What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-03-24 compared with 2022-03-11 · 411 added, 695 removed, 911 unchanged (55% of the section changed)

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Consolidated Statements of Operations for the years ended December 31, 2022 and 2021

Consolidated Statements of Comprehensive Loss for the years ended December 31, 2022 and 2021

Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2022 and 2021

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To the Board of Directors and

Shareholders of Jaguar Health, Inc.:

Stockholders of Jaguar Health, Inc.:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Jaguar Health, Inc., (the “Company”) as of December 31, 2021, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the year ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of Jaguar Health, Inc., and subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and 2021 and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

The Company’s Ability to Continue as a Going Concern

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We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matter

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

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and a comparison of the methods or assumptions used with those used in the preceding period.

Identified and evaluated assumptions developed by the specialist considering assumptions generally used in the specialist’s field;

Identified and evaluated assumptions

developed by the specialist considering assumptions generally used in the specialist’s field;

supporting evidence provided by the specialist;

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PCAOB ID Number 587

Report of Independent Registered Public Accounting Firm

To the Board of Directors and

Stockholders of Jaguar Health, Inc.:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Jaguar Health, Inc.

(“Company”) as of December 31, 2020, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the year ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ Mayer Hoffman McCann P.C.

We served as the Company's auditor since 2019, which ended in 2021.

San Diego, California

March 31, 2021 (except for the effects of the reverse stock split described in Note 1, as to which the date is March 11, 2022)

PCAOB ID Number 199

JAGUAR HEALTH, INC.

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Accounts receivable

Accounts receivable - pledged

Other receivable

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Intangible assets, net

Liabilities and stockholders' equity

Liabilities and Stockholders' equity (deficit)

Current liabilities:

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Notes payable, current

Series D perpetual preferred stock:

$ 0.0001 par value;

977,300 shares authorized at December 31, 2021 and 2020;

zero shares issued and outstanding at December 31, 2021 and 2020

Total current liabilities

Operating lease liability, net of current portion

Notes payable, net of discount, net of current portion (includes hybrid instrument designated at Fair Value Option amounting to $ 7.8 million and zero as of December 31, 2021 and 2020, respectively)

Notes payable, net of discount, net of current portion (includes hybrid instrument designated at Fair Value Option amounting to $ 7.8 million as of December 31, 2022 and December 31, 2021, respectively)

Total liabilities

Commitments and contingencies (See Note 5)

Stockholders' equity

Stockholders' equity (deficit)

Series B-2 convertible preferred stock:

$ 0.0001 par value, 10,165 shares authorized at December 31, 2021 and 2020;

zero shares issued and outstanding at December 31, 2021 and 2020

10,165 shares authorized at December 31, 2022 and December 31, 2021;

zero shares issued and outstanding at December 31, 2022 and December 31, 2021

Series C perpetual preferred stock:

1,011,000 shares authorized at December 31, 2021 and 2020;

zero shares issued and outstanding at December 31, 2021 and 2020

1,011,000 shares authorized at December 31, 2022 and December 31, 2021;

zero shares issued and outstanding at December 31, 2022 and December 31, 2021

Series E perpetual preferred stock:

4,475,074 shares authorized at December 31, 2022 and December 31, 2021;

zero shares issued and outstanding at December 31, 2022 and December 31, 2021

Common stock - voting:

$ 0.0001 par value, 150,000,000 shares authorized at December 31, 2021 and 2020;

48,352,527 and 38,007,420 shares issued and outstanding at December 31, 2021 and 2020, respectively

$ 0.0001 par value, 298,000,000 shares authorized at December 31, 2022 and December 31, 2021;

2,182,084 and 644,700 issued and outstanding at December 31, 2022 and December 31, 2021

Common stock - non-voting:

$ 0.0001 par value, 50,000,000 shares authorized at December 31, 2021 and 2020;

2,120,786 shares issued and outstanding at December 31, 2021 and 2020

$ 0.0001 par value, 50,000,000 shares authorized at December 31, 2022 and December 31, 2021;

2,120,786 shares issued and outstanding at December 31, 2022 and December 31, 2021

Additional paid-in capital

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Accumulated deficit

Total stockholders' equity

Total liabilities and stockholders' equity

Accumulated other comprehensive loss

Total Stockholders' equity (deficit)

Total liabilities and Stockholders' equity (deficit)

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

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Product revenue

Total revenue

Operating expenses

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ELOC warrants inducement expense

Series B convertible preferred stock inducement expense

Total operating expenses

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Interest expense

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

Loss on extinguishment of debt

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

Other income (expense), net

Other income (expense)

Loss before income tax

Income tax expense

Net loss and comprehensive loss

Deemed dividend attributable to Series C perpetual preferred stock

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

Net loss attributable to common stockholders

Net loss per share, basic and diluted

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JAGUAR HEALTH, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands, except share and per share data)

Other comprehensive loss

Translation adjustments

Net loss and comprehensive loss

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

JAGUAR HEALTH, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Preferred Stock

Stock - voting

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Noncontrolling

other comprehensive

Stockholders'

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Shares issued on exercise of Series 1, Series 2, and 2019 Bridge Note Warrants

Shares issued on exercise of Series 2 warrants and inducement offer conversion of Series B-1 convertible preferred stock

Shares issued on exercise of Series 1, Series 2, and 2019 Bridge Note warrants, net of issuance costs of $ 461 ;

Shares issued on conversion of Series 1, Series 2, and 2019 Bridge Note warrants;

Modification of Series 1, Series 2 and Bridge warrants

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

Shares issued on exercise of Series 3 warrants

Shares issued on exercise of Series 1 and Series 2 warrants

Shares issued to Atlas Sciences for settlement of Trial Delay Fee

Warrants issued and converted to common shares to Atlas Sciences for settlement of Trial Delay Fee

Issuance of common stock in PIPE financing, net of issuance costs of $ 51

Shares issued in Underwriter settlement agreement

Warrants issued in Underwriter settlement agreement

Underwriter settlement offering cost

Conversion of Series B-2 convertible preferred stock into common stock

Conversion of Series B convertible preferred stock into common stock

Shares issued to Oasis as consideration under the March 2020 equity purchase agreement

Shares issued to Oasis under the March 2020 equity purchase agreement, put option exercise, net of issuance costs of $ 13

Series A convertible preferred stock redeemed and Series C perpetual preferred issued under the exchange transaction

( 5,524,926 )

Stock dividend attributable to Series C perpetual preferred stock of $ 8 per share

Extinguishment of Series C perpetual preferred stock

Deemed dividend attributable to Series C perpetual preferred stock

Shares issued in PIPE financing

Shares issued in At the Market offering, net of issuance and offering costs of $ 465

Shares issued to Iliad in exchange of notes payable and accrued interest

Shares issued to third party for services

Shares issued to Sagard Capital in exchange of services

Shares issued in exchange of CVP Exchange Notes

Warrants issued and converted to common shares to Pacific Capital Management in exchange of promissory note

Shares issued to PoC Capital in Payment of Contracted Research Fees

Shares issued to Iliad in exchange of Royalty Interest

Shares issued on conversion of Series C perpetual preferred stock

Warrants issued and converted to common stock in exchange for Series C Preferred Stock

Shares issued on conversion of Series D convertible preferred stock

Conversion of non-voting common stock to voting common stock

( 38,180,451 )

Shares issued in Registered Direct Offering Priced Above-the-Market, net of $ 78 offering costs

Accretion to redemption value of redeemable preferred stock

Fractional shares

Shares issued in registered public offering, net of issuance and offering costs of $ 2,550

Shares issued in extinguishment of Exchange Note 2

Shares issued on exercise of Series 3 warrants

Shares issued upon exercise of stock options

Shares issued on conversion of Napo merger common shares

Acquisition of a subsidiary

Fractional shares

Warrants issued to Oasis for ELOC amendment, net of offering costs of $ 48

Stock-based compensation

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

Preferred Stock

Stock - voting

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Noncontrolling

other comprehensive

Stockholders'

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Balances as of January 1, 2022

Shares issued on exercise of Series 1, Series 2, and 2019 Bridge Note Warrants

Shares issued in PIPE financing

Shares issued in At the Market offering, net of issuance and offering costs of $ 103

Shares issued in registered public offering, net of issuance and offering costs of $ 2,550

Shares issued in extinguishment of Exchange Note 2

Shares issued on exercise of Series 3 warrants

Shares issued to Streeterville in exchange of notes payable and accrued interest

Shares issued to Iliad in exchange of notes payable and accrued interest

Warrants issued to Oasis for ELOC amendment, net of offering costs of $ 48

Shares issued on conversion of Napo merger common shares

Shares issued upon exercise of stock options

Shares issued to third party for services

Fractional shares

Merger of subsidiary

Shares issued to Synworld for services

Shares issued to other third party for services

Shares issued upon vesting and release of restricted stock units

Stock-based compensation

Translation adjustments

Balances as of December 31, 2022

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Cash flows from operating activities

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

Net loss and comprehensive loss

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

Amortization of debt issuance costs, debt discount, and non-cash interest expense

Stock-based compensation

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

Stock-based compensation, vested and released restricted stock units and exercised stock options

Loss on extinguishment of debt

Depreciation and amortization expense

Shares issued in exchange for services

Amortization of operating lease - right-of-use-asset

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

Series 3 warrants inducement expense

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

ELOC warrants inducement expense

Amortization of operating lease - right-of-use-asset

Derecognition of debt discount on settlement of receivables secured borrowing

Shares issued in exchange for services

Series B convertible preferred stock inducement expense

Expense on modification of warrants

Shares and warrants issued in Underwriter settlement agreement

Shares issued as consideration paid under the Oasis Capital Equity Purchase Agreement

Loss on recourse obligation on secured borrowing

Interest paid on the conversion of debt to equity

Shares issued to Atlas for settlement of Trial Delay Fee

Shares issued on conversion of warrants of Atlas for settlement of Trial Delay Fee

Changes in assets and liabilities

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Total cash used in operating activities

Cash flows from investing activities

Cash flows from investing activity

Purchase of equipment

Costs incurred in software development activities

Total cash used in investing activity

Cash flows from financing activities

Proceeds from issuance of shares in At the Market offering, net of issuance and offering costs of $ 103 and $ 465 in 2022 and 2021, respectively

Proceeds from notes payable with Streeterville

Payment of Tempesta Note

Repayment of insurance financing

Proceeds from issuance of shares in registered public offering, net of issuance and offering costs of $ 2,550

Proceeds from issuance of notes payable, net of issuance costs of $ 50 in 2021 and 2020

Proceeds from issuance of shares in At the Market offering, net of issuance and offering costs of $ 465 in 2021 and offering costs of $ 78 in 2020

Proceeds from issuance of shares on conversion of Series 1, Series 2, and 2019 Bridge Note warrants, net of issuance and offering costs of $ 486 in 2020

Repayment of receivables secured borrowing

Proceeds from issuance of notes payable, net of issuance costs of $ 50

Proceeds from issuance of shares on conversion of Series 1, Series 2, and 2019 Bridge Note warrants

Proceeds from issuance of shares in PIPE financing

Repayment of insurance financing

Noncontrolling interest

Repayment of notes payable

Payment of ELOC warrants offering costs

Proceeds from exercise of stock options

Proceeds from sale of receivables, net of debt discount and issuance costs of $ 640

Issuance costs from shares issued on Underwriter settlement agreement

Payments of deferred offering costs

Proceeds from issuance of common stock on conversion of Oasis Capital an Equity Purchase Agreement put options, net of issuance costs of $ 13

Repayment of receivables secured borrowing

Payment of ELOC warrants offering costs

Repayment of notes payable

Total cash provided by financing activities

Net increase in cash

Cash at beginning of period

Cash at end of period

Effects of foreign exchange rate changes on assets and liabilities

Net (decrease) increase in cash

Cash at beginning of the year

Cash at end of the year

JAGUAR HEALTH, INC.

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Supplemental schedule of non-cash financing and investing activities

Shares issued in exchange of partial settlement of royalty interest

Shares issued on exercise of Series 3 warrants

Shares issued to Iliad in exchange of notes payable and accrued interest

Insurance financing

Shares issued to Streeterville in exchange of notes payable and accrued interest

Recognition of operating lease - right-of-use asset and operating lease liability

Shares issued on exercise of Series 3 warrants

Shares issued in exchange of partial settlement of royalty interest

Lease modification

Offering costs included in accounts payable and accrued liabilities

Extinguishment of Series A redeemable convertible preferred stock

Common stock issued as redemption of Series D perpetual preferred stock

Issuance of Series D perpetual preferred stock

Common stock issued as redemption of notes payable and related interest

Issuance of Series C perpetual preferred stock

Deemed dividend attributable to Series C perpetual preferred stock

Accretion to redemption value of Series A contingently redeemable convertible preferred stock

Conversion of Series B-2 convertible preferred stock into common stock

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

Shares issued on exercise of Series B convertible preferred shares

Shares issued to PoC Capital in payment of contracted research fees

Stock dividend attributable to Series C perpetual preferred stock

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

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Jaguar Health, Inc.

(“Jaguar” or the “Company”), formerly known as Jaguar Animal Health, Inc., was incorporated on June 6, 2013 (inception) in Delaware.

(“Jaguar” or the “Company”) 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 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.

The Company was formed to develop and commercialize first-in-class prescription and non-prescription products for companion animals.

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 and the ongoing commercialization of Mytesi, a Napo drug product approved by the U.S.

FDA for the symptomatic relief of noninfectious diarrhea in adults with HIV/AIDS on antiretroviral therapy.

On March 15, 2021, the Company established Napo EU in Italy as a subsidiary of Napo.

Napo EU’s mission is to develop and commercialize novel, plant-based, sustainably derived prescription medicines in Europe (excluding Russia) for people with gastrointestinal distress to provide relief and treatment from various gut disorders, their symptoms, and interventions.

The initial focus of Napo EU is on pursuing the accelerated conditional marketing authorization pathway from the European Medicines Agency for crofelemer for an important orphan-designated disease:

Intestinal failure with short bowel syndrome (“SBS-IF”).

On November 3, 2021, Napo EU and Dragon SPAC S.p.A (“Dragon SPAC”) merged.

Dragon SPAC is private company limited by shares with registered office in Italy.

Upon close, Dragon SPAC became a controlled subsidiary of the Company and will be a consolidated entity.

Further, Napo EU was incorporated into Dragon SPAC with Dragon SPAC as the surviving entity which took over by operation of law all the assets, rights, reasons and actions as well as liabilities, obligations and commitments of NAPO EU.

The merged entity was named as Napo Therapeutics S.p.A (“Napo Therapeutics”).

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”) in Milan, Italy as a subsidiary of Napo.

Napo Therapeutics’ core 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 (“SBS”) with intestinal failure and congenital diarrheal disorders (“CDD”).

The Company manages its operations through two segments – human health and animal health and is headquartered in San Francisco, California.

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Minimum Stockholders’ Equity Requirement

On February 17, 2022, the Company received a letter from the Staff of Nasdaq indicating that the bid price of the Company’s common stock for the last 30 consecutive business days had again closed below the minimum $ 1.00 per share required for the continued listing under Nasdaq Listing Rule 5550(a)(2) (see Note 16).

On February 18, 2022 the Company received a letter from the Staff of Nasdaq indicating that the bid price of the Company’s common stock for the last 30 consecutive business days had again closed below the minimum $ 1.00 per share required for the continued listing under Nasdaq Listing Rule 5550(a)(2).

On January 23, 2023, the Company effected a one-for-seventy-five reverse split of the Company’ issued and outstanding shares of common stock, par value $ 0.0001 per share.

As a result of the Reverse Split every seventy-five shares of common stock issued and outstanding were automatically combined into one share of issued and outstanding common stock, without any change in the par value per share.

All information related to Common Stock, stock options, restricted stock units, warrants and earnings per share have been retroactively adjusted to give effect to the Reverse Stock Split for all periods presented.

On February 7, 2023, the Company received a letter from the Nasdaq Office of General Counsel notifying that the minimum bid price deficiency had been cured and that the Nasdaq had determined to continue the listing of the Company’s common stock on the Nasdaq stock market.

Liquidity and Going Concern

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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.

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.

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.

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, joint ventures, 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.

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

Reverse Stock Split

On September 3, 2021, the Company filed the Certificate of Fifth Amendment to its Third Amended and Restated Certificate of Incorporation with the Secretary of State of Delaware to effect a 1 -for-3 reverse stock split of the Company’s issued and outstanding shares of voting common stock, effective September 8, 2021.

The reverse split has been retrospectively reflected in all voting common stock, warrants, and common stock option shares disclosed in these consolidated financial statements.

The non-voting common stock and the convertible preferred stock were excluded from the reverse split.

Summary of Significant Accounting Policies

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Use of Estimates

The preparation of 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 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 the valuation of stock options, valuation of Series C Perpetual Preferred Stock and Series D Perpetual Stock, valuation of hybrid instruments designated at fair value option (“FVO”), valuation of warrant liability, acquired in-process research and development (“IPR&D”), useful lives assigned to long-lived assets, impairment assessment of intangible 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.

The preparation of the 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 audited consolidated financial statements and the accompanying notes.

impairment assessment of non-financial 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.

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The extent to which the COVID-19 outbreak affects the Company’s future financial results and operations will depend on future developments which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the outbreak, and current or future domestic and international actions to contain and treat it.

For a discussion of risks of COVID-19 relating to the Company’s business, see “Item 1A.

- Risk Factors- Risks Related to Our Business- The novel coronavirus global pandemic could adversely impact our business, including our supply chain, clinical trials and commercialization of Mytesi and Canalevia.”

The Company’s cash on deposit may exceed United States federally insured limits at certain times during the year.

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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 December 31, 2022 and 2021.The corresponding expense for the credit loss allowance is reflected in general and administrative expenses.

The credit loss allowance was immaterial as of December 31, 2022 and 2021.

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Revenue earned from each major customer as a percentage of total revenue is as follows:

On September 3, 2021, the Company ended its engagement with Cardinal Health as its exclusive title model customer for commercial sales and fully implemented its limited distribution Specialty Pharmacy model.

Cardinal Health continues to provide third-party logistics services for Mytesi.

The Company is subject to credit risk from its accounts receivable related to its sales.

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The Company is subject to concentration risk from its suppliers.

The Company sources raw material used to produce the active pharmaceutical ingredient (“API”) in Mytesi from two suppliers and is dependent on a single third-party contract manufacturer for the supply of API in Mytesi and a single third-party contract manufacturer as well for the supply of finished products for commercialization.

The Company sources raw material used to produce the active pharmaceutical ingredient (“API”) in Mytesi from two suppliers and is dependent on a single third-

party contract manufacturer for the supply of API in Mytesi and a single third-party contract manufacturer as well for the supply of finished products for commercialization.

Other Risks and Uncertainties

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Factors that could affect the Company’s future operating results and cause actual results to vary materially from expectations include, but are not limited to, rapid technological change, obtaining second source suppliers, regulatory approval from the FDA or other regulatory authorities, the results of clinical trials and the achievement of milestones, market acceptance of the Company’s product candidates, competition from other products and larger companies, protection of proprietary technology, strategic relationships and dependence on key individuals.

Recent Global Events

Macroeconomic conditions, including the war in Ukraine and related sanctions, exchange rate and interest rate volatility, and inflationary pressures, will continue to evolve globally.

The greatest impact was a decline in Europe where the impacts of foreign currency exchange rates, the war in Ukraine, and energy inflation were the greatest.

The Company’s partially owned subsidiary in Italy, Napo Therapeutics, does not generate any revenue yet for the year ended December 31, 2022.

There were no significant changes in the subsidiary’s operations for the year ended December 31, 2022, because of these recent global events.

Silicon Valley Bank (SVB) Failure

On March 2023, SVB, has been closed by regulators after the bank’s announcement of a $ 1.8 billion securities loss following a deposit outflow and plans to raise $ 2.25 billion by selling its common and preferred stocks.

As a result, venture capital firms urged companies to withdraw their cash and investments from SVB to prevent being possibly caught-up of its failure.

After its close, SVB became under the receivership of FDIC.

As of December 31, 2022, the Company has no cash deposits nor investments within the bank and does not expect any impact from its cash deposits from its financial institutions.

The Company’s financial instruments include accounts receivable, accounts payable, accrued liabilities, warrant liability, operating lease liability, equity-linked financial instruments, and debt.

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Inventory write-downs are measured as the difference between the cost of inventory and net realizable value.

The Company does no t have an allowance for inventory obsolescence as of December 31, 2022 and 2021.

Prelaunch Inventory

The Company’s policy is to capitalize costs for prelaunch inventories within the drug development phase that evidence that the product’s reasonably likely critical attributes for success are present and feasible, and the key causes of failures are absent based on management’s assumptions.

Property and Equipment

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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 consolidated statements of operations.

Software Developed for Internal Use

The Company capitalizes the costs of developing software for internal use.

These costs include both purchased software and internally developed software.

Costs of developing software are expensed until technological feasibility has been established.

Thereafter, all costs are capitalized and are carried at the lower of unamortized cost or net realizable value.

Internally developed and purchased software costs are generally amortized over five years.

Long-Lived Assets

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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 had a non-cancelable operating lease with CA-Mission Street Limited Partnership for its offices in San Francisco, California, through September 30, 2020.

The lease agreement called for monthly base rents

between $ 38,000 and $ 41,000 over the term of the lease.

The lease agreement was not renewed during the year ended December 31, 2020.

The Company entered into a sublease agreement with Peacock Construction, Inc., a California corporation, for office space located in San Francisco, California.

The term of the sublease began on August 31, 2020 and expired on May 31, 2021.

The rent under the sublease was $ 15,000 per month beginning October 1, 2020, which includes operating expenses and taxes.

On October 1, 2020, the Company transitioned its operations from its existing premises to the sublease premises, which the Company expects will serve as its principal administrative headquarters.

The Company elected not to apply the recognition requirements to short-term leases, and instead recognize the lease payments in profit or loss on a straight-line basis over the lease term.

As a result, there was no right-of-use asset and lease liability recognized related to the sublease.

In April 2021, the Company entered into an office lease agreement with M & E, LLC, a California Limited Liability Company, to lease approximately 10,526 square feet of office space located in San Francisco, California, inclusive of office space currently covered under the sublease agreement with Peacock.

The term of the lease began on September 1, 2021 and will expire on August 31, 2024, unless earlier terminated.

The base rent under the lease will be $ 42,000 monthly for the first 12 months, $ 43,000 monthly for the next 12 months and $ 45,000 for the last twelve months.

In December 2021, the Company entered into the first amendment to the lease with M & E, LLC whereby the commencement date of one of the leased premises was modified to March 1, 2022.

Accordingly, the expiration of the lease was extended to February 28, 2025.

The base rent under the original agreement remained the same but will be due starting March 1, 2022.

In addition, the rent for one of the leased premises being occupied by the Company will continue to be $ 21,000 until the new commencement date.

The Company elected to include both the lease and non-lease components as a single component and account for it as a lease.

Research and Development Expense

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Estimates for expected returns of expired products are based primarily on an ongoing analysis of our historical return patterns.

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 recognizes revenue in accordance with the core principle of ASC 606 or when there is a transfer of control of promised goods to customers in an amount that reflects the consideration that the Company expects to be entitled to in exchange for those goods.

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

The Company does 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

Contracts and Agreements

Effective January 16, 2019, Napo engaged Cardinal Health SPS 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 and system access support (the “Exclusive Distribution Agreement”).

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Cardinal Health continues to provide third-party logistics services for Mytesi.

The Company'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 distributors such as Animart, Vedco, VPI, RJ Matthews, Covetrus, 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.

The Company's Canalevia-CA1 and Neonorm products are primarily sold to distributors, who then sell the products to the end customers.

Since 2021, the Company has entered into two distribution agreements with established distributors to distribute the Company’s animal health products in the United States.

The distribution agreements and the related purchase orders together meet the contract existence criteria under ASC 606 10 25 1.

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

Performance obligations

For animal products sold by the Company, the single performance obligation identified is the Company’s promise to transfer the Company’s animal products to distributors based on specified payment and shipping terms in the arrangement.

For animal health products sold by the Company, the single performance obligation identified above is the Company’s promise to transfer the Company’s animal health 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, the single performance obligation identified above is the Company’s promise to transfer Mytesi to Cardinal Health, based on specified payment and shipping terms as outlined in the Exclusive Distribution Agreement.

For the Company’s human health product, Mytesi, the single performance obligation identified above is the Company’s promise to transfer Mytesi to specialty pharmacies, based on specified payment and shipping terms as outlined in the Exclusive Distribution Agreement.

Transaction price

For contracts with Cardinal Health, 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 discounts, returns, and price adjustments.

For contracts with Cardinal Health and other distributors, the transaction price is the amount of consideration to which the Company expects to collect in exchange for transferring the promised goods or services.

The transaction price of Mytesi is the Wholesaler Acquisition Cost (“WAC”), and the transaction price of Canalevia-CA1 and Neonorm is the manufacturer’s list price, net of discounts, returns, and price adjustments.

Allocate transaction price

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

For contracts with Cardinal Health and other distributors, the entire transaction price is allocated to the single performance obligation contained in each contract.

Revenue recognition

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Net revenues from the sale of Mytesi were $ 11.7 million and $ 4.3 million for the years ended December 31, 2022 and 2021, respectively.

The Company recognized Canalevia-CA1 products revenues of $ 167,000 and zero for the years ended December 31, 2022 and 2021, respectively.

The Company recognized Neonorm revenues of $ 48,000 and $ 62,000 for the years ended December 31, 2022 and 2021, respectively.

Revenues are recognized at a point in time 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.

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

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

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 the performance obligation was 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 in a loss of $ 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.

Sales of Canalevia-CA1, Neonorm Calf and Foal to distributors are made under agreements that may provide distributor price adjustments and rights of return under certain circumstances.

Contracts – Specialty Pharmacies

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Under the Specialty Pharmacy Distribution and Services Agreement, the private company shall sell and dispense the Mytesi directly ordered from the Company at the agreed price to patients within the territories identified in the agreement.

The two contracts with the two specialty pharmacies were combined into one portfolio of contract as they share similar characteristics.

The Company has entered into agreements with a total of five different specialty pharmacy chains that are authorized to provide Mytesi to patients.

Performance obligations

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Sales of Mytesi are recognized as revenue at a point in time when the products are delivered to the specialty pharmacies.

Net revenues from the sale of Mytesi to the specialty pharmacies were $ 993,000 and zero for the years ended December 31, 2021 and 2020, respectively.

Net revenues from the sale of Mytesi to the specialty pharmacies were $ 10.3 million and $ 993,000 for the years ended December 31, 2022 and 2021, respectively.

Collaboration Revenue

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On September 24, 2018, the Company entered into a Distribution, License and Supply Agreement (“License Agreement”) with Knight Therapeutics ("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) in Canada and Israel.

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, NP-300, and any product containing a proanthocyanidin or with an anti-secretory mechanism) in Canada and Israel.

Knight forfeited its right of first negotiation for expansion to Latin America.

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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.

The Company amended the terms of its October 2020 Purchase Agreement and Exchange Note 2 in the year 2021 (see Note 8).

The Company also amended the terms of its Exchange Note 1, Exchange Note 2, March 2020 Purchase Agreement, and Series D Perpetual Preferred Stock in the year 2020 (see Note 8).

For the year December 31, 2022, the Company entered into another amendment on the terms of its October 2020 and March 2021 Purchase Agreements (see Note 7).

Modifications to Equity-classified Instruments

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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.

The Company modified certain equity-classified warrants in the year 2020 (see Note 9).

The Company did not modify any equity-classified warrants in the year 2021.

The Company did not modify any equity-classified warrants in the year 2022 and 2021.

In accounting for amendments to equity-classified 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.

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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.

The Company modified the terms of its Series B Convertible Preferred Stock and Series C Perpetual Preferred Stock in the year 2020 (see Note 10).

The Company did not modify any equity-classified preferred stock in the year 2021.

The Company did not modify any equity-classified preferred stock in the year 2022 and 2021.

Stock-Based Compensation

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Exchange gains or losses from remeasuring transactions and monetary accounts in a currency other than the functional currency are included in current earnings.

For certain subsidiaries, translation adjustments result from the process of translating the functional currency of subsidiary financial statements into the U.S.

For certain subsidiaries, translation adjustments resulting from the process of translating the functional currency of subsidiary financial statements into the U.S.

Dollar reporting currency.

These translation adjustments are reported separately and accumulated in the consolidated balance sheets as a component of accumulated other comprehensive loss.

These translation adjustments are

reported separately and accumulated in the consolidated balance sheets as a component of accumulated other comprehensive loss.

Comprehensive Loss

The Company follows ASC 220, Comprehensive Income , which establishes standards for reporting and displaying comprehensive income and its components (revenue, expenses, gains and losses) in a full set of general-purpose financial statements.

For the year ended December 31, 2020, the comprehensive loss was equal to the net loss;

therefore, a separate statement of comprehensive loss was not included in the accompanying consolidated financial statements.

For the year ended December 31, 2021, the amount of other comprehensive loss was only de minimis;

hence, a separate statement of comprehensive loss was not also included in the accompanying consolidated financial statements.

For the years ended December 31, 2022 and 2021, the amount of other comprehensive losses from translation adjustments were $ 680,000 and zero , respectively.

Basic and Diluted Net Loss Per Common Share

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Recently Adopted Accounting Pronouncements

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.

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity.

The Company adopted the standard on January 1, 2022.

The adoption of this standard did not have a material effect on the Company’s consolidated financial statements and related disclosures.

The adoption of this standard did not have a material effect on the Company’s audited consolidated financial statements and related disclosures.

In May 2021, the FASB issued ASU 2021-04, Issuer’s Accounting for Certain Modification or Exchanges of Freestanding Equity-Classified Written Call Options – a consensus of the FASB Emerging Issues Task Force.

The ASU provides a principles-based framework to determine whether an issue should recognize the modification or exchange as an adjustment to equity or an expense.

The Company adopted the standard on January 1, 2022.

The adoption of this standard did not have a material effect on the Company’s audited consolidated financial statements and related disclosures.

Recently Issued Accounting Pronouncements Not Yet Adopted

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The Company is still evaluating the impact of the adoption of this standard.

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40):

The pronouncement is effective for the Company beginning January 1, 2022 with early adoption permitted.

The Company is still evaluating the impact of the adoption of this standard.

The ASU provides a principles-based framework to determine whether an issue should recognize the modification or exchange as an adjustment to equity or an expense.

The amendments in the update are effective for all entities for fiscal years beginning January 1, 2022, including interim periods within those fiscal years with early adoption permitted.

The Company is still evaluating the impact of the adoption of this standard.

Reclassification of Prior Year Presentation

Certain prior period amounts of cash flows from financing activities in the consolidated statements of cash flows have been reclassified within the same category of cash flow activity to be consistent with the current period presentation.

There were no reclassifications to other categories of cash flow activity and the reclassification did not impact the profit or loss during the prior period.

Napo Therapeutics Subsidiary

As discussed in Note 1 – Organization and Business, Napo EU completed a merger with Dragon SPAC on November 3, 2021, with Dragon SPAC as the surviving entity.

Dragon SPAC took over by operation of law all the assets, rights, reasons, and actions as well as liabilities, obligations, and commitments of Napo EU.

The merged entity was named Napo Therapeutics.

Napo Therapeutics now operates as a subsidiary of Napo, with Napo owning 99 % of Napo Therapeutics’ equity.

This transaction was accounted for as a formation of a new subsidiary of the Company.

In October 2021, the FASB issued ASU No.

2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, to provide specific guidance to eliminate diversity in practice on how to recognize and measure acquired contract assets and contract liabilities from revenue contracts from customers in a business combination consistent with revenue contracts with customers not acquired in an acquisition.

The amendments in this update provide that the acquirer should consider the terms of the acquired contracts, such as timing of payment, identify each performance obligation in the contracts, and allocate the total transaction price to each identified performance obligation on a relative standalone selling price basis as of contract inception (that is, the date the acquiree entered into the contracts) or contract modification to determine what should be recorded at the acquisition date.

These amendments are effective for the Company beginning with fiscal year 2023.

The impact of the adoption of the amendments in this update will depend on the magnitude of any customer contracts assumed in a business combination in 2023 and beyond.

Fair Value Measurements

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● Level 3 – Unobservable inputs that reflect the reporting entity’s own assumptions.

The following tables set forth the fair value of the Company’s consolidated financial instrument that was measured at fair value on a recurring basis as of December 31, 2021 and 2020:

The following tables set forth the fair value of the Company’s consolidated financial instruments that were measured at fair value on a recurring basis as of December 31, 2022 and 2021:

December 31, 2022

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Warrant liability

Streeterville note

Total fair value

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Warrant Liability

The warrants associated with the Level 3 warrant liability were the November 2016 Series A Warrants and the October 2018 Underwriter Warrants, which, at December 31, 2021, were valued at zero and $ 1,000 , respectively, in the Company’s consolidated balance sheet.

The warrants associated with the Level 3 warrant liability activity for the year ended December 31, 2020 were the November 2016 Series A Warrants, the October 2018 Underwriter Warrants, and the May 2020 Series 3 Warrants, which at December 31, 2020 were valued at zero , $ 4,000 , and $ 175,000 , respectively in the Company’s consolidated balance sheet.

The November 2016 Series A Warrants

The Series A warrant valuation of zero at December 31, 2021 was computed using the Black-Scholes-Merton pricing model using a stock price of $ 1.04 , a strike price of $ 2,363 per share, an expected term of 0.41 years, volatility of 89 % and a risk-free discount rate of 0.19 % .

The Series A warrant valuation of zero at December 31, 2020 was computed using the Black-Scholes-Merton pricing model using a stock price of $ 2.45 , a strike price of $ 2,363 per share, an expected term of 1.41 years, volatility of 148 % and a risk-free discount rate of 0.13 % .

The net change in the fair value of the warrants was zero for the year ended December 31, 2021.

The October 2018 Underwriter Warrants

The October 2018 Underwriter Warrants valuation of $ 1,000 at December 31, 2021 was computed using the Black-Scholes-Merton pricing model using a stock price of $ 1.04 , a strike price of $ 158 per share, an expected term of 1.75 years, volatility of 180 % and a risk-free discount rate of 0.65 % .

The October 2018 Underwriter Warrants valuation of $ 4,000 at December 31, 2020 was computed using the Black-Scholes-Merton pricing model using a stock price of $ 2.45 , a strike price of $ 158 per share, an expected term of 2.76 years, volatility of 156 % and a risk-free discount rate of 0.17 % .

The net decrease in the fair value of the warrants of $ 3,000 for the year ended December 31, 2021 was recorded as a gain in the change in fair value of financial instruments and hybrid instrument designated at FVO in the consolidated statements of operations.

The May 2020 Series 3 Warrants

There were no outstanding May 2020 Series 3 Warrants as of December 31, 2021.

The May 2020 Series 3 Warrants valuation of $ 175,000 at December 31, 2020 was computed using the Black-Scholes-Merton pricing model using a stock price of $ 2.45 , a strike price of $ 0.00 per share, an expected term of 4.89 years, volatility of 142 % and a risk-free discount rate of 0.36 % .

In January 2021, an investor received 135,416 Series 3 Warrants for the exercise of 135,416 2019 Bridge Note Warrants in accordance with the May 2020 Modification of the 2019 Bridge Note Warrants and Inducement Offer.

The fair value of these Series 3 Warrants was $ 1.5 million on the issuance date.

For the year ended December 31, 2021, certain holders of the Series 3 Warrants agreed to exercise total of 206,915 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 $ 1.8 million.

The net increase in the fair value of the warrants of $ 138,000 for the year ended December 31, 2021 was recorded as a loss in the change in fair value of financial instruments and hybrid instrument designated at FVO in the consolidated statements of operations.

The warrants associated with the Level 3 warrant liability were valued at zero and $ 1,000 , respectively, in the Company’s audited consolidated balance sheet.

Warrants as at December 31, 2022 and 2021 were computed using the Black-Scholes-Merton pricing model.

Streeterville Note

The fair value of the Streeterville Note at January 13, 2021, date of issuance and as of December 31, 2021 amounting to $ 6.0 million and $ 7.8 million, respectively, were based on the weighted average discounted expected future cash flows representing the terms of the note, discounting them to their present value equivalents.

The fair value of the Streeterville Note at January 13, 2021, date of issuance and as of December 31, 2022 and 2021 amounting to $ 6.0 million and $ 7.8 million, respectively, were based on the weighted average discounted expected future cash flows representing the terms of the note, discounting them to their present value equivalents.

This was classified as Level 3 fair values in the fair value hierarchy due to the use of unobservable inputs, including the Company’s own credit risk.

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11.53 %- 26.06 % ( 26.06 %)

6.78 % - 21.31 % ( 21.31 %)

If discount rate is adjusted to total of additional 100 basis points (bps), fair value would have decreased by $ 364,000 .

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$ 67.5 million to $ 350 million ($ 100 million)

If expected cash flows by management considered the lowest amount of market indications for vouchers, FV would have decreased by $ 1.2 million.

$ 67.5 million to $ 350.0 million ($ 100.0 million)

If expected cash flows by Management considered the lowest amount of market indications for vouchers, FV would have decreased by $ 940,000 .

If expected cash flows by Management considered the highest amount of market indications for vouchers, FV would have increased by $ 7.23 million.

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0.39 %- 46.55 %

0.35 %- 46.06 %

If expected cash flows by Management considered the Scenario with the least amount of indicated value, FV would have decreased by $ 692,000 .

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The valuation methodology utilized is consistent with the income approach for estimating the fair value of the interest-bearing portion of the instrument and the related derivatives.

Cash flows of the hybrid instruments in their entirety, including the embedded derivatives, are discounted at an appropriate rate for the applicable duration of the instrument.

Cash flows of

the hybrid instruments in their entirety, including the embedded derivatives, are discounted at an appropriate rate for the applicable duration of the instrument.

Interest on the interest-bearing portion of the instrument that is held to maturity is aggregated as gain (loss) on instruments designated at fair value and related derivatives in the change in fair value of financial instruments and hybrid instruments designated at FVO in the consolidated statements of operations.

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Streeterville note

(in thousands)

Unpaid Principal Balance

Fair Value Over (Under) Unpaid Principal Balance

At December 31, 2021

Hybrid Instrument:

Streeterville note

Related Party Transactions

Management Services Agreement

In March 2018, concurrent with the issuance of the Company’s Series A Convertible Preferred Stock to Sagard Capital Partners, L.P.

(“Sagard Capital”), the Company entered into a Management Services Agreement with Sagard Capital.

Under the agreement, Sagard Capital was to 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 paid Sagard Capital an annual fee of $ 450,000 , with total fees over the term of the agreement not to exceed $ 1.4 million.

On September 1, 2020, in concurrence with other transactions by and between the Company, Chicago Venture Partners, L.P.

(“CVP” or “Chicago Venture Partners”) and its affiliates, and Sagard Capital, the Company and Iliad Research and Trading, L.P.

(“Iliad”), a Utah limited partnership affiliated with CVP, agreed to issue 2,289,474 shares of the Company’s Common Stock to Sagard Capital pursuant to the Stock Plan Agreement for termination of the Management Services Agreement in lieu of payment of $ 1.1 million in accrued consulting and management fees.

For the years ended December 31, 2021 and 2020, total fees incurred were zero and $ 338,000 , respectively.

As of December 31, 2021 and 2020, the Company had a balance of zero due to Sagard Capital.

Letter of Credit

On March 24, 2020, the Company entered into a letter of credit agreement with Dr.

Charles Conte, the brother of Lisa Conte, the Company’s President, CEO and member of the Company’s board of directors (“BOD”), pursuant to which the Company replaced then existing letter of credit in the amount of $ 475,000 entered into on August 28, 2018 by the Company with CA-Mission Street Partnership 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 paid Dr.

Conte an amount equal to $ 10,000 per month and agreed to reimburse up to $ 7,500 for reasonable out-of-pocket expenses incurred.

For the years ended December 31, 2021 and 2020, total fees incurred were zero and $ 65,000 , respectively.

In October 2020, CA Mission Street Partnership released the letter of credit agreement with Dr.

Conte pursuant to the expiration and termination of the office lease agreement between the Company and CA-Mission Street Partnership on September 30, 2020.

In October 2020, the Company paid Dr.

Conte a prorated amount due through the effective date of the release of the letter of credit of $ 7,000 .

As of December 31, 2021 and 2020, the Company had a balance of zero due to Dr.

BOD Cash Compensation

Effective May 2021, the Company will pay the BOD cash compensation on a quarterly basis based on the Director Compensation Program for 2021.

For the year ended December 31, 2021, the Company paid approximately $ 124,000 cash compensation to its directors.

The Company makes BOD cash compensation on a quarterly basis based on the Director Compensation Program.

For the years ended December 31, 2022, and 2021, the Company paid approximately $ 241,000 and $ 124,000 cash compensation to its directors.

Commitments and Contingencies

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 expired on September 30, 2020.

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 shareholder a five-year warrant (see Note 9) to purchase 9,580 shares of the Company’s voting common stock.

On August 31, 2020, the Company entered into an office sublease of approximately 5,263 square feet of office space in San Francisco.

August 31, 2020, the Company entered into an office sublease of approximately 5,263 square feet of office space in San Francisco.

The term of the sublease expired on May 31, 2021.

1 unchanged sentence

The Company recognizes rent expense on a straight-line basis over the non-cancellable lease period.

Rent expense, included in general and administrative expenses in the consolidated statements of operations, was $ 75,000 and $ 45,000 for the year ended December 31, 2021 and 2020, respectively.

As of December 31, 2021, there were no remaining commitments under the lease.

Rent expense, included in general and administrative expenses in the consolidated statements of operations, was zero and $ 75,000 for the years ended December 31, 2022 and 2021, respectively.

As of December 31, 2022, there were no remaining commitment under the lease.

On April 6, 2021, the Company entered into an office lease agreement of approximately 10,526 square feet of office space in San Francisco, inclusive of office space covered under the previous sublease agreement.

The term of the lease began on September 1, 2021 and will expire on August 31, 2024, unless terminated earlier.

The lease has an early occupancy provision which entitled the Company to use a portion of the leased premises on June 1, 2021, free of rent obligation.

The term of the lease began on September 1, 2021 and will expire on February 28, 2025, unless terminated earlier.

The lease had an early occupancy provision which entitled the Company to use a portion of the leased premises on June 1, 2021, free of rent obligation.

In addition, the Company has the option to extend the lease for one three-year period after the expiration date.

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The lease was classified as an operating lease.

On October 7, 2021, the Company entered into an agreement for the lease of office premises from November 1, 2021 to April 30, 2022, subject to automatic renewal for subsequent periods until terminated by either party.

Base rent amounted to € 10,000 or approximately $ 10,500 .

If the contract is not terminated within 12 months, the lease amount will be increased in line with the index of relevant inflation at each annual expiration of the start date of the contract.

The lessor has the right to decline the renewal of the contract.

Upon the happening of certain specified events, the lessor may immediately withdraw from the contract.

The Company is required leave the occupied spaces immediately in the same condition in which they were found in the event of contract termination or expiry.

The Company paid deposit of € 20,000 or approximately $ 21,000 to the lessor.

On January 26, 2022, the lease agreement was amended whereby the term was extended by 20 months from May 1, 2022 to December 31, 2023.

All other contract provisions remained the same.

On October 10, 2021, the Company also entered into a short-term office lease in Milan, Italy.

The term of the lease began on November 1, 2021, subject to automatic renewal equal to the present term until terminated by mutual agreement.

On January 26, 2022, the lease agreement was amended whereby the term was extended by 20 months from May 1, 2022 to December 31, 2023.

The Company recognizes rent expense on a straight-line basis over the non-cancellable lease period.

On December 22, 2021, the Company entered into an agreement for the lease of two separate vehicles for 48 months expiring on November 30, 2025.

Total monthly lease payment amounted to € 2,000 or approximately $ 2,100 payable in advance.

The Company elected to include both the lease and non-lease components as a single component and account for it as a lease.

The Company also paid a total deposit of € 19,000 or approximately $ 20,000 , exclusive of VAT.

Early termination of the contracts requires the payment of specified amounts.

On December 24, 2021, the Company entered into the first amendment of the lease of office space in San Francisco.

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The lease amendment constituted a lease modification where the Company remeasured the original lease liability using a discount rate determined at the effective date of the modification and the amount of remeasurement of the lease liability was recognized as an adjustment to the corresponding right-of-use asset without affecting profit or loss.

On January 25, 2022, the Company entered into an agreement for the lease of office premises from March 1, 2022 to December 31, 2023, subject to automatic renewal for subsequent periods until terminated by either party.

Base rent amounted to € 4,000 or approximately $ 4,200 .

A similar agreement was entered with the lessor for the lease of premises to be used as office space from November 1, 2022 to December 31, 2023, subject to automatic renewal for subsequent periods until terminated by either party.

Base rent amounted to € 3,817 or approximately $ 4,000 .

If the contracts are not terminated within 12 months, the lease amounts will be increased in line with the index of relevant inflation at each annual expiration of the start date of the contract.

The lessor has the right to decline the renewal of the contracts.

Upon the happening of certain specified events, the lessor may immediately withdraw from the contracts.

The Company is required leave the occupied spaces immediately in the same conditions in which they were found in the event of contract termination or expiry.

The Company paid a deposit of € 9,000 or approximately $ 9,500 to the Lessor.

In May 2022, the Company entered into an agreement for the lease of one vehicle for 48 months expiring on April 30, 2026.

Total monthly lease payment amounted to € 833 or approximately $ 880 payable in advance.

The Company elected to include both the lease and non-lease components as a single component and account for it as a lease.

The Company also paid a total deposit of € 21,000 or approximately $ 22,000 , exclusive of VAT.

Early termination of the contracts requires the payment of specified amounts.

In October 2022, the Company entered into an agreement for the lease of three vehicles for 48 months expiring on September 30, 2026.

Total monthly lease payment amounted to € 2,094 or approximately $ 2,200 payable in advance.

The Company elected to include both the lease and non-lease components as a single component and account for it as a lease.

In November 2022, the Company entered into an agreement for the lease of two vehicles for 48 months expiring on October 31, 2026.

Total monthly lease payment amounted to € 1,459 or approximately $ 1,500 payable in advance.

The Company elected to include both the lease and non-lease components as a single component and account for it as a lease.

The table below provided additional details of the office space lease presented in the consolidated balance sheet:

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Weighted-average discount rate

Lease cost included in general and administrative expenses in the consolidated statements of operations for the year ended December 31, 2021 was approximately $ 144,000 .

For the year ended December 31, 2021 and 2020, cash paid for operating lease liabilities recognized under operating cash flows amounted to $ 105,260 and $ 357,079 , respectively.

Non-cash investing and financing activities for the year ended December 31, 2021 and 2020 include addition to right-of-use asset obtained from new operating

liabilities amounting to $ 1.1 million and zero , respectively, and lease modification amounting to $ 91,243 and zero , respectively.

Lease cost included in general and administrative expenses in the consolidated statements of operations for the years ended December 31, 2022 and 2021 was approximately $ 629,000 and $ 282,000 .

For the years ended December 31, 2022 and 2021, cash paid for operating lease liabilities recognized under operating cash flows amounted to $ 315,000 and $ 105,260 , respectively.

Non-cash investing and financing activities for the years ended December 31, 2022 and 2021 include addition to right-of-use asset obtained from new operating liabilities amounting to $ 365,000 and $ 1.1 million, respectively, and lease modification amounting to zero and $ 91,000 respectively.

The following table summarizes the undiscounted cash payment obligations for the operating lease liability:

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Operating lease liability, net of current portion

On October 10, 2021, the Company also entered into a short-term office lease in Milan, Italy.

The term of the lease began on November 1, 2021 and will expire on April 30, 2022, subject to automatic renewal equal to the present term until terminated by mutual agreement.

The Company recognizes rent expense on a straight-line basis over the non-cancellable lease period.

Rent expense, included in general and administrative expenses in the consolidated statements of operations, was $ 23,000 and zero for the years ended December 31, 2021 and 2020, respectively.

Rent and lease expense included in the general and administrative expenses in the audited consolidated statements of operations for the year ended December 31, 2022 and December 31, 2021 was approximately $ 629,000 and $ 282,000 , respectively.

Purchase Commitment

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Food and Drug Administration, and for other crofelemer-based products manufactured by the Company or its affiliates for human or animal use.

The term of the Agreement is approximately 2.5 years (i.e., until March 31, 2023) and may be extended for successive two-year renewal terms upon mutual agreement between the parties thereto.

The term of the Agreement is approximately 2.5 years (i.e., until March 31, 2023) and may be extended for successive two-year renewal terms upon mutual agreement between the parties

Pursuant to the terms of the Agreement, Glenmark will supply crofelemer to the Company.

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If the Company terminates the Agreement as a result of a material breach caused by Glenmark, the Company will not be obligated to pay for any minimum quantity shortfall.

As of December 31, 2022, the remaining commitment is 125 kilograms.

Master Services Agreement (“MSA”)

On June 24, 2019, the Company entered into an MSA for clinical research organization services (the “2019 MSA”) and a service order under such 2019 MSA with Integrium, LLC (“Integrium”).

The service order supports the Company’s study to evaluate the effect of Mytesi on gastrointestinal microbiome in people living with HIV.

The 2019 MSA will terminate upon the satisfactory performance of all services to be provided thereunder unless earlier terminated by the parties.

On October 5, 2020, the Company entered into another MSA for clinical research organization services (the “2020 MSA”) and a service order under such 2020 MSA with Integrium.

The service order covers the Company’s planned upcoming pivotal Phase 3 clinical trial for cancer-therapy related diarrhea.

As consideration for its services,

the Company will pay Integrium a total amount of up to approximately $ 12.4 million that will be paid over the term of the engagement and based on the achievement of certain milestones.

As consideration for its services, the Company will pay Integrium a total amount of up to approximately $ 12.4 million that will be paid over the term of the engagement and based on the achievement of certain milestones.

The 2020 MSA will terminate upon the satisfactory performance of all services to be provided thereunder unless earlier terminated by the parties.

For the year ended December 31, 2021 and 2020, the Company paid Integrium $ 1.7 million and $ 529,000 , respectively.

For the years ended December 31, 2022 and 2021, the Company paid Integrium $ 1.9 million and $ 1.7 million, respectively.

Asset Transfer and Transition Commitment

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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.

For the year ended December 31, 2021 and 2020, the Company paid Glenmark $ 2.0 million and zero , respectively.

For the years ended December 31, 2022 and 2021, the Company paid Glenmark $ 2.6 million and $ 2.0 million, respectively.

Revenue Sharing Commitment Update

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No payments have been made to date.

Legal Proceedings

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-04102, by Tony Plant (the “Plaintiff”).

The Company answered the complaint on August 2, 2019;

the answer denied the material allegations of the second amended complaint.

Following the completion of document discovery, the parties engaged in a mediation that resulted in an agreement in principle to settle the litigation on a class-wide basis for $ 2.6 million.

On May 27, 2021, the court gave the final approval to the proposed settlement and the entire settlement consideration will be provided by the Company’s director and officer liability insurance carrier.

Under the loss recovery model in ASC 450 and in reference to ASC 410, the ultimate net income effect of the recognized loss and the insurance proceeds directly related to the recognized loss is zero .

As of December 31, 2021 and 2020, the Company concluded not to record any loss contingency and insurance recovery.

Settlement of Underwriter Fee

In August 2018, the Company 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 totalled $ 387,000 , of which $ 202,000 had been paid in 2019, and $ 185,000 was paid in 2020.

The total warrant issuance payment consisted of the Company issuing 365 equity-classified warrants to the underwriter in 2018

and, in 2020, issuing an additional 33,593 equity-classified warrants (see Note 9) to the underwriter to purchase shares of common stock at an exercise price of $ 7.50 per share.

The common stock issuance payment consisted of the Company issuing 33,333 shares of the Company’s common stock to the underwriter with a value of $ 45,000 in 2020.

The Company classified the cash payments, warrant and commons stock issuance payments as issuance costs in the consolidated statements of stockholders’ equity.

Severance Agreements

In June 2020, the Company entered into certain agreements relating to the payment of severance and other benefits to executive officers of the Company, the severance agreements provide for compensation and benefits if the executive officer is subject to (a) a termination of employment by the Company without cause or (b) a good reason termination, within three months following a change in control.

Contingencies

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A loss or a range of loss is disclosed when it is reasonably possible that a material loss will incur and can be estimated, or when it is reasonably possible that the amount of a loss, when material, will exceed the recorded provision.

The Company did not have any material accruals for any currently active legal action in its consolidated balance sheets as of December 31, 2021, as the Company could not predict the ultimate outcome of these matters, or reasonably estimate the potential exposure.

The Company did not have any material accruals for any currently active legal action in its consolidated

balance sheets as of December 31, 2022, as the Company could not predict the ultimate outcome of these matters, or reasonably estimate the potential exposure.

Balance Sheet Components

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Finished Goods

Prelaunch Inventory

Costs capitalized for the Company’s lyophilized drug amounting to $ 2.1 million and zero as of December 31, 2022, and 2021 are included in the prepayments and other assets account.

As of December 31, 2022, the Company has filed the POC for the lyophilized drug to European FDA and expects approval at the end of the first half of 2023.

Upon approval, the prelaunch inventory shall be reclassed as part of the Company’s inventory.

Property and Equipment, net

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Clinical equipment

Furniture and fixtures

Computers and peripherals

Total property and equipment at cost

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Trademarks, net

Internal use software costs - registry

Accumulated internal use software costs amortization

Internal use software costs - registry, net

Total intangible assets, net

Amortization expense of finite-lived intangible assets was $ 1.7 million for the years ended December 31, 2021 and 2020.

Amortization expense of finite-lived intangible assets was $ 1.8 million and $ 1.7 million for the years ended December 31, 2022 and 2021.

The following table summarizes the Company’s estimated future amortization expense of intangible assets with finite lives as of December 31, 2022:

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Accrued interest

Accrued legal costs

Accrued chargebacks and discounts

Accrued local tax

Accrued vacation

Accrued distributor services fees

Accrued audit and tax services

Accrued vacation

Accrued payroll and commission

Accrued legal costs

Accrued local tax

Accrued payroll tax

Accrued chargebacks and discounts

Accrued distributor services fees

Accrued consulting

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Tempesta Note

Oasis Secured Borrowing

Exchange Note 2

unamortized discount and debt issuance costs

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Sale of Future Royalty Interest

March 2020 Purchase Agreement

In March 2020, the Company entered into a royalty interest purchase agreement (the “March 2020 Purchase Agreement”) with 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 Iliad 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) $ 44,000 and (b) the actual Royalty Payment amount Iliad is entitled to for such month.

The Royalty Interest amount of $ 500,000 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 %.

On July 10, 2020, the Company and Iliad entered into an amendment to the March 2020 Purchase Agreement to which the parties agreed that no royalty payments or other payment will be due prior to December 10, 2020.

The Royalty Payments shall resume as of December 10, 2020, which Royalty Payment will cover Net Sales on Included Products and licensing fees and milestone payments for the month of November.

In consideration of the amendment, the balance of the Royalty Repayment Amount as of July 10, 2020 was increased by 10 %.

All other terms remain unchanged.

This amendment resulted in the Company accounting for the transaction as a TDR, under which the carrying amount of the debt remained unchanged but interest expense is computed using a new effective rate that equates the present value of future cash payments specified by the new terms with the carrying amount of the debt.

Subsequent to March 2020, the Company had paid $ 283,000 of the $ 500,000 Royalty Interest Amount.

In November 2020, the Company and Iliad entered into an exchange agreement pursuant to which the Company issued 1,314,974 shares of common stock in exchange for the outstanding balance of the debt as of November 16, 2020.

The exchange agreement was accounted for as a TDR.

As of December 31, 2020, the carrying amount of the debt was zero .

October 2020 Purchase Agreement

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At issuance, based on projected cash outflows from future revenue streams, the discount rate was 34.51 % .

Pursuant to the October 2020 Purchase Agreement, if the weekly volume weighted average price (“VWAP”) of the Company’s common stock is not equal or greater than the minimum VWAP of $ 0.9105 at least twice during each calendar month during the six-month period beginning on November 1, 2020, then the Royalty Repayment Amount will be automatically be increased by $ 6.0 million at the end of such six-month period.

Pursuant to the October 2020 Purchase Agreement, if the weekly volume weighted average price (“VWAP”) of the Company’s common stock is not equal or greater than the minimum VWAP of $ 0.9105 at least twice during each calendar month during the six-month period beginning on November 1, 2020, then the Royalty Repayment Amount will be automatically increased by $ 6.0 million at the end of such six-month period.

During the observation period starting November 1, 2020, the Company’s weekly VWAP failed to reach the minimum VWAP of $ 0.9105 and on November 13, 2020, the Company concluded that the contingent clause has been met, warranting an additional $ 6.0 million Royalty Repayment Amount, to be added to the outstanding balance commencing on May 10, 2021 for the purpose of cash interest calculation.

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As of December 31, 2022, the forecasted future revenues changed which resulted to a new discount rate of 74.59 % .

Interest expense for the years ended December 31, 2021 and 2020 was $ 4.2 million and $ 543,000 , respectively.

On February 11, 2022, the Company entered into an exchange agreement with Iliad, pursuant to which the parties agreed to partition $ 2.4 million from the outstanding balance of the royalty interest.

The parties further agreed to exchange the partitioned royalty for 23,117 shares of the Company’s common stock.

The exchange consisted of Iliad surrendering the partitioned royalty in exchange for the exchange shares.

On March 2, 2022, the Company entered into an exchange agreement with Iliad, pursuant to which the parties agreed to partition $ 1.1 million from the outstanding balance of the royalty interest.

The parties further agreed to exchange the partitioned royalty for 32,333 shares of the Company’s common stock.

The exchange consisted of Iliad surrendering the partitioned royalty in exchange for the exchange shares.

On March 4, 2022, the Company entered into an exchange agreement with Iliad, pursuant to which the parties agreed to partition $ 800,000 from the outstanding balance of the royalty interest.

The parties further agreed to exchange the partitioned royalty for 26,667 shares of the Company’s common stock.

The exchange consisted of Iliad surrendering the partitioned royalty in exchange for the exchange shares.

On March 9, 2022, the Company entered into an exchange agreement with Iliad, pursuant to which the parties agreed to partition $ 700,000 from the outstanding balance of the royalty interest.

The parties further agreed to exchange the partitioned royalty for 24,667 shares of the Company’s common stock.

The exchange consisted of Iliad surrendering the partitioned royalty in exchange for the exchange shares.

Because the period between the first and last exchanges occurred within a 12-month period and each was individually assessed as a modification, the debt terms that existed prior to the February 13 exchange was used in the application of the 10% test on the cumulative assessment performed.

The exchanges were cumulatively accounted for as an extinguishment and resulted in a loss of $ 2.2 million.

On April 14, 2022, the Company entered into amendments (the “Royalty Interest Global Amendments”) to its existing royalty interests including the Royalty Interest in the original principal amount of $ 12.0 million under the October 2020 Royalty Interest.

The amendment grants the Company at its sole discretion, the right to exchange from time to time, all or any portion of the Royalty Interests for shares of the Company’s common stock at a price per share equal to the Nasdaq Minimum Price (as defined in Nasdaq Listing Rule 5635(d)) as of date of the applicable exchange.

Under the Royalty Interest Global Amendments, the Company’s ability to exchange the Royalty Interests for shares of the Company’s common stock is subject to certain limitations, on which the Company will not have such right and issue any common stock to investors if (a) the issuance of the Company’s common shares would cause investor’s beneficial ownership to exceed 4.99 % of Company’s issued and outstanding common stock as of such date;

(b) any of the exchange conditions has not been satisfied as of the applicable exchange date;

and (c) the total cumulative number of shares of the Company’s common stock issued pursuant to the Royalty Interests would exceed the requirements of The Nasdaq Capital Market (including the rules related to the aggregation of offerings under Nasdaq Listing Rule 5635(d) if applicable) (the “Exchange Cap”), unless stockholder approval is obtained to issue more than the Exchange Cap.

The Exchange Cap shall be appropriately adjusted for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction.

On May 13, 2022, the Company entered into an exchange agreement with Iliad, pursuant to which the parties agreed to partition $ 400,000 from the outstanding balance of the royalty interest.

The parties further agreed to exchange the partitioned royalty for 15,249 shares of the Company’s common stock.

The exchange consisted of Iliad surrendering the partitioned royalty in exchange for the exchange shares.

On July 25, 2022, the Company entered into an exchange agreement with Iliad, pursuant to which the parties agreed to partition $ 750,000 from the outstanding balance of the royalty interest.

The parties further agreed to exchange the partitioned royalty for 31,546 shares of the Company’s stock.

The exchange consisted of Iliad surrendering the partitioned royalty in exchange for the exchange shares.

On November 18, 2022, the Company entered into another exchange agreement with Iliad, pursuant to which the parties agreed to partition $ 715,000 from the outstanding balance of the royalty interest.

The parties further agreed

to exchange the partitioned royalty for 73,333 shares of the Company’s stock.

The exchange consisted of Iliad surrendering the partitioned royalty in exchange for the exchange shares.

Although there were exchanges that occurred within the 12-month period prior to the May 13, 2022, July 25, 2022 and November 18, 2022 exchanges, these were previously accounted for as extinguishment and, therefore, cumulative assessment was not anymore performed.

The exchange agreements were accounted for as a modification.

As of December 31, 2022, the forecasted future revenues changed which resulted to a new discount rate of 41.35 %.

Interest expense for the years ended December 31, 2022 and 2021 was $ 3.6 million and $ 4.2 million, respectively.

As of December 31, 2022 and 2021, the carrying value of the debt was $ 7.3 million and $ 6.3 million, respectively.

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As of December 31, 2022, the forecasted future revenues changed which resulted to a new discount rate of 29.55 % .

Interest expense for the years ended December 31, 2021 and 2020 was $ 2.9 million and $ 14,000 , respectively.

On April 14, 2022, under the Royalty Interest Global Amendments, the Company is granted at its sole discretion, the right to exchange from time to time, all or any of the Royalty Interest under the original principal amount of $ 12.0 million or any portion of the December 2020 Purchase Agreement for shares of the Company’s common stock at a price per share equal to the Nasdaq Minimum Price (as defined in Nasdaq Listing Rule 5635(d)) as of date of the applicable exchange, subject to certain limitations.

Interest expense for the years ended December 31, 2022 and 2021 was $ 3.9 million and $ 2.9 million, respectively.

As of December 31, 2022 and 2021, the carrying value of the debt was $ 10.0 million and $ 7.6 million, respectively

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On March 8, 2021, the Company entered into a purchase agreement (the “March 2021 Purchase Agreement”) with Streeterville Capital, LLC (“Streeterville”), a company affiliated with CVP, 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.

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.

The Company will be obligated to make minimum royalty payments on a monthly basis beginning at the earlier of (a) 36 months following the closing date or (b) 30 days following the satisfaction of all existing royalties to Streeterville, and its affiliates namely Iliad and Irving, but not earlier than 18 months following the closing date in an amount equal to the greater of (i) $ 250,000 beginning on the royalty payment start date and continuing until either the royalty repayment amount has been paid in full or the 6-month anniversary of the royalty payment start date, $ 400,000 beginning on the 6-month anniversary of the royalty payment start date and continuing until either the royalty repayment amount has been paid in full or the 12-month anniversary of the royalty payment start date, $ 600,000 beginning on the 12-month anniversary of the royalty payment start date and continuing until either the royalty repayment amount has been paid in full or the 18-month anniversary of the royalty payment start date, $ 750,000 beginning on the 18-month anniversary of the royalty payment start date and continuing until the royalty repayment amount has been paid in full, and (ii) 10 % of the Company’s net sales on included products, 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 or associated with the license of Included Products from the Company to Napo Therapeutics, including but not limited to the upfront fee payable by Napo Therapeutics to Napo for included products and Crofelemer for other indications;

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As of December 31, 2022, the forecasted future revenues changed which resulted to a new discount of 19.14 %.

On April 14, 2022, under the Royalty Interest Global Amendments, the Company is granted at its sole discretion, the right to exchange from time to time, all or any of the Royalty Interest under the original principal amount of $ 10.0 million of the March 2021 Purchase Agreement for shares of the Company’s common stock at a price per share equal to the Nasdaq Minimum Price (as defined in Nasdaq Listing Rule 5635(d)) as of date of the applicable exchange, subject to certain limitations.

On August 17, 2022, the Company entered into an exchange agreement (the “Royalty Interest Exchange Agreement”) with Streeterville to (i) partition a new royalty interest in the royalty repayment amount of $ 3.4 million (“Partitioned Royalty”) from the royalty interest of the March 2021 Purchase Agreement and then cause the outstanding balance of the royalty interest to be reduced by an amount equal to the initial outstanding balance of the Partitioned Royalty, and (ii) exchange (“Royalty Exchange”) the Partitioned Royalty for 153,333 million shares of the Company’s common stock with a par value of $ 0.0001 in accordance with the term of the Royalty Interest Exchange Agreement.

Under the terms of the Royalty Interest Exchange Agreement, the Royalty Exchange will consist of Streeterville surrendering the Partitioned Royalty in exchange for the shares, free of any restrictive securities legend, and Streeterville shall give no consideration of any kind whatsoever to the Company in connection with the Royalty Interest Exchange Agreement.

On September 30, 2022, the Company entered into an exchange agreement with Streeterville, pursuant to which the parties agreed to partition $ 2.0 million from the outstanding balance of the royalty interest.

The parties further agreed to exchange the partitioned royalty for 156,863 shares of the Company’s common stock.

The exchange consisted of Streeterville surrendering the partitioned royalty in exchange for the exchange shares.

The exchange was accounted for as a debt modification and resulted to a reduction in the outstanding balance of the royalty interest amounting to $ 2.0 million.

As of December 31, 2022 the forecasted future revenues changed which resulted to a new discount of 53.85 %.

Interest expense for the years ended December 31, 2022 and 2021 was $ 1.9 million and $ 1.2 million, respectively.

As of December 31, 2022 and 2021, the carrying value of the debt was $ 3.1 million and $ 5.8 million, respectively.

August 2022 Purchase Agreement

On August 24, 2022, the Company entered into another royalty interest purchase agreement (the “August 2022 Purchase Agreement”) with Streeterville, pursuant to which the Company sold to Streeterville (the entitling “Investor”) a royalty interest to receive $ 12.0 million of future royalties on sales of Mytesi® (crofelemer) for any indications that could cannibalize crofelemer indications or any other chronic indication and certain up-front license fees and milestone payments from licensees and/or distributors for an aggregate purchase price of $ 4.0 million (“the Royalty Financing”).

The Company will use the proceeds to support the ongoing pivotal phase 3 clinical trial of crofelemer for prophylaxis of diarrhea in adults receiving targeted cancer therapy.

Interest will accrue on the Royalty Repayment Amount at a rate of 5 % per annum from the closing of the Royalty Financing until the one-year anniversary of such closing and 10 % per annum thereafter, simple interest computed on the basis of a 360-day year comprised of twelve 30-day months.

The Company will be obligated to make minimum royalty payments on a monthly basis beginning on January 1, 2024 in an amount equal to the greater of (A) $ 250,000 (which increases to $ 400,000 beginning 6 months following the closing of the Royalty Financing, $ 600,000 beginning 12 months following the closing of the Royalty Financing, and $ 750,000 beginning 18 months following the closing of the Royalty Financing) and (B) the royalty payments to which Investor is entitled, consisting of (1) 10 % of the Company’s net sales of crofelemer for any indications that could cannibalize crofelemer indications or any other chronic indication (including any improvements, modifications and follow-on products, collectively referred to as “Included Products”) (2) 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 (A) reimbursements of clinical trial expenses or (B) associated with the license of the of the Included Products from the Company to Napo EU S.p.A.

and (3) 50 % of royalties collected from licenses of the Included Products to third parties.

Pursuant to the terms of the Royalty Interest, the Company has the right to exchange from time to time at the Company’s sole discretion all or any portion of the Royalty Interest for shares of Common Stock at a price per share equal to the Nasdaq Minimum Price (as defined in Nasdaq Listing Rule 5635(d)) as of the date of the applicable exchange.

At issuance, based on projected cash outflows from future revenue streams, the discount rate was 55.97 %.

Interest expense for the year ended December 31, 2022 was $ 1.1 million.

As of December 31, 2021, the carrying value of the debt was $ 5.8 million.

As of December 31, 2022, the carrying value of the debt is $ 4.8 million.

Streeterville Note

On January 13, 2021, the Company issued a secured promissory note to Streeterville in the original principal amount of $ 6.2 million for an aggregate purchase price of $ 6.0 million.

The Company will use the proceeds to fund development of the Company’s NP-300 (lechlemer) drug product candidate for the indication of the symptomatic relief of diarrhea from cholera and general corporate purposes, including the Company’s product pipeline activities.

The Company will use the proceeds to fund development of the Company’s NP-300 drug product candidate for the indication of the symptomatic relief of diarrhea from cholera and general corporate purposes, including the Company’s product pipeline activities.

The note is due after four years and bears interest at 3.25 % per annum.

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At any time following the occurrence of a trial failure which refers to any of the following:

(i) the Company abandons the clinical trial with lechlemer for an indication for the symptomatic relief of infectious diarrhea for cholera;

(ii) the Company fails to start the Phase 1 clinical trial of lechlemer for the symptomatic relief of infectious diarrhea for cholera by July 1, 2022;

or (iii) the Company fails to meet all primary endpoints in the pivotal trials of Lechlemer for the symptomatic relief if infectious diarrhea for cholera with statistical significance, Streeterville may elect to increase the outstanding balance as of the date of the trial failure by 25 % without acceleration (the “Trial Failure Effect”).

(i) the Company abandons the clinical trial with NP-300 for an indication for the symptomatic relief of infectious diarrhea for cholera;

(ii) the Company fails to start the Phase 1 clinical trial of NP-300 for the symptomatic relief of infectious diarrhea for cholera by July 1, 2022;

or (iii) the Company fails to meet all primary endpoints in the pivotal trials of NP-300 for the

symptomatic relief if infectious diarrhea for cholera with statistical significance, Streeterville may elect to increase the outstanding balance as of the date of the trial failure by 25 % without acceleration (the “Trial Failure Effect”).

If Streeterville elects to apply the Trial Failure Effect, it reserves the right to declare the outstanding balance immediately due and payable at any time.

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As of December 31, 2022, the Company has not sold any TDPRV.

Beginning on the earlier of (a) 6 months after January 2021, and (b) initiation of human trials with lechlemer for symptomatic relief of infectious diarrhea for cholera, the Company may pay all or any portion of the outstanding balance earlier than it is due.

Beginning on the earlier of (a) 6 months after January 2021, and (b) initiation of human trials with NP-300 for symptomatic relief of infectious diarrhea for cholera, the Company may pay all or any portion of the outstanding balance earlier than it is due.

In the event the Company elects to prepay all or any portion of the outstanding balance, it shall pay to Streeterville 112.5 % of the portion of the outstanding balance the Company elects to prepay.

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As of December 31, 2022, no default has occurred.

In connection with the note issuance, the Company has entered into a security agreement with Streeterville, pursuant to which Streeterville will receive a first priority security interest in all existing and future lechlemer technology, and any TDPRV and the sale proceeds therefrom that may be granted to the Company by the FDA in connection with the development of lechlemer for the cholera indication.

In connection with the note issuance, the Company has entered into a security agreement with Streeterville, pursuant to which Streeterville will receive a first priority security interest in all existing and future NP-300 technology, and any TDPRV and the sale proceeds therefrom that may be granted to the Company by the FDA in connection with the development of NP-300 for the cholera-related indication.

The Company also agreed, with certain exceptions, not to grant any lien on any of the collateral securing the note and not to grant any license under any of the intellectual property relating to such collateral.

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The Company used the valuation report from an independent valuation service provided to measure the reporting date fair value of the note.

At December 31, 2021, the fair value was determined to be $ 7.8 million.

For the year ended December 31, 2021, the net increase in the fair value of $ 1.8 million was recorded as loss included in the change in fair value of financial instruments and hybrid instrument designated at FVO in the consolidated statements of operations.

At December 31, 2022 and 2021, the fair value was determined to be $ 7.8 million.

For the year ended December 31, 2022, the net increase in the fair value of $ 20,000 was recorded as loss included in the change in fair value of financial instruments and hybrid instrument designated at FVO in the consolidated statements of operations.

Insurance Financing

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 nine months with an annual interest rate of 4.15 %.

The financing balance was zero and $ 95,000 as of December 31, 2021 and 2020, respectively.

March 2021 First Insurance Financing

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Interest expense for the year ended December 31, 2022 was $ 2,000 .

The financing balance was $ 10,000 at December 31, 2021.

The financing balance was zero and $ 10,000 at December 31, 2022 and 2021.

May 2021 First Insurance Financing

2 unchanged sentences

Payment of principal and interest is due in equal monthly installments over ten months .

Interest expense for the years ended December 31, 2022 and 2021 was $ 6,000 and $ 13,000 , respectively.

The financing balance was zero and $ 326,000 at December 31, 2022 and 2021, respectively.

March 2022 First Insurance Financing

In March 2022, the Company entered into another premium finance agreement for $ 100,000 with First Insurance representing the unpaid balance of the total premiums, taxes, and fees of $ 115,000 with an annual interest rate of 4.6 %.

The total finance charge was $ 15,000 .

Payment of principal and interest is due in equal monthly installments over ten months .

Interest expense for the year ended December 31, 2022 was zero .

The financing balance was $ 9,000 at December 31, 2022.

May 2022 First Insurance Financing

In May 2022, the Company entered into another premium finance agreement for $ 752,000 with First Insurance representing the unpaid balance of the total premiums, taxes, and fees of $ 941,000 with an annual interest rate of 4.3 %.

The total finance charge was $ 15,000 .

Payment of principal and interest is due in equal monthly installments over ten months .

Interest expense for the year ended December 31, 2022 was $ 4,000 .

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The promissory note provides for the Company to make semiannual payments equal to $ 50,000 plus accrued interest beginning on March 1, 2020 until the Note is paid in full.

Interest expense for the year ended December 31, 2021 was $ 10,000 .

Interest expense for the years ended December 31, 2022 and 2021 was $ 10,000 and $ 10,000 , respectively.

At December 31, 2022 and 2021, the net carrying value of the Tempesta note was $ 250,000 and $ 350,000 respectively.

1 unchanged sentence

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”) 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, or (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, accounts for such transactions as secured borrowings in accordance with ASC 860-30, “Transfers – Secured Borrowings and Collateral.”

During 2020, the Company made the required payments to Oasis for the first five purchases with total payments equalling to $ 8.0 million and the related notes payable were extinguished.

In December 2020, for its sixth purchase under the terms of the Purchase Agreement, the Company received cash proceeds of $ 1.6 million from Oasis (the “Tranche #6 Secured Note”).

In May 2020, the Company, entered into a one-year Accounts Receivable Purchase Agreement (the “Purchase Agreement”) with Oasis Capital (“Oasis”).

In December 2020, the Company received cash proceeds of $ 1.6 million from Oasis (the “Tranche #6 Secured Note”).

Oasis purchased accounts receivable with a carrying value of $ 2.2 million, or gross accounts receivable of $ 3.8 million net of chargebacks and discounts of $ 1.6 million.

The purchase was effectuated pursuant to an amended Assignment Agreement, effective December 3, 2020, between the Company and Oasis.

The Maturity Date, by which date Oasis must collect the $ 1.8 million Threshold Price, was February 10, 2021.

The Company recorded the sale to Oasis as a short-term secured borrowing with a principal amount of $ 1.6 million, or $ 1.8 million net of a $ 213,000 discount.

Though there was no stated interest rate, the effective interest rate at issuance was 128.4 % .

The Tranche #6 Secured Note had a maturity date of February 10, 2021, 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 #6 Secured Note, the effective interest rate is variable, dependent on the amount of any principal payment and payment dates.

The secured borrowing gross balance remaining to be paid is $ 1.8 million as of December 31, 2020.

In February 2021, the Company made its final required payment to Oasis under Tranche #6 Secured Note, with total payments equalling the $ 1.8 million Threshold amount plus the transaction fee, and the Tranche #6 Secured Note was extinguished.

In February 2021, the Company made its final required payment to Oasis under Tranche #6 Secured Note, with total payments equaling the $ 1.8 million Threshold amount plus the transaction fee, and the Tranche #6 Secured Note was extinguished.

Exchange Note 2

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Per agreement, in consideration of the extension of the maturity date of Exchange Note 1 from December 31, 2019 to December 31, 2021, the Company issued a note (“Exchange Note 2”) with a principal balance of $ 2.3 million.

The maturity date of Exchange Note 2 is December 31, 2020, with an interest rate of 10 %.

Between September 2020 and November 2020, the Company and CVP entered into a series of note exchange agreements pursuant to which the Company made prepayments of principal and related accrued interest of an aggregate amount of $ 5.0 million, in lieu of making cash payments to CVP on Exchange Note 1, by issuing a total of 6,740,573 shares of

the Company’s common stock to CVP.

The series of exchanges was accounted for as an extinguishment which resulted in a loss of $ 560,000 .

As of December 31, 2021, the carrying value of Exchange Note 1 was zero .

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The global amendment requires redemption of Series D Perpetual Preferred Stock prior to payment of principal of Exchange Note 2.

The Company determined the incremental value of cash flows amounting to $ 228,000 with the assistance of an independent valuation service provider, based on weighted probability assumptions of various settlement conditions and penalties stipulated in the contract therein.

The global amendment agreement was accounted for as a modification;

hence a new effective rate was determined at the date of modification that equated the revised cash flows to the carrying amount of the note.

The global amendment agreement was accounted for as modification.

Pursuant to the global amendment agreement, the Company issued 842,500 shares of Series D Perpetual Preferred Stock.

15 unchanged sentences

The exchange was accounted for as debt extinguishment which resulted in a loss of $ 753,000 .

As of December 31, 2021 and 2020, the carrying value of Exchange Note 2, net of discount, was zero and $ 1.4 million, respectively.

The following table summarizes information about warrants outstanding and exercisable into shares of the Company’s common stock for the years ended December 31, 2022 and 2021:

Warrants outstanding, beginning balance

( 2,007,117 )

( 11,421,464 )

Expirations and cancelations

Warrants outstanding, ending balance

May 2020 Series 3 Warrants

In May 2020, concurrent with the May 2020 modification of the exercise price of the Series 1, Series 2 and Bridge Note Warrants and inducement offer, the Company issued unregistered Series 3 Warrants to purchase 2,890,284 shares of common stock.

The Series 3 Warrants had an exercise price of $ 1.59 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 $ 1.59 per warrant share, the Series 3 Warrants had two contingent settlement methods:

(i) if at the time of exercise there is no effective registration statement, then the holders of the 2,890,284 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 (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 $ 0.15 per share, stock price of $ 1.32 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 2,818,784 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.

On January 8, 2021, in accordance with the May 2020 Modification of the 2019 Bridge Note Warrants and Inducement Offer, an investor received 135,416 Series 3 Warrants for the exercise of 135,416 2019 Bridge Note Warrants on the same date.

During the year ended December 31, 2021, certain holders of the Series 3 Warrants agreed to exercise a total of 206,915 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 $ 1.8 million.

A total of zero and 71,500 Series 3 Warrants were outstanding as of December 31, 2021 and 2020, respectively.

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 5,713 shares

of common stock at an exercise price of $ 157.50 per common share.

The warrants were classified as liabilities pursuant to ASC 815-40 as there was potential cash settlement.

April 2020 Underwriter Warrants

In April 2020, in consideration of the settlement of a dispute regarding underwriting fees (see Note 6), the Company issued warrants to purchase 33,592 shares of common stock at an exercise price of $ 7.50 per common share.

The warrants were valued at $ 32,000 using the Black-Scholes-Merton option pricing model as follows:

exercise price of $ 7.50 per share, stock price of $ 1.35 per share, expected life of 4.25 years, volatility of 141 % , and a risk-free rate of 0.29 % .

The warrants were equity classified in the consolidated statements of stockholders’ equity.

March 2019 Ladenburg Warrants

In March 2019, in consideration of services provided in the Company’s March 2019 public offering of 6,339 common shares, the Company issued to Ladenburg Thalmann & Co.

warrants to purchase an aggregate of 253 shares of common stock at an exercise price of $ 52.50 per common share.

The warrants were valued at $ 13,000 using the Black-Scholes-Merton option pricing model as follows:

exercise price of $ 52.50 per share, stock price of $ 56.70 per share, expected life of 5 years , volatility of 146 % , and a risk-free rate of 2.21 % .

The warrants were equity classified in the consolidated statements of stockholders’ equity.

March 2019 LOC Warrant

In March 2019, in consideration of a letter of credit cancellation related to the Company’s office lease, the Company issued a warrant to purchase warrant shares equal to a fixed principal amount divided by a variable exercise price.

The warrants were initially classified as liabilities 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 15,250 shares of the Company’s common stock and were reclassified to additional paid-in-capital with a fair value of $ 71,000 .

2019 Bridge Note Warrants

Between March 18, 2019 and June 26, 2019, concurrent to the Company entering into Promissory Notes of $ 5.1 million, the Company issued twenty-one warrants to purchase warrant shares equal to a fixed principal amount divided by a variable exercise price.

The warrants for all twenty-one Bridge Notes were 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 927,083 shares of the Company’s common stock and were reclassified to additional paid-in-capital with a fair value of $ 4.3 million, calculated using the Black-Scholes-Merton pricing model using a stock price of $ 5.19 , a strike price of $ 6.00 per share, an average expected term of 4.80 years, volatility of 146 % and a risk-free discount rate of 1.76 % .

February 2020 Modification of Certain 2019 Bridge Note 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 83,333 Bridge warrants in consideration of the Company lowering the exercise price of the 83,333 warrants from $ 6.00 to $ 2.08 .

Upon exercise of the warrants, the Company received cash proceeds of $ 173,000 and, in turn, issued 83,333 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 consolidated statement of operations for the year ended December 31, 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 Note Warrants from $ 6.00 per share to $ 1.47 per share.

The Company determined the impact of this modification to be an increase in the fair value of the warrants of $ 166,000 .

Because the modification applied to the entire class of Bridge Note Warrant holders, the increase in fair value represented a deemed dividend to the entire class of Bridge Note Warrant holders.

The modification did not result in the reclassification of the equity-classified Bridge Note Warrants from additional paid-in-capital to liability classification.

In May 2020, concurrent with the reduction of the exercise price of the Bridge Note Warrants, the Company entered into a warrant exercise inducement offer with certain holders of the Bridge Note Warrants, pursuant to which such holders agreed to exercise for cash Bridge Note Warrants to purchase 31,250 shares of common stock, in exchange for the Company’s issuing to the exercising holders new unregistered Series 3 Warrants to purchase 31,250 shares of common stock.

During the year ended December 31, 2021, an aggregate of 443,748 shares of common stock were issued upon the exercise of the Bridge Note Warrants for total proceeds of $ 652,000 .

A total of 190,622 and 634,370 Bridge Notes Warrants were outstanding as of December 31, 2021 and 2020, respectively.

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) 962,166 Class A Units, priced at $ 6.00 per unit, with each unit consisting of (i) one share of the Company’s 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 166 shares of common stock, (ii) 166 Series 1 Warrants and (iii) 166 Series 2 Warrants.

The Series 1 Warrants had an exercise price of $ 6.00 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) 962,166 Class A Units, which included Series 1 warrants to purchase 962,166 shares of the Company’s common stock and (ii) 10,787 Class B Units, which included Series 1 warrants to purchase 1,797,833 shares of the Company’s common stock.

In total, 2,760,000 Series 1 warrants were issued, with an initial valuation of $ 5.0 million computed using the Black-Scholes-Merton pricing model using a stock price of $ 5.19 , a strike price of $ 6.00 , an expected term of 5.0 years, volatility of 109 % and a risk-free discount rate of 1.83 % .

Upon issuance, the Series 1 warrants were classified in additional paid-in-capital.

September 2019 Modification of the July 2019 Series 1 Warrants

In September 2019, the Company reduced the exercise price of all 2,760,000 Series 1 Warrants from $ 6.00 to $ 4.20 .

The Company determined the impact of this modification to be an increase in the fair value of the warrants 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 modification did not result in the reclassification of the equity-classified Series 1 warrants from additional paid-in-capital to liability classification.

February 2020 Modification of the July 2019 Series 1 Warrants

In February 2020, the Company entered into a warrant exercise agreement with a holder of its Series 1

Warrants, pursuant to which the holder agreed to exercise 69,340 Series 1 Warrants in consideration of the Company lowering the exercise price of the 69,340 warrants from $ 6.00 to $ 2.08 .

Upon exercise of the warrants, the Company received cash proceeds of $ 144,000 and, in turn, issued 69,340 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 $ 6,000 in fair value of the modified warrants was recorded as an expense in the consolidated statement of operations for the year ended December 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 all outstanding Series 1 Warrants from $ 4.20 per share to $ 1.47 per share.

The Company determined the impact of this modification to be an increase in the fair value of the warrants of $ 284,000 .

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 modification did not result in the reclassification of the equity-classified Series 1 Warrants from additional paid-in-capital to liability classification.

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 1,524,013 shares of common stock, in exchange for the Company’s issuing to the exercising holders new unregistered Series 3 Warrants to purchase 1,524,013 shares of common stock.

During the year ended December 31, 2021, an aggregate of 464,058 shares of common stock were issued upon the exercise of the Series 1 Warrants for total proceeds of $ 682,000 .

A total of 145,396 and 609,450 Series 1 Warrants were outstanding as of December 30, 2021 and 2020, respectively.

July 2019 Series 2 Warrants

The Series 2 Warrants had an exercise price of $ 6.00 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.

In the July 2019 offering, the Company sold (i) 962,166 Class A Units, which included Series 2 warrants to purchase 962,166 shares of the Company’s common stock and (ii) 10,787 Class B Units, which included Series 2 warrants to purchase 1,797,833 .

In total, 2,760,000 Series 2 warrants were issued, with an initial valuation of $ 5.0 million computed using the Black-Scholes-Merton pricing model using a stock price of $ 5.19 , a strike price of $ 6.00 , an expected term of 5.0 years, volatility of 109 % 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 30,313 Series 2 Warrants in consideration of the Company lowering the exercise price of the 30,313 warrants from $ 6.00 to $ 1.82 .

Upon exercise of the warrants, the Company received cash proceeds of $ 55,000 and, in turn, issued 30,313 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 consolidated statement of operations for the year ended December 31, 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 10) with Ionic Ventures of its Series 2 Warrants, pursuant to which the holder agreed to exercise in cash its Series 2 Warrants to purchase an aggregate of 416,666 shares of common stock, in consideration of the Company reducing the Series 2 Warrant exercise price from $ 6.00 to $ 1.57 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 consolidated statement of operations for the year ended December 31, 2020.

The modification did not result in the reclassification of the equity-classified Series 2 Warrants from additional paid-in-capital to liability classification, and as of December 31, 2020, all 2,760,000 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 $ 6.00 per share to $ 1.47 per share.

The Company determined the impact of this modification to be an increase in the fair value of the warrants of $ 406,000 .

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.

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 1,344,520 shares of common stock, in exchange for the Company’s issuing to the exercising holders new unregistered Series 3 Warrants to purchase 1,335,020 shares of common stock.

During the year ended December 31, 2021, an aggregate of 475,725 shares of common stock were issued upon the exercise of the Series 2 Warrants for total proceeds of $ 700,000 .

A total of 133,730 and 609,450 Series 2 Warrants were outstanding as of December 31, 2021 and 2020, respectively.

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 833,333 unregistered shares of the Company’s common stock, and (ii) Warrants to purchase up to an aggregate of 416,664 shares of common stock, for an aggregate purchase price of $ 1.5 million (see Note 11).

The warrants have an exercise price of $ 2.34 per share and become 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-Merton option pricing model as follows:

exercise price of $ 2.34 per share, stock price of $ 1.86 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 $ 1.5 million were allocated to the two securities using the relative fair value method, resulting with the common stock

and warrants being allocated $ 1.0 million and $ 465,000 , respectively.

The warrants were classified in stockholders’ equity

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 .

As of December 31, 2021, all December 2019 PIPE Financing Warrants have been exercised.

April 2021 ELOC Warrants

On April 7, 2021, in consideration for Oasis Capital’s entry into the March 2020 ELOC amendment, the Company issued Oasis Capital a common stock purchase warrant (“ELOC Warrants”) exercisable for 33,333 shares of common stock with an exercise price per share equal to $ 5.61 on the date of the amendment.

The warrants were valued at $ 172,000 using the Black-Scholes option pricing model as follows:

exercise price of $ 5.61 per share, stock price of $ 5.61 per share, expected life of five years , volatility of 156 % , and a risk-free rate of 0.87 % .

The warrants were classified in additional paid-in-capital.

As of December 31, 2022 and 2021, the Company’s outstanding warrants have an exercise price ranging from $ 1.47 to $ 157.5 per common share and generally expires prior to December 31, 2024.

Preferred Stock

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( in thousands, except share and per share data)

Series A Convertible Preferred Stock

In March 2018, the Company entered into a stock purchase agreement with Sagard Capital 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 Preferred Stock, $ 0.0001 par value per share, for gross proceeds of $ 9.2 million, or $ 9.0 million net of issuance costs.

The preferred stock was convertible into approximately 157,855 shares of common stock at the option of the holder at an effective conversion price of $ 582.75 per share.

Subject to certain limited exceptions, the shares of preferred stock could not be offered, pledged or sold by Sagard Capital for one year from the date of issuance.

The conversion price was 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 Convertible Preferred shares were 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 A Convertible Preferred Stock 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 Convertible Preferred shares then outstanding were 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 Convertible Preferred Stock 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 Convertible Preferred Stock equal to one times the Series A Convertible Preferred Stock original issue price.

The Series A Convertible Preferred shares were redeemable by Sagard Capital upon a Redemption Event that is not solely within the control of the Company.

Were a Redemption Event 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 one of the following conditions can result in a Redemption Event:

(i) revenue attributable to the Mytesi product for the six-month period ended March 31, 2021 is less than $ 22.0 million;

(ii) the daily VWAP of the Company's common stock on Nasdaq for the 30 days prior to a Measurement Date is less than $ 315.00 ;

(iii) the Company fails to file with the Securities and Exchange Commission (“SEC”) on or before June 30, 2021, its Form 10-Q for the three months ending March 31, 2021.

The preferred stock was classified outside of stockholders' equity in accordance with authoritative guidance for the classification and measurement of potentially redeemable securities.

In September 2020, the Company and Sagard Capital entered into an exchange agreement, by which the remaining Series A Convertible Preferred shares were exchanged for (i) 842,500 shares of the Company’s Series C Perpetual Preferred shares, and (ii) 842,500 shares of the Company’s Series D Perpetual Preferred shares, all issued to Iliad.

The exchange agreement was entered into to effect a share-for-share exchange transaction.

The Series A Convertible Preferred shares were cancelled upon surrender, and the Company issued Iliad the Series C and Series D Perpetual Preferred shares.

The exchange agreement was treated as an extinguishment of the Series A Convertible Preferred shares.

As of the exchange date, the related extinguishment required recording derecognition of the Series A accreted value and recording Series C and Series D at fair value.

The related excess of the carrying value over the fair value of the new instruments of $ 150,000 was recorded to additional paid-in-capital and increased earnings available to common stockholders.

During the year ended December 31, 2020, the Company determined that a Redemption Event was probable.

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

In September 2020, the Company filed a certificate with the Secretary of State of Delaware effecting the retirement and cancellation of the Series A Convertible Preferred Stock.

As of December 31, 2020, there were no Series A Convertible Preferred shares authorized or outstanding.

Series B Convertible Preferred Stock

In July 2019, the Company entered into an underwriting agreement relating to the public offering comprised of (1) 962,166 Class A Units, priced at a public offering price of $ 6.00 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 Series B Convertible Preferred Stock with a stated value of $ 1,000 and convertible into 166 shares of common stock, (ii) 166 Series 1 Warrants and (iii) 166 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 1,797,833 shares of common stock and Series 2 warrants to purchase 1,797,833 shares of common stock.

The total gross proceeds to the Company from the offering of the Class B Units were $ 10.8 million of which $ 4.2 million was allocated to the Series B Convertible Preferred Stock, $ 3.3 million to the Series 1 Warrants and $ 3.3 million to the Series 2 Warrants.

Issuance costs of $ 1.6 million 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.

In March 2020, the Company entered into a Warrant Exercise and Preferred Stock Amendment Agreement (“Amendment Agreement”) with a Ionic Ventures of its Series 2 Warrants, pursuant to which the holder agreed to exercise in cash its Series 2 Warrants to purchase an aggregate of 416,666 shares of common stock, in consideration of the Company reducing the warrant exercise price from $ 6.00 to $ 1.57 per share, for gross proceeds to the Company of approximately $ 653,000 (see Note 9).

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 , resulting in the application of accounting for modification of preferred stock instruments under ASC 260-10-S99-2 where the difference between the fair value of the consideration transferred and the net carrying amount of the convertible preferred stock is treated as a dividend and must be deducted from net income in arriving at income available to common stockholders.

Because the reduction to the conversion price was an inducement, the Company applied the guidance in ASC 470-20, resulting in the recording of an inducement charge of $ 1.6 million in the consolidated statement of operations for the year ended December 31, 2020.

In September 2020, the Company filed a certificate with the Secretary of State of Delaware effecting the retirement and cancellation of the Series B Convertible Preferred Stock.

As of December 31, 2020, there were no Series B Convertible Preferred shares authorized or outstanding.

Series B-2 Convertible Preferred Stock

In December 2019, the Company entered into an exchange agreement with Oasis Capital, pursuant to which Oasis Capital gave up (i) its remaining unexercised Prepaid Forward contracts exercisable for 412,074 shares of the Company’s common stock and (ii) 231,709 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.

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.

Each share of Series B-2 Convertible Preferred Stock is convertible at any time at the holder’s option into 63 shares of common stock, as determined by dividing the $ 153.90 stated value of each Series B-2 Convertible Preferred Share by the $ 2.43 conversion price ( $ 153.90 divided by $ 2.43 = 63 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 Series B-2 Certificate of Designation.

The Series B-2 Convertible Preferred Stock was classified in stockholders' equity in accordance with authoritative guidance.

In January 2020, a holder of the Series B-2 Convertible Preferred Stock converted 2,631 preferred shares into 166,630 shares of common stock.

In October 2020, the Company entered into an exchange agreement with Oasis Capital pursuant to which the Company agreed to issue 166,728 shares of common stock in exchange for 975 shares of the Series B-2 Convertible Preferred Stock.

The exchange agreement was accounted for as a modification.

In December 2020, an investor converted the remaining 6,559 Series B-2 Convertible Preferred Stock into a total of 415,403 shares of the Company’s common stock.

As of December 31, 2020, there were no Series B-2 Convertible Preferred shares outstanding.

Series C Perpetual Preferred Stock

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An amendment agreement of the Exchange Note 2 was also entered into, with issuance value of $ 2.3 million and carrying value of $ 2.6 million as of the exchange date, to extend maturity from December 31, 2020 to December 31, 2021, in consideration of 5 % increase in the outstanding balance.

Holders of the Series C Perpetual Preferred Stock were not entitled to voting rights.

However, as long as any Series C Perpetual Preferred share is outstanding, the Company is restricted to alter, change, or enter into an agreement to alter or change adversely the powers, preferences, or rights given to the shareholders.

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or deemed liquidation event, the holders of Series C Perpetual Preferred shares then outstanding would 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 C Perpetual Preferred shares 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 C equal to one times the Series C original issue price.

The Series C Perpetual Preferred shares were redeemable upon the option or discretion of the Company.

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 PIK dividend shares.

The Series C Perpetual Preferred shares were initially measured at fair value using the income approach, which considered the weighted probability of discounted cash flows at various scenarios of redemption by the Company or liquidation event and perpetual holding of the shares.

As of the date of exchange, total fair value of the Series C Perpetual Preferred shares amounted to $ 4.7 million.

Subsequently, the carrying amount of Series C Perpetual Preferred shares increased as the PIK dividend shares were recognized.

The preferred stock has been classified as permanent stockholders' equity in accordance with authoritative guidance for the classification and measurement of perpetual shares without mandatory redemption period because the redemption option was ultimately in the control of the Company.

In October 2020, the Company entered into an exchange agreement with Iliad pursuant to which the Company agreed to issue a total of 83,333 shares of common stock and pre-funded warrants to purchase 2,352,563 shares of common stock in exchange for 285,000 shares of Series C Perpetual Preferred Stock.

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 .

In December 2020, the Company also entered into a series of exchange agreements with Iliad pursuant to which the Company agreed to issue a total of 2,734,626 shares of common stock in exchange for 573,810 shares of Series C Perpetual Preferred Stock.

The series of exchanges were viewed as singular transaction, hence combined for purposes of accounting for the subsequent amendments.

The series of exchanges was accounted for as an extinguishment which resulted in a $ 2.5 million deemed dividend, recorded against additional paid-in capital, for the difference between the fair value of the shares of common stock and pre-funded warrants transferred and the carrying amount of the Series C Perpetual Preferred Stock.

As of December 31, 2020, Iliad had exercised all pre-funded warrants for $ 1,000 .

As of December 31, 2020, there were no Series C Perpetual Preferred shares outstanding.

redemption option was ultimately in the control of the Company.

There were no series C Preferred Shares outstanding at December 31, 2022 and 2021.

Series E Preferred Stock

On August 18, 2022, the Company entered into an agreement (the “Securities Purchase Agreement”) with Synworld to issue 10 Series E Preferred Stock with a par value of $ 0.0001 , amounting to $ 100 .

In consideration of the Securities Purchase Agreement, the Company and Synworld agree to amend the existing definition of the term “Service Share Amount” in the License Agreement entered by both parties (See Note 2) and include a subsection for lock-up wherein Synworld agrees not to sell, transfer, loan, grant any option of the purchase of, or otherwise dispose of any shares of common stock acquired pursuant to the License Agreement until after the 90-day period following the date of acquisition.

On October 4, 2022, the Company redeemed all 10 shares of Series E Preferred Stock in accordance with the terms of such securities.

As a result, no shares of Series E Preferred Stock remain outstanding.

Stockholders’ Equity

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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 one -for-one basis.

The Company is authorized to issue a total number of 204,475,074 shares, of which 150,000,000 shares are common stock, 50,000,000 are non-voting common stock and 4,475,074 are preferred stock.

At a special meeting of stockholders of Jaguar Health, Inc.

(the “Company”) held on September 30, 2022 (the “Special Meeting”), the Company’s stockholders approved an amendment (the “Sixth Amendment”) to the Company’s Third Amended and Restated Certificate of Incorporation (the “COI”) to effect an increase in the number of authorized shares of the Company’s voting common stock, par value $ 0.0001 per share (the “Common Stock”), from 150,000,000 to 298,000,000 shares of Common Stock (the “Authorized Share Increase”) on September 30, 2022.

Pursuant to such authority granted by the Company’s stockholders, the Company’s board of directors approved the Authorized Share Increase and the filing of the Sixth Amendment to effectuate the Authorized Share Increase.

On September 30, 2022, the Company filed the Sixth Amendment with the Secretary of State of the State of

Delaware (the “DE Secretary of State”), and the Authorized Share Increase became effective in accordance with the terms of the Sixth Amendment immediately upon filing with the DE Secretary of State (the “Effective Time”).

The Company is now authorized to issue a total number of 352,475,074 shares, of which 298,000,000 shares are common stock, 50,000,000 are non-voting common stock and 4,475,074 are preferred stock.

Reverse Stock-Split

On December 22, 2020, the Company obtained approval through a special shareholders meeting held on December 9, 2020 to effect a reverse split of the Company’s issued and outstanding voting common stock at a ratio not less than 1 -for-2 and not greater than 1 -for-20.

On September 3, 2021, the reverse stock split became effective.

On September 3, 2021, the Company filed an amendment to its Third Amended and Restated Certificate of Incorporation with the Secretary of State of Delaware to effect a 1 -for-3 reverse stock split of the Company’s issued and outstanding shares of voting common stock, effective September 8, 2021.

Upon effectivity, every three shares of the Company’s issued and outstanding common stock immediately prior to the effective time shall automatically be reclassified into one share of common stock without any change in the par value.

The reverse stock split reduces the number of shares of common stock issuable upon the conversion of the Company’s outstanding non-voting common stock and the exercise or vesting of its outstanding stock options and warrants in proportion to the ratio of the reverse stock split and causes a proportionate increase in the conversion and exercise prices of such non-voting common

stock, stock options and warrants.

On January 20, 2023, the Company approved another amendment to the Company’s Third Amendment and Restated Certificate of Incorporation to effect a 1 -for-75 reverse stock split of the Company’s issued and outstanding shares of voting common stock, effective January 23, 2023.

Upon effectivity, every seventy-five shares of the Company’s issued outstanding common stock immediately prior to the effective time shall automatically be reclassified into one share of common stock without any change in the par value.

The reverse stock splits reduces the number of shares of common stock issuable upon the conversion of the Company’s outstanding non-voting common stock and the exercise or vesting of its outstanding stock options and warrants in proportion to the ratio of the reverse stock split and causes a proportionate increase in the conversion and exercise prices of such non-voting common stock, stock options and warrants.

In addition, the number of shares reserved for issuance under the Company’s equity compensation plans immediately prior to the effective time will be reduced proportionately.

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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) 66,666 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 $ 1.31 (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 $ 1.31 .

The threshold price 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 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.

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 22,935 shares of common stock.

At issuance, the 22,935 shares of common stock had a fair value of $ 33,000 and were expensed as an issuance cost in the Company’s 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 sold 231 common shares to Oasis for gross proceeds of $ 23,000 .

As of December 31, 2022 and 2021, the Company had not exercised any further put options to require Oasis Capital to purchase common stock under the equity purchase agreement.

On April 7, 2021, the Company entered into an amendment to the March 2020 ELOC with Oasis Capital, pursuant to which the parties agreed to increase (i) the purchase price from $ 1.31 to $ 9.00 and (ii) the threshold price

from $ 1.50 to $ 10.35 .

In consideration for Oasis Capital’s entry into the amendment, the Company issued Oasis Capital a common stock purchase warrant (“ELOC Warrants”) exercisable for 33,333 shares of common stock with an exercise price per share equal to $ 5.61 on the date of the amendment.

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 571,427 shares of the Company’s common stock, for an aggregate purchase price of approximately $ 720,000 , or $ 668,000 net of $ 52,000 of issuance costs.

At The Market Offering (“ATM”)

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The October 2020 ATM Agreement will terminate upon the earlier of (i) October 5, 2022 and (ii) termination of the October 2020 ATM Agreement as permitted therein.

In 2020, the Company sold 1,271,639 shares of common stock under the October 2020 ATM Agreement resulting in net proceeds of approximately $ 1.3 million after commissions and expenses of approximately $ 40,000 .

During January and February 2021, the Company issued an aggregate of 8,931 shares under the October 2020 ATM Agreement for total net proceeds of $ 5.4 million after commissions and expenses of approximately $ 311,000 .

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The offering will terminate upon the earlier of (i) December 10, 2024 and (ii) termination of the December 2021 ATM Agreement as permitted therein.

On February 2, 2022, the Company entered into an amendment to the December 2021 ATM Agreement, pursuant to which, the aggregate offering amount of the shares of the Company’s common stock which the Company may sell and issue through Ladenburg, as the sales agent, was increased from $ 15.0 million to $ 75.0 million (the “ATM Upsize”).

As of December 31, 2022, the Company has issued 923,164 shares under the December 2021 ATM Agreement for a total net proceeds of $ 20.5 million.

PoC Capital Registered Direct Offering

On October 6, 2020, the Company entered into a Stock Plan Agreement for payment of contracted research fees (the “SPA”) with PoC Capital, LLC (“PoC”), pursuant to which the Company issued to PoC an aggregate of 444,444 shares of the Company’s common stock as consideration for PoC’s assumption of $ 400,000 in payment obligations of Napo under the service order with Integrium for Napo’s planned upcoming pivotal Phase 3 clinical trial for cancer-therapy related diarrhea, for an effective offering price of $ 0.90 per share.

Securities Purchase Agreement

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On April 29, 2021, the Company entered into another securities purchase agreement, pursuant to which the Company agreed to issue and sell, in a registered public offering through Ladenburg as the placement agent, an aggregate of 33,987 shares of common stock at an offering price of $ 317.25 per share for gross proceeds of approximately $ 10.8 million before deducting placement agent fees and related offering expenses of $ 948,000 .

The offering closed on May 3, 2022.

Subscription Agreement

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On November 3, 2021, Dragon SPAC issued 883,000 ordinary shares, each reserved to the exercise of warrants pursuant to the warrant agreement approved by Dragon SPAC.

As a result, Dragon SPAC became a substantially owned subsidiary, at the same time, the related advances will be converted to investment at a stand-alone level, and will be eliminated at the consolidated level.

As a result, Dragon SPAC became a substantially owned subsidiary, at the same time, the related advances were converted to investment at a stand-alone level eliminated at the consolidated level.

September 2021 PIPE Financing

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As a result of the merger last November 3, 2021 between Napo EU and Dragon SPAC, the Company assumed a non-controlling interest amounting to $ 242,000 as of December 31, 2021 which represents minority interest held by an investor in Napo Therapeutics.

For the year ended December 31, 2022, noncontrolling interest decreased by $ 941,000 due to the share in net loss on Napo Therapeutics’ financial performance.

Stock-Based Compensation

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The 2014 Plan replaced the 2013 Plan except that all outstanding options under the 2013 Plan remain outstanding until exercised, cancelled or expired.

On April 13, 2022, the Board of Directors of the Company approved a Registration Statement to register an additional 2,417,660 shares of the Company’s common stock for issuance pursuant to the awards granted under the 2014 Plan.

As of December 31, 2022, there were 26,533 options outstanding and 116,011 options available for grant.

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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.

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.

On April 13, 2022, the Board of Directors of the Company approved an amendment to the 2020 Inducement Award Plan to reserve an additional 471,833 shares of the Company’s common stock for issuance pursuant to equity awards granted under the Inducement Award Plan, thereby increasing the number of shares of the Company’s common stock issuable thereunder from 500,000 shares to 971,833 shares.

As of December 31, 2022, there were 1,546 options outstanding and 6,967 options available for grant.

As of December 31, 2021, there were 1,546 options outstanding and 157 options available for grant.

The Company authorized an additional 151,079 shares for the stock incentive plans.

Stock Options and Restricted Stock Units (“RSUs”)

The following table summarized the incentive plan activity for the year ended December 31, 2021:

The following table summarized the incentive plan activity for the year ended December 31, 2022 and 2021:

Weighted Average

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Exercise Price

Outstanding at January 1, 2021

Additional shares authorized

Options granted

Options exercised

Options canceled

RSUs vested and released

RSUs cancelled

Outstanding at December 31, 2021

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Options granted

( 1,016,044 )

Options exercised

Options canceled

RSUs vested and released

RSUs cancelled

Outstanding at December 31, 2022

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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.

The number of options exercised during the year ended December 31, 2021 and 2020 were 3,147 and 185 , respectively.

The number of options exercised during the year ended December 31, 2022 and 2021 were zero and 42 , respectively.

The weighted average grant date fair value of stock options granted was $ 22.04 and $ 379.66 per share during the years ended December 31, 2022, and 2021, respectively.

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163.8 - 164.0 %

150.1 - 167.9 %

Expected term (years)

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(In thousands, except share and per share data)

Net loss attributable to common shareholders (basic and diluted)

Net loss attributable to common stockholders (basic and diluted)

Shares used to compute net loss per common share, basic and diluted

Net loss per share attributable to common shareholders, basic and diluted

Net loss per share attributable to common stockholders, basic and diluted

Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period.

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Including these shares will have a material effect on the diluted net loss per common share in future periods.

The Company's loss before provision for income taxes during the years ended December 31, 2021 and 2020, was a domestic loss of $ 48.0 million and $ 33.8 million, and a foreign loss of $ 4.6 million and zero , respectively.

The Company's loss before provision for income taxes during the years ended December 31, 2022 and 2021, was a domestic loss of $ 42.1 million and $ 48.0 million, and a foreign loss of $ 6.3 million and $ 4.6 million, respectively.

The effective tax rate for 2022 and 2021 was 0 %.

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as defined by the code, results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups.

limitation may result in expiration of all or a portion of the NOL or tax credit carryforwards before utilization.

Any limitation may result in expiration of all or a portion of the NOL or tax credit carryforwards before utilization.

The Company has previously reduced its federal and California R&D credit carryforwards by $ 1.4 million and $ 697,000 , respectively.

Enacted on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“the CARES Act”) authorizes more than $2.0 trillion to battle COVID-19 and its economic effects, including immediate cash relief for individual citizens, loan programs for small business, support for hospitals and other medical providers, and various types of economic relief for impacted businesses and industries.

The CARES Act does not have a material impact on the Company’s financial results for the year ended December 31, 2021.

The CARES Act does not have a material impact on the Company’s financial results for the year ended December 31, 2022 and 2021.

The Consolidated Appropriations Act, 2021 (the "Act") was enacted in the United States on December 27, 2020.

The Act enhances and expands certain provisions of the CARES Act.

The Act does not have a material impact on the Company’s financial results for the year ended December 31, 2021.

The Act does not have a material impact on the Company’s financial results for the year ended December 31, 2022 and 2021.

Uncertain Tax Positions

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Subsequent Events

Issuances under the December 2021 ATM Agreement

During January to March 2022, the Company issued an aggregate of 20,046,463 shares under the December 2021 ATM Agreement for total net proceeds of $ 9.2 million.

Amendment to December 2021 ATM Agreement

3a9 Exchange Agreements

On February 11, 2022, the Company entered into a privately-negotiated exchange agreement with Iliad, pursuant to which, the Company issued 2,375,000 shares (“Exchange Shares”) of common stock in exchange for a $ 1.7 million reduction (“Partitioned Royalty”) in the outstanding balance of the royalty interest held by Iliad in relation to the October 2020 Purchase Agreement.

The exchange will consist of Iliad surrendering the Partitioned

Royalty in exchange for the Exchange Shares, which will be free of any restrictive securities legend.

Other than the surrender of the Partitioned Royalty, no consideration of any kind whatsoever will be given by Iliad to the Company in connection with the exchange agreement.

On March 2, 2022, the Company entered into another exchange agreement with Iliad, pursuant to which, the Company issued 2,425,000 shares of common stock in exchange for a $ 1.1 million reduction in the outstanding balance of the royalty interest held by Iliad in relation to the October 2020 Purchase Agreement.

The exchange will consist of Iliad surrendering the Partitioned Royalty in exchange for the Exchange Shares, which will be free of any restrictive securities legend.

Other than the surrender of the Partitioned Royalty, no consideration of any kind whatsoever will be given by Iliad to the Company in connection with the exchange agreement.

On March 4, 2022, the Company entered into another exchange agreement with Iliad, pursuant to which, the Company issued 2,000,000 shares of common stock in exchange for a $ 828,000 reduction in the outstanding balance of the royalty interest held by Iliad in relation to the October 2020 Purchase Agreement.

The exchange will consist of Iliad surrendering the Partitioned Royalty in exchange for the Exchange Shares, which will be free of any restrictive securities legend.

Other than the surrender of the Partitioned Royalty, no consideration of any kind whatsoever will be given by Iliad to the Company in connection with the exchange agreement.

On March 9, 2022, the Company entered into another exchange agreement with Iliad, pursuant to which, the Company issued 1,850,000 shares of common stock in exchange for a $ 747,000 reduction in the outstanding balance of the royalty interest held by Iliad in relation to the October 2020 Purchase Agreement.

The exchange will consist of Iliad surrendering the Partitioned Royalty in exchange for the Exchange Shares, which will be free of any restrictive securities legend.

Other than the surrender of the Partitioned Royalty, no consideration of any kind whatsoever will be given by Iliad to the Company in connection with the exchange agreement.

No tice of Delisting

On February 17, 2022, the Company received a letter from the Staff of Nasdaq indicating that the bid price of the Company’s common stock for the last 30 consecutive business days had closed below the minimum $ 1.00 per share required for the continued listing 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 August 16, 2022, 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 August 16, 2022, 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.

If measured today, the Company would qualify for Nasdaq’s consideration of an extension because the Company currently has stockholders’ equity of at least $ 5.0 million.

In the event the Company does not regain compliance with the $ 1.00 bid price requirement by August 16, 2022, 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 August 16, 2022.

The Company is diligently working to evidence compliance with the minimum bid price requirement for continued listing on Nasdaq;

however, there can be no assurance that the Company will be able to regain compliance or that Nasdaq will grant the Company a further extension of time to regain compliance, if necessary.

If the Company fails to regain compliance with the Nasdaq continued listing standards, its common stock will be subject to delisting from Nasdaq.

December 2021 ATM Agreement

Subsequent to December 31, 2022, the Company has issued an additional 10,135,550 shares under the December 2021 ATM Agreement with a total net proceeds of $ 17.5 million.

Formation of Joint Venture Magdalena Biosciences, Inc.

In January 2023, Jaguar and Filament Health (“Filament”), with Funding from One Small Planet, formed the U.S.-based joint venture Magdalena Biosciences, Inc.

(“Magdalena”).

Magdalena’s focus is on the development of novel, natural prescription medicines derived from plants for mental health indications including, initially, attention-deficit/hyperactivity disorder (“ADHD”) in adults.

The goal of the collaboration is to extend the botanical drug development capabilities of Jaguar and Filament in order to develop pharmaceutical-grade, standardized drug candidates for mental health disorders, and to partner with a potential future licensee to develop and commercialize these novel plant-based drugs.

This new venture aligns with Jaguar's mental health Entheogen Therapeutics Initiative (“ETI”) and Filament's corporate mission to develop novel, natural prescription medicines from plants.

Magdalena will leverage Jaguar's proprietary medicinal plant library and Filament's proprietary drug development technology.

Jaguar’s library of 2,300 highly characterized medicinal plants and 3,500 plant extracts, all from firsthand ethnobotanical investigation by Jaguar and members of the ETI Scientific Strategy Team, is a key asset we have generated over 30 years that bridges the knowledge of traditional healers and Western medicine.

Magdalena holds an exclusive license to plants and plant extracts in Jaguar's library, not including any sources of crofelemer or NP-300, for specific indications and is in the process of identifying plant candidates in the library that may prove beneficial for addressing indications such as ADHD.

December 2020 Royalty Interest Exchange Agreement

On February 8, 2023, the Company entered into an exchange agreement (the “December 2020 Royalty Interest Exchange Agreement”) with Irving to (i) partition a new royalty interest in the royalty repayment amount of $ 675,000 (“Partitioned Royalty”) from the royalty interest of the December 2020 Purchase Agreement and then cause the outstanding balance of the royalty interest to be reduced by an amount equal to the initial outstanding balance of the Partitioned Royalty, and (ii) exchange (“Royalty Exchange”) the Partitioned Royalty for 150,000 shares of the Company’s common stock with a par value of $ 0.0001 in accordance with term of the December 2020 Royalty Interest Exchange Agreement.

Under the terms of the December 2020 Royalty Interest Exchange Agreement, the

Royalty Exchange will consist of Irving surrendering the Partitioned Royalty in exchange for the shares, free of any restrictive securities legend, and Irving shall give no consideration of any kind whatsoever to the Company in connection with the December 2020 Royalty Interest Exchange Agreement.

October 2020 Royalty Interest Exchange Agreements

On March 17 and 23, 2023, the Company entered into exchange agreements (the “October 2020 Royalty Interest Exchange Agreements”) with Iliad to (i) partition new royalty interests in the royalty repayment amounts of $ 992,000 and $ 227,000 , respectively (“Partitioned Royalties”) from the royalty interest of the October 2020 Purchase Agreement and then cause the outstanding balance of the royalty interest to be reduced by an amount equal to the initial outstanding balance of the Partitioned Royalties, and (ii) exchange (“Royalty Exchanges”) the Partitioned Royalties for 1,090,000 and 280,005 shares, respectively of the Company’s common stock with a par value of $ 0.0001 in accordance with term of the October 2020 Royalty Interest Exchange Agreements.

Under the terms of the October 2020 Royalty Interest Exchange Agreements, the Royalty Exchanges will consist of Iliad surrendering the Partitioned Royalties in exchange for the shares, free of any restrictive securities legend, and Iliad shall give no consideration of any kind whatsoever to the Company in connection with the October 2020 Royalty Interest Exchange Agreements.

Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard

On January 5, 2023, the Company received notice from the Listing Qualifications Staff (“Staff”) of Nasdaq indicating that, because the bid price for the Company’s voting common stock, par value $ 0.0001 per share had closed below $ 0.10 per share for the preceding ten consecutive trading days, in contravention of Nasdaq Listing Rule 5810(3)(A)(iii) (the “$0.10 Rule”), the Company’s securities were subject to delisting unless the Company timely requested a hearing before the Nasdaq Hearings Panel (the “Panel”) to appeal the Staff’s decision.

The Company intends to timely request a hearing before the Panel, which request will stay any further delisting action by Nasdaq at least pending the Company’s hearing and the expiration of any extension that the Panel may grant to the Company following such hearing.

There are no assurances that a stay will be granted or that a favorable decision will be obtained.

Nasdaq previously granted the Company a 180 -calendar grace period to regain compliance with the minimum $ 1.00 bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”) through February 13, 2023.

At the Special Meeting of Stockholders of the Company held on January 20, 2023, the Company received stockholder approval for the implementation of a reverse stock split of the Company’s issued and outstanding Common Stock at a ratio of not less than 1-for-3 and not greater than 1-for-75 to regain compliance with the Bid Price rule.

The Company believes that, after taking into account (i) the sale of shares of common stock between January 1, 2023 and March 23, 2023 pursuant to the Company’s December 2021 agreement, (ii) the issuance of 150,000 shares of common stock on February 8, 2023 to Irving in exchange for a $ 675,000 reduction in the outstanding balance of the royalty interest held by such holder, and (iii) the issuance of 1,090,000 shares of common stock on March 17, 2023 and 280,005 shares of common stock on March 24, 2023 to Iliad in exchange for a $ 992,000 and $ 227,000 , respectively reduction in the outstanding balance of the royalty interest held by such holder, and based on interim financial data available to the Company, the Company’s stockholders’ equity as of March 24, 2023, exceeds $ 2.5 million, which is the minimum stockholders’ equity requirement for continued listing on The Nasdaq Capital Market.

In addition, the Company’s cash balance as of March 24, 2023, is approximately $ 13.6 million.

Termination of a Material Definitive Agreement

On October 11, 2022, the Company entered into an Amended and Restated License and Services Agreement (the “License Agreement”) with SynWorld Technologies Corporation (“Licensee”), C&E Telecom, LTD (“C&E Telecom”), and Tao Wang (“Wang”), which License Agreement amended and restated in entirety the License and

Services Agreement, dated as of June 28, 2022, by and among the same parties, as amended by that certain First Amendment to the License and Services Agreement, dated as of August 18, 2022, by and between the Company and Licensee, for the grant of certain licenses by the Company to Licensee to commercialize the Product (as defined in the License Agreement) and the engagement of Licensee by the Company to obtain regulatory approval for the Product to treat all forms of diarrhea in dogs in the Licensee Territory (as defined in the License Agreement).

On January 31, 2023, the Company, Licensee, C&E Telecom and Wang entered into a Mutual Termination of License Agreement (the “Termination Agreement”), pursuant to which the parties agreed to mutually terminate the License Agreement, effective as of January 31, 2023.

Following its termination, the License Agreement is void, and there is no liability thereunder on the part of any party thereto except as set forth in the Termination Agreement.

The Termination Agreement contains mutual releases by all parties thereto, for all claims known and unknown, relating and arising out of, or relating to, among other things, the License Agreement, or the transactions contemplated by the License Agreement.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 8. Financial Statements and Supplementary Data