 and December 31, 2018, the Company had reservedan aggregate of up to 76,190 shares of common stock via an equity line of credit. Under the terms of the purchase agreement, the Company has the right to "put," or sell, up to 76,190 shares of common stock to Oasis Capital for issuance as follows:an amount equal to the product of (i) the number of shares set forth on the applicable put notice (minus the deposit and clearing fees associated with such purchase) and (ii) a fixed price of $52.50 per share or such other price agreed upon between the Company and Oasis Capital. Jaguar had the option to increase the equity line of credit by an additional 114,286 shares of common stock by notifying Oasis Capital at any time after the effective date of the purchase agreement. In March 2019, Jaguar exercised this option. As of March 31, 2019, the Company had sold all of the 76,190 shares of common stock of the equity line and all 114,286 shares of common stock from the option to Oasis Capital, or a total of 190,476 shares.
|
|
|
|
|
|
| June 30, |
| December 31, |
|
| 2019 |
| 2018 |
|
| (unaudited) |
|
|
Options issued and outstanding |
| 39,481 |
| 42,979 |
Inducement options issued and outstanding |
| 906 |
| 2,985 |
Options available for grant under stock option plans |
| 13,622 |
| 2,327 |
RSU awards issued and outstanding |
| 5,613 |
| 5,613 |
Warrants issued and outstanding |
| 1,237,871 |
| 34,682 |
Convertible notes |
| — |
| 10,849 |
Preferred Convertible Stock |
| 473,565 |
| 47,357 |
Total |
| 1,771,058 |
| 146,792 |
March 2019 SPA
In March 2019, Jaguar entered into a securities purchase agreement with Oasis Capital pursuant to which Jaguar agreed to issue and sell, in a registered public offering by Jaguar directly to Oasis, an aggregate of 19,019 shares of common stock at an offering price of $14.00 for gross proceeds of approximately $266,000. Between March 24, 2019, the date of the March CSPA, and March 31, 2020, the Company sold an aggregate of 19,019 shares of common stock pursuant to the CSPA for aggregate gross proceeds of approximately $266,000.
March 2020 ELOC (Equity Line of Credit)
In March 2020, the Company entered into an equity purchase agreement (the “March 2020 ELOC”) with Oasis Capital, which provides that Oasis Capital is committed to purchase up to an aggregate of $2.0 million shares of the Company’s common stock over the 36-month term of the March 2020 ELOC.
Pursuant to the terms and conditions of the March 2020 ELOC, on any trading day selected by the Company (such date the “Put Date”), after the SEC has declared effective the registration statement registering the sale of the shares of common stock that may be issued to Oasis Capital under the March 2020 ELOC, the Company has the right, in its sole discretion, to present to Oasis Capital with a purchase notice (each a “Put Notice”), directing Oasis Capital to purchase up to the lesser of (i) 200,000 shares of common stock or (ii) 20% of the average trading volume of common stock in the 10 trading days immediately preceding the date of such Put Notice, at a per share price equal to $0.436 (each an “Option 1 Put”), provided that the aggregate of all Option 1 Puts and Option 2 Puts (described below) does not exceed $2.0 million.
In addition, on any date on which Oasis Capital receives shares of common stock in connection with a Put Notice (the “Clearing Date”), the Company also has the right, in its sole discretion, to present to Oasis Capital with a Put Notice (each an “Option 2 Put”) directing Oasis Capital to purchase an amount of common stock equal to the lesser of (i) such amount that equals 10% of the daily trading volume of the common stock on the date of such Put Notice and (ii) $200,000, provided that the aggregate amount of the Option 1 Put and Option 2 Put on any Put Date or Clearing Date does not exceed $500,000 and the aggregate amount of all Option 1 Puts and Option 2 Puts does not exceed $2.0 million. The purchase price per share pursuant to such Option 2 Put is equal to $0.436. The Threshold Price (defined later) and the Purchase Price will be adjusted for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction occurring during the period used to compute the Threshold Price or the Purchase Price.
On April 15, 2020, the SEC declared effective the registration statement registering the sale of the shares of common stock issued to Oasis Capital under the March 2020 ELOC. The Company will control the timing and amount
3139
of sales of common stock to Oasis Capital. Oasis Capital has no right to require any sales by the Company but is obligated to make purchases from the Company as directed by the Company in accordance with the March 2020 ELOC.
10.In connection with the equity line, the Company agreed to pay Oasis Capital a commitment fee and in April 2020, in settlement of the commitment fee, the Company issued to Oasis Capital 68,807 shares of common stock. At issuance, the 68,807 shares of common stock had a fair value of $33,027, and were expensed as an issuance cost in the Company’s condensed consolidated statements of operations.
Per the terms of the equity purchase agreement, the Option Put 1 and Option Put 2 may be exercised only at a price that is always above the trading price of the underlying common stock at the exercise date, thereby rendering any exercise by the Company being out-of-the-money. At inception of the equity line on March 24, 2020, the Put Options were classified as derivative assets with a fair value of zero, and upon an effective registration statement on April 15, 2020, were reclassified to stockholders’ equity with a fair value of zero.
In April 2020, the Company exercised a single Put Option Put 1 under which the Company sold 52,000 common shares to Oasis for gross proceeds of $22,627. As of June 30, 2020, the Company had not exercised any further put options to require Oasis Capital to purchase common stock under the equity purchase agreement.
March 2020 PIPE Financing
In March 2020, Company entered into a securities purchase agreement (the “PIPE Purchase Agreement”) with certain investors, pursuant to which the Company agreed to issue and sell to the Investors in a private placement an aggregate of 1,714,283 shares of the Company’s common stock, for an aggregate purchase price of approximately $720,000, or $668,578 net of $51,422 of issuance costs.
11. Stock Incentive Plans
2013 Equity Incentive Plan
Effective November 1, 2013, the Company's board of directors and sole stockholder adopted the Jaguar Health, Inc. 2013 Equity Incentive Plan (the “2013 Plan”). The 2013 Plan allows the Company's board of directors to grant stock options, restricted stock awards and restricted stock unit awards to employees, officers, directors and consultants of the Company. Following the effective date of the IPO and after effectiveness of any grants under the 2013 Plan that were contingent on the IPO, no additional stock awards will be granted under the 2013 Plan. Outstanding grants continue to be exercisable,exercisable; however, any unissued shares under the plan and any forfeitures of outstanding options do not rollover to the 2014 Stock Incentive Plan. As of June 30, 2019,2020, there were 5,613384 options outstanding.
2014 Stock Incentive Plan
InEffective May 12, 2015, the Company adopted the Jaguar Health, Inc. 2014 Stock Incentive Plan (“2014 Plan”). The 2014 Plan provides for the grant of options, restricted stock and restricted stock units to eligible employees, directors and consultants to purchase the Company's common stock. The 2014 Plan that provides for automatic share increases on the first day of each fiscal year in the amount of 2% of the outstanding number of shares of the Company's common stock on last day of the preceding calendar year. The final 2% increase under the terms of the 2014 Plan was on January 1, 2019, at which time 7,797 additional available shares were added to the 2014 Plan. In February 2019, the Company shareholders approved a 5-year extension of the annual 2% automatic increase, from January 1, 2020 through January 1, 2024. The 2014 Plan replaced the 2013 Plan except that all outstanding options under the 2013 Plan remain outstanding until exercised, cancelledcanceled or expiration. expired.
As of June 30, 2019,2020, there were 39,4814,455,101 options outstanding and 13,622213,617 options available for grant.
2020 New Employee Inducement Award Plan
Effective June 16, 2020, the Company adopted the Jaguar Health, Inc. New Employee Inducement Award Plan (“2020 Inducement Award Plan”) and, subject to the adjustment provisions of the Inducement Award Plan, reserved 500,000 shares of the Company’s common stock for issuance pursuant to equity awards granted under the Inducement
40
Award Plan. The 2020 Inducement Award Plan provides for the grant of nonstatutory stock options, restricted stock units, restricted stock, and performance shares. The 2020 Inducement Award Plan was adopted without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules. The terms and conditions of the 2020 Inducement Award Plan are substantially similar to the Company’s 2014 Stock Incentive Plan, but with such other terms and conditions intended to comply with the Nasdaq inducement award rules. In accordance with Rule 5635(c)(4) of the Nasdaq Listing Rules, the only persons eligible to receive grants of equity awards under the Inducement Award Plan are individuals who were not previously an employee or director of the Company, or following a bona fide period of non-employment, as an inducement material to such persons entering into employment with the Company.
As of June 30, 2020, there were 3,318 options outstanding and 496,682 options available for grant.
Stock Options and Restricted Stock Units (“RSUs”)
The following table summarizes incentive plan activity for the six months ended June 30, 2019 2020
(unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
| Weighted Average |
|
|
| |
|
| Shares |
| Stock |
|
|
| Average |
| Remaining |
| Aggregate | ||
|
| Available |
| Options |
| RSUs |
| Stock Option |
| Contractual Life |
| Intrinsic | ||
|
| for Grant |
| Outstanding |
| Outstanding |
| Exercise Price |
| (Years) |
| Value* | ||
Outstanding at December 31, 2018 |
| 2,327 |
| 42,979 |
| 5,613 |
| $ | 406.36 |
| 9.24 |
| $ | — |
Additional shares authorized |
| 7,797 |
| — |
| — |
|
| — |
| — |
|
|
|
Options granted |
| (69) |
| 69 |
| — |
|
| 17.24 |
| — |
|
| — |
Options cancelled |
| 3,567 |
| (3,567) |
| — |
|
| 122.50 |
| — |
|
| — |
Outstanding at June 30, 2019 |
| 13,622 |
| 39,481 |
| 5,613 |
| $ | 431.51 |
| 8.74 |
| $ | — |
Exercisable at June 30, 2019 |
|
|
| 18,073 |
|
|
| $ | 597.95 |
| 8.59 |
| $ | — |
Vested and expected to vest at June 30, 2019 |
|
|
| 38,753 |
|
|
| $ | 431.51 |
| 8.74 |
| $ | — |
| | | | | | | | | | | | | | |
| | | | | | | | Weighted | | Weighted Average | | | | |
| | Shares | | Stock | | | | Average | | Remaining | | Aggregate | ||
| | Available | | Options | | RSUs | | Stock Option | | Contractual Life | | Intrinsic | ||
|
| for Grant |
| Outstanding |
| Outstanding |
| Exercise Price |
| (Years) |
| Value* | ||
Outstanding at December 31, 2019 | | 479,829 | | 3,902,675 | | 5,613 | | $ | 5.20 | | 9.56 | | $ | — |
Additional shares authorized | | 786,229 | | — | | — | | | — | | — | | | — |
Options granted | | (853,318) | | 853,318 | | — | | | 0.45 | | — | | | — |
Options canceled | | 297,559 | | (297,559) | | — | | | 3.75 | | — | | | — |
Options canceled not rolled back into the 2013 Plan | | — | | (15) | | — | | | — | | — | | | — |
Outstanding at June 30, 2020 | | 710,299 | | 4,458,419 | | 5,613 | | $ | 4.39 | | 9.12 | | $ | 31 |
Exercisable at June 30, 2020 | | |
| 1,549,977 | | | | $ | 9.31 |
| 8.85 | | $ | — |
Vested and expected to vest at June 30, 2020 | | |
| 4,030,402 | | | | $ | 4.71 |
| 9.10 | | $ | 28 |
* | Fair market value of JAGX common stock on June 30, 2020 was $0.485 per share. |
The intrinsic value is calculated as the difference between the exercise price of the underlying options and the fair market value of the Company's common stock for options that were in-the-money.
No options were exercised in the six months ended June 30, 2019 and 2018.2020.
The weighted average grant date fair value of stock options granted was $17.05$0.41 and $119.00$17.05 per share during the six months ended June 30, 2020 and 2019, and 2018, respectively.
32
The number of options that vested in the six months ended June 30, 2020 and 2019 was 702,364 and 2018 was 10,598, and 5,648, respectively. The grant date weighted average fair value of options that vested in the six months ended June 30, 2020 and 2019 was $2.21 and 2018 was $2,388,019 and $177,862,$132.26, respectively.
The Company granted 2,993 inducement options in fiscal year 2018 to new employees. The weighted average grant-date fair value41
Stock-Based Compensation
The following table summarizes stock-based compensation expense related to stock options, inducement stock options and RSUs for the three and six months ended June 30, 20192020 and 2018,2019, and are included in the condensed consolidated statements of operations as follows:
| | | | | | | | | | | | | | |||||||||||||
| | Three Months Ended | | Six Months Ended | | |||||||||||||||||||||
| | June 30, | | June 30, | | |||||||||||||||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| Three Months Ended |
| Six Months Ended |
| |||||||||||||||||||||
|
| June 30, |
| June 30, |
| |||||||||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| |||||||||||||||||
|
| (unaudited) |
| (unaudited) |
| |||||||||||||||||||||
(in thousands) | | (unaudited) | | (unaudited) | | |||||||||||||||||||||
Research and development expense |
| $ | 148,844 |
| $ | 145,035 |
| $ | 215,948 |
| $ | 224,749 |
| | $ | 203 | | $ | 149 | | $ | 405 | | $ | 216 | |
Sales and marketing expense |
|
| 12,251 |
|
| 18,167 |
|
| 46,093 |
|
| 20,552 |
| |
| 57 | |
| 12 | |
| 113 | |
| 46 | |
General and administrative expense |
|
| 285,273 |
|
| 301,252 |
|
| 610,835 |
|
| 491,396 |
| |
| 489 | |
| 285 | |
| 991 | |
| 611 | |
Total |
| $ | 446,368 |
| $ | 464,454 |
| $ | 872,876 |
| $ | 736,697 |
| | $ | 749 | | $ | 446 | | $ | 1,509 | | $ | 873 | |
As of June 30, 2019,2020, the Company had $1,817,839$3,693,000 of unrecognized stock-based compensation expense for options, inducement options and restricted stock units outstanding, which is expected to be recognized over a weighted-average period of 1.561.64 years.
The estimated grant-date fair value of stock option grants for the six months ended June 30, 20192020 and 20182019 was calculated using the Black-Scholes - Merton option-pricing model using the following weighted-average assumptions:
| | | | | | |||||
| | Six Months Ended | | |||||||
| | June 30, | | |||||||
|
| 2020 |
| 2019 | | |||||
|
|
|
|
|
| |||||
|
| Six Months Ended |
| |||||||
|
| June 30, |
| |||||||
|
| 2019 |
| 2018 |
| |||||
|
| (unaudited) |
| |||||||
| | (unaudited) | | |||||||
Weighted-average volatility |
| 108.3 - 108.5 | % | 87.4 - 95.3 | % | | 150.1 - 172.4 | % | 108.3 - 108.5 | % |
Weighted-average expected term (years) |
| 5.81 |
| 5.1 - 5.8 |
| | 5.0 |
| 5.8 |
|
Risk-free interest rate |
| 2.5 - 2.6 | % | 2.6 - 2.9 | % | | 0.3 - 0.5 | % | 2.5 - 2.6 | % |
Expected dividend yield |
| — |
| — |
| | — | | — |
|
401(k) Plan
The Company sponsors a 401(k) defined contribution plan covering all employees. There were no employer contributions to the plan from plan inception through June 30, 2019.2020.
33
11.12. Net Loss Per Share Attributable to Common Stockholders
The following table presents the calculation of basic and diluted net income (loss)loss per share of common stock for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
|
| Three Months Ended |
| Six Months Ended |
| ||||||||||||||||||||||||||||||
|
| June 30, |
| June 30, |
| ||||||||||||||||||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||||||||||||||||||||||||
|
| (unaudited) |
|
| (unaudited) |
| |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | ||||||||||||||||||||||
| | Three Months Ended | | Six Months Ended | | ||||||||||||||||||||||||||||||
| | June 30, | | June 30, | | ||||||||||||||||||||||||||||||
(In thousands, except share and per share data) |
| 2020 |
| 2019 |
| 2020 |
| 2019 | | ||||||||||||||||||||||||||
| | (unaudited) | | | (unaudited) | | |||||||||||||||||||||||||||||
Net loss attributable to common shareholders (basic and diluted) |
| $ | (16,721,117) |
| $ | (8,652,183) |
| $ | (25,024,988) |
| $ | (14,348,820) |
| | $ | (10,597) | | $ | (16,721) | | $ | (19,013) | | $ | (25,025) | | |||||||||
Shares used to compute net loss per common share, basic and diluted |
|
| 1,106,374 |
|
| 162,506 |
|
| 801,482 |
|
| 143,012 |
| | | 23,890,931 | | | 1,106,374 | | | 19,516,419 | | | 801,482 | | |||||||||
Net loss per share attributable to common shareholders, basic and diluted |
| $ | (15.11) |
| $ | (53.24) |
| $ | (31.22) |
| $ | (100.33) |
| | $ | (0.44) | | $ | (15.11) | | $ | (0.97) | | $ | (31.22) | |
Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted-average number of common shares and common share equivalents outstanding for the period. Common stock equivalents are
42
only included when their effect is dilutive. The Company's potentially dilutive securities which include stock options, convertible preferred stock and common stock warrants have been excluded from the computation of diluted net loss per share as they would be anti-dilutive. For all periods presented, there is no difference in the number of shares used to compute basic and diluted shares outstanding due to the Company's net loss position.
The following outstanding common stock equivalents have been excluded from diluted net loss per common share for the three and six months ended June 30, 20192020 and 20182019 because their inclusion would be anti-dilutive.
|
|
|
|
|
|
| June 30, |
| June 30, |
|
| 2019 |
| 2018 |
|
| (unaudited) | ||
Options issued and outstanding |
| 39,481 |
| 38,638 |
Inducement options issued and outstanding |
| 906 |
| 2,993 |
Warrants to purchase common stock |
| 1,237,871 |
| 38,582 |
Restricted stock units |
| 5,613 |
| 5,613 |
Convertible preferred stock |
| 473,565 |
| 3,314,956 |
Convertible debt |
| — |
| 11,277 |
Total |
| 1,757,436 |
| 3,412,059 |
| | | | |
| | June 30, | ||
|
| 2020 | | 2019 |
| | (unaudited) | ||
Options issued and outstanding | | 4,455,101 | | 39,481 |
Inducement options issued and outstanding | | 3,392 | | 906 |
Restricted stock units issued and outstanding | | 5,613 | | 5,613 |
Warrants issued and outstanding | | 16,991,395 | | 1,237,871 |
Series A convertible preferred stock | | 473,565 | | 473,565 |
Series B convertible preferred stock | | — | | — |
Series B-2 convertible preferred stock | | 1,431,460 | | — |
Total | | 23,360,526 | | 1,757,436 |
12.
13. Segment Information
Prior to the merger with Napo, the Company managed its operations as a single segment for the purposes of assessing performance and making operating decisions. The Company reorganized its segments to reflect the change in the organizational structure resulting from the merger with Napo. Post-merger, the Company manages its operations throughhas two reportable segments—humansegments-human health and animal health. The human health segment is focused on developing and commercializing human products and the ongoing commercialization of Mytesi™, which is approved by the U.S. FDA for the symptomatic relief of noninfectious diarrhea in adults with HIV/AIDS on antiretroviral therapy. The animal health segment is focused on developing and commercializing prescription and non-prescription products for companion and production animals.
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human products and the ongoing commercialization of Mytesi, which is approved by the U.S. FDA for the symptomatic relief of non-infectious diarrhea in adults with HIV/AIDS on antiretroviral therapy.
The Company's reportable segments net revenues and net loss for the three and six months ended June 30, 20192020 and 20182019 consisted of:
| | | | | | | | | | | | | |||||||||||||
| | Three Months Ended | | Six Months Ended | |||||||||||||||||||||
| | June 30, | | June 30, | |||||||||||||||||||||
(in thousands) |
| 2020 |
| 2019 |
| 2020 |
| 2019 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| Three Months Ended |
| Six Months Ended |
| ||||||||||||||||||||
|
| June 30, |
| June 30, |
| ||||||||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||||||||||||||
|
| (unaudited) |
| (unaudited) |
| ||||||||||||||||||||
| | (unaudited) | | (unaudited) | |||||||||||||||||||||
Revenue from external customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
Human Health |
| $ | 1,684,732 |
| $ | 854,170 |
| $ | 3,227,853 |
| $ | 1,437,439 |
| | $ | 3,153 | | $ | 1,685 | | $ | 3,988 | | $ | 3,228 |
Animal Health |
|
| 20,962 |
|
| 29,676 |
|
| 67,574 |
|
| 250,763 |
| |
| 14 | |
| 21 | |
| 48 | |
| 67 |
Consolidated Totals |
| $ | 1,705,694 |
| $ | 883,846 |
| $ | 3,295,427 |
| $ | 1,688,202 |
| | $ | 3,167 | | $ | 1,706 | | $ | 4,036 | | $ | 3,295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Segment profit (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
| | | | | | | | | | | | | |||||||||||||
Segment net loss | |
|
| |
|
| |
|
| |
|
| |||||||||||||
Human Health |
| $ | (9,838,061) |
| $ | (4,474,324) |
| $ | (12,630,840) |
| $ | (7,373,630) |
| | $ | (1,609) | | $ | (9,838) | | $ | (4,809) | | $ | (12,631) |
Animal Health |
|
| (6,883,056) |
|
| (3,182,859) |
|
| (12,394,148) |
|
| (5,980,190) |
| |
| (7,629) | |
| (6,883) | |
| (12,365) | |
| (12,394) |
Consolidated Totals |
| $ | (16,721,117) |
| $ | (7,657,183) |
| $ | (25,024,988) |
| $ | (13,353,820) |
| | $ | (9,238) | | $ | (16,721) | | $ | (17,174) | | $ | (25,025) |
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The Company's reportable segments assets consisted of the following:
|
|
|
|
|
|
|
|
|
| June 30, |
|
| December 31, |
|
| 2019 |
| 2018 | ||
Segment assets |
|
|
|
|
|
|
Human Health |
| $ | 32,764,376 |
| $ | 37,985,935 |
Animal Health |
|
| 60,015,816 |
|
| 54,893,593 |
Total |
| $ | 92,780,192 |
| $ | 92,879,528 |
|
|
|
|
|
|
|
The reconciliation of segments assets to the consolidated assets is as follows: |
|
|
|
|
|
|
|
|
| June 30, |
|
| December 31, |
|
| 2019 |
| 2018 | ||
Total assets for reportable segments |
|
| 92,780,192 |
|
| 92,879,528 |
Less: Investment in subsidiary |
|
| (29,240,965) |
|
| (29,240,965) |
Less: Intercompany loan |
|
| (27,472,280) |
|
| (22,596,618) |
Consolidated Totals |
| $ | 36,066,947 |
| $ | 41,041,945 |
| | | | | | |
| | June 30, | | December 31, | ||
(in thousands) |
| 2020 |
| 2019 | ||
Segment assets |
| (unaudited) |
| |
| |
Human Health | | $ | 33,973 | | $ | 32,432 |
Animal Health | |
| 71,301 | |
| 68,169 |
Total | | $ | 105,274 | | $ | 100,601 |
The reconciliation of segments assets to the consolidated assets is as follows:
| | | | | | |
| | June 30, | | December 31, | ||
|
| 2020 |
| 2019 | ||
(in thousands) | | (unaudited) | | | | |
Total assets for reportable segments | | $ | 105,274 | | $ | 100,601 |
Less: Investment in subsidiary | |
| (29,241) | |
| (29,241) |
Less: Intercompany loan | |
| (38,453) | |
| (34,950) |
Consolidated Totals | | $ | 37,580 | | $ | 36,410 |
13.14. Subsequent Events
Underwritten Public Offering
On July 19, 2019, the Company announced the pricing of a registered public offering by the Company. On July 23, 2019, we closed an underwritten public offering of units for gross proceeds of $16.56 million, which includes the full exercise of the underwriter's over-allotment option to purchase additional shares and warrants, prior to deducting underwriting discounts and commissions and offering expenses payable by the Company. Proceeds from the offering will be used to fund advancement of the Company’s pipeline and business development activities, repay outstanding debt and for working capital and other general corporate purposes.
The offering was comprised of (1) 2,886,500 Class A Units, priced at a public offering price of $2.00 per unit, with each unit consisting of (i) one share of the Company’s voting common stock (the “Common Stock”), (ii) one Series 1 warrant to purchase one share of Common Stock that expires on the earlier of (a) 5 years from the date of issuance and (b) 30 calendar days following the public announcement of Positive Interim Results (as defined in the Registration Statement) related to the diarrhea results from the HALT-D investigator initiated trial, if and only if certain trading benchmarks are achieved during such 30 calendar day period (the “Series 1 Warrants”), and (iii) one Series 2 warrant to purchase one share of Common Stock that expires on the first date on the earlier of (a) 5 years from the date of issuance
35
and (b) 30 calendar days following the public announcement by the Company that a pivotal phase 3 clinical trial using crofelemer (Mytesi®, or the same or similar product with a different name) for the treatment of cancer therapy-related diarrhea in humans has met its primary endpoint in accordance with the protocol, if and only if certain trading benchmarks are achieved during such 30 calendar day period (the “Series 2 Warrants”), and (2) 10,787 Class B Units, priced at a public offering price of $1,000 per unit, with each unit consisting of (i) one share of Series B convertible preferred stock, convertible into 500 shares of Common Stock (the “Series B preferred stock”), (ii) 500 Series 1 Warrants and (iii) 500 Series 2 Warrants.
The Series 1 Warrants and Series 2 Warrants (together, the “warrants”) have an exercise price of $2.00 and will be exercisable upon issuance for a period of five years unless terminated earlier as provided above. The aggregate number of shares of Common Stock issued pursuant to the Class A Units and issuable upon conversion of all the Series B preferred stock is 8,280,000. The aggregate number of warrants issued in the offering is 16,560,000.
The conversion price of the Series B preferred stock issued in the transaction as well as the exercise price of the warrants are fixed and do not contain any variable pricing features or any price-based anti-dilutive features. The preferred stock issued in the transaction includes a beneficial ownership blocker and has no dividend rights (except to the extent that dividends are also paid on the Common Stock) or liquidation preference, and, subject to limited exceptions, has no voting rights. The securities comprising the units were immediately separable and issued separately.
A total of 2,886,500 shares of common stock, 10,787 shares of Series B convertible preferred stock, Series 1 warrants to purchase up to 8,280,000 shares of common stock and Series 2 warrants to purchase up to 8,280,000 shares of common stock were issued in the offering, including the full exercise of the over-allotment option.
Series B Convertible Preferred StockIliad Royalty Interest Purchase Agreement Amendment
On July 22, 2019,10, 2020, the Company filedentered into an amendment to the Royalty Interest Purchase Agreement with Iliad pursuant to which the Company and Iliad agreed that no royalty payments or other payment will be due prior to December 10, 2020. In consideration for Iliad’s agreement to enter into the amendment, the balance of the Royalty Repayment Amount as of July 10, 2020 was increased by 10%. All other terms of the Royalty Interest Documents remain unchanged.
Series 3 Warrant Holders Issued Cashless Exercise Settlement Method
A Special Meeting of Stockholders was held on July 21, 2020, whereupon a proposal to approve the “Alternate Cashless Exercise” settlement method for the Series 3 warrants was approved. The Series 3 warrants and their underlying common shares were registered per the registration statement on Form S-3 on June 5, 2020.
Amendment to the Company’s Third Amended and Restated Certificate of DesignationIncorporation
A Special Meeting of Preferences, Rights and Limitations of Series B Convertible Preferred Stock (the “Series B Certificate of Designation”) with the Secretary of State of the State of Delaware creating a new series of authorized preferred stock of the Company, par value $0.0001 per share, designated as the “Series B Convertible Preferred Stock” (the “Series B Preferred Stock”). The shares of Series B Preferred Stock rank on par with the shares of the Common Stock, in each case, as to dividend rights and distributions of assets upon liquidation, dissolution or winding up of the Company.
With certain exceptions, as described in the Series B Certificate of Designation, the shares of Series B Preferred Stock have no voting rights. However, as long as any shares of Series B Preferred Stock remain outstanding, the Series B Certificate of Designation provides that the Company shall not, without the affirmative vote of holders of a majority of the then outstanding shares of Series B Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Series B Preferred Stock or alter or amend the Series B Certificate of Designation or (b) enter into any agreement with respect to any of the foregoing.
Each share of Series B Preferred Stock is convertible at any time at the holder’s option into 500 shares of Common Stock, which conversion ratio will be subject to adjustment for stock splits, stock dividends, distributions, subdivisions and combinations and other similar transactions as specified in the Series B Certificate of Designation. Notwithstanding the foregoing, the Series B Certificate of Designation further provides that the Company shall not effect any conversion of the shares of Series B Preferred Stock, with certain exceptions, to the extent that, after giving effect to an attempted conversion, the holder of shares of Series B Preferred Stock (together with such holder’s affiliates and any persons acting as a group together with such holder or any of such holder’s affiliates) would beneficially own a number of shares of Common Stock in excess of 4.99% (or 9.99% at the election of the holder prior to the date of issuance of Series B Preferred Stock) of the shares of Common Stock then outstanding. At the holder’s option, upon notice to the Company, the holder may increase or decrease this beneficial ownership limitation not to exceed 9.99% of the shares of Common Stock then outstanding, with any such increase becoming effective upon 61 days’ prior notice to the Company.
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Amendment of 2014 Stock Incentive Plan
At the Company’s annual meeting of stockholdersStockholders was held on May 24, 2019,July 21, 2020, whereupon the Company’s stockholders approvedproposal to approve an amendment to the Company’s 2014 Stock Incentive PlanThird Amended and Restated Certificate of Incorporation, as amended, to increasedecrease the
number of authorized shares of the Company’s common stock authorized for issuance underto 130,000,000 shares, was approved by the 2014 Plan such that the aggregate authorized but unissued shares available for issuance under the 2014 Plan would be equal to 12.5% of the issued and outstanding shares of Common Stock on a fully diluted basis including for purposes of this calculation as if such shares available under the 2014 Plan were included in the denominator (and assuming conversion or exercise, as applicable, of all outstanding convertible securities, including but not limited to conversion of the Company’s Series A Convertible Participating Preferred Stock and Series B Convertible Preferred Stock into shares of Common Stock, all issued and outstanding warrants, RSUs and stock options (whether issued under or outside the 2014 Plan and the like)), calculated as of the earlier of (i) the day immediately after the consummation of the Company’s next underwritten public equity offering with gross proceeds of $5 million or more or (ii) July 31, 2019 (collectively, the “Calculation Date”). The Calculation Date occurred on July 24, 2019. On the Calculation date, the total number of issued and outstanding shares of Common Stock on a fully diluted basis was 30,404,653 shares. Accordingly, the total number of shares of Common Stock approved for issuance under the 2014 Plan was 4,330,400 shares.stockholders.
Sales force reduction
In August 2019, we had a reduction in force of up to 10 sales representatives, constituting half of the Company’s sales force. It is part of an overall plan to consolidate sales territories and expenses in line with revenues, drive efficiencies, cost savings throughout the Company, and organize the Company’s top priorities. The Company plans to reinvest in research and development activities and foster partnerships to drive growth. The separation agreements include severance payments of approximately $120,000 in aggregate.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of financial condition and results of operations should be read together with the condensed consolidated financial statements and the related notes included in Item 1 of Part I of this Quarterly Report on Form 10‑Q,10-Q, and with our audited consolidated financial statements and the related notes included in our Annual Report on Form 10‑K10-K for the year ended December 31, 2018.2019.
The discussion and analysis below includes certain forward-looking statements related to our research and development and commercialization of our products in the U.S., our future financial condition and results of operations and potential for profitability, the sufficiency of our cash resources, our ability to obtain additional equity or debt financing or other means of accelerating the payment of accounts receivable, if needed, possible partnering or other
44
strategic opportunities for the development of our products, as well as other statements related to the progress and timing of product development, present or future licensing, collaborative or financing arrangements or that otherwise relate to future periods, which are all forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These statements represent, among other things, the expectations, beliefs, plans and objectives of management and/or assumptions underlying orour judgments concerning the future financial performance and other matters discussed in this document. The words “may,” “will,” “should,” “plan,” “believe,” “estimate,” “intend,” “anticipate,” “project,” and “expect”���expect” and similar expressions are intended to connote forward-looking statements. All forward-looking statements involve certain risks, uncertainties and other factors described in our Annual Report on Form 10‑K,10-K, that could cause our actual commercialization efforts, financial condition and results of operations, and business prospects and opportunities to differ materially from these expressed in, or implied by, those forward-looking statements. We caution investors not to place significant reliance on the forward-looking statements contained in this report. These statements, like all statements in this report, speak only as of the date of this report (unless another date is indicated), and we undertake no obligation to update or revise forward-looking statements.
Overview
We are a commercial stage pharmaceuticals company focused on developing novel, sustainably derived gastrointestinal products on a global basis. Our wholly-owned subsidiary, Napo Pharmaceuticals, Inc. (“Napo”), focuses on developing and commercializing proprietary human gastrointestinal pharmaceuticals for the global marketplace from plants used traditionally in rainforest areas. Our Mytesi (crofelemer)(“Crofelemer”) product is approved by the U.S. Food and Drug Administration (“FDA”) for the symptomatic relief of noninfectious diarrhea in adults with HIV/AIDS on antiretroviral therapy. In the field of animal health, we are focused on developing and commercializing first-in-class gastrointestinal products for companion and production animals, foals, and high value horses.
Jaguar was founded in San Francisco, California as a Delaware corporation on June 6, 2013. Napo formed Jaguar to develop and commercialize animal health products. Effective as of December 31, 2013, Jaguar was a wholly-owned subsidiary of Napo, and Jaguar was a majority-owned subsidiary of Napo until the close of the Company's initial public offering on May 18, 2015. On July 31, 2017, the merger of Jaguar Animal Health, Inc. and Napo became effective, at which point Jaguar Animal Health's name changed to Jaguar Health, Inc. and Napo began operating as a wholly-owned subsidiary of Jaguar focused on human health and the ongoing commercialization of, and development of follow-on indications for, Mytesi. Most of the activities of the Company are now focused on the commercialization of Mytesi and development of follow-on indications for crofelemer and a second-generation anti-secretory product, lechlemer. In the field of animal health, we have limited activities which are focused on developing and commercializing first-in-class gastrointestinal products for dogs, dairy calves, foals, and high value horses.
We believe Jaguar is poised to realize a number of synergistic, value adding benefits—and an expanded pipeline of potential blockbuster human follow-on indications, a second-generation anti-secretory agent, as well as a pipeline of important animal indications for crofelemer upon—upon which to build global partnerships. As previously announced, Jaguar, through Napo, now controls commercialholds extensive global rights for Mytesi, for all indications, territories and patient populations globally, and crofelemer manufacturing is being conducted at a multimillion-dollar commercial manufacturing facility that has been FDA-inspected and approved. Additionally, several of the drug product candidates in Jaguar's Mytesi pipeline are backed by what we believe are strong Phase 2 and proof of concept evidence from completed Phase 2human clinical trials.
Mytesi is a novel, first-in-class anti-secretory agent which has a basic normalizing effect locally on the gut, and this mechanism of action has the potential to benefit multiple disorders. Mytesi is in development for multiple possible
38
follow-on indications, including cancer therapy-related diarrhea; orphan-drug indications for infants and children with congenital diarrheal disorders and short bowel syndrome (SBS); supportive care for inflammatory bowel disease (IBD); irritable bowel syndrome (IBS); and asfor idiopathic/functional diarrhea. In addition, a second-generation anti-secretory agent, lechlemer, is in development for use in cholera patients.cholera. Mytesi haspreviously received orphan-drug designation for SBS.
Financial Operations Overview
On a consolidated basis, we have not yet generated enough revenue to date to achieve break even or positive cash flow, and we expect to continue to incur significant research and development and other expenses. Our net loss was $16.7$17.2 million and $7.7 million for the three months ended June 30, 2019 and 2018, respectively. The increase of $9.0 million in net loss was largely due to the increased interest expense of $2.9 million related to the debt with Oasis, Kingdon, CVP, and the Bridge Notes, $2.7 million loss on extinguishment of debt with Kingdon, the $4.0 million recorded on the impairment of our indefinite-lived intangible assets, and increased revenue of $0.8 million. Our net loss was $25.0 million and $13.4 million for the six months ended June 30,31, 2020 and 2019, and 2018, respectively. The increased loss of $11.6 million was largely from the increased interest expense of $2.9 million, $4.6 million loss on extinguishment of debt, the $4.0 million recorded on the impairment of our indefinite-lived intangible assets, and increased revenue of $1.6 million. As of June 30, 2019,2020, we had a total stockholders' deficitequity of $1.6$1.5 million, an accumulated deficit of $119.6$150.3 million, and cash of $1.6$3.0 million. We
45
expect to continue to incur losses and experience increased expenditures for the foreseeable future as we expand our product development activities, seek necessary approvals for our product candidates, conduct species-specific formulation studies for our non-prescription products, establish API manufacturing capabilities and begin additional commercialization activities.
Refer to Note 1 Organization and Business discussing the various notes held by us with Oasis, Kingdon, CVP, the bridge investors, and various equity transactions that occurred in the three and six months ended June 30, 2019.
On July 19, 2019, the Company announced the pricing of a registered public offering by the Company. On July 23, 2019, we closed an underwritten public offering of units for gross proceeds of $16.6 million, which includes the full exercise of the underwriter's over-allotment option to purchase additional shares and warrants, prior to deducting underwriting discounts and commissions and offering expenses payable by the Company. Proceeds from the offering will be used to fund advancement of the Company’s pipeline and business development activities, repay outstanding debt and for working capital and other general corporate purposes. Refer to Note 13 Subsequent Events for detailed discussions about the public offering.
Revenues
Our product and collaboration revenue consist of the following:
| Revenues from the sale of our human drug Mytesi, which is sold through distributors and wholesalers. |
| Revenues from the sale of our animal products branded as Neonorm Calf and Neonorm Foal. Our Neonorm and |
|
|
See “Results of Operations” below for more detailed discussion on revenues
Cost of Revenue
Cost of revenue consists of direct drug substance and drug product materials expense, direct labor, distribution fees, royalties and other related expenses associated with the sale of our products.
39
Research and Development Expense
Research and development expenses consist primarily of clinical and contract manufacturing expense, personnel and related benefit expense, stock-based compensation expense, employee travel expense, and reforestation expenses. Clinical and contract manufacturing expense consists primarily of costs to conduct stability, safety and efficacy studies, and manufacturing startup at an outsourced API provider in Italy. It also includes expenses with a third-party provider for the transfer of the Mytesi manufacturing process, and the related feasibility and validation activities.
We typically use our employee and infrastructure resources across multiple development programs. We track outsourced development costs by prescription drug product candidate and non-prescription product and we track personnel or other internal costs related to development to specific programs or development compounds.
The timing and amount of our research and development expenses will depend largely upon the outcomes of current and future trials for our prescription drug product candidates as well as the related regulatory requirements, the outcomes of current and future species-specific formulation studies for our non-prescription products, manufacturing costs and any costs associated with the advancement of our line extension programs. We cannot determine with certainty the duration and completion costs of the current or future development activities.
The duration, costs and timing of trials, formulation studies and development of our prescription drug and non-prescription products will depend on a variety of factors, including:
| the scope, rate of progress, and expense of our ongoing, as well as any additional clinical trials, formulation studies and other research and development activities; |
| future clinical trial and formulation study results; |
| potential changes in government regulations; and |
| the timing and receipt of any regulatory approvals. |
46
A change in the outcome of any of these variables with respect to the development of a prescription drug product candidate or non-prescription product could mean a significant change in the costs and timing associated with our development activities.
We expect research and development expense to increase significantly asdue to the start-up costs associated with our clinical trials for other indications and when we add personnel, commence additional clinical studies and other activities to develop our prescription drug product candidates and non-prescription products.start the Phase 2 study under the Patent Rights agreement.
Sales and Marketing Expense
Sales and marketing expenses consist of personnel and related benefit expense, stock-based compensation expense, direct sales and marketing expense, employee travel expense, and management consulting expense. We currently incur sales and marketing expenses to promote Mytesi. We do not currently have any marketing or promotional expenses related to Neonorm Calf or Neonorm Foal in the three and six months ended June 30, 2019.2020.
We expect sales and marketing expense to decreaseincrease going forward as we consolidate Mytesi sales territories for HIV promotion, focus on expanding our market access activities and commercial partnerships for the development of follow-on indications of Mytesi and Crofelemer.
40
General and Administrative Expense
General and administrative expenses consist of personnel and related benefit expense, stock-based compensation expense, employee travel expense, legal and accounting fees, rent and facilities expense, and management consulting expense.
In the near term, we expect general and administrative expense to remain the samedecrease as we consolidate sales territories and simultaneously focus on our pipeline development.development and market access expansion. This will include growingefforts to grow the business without adding headcount or increasing facilities.
Interest Expense
Interest expense consists primarily of non-cash and cash interest costs related to our borrowings.
Critical Accounting Policies and Significant Judgments and Estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles, or U.S. GAAP, requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures in the consolidated financial statements. Critical accounting policies are those accounting policies that may be material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and that have a material impact on financial condition or operating performance. While we base our estimates and judgments on our experience and on various other factors that we believe to be reasonable under the circumstances, actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies used in the preparation of our consolidated financial statements require significant judgments and estimates. For additional information relating to these and other accounting policies, see Note 2 to our audited consolidated financial statements and the related notes included in our Annual Report on Form 10‑K10-K for the year ended December 31, 2018.2019.
Revenue Recognition
The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), which was adopted on January 1, 2018, using the modified retrospective method, which was elected to apply to all active contracts as of the adoption date. Application of the modified retrospective method did not impact amounts previously reported by the Company, nor did it require a cumulative effect adjustment upon adoption, as the Company's method of recognizing revenue under ASC 606 yielded similar results to the method utilized immediately prior to adoption. Accordingly, there was no effect to each financial statement line item as a result of applying the new revenue standard.
47
Practical Expedients, Elections, and Exemptions
We recognize revenue in accordance with the core principle of ASC 606 or when there is a transfer of control of promised goods or services to customers in an amount that reflects the consideration that we expect to be entitled to in exchange for those goods or services.
We used a practical expedient available under ASC 606‑10‑65‑1(f)606-10-65-1(f)4 that permits us to consider the aggregate effect of all contract modifications that occurred before the beginning of the earliest period presented when identifying satisfied and unsatisfied performance obligations, transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations.
We also used a practical expedient available under ASC 606‑10‑32‑18606-10-32-18 that permits us not to adjust the amount of consideration for the effects of a significant financing component if, at contract inception, the expected period between the transfer of promised goods or services and customer payment is one year or less.
We have elected to treat shipping and handling activities as fulfillment costs.
41
Additionally, we have elected to record revenue net of sales and other similar taxes.
Contracts - Cardinal Health
Effective January 16, 2019, Napo Pharmaceuticals, Inc. engaged Cardinal Health as its exclusive third party logistics distribution agent for commercial sales for the Company’s Mytesi product and to perform certain other services which include, without limitation, storage, distribution, returns, customer support, financial support, EDIElectronic Data Interchange (“EDI”) and system access support (Exclusive(the “Exclusive Distribution Agreement)Agreement”) .
In addition to the terms and conditions of the Exclusive Distribution Agreement, Cardinal Health’s purchase of products, and assumption of title therein, is set forth in the Title Model Addendum. The Title Model Addendum states that upon receipt of product at the 3PL Facility (Cardinal Health in La Vergne, Tennessee) from the Company, title and risk of loss for the Mytesi product purchased by Cardinal Health (excluding consigned inventory) shall pass to Cardinal Health, and title and risk of loss for consigned inventory shall remain with Clientthe Company until purchased by Cardinal Health in accordance with thisthe Title Model Addendum. Napo Pharmaceuticals, Inc. considers Cardinal Health the Company’s exclusive customer for Mytesi products per the Cardinal Health Exclusive Distribution agreement. Agreement.
OurJaguar's Neonorm and Botanicalbotanical extract products are primarily sold to distributors, who then sell the products to the end customers. Since 2014, wethe Company has entered into several distribution agreements with established distributors such as Animart, Vedco, VPI, RJ Matthews, Henry Schein, and Stockmen Supply to distribute the Company's products in the United States, Japan, and China. The distribution agreements and the related purchase order together meet the contract existence criteria under ASC 606‑10‑25‑1.606-10-25-1. Jaguar sells directly to its customers without the use of an agent.
Performance obligations
For theanimal products sold by each of Napo and Jaguar Health, the single performance obligation identified above is ourthe Company’s promise to transfer our Mytesi productthe Company’s animal products to Distributorsdistributors based on specified payment and shipping terms in the arrangement. Product warranties are assurance type warranties that doesdo not represent a performance obligation. For the Company’s human product, Mytesi, which is sold by Napo, the single performance obligation identified above is the Company’s promise to transfer Mytesi to Cardinal Health, the Company’s exclusive distributor for the product, based on specified payment and shipping terms as outlined in the Exclusive Distribution Agreement.
Transaction price
For contracts with Cardinal Health, for both Jaguar and our Napo, subsidiary, the transaction price is the amount of consideration to which we expectthe Company expects to collect in exchange for transferring the promised goods or services to a
48
customer. The transaction price of Mytesi and Neonorm is the Wholesaler Acquisition Cost (“WAC”), net of discounts, returns, and price adjustments.
Allocate transaction price
For contracts with Cardinal Health, for both JaguarNapo and our Napo subsidiary,Jaguar, the entire transaction price is allocated to the single performance obligation contained in each contract.
Point in timeRevenue recognition
For contracts with Cardinal Health, for both JaguarNapo and our Napo subsidiary,Jaguar, a single performance obligation is satisfied at a point in time, upon the FOBfree on board (“FOB”) terms of each contract when control, including title and all risks, has transferred to the customer.
Disaggregation of Product Revenue
Human
Sales of Mytesi are recognized as revenue when the products are delivered to the wholesaler. RevenuesNet revenues from the sale of Mytesi were $1,684,732$3.2 million and $854,170$1.7 million for the three months ended June 30, 20192020 and 2018,2019, respectively. Revenues from the sale of Mytesi were $3,227,853$4.0 million and $1,437,439$3.2 million for the six months ended June 30, 2020 and 2019, and 2018, respectively. The increase in sales of Mytesi is due to the more streamlined distribution and increased sales presence. Deductions from revenue are derived from reserves for estimated product returns based on historical returns experience.
42
If actual returns differed from our historical experience, changes to the reserved could be required in future periods. Additional deductions are wholesaler fees which are based on our agreement with Cardinal Health, sales discounts, and Medicare rebates which are derived from data collected by Cardinal Health through various sources.
Animal
The Company recognized Neonorm revenues of $20,962$14,000 and $29,676$21,000 for the three months ended June 30, 20192020 and 2018,2019, respectively. Revenues from the sale of Neonorm were $67,574$48,000 and $73,374$67,000 for the six months ended June 30, 20192020 and 2018,2019, respectively. Revenues are recognized upon shipment which is when title and control is transferred to the buyer. Sales of Neonorm Calf and Foal to distributors are made under agreements that may provide distributor price adjustments and rights of return under certain circumstances.
GoodwillContracts - Atlas Sciences
Effective April 15, 2020 (the “Effective Date”), the Company entered into a patent purchase agreement with Atlas Sciences, LLC (“Atlas”), pursuant to which Atlas agreed to purchase certain patents and patent applications relating to the Napo’s NP-500 drug product candidate (the “Patent Rights”) for an upfront cash payment of $1,500,000.
Concurrent with the Patent Rights sale, the Company entered into a license agreement with Atlas (the “License Agreement”), pursuant to which Atlas granted the Company an exclusive 10-year license to use the Patent Rights and improvements thereon to develop and commercialize NP-500 in all territories worldwide except Greater China (i.e., China, Hong Kong, Taiwan and Macau), inclusive of the right to sublicense NP-500 development and commercialization rights (“the License”). Except for the License retained by the Company, Atlas retains all rights, title and interest in and to the Patent Rights, including all improvements and enhancements to the Patent Rights made or created by the Company under the License Agreement or made or created by or on behalf of Atlas during the term of the License Agreement.
As consideration for the License, the Company is obligated to initiate a proof of concept Phase 2 study of NP-500 under an investigational new drug (“IND”) application with the U.S. Food and Drug Administration or an IND-equivalent dossier under appropriate regulatory authorities (the “Phase 2 study”) within nine months of April 15, 2020. If the Company fails to initiate the Phase 2 study by this date, for any reason, including the timely receipt of adequate funding to initiate the Phase 2 study, the Company will incur a trial delay fee equal to $2,515,000 (the “Trial Delay Fee”), which amount is payable beginning on the nine-month anniversary of the Effective Date and continuing until the payment in full of the Trial Delay Fee, in an amount equal to: (a) from the nine- month anniversary of the Effective Date
49
until the fifteenth-month anniversary of the Effective Date, Two Hundred Thousand Dollars ($200,000); and (b) from the fifteenth -month anniversary of the Effective Date until payment in full of the Trial Delay Fee, Three Hundred Fifty Thousand Dollars ($350,000). Atlas has the right to terminate the License in the event that the Company (i) fails to complete the Phase 2 study within five years of April 15, 2020 or (ii) has not timely initiated the Phase 2 study and thereafter fails to make three or more consecutive Trial Delay Payments.
Performance obligations
The Patent Rights sale to Atlas and the Phase 2 study to be performed by the Company, identified above, represent a single transaction with two separate performance obligations; with the sale of the Patent Rights, the Company transferred control of the internally generated Patent Rights to Atlas at the date of sale; and with the Phase 2 study, the services will be transferred to Atlas over an estimated 13.2 months.
Transaction price
For the contract with Atlas, the upfront payment of $1,500,000 from Atlas as consideration for the Patent Rights sale and the Phase 2 study, is variable consideration that is fully constrained due to the potential incurrence of a Trial Delay Fee of $2,515,000 if the Phase 2 study had not been initiated by January 15, 2021. In addition, due to the estimated 13.2-month term over which the Company will perform the Phase 2 study, the upfront payment resulted in a significant financing component of $279,000. Accordingly, at inception, the total transaction price of $1,779,000 is deferred and the transaction price is zero.
Allocate transaction price
For the contract with Atlas, the transaction price of $1,779,000 is allocated as follows: (i) $1,196,000 was allocated to the Phase 2 study using the cost-plus margin approach, and (ii) $583,000 was allocated to the Patent sale using the Residual method.
Revenue recognition
For the contract with Atlas, control of the Patent Rights transferred to Atlas on the date of sale (at a point-in-time); and with the Phase 2 study, the services will be transferred to Atlas over the estimated 13.2 months of the study, which is set to run between October 2020 and November 2021. However, due to the full constraint on the $1,500,000 variable consideration, all revenue was deferred at inception of the transaction and as of June 30, 2020. So long as the Company initiates the Phase 2 study on or before January 15, 2021, the upfront payment of $1,500,000 will no longer be variable, nor constrained, and at which point the Company can immediately recognize the $583,000 allocated to the Patent Rights and in turn can start to recognize revenue from the Phase 2 services.
Disaggregation of Patent Sales and Clinical Trial Services
Patent Rights Sale
Patent Rights sales are recognized when control of the Patent Rights are transferred to the purchaser (at a point-in-time). Due to the full constraint on the variable consideration of $1,500,000, there was no revenue recognized from the sale of Patent Rights to Atlas or the three and six months ended June 30, 2020 and 2019, respectively.
Clinical Trials
Revenue from clinical trials are recognized over time as the services are performed. The Phase 2 study to be performed under the Atlas License is expected to begin in October 2020 and run through November 2021. The expected first patient dose in the study is expected to occur in December 2020, at which point revenue from the Phase 2 study can begin to be recognized. Due to the Phase 2 study having not begun and the full constraint on the variable consideration of $1,500,000, for the three and six months ended June 30, 2020 and 2019, there was no revenue recognized from the Phase 2 services.
50
Indefinite-lived Intangible Assets
Goodwill
Goodwill is tested for impairment on an annual basis and in-between annual tests if events or circumstances indicate that an impairment loss may have occurred. The test is based on a comparison of the reporting unit's book value to its estimated fair market value. We perform the annual impairment test during the fourth quarter of each fiscal year using the opening condensed consolidated balance sheet as of the first day of the fourth quarter, with any resulting impairment recorded in the fourth quarter of the fiscal year.If the carrying value of a reporting unit's net assets exceeds its fair value, the goodwill would be considered impaired and would be reduced to its fair value.
Indefinite-lived Intangible Assets
Acquired in-process research and development (IPR&D) are intangible assets initially recognized at fair value and classified as indefinite-lived assets until the successful completion or abandonment of the associated research and development efforts. During the development period, these assets will not be amortized as charges to earnings; instead these assets will be tested for impairment on an annual basis or more frequently if impairment indicators are identified. In connection with each annual impairment assessment and any interim impairment assessment in which indicators of impairment have been identified, we compare the fair value of the asset as of the date of the assessment with the carrying value of the asset on the unaudited condensed consolidated balance sheet.sheets. If impairment is indicated by this test, the intangible asset is written down by the amount by which the discounted cash flows expected from the intangible asset exceeds its carrying value. Fair value determinations require considerable judgement and are sensitive to changes in underlying assumptions, estimates regarding our future plans, as well as industry and economic conditions. These assumptions and estimates include projected revenues and income growth rates, terminal growth rates, competitive and consumer trends, market-based discount rates, and other factors. If current expectations of growth rates are not met or market factors outside of our control, such as discount rates, change significantly, this may lead to a further impairment in the future. Acquired in-process research and development (“IPR&D”) are intangible assets initially recognized at fair value and classified as indefinite-lived assets until the successful completion or abandonment of the associated research and development efforts. During the development period, these assets will not be amortized as charges to earnings; instead these assets will be tested for impairment on an annual basis or more frequently if impairment indicators are identified. We recorded anno impairment of $4,000,000 in the three and six months ended June 30, 2019. There were no impairment charges recorded in the three2020 and six months ended June 30, 2018.2019. The impairment loss is measured based on the excess of the carrying amount over the asset’s fair value. Definite-lived intangible assets are amortized on a straight-line basis over the estimated periods benefited and are reviewed when appropriate for possible impairment.
Accrued Research and Development Expenses
As part of the process of preparing our unaudited condensed consolidated financial statements, we are required to estimate accrued research and development expenses. Estimated accrued expenses include fees paid to vendors and clinical sites in connection with our clinical trials and studies. Clinical and contract manufacturing expense consists primarily of costs to conduct stability, safety and efficacy studies, and manufacturing startup at an outsourced API provider in Italy. It also
43
includes expenses with a third-party provider for the transfer of the Mytesi manufacturing process, and the related feasibility and validation activities.
We review new and open contracts and communicate with applicable internal and vendor personnel to identify services that have been performed on our behalf and estimate the level of service performed and the associated costs incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost for accrued expenses. The majority of our service providers invoice us monthly in arrears for services performed or as milestones are achieved in relation to our contract manufacturers. We make estimates of our accrued expenses as of each reporting date.
We base our accrued expenses related to clinical trials and studies on our estimates of the services received and efforts expended pursuant to contracts with vendors, our internal resources, and payments to clinical sites based on enrollment projections. The financial terms of the vendor agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of animals and the completion of development milestones. We estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the related expense accrual accordingly on a prospective basis. If we do not identify costs that have been incurred or if we underestimate or overestimate the level of services performed or the costs of these services, our actual expenses could differ from our estimates. To date, we have not made any material adjustments to our estimates of accrued research and development expenses or the level of services performed in any reporting period presented.
The Company expenses the total cost of a certain long-term manufacturing development contract ratably over the estimated life of the contract, or the total amount paid if greater.
4451
Results of Operations
Comparison of the Six Months endedEnded June 30, 20192020 and 2018
Comparison of the six months ended June 30, 2019 and 2018
The following table summarizes the Company’s results of operations with respect to the items set forth in such table for the six months ended June 30, 20192020 and 20182019 together with the change in such items in dollars and as a percentage.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended |
|
|
|
|
|
|
| ||||
|
| June 30, |
|
|
|
|
|
|
| ||||
|
| 2019 |
| 2018 |
| Variance |
| Variance % |
|
| |||
Product revenue, net |
| $ | 3,295,427 |
| $ | 1,510,813 |
| $ | 1,784,614 |
| 118.1 | % |
|
Collaboration revenue |
|
| — |
|
| 177,389 |
|
| (177,389) |
| (100.0) | % |
|
Total revenue |
|
| 3,295,427 |
|
| 1,688,202 |
|
| 1,607,225 |
| 95.2 | % |
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue |
|
| 2,125,305 |
|
| 1,072,185 |
|
| 1,053,120 |
| 98.2 | % |
|
Research and development expense |
|
| 3,119,013 |
|
| 2,362,752 |
|
| 756,261 |
| 32.0 | % |
|
Sales and marketing expense |
|
| 3,738,195 |
|
| 4,402,452 |
|
| (664,257) |
| (15.1) | % |
|
General and administrative expense |
|
| 6,710,275 |
|
| 6,058,148 |
|
| 652,127 |
| 10.8 | % |
|
Impairment of long-lived intangible assets |
|
| 4,000,000 |
|
| — |
|
| 4,000,000 |
| 100 | % |
|
Total operating expenses |
|
| 19,692,788 |
|
| 13,895,537 |
|
| 5,797,251 |
| 41.7 | % |
|
Loss from operations |
|
| (16,397,361) |
|
| (12,207,335) |
|
| (4,190,026) |
| 34.3 | % |
|
Interest expense |
|
| (4,204,108) |
|
| (1,313,824) |
|
| (2,890,284) |
| 220.0 | % |
|
Other income, net |
|
| 20,608 |
|
| 312,704 |
|
| (292,096) |
| (93.4) | % |
|
Change in fair value of warrant, derivative liability and conversion option liability |
|
| 161,031 |
|
| (145,365) |
|
| 306,396 |
| (210.8) | % |
|
Loss on extinguishment of debt |
|
| (4,605,158) |
|
| — |
|
| (4,605,158) |
| (100.0) | % |
|
Net loss |
|
| (25,024,988) |
|
| (13,353,820) |
|
| (11,671,168) |
| 87.4 | % |
|
Deemed dividend attributable to preferred stockholders |
|
| — |
|
| (995,000) |
|
| 995,000 |
| 100 | % |
|
Net loss attributable to common stockholders |
| $ | (25,024,988) |
| $ | (14,348,820) |
| $ | (10,676,168) |
| 74.4 | % |
|
| | | | | | | | | | | | | |
| | Six Months Ended | | | | | |
| | ||||
| | June 30, | | | | | | | | ||||
(in thousands) |
| 2020 |
| 2019 |
| Variance |
| Variance % | |
| |||
Product revenue | | $ | 4,036 | | $ | 3,295 | | $ | 741 |
| 22.5 | % | |
Total revenue | |
| 4,036 | |
| 3,295 | |
| 741 |
| 22.5 | % | |
Operating Expenses | |
|
| |
|
| |
| |
|
| | |
Cost of product revenue | |
| 1,707 | |
| 2,125 | |
| (418) |
| (19.7) | % | |
Research and development | |
| 2,987 | |
| 3,119 | |
| (132) |
| (4.2) | % | |
Sales and marketing | |
| 3,199 | |
| 3,738 | |
| (539) |
| (14.4) | % | |
General and administrative | |
| 6,905 | |
| 6,711 | |
| 194 |
| 2.9 | % | |
Impairment of indefinite-lived intangible assets | | | — | | | 4,000 | | | (4,000) | | (100.0) | % | |
Series B convertible preferred stock inducement expense | |
| 1,647 | |
| — | |
| 1,647 |
| 100.0 | % | |
Series 3 warrants inducement expense | | | 3,696 | | | — | | | 3,696 | | 100.0 | % | |
Total operating expenses | |
| 20,141 | |
| 19,693 | |
| 448 |
| 2.3 | % | |
Loss from operations | |
| (16,105) | |
| (16,398) | |
| 293 |
| (1.8) | % | |
Interest expense | |
| (678) | |
| (4,204) | |
| 3,526 |
| (83.9) | % | |
Other income (expense) | |
| (4) | |
| 21 | |
| (25) |
| (119.0) | % | |
Change in fair value of financial instruments | |
| (387) | |
| 161 | |
| (548) |
| (340.4) | % | |
Loss on extinguishment of debt | |
| — | |
| (4,605) | |
| 4,605 |
| (100.0) | % | |
Net loss | |
| (17,174) | |
| (25,025) | |
| 7,851 |
| (31.4) | % | |
Deemed dividend attributable to accretion of Series A convertible preferred stock | | | (983) | | | — | | | (983) | | 100 | % | |
Deemed dividend attributable to Series 1, Series 2 and Bridge warrant holders | | | (856) | | | — | | | (856) | | 100 | % | |
Net loss attributable to common shareholders | | $ | (19,013) | | $ | (25,025) | | $ | 6,012 | | (24.0) | % | |
4552
Revenue
Sales and allowancesAllowances
Due to the Company’s arrangements, including elements of variable consideration, gross product sales are reduced in order to reflect the expected consideration to arrive at net product sales. Deductions to reduce gross product sales to net product sales in the six months ended June 30, 20192020 and 20182019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| Six Months Ended |
|
| ||||||||||||||||||||
|
| June 30, |
|
| ||||||||||||||||||||
|
| 2019 |
| 2018 |
| Variance |
| Variance % |
| |||||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | Six Months Ended | | | ||||||||||||||||||||
| | June 30, | | | ||||||||||||||||||||
(in thousands) |
| 2020 |
| 2019 |
| Variance |
| Variance % | | |||||||||||||||
Gross product sales |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | |
|
Mytesi |
| $ | 4,493,570 |
| $ | 1,958,927 |
| $ | 2,534,643 |
| 129.4 | % | | $ | 7,592 | | $ | 4,494 | | $ | 3,098 |
| 68.9 | % |
Neonorm |
|
| 67,574 |
|
| 73,374 |
|
| (5,800) |
| (7.9) | % | | | 48 | | | 67 | |
| (19) |
| (28.4) | % |
Total gross product sales |
|
| 4,561,144 |
|
| 2,032,301 |
|
| 2,528,843 |
| 124.4 | % | | | 7,640 | | | 4,561 | |
| 3,079 |
| 67.5 | % |
Medicare rebates |
|
| (269,127) |
|
| (146,297) |
|
| (122,830) |
| 84.0 | % | | | (660) | | | (269) | |
| (391) |
| 145.4 | % |
Sales discounts - Mytesi |
|
| (736,850) |
|
| (172,793) |
|
| (564,057) |
| 326.4 | % | ||||||||||||
Sales returns - Mytesi |
|
| (57,935) |
|
| (45,649) |
|
| (12,286) |
| 26.9 | % | ||||||||||||
Wholesaler fee - Mytesi |
|
| (201,805) |
|
| (156,749) |
|
| (45,056) |
| 28.7 | % | ||||||||||||
Sales discounts | | | (2,089) | | | (737) | | | (1,352) | | 183.4 | % | ||||||||||||
Sales returns | | | (96) | | | (58) | | | (38) | | 65.5 | % | ||||||||||||
Wholesaler fee | | | (759) | | | (202) | | | (557) | | 275.7 | % | ||||||||||||
Net product sales |
| $ | 3,295,427 |
| $ | 1,510,813 |
| $ | 1,784,614 |
| 118.1 | % | | $ | 4,036 | | $ | 3,295 | | $ | 741 |
| 22.5 | % |
Product revenueRevenue
Our gross product revenues were $4,561,144$7.6 million and $2,032,301$4.6 million for the six months ended June 30, 20192020 and 2018,2019, respectively. These periods reflect revenue from the sale of our human drug Mytesi and our animal products branded as Neonorm Calf and Neonorm Foal.
Human
Sales of Mytesi are recognized as revenue when the products are delivered to the wholesalers. Our gross revenues from the sale of Mytesi were $4,493,570$7,592,000 and $1,958,927$4,494,000 in the six months ended June 30, 2020 and 2019, and 2018, respectively. The increase in sales of Mytesi is due to an increase in the more streamlined distribution and increased sales presence.wholesaler demand, mostly due to the list price adjustment of Mytesi that occurred in April 2020.
Sales discounts were $736,850$2,089,000 and $172,793$737,000 for the six months ended June 30, 20192020 and 2018,2019, respectively, an increase of $564,057.$1,352,000. Sales discounts include discounts for prompt payments from customers and an estimated allowance for chargebacks on sales. Of the total sales discounts, allowances for chargebacks were $1,923,000 and $679,000 for the six months ended June 30, 2020 and 2019, respectively. These allowances for chargebacks were approximately 25% and 15% on Mytesi gross product sales for the six months ended June 30, 2020 and 2019, respectively. The increase in allowance is mostly due to the transitionincrease in distributors during 2019. Sales discountslist price of $736,850Mystesi.
Animal
Our Neonorm product revenues were $48,000 and $67,000 for the six months ended June 30, 2019 consists of chargebacks of approximately 13% on Mytesi gross product sales.
Animal
Our Neonorm product revenues were $67,5742020 and $73,374 for the six months ended June 30, 2019, and 2018, respectively. Focus on sales and marketing for Neonorm products had decreased during 2019.2020.
53
Cost of Product Revenue
| | | | | | | | | | | | |
| | Six Months Ended | | | | | |
| ||||
| | June 30, | | | | | |
| ||||
(in thousands) |
| 2020 |
| 2019 |
| Variance |
| Variance % |
| |||
Cost of Product Revenue | | | | | | | | | | | |
|
Material cost |
| $ | 1,010 |
| $ | 1,049 |
| $ | (39) |
| (3.7) | % |
Direct labor | |
| 347 | |
| 296 | |
| 51 |
| 17.2 | % |
Distribution fees | |
| 138 | |
| 155 | |
| (17) |
| (11.0) | % |
Royalties | |
| 27 | |
| 104 | |
| (77) |
| (74.0) | % |
Other | |
| 185 | |
| 521 | |
| (336) |
| (64.5) | % |
Total |
| $ | 1,707 |
| $ | 2,125 |
| $ | (418) |
| (19.7) | % |
Collaboration Revenue
CollaborationCost of product revenue was deriveddecreased $418,000 from our January 2017 licensing, development, co-promotion and commercialization agreement with Elanco US Inc. to license, develop and commercialize Canalevia. Elanco terminated the arrangement$2,125,000 in January 2018 and all remaining deferred revenue was recognized at that time. We recognized collaboration revenues of $0 and $177,389 for the six months ended June 30, 2019 and 2018, respectively.
46
Cost of Product Revenue
Comparison of to $1,707,000 for the Six Months ended June 30, 2019 and 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended |
|
|
|
|
|
| ||||
|
| June 30, |
|
|
|
|
|
| ||||
|
| 2019 |
| 2018 |
| Variance |
| Variance % |
| |||
Cost of Product Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Material cost |
| $ | 1,049,218 |
| $ | 476,156 |
| $ | 573,062 |
| 120.4 | % |
Direct labor |
|
| 296,454 |
|
| 265,703 |
|
| 30,751 |
| 11.6 | % |
Distribution fees |
|
| 155,349 |
|
| 163,118 |
|
| (7,769) |
| (4.8) | % |
Royalties |
|
| 103,756 |
|
| 43,223 |
|
| 60,533 |
| 140.0 | % |
Other |
|
| 520,528 |
|
| 123,985 |
|
| 396,543 |
| 319.8 | % |
Total |
| $ | 2,125,305 |
| $ | 1,072,185 |
| $ | 1,053,120 |
| 98.2 | % |
Costsame period in 2020. The decrease in cost of product revenue increased $1,053,120 from $1,072,185period over period was due to non-recurring write-off of non-conforming inventory and equipment maintenance in the six months ended June 30, 2018 to $2,125,305 for the same period in 2019. The increase in cost of product revenue year over year was due to increased sales of Mytesi, and other expenses which included the write-off of non-conforming inventory, and expense for equipment maintenance.
Research and Development Expense
Comparison of the Six Months ended June 30, 2019 and 2018
The following table presents the components of research and development expense for the six months ended June 30, 20182020 and 20172019 together with the change in such components in dollars and as a percentage:
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| Six Months Ended |
|
|
|
|
|
| ||||||||||||||||
|
| June 30, |
|
|
|
|
|
| ||||||||||||||||
|
| 2019 |
| 2018 |
| Variance |
| Variance % |
| |||||||||||||||
R&D: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | Six Months Ended | | | | | |
| ||||||||||||||||
| | June 30, | | | | | |
| ||||||||||||||||
(in thousands) |
| 2020 |
| 2019 |
| Variance |
| Variance % | | |||||||||||||||
Research and Development: |
| |
|
| |
|
| |
|
|
| | ||||||||||||
Personnel and related benefits |
| $ | 971,104 |
| $ | 1,145,473 |
| $ | (174,369) |
| (15.2) | % | | $ | 812 | | $ | 971 | | $ | (159) |
| (16.4) | % |
Materials expense and tree planting |
|
| 62,350 |
|
| 106,324 |
|
| (43,974) |
| (41.4) | % | |
| 47 | |
| 62 | | | (15) |
| (24.2) | % |
Travel, other expenses |
|
| 89,512 |
|
| 47,096 |
|
| 42,416 |
| 90.1 | % | |
| 41 | |
| 90 | | | (49) |
| (54.4) | % |
Clinical and contract manufacturing |
|
| 1,378,776 |
|
| 619,426 |
|
| 759,350 |
| 122.6 | % | |
| 604 | |
| 1,379 | | | (775) |
| (56.2) | % |
Stock-based compensation |
|
| 215,948 |
|
| 224,749 |
|
| (8,801) |
| (3.9) | % | |
| 405 | |
| 216 | | | 189 |
| 87.5 | % |
Other |
|
| 401,323 |
|
| 219,684 |
|
| 181,639 |
| 82.7 | % | |
| 1,078 | |
| 401 | | | 677 |
| 168.8 | % |
Total |
| $ | 3,119,013 |
| $ | 2,362,752 |
| $ | 756,261 |
| 32.0 | % | | $ | 2,987 | | $ | 3,119 | | $ | (132) |
| (4.2) | % |
Research and development expense increased $756,261decreased $132,000 from $2,362,752$3,119,000 in the six months ended June 30, 20182019 to $3,119,013$2,987,000 for the six months ended June 30, 20192020 due primarily to:
| Clinical and contract manufacturing expense |
| Personnel and related benefits decreased |
4754
We expect research and development expense to increase due to the start-up costs associated with our clinical trials for other indications and when we start the Phase 2 study under the Patent Rights agreement.
Sales and Marketing Expense
ComparisonThe following table presents the components of sales and marketing (S&M) expense for the Six Monthssix months ended June 30, 2020 and 2019 together with the change in such components in dollars and 2018
as a percentage:
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| Six Months Ended |
|
|
|
|
|
| ||||||||||||||||
|
| June 30, |
|
|
|
|
|
| ||||||||||||||||
|
| 2019 |
| 2018 |
| Variance |
| Variance % |
| |||||||||||||||
S&M: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | Six Months Ended | | | | | |
| ||||||||||||||||
| | June 30, | | | | | |
| ||||||||||||||||
(in thousands) |
| 2020 |
| 2019 |
| Variance |
| Variance % | | |||||||||||||||
Sales and Marketing: |
| |
|
| |
|
| |
|
|
| | ||||||||||||
Personnel and related benefits |
| $ | 2,511,891 |
| $ | 1,684,098 |
| $ | 827,793 |
| 49.2 | % | | $ | 1,673 | | $ | 2,512 | | $ | (839) |
| (33.4) | % |
Stock-based compensation |
|
| 46,093 |
|
| 20,552 |
|
| 25,541 |
| 124.3 | % | |
| 113 | |
| 46 | |
| 67 |
| 145.7 | % |
Direct Marketing Fees |
|
| 939,454 |
|
| 2,201,051 |
|
| (1,261,597) |
| (57.3) | % | ||||||||||||
Direct marketing fees and expense | |
| 955 | |
| 939 | |
| 16 |
| 1.7 | % | ||||||||||||
Other |
|
| 240,757 |
|
| 496,751 |
|
| (255,994) |
| (51.5) | % | |
| 458 | |
| 241 | |
| 217 |
| 90.0 | % |
Total |
| $ | 3,738,195 |
| $ | 4,402,452 |
| $ | (664,257) |
| (15.1) | % | | $ | 3,199 | | $ | 3,738 | | $ | (539) |
| (14.4) | % |
Sales and marketing expense decreased $664,257$539,000 from $4,402,452$3,738,000 in the six months ended June 30, 20182019 to $3,738,195 in$3,199,000 for the same period in 2019 due primarily to:six months ended June 30, 2020. The following table presents the components of S&M expense for the years ended:
|
|
|
|
| | | | | | | | | | | | |
| | Six Months Ended | | | | | |
| ||||
| | June 30, | | | | | |
| ||||
(in thousands) |
| 2020 |
| 2019 |
| Variance |
| Variance % | | |||
General and Administrative: |
| |
|
| |
|
| |
|
|
| |
Personnel and related benefits | | $ | 914 | | $ | 898 | | $ | 16 |
| 1.8 | % |
Audit, tax and accounting services | |
| 272 | |
| 361 | |
| (89) |
| (24.7) | % |
Third-party consulting services | |
| 576 | |
| 1,264 | |
| (688) |
| (54.4) | % |
Legal services | |
| 1,385 | |
| 1,114 | |
| 271 |
| 24.3 | % |
Travel, other expenses | |
| 26 | |
| 99 | |
| (73) |
| (73.7) | % |
Stock-based compensation | |
| 991 | |
| 611 | |
| 380 |
| 62.2 | % |
Rent and lease expense | |
| 412 | |
| 418 | |
| (6) |
| (1.4) | % |
Public company expense | |
| 419 | |
| 430 | |
| (11) |
| (2.6) | % |
Other | |
| 1,910 | |
| 1,516 | |
| 394 |
| 26.0 | % |
Total | | $ | 6,905 | | $ | 6,711 | | $ | 194 |
| 2.9 | % |
General and administrative expenses increased $194,000 from $6,711,000 in the six months ended June 30, 2019 to $6,905,000 for the same period in 2020 primarily due to increases in stock-based compensation, legal services,
55
and other expenses, partially offset by a decrease in consultant fees, travel expenses, and audit, tax and accounting services:
● | Stock-based compensation expense increased |
|
|
48
General and Administrative Expense
Comparison of the Six Months ended June 30, 2019 and 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended |
|
|
|
|
|
| ||||
|
| June 30, |
|
|
|
|
|
| ||||
|
| 2019 |
| 2018 |
| Variance |
| Variance % |
| |||
G&A: |
|
|
|
|
|
|
|
|
|
|
|
|
Personnel and related benefits |
| $ | 897,989 |
| $ | 878,758 |
| $ | 19,231 |
| 2.2 | % |
Accounting fees |
|
| 361,384 |
|
| 355,386 |
|
| 5,998 |
| 1.7 | % |
Third-party consulting fees |
|
| 1,263,846 |
|
| 837,113 |
|
| 426,733 |
| 51.0 | % |
Legal fees |
|
| 1,114,186 |
|
| 1,386,192 |
|
| (272,006) |
| (19.6) | % |
Travel |
|
| 99,481 |
|
| 153,132 |
|
| (53,651) |
| (35.0) | % |
Stock-based compensation |
|
| 610,835 |
|
| 491,396 |
|
| 119,439 |
| 24.3 | % |
Rent and lease expense |
|
| 418,181 |
|
| 198,757 |
|
| 219,424 |
| 110.4 | % |
Public company expenses |
|
| 430,300 |
|
| 386,431 |
|
| 43,869 |
| 11.4 | % |
Other |
|
| 1,514,073 |
|
| 1,370,983 |
|
| 143,090 |
| 10.4 | % |
Total |
| $ | 6,710,275 |
| $ | 6,058,148 |
| $ | 652,127 |
| 10.8 | % |
General and administrative expenses increased $652,127 from $6,058,148 in the six months ended June 30, 2018 to $6,710,275 for the same period in 2019 primarily due to increases in legal fees, rent expense and stock-based compensation expense:
|
|
|
|
|
|
| Legal |
| Consulting fees |
|
|
● | Travel expenses decreased $73,000 from $99,000 in the |
In the near term, we expect general and administrative expense to remain the same as we focus on other areas of operations. This will include growingefforts to grow the business without adding headcount or increasing facilities.
Series B Convertible Preferred Stock Inducement Expense
On March 24, 2020, the Company entered into a Warrant Exercise and Preferred Stock Amendment Agreement with a holder of its Series 2 warrants previously issued in the Company’s registered public offering on July 23, 2019, pursuant to which the holder agreed to exercise in cash its warrants to purchase an aggregate of 1,250,000 shares of common stock, at a reduced exercise price of $0.5227 per share for gross proceeds to the Company of approximately $653,000. As further inducement to enter into the Amendment Agreement, the Company agreed to reduce the conversion price of the Company’s Series B convertible preferred stock from $2.00 to $0.4456, which is equal to the Minimum Price plus $0.01. The modification of the conversion price of the Series B convertible preferred shares were qualitatively considered an extinguishment and the Company followed guidance in ASC 260-10-S99-2 and recorded an expense of $1,647,000 and derecognizing the Series B convertible preferred shares.
Series 3 warrants Inducement Expense
In May 2020, concurrent with the May 2020 modification of the exercise price of the Series 1, Series 2 and Bridge Warrants and inducement offer, the Company issued unregistered Series 3 warrants to purchase 8,670,852 shares of common stock. The Series 3 Warrants have an exercise price of $0.53 per share and are exercisable beginning the earlier of (i) six months from their May 22, 2020 issuance date and (ii) receipt of the requisite Stockholder Approval (defined below), and expire five years thereafter. In addition to the fixed settlement method at $0.53 per warrant share, the Series 3 Warrants have two contingent settlement methods: (i) if at the time of exercise there is no effective registration statement, then the holders of the 8,670,852 warrants may exercise the warrants in a “cashless exercise,” under which the holders will receive the aggregate warrants less the number of warrants equal to the exercise price; or (ii) a cashless exercise feature wherein, regardless if there is an effective registration agreement, following the requisite
4956
Stockholder Approval, each such Series 3 Warrant will be exercisable into one share of common stock for no consideration (a one-for-one exchange). See Note 14 for information about subsequent events.
ImpairmentThe Series 3 warrants were valued at $3,695,723 using the Black- Scholes option pricing model as follows: probability-weighted exercise price of Indefinite-lived Intangible Assets
Acquired in-process research$0.05 per share, stock price of $0.44 per share, expected life of 5.50 years, volatility of 141%, and development (“IPR&D”) are intangible assets initially recognized at fair value anda risk-free rate of 0.34%. The Series 3 warrants were classified as indefinite-lived assets until the successful completion or abandonment of the associated research and development efforts. During the development period, these assets will not be amortized as charges to earnings; instead these assets will be tested for impairment on an annual basis or more frequently if impairment indicators are identified. We recorded an impairment of $4,000,000 in the six months ended June 30, 2019. There were no impairment charges recorded in the six months ended June 30, 2018. The impairment loss is measured basedliabilities on the excess of the carrying amount over the asset’s fair value.
Comparison of the three months ended June 30, 2019 and 2018
The following table summarizes the Company’s results of operations with respect to the items set forth in such table for the three months ended June 30, 2019 and 2018 together with the change in such items in dollars and as a percentage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
|
|
|
|
|
| ||||
|
| June 30, |
|
|
|
|
|
| ||||
|
| 2019 |
| 2018 |
| Variance |
| Variance % |
| |||
Product revenue |
| $ | 1,705,694 |
| $ | 883,846 |
| $ | 821,848 |
| 93.0 | % |
Collaboration revenue |
|
| — |
|
| — |
|
| — |
| — | % |
Total revenue |
|
| 1,705,694 |
|
| 883,846 |
|
| 821,848 |
| 93.0 | % |
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue |
|
| 1,260,362 |
|
| 608,024 |
|
| 652,338 |
| 107.3 | % |
Research and development expense |
|
| 1,697,653 |
|
| 1,604,886 |
|
| 92,767 |
| 5.8 | % |
Sales and marketing expense |
|
| 2,173,071 |
|
| 2,690,262 |
|
| (517,191) |
| (19.2) | % |
General and administrative expense |
|
| 3,196,861 |
|
| 3,059,748 |
|
| 137,113 |
| 4.5 | % |
Impairment of indefinite-lived intangible assets |
|
| 4,000,000 |
|
| — |
|
| 4,000,000 |
| 100.0 | % |
Total operating expenses |
|
| 12,327,947 |
|
| 7,962,920 |
|
| 4,365,027 |
| 54.8 | % |
Loss from operations |
|
| (10,622,253) |
|
| (7,079,074) |
|
| (3,543,179) |
| 50.1 | % |
Interest expense, net |
|
| (3,656,978) |
|
| (711,802) |
|
| (2,945,176) |
| 413.8 | % |
Other income (expense), net |
|
| 14,224 |
|
| 15,204 |
|
| (980) |
| (6.4) |
|
Change in fair value of warrant, derivative liability and conversion option liability |
|
| 207,088 |
|
| 118,489 |
|
| 88,599 |
| 74.8 | % |
Loss on extinguishment of debt |
|
| (2,663,198) |
|
| — |
|
| (2,663,198) |
| (100.0) |
|
Net loss |
|
| (16,721,117) |
|
| (7,657,183) |
|
| (9,063,934) |
| 118.4 | % |
Deemed dividend attributable to preferred stock |
|
| — |
|
| (995,000) |
|
| 995,000 |
| (100.0) |
|
Net income (loss) attributable to common shareholders |
| $ | (16,721,117) |
| $ | (8,652,183) |
|
| (8,068,934) |
| 93.3 | % |
Revenue
Sales and allowances
Due to the Company’s arrangements, including elements of variable consideration, gross product sales are reduced in order to reflect the expected consideration to arrive at net product sales. Deductions to reduce gross product sales to net product sales in the three months ended June 30, 2019 and 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
|
| ||||||||
|
| June 30, |
|
|
|
|
|
| ||||
|
| 2019 |
| 2018 |
| Variance |
| Variance % |
| |||
Gross product sales |
|
|
|
|
|
|
|
|
|
|
|
|
Mytesi |
| $ | 2,350,058 |
| $ | 1,163,187 |
| $ | 1,186,871 |
| 102.0 | % |
Neonorm |
|
| 20,962 |
|
| 29,676 |
|
| (8,714) |
| (29.4) | % |
Total gross product sales |
|
| 2,371,020 |
|
| 1,192,863 |
|
| 1,178,157 |
| 98.8 | % |
Medicare rebates |
|
| (153,307) |
|
| (121,203) |
|
| (32,104) |
| 26.5 | % |
50
Sales discounts - Mytesi |
|
| (389,402) |
|
| (90,841) |
|
| (298,561) |
| 328.7 | % |
Sales returns - Mytesi |
|
| (25,789) |
|
| (15,629) |
|
| (10,160) |
| 65.0 | % |
Wholesaler fee - Mytesi |
|
| (96,828) |
|
| (81,344) |
|
| (15,484) |
| 19.0 | % |
Net product sales |
| $ | 1,705,694 |
| $ | 883,846 |
| $ | 821,848 |
| 93.0 | % |
Product revenue
Our gross product revenues were $2,371,020 and $1,192,863 for the three months ended June 30, 2019 and 2018, respectively. These periods reflect revenue from the sale of our human drug Mytesi and our animal products branded as Neonorm Calf and Neonorm Foal.
Human
Sales of Mytesi are recognized as revenue when the products are delivered to the wholesalers. Our gross revenues from the sale of Mytesi were $2,350,058 and $1,163,187 in the three months ended June 30, 2019 and 2018, respectively. condensed consolidated balance sheets.The increase in sales of Mytesi is due to the more streamlined distribution channel and increased sales presence.
Sales discounts were $389,402 and $90,841 for the three months ended June 30, 2019 and 2018, respectively, an increase of $298,561. Sales discounts include discounts for prompt payments from customers and an estimated allowance for chargebacks on sales. The increase in allowance is mostly due to the transition in distributors during 2019.
Animal
We recognized Neonorm gross revenues of $20,962 and $29,676 for the three months ended June 30, 2019 and 2018, respectively. Focus on sales and marketing for Neonorm products had decreased during 2019.
Collaboration Revenue
Collaboration revenue is derived from our January 2017 licensing, development, co-promotion and commercialization agreement with Elanco US Inc. to license, develop and commercialize Canalevia. Elanco terminated the arrangement in January 2018 and all remaining deferred revenue was recognized at that time. We did not recognize collaboration revenues for the three months ended June 30, 2019 and 2018, respectively.
Cost of Product Revenue
Comparison of the Three Months ended June 30, 2019 and 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
|
|
|
|
|
| ||||
|
| June 30, |
|
|
|
|
|
| ||||
|
| 2019 |
| 2018 |
| Variance |
| Variance % |
| |||
Cost of Product Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Material cost |
| $ | 537,365 |
| $ | 246,884 |
| $ | 290,481 |
| 117.7 | % |
Direct labor |
|
| 173,458 |
|
| 114,688 |
|
| 58,770 |
| 51.2 | % |
Distribution fees |
|
| 65,529 |
|
| 94,168 |
|
| (28,639) |
| (30.4) | % |
Royalties |
|
| 48,491 |
|
| 31,727 |
|
| 16,764 |
| 52.8 | % |
Other |
|
| 435,519 |
|
| 120,557 |
|
| 314,962 |
| 261.3 | % |
Total |
| $ | 1,260,362 |
| $ | 608,024 |
| $ | 652,338 |
| 107.3 | % |
Cost of product revenue increased $652,338 from $608,024 in the three months ended June 30, 2018 to $1,260,362 for the same period in 2019. The increase in cost of product revenue quarter over quarter was due to increased sales of Mytesi, and other expenses which included the write-off of non-conforming inventory and the costs of equipment maintenance.
51
Research and Development Expense
Comparison of the Three Months ended June 30, 2019 and 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
|
|
|
|
|
| ||||
|
| June 30, |
|
|
|
|
|
| ||||
|
| 2019 |
| 2018 |
| Variance |
| Variance % |
| |||
R&D: |
|
|
|
|
|
|
|
|
|
|
|
|
Personnel and related benefits |
| $ | 417,104 |
| $ | 559,340 |
| $ | (142,236) |
| (25.4) | % |
Materials expense and tree planting |
|
| 34,885 |
|
| 44,315 |
|
| (9,430) |
| (21.3) | % |
Travel, other expenses |
|
| 71,568 |
|
| 26,602 |
|
| 44,966 |
| 169.0 | % |
Clinical and contract manufacturing |
|
| 778,173 |
|
| 593,956 |
|
| 184,217 |
| 31.0 | % |
Stock-based compensation |
|
| 148,844 |
|
| 145,035 |
|
| 3,809 |
| 2.6 | % |
Other |
|
| 247,079 |
|
| 235,638 |
|
| 11,441 |
| 4.9 | % |
Total |
| $ | 1,697,653 |
| $ | 1,604,886 |
| $ | 92,767 |
| 5.8 | % |
Research and development expense increased $92,767 from $1,604,886 in the three months ended June 30, 2019 to $1,697,653 for the same period in 2019 largely due to:
|
|
|
|
|
|
Sales and Marketing Expense
Comparison of the Three Months ended June 30, 2019 and 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
|
|
|
|
|
| ||||
|
| June 30, |
|
|
|
|
|
| ||||
|
| 2019 |
| 2018 |
| Variance |
| Variance % |
| |||
S&M: |
|
|
|
|
|
|
|
|
|
|
|
|
Personnel and related benefits |
| $ | 1,470,493 |
| $ | 1,052,234 |
| $ | 418,259 |
| 39.7 | % |
Stock-based compensation |
|
| 12,251 |
|
| 18,167 |
|
| (5,916) |
| (32.6) | % |
Direct marketing fees and expense |
|
| 574,781 |
|
| 1,168,973 |
|
| (594,192) |
| (50.8) | % |
Other |
|
| 115,546 |
|
| 450,888 |
|
| (335,342) |
| (74.4) | % |
Total |
| $ | 2,173,071 |
| $ | 2,690,262 |
| $ | (517,191) |
| (19.2) | % |
Sales and marketing expense decreased $517,191 from $2,690,262 in the three months ended June 30, 2018 to $2,173,071 in the same period in 2019 largely due to a decrease in marketing programs and advertising costs for Mytesi.
|
|
52
|
|
|
|
General and Administrative Expense
Comparison of the Three Months ended June 30, 2019 and 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
|
|
|
|
|
| ||||
|
| June 30, |
|
|
|
|
|
| ||||
|
| 2019 |
| 2018 |
| Variance |
| Variance % |
| |||
G&A: |
|
|
|
|
|
|
|
|
|
|
|
|
Personnel and related benefits |
| $ | 449,546 |
| $ | 472,715 |
| $ | (23,169) |
| (4.9) | % |
Accounting fees |
|
| 91,411 |
|
| 105,780 |
|
| (14,369) |
| (13.6) | % |
Third-party consulting fees |
|
| 692,875 |
|
| 439,296 |
|
| 253,579 |
| 57.7 | % |
Legal fees |
|
| 355,455 |
|
| 656,622 |
|
| (301,167) |
| (45.9) | % |
Travel |
|
| 45,919 |
|
| 78,879 |
|
| (32,960) |
| (41.8) | % |
Stock-based compensation |
|
| 285,273 |
|
| 301,252 |
|
| (15,979) |
| (5.3) | % |
Rent and lease expense |
|
| 229,989 |
|
| 97,928 |
|
| 132,061 |
| 134.9 | % |
Public company expenses |
|
| 243,008 |
|
| 188,903 |
|
| 54,105 |
| 28.6 | % |
Other |
|
| 803,385 |
|
| 718,373 |
|
| 85,012 |
| 11.8 | % |
Total |
| $ | 3,196,861 |
| $ | 3,059,748 |
| $ | 137,113 |
| 4.5 | % |
General and administrative expenses increased $137,113 from $3,059,748 in the three months ended June 30, 2018 to $3,196,861 for the same period in 2019,
|
|
|
|
|
|
|
|
|
|
53
In the near term, we expect general and administrative expense to remain the same as we consolidate sales territories and simultaneously focus on our pipeline development. This will include growing the business without adding headcount or increasing facilities.
Impairment of Indefinite-lived Intangible Assets
Acquired in-process research and development (“IPR&D”) are intangible assets initially recognized at fair value and classified as indefinite-lived assets until the successful completion or abandonment of the associated research and development efforts. During the development period, these assets will not be amortized as charges to earnings; instead these assets will be tested for impairment on an annual basis or more frequently if impairment indicators are identified. We recorded an impairment of $4,000,000 in the three months ended June 30, 2019. There were no impairment charges recorded in the three and six months ended June 30, 2018.2020. The impairment loss is measured based on the excess of the carrying amount over the asset’s fair value.
Comparison of the Three Months Ended June 30, 2020 and 2019
The following table summarizes the Company’s results of operations with respect to the items set forth in such table for the three months ended June 30, 2020 and 2019 together with the change in such items in dollars and as a percentage.
| | | | | | | | | | | | |
| | Three Months Ended | | | | | |
| ||||
| | June 30, | | | | | |
| ||||
|
| 2020 |
| 2019 |
| Variance |
| Variance % |
| |||
(in thousands) | | | | | | | | | | | |
|
Product revenue |
| $ | 3,167 |
| $ | 1,706 |
| $ | 1,461 |
| 85.6 | % |
Total revenue | |
| 3,167 | |
| 1,706 | |
| 1,461 |
| 85.6 | % |
Operating expenses | | | | | | | | | | | | |
Cost of product revenue | |
| 1,031 | |
| 1,260 | |
| (229) |
| (18.2) | % |
Research and development | |
| 1,405 | |
| 1,698 | |
| (293) |
| (17.3) | % |
Sales and marketing | |
| 1,730 | |
| 2,173 | |
| (443) |
| (20.4) | % |
General and administrative | |
| 3,756 | |
| 3,197 | |
| 559 |
| 17.5 | % |
Impairment of indefinite-lived intangible assets | | | — | | | 4,000 | | | (4,000) | | (100.0) | % |
Series 3 warrants inducement expense | | | 3,696 | | | — | | | 3,696 | | 100.0 | % |
Total operating expenses | |
| 11,618 | |
| 12,328 | |
| (710) |
| (5.8) | % |
Loss from operations | |
| (8,451) | |
| (10,622) | |
| 2,171 |
| (20.4) | % |
Interest expense | |
| (479) | |
| (3,657) | |
| 3,178 |
| (86.9) | % |
Other (expense) income | |
| 78 | |
| 14 | |
| 64 |
| 457.1 | % |
Change in fair value of financial instruments | |
| (386) | |
| 207 | |
| (593) |
| (286.5) | % |
Loss on extinguishment of debt | | | — | | | (2,663) | | | 2,663 | | (100.0) | % |
Loss before income tax expense | | | (9,238) | | | (16,721) | |
| 7,483 |
| (44.8) | % |
Income tax expense | | | — | | | — | | | — | | 100 | % |
Net loss | | | (9,238) | | | (16,721) | | | 7,483 | | (44.8) | % |
Deemed dividend attributable to accretion of Series A convertible preferred stock | | | (503) | | | — | | | (503) | | 100 | % |
Deemed dividend attributable to Series 1, Series 2 and Bridge warrant holders | | | (856) | | | — | | | (856) | | 100 | % |
Net loss attributable to common shareholders |
| $ | (10,597) |
| $ | (16,721) |
| | 6,124 |
| (36.6) | % |
57
Revenue
Sales and Allowances
Due to the Company’s arrangements, including elements of variable consideration, gross product sales are reduced in order to reflect the expected consideration to arrive at net product sales. Deductions to reduce gross product sales to net product sales in the three months ended June 30, 2020 and 2019 were as follows:
| | | | | | | | | | | | |
| | Three Months Ended | | | ||||||||
| | June 30, | | | | | | | ||||
(in thousands) |
| 2020 |
| 2019 |
| Variance |
| Variance % | | |||
Gross product sales | | | | | | | | | | | |
|
Mytesi | | $ | 6,288 | | $ | 2,350 | | $ | 3,938 |
| 167.6 | % |
Neonorm | | | 14 | | | 21 | |
| (7) |
| (33.3) | % |
Total gross product sales | | | 6,302 | | | 2,371 | |
| 3,931 |
| 165.8 | % |
Medicare rebates | | | (592) | | | (153) | |
| (439) |
| 286.9 | % |
Sales discounts | | | (1,828) | | | (389) | | | (1,439) | | 369.9 | % |
Sales returns | | | (78) | | | (26) | | | (52) | | 200.0 | % |
Wholesaler fees | | | (637) | | | (97) | | | (540) | | 556.7 | % |
Net product sales | | $ | 3,167 | | $ | 1,706 | | $ | 1,461 |
| 85.6 | % |
Product Revenue
Our gross product revenues were $6.3 million and $2.4 million for the three months ended June 30, 2020 and 2019, respectively. These periods reflect revenue from the sale of our human drug Mytesi and our animal products branded as Neonorm Calf and Neonorm Foal.
Human
Sales of Mytesi are recognized as revenue when the products are delivered to the wholesalers. Our gross revenues from the sale of Mytesi were $6,288,000 and $2,350,000 in the three months ended June 30, 2020 and 2019, respectively. The increase in sales of Mytesi is due to an increase in the wholesaler demand, mostly due to the list price adjustment of Mytesi that occurred in April 2020.
Animal
Our Neonorm product revenues were $14,000 and $21,000 for the three months ended June 30, 2020 and 2019, respectively. Focus on sales and marketing for Neonorm products had decreased during 2020.
Cost of Product Revenue
| | | | | | | | | | | | |
| | Three Months Ended | | | | | | | ||||
| | June 30, | | | | | | | ||||
(in thousands) |
| 2020 |
| 2019 | | Variance |
| Variance % |
| |||
Cost of Product Revenue | | | | | | | | | | | |
|
Material cost |
| $ | 678 |
| $ | 537 | | $ | 141 |
| 26.3 | % |
Direct labor | |
| 198 | |
| 173 | |
| 25 |
| 14.5 | % |
Distribution fees | |
| 94 | |
| 66 | |
| 28 |
| 42.4 | % |
Royalties | |
| 22 | |
| 48 | |
| (26) |
| (54.2) | % |
Other | |
| 39 | |
| 436 | |
| (397) |
| (91.1) | % |
Total |
| $ | 1,031 |
| $ | 1,260 | | $ | (229) |
| (18.2) | % |
58
Cost of product revenue decreased $229,000 from $1,260,000 in the three months ended June 30, 2019 to $1,031,000 for the same period in 2020. The decrease in cost of product revenue period over period was due to non-recurring write-off of non-conforming inventory and equipment maintenance in the three months ended June 30, 2019.
Research and Development
The following table presents the components of research and development expense for the three months ended June 30, 2020 and 2019 together with the change in such components in dollars and as a percentage:
| | | | | | | | | | | | |
| | Three Months Ended | | | | | |
| ||||
| | June 30, | | | | | |
| ||||
(in thousands) |
| 2020 |
| 2019 |
| Variance |
| Variance % | | |||
Research and Development: |
| |
|
| |
|
| |
|
|
| |
Personnel and related benefits | | $ | 436 | | $ | 417 | | $ | 19 |
| 4.6 | % |
Materials expense and tree planting | |
| 10 | |
| 35 | | | (25) |
| (71.4) | % |
Travel, other expenses | |
| 41 | |
| 72 | | | (31) |
| (43.1) | % |
Clinical and contract manufacturing | |
| 198 | |
| 778 | | | (580) |
| (74.6) | % |
Stock-based compensation | |
| 203 | |
| 149 | | | 54 |
| 36.2 | % |
Other | |
| 517 | |
| 247 | | | 270 |
| 109.3 | % |
Total | | $ | 1,405 | | $ | 1,698 | | $ | (293) |
| (17.3) | % |
Research and development expense decreased $293,000 from $1,698,000 in the three months ended June 30, 2019 to $1,405,000 for the three months ended June 30, 2020 due primarily to:
● | Clinical and contract manufacturing expense decreased $580,000 from $778,000 in the three months ended June 30, 2019 to $198,000 in the same period in 2020 primarily due to a decrease in contract manufacturing costs for enhanced manufacturing process improvements. |
● | Other expenses, consisting primarily of consulting, formulation and regulatory fees, increased $270,000 from $247,000 in the three months ended June 30, 2019 to $517,000 in the same period in 2020. Consulting expenses increased by $171,000 due to an increase in clinical trial consultants, which is consistent with the increased activity in development of multiple follow‑on indications for Mytesi. Direct R&D testing costs increased $67,000 due to an increase in R&D work. Regulatory expenses increased by $35,000. |
We expect research and development expense to increase due to the start-up costs associated with our clinical trials for other indications and when we start the Phase 2 study under the Patent Rights agreement.
Sales and Marketing
The following table presents the components of sales and marketing (S&M) expense for the three months ended June 30, 2020 and 2019 together with the change in such components in dollars and as a percentage:
| | | | | | | | | | | | |
| | Three Months Ended | | | | | |
| ||||
| | June 30, | | | | | |
| ||||
(in thousands) |
| 2020 |
| 2019 |
| Variance |
| Variance % | | |||
Sales and Marketing: |
| |
|
| |
|
| |
|
|
| |
Personnel and related benefits | | $ | 878 | | $ | 1,471 | | $ | (593) | | (40.3) | % |
Stock-based compensation | |
| 57 | |
| 12 | |
| 45 |
| 375.0 | % |
Direct marketing fees and expense | |
| 577 | |
| 583 | |
| (6) |
| (1.0) | % |
Other | |
| 218 | |
| 107 | |
| 111 |
| 103.7 | % |
Total | | $ | 1,730 | | $ | 2,173 | | $ | (443) |
| (20.4) | % |
59
Sales and marketing expense decreased $443,000 from $2,173,000 in the three months ended June 30, 2019 to $1,730,000 for the three months ended June 30, 2020. The components of S&M expense for the years ended are:
● | Personnel and related benefits decreased $593,000 from $1,471,000 in the three months ended June 30, 2019 to $878,000 in the same period in 2020 due to sales force reduction. |
● | Other expenses increased $111,000 from $107,000 in the three months ended June 30, 2019 to $218,000 in the same period in 2020 largely due to additional marketing consulting costs. |
General and Administrative
| | | | | | | | | | | | |
| | Three Months Ended | | | | | |
| ||||
| | June 30, | | | | | |
| ||||
(in thousands) |
| 2020 |
| 2019 |
| Variance |
| Variance % | | |||
General and Administrative: |
| |
|
| |
|
| |
|
|
| |
Personnel and related benefits | | $ | 453 | | $ | 450 | | $ | 3 |
| 0.7 | % |
Audit, tax and accounting services | |
| 214 | |
| 91 | |
| 123 |
| 135.2 | % |
Third-party consulting services | |
| 280 | |
| 693 | |
| (413) |
| (59.6) | % |
Legal services | |
| 612 | |
| 355 | |
| 257 |
| 72.4 | % |
Travel, other expenses | |
| — | |
| 46 | |
| (46) |
| (100.0) | % |
Stock-based compensation | |
| 489 | |
| 285 | |
| 204 |
| 71.6 | % |
Rent and lease expense | |
| 209 | |
| 230 | |
| (21) |
| (9.1) | % |
Public company expense | |
| 377 | |
| 243 | |
| 134 |
| 55.1 | % |
Other | |
| 1,122 | |
| 804 | |
| 318 |
| 39.6 | % |
Total | | $ | 3,756 | | $ | 3,197 | | $ | 559 |
| 17.5 | % |
General and administrative expenses increased $559,000 from $3,197,000 in the three months ended June 30, 2019 to $3,756,000 for the same period in 2020 primarily due to increases in stock-based compensation, legal services, audit, tax and accounting services, and other expenses, partially offset by a decrease in consultant fees:
● | Stock-based compensation expense increased $204,000 from $285,000 in the three months ended June 30, 2019 to $489,000 in the same period in 2020 due to an increase in the volume of option grants to new and existing employees. |
● | Legal services increased $257,000 from $355,000 in the three months ended June 30, 2019 to $612,000 in the same period in 2020 primarily due to $150,000 increase in fees related to addressing a congressional inquiry, partially, $46,000 increase in fees related to timing of patent license fees, $97,000 increase in public company and financing related legal services. |
● | Accounting fees increased $123,000 from $91,000 in the three months ended June 30, 2019 to $214,000 in the same period in 2020, mostly due to change in the timing of billing of fees. |
● | Other general and administrative expenses increased $318,000 from $804,000 for the three months ended June 30, 2019 to $1,122,000 in the same period in 2020 largely due to $93,000 increase of Delaware state taxes, $61,000 increase of IT and software costs, and $104,000 increase of D&O liability insurance. |
● | Consulting fees decreased $413,000 from $693,000 in the three months ended June 30, 2019 to $280,000 in the same period in 2020, due to the switch to fulltime employees instead of consultants in the Finance department. |
In the near term, we expect general and administrative expense to remain the same as we focus on other areas of operations. This will include efforts to grow the business without adding headcount or increasing facilities.
60
Series 3 warrants inducement expense
In May 2020, concurrent with the May 2020 modification of the exercise price of the Series 1, Series 2 and Bridge Warrants and inducement offer, the Company issued unregistered Series 3 warrants to purchase 8,670,852 shares of common stock. The Series 3 Warrants have an exercise price of $0.53 per share and are exercisable beginning the earlier of (i) six months from their May 22, 2020 issuance date and (ii) receipt of the requisite Stockholder Approval (defined below), and expire five years thereafter. In addition to the fixed settlement method at $0.53 per warrant share, the Series 3 Warrants have two contingent settlement methods: (i) if at the time of exercise there is no effective registration statement, then the holders of the 8,670,852 warrants may exercise the warrants in a “cashless exercise,” under which the holders will receive the aggregate warrants less the number of warrants equal to the exercise price; or (ii) a cashless exercise feature wherein, regardless if there is an effective registration agreement, following the requisite Stockholder Approval, each such Series 3 Warrant will be exercisable into one share of common stock for no consideration (a one-for-one exchange). See Note 14 for information about subsequent events.
The Series 3 warrants were valued at $3,695,723 using the Black- Scholes option pricing model as follows: probability-weighted exercise price of $0.05 per share, stock price of $0.44 per share, expected life of 5.50 years, volatility of 141%, and a risk-free rate of 0.34%. The Series 3 warrants were classified as liabilities on the Company’s condensed consolidated balance sheets.
Liquidity and Capital Resources
Sources of Liquidity
We have incurred net losses since our inception. For the threesix months ended June 30, 20192020 and 2018,2019, we had net losses of $16.7$17.2 million and $7.7 million, respectively, and for the six months ended June 30, 2019 and 2018, we had net losses of $25.0 million and $13.4 million, respectively. We expect to incur additional losses in the near-term future. At June 30, 20192020, we had an accumulated deficit of $119.6$150.3 million. To date, we have generated only limited revenue, and we may never achieve revenue sufficient to offset our expenses.
We had cash of $1.6$3.0 million as of June 30, 2019. 2020. We do not believe our current capital supplemented by our recent financing of $14.3 million net proceeds, is sufficient to fund our operating plan through one year from August 14, 2019. the issuance of these unaudited condensed consolidated financial statements. Our independent registered public accounting firm has included an explanatory paragraph in its audit report included in our Annual Report on Form 10‑K10-K for the year ended December 31, 20182019 regarding our assessment of substantial doubt about our ability to continue as a going concern. Our unaudited condensed consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.
We have funded our operations primarily through the issuance of equity and debt financing, in addition to sales of our commercial products. Our funding activities in the six months ended June 30, 20192020 were as follows:
|
|
|
|
|
|
|
|
5461
|
|
|
|
● | On March 24, 2020, Jaguar and Ionic Ventures LLC (“Ionic”) entered into a Warrant Exercise and Preferred Stock Amendment Agreement with a holder of Series 2 Warrants previously issued in the Company’s registered public offering on July 23, 2019, pursuant to which the Holder agreed to exercise in cash its warrants to purchase an aggregate of 1,250,000 shares of common stock, at a reduced exercise price of $0.5227 per share, which is a 20% premium to the Minimum Price (as defined under Nasdaq Listing Rule 5635(d)) as of the date of such Amendment Agreement, for gross proceeds of approximately $653,400. As further inducement to enter into the Amendment Agreement, the Company agreed to reduce the conversion price of the Company’s Series B convertible preferred stock from $2.00 to $0.4456, which is equal to the Minimum Price plus $0.01. |
● | On April 15, 2020, the Company entered into a patent purchase agreement ( “Purchase Agreement”) with Atlas Sciences, LLC (“Atlas”), pursuant to which |
● | On May 12, 2020, the Company entered into an accounts receivable purchase agreement (“Purchase Agreement”) with Oasis Capital, pursuant to which Oasis Capital may from time to time in its discretion purchase accounts receivable of the Company on a recourse basis at a purchase price equal to 37.5% of the face amount of each of the purchased accounts. Under the terms of the Purchase Agreement, Oasis Capital initially purchased certain accounts receivable with a face amount of $2,753,639 for a purchase price of $1,032,000. |
● | On May 22, 2020, the Company entered into warrant exercise inducement offer letters with certain holders of Series 1 Warrants, Series 2 Warrants, and Bridge Warrants (“Exercising Holders”) pursuant to which such holders agreed to exercise for cash Series 1 Warrants to purchase 4,572,040 shares of common Stock, Series 2 Warrants to purchase 4,005,062 shares of common stock, |
|
|
● | On June 29, 2020, the Company entered into an amendment to the accounts receivable purchase |
We expect our expenditures will continue to increase as we continue our efforts to develop our products and continue development of our pipeline in the near term. We do not believe our current capital supplemented by our recent financing of $14.3 million net proceeds, is sufficient to fund our operating plan through one year from August 14, 2019.the issuance of these unaudited condensed consolidated financial statements. We will need to seek additional funds through public or private equity or debt financings or other sources, such as strategic
62
collaborations. Such financing may result in dilution to stockholders, imposition of debt covenants and repayment obligations or other restrictions that may affect our business. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. We may also not be successful in entering into partnerships that include payment of upfront licensing fees for our products and product candidates for markets outside the United States, where appropriate. If we do not generate upfront fees from any anticipated arrangements, it would have a negative effect on our operating plan. We plan to finance our operations and capital funding needs through equity and/or debt financing as well as revenue from future product sales. However, there can be no assurance that additional funding will be available to us on acceptable terms on a timely basis, if at all, or that we will generate sufficient cash from operations to adequately fund operating needs or ultimately achieve profitability. If we are unable to obtain an adequate level of financing needed for the long-term development and commercialization of our products, we will need to curtail planned activities and reduce costs. Doing so will likely have an adverse effect on our ability to execute on our business plan. These matters raise substantial doubt about the ability of the Company to continue in existence as a going concern within one year after issuance date of the unaudited condensed consolidated financial statements.
Cash Flows for the Six Months Ended June 30, 20192020 Compared to the Six Months Ended June 30, 20182019
The following table shows a summary of cash flows for the six months ended June 30, 20192020 and 2018:2019:
|
|
|
|
|
|
| |||||||
|
| June 30, | |||||||||||
|
| 2019 |
| 2018 | |||||||||
| | | | | | | | ||||||
| | Six Months Ended June 30, | | ||||||||||
(in thousands) |
| 2020 |
| 2019 |
| ||||||||
Total cash used in operating activities |
| $ | (8,771,217) |
| $ | (15,018,513) | | $ | (8,298) | | $ | (8,770) | |
Total cash used in investing activities |
|
| (6,508) |
|
| (6,527) | |
| (7) | |
| (7) | |
Total cash provided by financing activities |
|
| 7,816,161 |
|
| 16,676,646 | |
| 7,437 | |
| 7,816 | |
|
| $ | (961,564) |
| $ | 1,651,606 | |||||||
Net decrease in cash | | $ | (868) | | $ | (961) | |
Cash Used in Operating Activities
During the six months ended June 30, 2020, net cash used in operating activities of $8,298,000 resulted from our net loss of $17,174,000 adjusted by an increase in fair value of warrants, conversion option and derivative liability of $387,000, amortized expense on modifications of warrants of $86,000, depreciation and amortization expenses of $863,000, amortization of debt discounts and debt issuance costs of $309,000, stock-based compensation of $1,509,000, other stock payments of $146,000, amortization of operating lease right-of-use assets of $365,000, inducement charge of $1,647,000 on the modification of Series B convertible preferred shares, $3,696,000 charge for Series 3 warrants issued as an inducement to exercise equity-classified Series 1, Series 2 and Bridge warrants, loss on assignment of receivables of $15,000, and changes in operating assets and liabilities of $147,000.
During the six months ended June 30, 2019, net cash used in operating activities of $8,771,217$8,770,000 resulted from our net loss of $25,024,988$25,025,000 adjusted for an impairment charge of $4,000,000 associated with our indefinite-lived intangible assets, a reduction in the fair value of warrant liabilities of $161,031,$161,000, debt discounts and debt issuance costs of $3,879,353,$3,879,000, stock-based compensation of $872,876,$873,000, depreciation and amortization expenses of $873,142,$873,000, amortization
55
of operating lease right-of-use assets of $132,532,$363,000, loss on the extinguishment of debt of $4,605,158$4,605,000 and of changes in operating assets and liabilities of $2,051,741.
During the six months ended June 30, 2018, cash used in operating activities of $15,018,513 resulted from our net loss of $13,353,820, adjusted by non-cash accretion of end of term payment, debt discounts and debt issuance costs of $817,927, stock-based compensation of $736,697, reduction in the fair value of warrants, conversion option and derivative liability of $141,230, common stock issued in exchange for services rendered of $6,425, depreciation and amortization expenses of $659,230, interest paid on the conversion of debt to equity of $59,737, net of changes in operating assets and liabilities of $3,800,479.$1,823,000.
Cash Used in Investing Activities
During the six months ended June 30, 20192020 and 2018,2019, cash used in investing activities of $6,508was $7,000 and $6,527, respectively, consisted of cash used to purchase property and equipment.
Cash Provided by Financing Activities
During the six months ended June 30, 2020, net cash provided by financing activities of $7,437,000 consisted of $668,000 in net proceeds received from 1,714,283 shares of common stock issued via a PIPE financing, $350,000 in net proceeds received from issuance of a note payable, $776,000 in insurance premium financings, $2,222,000 received from borrowings secured by the Company’s trade receivables, $1,000,000 in net proceeds received from exercises of
63
warrants to purchase a total of 1,798,962 shares of common stock, $4,111,000 in net proceeds received from 9,403,167 shares of common stock issued on exercise of Series 1, Series 2, and 2019 Bridge Note warrants, and $10,000 in net proceeds received from issuance of other shares of common stock, offset by $1,515,000 in principal payments of the note payable and secured borrowings and $185,000 in issuance costs from shares issued as part of the underwriter settlement agreement.
During the six months ended June 30, 2019, net cash provided by financing activities of $7,816,161$7,816,000 consisted of $5,050,000$5,050,000 in proceeds from the issuance of short-term Bridge Notes and $2,869,161 $2,869,000 in net proceeds received from the issuance of common stock, offset by $100,000 in repayments of notes payable and $3,000 in payments for deferred offering costs.
During the six months ended June 30, 2018, cash provided by financing activities of $16,676,646 primarily consisted of $1,305,774 and $750,100 received in separate PIPE (“Private Investment in Public Entity”) financings, $14.0 million in net proceeds from the Sagard financing, including $5,000,000 in net proceeds received from the issuance of common stock and $9,000,002 in net proceeds received from the issuance of convertible preferred stock, $2,310,000 received in the issuance of non-convertible debt, offset by $1,689,200 in principal payments of our long-term debt.
JOBS Act
In April 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period, and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Our management, Chief Executive Officer and Principal Financial and Accounting Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2019.2020. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Principal Financial and Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief
56
Executive Officer and Principal Financial and Accounting Officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of June 30, 2019.2020. This conclusion was based on the material weaknessweaknesses in our internal control over financial reporting as further described below.
Material WeaknessWeaknesses
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected and corrected on a timely basis.
In connection with ourthe preparation of our annual financial statements for the year ended December 31, 2018,2019, we identified a material weakness in our internal control over financial reporting related to staff turnover in our accounting department. We did not maintain a sufficient complement of internal personnel with appropriate knowledge, experience and/or training commensurate with our financial reporting requirements. We relied on outside consulting technical experts and did not maintain adequate internal qualified personnel to properly supervise and review the information provided by the outside consulting technical experts to ensure certain significant complex transactions and technical matters were properly accounted for, specifically with respect to accurately reflecting all potential accrued services on the balance sheet at December 31, 2018.for. In addition, we identified inadequate internal technical staffing levels and expertise
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to properly supervise and review the information of the outside consulting technical experts to properly apply ASC 815-40 for liability classification of certain warrants and ASC 470-50 and ASC 470-60 to properly reflect the accounting impact to multiple modifications of the Company’s debt instruments. We did not have concluded thatadequate policies and procedures in place to ensure the timely, effective review of assumptions used in measuring the fair value of certain financial instruments. We did not have adequate policies and procedures in place to ensure the timely, effective review of compliance with contractual covenants in certain financial instruments. This material weakness has not been remediated as of June 30, 2020.
In connection with preparation of our interim financial statements for the three months ended June 30, 2020, we must implement new or improved controlsidentified a material weakness in our internal control over financial reporting related to our financial statement close processpreparation and review process. The primary factors contributing to the material weaknesses were as follows:
Remediation Efforts to Address Material WeaknessWeaknesses
We have prepared a preliminary remediation plan to address the underlying causes of the material weaknessweaknesses described above. The preliminary remediation plan includes:
| Reassessing the design and operation of internal controls over financial reporting |
● | Hiring and training of permanent accounting personnel or using consultants to provide support during our quarterly and annual preparation, review, and reporting of our financial statements. |
● | Maintain adequate internal qualified personnel to properly supervise and review the information |
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We cannot assure you that the measures we may take in response to thisthese material weaknessweaknesses will be sufficient to remediate such material weaknessweaknesses or to avoid potential future material weaknesses.
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Internal Control over Financial Reporting
Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10‑Q,10-Q, our Chief Executive Officer and Principal Financial and Accounting Officer have concluded that, as of such date, our disclosure controls and procedures were not effective due to the existence of a material weaknessweaknesses in the design of our internal controls over financial reporting relating (i) to staff turnover in our accounting department.department, and (ii ) to inadequate policies and procedures in place to ensure the timely and effective preparation and review of the financial statements.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected inon a timely basis. We plan to enhance existing controls and design and implement new controls applicable to staff, to ensure that our staff is accurately trained to properly understand and review financial transactions. We plan to devote significant time and attention to remediate the above material weaknessweaknesses as soon as reasonably possible. As we continue to evaluate our controls, we will make the necessary changes to improve the overall design and operation of our controls. We believe these actions will be sufficient to remediate the identified material weaknessweaknesses and strengthen our internal control over financial reporting; however, there can be no guarantee that
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such remediation will be sufficient. We will continue to monitor the effectiveness of our controls and will make any further changes management determines appropriate.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10‑Q10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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Item 1. Legal Proceedings.Proceedings
July 2017 Complaint Relating to the Merger
On July 20, 2017, a putative class action complaint was filed in the United States District Court, Northern District of California, Civil Action No. 3:17‑cv‑17 cv 04102, by Tony Plant (the “Plaintiff”) on behalf of shareholders of the Company who held shares on April 12, 2017 and were entitled to vote at the 2017 Special Shareholders Meeting, against the Company and certain individuals who were directors as of the date of the vote (collectively, the “Defendants”), in a matter captioned Tony Plant v. Jaguar Animal Health, Inc., et al., making claims arising under Section 14(a) and Section 20(a) of the Exchange Act and Rule 14a‑14a 9, 17 C.F.R. § 240.14a‑240.14a 9, promulgated thereunder by the SEC. The claims alleged false and misleading information provided to investors in the Joint Proxy Statement/Prospectus on Form S‑4S-4 (File No. 333‑333 217364) declared effective by the Commission on July 6, 2017 related to the solicitation of votes from shareholders to approve the merger and certain transactions related thereto. The Company accepted service of the complaint and summons on behalf of itself and the United States-based director Defendants on November 1, 2017. The Company has not accepted service on behalf of, and Plaintiff has not yet served, the non-U.S.-based director Defendants.
On October 3, 2017, Plaintiff filed a motion seeking appointment as lead plaintiff and appointment of Monteverde & Associates PC as lead counsel. That motion was granted. Plaintiff filed an amended complaint against the Company and the United States-basedStates based director Defendants on January 10, 2018. The Defendants filed a motion to dismiss on March 12, 2018, for which oral arguments were held on June 14, 2018. The court dismissed the amended complaint on September 20, 2018 but gave2018. Plaintiff leavewas entitled to amend thethat complaint within 20 days from the date of dismissal. On October 10, 2018, Plaintiff filed a second amended the complaint to focus on the Company’s commercial strategy in support of Equilevia and the related disclosure statements in the Form S-4 described above. On November 6, 2018, the Defendants moved to dismiss the second amended complaint. The Defendants arguedargue in their motion that the second amended complaint fails to state a claim upon which relief can be granted because the omissions and misrepresentations alleged in the complaint are immaterial as a matter of law. The court denied the Defendants’ motion to dismiss on June 28, 2019. The defendantsCompany answered the second amended complaint on August 2, 2019. Discovery will2019; the answer denied the material allegations of the second amended complaint. The parties are now proceed.engaged in discovery. If the Plaintiff were able to prove his allegations in this matter and to establish the damages he asserts, then an adverse ruling could have a material adverse impact on the Company.
The Company believes that it is not probable that an asset has been impaired or a liability has been incurred as of the date of the financial statements and the amount of any potential loss is not reasonably estimable.
On May 4, 2020, Jaguar Health, Inc. received a letter from the Committee on Oversight and Reform of the U.S. House of Representatives (the “Committee”) regarding the list price adjustment of Mytesi. Among other things, the Committee expressed an interest in understanding whether the price adjustment was connected to the Company’s expectation that it could market crofelemer to treat coronavirus patients given the Company’s submission of a request to the U.S. Food and Drug Administration for Emergency Use Authorization (“EUA”) for crofelemer for the symptomatic relief of diarrhea and other gastrointestinal symptoms in patients with COVID-19 and for patients with COVID-19 who have diarrhea associated with certain antiviral treatments, which submission was denied by the FDA on April 7 as previously disclosed.
The Company intends to cooperate with the Committee’s inquiry and has prepared a public statement regarding the price adjustment, which is available on the Company’s website at https://jaguarhealth.gcs-web.com/company-statement. In its statement, the Company explains that the decision to adjust the price for crofelemer was made in December 2019 as part of expanding the Company’s comprehensive patient access program, and had the Company received EUA, it would have deferred the price adjustment until after the emergency use period ended.
Other than as described above, there are currently no claims or actions pending against us, the ultimate disposition of which could have a material adverse effect on our results of operations, financial condition or cash flows.
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The following discussion of risk factors contains forward-looking statements. These risk factors may be important to understanding other statements in this Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our unaudited condensed consolidated financial statements and related notes, before making a decision to invest in our common stock. The risks and uncertainties described below are not the only ones we face. Additional risk and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations. If any of the events or circumstances described in the following risk factors actually occur, our business, operating results, financial condition, cash flows, and prospects could be materially and adversely affected. In that event, the market price of our common stock could decline, and you could lose part or all of your investment.
The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described below, any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results, and stock price.
Because of the following factors, as well as other factors affecting the Company’s financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.
Business update regarding COVID-19
We are subject to risks and uncertainties as a result of the current COVID-19 pandemic. The COVID-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees, communities and business operations, as well as the U.S. economy and other economies worldwide. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including the duration and severity of the pandemic and the extent and severity of the impact on our customers, new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets.
To date, we have been able to continue the supply of Mytesi to our customer. However, we are dependent on our manufacturing and logistics partners and consequently, disruptions in operations of our partners and customer may affect our ability to supply Mytesi. Furthermore, our ability and that of our third party contract research organizations (“CRO”) to provide future research and development ("R&D") services will continue to be disrupted as a result of local shelter-in-place orders and any disruptions or delays in operations with whom we collaborate. We are unable to fully determine and quantify the extent to which delays in our R&D projects will be affected by the COVID-19 pandemic. We are continuing to assess the potential impact of the COVID-19 pandemic on our business and operations, including our product sales, expenses, and manufacturing.
In the U.S., the impact of COVID-19, including governmental orders governing the operation of non-essential businesses during the pandemic, has caused the temporary closure of our office and halted visits of our salesforce to clinics and healthcare providers. Our employees have been working from home since mid-March 2020, while ensuring essential staffing levels in our operations remain in place.
Our future results of operations and liquidity could be adversely impacted by delays in supply chain disruptions and uncertain demand, and the impact of any initiatives or programs that we may undertake to address financial and operations challenges faced by our customer. As of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact our financial condition, liquidity, or results of operations is uncertain.
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Our internal computer systems, or those used by our CROs or other contractors or consultants, may fail or suffer security breaches
Similar to other companies in our industry, we face substantial cybersecurity risk. Despite the implementation of security measures, our internal computer systems and those of our current and future CROs and other contractors, collaborators and consultants may fail and are vulnerable to damage from computer viruses and unauthorized access. While we have not, to our knowledge, experienced any such material system failure or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on third parties for the manufacture of our product candidates, to analyze clinical trial samples and to conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business.
Substantially all of our revenue for recent periods has been received from a single customer
Substantially all of our revenue has been derived from one customer. Except for the shelter-in-place mandate, we have not been made aware by our customer if they have experienced other issues arising due to COVID-19 that may materially impact our financial condition, liquidity or results of operations. We will continue to have dialogues with our customers.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Other than equity securitiesthe issuance of warrants to purchase up to 9,077,102 shares of common stock issued in transactionsto certain institutional investors and accredited investors, as disclosed on our Current Report on Form 8-K/A8-K filed with the SEC on July 12, 2019,May 22, 2020, there were no unregistered sales of equity securities during the period.period.
Item 3. Defaults upon senior securities
None.
Item 4. Mine safety disclosures
Not applicable.
Departure of Directors or Certain OfficerNone.
On August 9, 2019, Karen Wright notified the Company of her intention to resign from her position as Chief Financial Officer and Treasurer effective immediately. On August 13, 2019, the board of directors of the Company appointed Carol R. Lizak, the Company’s Vice President of Finance & Corporate Controller, to serve as the Company’s principal financial and accounting officer effective immediately.
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Exhibit No. | | Description | |
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3.2 | | ||
3.3 | | ||
3.4 | | ||
3.5 | | ||
3.6 | | ||
3.7 | | ||
4.1 | | Form of Series 3 Warrant (incorporated by reference to Exhibit 4.1 to the Form | |
10.1 | | Jaguar Health, Inc. 2014 Stock Incentive Plan as Amended and Restated Effective October 1, 2019 (incorporated by reference to Exhibit 10.100 to the Form 10-K of Jaguar Health, Inc. filed | |
10.2 | Purchase Agreement, dated April 15, 2020, by and between Napo Pharmaceuticals, Inc. and Atlas Sciences, LLC (incorporated by reference to Exhibit 10.1 to the Form 8-K of Jaguar Health, Inc. filed April 16, 2020, File No. 001-36714). | ||
10.3 | | License Agreement, dated April 15, 2020, by and between Jaguar Health, Inc. and Atlas Sciences, LLC (incorporated by reference to Exhibit 10.2 to the Form 8-K of Jaguar Health, Inc. filed April 16, 2020, File No. 001-36714). | |
10.4 | | Purchase Agreement, dated May | |
10.5 | Assignment Agreement, dated May | ||
10.6 | Form of | ||
10.7 | Form of | ||
10.8 |
| Jaguar Health, Inc. New Employee Inducement Award Plan (incorporated by reference to Exhibit 10.1 to the Form 8-K of Jaguar Health, Inc. filed June | |
10.9 | Form of Notice of Grant of Stock Option and Stock Option Agreement | ||
10.10 | Form of Notice of Grant of Restricted Stock Units and Restricted Stock Unit Agreement | ||
10.11* | |
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10.12* | | |
10.13* | | |
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31.1* | | |
31.2* | | |
32.1** | | Certification Pursuant to 18 U.S.C. § 1350 (Section 906 of Sarbanes-Oxley Act of 2002). |
32.2** | | Certification Pursuant to 18 U.S.C. § 1350 (Section 906 of Sarbanes-Oxley Act of 2002). |
101.INS | | XBRL Instance Document |
101.SCH | | XBRL Taxonomy Extension Schema Document |
101.CAL | | XBRL Taxonomy Extension Calculation Document |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
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* Filed herewith.
** In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34‑34 47986, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form 10‑10 Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or deemed to be incorporated by reference into any filing under the Exchange Act or the Securities Act of 1933 except to the extent that the registrant specifically incorporates it by reference.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August | | |
| JAGUAR HEALTH, INC. | |
| | |
| By: | /s/ Carol R. Lizak |
| | Principal Financial and Accounting Officer |
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