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Item 7. Management’s Discussion and Analysis

2022-03-11 compared with 2021-03-31 · 146 added, 254 removed, 148 unchanged (73% of the section changed)

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The following discussion and analysis should be read together with our financial statements and the related notes appearing elsewhere in this report.

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 our 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 that has yet to be approved by the FDA.

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—an expanded pipeline of potential blockbuster human follow-on indications of crofelemer, and a second-generation anti-secretory agent, as well as a pipeline of potential animal health indications for crofelemer—upon which to build global partnerships.

As previously announced, Jaguar, through Napo, now holds extensive global rights for Mytesi, and crofelemer manufacturing is being conducted at a multimillion-dollar commercial manufacturing facility.

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 human 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 follow-on indications, including CTD;

orphan-drug indications for CDD and SBS;

supportive care for IBD;

Jaguar Health, Inc.

(“Jaguar” or the “Company”) is a commercial stage pharmaceuticals company focused on developing novel, plant-based, non-opioid, and sustainably derived prescription medicines for people and animals with GI distress, including chronic, debilitating diarrhea.

Jaguar Animal Health is a tradename of Jaguar Health.

Our wholly owned subsidiary, Napo Pharmaceuticals, Inc.

(“Napo”), focuses on developing and commercializing proprietary plant-based human pharmaceuticals for the global marketplace from plants or plant products used traditionally in rainforest areas.

Napo’s marketed drug Mytesi (crofelemer 125 mg delayed-release tablets) is a first-in-class oral botanical drug product 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.

To date, this is the only oral plant-based botanical prescription medicine approved under the FDA’s Botanical Guidance.

Jaguar Animal Health’s Canalevia-CA1 (crofelemer delayed-release tablets) drug is the first and only oral plant-based prescription product that is FDA conditionally approved to treat chemotherapy-induced diarrhea (CID) in dogs.

Canalevia-CA1 is a canine-specific formulation of crofelemer.

Napo Therapeutics S.p.A., Napo’s majority owned Italian subsidiary, focuses on expanding crofelemer access in Europe.

Jaguar, formerly known as Jaguar Animal Health, Inc., was founded in San Francisco, California as a Delaware corporation on June 6, 2013 (inception).

The Company was a majority-owned subsidiary of Napo 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 prescription and non-prescription products for companion and production animals and horses.

The Company's first non-prescription commercial products, Neonorm Calf and Neonorm Foal, were launched in 2014 and 2016, respectively.

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 the 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 including the ongoing development of crofelemer and commercialization of Mytesi.

On March 15, 2021, Jaguar established Napo EU S.p.A (which changed its name in December 2021 to “Napo Therapeutics”) based in Milan, Italy as a subsidiary of Napo.

Napo Therapeutics’ mission is to provide access to crofelemer in Europe to address significant rare/orphan disease indications, including, initially, two key orphan target indications:

Short bowel syndrome with intestinal failure (SBS-IF), and congenital diarrheal disorders (CDD).

On November 3, 2021, Napo Therapeutics merged with Dragon SPAC S.p.A.

(“Dragon SPAC”).

Most of the activities of the Company are focused on the commercialization of Mytesi and Canalevia-CA1 and the ongoing clinical development of crofelemer for the prophylaxis of diarrhea in adult patients receiving targeted cancer therapy.

In the field of animal health, we are continuing limited activities related to 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—an expanded pipeline of potential blockbuster human follow on indications of crofelemer, and a second generation anti secretory agent—upon which to build global partnerships.

Jaguar, through Napo, holds global unencumbered rights for crofelemer, Mytesi, and Canalevia-CA1.

Additionally, several of the drug product opportunities in Jaguar’s crofelemer pipeline are backed Phase 2 and proof of concept evidence from human clinical trials.

Crofelemer is a novel, first in class anti secretory agent which has a normalizing effect on electrolyte and fluid balance while acting locally in the gut, and this mechanism of action has the potential to benefit multiple disorders that cause gastrointestinal distress, including diarrhea and abdominal discomfort.

Crofelemer is also in development for possible follow on indications, including prophylaxis for cancer therapy related diarrhea (“CTD”);

for rare disease indications for symptomatic treatment of infants and children with congenital diarrheal disorders (“CDD”) and for adult and pediatric patients with short bowel syndrome with intestinal failure (“SBS-IF”).

Crofelemer has received orphan drug designation (ODD) for short bowel syndrome (SBS) in the US and in EU.

Furthermore, the drug is being evaluated for management of diarrhea and abdominal discomfort in inflammatory bowel disease (“IBD”);

diarrhea-predominant irritable bowel syndrome (“IBS-D”);

and for idiopathic/functional diarrhea.

Additionally, the Company is exploring the conditional marketing authorization regulatory pathway in Europe to support development and commercialization of crofelemer for the proposed indication of treatment of diarrhea associated with COVID-19, and a second-generation proprietary anti-secretory agent, lechlemer, is in development for cholera.

Crofelemer previously received orphan-drug designation for the use of crofelemer in the treatment of SBS.

A second generation proprietary anti secretory agent, NP-300 (lechlemer), is undergoing preclinical development for symptomatic relief and treatment of diarrhea in patients with acute infection from cholera.

Financial Operations Overview

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For additional information relating to these and other accounting policies, see Note 2 to the consolidated financial statements, appearing elsewhere in this report.

Revenue Recognition

The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”).

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 recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that we otherwise would have recognized is one year or less.

We do 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.

Additionally, we have elected to record revenue net of sales and other similar taxes.

Contracts – Cardinal Health

Effective January 16, 2019, Napo 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, Electronic Data Interchange (“EDI”) and system access support (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 Napo until purchased by Cardinal Health in accordance with this Addendum.

Napo considers Cardinal Health the Company’s exclusive customer for Mytesi products per the Cardinal Health 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, we 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.

Jaguar sells directly to its customers without the use of an agent.

Performance obligations

For animal products sold by Jaguar, 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, 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 Napo, the transaction price is the amount of consideration to which the Company expects to collect in exchange for transferring promised goods or services.

The transaction price of Mytesi and Neonorm is the Wholesaler Acquisition Cost (“WAC”), net of estimated discounts, returns, and price adjustments.

Allocate transaction price

For contracts with Cardinal Health, for both Jaguar and Napo, the entire transaction price is allocated to the single performance obligation contained in each contract.

Revenue recognition

For contracts with Cardinal Health, for both Jaguar and Napo, 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

Sales of Mytesi are recognized as revenue when the products are delivered to the wholesaler.

Net revenues from the sale of Mytesi were $9.3 million and $5.7 million for the years ended December 31, 2020 and 2019, respectively.

The Company recognized Neonorm revenues of $76,000 and $102,000 for the years ended

December 31, 2020 and 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.

Contracts – Atlas Sciences, LLC

Effective April 15, 2020, 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 Napo’s

NP-500 drug product candidate (the “Patent Rights”) for an upfront cash payment of $1.5 million.

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”).

Included in the arrangement with Atlas, the Company was 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.

The Company would incur a trial delay fee if the Company failed 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.

Atlas had the right to terminate the License in the event that the Company (i) failed to complete the Phase 2 study within five years of

April 15, 2020 or (ii) had not timely initiated the Phase 2 study and thereafter failed 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.

Transaction price

For the contract with Atlas, the upfront payment of $1.5 million 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 $2.5 million if the Phase 2 study had not been initiated by January 15, 2021.

The Company’s

method for estimating the variable consideration was to use the most likely amount method.

The Company fully constrained the value of the variable consideration based on inherent uncertainty of timing of clinical trials.

Accordingly, at inception, the total transaction price of $1.5 million is deferred and the transaction price is zero.

Allocate transaction price

For the contract with Atlas, the transaction price of $1.5 million as follows:

(i) $1.0 million 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) $529,000 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 were to be transferred to Atlas over the estimated 13.2 months of the study, which was set to run between October 2020 and November 2021.

In September 2020, the Company made the decision not to initiate the Phase 2 study and intended to negotiate the payment of the trial delay fee of $2.5 million and terminate this obligation in the contract.

Because of this decision, the allocated transaction price for that performance obligation will not be recognized as revenue.

Likewise, the allocated transaction price for the Patent sale will not be recognized as revenue, as its recognition was dependent on initiating the Phase 2 study on or before January 15, 2021.

The Company derecognized $1.5 million in deferred revenue and the excess of the trial delay fee was recognized in "General and Administrative Expenses"

in the consolidated statements of operations.

The payment was deemed not in exchange for a distinct good or service.

The Company evaluated the nature of the consideration payable to the customer and the rights and obligations in the related contract and concluded that the excess payment or loss should be presented as part of the "General and Administrative Expenses"

due to the following factors:

● No revenue has been recognized from the transaction as performance obligations were not satisfied.

● The Company settled the trial delay fee in full in October 2020, which constitutes termination of the customer relationship considering that Atlas cannot compel the Company or has no recourse to force the Company to initiate the Phase 2 Study.

The Company does not anticipate future revenue contract with Atlas.

● The trial delay fee is a penalty in its economic term, subject to accounting for contingencies and provisions under relevant authoritative guidance.

In October 2020, the Company entered into a fee settlement agreement with Atlas pursuant to which the Company agreed to issue 2,000,000 shares of common stock and pre-funded warrants to purchase 6,218,954 shares of common stock as complete settlement and satisfaction of the trial delay fee of $2.5 million that the Company incurred pursuant to its license agreement with Atlas dated April 15, 2020.

The pre-funded warrants were exercisable immediately and could be exercised at any time until all of the pre-funded warrants were exercised in full.

The nominal exercise price of each pre-funded warrant was $0.0001.

The settlement resulted to a loss amounting to $1.0 million.

As of December 31, 2020, the shares of common stock have all been issued and the pre-funded warrants have all been exercised.

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 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 is less than 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.

Based on the results of the impairment test, the Company recorded an impairment charge of zero and $4.0 million during the years ended December 31, 2020 and 2019, respectively.

The impairment loss is measured based on the excess of the carrying amount over the asset’s fair value.

Modifications to Liability-classified Instruments

For the years ended December 31, 2020 and 2019, the Company modified certain debt instruments and Series D Perpetual Preferred Stock which is a liability-classified preferred stock (see Note 7 of the consolidated financial statements).

In accounting for debt modifications and exchange transactions, it is the Company’s policy to first determine whether it qualifies as a troubled debt restructuring (“TDR”) pursuant to the guidance provided in ASC 470-60.

A debt modification or exchange transaction that is not within the scope of the ASC 470-60 is accounted for under ASC 470-50 to determine if the transaction is a mere modification or an extinguishment.

Modifications to Equity-classified Instruments

For the years ended December 31, 2020 and 2019, the Company modified certain equity-classified warrants (see Note 8 of the consolidated financial statements).

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.

For the years ended December 31, 2020 and 2019, the Company modified the terms of its Series B Convertible Preferred Stock and Series 1, 2 and Bridge Note Warrants in one transaction (see Note 8 of the consolidated financial statements) and Series C Perpetual Preferred Stock (see Note 9 of the consolidated financial statements).

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 260-10-S99-2 and ASC 470-20.

Results of Operations

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The following table summarizes the Company’s results of operations with respect to the items set forth in such table for the years ended December 31, 2021 and 2020 together with the change in such items in dollars and as a percentage.

Year Ended December 31,

(in thousands)

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General and administrative

Settlement of Tempesta Royalty Settlement Agreement

Impairment of indefinite-lived intangible assets

Series B convertible preferred stock inducement expense

Series 3 warrants inducement expense

ELOC warrants inducement expense

Series B convertible preferred stock inducement expense

Total operating expenses

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Interest expense

Other income, net

Change in fair value of financial instruments

Loss on extinguishment of debt and exchange of Series D perpetual preferred stock

Change in fair value of financial instruments and hybrid instrument designated at Fair Value Option

Other expense, net

Loss before income tax

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Net loss and comprehensive loss

Deemed dividend attributable to accretion of Series A redeemable convertible preferred stock

Deemed dividend attributable to Series B preferred stock

Deemed dividend attributable to Series B-1 convertible preferred stock

Deemed dividend attributable to Series C perpetual preferred stock

Stock dividend attributable to Series C perpetual preferred stock

Deemed dividend attributable to the Series 1 warrant modification

Deemed dividend attributable to accretion of Series A redeemable convertible preferred stock

Deemed dividend attributable to Series 1, Series 2 and Bridge warrant holders

Stock dividend attributable to Series C perpetual preferred stock

Adjusted net loss and comprehensive loss

Net loss attributable to noncontrolling interest

Net loss attributable to common shareholders

Product revenue

The increase in product revenue of $3.6 million for the year ended December 31, 2020 compared to 2019 was mostly due to the list price adjustment of Mytesi that occurred in April 2020.

We transitioned from selling to the wholesalers that resell the product to retail pharmacies to the closed Specialty Pharmacy distribution networks throughout the year 2021 and we fully transitioned in the fourth quarter of the same year.

The transition caused a one-time inventory draw-down of approximately 1,300 bottles of Mytesi across

our third-party logistics warehouse, wholesalers, distributors, and retail stores.

This significantly contributed to the decrease of $4.8 million of Mytesi gross revenue for the year 2021 compared to 2020.

Medicaid and AIDS Drug Assistance Program (“ADAP”) rebates accounted for $3.5 million and $1.7 million for the year ended December 31, 2021 and 2020, respectively, an increase of $1.7 million primarily due to the WAC increase implemented by the Company in April 2020 which resulted in higher government rebates from Medicaid, ADAP, public health services programs, and includes approximately $800,000 in chargebacks from the State of California.

Sales discounts were $6.2 million and $7.0 million for the year ended December 31, 2021 and 2020, respectively, a decrease of $778,000.

We expect the wholesaler fees to decline in line with our switch to the closed Specialty Pharmacy distribution network.

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.

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Total gross product sales

Medicare rebates

Medicaid rebates

Sales discounts

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Net product sales

Our gross product revenues were $15.7 million and $20.5 million for the year ended December 31, 2021 and 2020, respectively.

These periods reflect revenue from the sale of our human drug Mytesi and our animal products branded as Neonorm Calf and Neonorm Foal.

This contributed to the decrease of $4.8 million of Mytesi gross revenue for the year 2021 compared to 2020.

Our Neonorm product revenues were $62,000 and $77,000 for the year ended December 31, 2021 and 2020, respectively.

Sales and marketing expenses for Neonorm products are not significant during 2021 and none during the same period in 2020.

Cost of Product Revenue

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Distribution fees

The decrease in cost of product revenue of $536,000 for the year ended December 31, 2020 compared to 2019 was primarily due to:

● Material costs decreased $345,000 from $2.1 million for the year ended December 31, 2019 to $1.8 million in 2020 mainly consisting of a decrease of $166,000 in Mytesi inventory sold, a year-end contractual credit of $93,000 received from the Company’s contract manufacturer, and a campaign batch cancelation fee of $78,000.

● Other costs decreased $374,000 from $656,000 for the year ended December 31, 2019 to $282,000 in mainly consisting of $115,000 less in write-offs of non-conforming inventory, and a decrease in equipment maintenance of $55,000.

The change in cost of product revenue of $947,000 for the year ended December 31, 2021 compared to 2020 was primarily due to:

● Material costs decreased $802,000 from $1.8 million for the year ended December 31, 2020 to $998,000 in 2021, largely attributable to lower sales resulting in less cost of materials for bottles sold and to non-

recurring write-off of non-conforming inventory in the year ended December 31, 2020.

There was no write-off in 2021.

● Distribution fees decreased $231,000 from $430,000 for the year ended December 31, 2020 to $199,000 in 2021 in line with our transition from Title model to Specialty Pharmacy distribution network.

● Other costs decreased $186,000 from $326,000 for the year ended December 31, 2020 to $140,000 in 2021 mainly consisting of $118,000 less in write-offs of non-conforming inventory, and a decrease in equipment maintenance of $9,000 in 2020.

● Direct labor increased $272,000 from $724,000 for the year ended December 31, 2020 to $996,000 in 2021, due to increased resources in manufacturing.

Research and Development Expense

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Research and Development:

Clinical and contract manufacturing

Personnel and related benefits

Stock-based compensation

Materials expense and tree planting

Travel, other expenses

Clinical and contract manufacturing

Stock-based compensation

The change in R&D expense of $593,000 for the year ended December 31, 2020 compared to 2019 was due primarily to:

● Other expenses increased $881,000 from $1.2 million for the year ended December 31, 2019 to $2.1 million in 2020 mainly consisting of consulting, formulation and regulatory fees.

Consulting expenses increased $775,000 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 also increased $25,000 due to an increase in R&D work.

● Stock-based compensation decreased $120,000 from $869,000 for the year ended December 31, 2019 to $749,000 in 2020 primarily due to higher prior year expense incurred for options granted with upfront vesting to existing employees.

● Travel, other expenses decreased $119,000 from $164,000 for the year ended December 31, 2019 to $45,000 in 2020 due to reduced travel as a result of the COVID-19 pandemic.

● Clinical and contract manufacturing expenses decreased $86,000 from $1.8 million for the year ended December 31, 2019 to $1.7 million in 2020 primarily due to a decrease in contract manufacturing costs for enhanced manufacturing process improvements.

The change in R&D expense of $8.7 million for the year ended December 31, 2021 compared to 2020 was primarily due to:

● Clinical and contract manufacturing expenses increased $4.6 million from $1.7 million for the year ended December 31, 2020 to $6.3 million in 2021 largely due to increased clinical trial activities related to the start-up of CTD and other indications, additional CMC manufacturing, consulting and contractors’ expenses, and cholera/lechlemer research expenses.

● Personnel and related benefits increased $2.2 million from $1.8 million for the year ended December 31, 2020 to $4.0 million in 2021 due to increased resources, salary increases in April 2021 and an increase in bonus.

● Other expenses increased $1.1 million from $2.1 million for the year ended December 31, 2020 to $3.1 million in 2021 mainly consisting of consulting, formulation and regulatory fees.

Consulting expenses increased due to increase in clinical trial consultants while direct R&D testing costs also increased due to an increase in R&D work.

● Stock-based compensation increased $570,000 from $749,000 for the year ended December 31, 2020 to $1.3 million in 2021 primarily due to new options granted in April 2021.

● Material expense and tree planting increased $267,000 from $94,000 for the year ended December 31, 2020 to $361,000 in 2021 due to increased clinical trials.

Sales and Marketing Expense

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Personnel and related benefits

Stock-based compensation

Direct marketing fees and expense

The change in S&M expense of $327,000 for the year ended December 31, 2020 compared to 2019 was due primarily to:

● Personnel and related benefits decreased $875,000 from $4.2 million for the year ended December 31, 2019 to $3.3 million in 2020 due to sales force reduction.

● Other expenses decreased $302,000 from $1.2 million for the year ended December 31, 2019 to $879,000 in 2020 due to reduced travel as a result of the COVID-19 pandemic.

● Direct marketing and sales expense increased $791,000 from $1.4 million for the year ended

December 31, 2019 to $2.2 million in 2020 due to an increase in marketing programs for Mytesi related to the expanding market access through specialty pharmacy channels.

Stock-based compensation

The change in S&M expense of $2.3 million for the year ended December 31, 2021 compared to 2020 was primarily due to:

● Direct marketing fees and expense increased $1.2 million from $2.2 million for the year ended December 31, 2020 to $3.4 million in 2021 due to an increase in marketing programs for Mytesi related to the expanding market access through specialty pharmacy channels.

● Personnel and related benefits increased $593,000 from $3.3 million for the year ended December 31, 2020 to $3.9 million in 2021 due to the addition of four new personnel within Commercial Operations, increase in bonus, and salary increases in April 2021.

● Other expenses increased $365,000 from $879,000 for the year ended December 31, 2020 to $1.2 million in 2021 largely due to additional marketing consulting costs.

General and Administrative Expense

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Personnel and related benefits

Stock-based compensation

Legal services

Public company expense

Audit, tax and accounting services

Third-party consulting services

Legal services

Travel, other expenses

Stock-based compensation

Rent and lease expense

Public company expense

The change in G&A expenses of $885,000 for the year ended December 31, 2020 compared to 2019 was due primarily to:

● Other general and administrative expenses increased $1.5 million from $3.3 million for the year ended December 31, 2019 to $4.8 million in 2020 largely due to $1.0 million charge for Atlas trial delay penalty, an increase in state business and manufacturing licenses of $90,000, and $306,000 increase of D&O liability insurance.

● Legal services increased $554,000 from $1.9 million for the year ended December 31, 2019 to $2.4 million in 2020 primarily due to $218,000 increase in fees related to legal proceedings, $243,000 increase in fees related to addressing a congressional inquiry, and $59,000 increase in promotional material compliance review to support increase in marketing programs for Mytesi, and $70,000 increase in patent related legal fees.

● Public company expenses increased $528,000 from $651,000 for the year ended December 31, 2019 to $1.2 million in 2020 largely due to $460,000 increase in investor relations and communications consulting expenses and $76,000 in underwriter settlement agreement costs.

● Third-party consulting fees decreased $1.2 million from $2.0 million for the year ended

December 31, 2019 to $845,000 in 2020.

This was primarily due to the restructuring initiatives implemented in the Finance and Accounting department.

● Travel, other expenses decreased $207,000 from $245,000 for the year ended December 31, 2019 to $38,000 in 2020 due to reduced travel as a result of the COVID-19 pandemic.

● Audit, tax and accounting services fees decreased $109,000 from $815,000 for the year ended

December 31, 2019 to $706,000 in 2020, mostly due to change in the timing of services received.

● Rent and lease expense decreased $106,000 from $796,000 for the year ended December 31, 2019 to $690,000 in 2020 primarily due to the move of the Company’s administrative headquarters in August 2020 that resulted in lower recurring rent expense.

● Stock-based compensation expense decreased $104,000 from $2.0 million for the year ended

December 31, 2019 to $1.9 million in 2020 due to an increase in the volume of option grants.

Settlement of Tempesta Royalty License Agreement

A royalty license agreement settlement liability decreased from $649,000 in the year ended

December 31, 2019 to zero in 2020.

In October 2019, the Company and Tempesta settled a dispute, pursuant to which 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.

Impairment of Indefinite-lived Intangible Assets

Acquired 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.

The Company recorded an impairment of indefinite-lived assets of zero and $4.0 million in the years ended December 31, 2020 and 2019, respectively.

The impairment loss is measured based on the excess of the carrying amount over the asset’s fair value.

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.

The modification of the conversion price of the Series B Convertible Preferred shares were qualitatively considered an extinguishment and the Company followed the guidance in ASC 260-10-S99-2 and recorded an expense of $1.6 million and derecognizing the Series B Convertible Preferred shares.

Travel, other expenses

The change in G&A expenses of $2.7 million for the year ended December 31, 2021 compared to 2020 was due primarily to:

● Personnel and related benefits increased $1.5 million from $1.8 million for the year ended December 31, 2020 to $3.4 million in 2021 due to new hires and increase in bonus.

● Public company expenses increased $1.1 million from $1.2 million for the year ended December 31, 2020 to $2.3 million in 2021 largely attributable to the investor relations and communications consulting expenses, and expenses for the annual shareholder meeting.

● Stock-based compensation expense increased $481,000 from $1.9 million for the year ended December 31, 2020 to $2.3 million in 2021 primarily due to higher expense incurred for options granted with immediate vesting to existing employees.

● Audit, tax and accounting services fees increased $276,000 from $706,000 for the year ended December 31, 2020 to $982,000 in 2021, mostly due to the increased audit fees related to complex debt and equity transactions.

● Travel, other expenses increased $159,000 from $38,000 for the year ended December 31, 2020 to $197,000 in 2021 due to other corporate and investor relations activities.

● Rent and lease expense decreased $408,000 from $690,000 for the year ended December 31, 2020 to $282,000 in 2021 as a result of the transfer to a lower-cost facility and the occupancy of less space.

● Other general and administrative expenses decreased $296,000 from $4.8 million for the year ended December 31, 2020 to $4.5 million in 2021 largely due to decreased consulting expenses in 2021.

There was a non-recurring charge of $1.0 million for the Atlas trial delay penalty incurred in the year ended December 31, 2020.

● Legal services decreased $146,000 from $2.4 million for the year ended December 31, 2020 to $2.3 million in 2021 primarily due to a decrease in fees related to legal proceedings and other regulatory filings.

Series 3 Warrants Inducement Expense

The decrease in the Series 3 Warrants inducement expense of $2.2 million is due to the following:

● In January 2021, the Company issued 135,416 Series 3 Warrants to a certain investor for the exercise of 135,416 Bridge Note Warrants in accordance with the May 2020 Modification of the 2019 Bridge Note Warrants and Inducement Offer.

These Series 3 Warrants were valued at $1.5 million using the Black-Scholes-Merton option pricing model on the issuance date.

● 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 2,890,284 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 statement, following the requisite Stockholder Approval, each such Series 3 Warrant will be exercisable into one share of common stock for no consideration (the “Alternate Cashless Exercise”).

The Series 3 Warrants were initially valued at $3.7 million using the Black-Scholes-Merton 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 consolidated balance sheets.

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.

In 2020, certain holders of the Series 3 Warrants agreed to exercise a total of 8,456,352 shares for a 1-for-1 exchange of common shares in an Alternate Cashless Exercise.

The aggregate fair value of the common stock issued upon the exercise of the Series 3 Warrants as of the exercise date was $6.1 million.

As of December 31, 2020, the remaining Series 3 Warrants are valued at $175,000 using the Black-Scholes option pricing model with inputs as follows:

probability-weighted exercise price of $0 per share, stock price of $0.815 per share, expected life of 4.89 years, volatility of 142%, and a risk-free rate of 0.36%.

These Series 3 warrants were valued at $3.7 million using the Black-Scholes-Merton option pricing model on the issuance date.

ELOC Warrants Inducement Expense

In April 2021, in consideration for Oasis Capital’s entry into the amendment to the March 2020 Equity Line of Credit, the Company issued Oasis Capital a common stock purchase warrant exercisable for 33,333 shares of common stock with an exercise price per share equal to $5.61 on the date of the amendment.

These warrants were valued at $172,000 on the issuance date.

Series B Convertible Preferred Stock Inducement Expense

shares of common stock, at a reduced exercise price of $1.57 per share for gross proceeds to the Company of approximately $653,000.

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 $6.00 to $1.34.

The modification of the conversion price of the Series B Convertible Preferred shares was qualitatively considered an extinguishment and the Company followed the guidance in ASC 260-10-S99-2 and recorded an expense of $1.6 million and derecognizing the Series B Convertible Preferred shares.

Interest Expense, net

Interest expense decreased $2.9 million from $5.7 million for the year ended December 31, 2019 to $2.8 million in 2020 primarily due to interest expense incurred on the March 2019 Bridge Notes and interest expense incurred on warrants issued concurrently.

Change in Fair Value of Financial Instruments

Change in fair value of financial instruments increased $3.7 million from a gain of $1.0 million for the year ended December 31, 2019 to a loss of $2.7 million in 2020 entirely due to losses incurred on the change in fair value of liability classified warrants.

Interest expense increased $5.6 million from $2.8 million for the year ended December 31, 2020 to $8.4 million in 2021 primarily due to additional interest expense incurred on royalty interest agreements.

Loss on Extinguishment of Debt and Exchange of Series D Perpetual Preferred Stock

The loss on extinguishment of debt and conversion of Series D Perpetual Preferred Stock decreased $3.0 million from $4.9 million for the year ended December 31, 2019 to $1.9 million in 2020 is due to the following:

● During 2019, the Company recorded $2.6 million in extinguishment losses from exchanges of principal and related accrued interest for shares of the Company’s common stock;

● In May 2019, the Company recorded a $2.0 million extinguishment loss from the exchange of the two outstanding Napo convertible notes for Exchange Note 1 and Exchange Note 2;

● In July 2019, the Company recorded a $336,000 extinguishment loss from paying off twenty-one Bridge Notes prior to maturity;

The loss on extinguishment of debt and conversion of Series D Perpetual Preferred Stock decreased $1.1 million from $1.9 million for the year ended December 31, 2020 to $753,000 in 2021 is due to the following:

● During 2020, the Company recorded a $560,000 extinguishment loss from exchanges of the outstanding Exchange Note 1 for shares of the Company’s common stock;

● In December 2020, the Company recorded a $1.3 million loss from exchanges of Series D Perpetual Preferred Stock for shares of the Company’s common stock.

Deemed Dividend Attributable to Accretion of Series A Redeemable Convertible Preferred Stock

The Company recorded a deemed dividend charge of $1.3 million for the year ended December 31, 2020 compared to $894,000 in 2019, for the accretion of the redemption amount and carrying value of the Series A Convertible Preferred Stock.

Deemed Dividend Attributable to Series B Convertible Preferred Stock

On the July 23, 2019 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 of $4.2 million.

Because the Company's Series B 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 $4.2 million for the accretion of the discount on the Series B Convertible Preferred Stock.

Deemed Dividend Attributable to Series B-1 Convertible Preferred Stock

On October 3 and October 9, 2019, in two separate transactions, the Company exercised its purchased put option, see Note 9 to the consolidated financial statements, to require the Exercising Holder to exercise all of its 1,250,000 Series 1 warrants, see Note 8 to the consolidated financial statements, 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 issuance dates, 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 total beneficial conversion feature of $530,000.

Stock Dividend Attributable to Series C Perpetual Preferred Stock

The Company recorded a $130,000 stock dividend attributable to the Series C Perpetual Preferred Stock for the year ended December 31, 2020.

The Series C Perpetual Preferred shares were entitled to receive 10% cumulative stock dividends, to be payable in arrears on a monthly basis for 24 consecutive months.

Dividends payable on the Series C Perpetual Preferred shares shall be payable through the Company’s issuance of Series C Perpetual Preferred share by delivering to each record holder the calculated number of payment-in-kind dividend shares.

● In January 2021, the Company recorded a $753,000 loss from the exchange of the outstanding balance of Exchange Note 2 for the Company’s shares common stock.

Change in Fair Value of Financial Instruments and Hybrid Instrument Designated at FVO

Change in fair value of financial instruments decreased $743,000 from a loss of $2.7 million for the year ended December 31, 2020 to a loss of $2.0 million in 2021 primarily due to fair value adjustments in liability classified warrants and notes payable designated at FVO.

Deemed Dividend Attributable to Series C Perpetual Preferred Stock

The Company recorded a deemed dividend of $2.5 million for the year ended December 31, 2020 that resulted from the series of exchanges of Series C Perpetual Preferred Stock in October and December 2020.

Deemed Dividend Attributable to the Series 1 Warrant Modification

The Company recorded a deemed dividend of $522,000 for the year ended December 31, 2019 that resulted from the modification of the Series 1 Warrants in September 2019.

Deemed Dividend Attributable to Accretion of Series A Redeemable Convertible Preferred Stock

The Company recorded a deemed dividend charge of $1.3 million for the year ended December 31, 2020 for the accretion of the redemption amount and carrying value of the Series A Convertible Preferred Stock.

Deemed Dividend Attributable to Series 1, Series 2 and Bridge Warrant Holders

The Company recorded a deemed dividend of $856,000 for the year ended December 31, 2020 that resulted from the modification of the Series 1, Series 2 and Bridge Warrants in May 2020.

Stock Dividend Attributable to Series C Perpetual Preferred Stock

The Company recorded a $130,000 stock dividend attributable to the Series C Perpetual Preferred Stock for the year ended December 31, 2020.

The Series C Perpetual Preferred shares were entitled to receive 10% cumulative stock dividends, to be payable in arrears on a monthly basis for 24 consecutive months.

Dividends payable on the

Series C Perpetual Preferred shares shall be payable through the Company’s issuance of Series C Perpetual Preferred share by delivering to each record holder the calculated number of payment-in-kind dividend shares.

Liquidity and Capital Resources

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To date, we have generated only limited revenue, and we may never achieve revenue sufficient to offset our expenses.

We had cash of $8.1 million as of December 31, 2020.

We believe our current capital is sufficient to fund our operating plan through one year from the issuance of these consolidated financial statements.

The Company has funded operations primarily through the issuance of equity and debt financing, in addition to sales of commercial products.

The Company expects to incur substantial losses and negative cash flows in future periods.

Further, the Company’s future operations, which include the satisfaction of current obligations, are dependent on the success of the Company’s ongoing development and commercialization efforts, as well as securing of additional financing and generating positive cash flows from operations.

There is no assurance that the Company will have adequate cash balances to maintain its operations.

We had cash of $17.1 million as of December 31, 2021 to fund our operating plan through one year from the issuance of these consolidated financial statements.

Although the Company plans to finance its operations and cash flow needs through equity and/or debt financing, collaboration arrangements with other entities, license royalty agreements, as well as revenue from future product sales, the Company does not believe its current cash balances are sufficient to funds its operating plan through one year from the issuance of these 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.

If the Company is unable to obtain an adequate level of financing needed for the long-term development and commercialization of our products, the Company will need to curtail planned activities and reduce costs.

Doing so will likely have an adverse effect on our ability to execute our business plan;

accordingly, there is substantial doubt about the ability of the Company to continue in existence as a going concern.

The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

We have funded our operations primarily through the issuance of equity and debt financing, in addition to sales of commercial products.

Cash provided by financing activities in 2021 are as follows:

● On February 24, 2020, the Company entered into a warrant exercise agreement with a holder of Series 1 Warrants previously issued in the Company’s registered public offering on July 23, 2019 and its warrants previously issued in private placements in March through June of 2019 (“Bridge Warrants”), pursuant to which the Holder agreed to exercise in cash its warrants to purchase an aggregate of 458,022 shares of the Company’s common stock, par value $0.0001 per share, at a reduced exercise price of $0.692 per share for gross proceeds to the Company of approximately $317,000.

● On March 4, 2020, the Company entered into a royalty interest purchase agreement with Iliad Research and Trading, L.P.

(“Iliad”), a Utah limited partnership affiliated with CVP, pursuant to which the Company sold a royalty interest entitling Iliad to receive $500,000 of future royalties on sales of Mytesi and certain upfront license fees and milestone payments from licensees and/or distributors for an aggregate purchase price of $350,000.

● On March 23, 2020, the Company entered into a Private Investment in Public Equity (“PIPE”) 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 unregistered shares for an aggregate purchase price of approximately $719,000.

● On March 24, 2020, the Company and Ionic Ventures LLC (“Ionic Ventures”) 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 for gross proceeds 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.

● 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.

Under the terms of the Purchase Agreement, Oasis Capital initially purchased certain accounts receivable with a face amount of $2.8 million for a purchase price of $1.0 million.

On June 26, 2020, the Company entered into an amendment to the accounts receivable purchase agreement with Oasis Capital pursuant to which Oasis Capital purchased certain accounts receivable with a face amount of $2.8 million for a purchase price of $1.2 million.

On August 13, 2020, the Company entered into an amendment to the accounts receivable purchase agreement with Oasis Capital pursuant to which Oasis Capital purchased certain accounts receivable with a face amount of $3.1 million for a purchase price of $1.3 million.

On September 9, 2020, the Company entered into an amendment to the accounts receivable purchase agreement with Oasis Capital pursuant to which Oasis Capital purchased certain accounts receivable with a face amount

of $2.3 million for a purchase price of $985,000.

On October 9, 2020, the Company entered into an amendment to the accounts receivable purchase agreement with Oasis Capital pursuant to which Oasis Capital purchased certain accounts receivable with a face amount of $2.1 million for a purchase price of $895,000.

On December 3, 2020, the Company entered into an amendment to the accounts receivable purchase agreement with Oasis Capital pursuant to which Oasis Capital purchased certain accounts receivable with a face amount of $3.8 million for a purchase price of $1.6 million.

● 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 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, and Bridge Warrants to purchase 93,750 shares of common stock in exchange for the Company’s agreement to issue new Series 3 Warrants to purchase up to 8,670,852 shares of common stock (“Series 3 Warrants”) to such holders as an inducement for the exercise of the Series 1 Warrants, Series 2 Warrants and Bridge Warrants by such holders.

The Company received aggregate gross proceeds of $4.25 million from the exercise of the Original Warrants and the Bridge Warrants by such holders.

● In July, August and October 2020, the Company received proceeds of $627,000 from holders of Series 1 Warrants and Series 2 Warrants who exercised warrants to purchase 1,279,266 shares of common stock.

● On October 5, 2020, the Company entered into an At The Market Offering Agreement (the “ATM Agreement”) with Ladenburg Thalmann & Co.

(“Ladenburg”), pursuant to which the Company may offer and sell, from time to time through Ladenburg, shares of common stock, subject to the terms and conditions of the ATM Agreement.

As of December 31, 2020, the Company sold 3,814,925 shares of common stock under the ATM Agreement resulting in net proceeds of approximately $1.3 million after commissions and expenses of approximately $78,000.

Subsequent to December 31, 2020, the Company sold 2,009,554 shares of common stock under this agreement resulting in net proceeds of approximately $5.5 million after commissions and expenses of approximately $170,000.

● On October 8, 2020, the Company entered into a royalty interest purchase agreement with Iliad, pursuant to which the Company sold a royalty interest entitling Iliad to receive $12.0 million of future royalties on sales of Mytesi and certain upfront license fees and milestone payments from licensees and/or distributors for an aggregate purchase price of $6.0 million.

As of November 13, 2020, the Company’s weekly VWAP failed to meet the minimum VWAP of $0.3035 for the first two weeks of November, warranting an additional $6.0 million Royalty Repayment Amount to be added in the outstanding balance commencing on May 10, 2021 for the purpose of cash interest calculation.

● On December 22, 2020, the Company entered into a royalty interest purchase agreement with Irving Park Capital, LLC (“Irving”), a Utah limited liability company affiliated with CVP, pursuant to which the Company sold a royalty interest entitling Irving to receive $12.0 million of future royalties on sales of Mytesi and certain upfront license fees and milestone payments from licensees and/or distributors for an aggregate purchase price of $6.0 million.

● During January 2021, an aggregate of 416,664 shares of common stock was issued upon the exercise of the December 2019 PIPE Financing Warrants for total proceeds of $975,000.

● On January 13, 2021, the Company entered into a securities purchase agreement, pursuant to which the Company agreed to issue and sell, in a registered public offering an aggregate of 1,479,290 shares of common stock, at an offering price of $10.14 per share for net proceeds of approximately $13.5 million.

● On January 19, 2021, the Company entered into a note purchase agreement with Streeterville Capital, LLC (“Streeterville”), pursuant to which the Company issued a secured promissory note in the aggregate principal amount of $6.2 million for an aggregate purchase price of $6.0 million.

● During January and February 2021, the Company issued an aggregate of 669,850 shares under the ATM Agreement for total net proceeds of $5.4 million.

● On March 8, 2021, the Company entered into a Royalty Purchase Agreement with Streeterville, pursuant to which the Company sold a royalty interest entitling Streeterville to $10.0 million and any interest, fees, and charges as royalty repayment amount for an aggregate purchase price of $5.0 million.

Interest will accrue on the royalty repayment amount at a rate of 5% per annum, compounding quarterly, and will increase to 10% per annum, compounding quarterly on the 12-month anniversary of the closing date.

● Between January to March 2021, an aggregate of 1,383,524 shares of common stock were issued upon the exercise of Series 1, Series 2 and Bridge Note Warrants for total proceeds of $2.0 million.

● On April 29, 2021, the Company entered into a securities purchase agreement, pursuant to which the Company agreed to issue and sell, in a registered public offering an aggregate of 2,549,000 shares of common stock at an offering price of $4.23 per share for gross proceeds of approximately $10.8 million before deducting placement agent fees and related offering expenses of $948,000.

● On September 13, 2021, the Company entered into a securities purchase agreement (the “September 2021 PIPE Financing”) with certain investors, pursuant to which the Company agreed to issue and sell to the investors in a private placement an aggregate of 309,242 unregistered shares of the Company’s common stock for an aggregate purchase price of approximately $776,000 or $2.51 per share.

● On December 10, 2021, the Company entered into another ATM Agreement (“December 2021 ATM Agreement”) with Ladenburg, pursuant to which the Company may offer and sell, from time to time through Ladenburg, shares of common stock having an aggregate offering price of up to $15.0 million.

As of December 31, 2021, the Company has issued 2,261,596 shares under the December 2021 ATM Agreement for a total net proceeds of $3.2 million.

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 believe our current capital is sufficient to fund our operating plan through one year from the issuance of these consolidated financial statements.

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, including but not limited to the contemplated merger transaction between the Dragon SPAC and Napo EU and associated licensing arrangement that is currently under discussions, 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.

If we do not generate upfront fees from any anticipated arrangements, it would have a negative effect on our operating plan.

We still 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.

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Total cash provided by financing activities

Net increase (decrease) in cash

Net increase in cash

Cash Used in Operating Activities

During the year ended December 31, 2020, net cash used in operating activities of $15.3 million resulted from our net loss of $33.8 million adjusted by depreciation and amortization expenses of $1.7 million, interest paid on the conversion of debt to equity of $0.6 million, a loss on extinguishment of debt and conversion of Series D Perpetual Preferred Stock of $1.9 million, a loss on recourse obligation on secured borrowing of $15,000, amortization of operating lease right-of-use assets of $553,000, expense on modifications of warrants of $86,000, inducement charge of $1.6 million on the modification of Series B Convertible Preferred Stock, stock-based compensation of $2.8 million, other stock and warrant payments of $1.1 million, amortization of debt discounts and debt issuance costs and non-cash interest expense of $2.7 million, $2.5 million in shares issued to Atlas Sciences for settlement of the Trial Delay Fee, an increase in fair value of financial instruments of $2.7 million, and $3.7 million charge for Series 3 Warrants issued as an inducement to exercise equity-classified Series 1, Series 2 and Bridge warrants, offset by changes in operating assets and liabilities of $3.5 million.

During the year ended December 31, 2019, cash used in operating activities of $20.5 million resulted from our net loss of $38.5 million, adjusted by non-cash depreciation and amortization expense of $1.7 million, impairment of indefinite-lived intangible assets of $4.0 million, a debt extinguishment loss of $4.9 million, amortization of operating lease right-of-use-assets of $191,000, stock-based compensation of $3.0 million, other stock compensation of $189,000, a note settlement expense of $550,000, amortization of interest expense from debt discount and issuance costs of $5.2 million, offset by a change in fair value of warrants of $1.0 million, and net of changes in operating assets and liabilities of $662,000.

During the year ended December 31, 2021, net cash used in operating activities of $35.0 million resulted from our net loss of $52.6 million adjusted by amortization of debt issuance costs, debt discount, and non-cash interest expense of $5.2 million, stock-based compensation of $4.0 million, change in fair value of financial instruments and hybrid instruments designated at FVO of $2.0 million, depreciation and amortization expenses of $1.7 million, Series 3 and ELOC warrants inducement expenses of $1.6 million, loss on extinguishment of debt of $753,000, amortization of operating lease right-of-use assets of $94,000, derecognition of debt discount on settlement of receivables secured borrowing of $49,000, shares issued in exchange for services of $16,000, and net changes in operating assets and liabilities of $2.3 million.

During the year ended December 31, 2020, net cash used in operating activities of $15.3 million resulted from our net loss of $33.8 million adjusted by depreciation and amortization expenses of $1.7 million, interest paid on the conversion of debt to equity of $0.6 million, a loss on extinguishment of debt and conversion of Series D Perpetual Preferred Stock of $1.9 million, a loss on recourse obligation on secured borrowing of $15,000, amortization of operating lease right-of-use assets of $553,000, expense on modifications of warrants of $86,000, inducement charge of $1.6 million on the modification of Series B Convertible Preferred Stock, stock-based compensation of $2.8 million, other stock and warrant payments of $1.1 million, amortization of debt discounts, debt issuance costs, and non-cash interest expense of $2.7 million, $2.5 million in shares issued to Atlas Sciences for settlement of the Trial Delay Fee, an increase in fair value of financial instruments of $2.7 million, and $3.7 million charge for Series 3 Warrants issued as an inducement to exercise equity-classified Series 1, Series 2 and Bridge warrants, offset by changes in operating assets and liabilities of $3.5 million.

Cash Used in Investing Activities

During the year ended December 31, 2020, cash used in investing activities was $7,000.

During the year ended December 31, 2019, no cash was used in investing activities.

During the year ended December 31, 2021, cash used in investing activities was $6,000 which consisted of cash used to purchase property and equipment.

During the year ended December 31, 2020, cash used in investing activities was $7,000 which consisted of cash used to purchase property and equipment.

Cash Provided by Financing Activities

During the year ended December 31, 2021, net cash provided by financing activities of $43.9 million consisted of $23.2 million in net proceeds received from shares issued in registered public offering, $11.0 million in net proceeds received from issuance of notes payable, $8.6 million in net proceeds from shares issued in an At the Market offering, $2.0 million in net proceeds received from shares issued on conversion of Series 1, Series 2, and 2019 Bridge Note Warrants, $1.8 million in net proceeds received from shares issued in PIPE financing, $247 million noncontrolling interest, and $3,000 in net proceeds from exercise of stock options, offset by $1.8 million repayment of receivables secured borrowing, $943,000 repayment of insurance financing, $100,000 in principal payments of the notes payable and $35,000 payment of ELOC warrants offering costs.

During the year ended December 31, 2020, net cash provided by financing activities of $19.5 million consisted of $12.3 million in net proceeds received from issuances of a notes payable, $7.1 million received from borrowings secured by the Company’s trade receivables, $668,000 in net proceeds received from shares of common stock issued via a PIPE financing, $5.8 million in net proceeds received from shares of common stock issued on exercise of Series 1, Series 2, and 2019 Bridge Note warrants, and $1.3 million in net proceeds received from issuance of other shares of common stock, offset by $7.3 million in principal payments of the notes payable, secured borrowings and insurance premium borrowings, $185,000 million in issuance costs from shares issued as part of the underwriter settlement agreement, and $142,000 other payments of issuance costs.

During the year ended December 31, 2019, net cash provided by financing activities of $21.8 million primarily consisted of $2.6 million in net proceeds received from 195,319 shares of common stock issued to Oasis Capital via an option to increase the equity line of credit, $266,000 in net proceeds received from 19,019 shares issued in a registered direct public offering to Oasis Capital, $14.0 million in net proceeds received from the July 2019 public offering, $1.5 million received in PIPE financings, $1.7 million in net proceeds received from issuance to Oasis Capital of Pre-Funded Warrants to purchase up to an aggregate of 2,222,223 shares of the Company’s common stock, $1.8 million in proceeds received from issuance of Series 1 warrants via put options, less $100,000 from notes payable interest expense.

Off-Balance Sheet Arrangements

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis