UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

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

For the quarterly period ended September 30, ~~2017~~2023

☐

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

o~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

For the transition period from to

Commission file number 001-36714

JAGUAR HEALTH, INC.

(Exact name of registrant as specified in its charter)

Delaware		46-2956775
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

~~201 Mission~~200 Pine Street, Suite ~~2375~~400

San Francisco, California ~~94105~~94104

(Address of principal executive offices, zip code)

~~(415)~~ (415) 371-8300

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes x⌧ No o◻

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


Large accelerated filer o◻	Accelerated filer o◻	Non-accelerated filer o ~~(Do not check if a~~ ~~smaller reporting company)~~⌧	Smaller reporting company x☒
			Emerging growth company x☐

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

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

Securities registered pursuant to Section 12(b) of the Act:


Title of each class:	Trading Symbol(s)	Name of each exchange on which registered:
Common stock, Par Value $0.0001 Per Share	JAGX	The NASDAQ Capital Market

As of November ~~20, 2017,~~14, 2023, there were ~~90,836,710~~(i) 50,755,580 shares of voting common stock, par value $0.0001 per share, outstanding, and (ii) 9 shares of ~~which 48,218,817 are~~non-voting common stock, par value $0.0001 per share, outstanding (convertible into nine shares of voting ~~shares and 42,617,893 are non-voting shares.~~common stock).

Table of Contents

PART I. — FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

JAGUAR HEALTH, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30,		December 31,
(In thousands, except share and per share data)	2023		2022
	(unaudited)
Assets
Current assets:
Cash	$	3,226	$	5,469
Accounts receivable		1,674		1,879
Other receivable		171		588
Inventory		8,379		7,024
Prepaid expenses and other current assets		8,609		7,361
Total current assets		22,059		22,321
Property and equipment, net		511		557
Operating lease - right-of-use asset		824		1,140
Intangible assets, net		20,974		22,439
Other assets		1,012		992
Total assets	$	45,380	$	47,449

Liabilities and Stockholders' equity (deficit)
Current liabilities:
Accounts payable	$	5,133	$	5,808
Accrued liabilities		3,288		8,165
Operating lease liability, current		526		483
Notes payable, current		3,509		15,883
Total current liabilities		12,456		30,339
Operating lease liability, net of current portion		351		725
Notes payable, net of discount, net of current portion (includes notes designated at Fair Value Option amounting to $30.0 million as of September 30, 2023 and $7.8 million December 31, 2022, respectively)		31,157		17,744
Total liabilities		43,964		48,808

Commitments and contingencies (See Note 6)

Stockholders' equity (deficit)
Series G convertible preferred stock: $0.0001 par value; 137 and zero shares designated from 10,000,000 preferred stock authorized at September 30, 2023 and December 31, 2022; 137 and zero shares issued and outstanding at September 30, 2023 and December 31, 2022		—		—
Series H convertible preferred stock: $0.0001 par value; 105 and zero shares designated from 10,000,000 preferred stock authorized at September 30, 2023 and December 31, 2022; 80 and zero shares issued and outstanding at September 30, 2023 and December 31, 2022		—		—
Series I convertible preferred stock: $0.0001 par value; 118 and zero shares designated from 10,000,000 preferred stock authorized at September 30, 2023 and December 31, 2022; 118 and zero shares issued and outstanding at September 30, 2023 and December 31, 2022		—		—
Common stock - voting: $0.0001 par value, 298,000,000 shares authorized at September 30, 2023 and December 31, 2022; 24,815,767 and 2,182,084 issued and outstanding at September 30, 2023 and December 31, 2022		2		—
Common stock - non-voting: $0.0001 par value, 50,000,000 shares authorized at September 30, 2023 and December 31, 2022; 9 shares issued and outstanding at September 30, 2023 and December 31, 2022		—		—
Additional paid-in capital		301,233		266,969
Noncontrolling interest		56		(699)
Accumulated deficit		(299,079)		(266,949)
Accumulated other comprehensive loss		(796)		(680)
Total stockholders' equity (deficit)		1,416		(1,359)
Total liabilities and stockholders' equity (deficit)	$	45,380	$	47,449

September 30,

December 31,

2017

2016

(Unaudited)

(1)

Assets

Current assets:

Cash and cash equivalents

$
220,590

$
950,979

Restricted cash

500,000

511,293

Accounts receivable

759,177

4,963

Other receivable

17,349

—

Due from former parent

—

299,648

Inventory

1,831,662

412,754

Deferred offering costs

303,963

72,710

Prepaid expenses and other current assets

609,506

302,694

Total current assets

4,242,247

2,555,041

Property and equipment, net

840,852

885,945

Goodwill

18,389,821

—

Intangible assets, net

36,118,889

—

Other assets

396,246

122,163

Total assets

$
59,988,055

$
3,563,149

Liabilities and Stockholders’ Equity (Deficit)

Current liabilities:

Accounts payable

$
7,857,404

$
517,000

Deferred collaboration revenue

814,589

—

Deferred product revenue

224,448

224,454

Deferred rent

5,928

—

Convertible notes payable

3,213,209

150,000

Accrued expenses

1,927,301

582,522

Warrant liability

163,080

799,201

Derivative liability

19,000

—

Current portion of long-term debt

1,801,227

1,919,675

Total current liabilities

16,026,186

4,192,852

Long-term debt, net of discount

—

1,817,526

Convertible notes payable

11,161,000

Deferred tax liability

990,549

—

Deferred rent

—

6,956

Total liabilities

$
28,177,735

$
6,017,334

Commitments and Contingencies (See Note 7)

Stockholders’ Equity (Deficit):

Preferred stock: $0.0001 par value, 10,000,000 shares authorized at September 30, 2017 and December 31, 2016; no shares issued and outstanding at September 30, 2017 and December 31, 2016.

—

—

Common stock: $0.0001 par value, 250,000,000 and 50,000,000 shares authorized at September 30, 2017 and December 31, 2016, respectively; 24,627,367 and 14,007,132 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively.

2,463

1,401

Common stock - non-voting: $0.0001 par value, 50,000,000 and 0 shares authorized at September 30, 2017 and December 31, 2016; 43,173,288 and 0 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively.

4,317

—

Additional paid-in capital

74,000,804

37,980,522

Accumulated deficit

(42,197,264
)
(40,436,108
)
Total stockholders’ equity (deficit)

31,810,320

(2,454,185
)
Total liabilities and stockholders’ equity (deficit)

$
59,988,055

$
3,563,149

~~(1)~~ ~~The~~See accompanying notes to these unaudited condensed ~~balance sheet at December 31, 2016 is derived from the audited~~consolidated financial ~~statements at that date included in the Company’s Form 10-K filed with the Securities and Exchange Commission on February 15, 2017.~~statements.

Table of Contents

JAGUAR HEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSES

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands, except share and per share data)	2023		2022		2023		2022
Product revenue	$	2,813	$	3,150	$	7,461	$	8,696
Operating expenses
Cost of product revenue		514		613		1,350		1,524
Research and development		6,081		5,940		15,133		13,336
Sales and marketing		1,472		2,109		4,929		7,089
General and administrative		3,533		4,384		12,783		14,876
Total operating expenses		11,600		13,046		34,195		36,825
Loss from operations		(8,787)		(9,896)		(26,734)		(28,129)
Gain (loss) on extinguishment of debt		3,697		—		3,697		(2,187)
Interest expense		(500)		(2,731)		(6,134)		(10,089)
Change in fair value of financial instruments and hybrid instrument designated at Fair Value Option		(2,244)		176		(3,365)		652
Other expense		(70)		(158)		(56)		(410)
Loss before income tax		(7,904)		(12,609)		(32,592)		(40,163)
Income tax expense		—		—		—		—
Net loss	$	(7,904)	$	(12,609)	$	(32,592)	$	(40,163)
Net loss attributable to noncontrolling interest	$	(126)	$	(89)	$	(462)	$	(290)
Net loss attributable to common stockholders	$	(7,778)	$	(12,520)	$	(32,130)	$	(39,873)
Net loss per share, basic	$	(0.38)	$	(8.83)	$	(2.21)	$	(36.62)
Net loss per share, diluted	$	(0.38)	$	(8.83)	$	(2.21)	$	(36.62)
Weighted-average common stock outstanding, basic		20,739,459		1,418,159		14,550,780		1,088,758
Weighted-average common stock outstanding, diluted		20,739,459		1,418,159		14,550,780		1,088,758

See accompanying notes to these unaudited condensed consolidated financial statements.

Table of Contents

JAGUAR HEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSES

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands, except share and per share data)	2023		2022		2023		2022
Net loss	$	(7,904)	$	(12,609)	$	(32,592)	$	(40,163)
Other comprehensive loss		(83)		—		(132)		—
Net comprehensive loss	$	(7,987)	$	(12,609)	$	(32,724)	$	(40,163)
Common stockholders:
Net loss attributable to common stockholders	$	(7,778)	$	(12,520)	$	(32,130)	$	(39,873)
Other comprehensive loss attributable to common stockholders
Translation adjustments		(73)		—		(116)		—
Net comprehensive loss attributable to common stockholders	$	(7,851)	$	(12,520)	$	(32,246)	$	(39,873)
Non-controlling interests:
Net loss attributable to non-controlling interests	$	(126)	$	(89)	$	(462)	$	(290)
Other comprehensive loss attributable to non-controlling interests
Translation adjustments		(10)		—		(16)		—
Net comprehensive loss attributable to non-controlling interests	$	(136)	$	(89)	$	(478)	$	(290)

See accompanying notes to these unaudited condensed consolidated financial statements.

Table of Contents

JAGUAR HEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES

IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

(Unaudited)


	Series G Convertible preferred stock			Series H Convertible preferred stock			Series I Convertible preferred stock			Common Stock - voting			Common Stock - non-voting			Additional		Noncontrolling		Accumulated		Accumulated other comprehensive		Total Stockholders'
(In thousands, except share data)	Shares	Amount		Shares		Amount	Shares	Amount		Shares	Amount		Shares	Amount		paid-in capital		interest		deficit		loss		Equity
Balances as of June 30, 2023	137	$	—	105	$	—	—	$	—	19,117,218	$	2	9	$	—	$	297,660	$	192	$	(291,301)	$	(723)	$	5,830
Preferred shares issued to Irving in exchange of notes payable and accrued interest	—		—	—		—	118		—	—		—	—		—		1,443		—		—		—		1,443
Common shares issued in At The Market offering, net of $65 offering costs	—		—	—		—	—		—	4,447,200		—	—		—		1,428		—		—		—		1,428
Common shares issued to Streeterville from conversion of Series H Preferred Stock	—		—	(25)		—	—		—	1,250,000		—	—		—		—		—		—		—		—
RSUs issued	—		—	—		—	—		—	1,349		—	—		—		—		—		—		—		—
Warrants issued to Irving through Royal Global Amendment Exchange	—		—	—		—	—		—	—		—	—		—		61		—		—		—		61
Warrants issued to Streeterville through Royal Global Amendment Exchange	—		—	—		—	—		—	—		—	—		—		59		—		—		—		59
Warrants issued to Iliad through Royal Global Amendment Exchange	—		—	—		—	—		—	—		—	—		—		54		—		—		—		54
Stock-based compensation	—		—	—		—	—		—	—		—	—		—		528		—		—		—		528
Net loss	—		—	—		—	—		—	—		—	—		—		—		(126)		(7,778)		—		(7,904)
Translation loss	—		—	—		—	—		—	—		—	—		—		—		(10)		—		(73)		(83)
Balances as of September 30, 2023	137	$	—	80	$	—	118	$	—	24,815,767	$	2	9	$	—	$	301,233	$	56	$	(299,079)	$	(796)	$	1,416

See accompanying notes to these unaudited condensed consolidated financial statements.

Table of Contents

JAGUAR HEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES

IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

(Unaudited)


	Series G Convertible preferred stock			Series H Convertible preferred stock			Series I Convertible preferred stock			Common Stock - voting			Common Stock - non-voting			Additional		Noncontrolling		Accumulated		Accumulated other comprehensive		Total Stockholders'
(In thousands, except share data)	Shares	Amount		Shares		Amount	Shares	Amount		Shares	Amount		Shares	Amount		paid-in capital		interest		deficit		loss		Equity
Balances as of June 30, 2022	—	$	—	—	$	—	—	$	—	1,135,601	$	—	9	$	—	$	249,562	$	41	$	(246,847)	$	—	$	2,756
Shares issued to Streeterville in exchange of notes payable and accrued interest	—		—	—		—	—		—	310,196		—	—		—		5,056		—		—		—		5,056
Shares issued in At the Market offering, net of issuance and offering costs of $3	—		—	—		—	—		—	303,546		—	—		—		6,223		—		—		—		6,223
Shares issued to Iliad in exchange of notes payable and accrued interest	—		—	—		—	—		—	31,546		—	—		—		792		—		—		—		792
Shares issued to Synworld for services	—		—	—		—	—		—	30,023		—	—		—		633		—		—		—		633
Shares issued upon exercise of restricted stock units	—		—	—		—	—		—	193		—	—		—		5		—		—		—		5
Shares issued to other third party for services	—		—	—		—	—		—	160		—	—		—		2		—		—		—		2
Stock-based compensation	—		—	—		—	—		—	—		—	—		—		741		—		—		—		741
Net loss	—		—	—		—	—		—	—		—	—		—		—		(89)		(12,520)		—		(12,609)
Balances as of September 30, 2022	—	$	—	—	$	—	—	$	—	1,811,265	$	—	9	$	—	$	263,014	$	(48)	$	(259,367)	$	—	$	3,599

See accompanying notes to these unaudited condensed consolidated financial statements.

Table of Contents

JAGUAR HEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES

IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

(Unaudited)


	Series G Convertible preferred stock			Series H Convertible preferred stock			Series I Convertible preferred stock			Common Stock - voting			Common Stock - non-voting			Additional		Noncontrolling		Accumulated		Accumulated other comprehensive		Total Stockholders'
(In thousands, except share data)	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		paid-in capital		interest		deficit		loss		Equity
Balances as of January 1, 2023	—	$	—	—	$	—	—	$	—	2,182,084	$	—	9	$	—	$	266,969	$	(699)	$	(266,949)	$	(680)	$	(1,359)
Preferred stock issued in PIPE financing, net of issuance and offering costs of $12	137		—	—		—	—		—	—		—	—		—		611		—		—		—		611
Preferred stock issued to Streeterville in exchange of notes payable and accrued interest	—		—	73		—	—		—	—		—	—		—		1,730		—		—		—		1,730
Preferred stock issued to Irving in exchange of notes payable and accrued interest	—		—	32		—	118		—	—		—	—		—		2,201		—		—		—		2,201
Common stock issued in At the Market offering, net of issuance and offering costs of $242	—		—	—		—	—		—	17,930,660		2	—		—		20,845		—		—		—		20,847
Common stock issued to Irving in exchange of notes payable and accrued interest	—		—	—		—	—		—	2,058,651		—	—		—		2,022		—		—		—		2,022
Common stock issued to Iliad in exchange of notes payable and accrued interest	—		—	—		—	—		—	1,370,005		—	—		—		1,275		—		—		—		1,275
Common shares issued to Streeterville from conversion of Series H Preferred Stock	—		—	(25)		—	—		—	1,250,000		—	—		—		—		—		—		—		—
Common stock issued upon exercise of restricted stock units	—		—	—		—	—		—	13,149		—	—		—		9		—		—		—		9
Common stock issued to other third party for services	—		—	—		—	—		—	9,869		—	—		—		225		—		—		—		225
RSUs issued	—		—	—		—	—		—	1,349		—	—		—		—		—		—		—		—
Warrants issued to Irving in exchange of Standstill	—		—	—		—	—		—	—		—	—		—		1,934		—		—		—		1,934
Warrants issued in PIPE financing	—		—	—		—	—		—	—		—	—		—		1,236		—		—		—		1,236
Warrants issued to Iliad in exchange of Standstill	—		—	—		—	—		—	—		—	—		—		535		—		—		—		535
Warrants issued to Irving through Royal Global Amendment Exchange	—		—	—		—	—		—	—		—	—		—		61		—		—		—		61
Warrants issued to Iliad through Royal Global Amendment Exchange	—		—	—		—	—		—	—		—	—		—		54		—		—		—		54
Stock-based compensation	—		—	—		—	—		—	—		—	—		—		1,526		—		—		—		1,526
Additional investment from non-controlling interests	—		—	—		—	—		—	—		—	—		—		—		1,233		—		—		1,233
Net loss	—		—	—		—	—		—	—		—	—		—		—		(462)		(32,130)		—		(32,592)
Translation loss	—		—	—		—	—		—	—		—	—		—		—		(16)		—		(116)		(132)
Balances as of September 30, 2023	137	$	—	80	$	—	118	$	—	24,815,767	$	2	9	$	—	$	301,233	$	56	$	(299,079)	$	(796)	$	1,416

See accompanying notes to these unaudited condensed consolidated financial statements.

Table of Contents

JAGUAR HEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES

IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

(Unaudited)


	Series G Convertible preferred stock			Series H Convertible preferred stock				Series I Convertible preferred stock			Common Stock - voting			Common Stock - non-voting			Additional		Noncontrolling		Accumulated		Accumulated other comprehensive		Total Stockholders'
(In thousands, except share data)	Shares	Amount		Shares		Amount		Shares	Amount		Shares	Amount		Shares	Amount		paid-in capital		interest		deficit		loss		Equity
Balances as of January 1, 2022	—	$	—	—		$	—	—	$	—	644,700	$	—	9	$	—	$	231,105	$	242	$	(219,494)	$	—	$	11,853
Common stock issued in At the Market offering, net of issuance and offering costs of $103	—		—	—			—	—		—	661,076		—	—		—		17,786		—		—		—		17,786
Common stock issued to Iliad in exchange of notes payable and accrued interest	—		—	—			—	—		—	162,128		—	—		—		5,492		—		—		—		5,492
Common stock issued to Streeterville in exchange of notes payable and accrued interest	—		—	—			—	—		—	310,196		—	—		—		5,056		—		—		—		5,056
Shares issued to Synworld for services	—		—	—	—		—	—		—	30,023		—	—		—		633		—		—		—		633
Common stock issued upon exercise of restricted stock units	—		—	—			—	—		—	2,483		—	—		—		100		—		—		—		100
Common stock issued to other third party for services	—		—	—			—	—		—	466		—	—		—		21		—		—		—		21
Stock-based compensation	—		—	—			—	—		—	193		—	—		—		2,821		—		—		—		2,821
Net loss	—		—	—			—	—		—	—		—	—		—		—		(290)		(39,873)		—		(40,163)
Balances as of September 30, 2022	—	$	—	—		$	—	—	$	—	1,811,265	$	—	9	$	—	$	263,014	$	(48)	$	(259,367)	$	—	$	3,599

See accompanying notes to these unaudited condensed consolidated financial statements.

Table of Contents

JAGUAR HEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended
	September 30,
(in thousands)	2023		2022
Cash flows from operating activities
Net comprehensive loss	$	(32,724)	$	(40,163)
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		11,496		8,791
Change in fair value of financial instruments and hybrid instrument designated at Fair Value Option		3,365		(652)
Stock-based compensation, vested and released restricted stock units and exercised stock options		1,535		2,821
Depreciation and amortization expenses		1,511		1,482
Amortization of operating lease - right-of-use-asset		286		208
Shares issued in exchange for services		166		654
Income earned in joint venture		42		—
(Gain) Loss on extinguishment of debt		(3,697)		2,187
Shares issued upon restricted stock units		—		99
Shares issued upon exercise of stock options		—		1
Changes in assets and liabilities
Accounts receivable		205		(116)
Other receivable		417		(336)
Inventory		(1,355)		(1,701)
Prepaid expenses and other current assets		(2,620)		(1,249)
Other assets		(20)		(1,395)
Accounts payable		(670)		1,391
Accrued liabilities		(3,428)		1,508
Operating lease liability		(300)		(211)
Total cash used in operating activities		(25,791)		(26,681)
Cash flows from investing activities
Purchase of equipment		—		(77)
Purchase of intangible assets		—		(1,237)
Total cash used in investing activities		—		(1,314)
Cash flows from financing activities
Proceeds from issuance of shares in At the Market offering, net of issuance and offering costs of $242 and $103 in 2023 and 2022, respectively		20,847		17,786
Proceeds from issuance of warrants in PIPE financing		1,235		—
Investment from non-controlling interest		1,227		—
Proceeds from issuance of preferred stock in PIPE financing, net of issuance cost of $12		611		—
Payment of Tempesta Note		(50)		(118)
Repayment of insurance financing		(293)		(100)
Proceeds from notes payable with Streeterville		—		3,975
Total cash provided by financing activities		23,577		21,543
Effects of foreign exchange rate changes on assets and liabilities		(29)		(38)
Net decrease in cash		(2,243)		(6,490)
Cash at beginning of the year		5,469		17,051
Cash at end of the year	$	3,226	$	10,561

See accompanying notes to these unaudited condensed consolidated financial statements.

Table of Contents

JAGUAR HEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Unaudited)


	Nine Months Ended
	September 30,
	2023		2022
Supplemental schedule of cash flow information
Cash paid for interest	$	23	$	17
Supplemental schedule of non-cash financing and investing activities
Preferred stock issued to Irving in exchange of notes payable and accrued interest	$	2,201	$	—
Common stock issued to Irving in exchange of notes payable and accrued interest	$	2,022	$	5,492
Warrants issued to Irving in exchange of Standstill	$	1,934	$	—
Preferred stock issued to Streeterville in exchange of notes payable and accrued interest	$	1,730	$	5,056
Common stock issued to Iliad in exchange of notes payable and accrued interest	$	1,275	$	—
Warrants issued to Iliad in exchange of Standstill	$	535	$	—
Umbrella Insurance Financing	$	93	$	—
Warrants issued to Irving due to Royal Interest Global Amendment	$	60	$	—
Warrants issued to Streeterville due to Royal Interest Global Amendment	$	59	$	—
Warrants issued to Iliad due to Royal Interest Global Amendment	$	54	$	—
Recognition of operating lease - right-of-use asset and operating lease liability	$	30	$	223

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

Table of Contents

JAGUAR HEALTH, INC.

~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS~~

~~(Unaudited)~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Product revenue

$
445,665

$
50,357

$
581,654

$
112,646

Collaboration revenue

654,549

—

$
2,237,491

—

Total revenue

1,100,214

50,357

2,819,145

112,646

Operating Expenses

Cost of product revenue

206,228

9,858

247,135

36,867

Research and development expense

851,608

1,967,128

3,033,851

5,672,516

Sales and marketing expense

663,765

136,882

943,908

355,345

General and administrative expense

3,070,702

1,115,312

8,512,195

4,319,856

Impairment of goodwill

3,648,000

—

3,648,000

—

Total operating expenses

8,440,303

3,229,180

16,385,089

10,384,584

Loss from operations

(7,340,089
)
(3,178,823
)
(13,565,944
)
(10,271,938
)
Interest expense

(464,684
)
(235,191
)
(800,885
)
(774,185
)
Other expense

(14,876
)
(1,476
)
(13,428
)
(11,046
)
Change in fair value of warrants

388,800

—

636,121

—

Loss on extinguishment of debt

—

—

(207,713
)
—

Net loss before income tax

(7,430,849
)
(3,415,490
)
(13,951,849
)
(11,057,169
)
Income tax benefit

12,190,693

—

12,190,693

—

Net income (loss) and comprehensive income (loss)

$
4,759,844

$
(3,415,490
)
$
(1,761,156
)
$
(11,057,169
)
Net income (loss) per share - basic

$
0.09

$
(0.30
)
$
(0.06
)
$
(1.07
)
Net income (loss) per share - diluted

$
0.07

$
(0.30
)
$
(0.06
)
$
(1.07
)
Weighted average shares outstanding:

Basic

55,434,898

11,264,886

28,246,721

10,298,987

Diluted

67,203,530

11,264,886

28,246,721

10,298,987

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

~~JAGUAR HEALTH, INC.~~

~~CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCK, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)~~

~~(Unaudited)~~

Series A Convertible Preferred

Stock

Common Stock - voting

Common stock - non-voting

Shares

Amount

Shares

Amount

Shares

Amount

Additional paid-
in capital

Accumulated
deficit

Total
stockholders’
equity (deficit)

Balances - December 31, 2016

—

$
—

14,007,132

$
1,401

—

$
—

$
37,980,522

$
(40,436,108
)
$
(2,454,185
)

Issuance of common stock associated with private investment in public entities offering, net of offering costs of $72,710 June 2016

—

—

3,972,510

397

—

—

2,313,977

—

2,314,374

Issuance of common stock in a private investment in public entities offering, net of offering costs of $6,000 June 2017

—

—

200,000

20

—

—

93,980

—

94,000

Issuance of common stock -voting in the Napo merger

—

—

2,282,445

228

—

—

1,277,941

—

1,278,169

Issuance of common stock in a July 2017 CSPA

3,243,243

325

2,999,675

3,000,000

Issuance of common stock - non-voting in the Napo merger

—

—

—

—

43,173,288

4,317

24,172,725

—

24,177,042

Issuance of warrants in the Napo merger

—

—

—

—

—

—

630,859

—

630,859

Issuance of stock options in the Napo merger

—

—

—

—

—

—

5,691

—

5,691

Issuance of RSUs in the Napo merger

—

—

—

—

—

—

3,300,555

—

3,300,555

Issuance of common stock -voting on exercise of warrants

—

—

908,334

91

—

—

386,243

—

386,334

Stock-based compensation

—

—

—

—

—

—

630,924

—

630,924

Warrants, issued in conjunction with debt extinguishment

—

—

—

—

—

—

207,713

—

207,713

Issuance of common stock -voting in exchange for vested restricted stock units

—

—

13,703

1

—

—

(1
)
—

—

Net and comprehensive loss

—

—

—

—

—

—

—

(1,761,156
)
(1,761,156
)

Balances - September 30, 2017

—

$
—

24,627,367

$
2,463

43,173,288

$
4,317

$
74,000,804

$
(42,197,264
)
$
31,810,320

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

~~JAGUAR HEALTH, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(Unaudited)~~

Nine Months Ended

September 30,

2017

2016

Cash Flows from Operating Activities

Net loss

$
(1,761,156
)
$
(11,057,169
)
Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization expense

326,204

32,463

Impairment of goodwill

3,648,000

—

Deferred income tax benefit

(12,190,693
)
—

Loss on extinguishment of debt

207,713

—

Stock issued in Napo merger for services

151,351

—

Charge in relation to modification of warrants

23,000

—

Stock-based compensation

630,924

478,442

Amortization of debt issuance costs and debt discount

367,891

396,107

Change in fair value of warrants

(636,121
)
—

Change in fair value of derivative liability

(1,000
)
—

Changes in assets and liabilities

Accounts receivable - trade

(457,576
)
50,904

Other receivable

(17,349
)
—

Inventory

369,155

(46,356
)
Prepaid expenses and other current assets

(256,057
)
(331,124
)
Deferred offering costs

(231,253
)
—

Other non-current assets

122,163

—

Due from former parent

(164,647
)
(269,863
)
Deferred collaboration revenue

814,589

—

Deferred product revenue

(6
)
(5,701
)
Deferred rent

(1,028
)
3,478

License fee payable

—

(425,000
)
Accounts payable

4,691,363

(151,912
)
Accrued expenses

(130,255
)
(360,776
)
Total cash used in operations

(4,494,788
)
(11,686,507
)
Cash Flows from Investing Activities

Purchase of equipment

—

(104,207
)
Cash paid in Napo merger, net of cash acquired

(1,557,340
)
—

Change in restricted cash

11,293

2,011,420

Total cash (used in)/ provided by investing activities

(1,546,047
)
1,907,213

Cash Flows from Financing Activities

Repayment of long-term debt

(2,161,262
)
(2,011,420
)
Proceeds from issuance of convertible debt

1,700,000

—

Proceeds from issuance of common stock in follow-on secondary public offering, net of commissions, discounts

—

5,000,000

Commissions, discounts and issuance costs associated with the follow-on secondary public offering

—

(869,898
)
Proceeds from issuance of common stock in a private investment in public entities June 2016

2,376,155

1,881,890

Issuance costs associated with the proceeds from the issuance of common stock in a private investment in public entities June 2016

(61,781
)
(105,398
)
Proceeds from issuance of common stock in a private investment in public entities June 2017

100,000

—

Issuance costs associated with the proceeds from the issuance of common stock in a private investment in public entities June 2017

(6,000
)
—

Proceeds from issuance of common stock in a July 2017 CSPA

3,000,000

Proceeds from the issuance of common stock through the exercise of common stock warrants

363,334

—

Total Cash Provided by Financing Activities

5,310,446

3,895,174

Net decrease in cash and cash equivalents

(730,389
)
(5,884,120
)
Cash and cash equivalents, beginning of period

950,979

7,697,531

Cash and cash equivalents, end of period

$
220,590

$
1,813,411

Supplemental Schedule of Non-Cash Financing and Investing Activities

Interest paid on long-term debt

$
201,835

$
382,810

Fair value of common stock issued in a merger

$
25,303,859

$
—

Fair value of replacement of common stock warrants issued in a merger

$
630,859

$
—

Fair value of replacement restricted stock units issued in a merger

$
3,300,555

$
—

Fair value of replacement stock options issued in a merger

$
5,691

$
—

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

~~JAGUAR HEALTH, INC.~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Business

Jaguar Health, Inc. (“Jaguar” or the “Company”)~~, formerly known~~ was founded in San Francisco, California, as ~~Jaguar Animal Health, Inc., was incorporated~~a Delaware corporation on June 6, 2013 (inception) ~~in Delaware.~~. The Company was a majority-owned subsidiary of Napo Pharmaceuticals, Inc. (“Napo” ~~or the “Former Parent”~~) until the close of the ~~Company’s~~Company's initial public offering on May 18, 2015. The Company was formed to develop and commercialize first-in-class ~~gastrointestinal~~prescription and non-prescription 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. In September of 2016, the Company began selling the ~~Croton lechleri~~ botanical extract (the “botanical extract”) to an exclusive distributor for use in pigs in China. The Company’s activities are subject to significant risks and uncertainties, including failing to secure additional funding in order to timely compete the development and commercialization of products. The Company manages its operations through two segments — human health and animal health and is headquartered in San Francisco, California.

On June 11, 2013, Jaguar issued 2,666,666 shares of common stock to Napo in exchange for cash and services. On July 1, 2013, Jaguar entered into an employee leasing and overhead agreement (the “Service Agreement”) with Napo, under which Napo agreed to provide the Company with the services of certain Napo employees for research and development and the general administrative functions of the Company. On January 27, 2014, Jaguar executed an intellectual property license agreement with Napo pursuant to which Napo transferred fixed assets and development materials, and licensed intellectual property and technology to Jaguar. On February 28, 2014, the Service Agreement terminated and the associated employees became employees of Jaguar effective March 1, 2014. See Note 10 for additional information regarding the capital contributions and Note 5 for the Service Agreement and license agreement details. Effective July 1, 2016, Napo agreed to reimburse the Company for the use of the Company’s employee’s time and related expenses, including rent and a fixed overhead amount to cover office supplies and copier use (Note 5).

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~~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 ~~our wholly-owned~~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~~wholly owned subsidiary of Jaguar focused on human health, ~~and~~including the ongoing development of crofelemer and commercialization of ~~Mytesi,~~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 ~~drug product approved by~~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.

Nasdaq Communication and Compliance

Minimum Bid Price Requirement

On May 10, 2023, the ~~U.S. FDA~~Company received a letter from the Staff of Nasdaq indicating that the bid price for the ~~symptomatic relief~~Company’s common stock for the last 30 consecutive business days had closed below the minimum $1.00 per share required for 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 November 6, 2023, 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 ~~noninfectious diarrhea in adults~~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 November 6, 2023, the Company would be required, among other things, to meet the continued listing requirement for the market value of publicly held shares as well as all other standards for initial listing on Nasdaq, with ~~HIV/AIDS~~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 $2.5 million. In the event the Company does not regain compliance with the $1.00 bid price requirement by November 6, 2023, eligibility for Nasdaq’s consideration of a second 180-day day grace period would be determined on ~~antiretroviral therapy.~~the Company’s compliance with the above referenced criteria on November 6, 2023.

On November 8, 2023, the Company received a formal notice from the Staff of Nasdaq granting the Company an additional 180-day grace period, through May 6, 2024 to regain compliance with the $1.00 bid price requirement for the continued listing on the Nasdaq Capital Market.

Table of Contents

Liquidity

and Going Concern

The ~~accompanying consolidated financial statements have been prepared assuming the~~ Company, ~~will continue as a going concern. The Company~~since its inception, has incurred recurring operating losses ~~since inception~~and negative cash flows from operations and has an accumulated deficit of ~~$42,197,264~~$299.1 million as of September 30, ~~2017.~~2023. 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 ~~the~~ securing of additional ~~financing.~~financing and generating positive cash flows from operations. There is no assurance that ~~profitable operations, if ever achieved, could be sustained on a continuing basis.~~the Company will have adequate cash balances to maintain its operations.

~~The~~Although the Company plans to finance its operations and ~~capital funding~~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. However, there~~sales, the Company does not believe its current cash balances are sufficient to fund its operating plan through one year from the issuance of these unaudited condensed consolidated financial statements. There can be no assurance that additional funding will be available to the Company on acceptable terms, or on a timely basis, if at all, or that the Company will generate sufficient cash from operations to adequately fund operating ~~needs or ultimately achieve profitability.~~needs. If the Company is unable to obtain an adequate level of financing needed for the long-term development and commercialization of ~~its~~the products, the Company will need to curtail planned activities and reduce costs. Doing so will likely have an adverse effect on the ~~Company’s~~ ability to execute ~~on its~~the Company’s business ~~plan. These matters raise~~plan; accordingly, there is substantial doubt about the ability of the Company to continue in existence as a going ~~concern within one year after issuance date of the financial statements.~~concern. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

In June 2016, the Company entered into a common stock purchase agreement with a private investor (the “CSPA”), which provides that, upon the terms and subject to the conditions and limitations set forth therein, the investor is committed to purchase up to an aggregate of $15.0 million of the Company’s common stock over the approximately 30-month term of the agreement. Through September 30, 2017 the Company sold 6,000,000 shares for gross cash proceeds of $5,063,785. The CSPA limited the number of shares that the Company can sell thereunder to 2,027,490 shares, which equals 19.99% of the Company’s outstanding shares as of the date of the CSPA (such limit, the “19.99% exchange cap”), unless either (i) the Company obtains stockholder approval to issue more than such 19.99% exchange cap or (ii) the average price paid for all shares of the Company’s common stock issued under the CSPA is equal to or greater than $1.32 per share (the closing price on the date the CSPA was signed), in either case in compliance with Nasdaq Listing Rule 5635(d). At the 2017 Annual Stockholders’ Meeting on May 8, 2017, the Company’s stockholders voted on the approval, pursuant to Nasdaq Listing Rule 5635(d), of the issuance of an additional 3,555,514 shares of the Company’s common stock under the

~~CSPA, which when combined with the 2,444,486 shares that the Company has already sold pursuant to the CSPA, equals an aggregate of 6,000,000 shares.~~

2. Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and ~~applicable rules and regulations of~~on a basis consistent with the ~~Securities and Exchange Commission (“SEC”). Our unaudited condensed~~annual consolidated financial statements, and in the opinion of management, reflect all adjustments, which ~~are, in the opinion of management,~~include only normal recurring adjustments, necessary for a fair presentation of ~~our~~the periods presented. These interim financial ~~position~~results are not necessarily indicative of the results to be expected for the year ending
December 31, 2023, or for any other future annual or interim period. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and ~~results~~notes thereto contained in the Annual Report on Form 10-K for the year ended December 31, 2022. The condensed consolidated balance sheet at December 31, 2022 has been derived from the audited consolidated financial statements at that date, but does not include all disclosures, including notes, required by U.S. GAAP for complete financial statements.

There has been no material change to the Company's significant accounting policies during the three and nine months ended September 30, 2023, as compared to the significant accounting policies described in Note 2 of ~~operations. Such~~the “Notes to Consolidated Financial Statements” in the Company's Annual Report on Form 10-K as of and for the year ended December 31, 2022, which was filed to SEC on March 24, 2023.

Except as noted above, the unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments ~~are~~ of a normal recurring nature ~~unless otherwise noted. The balance sheet~~considered necessary to present fairly the financial position as of September 30, ~~2017 and the~~2023, results of operations for the three and nine months ended September 30, ~~2017~~2023 and 2022, changes in convertible preferred stock and stockholders' equity for the three and nine months ended September 30, 2023 and 2022, and cash flows for the nine months ended September 30, 2023 and 2022. The interim results are not necessarily indicative of the results ~~to be expected~~for any future interim periods or for the entire year.

Table of Contents

Principles of Consolidation

The consolidated financial statements have been prepared in accordance with USU.S. GAAP and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) and include the accounts of the Company and its ~~wholly owned subsidiaries.~~subsidiaries with controlling interest. All inter-company transactions and balances have been eliminated in consolidation. The reporting currency of the Company is the U.S dollar.

Non-controlling interest

The Company consolidates the results of Napo Therapeutics, which was owned 88% and 90% by the Company and 12% and 10% by private investors as of September 30, 2023 and December 31, 2022, respectively. The potential voting rights with a certainty of being exercised in its shares are included in the ownership percentage. During the nine months ended September 30, 2023, an additional investment from a private entity amounting to €1.1 million equivalent to $1.23 million resulted in the increase in non-controlling interest percentage.

Use of ~~E stimates~~

Estimates

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 unaudited consolidated financial statements and the accompanying notes. The accounting policies that reflect the Company’s more significant estimates and judgments and that the Company believes are the most critical to aid in fully understanding and evaluating its reported financial results are the valuation of stock ~~options; valuation of~~options, restricted stock units (“RSUs”), hybrid instruments designated at fair value option (“FVO”), warrant ~~liabilities; valuation of derivative liability, impairment testing of goodwill, IPR&D,~~liabilities, acquired in-process research and ~~long lived assets;~~development (“IPR&D”), and useful lives ~~for depreciation and amortization;~~assigned to long-lived assets; 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.~~revenue, including estimates for product returns. Those estimates could change, and as a result, actual results could differ materially from those estimates.

Cash

~~Deferred Offering Costs~~

~~Deferred offering costs are costs incurred~~The Company’s cash on deposit may exceed United States federally insured limits at certain times during the year. The Company maintains cash accounts with certain major financial institutions in ~~filings of registration statements with~~ the ~~Securities and Exchange Commission. These deferred offering costs are offset against proceeds received upon the closing of the offerings. Deferred costs of $303,963~~United States. The Company did not have cash equivalents as of September 30, ~~2017 include legal, accounting, printer,~~2023, and ~~filing fees associated with follow-on public offering~~December 31, 2022.

Accounts Receivable

Accounts receivable is recorded net of allowances for discounts for prompt payment and credit losses.

The Company utilizes a loss rate approach in ~~October 2017. Deferred costs~~determining its lifetime expected credit losses on receivables from customers. This method calculates an estimate of ~~$72,710~~credit losses based on historical experience, credit quality, age of the accounts receivable balances, and current and forecasted economic and business conditions that may affect a customer’s ability to pay. In determining the loss rates, the Company evaluates information related to its historical losses, adjusted for existing conditions and further adjusted for the period of time that can reasonably be forecasted. The facts and circumstances as of the balance sheet date are used to adjust the estimate for periods beyond those that can reasonably be forecasted.

The past due status of accounts receivable is determined based on the contractual due dates for payments. Receivable is deemed past due when payment hasn’t been received 30 days after the contractual due date. The credit loss allowance was immaterial as of September 30, 2023 and December 31, ~~2016, include legal, accounting, printer~~2022. The corresponding expense for the credit loss allowance is reflected in general and ~~filing fees associated with~~administrative expenses.

Table of Contents

Current Expected Credit Losses

The Company recognizes an allowance for credit losses for financial assets carried at amortized cost to present the ~~Company’s registration~~net amount expected to be collected as of ~~unissued shares~~the balance sheet date. Such allowance is based on credit losses that are expected to arise over the contractual term of the asset, which includes consideration of historical credit loss information adjusted for current conditions and reasonable and supportable forecasts.

Changes in the ~~CSPA.~~allowance for credit losses are recorded as provision of (or reversal of) credit loss expense. Assets are written off when the Company determines that such are deemed uncollectible. Write-offs are recognized as a deduction from the allowance for credit losses. Expected recoveries of amounts previously written off, not to exceed the aggregate of the amount previously written off, are included in determining the necessary allowance at the balance sheet date.

~~Concentration of Credit Risk and Cash and Cash Equivalents~~

Concentrations

Cash is the financial instrument that potentially subjects the Company to a concentration of credit risk as cash is deposited with a bank and cash balances are generally in excess of Federal Deposit Insurance Corporation (“FDIC”) insurance limits. ~~The carrying value of cash approximates fair value at~~

For the three and nine months ended September 30, ~~2017~~2023, and ~~December 31, 2016.~~2022, substantially all of the Company’s revenue was derived from the sale of Mytesi. In looking at sales by the Company to specialty pharmacies whose net revenue percentage of total net revenue was equal to or greater than 10%, for fiscal years 2023 and 2022, the Company earned Mytesi revenue primarily from three specialty pharmacies located in the United States, respectively. Revenue earned from each major customer as a percentage of total revenue is as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022

	(unaudited)				(unaudited)
Customer 1	27	%	—	%	27	%	—	%
Customer 2	55	%	38	%	53	%	35	%
Customer 3	—		54	%	—		53	%

The Company is subject to credit risk from its accounts receivable related to its sales. The Company generally does not perform evaluations of customers' financial condition and generally does not require collateral. Accounts receivable balance of the significant customers as a percentage of total accounts receivable is as follows:

September 30,

December 31,

2023

2022

(unaudited)

Customer 1

—
%

—
%
Customer 2

29
%

38
%
Customer 3

55
%

55
%

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 as well for the supply of finished products for commercialization.
Other Risks and Uncertainties
The Company’s future results of operations involve a number of risks and uncertainties. Factors that could affect the Company’s future operating results and cause actual results to vary materially from expectations including, but not limited to, war, rapid technological change, obtaining second source suppliers and manufacturers, regulatory approval from the US Food and Drug Administration (“FDA”) or other regulatory authorities, the results of clinical trials

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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.

Fair ~~Values~~

Value

The Company’s financial instruments include ~~cash and cash equivalents,~~ accounts receivable, accounts payable, accrued ~~expenses,~~liabilities, warrant ~~liabilities, derivative~~ liability, operating lease liability, equity-linked financial instruments, and debt. ~~Cash is reported at fair value.~~ The recorded carrying amount of accounts receivable, accounts payable and accrued ~~expenses~~liabilities reflect their fair value due to their short-term nature. Other financial liabilities are initially recorded at fair value, and subsequently measured at either fair value or amortized cost using the effective interest method. See Note 3 for the fair value measurements.

Fair Value Option

ASC 825-10, Financial Instruments, provides FVO election that allows companies an irrevocable election to use fair value as the initial and subsequent accounting measurement attribute for certain financial assets and liabilities. ASC 825-10 permits entities to elect to measure eligible financial assets and liabilities at fair value on an ongoing basis. Unrealized gains and losses on items for which the FVO has been elected are reported in earnings. The ~~carrying~~decision to elect the FVO is determined on an instrument-by-instrument basis, must be applied to an entire instrument and is irrevocable once elected. Assets and liabilities measured at fair value pursuant to ASC 825-10 are required to be reported separately from those instruments measured using another accounting method. In accordance with the options presented in ASC 825-10, the Company elected to present the aggregate of fair value and non-fair-value amounts in the same line item in the consolidated balance sheets and parenthetically disclose the amount measured at fair value in the aggregate amount. The fair values of the ~~interest-bearing debt approximates~~Company's financial instruments reflect the amounts that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The fair value estimates presented in these financial statements are based ~~upon the borrowing rates currently~~on information available to the Company ~~for bank loans with similar terms and maturities. See Note 4 for the fair value measurements, and Note 8 for the fair value of the Company’s warrant liabilities and derivative liability.~~

~~Restricted Cash~~

On August 18, 2015, the Company entered into a long-term loan and security agreement with a lender for up to $8.0 million, which provided for an initial loan commitment of $6.0 million. The loan agreement required the Company to maintain a base

minimum cash balance of $4.5 million until the Company met certain milestones and/or when the Company begins making principal payments. On December 22, 2015, the Company achieved certain milestones and the base minimum cash balance was reduced to $3.0 million. Aggregate principal payments of $3.0 million further reduced the restricted cash balance to $0 as of September 30, 2017. Restrictions were fully released on April 1, 2017. On July 7, 2017, the Company entered into the third amendment to the Loan Agreement upon which the Company paid $1.0 million of the outstanding loan balance,2023 and the Lender waived the Prepayment Charge associated with such prepayment. The Third Amendment modified the repayment schedule providing a three-month period of interest only payments for the period from August 2017 through October 2017, and reduced the required cash amount that the Company must keep on hand to $500,000, which will be reduced following the Lender’s receipt of each principal repayment subsequent to the $1.0 million payment.December 31, 2022.

Inventory

~~Inventories~~

~~Inventories are~~Inventory is stated at the lower of cost or ~~market.~~net realizable value. Cost is determined using the first-in, first-out method. Cost is initially recorded at the invoiced amount of raw materials or API, including the sum of qualified expenditures and charges in bringing the inventory to its existing condition and location. The Company calculates inventory valuation adjustments when conditions indicate that ~~market~~net realizable value is less than cost due to physical deterioration, usage, obsolescence, reductions in estimated future demand or reduction in selling price. Inventory write-downs are measured as the difference between the cost of inventory and ~~market. There~~net realizable value. The Company did not have ~~been no write-downs~~allowance for inventory obsolescence as of September 30, 2023, and December 31, 2022.

Prelaunch Inventory

The Company’s policy is to ~~date.~~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

Land is stated at cost, reflecting the fair value of the property at July 31, 2017, the date of the Napo merger. Equipment is stated at cost, ~~less~~net of accumulated depreciation. Equipment begins to be depreciated when it is placed into service. Depreciation is calculated using the straight-line method over ~~the~~ estimated useful lives ~~of 3~~ranging between three to 10ten years.

Expenditures for repairs and maintenance of assets are charged to expense as incurred. Costs of major additions and betterments are capitalized and depreciated on a straight-line basis over their estimated useful lives. Upon retirement

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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 ~~statements of operations and~~unaudited condensed consolidated comprehensive loss.

Software Developed for Internal Use

~~Long-Lived~~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

The Company regularly reviews the carrying value and estimated lives of all of its long-lived assets, including property and equipment and definite-lived intangible assets, to determine whether indicators of impairment ~~may~~ exist that warrant adjustments to carrying values or estimated useful lives. The determinants used for this evaluation include management’s estimate of the asset’s ability to generate positive income from operations and positive cash flow in future periods as well as the strategic significance of the assets to the Company’s business objectives.

~~Definite-lived intangible assets are amortized on a straight-line basis over~~ If the ~~estimated periods benefited, and are reviewed when appropriate for possible impairment.~~

~~Should an impairment exist, the impairment loss would be measured based on the excess of the carrying amount over the asset’s fair value. The~~ Company ~~has not recognized any impairment losses through September 30, 2017.~~

~~Goodwill and Indefinite-lived Intangible Assets~~

~~Goodwill is tested for impairment on an annual basis and in between annual tests if events or circumstances indicate~~determines that an impairment ~~loss may have occurred. The test is~~trigger has been met, the Company evaluates the realizability of its long-lived assets (asset group) based on a comparison of the reporting unit’s book value to its estimated fair market value. The Company performs annual impairment test during the fourth quarter of each fiscal year using the opening consolidated balance sheet as of the first day of the fourth quarter,projected undiscounted cash flows from use and eventual disposition with ~~any resulting impairment recorded in the fourth quarter of the fiscal year.~~

If the carrying value of ~~a reporting unit’s net assets exceeds its fair value,~~ the goodwill would be considered impaired and would be reduced to its fair value. The goodwill was entirely allocated to the human health reporting unit as the goodwill relates to the Napo Merger. The decline in market capitalization during the three months ended September 30, 2017 was determined to be a triggering event for potential goodwill impairment. Accordingly the Company performed the goodwill impairment analysis. The Company utilized the market capitalization plus a reasonable control premium in the performance of its impairment test. The market capitalization wasrelated asset. Any write-downs (which are measured based on the ~~outstanding shares~~difference between the fair value and the ~~average market share price for~~carrying value of the ~~30 days prior to September 30, 2017.~~asset) are treated as permanent reductions in the carrying amount of the assets (asset group). Based on this evaluation, the ~~results~~Company believes that, as of each of the balance sheet dates presented, none of the Company’s long-lived assets were impaired. The Company had no impairment ~~test, the Company recorded an impairment charge~~ of ~~$3,648,000 during~~long-lived assets for the three and nine months ended September 30, ~~2017. If the market capitalization decreases~~2023 and 2022.

Indefinite-lived Intangible Assets

Acquired IPR&D are intangible assets acquired in the ~~future, a reasonable possibility exists that goodwill could be further impaired in the near term and that such impairment may be material to the financial statements.~~

~~Fair value determinations require considerable judgment and~~July 2017 Napo merger. Under ASC 805 Business Combination, IPR&D are sensitive to changes in underlying assumptions, estimates and market factors. Estimating the fair value of individual reporting units and indefinite-lived intangible assets requires us to make assumptions and estimates regarding our future plans, as well as industry and economic conditions. These assumptions and estimates include projected revenues and income growth rates, terminal growth rates, competitive and consumer trends, market-based discount rates, and other market factors. If current expectations of future growth rates are not met or market factors outside of our control, such as discount rates, change significantly, this may lead to a further goodwill impairment in the future.

Additionally, as goodwill and intangible assets associated with recently acquired businesses are recorded on the balance sheet at their estimated acquisition date fair values, those amounts are more susceptible to an impairment risk if business operating results or macroeconomic conditions deteriorate. Acquired in-process research and development (IPR&D) are intangible assets initially recognized at fair value and classified as indefinite-lived assets until the successful completion or abandonment of the associated research and development efforts. During the development period, these assets will not be amortized as charges to earnings; instead, these assets will be tested for impairment on an annual basis or more frequently if impairment indicators are identified. An impairment loss is measured based on the excess of the carrying amount over the asset’s fair value. The Company recorded no impairment for the three and nine months ended September 30, 2023 and 2022.

Leases

The Company accounts for its leases in accordance with ASC 842, Leases.

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. Because the interest rate implicit in lease contracts is typically not readily determinable, the Company utilizes its incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received.

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

Research and development expense consists of expenses incurred in performing research and development activities including related salaries, clinical ~~trial~~trials and related drug and non-drug product costs, contract services and

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other outside service expenses. Research and development expense is charged to operating expense in the period incurred.

Clinical Trial Accruals

Clinical trial costs are a component of research and development expenses. The Company accrues and expenses clinical trial activities performed by third parties based upon actual work completed in accordance with agreements established with clinical research organizations and clinical sites. The Company determines the costs to be recorded based upon validation with the external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services.

Revenue Recognition

The Company recognizes revenue in accordance with ASC ~~605 “Revenue Recognition”, subtopic ASC 605-25~~606, Revenue from Contracts with ~~Multiple Element Arrangements~~ Customers~~and subtopic~~ (“ASC ~~605-28 “~~ ~~Revenue Recognition-Milestone Method~~ ~~“, which provides accounting guidance for revenue recognition for arrangements with multiple deliverables and guidance on defining~~606”).

The Company’s policy typically permits returns if the ~~milestone and determining~~product is damaged, defective, or otherwise cannot be used when the use of the milestone method of revenue recognition for research and development transactions is appropriate, respectively. For multiple-element arrangements, each deliverable within a multiple deliverable revenue arrangement is accounted for as a separate unit of accounting if both of the following criteria are met: (1) the delivered item or items have value toreceived by the customer if the product has expired. Returns are accepted for product that will expire within three months or that have expired up to one year after their expiration dates. Estimates for expected returns of expired products are based primarily on ~~a standalone basis and (2) for~~ an ~~arrangement that includes a general right~~ongoing analysis of our historical return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in our control. If a deliverable in a multiple element arrangement is not deemed to have a stand-alone value, consideration received for such a deliverable is recognized ratably over the term of the arrangement or the estimated performance period, and it will be periodically reviewed based on the progress of the related product development plan. The effect of a change made to an estimated performance period and therefore revenue recognized ratably would occur on a prospective basis in the period that the change was made.

patterns.

The Company recognizes revenue ~~under its licensing, development, co-promotion and commercialization agreement from milestone payments when: (i)~~in accordance with the ~~milestone event~~core principle of ASC 606 or when there is ~~substantive and its achievability has substantive uncertainty at~~a transfer of control of promised goods or services to customers in an amount that reflects the ~~inception of~~consideration that the ~~agreement, and (ii) it does not have ongoing performance obligations related~~Company expects to the achievement of the milestone earned. Milestone payments are considered substantive if all of the following conditions are met: the milestone payment (a) is commensurate with either the Company’s performance subsequentbe entitled to ~~the inception of the arrangement to achieve the milestone~~in exchange for those goods or the enhancement of the value of the delivered item or items as a result of a specific outcome resulting from the Company’s performance subsequent to the inception of the arrangement to achieve the milestone, (b) relates solely to past performance, and (c) is reasonable relative to all of the deliverables and payment terms (including other potential milestone consideration) within the arrangement.

services.

The Company ~~records~~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 ~~related~~net of sales and other similar taxes.

Contracts and Agreements

The Company's Canalevia-CA1 and Neonorm products are primarily sold to distributors, who then sell the products to the ~~reimbursement of costs incurred under the collaboration agreement where the company acts as principal, controls the research and development activities and bears credit risk. Under the agreement,~~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. The Company sells directly to its customers without the use of an agent.

Performance obligations

For animal health products sold by the Company, the single performance obligation identified above is ~~reimbursed for associated out-of-pocket costs~~the Company’s promise to transfer the Company’s animal health products to distributors based on specified payment and ~~for certain employee costs. The gross~~shipping terms in the arrangement. Product warranties are assurance-type warranties that do not represent a performance obligation. 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

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outlined in the Exclusive Distribution Agreement entered into by the Company and Cardinal Health as of January 16, 2019.

Transaction price

For contracts with Cardinal Health and other distributors, the transaction price is the amount of ~~these pass-through costs is reported in revenue in the accompanying statements of operations and comprehensive loss, while the actual expense for~~consideration to which the Company expects to collect in exchange for transferring the promised goods or services. The transaction price of Mytesi is ~~reimbursed are reflected as research~~the Wholesaler Acquisition Cost (“WAC”), and ~~development costs.~~the transaction price of Canalevia-CA1 and Neonorm is the manufacturer’s list price, net of discounts, returns, and price adjustments.

Allocate transaction price

~~Determining whether~~For contracts with Cardinal Health and ~~when some of these revenue recognition criteria have been satisfied often involves assumptions and judgments that can have a significant impact on~~other distributors, the ~~timing and amount of revenue the Company will report. Changes in assumptions or judgments or changes~~entire transaction price is allocated to the ~~elements~~single performance obligation contained in ~~an arrangement could cause~~each contract.

Revenue recognition

For contracts with Cardinal Health, a ~~material increase or decrease~~single performance obligation is satisfied at a point in time, upon the ~~amount~~free on board (“FOB”) terms of ~~revenue that~~each contract when control, including title and all risks, has transferred to the ~~Company reports in a particular period.~~customer.

Disaggregation of Product Revenue

Human

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 were $2.8 million and $3.1 million for the three months ended September 30, 2023 and 2022, respectively. Net revenue from the sale of Mytesi were $7.3 million and $8.5 million for the nine months ended September 30, 2023 and 2022, respectively.

Animal

The Company recognized Canalevia-CA1 products revenues of $24,000 and $12,000 for the three months ended September 30, 2023 and 2022, respectively and Neonorm revenues of $8,000 and $5,000 for the three months ended September 30, 2023 and 2022, respectively. The Company recognized Canalevia-CA1 products revenues of $91,000 and $143,000 for the nine months ended September 30, 2023 and 2022, respectively and Neonorm revenues of $35,000 and $40,000 for the nine months ended September 30, 2023 and 2022, respectively. Revenues are recognized at a point in time upon shipment, when title and control are transferred to the buyer. 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. ~~Until~~

Contracts – Specialty Pharmacies

Effective October 1, 2020, the Company ~~develops sufficient sales history~~engaged a private company as an authorized specialty pharmacy provider of the Company’s Mytesi product. Under the Specialty Product Distribution Agreement, the Company shall supply the products to the private company’s specialty pharmacies directly, in such amounts as may be ordered. There is no minimum purchase or inventory requirement. The specialty pharmacies were authorized distributors of record for all National Drug Codes of Mytesi.

Effective April 20, 2021, the Company engaged another private company as an authorized specialty pharmacy provider of Mytesi. Under the Specialty Pharmacy Distribution and ~~pipeline visibility,~~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.

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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

The single performance obligation is the Company’s promise to transfer Mytesi to specialty pharmacies, based on specified payment and shipping terms as outlined in the agreements.

Transaction price

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 WAC, net of estimated discounts, returns, and price adjustments.

Allocate transaction price

The entire transaction price is allocated to the single performance obligation contained in each contract.

Revenue recognition

The single performance obligation is satisfied at a point in time, upon the FOB terms of each contract when control, including title and all risks, has transferred to the customer.

Product Revenue

Sales of Mytesi are recognized as revenue ~~and~~

~~costs of distributor sales will be deferred until~~at a point in time when the products are ~~sold by the distributor~~delivered to the ~~distributor’s customers. Revenue recognition depends on notification either directly~~specialty pharmacies. Net revenues from the ~~distributor that product has been sold~~sale of Mytesi to the ~~distributor’s customer, when the Company has access to the data. Deferred revenue on shipments to distributors reflect the estimated effects of distributor price adjustments, if any,~~specialty pharmacies were $2.8 million and the estimated amount of gross margin expected to be realized when the distributor sells through product purchased from the Company. Company sales to distributors are invoiced and included in accounts receivable and deferred revenue upon shipment. Inventory is relieved and revenue recognized upon shipment by the distributor to their customer. The Company had Neonorm revenues of $33,611 and $26,357$2.9 million for the three months ended September 30, ~~2017~~2023 and ~~2016,~~2022, respectively. Net revenues from the sale of Mytesi to the specialty pharmacies were $7.3 million and ~~$139,600 and $88,646~~$7.5 million for the nine months ended September 30, ~~2017~~2023 and ~~2016.~~2022, respectively.

Collaboration Revenue

~~Sales~~Revenue recognition for collaboration agreements requires significant judgment. The Company’s assessments and estimates are based on contractual terms, historical experience and general industry practice. Revisions in these values or estimations have the effect of ~~Botanical Extract are recognized as~~increasing or decreasing collaboration revenue ~~when delivered to the customer. The Company had Botanical Extract revenues of $48,000 and $24,000~~ in the ~~three months ended September 30, 2017 and 2016, and $78,000 and $24,000 in the nine months ended September 30, 2017 and 2016.~~

The Company’s subsidiary — Napo sells its drug product, Mytesi through one distributor that in turn sells to various wholesalers in the United States. Sales are recognized as revenue when delivered to the wholesalers. Mytesi revenue included in the Company’s revenue for the nine months months ended September 2017 and 2016 is $364,054 and $0, respectively. Mytesi revenue included in the Company’s revenue for the three months ended September 2017 and 2016 is $364,054 and $0, respectively. ~~The Company records a reserve for estimated product returns under terms~~period of agreements with wholesalers based on its historical returns experience. Reserves for returns at September 30, 2017 were immaterial. If actual returns differed from the Company’s historical experience, changes to the reserved could be required in future periods.

~~Collaboration Revenue~~

revision.

On ~~January 27, 2017,~~September 24, 2018, the Company entered into a ~~licensing, development, co-promotion~~Distribution, License and ~~commercialization agreement (the “Elanco~~Supply Agreement (“License Agreement”) with ~~Elanco US Inc. (“Elanco”~~Knight Therapeutics ("Knight"). The License Agreement has a term of 15 years (with automatic renewals) and provides Knight with an exclusive right to ~~license, develop~~commercialize current and ~~commercialize Canalevia (“Licensed Product”), our drug~~future Jaguar human health products (including crofelemer, NP-300, and any product ~~candidate under investigation~~containing a proanthocyanidin or with an anti-secretory mechanism) in Canada and Israel. Knight forfeited its right of first negotiation for ~~treatment of acute~~expansion to Latin America. Under the License Agreement, Knight is responsible for applying for and chemotherapy-induced diarrhea in dogs, and other drug product formulations of crofelemer for treatment of gastrointestinal diseases, conditions and symptoms in cats and other companion animals. The Company grants Elanco exclusive global rights to Canalevia, a product whose active pharmaceutical ingredient is sustainably isolated and purified from the Croton lechleri tree, for use in companion animals. Pursuant to the Elanco Agreement, Elanco will have exclusive rights globally outside the U.S. and co-exclusive rights with the Companyobtaining necessary regulatory approvals in the ~~U.S. to direct all~~territory of Canada and Israel, as well as marketing, ~~advertising, promotion, launch~~sales and ~~sales activities related to the Licensed Products.~~

~~Under the terms~~distribution of the ~~Elanco Agreement, the Company received an initial upfront payment of $2,548,689, inclusive of reimbursement of past product~~licensed products. Knight will pay a transfer price for all licensed products, and ~~development expenses of $1,048,689, and will receive additional payments~~ upon achievement of certain ~~development,~~ regulatory and sales milestones, the Company may receive payments from Knight in an aggregate amount of up to ~~$61.0~~approximately $18 million, payable throughout the initial 15-year term of the ~~Elanco Agreement, as well as product development expense reimbursement~~agreement. The Company did not have any license revenues for any additional product development expenses incurred, and royalty payments on global sales. The $61.0 million development and commercial milestones consist of $1.0 million for successful completion of a dose ranging study; $2.0 million for the first commercial sale of license product for acute indications of diarrhea; $3.0 million for the first commercial sale of a license product for chronic indications of diarrhea; $25.0 million for aggregate worldwide net sales of licensed products exceeding $100.0 million in a calendar year during the term of the agreement; and $30.0 million for aggregate worldwide net sales of licensed products exceeding $250.0 million in a calendar year during the terms of the agreement. Each of the development and commercial milestones are considered substantive. No revenues associated with the achievement of the milestones has been recognized to date. The Elanco Agreement specifies that the Company will supply the Licensed Products to Elanco, and that the parties will agree to set a minimum sales requirement that Elanco must meet to maintain exclusivity. The $2,548,689 upfront payment, inclusive of reimbursement of past product and development expenses of $1,048,689 is recognized as revenue ratably over the estimated development period of one year resulting in $637,200 and $1,734,100 in collaboration revenue in the three and nine months ended September 30, ~~2017 which are included~~2023 and 2022.

Modifications to Liability-classified Instruments

In accounting for debt modifications and exchange transactions, it is the Company’s policy to first determine whether it qualifies as a troubled debt restructuring (“TDR”) pursuant to the guidance provided in ASC 470-60. A debt modification or exchange transaction that is not within the scope of the ASC 470-60 is accounted for under ASC 470-50 to determine if the transaction is a mere modification or an extinguishment.

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For the nine months ended September 30, 2023, the Company entered amendments to the terms of the October 2020 Royalty Interest, December 2020 Royalty Interest and August 2022 Royalty Interest. The cumulative impact of these amendments significantly modified the terms of the royalty interest resulting to extinguishments (see Note 7).

Modifications to Equity-classified Instruments

In accounting for modifications of equity-classified warrants, it is the Company’s policy to determine the impact by analogy to the share-based compensation guidance of ASC 718, Compensation - Stock Compensation (“ASC 718”). The model for a modified share-based payment award that is classified as equity and remains classified in equity after the modification is addressed in ASC 718-20-35-3. Pursuant to that guidance, the incremental fair value from the modification is recognized as an expense in the statements of operations ~~and comprehensive loss. The difference of $814,589 is included in deferred collaboration revenue in the Company’s balance sheet.~~

~~In addition~~ to the ~~upfront payments, Elanco reimburses~~extent the ~~Company for~~modified instrument has a higher fair value; however, in certain ~~development and regulatory expenses related to our planned target animal safety study and~~circumstances, such as when an entire class of warrants is modified, the ~~completion~~measured increase in fair value may be more appropriately recorded as a deemed dividend, depending upon the nature of the ~~Canalevia field study for acute diarrhea in dogs. These are recognized as revenue in the month in which the related expenses are incurred.~~ warrant modification.

The Company has $17,349 of unreimbursed expenses as of September 30, 2017, which is included in Other Receivables on the Company’s balance sheet. The Company included the $17,349 and $503,391 in collaboration revenue indid not modify any equity-classified warrants for the three and nine months ended September 30, ~~2017 which are included in~~2023 and 2022.

In accounting for amendments to preferred stock, it is the Company’s ~~statements~~policy to measure the impact by analogy to ASC 470-50 in determining if such an amendment is an extinguishment or a modification. If the amendment results in an extinguishment, the Company follows the SEC staff guidance in ASC 260-10-S99-2 and ASC 470-20. 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 ~~operations and comprehensive loss.~~

~~Stock-Based Compensation~~

the amendment.

The ~~Company’s 2013 Equity Incentive Plan~~Company did not modify any equity-classified preferred stock for the three and ~~2014~~nine months ended September 30, 2023 and 2022.

Stock-based Compensation

The Company's Stock Incentive Plan (see Note 11) provides for the grant of stock options, restricted stock and restricted stock unit awards.

The Company measures stock awards granted to employees, non-employees and directors at estimated fair value on the date of grant and recognizes the corresponding compensation expense of the awards, net of estimated forfeitures, over the requisite service periods, which correspond to the vesting periods of the awards. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company issues stock awards with only service-based vesting conditions, and records compensation expense for these awards using the straight-line method.

The Company uses the grant date fair market value of its common stock to determine the grant date fair value ~~both employee~~of options granted to employees, non-employees and ~~non-employee options when granted.~~directors. The Company ~~revalues non-employee~~measures and recognizes compensation expense for all stock options ~~each reporting~~and restricted stock units (“RSUs”) granted to its employees and directors based on the estimated fair value of the award on the grant date. The Company uses the Black-Scholes valuation model to estimate the fair value of stock option awards. The fair value is recognized as expense, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award, on a straight-line basis. The Company believes that the fair value of stock options granted to non-employees is more reliably measured than the fair value of the services received. The determination of the grant date fair value of options using an option pricing model is affected by the Company’s estimated common stock fair value and requires management to make a number of assumptions including the expected life of the option, the volatility of the underlying stock, the risk-free interest rate and expected dividends.

The Company estimates the fair value of stock options using the Black-Scholes option valuation model. The fair value of employee stock options is being amortized on a straight-line basis over the requisite service period of the awards. The fair market value of common stock is based on the closing price of the Company’s common stock as reported on the date of the ~~last day~~grant.

Table of ~~each reporting period.~~Contents

~~Classification of Securities~~

Income Taxes

The Company applies the principles of ASC 480-10 “Distinguishing Liabilities from Equity” and ASC 815-40 “Derivatives and Hedging—Contracts in Entity’s Own Equity” to determine whether financial instruments such as warrants should be classified as liabilities or equity and whether beneficial conversion features exist. Financial instruments such as warrants that are evaluated to be classified as liabilities are fair valued upon issuance and are remeasured at fair value at subsequent reporting periods with the resulting change in fair value recorded in other income/(expense). The fair value of warrants is estimated using the Black-Scholes-Merton model and requires the input of subjective assumptions including expected stock price volatility and expected life.

~~Income Taxes~~

~~The Company accounts for income taxes using~~uses the asset and liability method ~~which requires the recognition~~ of accounting for income taxes. Under this method, deferred tax assets and liabilities ~~for the expected future tax consequences of events that have been recognized in the financial statements or in the Company’s tax returns. Deferred taxes~~ are determined based on the ~~difference~~differences between the financial ~~statement~~reporting and the tax ~~basis~~bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect ~~in the years in which~~when the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, thatA valuation allowance is provided when it is more likely than not that some portion or all orof a ~~portion of~~ deferred tax ~~assets~~asset will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.

realized.

The Company ~~accounts for uncertainty~~has adopted the provisions of ASC 740, Income Taxes Related to Uncertain Tax Positions. Under these principals, tax positions are evaluated in ~~income taxes recognized in the financial statements by applying~~ a two-step ~~process to determine the amount of~~process. The Company first determines whether it is more-likely-than-not that a tax ~~benefit to be recognized. First, the tax~~ position ~~must be evaluated to determine the likelihood that it~~ will be sustained upon ~~external examination by the taxing authorities.~~examination. If ~~the~~a tax position ~~is deemed~~meets the more-likely-than-not ~~to be sustained, the tax position~~recognition threshold, it is then ~~assessed~~measured to determine the amount of benefit to ~~recognize~~be recognized in the financial statements. The ~~amount of the benefit that may be recognized~~tax position is measured as the largest amount of benefit that has a greater than ~~50%~~50 percent likelihood of being realized upon ultimate settlement.

Foreign Currency Remeasurement and Translation

The ~~provision for income taxes includes~~functional currency of Napo Therapeutics is Euro. The Company follows ASC 830, Foreign Currency Matters (“ASC 830”). ASC 830 requires the ~~effects~~assets, liabilities, and results of ~~any resulting tax reserves,~~operations of a foreign operation to be measured using the functional currency of that foreign operation. Exchange gains or ~~unrecognized tax benefits, that~~losses from remeasuring transactions and monetary accounts in a currency other than the functional currency are ~~considered appropriate,~~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. Dollar reporting currency. These translation adjustments are reported separately and accumulated in the unaudited condensed consolidated balance sheets as ~~well as the related net interest and penalties.~~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.

~~Comprehensive loss is defined as changes in stockholders’ equity (deficit) exclusive of transactions with owners (such as capital contributions and distributions).~~ For the three months ended September 30, 2023 and 2022, the amount of other comprehensive gains from translation adjustments were $83,000 and zero, respectively. For the nine months ended September 30, ~~2017~~2023 and ~~2016 there was no difference between net loss~~2022, the amount of other comprehensive losses from translation adjustments were $132,000 and ~~comprehensive loss.~~zero, respectively.

~~Segment Data~~

Prior to the merger with Napo, the Company managed its operation as a single segment for the purposes of assessing performance and making operating decisions. The Company reorganized their segments to reflect the change in the organizational structure resulting from the merger with Napo. Post-merger with Napo, the Company manages its operations through two segments. The Company has two reportable segments — human health and animal health. The animal health segment is focused on developing and commercializing prescription and non-prescription products for companion and production animals. The human health segment is

focused on developing and commercializing of human products and the ongoing commercialization of Mytesi™, which is approved by the U.S. FDA for the symptomatic relief of noninfectious diarrhea in adults with HIV/AIDS on antiretroviral therapy.

~~The Company’s reportable segments net sales and net income consisted of:~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Revenue from external customers

Human Health

$
364,054

$
—

$
364,054

$
—

Animal Health

736,160

50,357

2,455,091

112,646

Consolidated Totals

$
1,100,214

$
50,357

$
2,819,145

$
112,646

Interest expense

Human Health

$
(192,120
)
$
—

$
(192,120
)
$
—

Animal Health

(272,564
)
(235,191
)
(608,765
)
(774,185
)
Consolidated Totals

$
464,684

$
(235,191
)
$
(800,885
)
$
(774,185
)
Depreciation and amortization

Human Health

$
281,111

$
—

$
281,111

$
—

Animal Health

15,031

15,031

45,093

32,463

Consolidated Totals

$
296,142

$
15,031

$
326,204

$
32,463

Segment profit

Human Health

$
996,493

$
—

$
996,493

$
—

Animal Health

3,763,351

(3,415,490
)
(2,757,649
)
(11,057,169
)
Total

$
4,759,844

$
(3,415,490
)
$
(1,761,156
)
$
(11,057,169
)

~~The Company’s reportable segments assets consisted of the following:~~

September 30,

December 31,

2017

2016

Segment assets

Human Health

$
57,568,731

$
—

Animal Health

34,754,604

3,563,149

Total

$
92,323,335

$
3,563,149

~~The reconciliation of segments assets to the consolidated assets is as follows:~~

September 30,

December 31,

2017

2016

Total assets for reportable segments

$
92,323,335

$
3,563,149

Less: investment in subsidiary

(29,240,965
)
—

Less: Intercompany loan

(2,000,000
)
—

Less: Intercompany receivable

(1,094,315
)
—

Consolidated Totals

$
59,988,055

$
3,563,149

Basic and Diluted Net Loss Per Share of Common ~~Share~~

Stock

Basic net loss per share of common ~~share~~stock is computed by dividing net loss attributable to common stockholders for the ~~period~~year by the weighted-average number of shares of common ~~shares~~stock outstanding during the ~~period.~~year. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders for the ~~period~~year by the weighted-average number of shares of common ~~shares,~~stock, including potential dilutive shares of common stock assuming the dilutive effect of potential dilutive securities. ~~For periods in which the Company reports a net loss, diluted~~Diluted net loss per share of common ~~share~~stock is the same as basic net loss per share of common ~~share, because their impact would be anti-~~

~~dilutive to the calculation of net loss per common share. Diluted net loss per common share is the same as basic net loss per common share~~stock for the three and nine months ended September 30, ~~2017~~2022. For the three months and ~~2016.~~nine months ended September 30, 2023, the Company reports a separate basic net loss and diluted loss per share of common stock.

Recent Accounting Pronouncements

In July 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception” (“ASU 2017-11”), which addresses the complexity ofThere are no recent accounting ~~for certain financial instruments with down round features. Down round features~~pronouncements that are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. The amendments in Part I of this ASU are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact of the adoption of ASU 2017-11 on its consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting” (“ASU 2017-09”), which provides guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The amendments in this ASU are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this ASU should be applied prospectively to an award modified on or after the adoption date. The Company does not expect the adoption of ASU 2017-09expected to have a material impact on ~~our consolidated financial statements.~~

In February 2017, the FASB issued ASU No. 2017-05, “Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets” (“ASU 2017-05”), which clarifies the scope of the nonfinancial asset guidance in Subtopic 610-20. This ASU also clarifies that the derecognition of all businesses and nonprofit activities (except those related to conveyances of oil and gas mineral rights or contracts with customers) should be accounted for in accordance with the derecognition and deconsolidation guidance in Subtopic 810-10. The amendments in this ASU also provide guidance on the accounting for what often are referred to as partial sales of nonfinancial assets within the scope of Subtopic 610-20 and contributions of nonfinancial assets to a joint venture or other noncontrolled investee. The amendments in this ASU are effective for annual reporting reports beginning after December 15, 2017, including interim reporting periods within that reporting period. Public entities may apply the guidance earlier but only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company does not expect the adoption of ASU 2017-05 to have a material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04 related to goodwill impairment testing. This ASU eliminates Step 2 from the goodwill impairment test. Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, the entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. Previously, if the fair value of a reporting unit was lower than its carrying amount (Step 1), an entity was required to calculate any impairment charge by comparing the implied fair value of goodwill with its carrying amount (Step 2). Additionally, under the new standard, entities that have reporting units with zero or negative carrying amounts will no longer be required to perform the qualitative assessment to determine whether to perform Step 2 of the goodwill impairment test. As a result, reporting units with zero or negative carrying amounts will generally be expected to pass the simplified impairment test; however, additional disclosure will be required of those entities. This ASU will be effective beginning in the first quarter of our fiscal year 2020. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The new guidance must be adopted on a prospective basis. The Company early adopted this ASU in 2017. For impact of the adoption of this standard, refer to Note 6 “Goodwill”.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows: Restricted Cash, or ASU 2016-18, that will require entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, the new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. This reconciliation can be presented either on the face of the statement of cash flows or in the notes to the financial statements. Entities will also have to disclose the nature of their restricted cash and restricted cash equivalent balances. ASU 2016-18 becomes effective for fiscal years beginning after December 15, 2017, and interim periods within those years, with early adoption permitted. Any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. The adoption of this standard is not expected to have an impact on the Company’s ~~financial position or results of operations.~~

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which addresses the following cash flow issues: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years and are effective for all other entities for fiscal years beginning after December 15, 2018 and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of the adoption of ASU No. 2016-15 on our consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for employee stock-based payment transactions. The areas for simplification in ASU No. 2016-09 include the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Effective January 1, 2017, the Company adopted ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. Among other requirements, the new guidance requires all tax effects related to share-based payments at settlement (or expiration) to be recorded through the income statement. Previously, tax benefits in excess of compensation cost (“windfalls”) were recorded in equity, and tax deficiencies (“shortfalls”) were recorded in equity to the extent of previous windfalls, and then to the income statement. Under the new guidance, the windfall tax benefit is to be recorded when it arises, subject to normal valuation allowance considerations. The adoption of this standard did not have any impact to the Statement of Operations or the Statement of Cash Flows. As of December 31, 2016, the Company had no unrecognized deferred tax assets related to excess tax benefits, and as such, there was no cumulative-effect adjustment to the beginning accumulated deficit. Additionally, the treatment of forfeitures has not changed as the Company is electing to continue its current process of estimating the number of forfeitures. As such, this has no cumulative effect on accumulated deficit.

In March 2016, the FASB issued ASU No. 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments. ASU 2016-06 clarifies that an entity will only need to consider the four-step decision sequence, as provided by the amended ASC 815-15-25-42, to assess whether the economic characteristics and risks of embedded put or call options are clearly related to those of their hosts. ASU 2016-16 is effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2016; accordingly, the Company adopted this guidance during 2017.

~~In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which replaces the current lease accounting standard.~~ ASU 2016-02 establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statements of operations. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of the new standard on its financial statements.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” The objective of ASU 2014-09 is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. The core principle of the new standard is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard is effective for annual reporting periods beginning after December 15, 2017 and allows for prospective or retrospective application. The Company currently anticipates utilizing the full retrospective method of adoption allowed by the standard, in order to provide for comparative results in all periods presented, and plans to adopt the standard as of January 1, 2018. ~~The Company is in the process of evaluating the impact of the new standard and related guidance on the Company’s consolidated~~ financial statements and related disclosures including the impact of the new standard on its accounting policies, processes, and system requirements. While the Company continues to assess all potential impacts under the new standard, there is the potential for significant impacts to our revenue recognition policy relating to royalty revenues and certain other revenues that are currently recognized on a cash basis or sell through method. Upon adoption of these standards, these revenues will be recognized in the periods in which the sales occur, subject to the constraint on variable consideration. We currently do not expect that adopting these standards will have a material impact on our Condensed Consolidated Financial Statements.

~~3. Business Combination~~

As discussed in Note 1 — Organization and Business, the Company completed a merger with Napo on July 31, 2017 . 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.

The merger was accounted for under the acquisition method of accounting for business combinations and Jaguar was considered to be the acquiring company. Under the acquisition method of accounting, total consideration exchanged was:

(Unaudited)

Fair value of Jaguar common stock

$
25,303,859

Fair value of Jaguar common stock warrants

630,859

Fair value of replacement restricted stock units

3,300,555

Fair value of replacement stock options

5,691

Cash

2,000,000

Effective settlement of receivable from Napo

464,295

Total consideration exchanged

$
31,705,259

~~The purchase price allocation to assets and liabilities assumed in the transaction was:~~

Current assets

$
2,578,114

Non-current assets

396,247

Identifiable intangible assets

36,400,000

Current liabilities

(4,052,180
)
Convertible notes payable

(12,473,501
)
Deferred tax liability

(13,181,242
)
Net assets acquired

9,667,438

Goodwill on acquisition

22,037,821

Total consideration

$
31,705,259

Under the acquisition method of accounting, certain identifiable assets and liabilities of Napo including identifiable intangible assets, inventory, debt and deferred revenue were recorded based on their estimated fair values as of ~~the effective time of the Napo Merger. Tangible and other assets and liabilities were valued at their respective carrying amounts, which management believes approximate their fair values.~~

The Developed Technology (DT) is for the development and commercial processing of Mytesi™ (crofelemer 125mg delayed-release tablets), which is an antidiarrheal indicated for the symptomatic relief of noninfectious diarrhea in adult patients with HIV/AIDS on antiretroviral therapy. The DT is a definite lived asset and is being amortized over a 15-year estimated useful life.

The acquired trademarks include Mytesi product trademark, domain names, and other brand related intellectual property. Trademark is a definite lived asset and is being amortized over a 15-year estimated useful life.

The acquired IPR&D projects relate to developing the incomplete technology into a commercially viable product for the several indications related to Mytesi. Mytesi is in development for follow-on indications in cancer therapy-related diarrhea (CTD), an important supportive care indication for patients undergoing primary or adjuvant therapy for cancer treatment. Mytesi is a also in development for rare disease indications for infants and children with congenital diarrheal disorders (CDD) and short bowel syndrome (SBS); for irritable bowel syndrome (IBS); as supportive care for post-surgical inflammatory bowel disease patients (IBD); and as a second-generation anti-secretory agent for use in cholera patients. IPR&D is not amortized during the development period.

~~The fair value of IPR&D, trademark, and DT was determined using the income approach, which was based on forecasts prepared by management.~~

The Napo Merger resulted in $22,037,821 of goodwill relating principally to synergies expected to be achieved from the combined operations and planned growth in new markets. Goodwill has been allocated to the human health segment.

As none of the goodwill, IPR&D, and developed technology acquired are expected to be deductible for income tax purposes, it was determined that a deferred income tax liability of $14,498,120 was required to reflect the book to tax differences of the merger. A deferred tax asset of $1,316,878 was accounted as an element of consideration for the replacement share-based payment awards as the replacement awards are expected to result in a future tax deduction.

~~The Company valued finished goods using a net realizable value approach, which resulted in a step-up of $84,806. Raw material was valued using the replacement cost approach.~~

The Company valued convertible debt assumed in the Napo Merger based on the value of the debt and the conversion option at $12,473,501 (see note 8). The Company incurred acquisition related costs of $1,103,331 and $3,554,250 during the three months ended September 30, ~~2017 and nine months ended September 30, 2017, respectively. The acquisition related costs for the three and nine months ended September 30, 2017 includes the fair value~~2023.

Table of $151,351 for 270,270 shares of Company’s common stock issued to a former creditor of Napo towards reimbursement of acquisition related costs. Acquisition related costs are expensed as incurred to general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss.Contents

The following table provides unaudited proforma results, prepared in accordance with ASC 805, for the three and nine months ended September 30, 2017 and September 30, 2016, as if Napo was acquired on January 1, 2016.

For the three months ended

For the nine months ended

September 30,

September 30,

2017

2016

2017

2016

Net sales

1,253,447

496,476

3,894,222

677,310

Net income (loss)

5,281,573

(3,698,298
)
(2,905,689
)
(16,092,681
)
Net income (loss) per share, basic

0.10

(0.33
)
(0.10
)
(1.56
)
Net income (loss) per share, diluted

0.08

(0.33
)
(0.10
)
(1.56
)

The unaudited proforma results include adjustments to eliminate the interest on Napo’s historical convertible debt not assumed by Jaguar and debt exchanged for Jaguar common stock, record interest on convertible debt assumed by Jaguar, eliminate Napo impairment of investment in related party, and eliminate Napo’s loss from investment in related party. The Company made

proforma adjustments to exclude the acquisition related costs for the three and nine months ended September 30, 2017 and to exclude the acquisition related costs in the results for the three and nine months ended September 30, 2016, because such costs are nonrecurring and are directly related to the Napo Merger.

The unaudited pro forma condensed results do not give effect to the potential impact of current financial conditions, regulatory matters, operating efficiencies or other savings or expenses that may be associated with the Napo Merger.The unaudited proforma results do not include any anticipated cost savings or other effects of future integration efforts. Unaudited pro forma amounts are not necessarily indicative of results had the Napo Merger occurred on January 1, 2016 or of future results.

4.3. Fair Value Measurements

ASC 820, ~~“Fair~~Fair Value Measurements”, defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

●

Level 1 – Observable inputs such as quoted prices (unadjusted) for identical instruments in active markets.

●

Level 2 – Observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or model-derived valuations whose significant inputs are observable.

●

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

· ~~Level 1—Quoted prices in active markets for identical assets or liabilities;~~

· Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data; and

· ~~Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to~~The following tables set forth the fair value of the ~~assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.~~

~~The following table presents information about the~~ Company’s ~~derivative and warrant liabilities~~financial instruments that were measured at fair value on a recurring basis as of September 30, ~~2017~~2023 and December 31, ~~2016 and indicates the fair value hierarchy of the valuation:~~2022.

September 30, 2017

Level 1

Level 2

Level 3

Total

Warrant liability

$
—

$
—

$
163,080

$
163,080

Derivative liability

—

—

19,000

19,000

Total fair value

$
—

$
—

$
182,080

$
182,080


	September 30, 2023
(in thousands)	Level 1		Level 2		Level 3		Total
Iliad	$	—	$	—	$	6,977	$	6,977
Uptown		—		—		6,933		6,933
Streeterville 2		—		—		6,518		6,518
Streeterville Note		—		—		9,544		9,544
Total fair value	$	—	$	—	$	29,972	$	29,972

December 31, 2016

Level 1

Level 2

Level 3

Total

Warrant liability

$
—

$
—

$
799,201

$
799,201

Derivative liability

—

—

—

—

Total fair value

$
—

$
—

$
799,201

$
799,201


	December 31, 2022
(in thousands)	Level 1		Level 2		Level 3		Total
Streeterville Note	$	—	$	—	$	7,839	$	7,839
Total fair value	$	—	$	—	$	7,839	$	7,839

The change in the estimated fair value of ~~level~~Level 3 liabilities is summarized below:

For the three months ended

September 30, 2017

September 30, 2016

Warrant liability

Derivative liability

Warrant liability

Derivative liability

Beginning value of level 3 liability

$
551,880

$
20,000

$
—

$
—

Issuance

—

—

—

—

Change in fair value of level 3 liability

(388,800
)
(1,000
)
—

—

Ending fair value of level 3 liability

$
163,080

$
19,000

$
—

$
—


	Nine Months Ended
	September 30, 2023
	(unaudited)
(in thousands)	Iliad		Uptown		Streeterville 2		Streeterville Note
Beginning fair value of Level 3 liability	$	—	$	—	$	—	$	7,839
Additions		6,580		7,478		6,154		—
Settlements		—		(1,444)		—		—
Change in fair value		397		899		364		1,705
Ending fair value of Level 3 liability	$	6,977	$	6,933	$	6,518	$	9,544

Table of Contents

For the nine months ended

September 30, 2017

September 30, 2016

Warrant liability

Derivative liability

Warrant liability

Derivative liability

Beginning value of level 3 liability

$
799,201

$
—

$
—

$
—

Issuance

—

20,000

—

—

Change in fair value of level 3 liability

(636,121
)
(1,000
)
—

—

Ending fair value of level 3 liability

$
163,080

$
19,000

$
—

$
—


	Three Months Ended
	September 30, 2023
	(unaudited)
(in thousands)	Iliad		Uptown		Streeterville 2		Streeterville Note
Beginning fair value of Level 3 liability	$	—	$	—	$	—	$	8,960
Additions		6,580		7,478		6,154		—
Settlements		—		(1,444)		—		—
Change in fair value		397		899		364		584
Ending fair value of Level 3 liability	$	6,977	$	6,933	$	6,518	$	9,544

The ~~warrants associated with~~fair value of the ~~level~~Streeterville Note recognized as a Level 3 liability ~~were issued in 2016~~at the date of issuance and ~~were originally valued on November 29, 2016 using the Black-Scholes-Merton model with the following assumptions: stock price~~as of $0.69, exercise price of $0.75, term of 5.5 years expiring May 2022, volatility of 71.92%, dividend yield of 0%, and risk-free interest rate of 1.87%. The warrants were revalued at December 31, 2016 using the Black-Scholes-Merton model with the following assumptions: stock price of $0.72, exercise price of $0.75, term of 5.41 years expiring May 2022, volatility of 73.62%, dividend yield of 0%, and risk-free interest rate of 2.0%. The warrants were again revalued at September 30, ~~2017 using~~2023 amounted to $7.8 million and $9.5 million, respectively. The fair value of the ~~Black-Scholes-Merton model with~~remaining Level 3 liabilities at the ~~following assumptions: stock price~~extinguishment date and as of ~~$0.20, exercise price~~September 30, 2023 amounted to $20.2 million and $20.4 million. The fair values were based on the weighted average discounted expected future cash flows representing the terms of ~~$0.75, term~~the notes, discounting them to their present value equivalents. The notes were classified as Level 3 fair values in the fair value hierarchy due to the use of ~~4.67 years expiring May 2022, volatility of 90.77%, dividend yield of 0%, and risk-free interest rate of 1.87%.~~

unobservable inputs, including the Company’s own credit risk.

The Company ~~computed~~determined and performed the valuations with the assistance of an independent valuation service provider. On a quarterly basis, the Company considers the main Level 3 inputs for hybrid instruments used derived as follows:

●

Discount rate which was determined using a comparison of various effective yields on bonds as of the valuation date

●

Market indications for vouchers, which affect the Return Bonus from the sale of Tropical Disease Priority Review Voucher (“TDPRV”)

●

Weighted probability of cash outflows which was estimated based on the entity's knowledge of the business and how the current economic environment is likely to impact the timing of the cash outflows, attributed to the different repayment features of the notes

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The following table summarizes the quantitative information about the significant unobservable inputs used in Level 3 fair ~~values~~value measurement for hybrid instruments:


	Range of Inputs
	(probability-weighted average)		Relationship of unobservable inputs
Unobservable Inputs	2023	2022	to fair value
Risk Adjusted Discount Rate	9.23%-23.80% (23.80%)	11.53%-26.06% (26.06%)	If discount rate is adjusted to total of additional 100 basis points (bps), fair value would have decreased by $401,000. If discount rate is adjusted to total deduction of 100 bps, fair value would have increased by $401,000.
Sales Proceeds: Amount of comparable TDPRV	$67.5 million to $350 million ($100 million)	$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 $1.30 million. If expected cash flows by Management considered the highest amount of market indications for vouchers, FV would have increased by $10.00 million.
Range of Probability for Timing of Cash Flows: Variations of the terms and conditions of the timing of cash flows, including settlement of the note principal, interest, penalties, and acceleration clause.	0.17%-64.76%	0.39%-46.55%	If expected cash flows by Management considered the Scenario with the least amount of indicated value, FV would have decreased by $365,000. If expected cash flows by Management considered the scenario with the greatest amount of indicated value, FV would have increased by $2.99 million.

For the additional notes designated at ~~June 30, 2017~~FVO that are not hybrid, the company considers only the discount rate which was determined using a comparison of ~~$15,000 and $5,000~~various effective yields on bonds as of valuation date.

The following table summarizes the quantitative information about the significant unobservable inputs used in Level 3 fair value measurement for the ~~repayment~~remaining instruments that are not classified as hybrid instruments:


	Range of Inputs
	(probability-weighted average)		Relationship of unobservable inputs
Unobservable Inputs	2023	2022	to fair value
Risk Adjusted Discount Rate	9.43%-26.00% (26.00%)	—	If discount rate is adjusted to total of additional 100 basis points (bps), fair value would have decreased by ($615,323). If discount rate is adjusted to total deduction of 100 bps, fair value would have increased by $634,963.

Fair Value Option

Beginning January 1, 2021, the Company elected to apply the FVO accounting to selected financial instruments to align the measurement attributes of those instruments under U.S. GAAP and to simplify the ~~interest rate increase feature, respectively,~~accounting model applied to those financial instruments. The Company elected to apply FVO accounting to the entire class of hybrid instruments, including structured notes, of which there are assessed embedded derivatives that would be eligible for the June 2017 Convertible Note, using the Binomial Lattice Model, which was based on the generalized binomial option pricing formula. The $20,000 combined fair value was carved out and is included as a derivative liability on the Balance Sheet. The derviatives were revalued at September 30, 2017 using the same Model resulting in a combined fair valuebifurcation.

Table of ~~$19,000. The $1,000 gain is included in other income and expense in the Company’s statement of income and comprehensive income.~~Contents

~~The change~~Changes in the fair value of FVO assets and liabilities as well as the ~~level 3 derivative~~mark-to-market adjustment on the entire class of hybrid instruments, including derivatives and ~~warrant liabilities is reflected~~the net realized gains or losses on these instruments are reported in the ~~statement~~change in fair value of ~~operations~~financial instruments and hybrid instrument designated at FVO in the unaudited condensed consolidated comprehensive ~~loss for the nine months ended~~loss.

As of September 30, ~~2017.~~2023, the Company did not note any fair value movement on FVO liabilities attributable to any instrument-specific credit risk, which should be recorded in other comprehensive income (loss).

~~5. Related Party Transactions~~

Hybrid Instruments

The Company ~~was a majority-owned subsidiary~~elected to apply FVO accounting to all of ~~Napo until May 18, 2015,~~ the ~~date~~hybrid instruments issued, including structured notes. The valuation of the hybrid instruments is predominantly driven by the derivative features embedded within the instruments. The Company determined and performed the valuations of the hybrid instruments with the assistance of an independent valuation service provider. 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. 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 of the unaudited condensed consolidated comprehensive loss.

The following table summarizes the fair value and outstanding balance for items the Company accounts for under FVO:


(in thousands)	Fair value		Unpaid Principal Balance		Accrued Interest		Fair Value Over (Under) Outstanding Balance
At September 30, 2023
Iliad	$	6,977	$	8,078	$	3,327	$	(4,428)
Uptown		6,933		7,994		3,754		(4,815)
Streeterville 2		6,518		10,273		680		(4,435)
Streeterville Note		9,544		6,000		546		2,998


(in thousands)	Fair value		Unpaid Principal Balance		Accrued Interest		Fair Value Over (Under) Outstanding Balance
At December 31, 2022
Streeterville Note	$	7,839	$	6,000	$	390	$	1,449

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4. Balance Sheet Components

Inventory

Inventory at September 30, 2023 and December 31, 2022 consisted of the following:


	September 30,		December 31,
	2023		2022
(in thousands)	(unaudited)
Raw material	$	1,859	$	2,101
Work in process		5,722		3,599
Finished goods		798		1,324
Inventory	$	8,379	$	7,024

Prelaunch Inventory

Costs capitalized for the Company’s lyophilized drug amounting to $2.7 million and $2.1 million as of September 30, 2023 and December 31, 2022 are included in the prepayments and other assets account. The Company’s
proof-of-concept (“POC”) data is expected to be completed by the end of 2023. Upon approval, the prelaunch inventory shall be reclassified as part of the Company’s IPO. Additionally, Lisa A. Conte, Chief Executive Officer of the Company, was also the Interim Chief Executive Officer of Napo Pharmaceuticals, Inc. The Company completed a merger with Napo on July 31, 2017, from which date Napo operates as a wholly-owned subsidiary of the Company — see Note 3 —Business Combination.inventory.

~~The Company has total outstanding receivables (payables) from Napo at December 31, 2016 as follows:~~

December 31,

2016

Due from former parent

$
299,819

Royalty payable to former parent

(171
)
Net receivable (payable) to former parent

$
299,648

~~Due from Napo~~

~~Employee leasing and overhead allocation~~

Effective July 1, 2016, Napo agreed to reimburse the Company for the use of the Company’s employee’s time and related expenses, including rent and a fixed overhead amount to cover office supplies and copier use. The balance of unpaid employee leasing charges due from Napo was $277,529 at December 31, 2016. The total amount of such services was $913,068 and Napo remitted $838,723 for the seven months ended July 31, 2017. The remaining unpaid balance of $351,870 was included in the receivable from ~~Napo at July 31, 2017. Receivable from Napo was effectively settled on merger and is included in the purchase consideration for the acquisition of Napo.~~

~~Loan to Napo~~

The Company loaned $2.0 million from proceeds of shares issued to an investor in connection with the merger to Napo, to partially extinguish Napo’s debt. The Company accounted for this amount as purchase consideration for the acquisition of Napo.

~~Other transactions~~

The Company periodically made purchases on behalf of Napo, primarily including travel expenses and investor relations expenses. The balance of unpaid non-employee leasing charges due from Napo was $22,290 at December 31, 2016. The total amount of such purchases was $157,877 and Napo remitted $67,262 for the seven month ended July 31, 2017. The remaining unpaid balance of $112,905 was included in receivable from Napo at July 31, 2017. Receivable from Napo was effectively settled on merger and is included in the purchase consideration for the acquisition of Napo.

~~Royalty payable to former parent and license fee payable to former parent and related agreement~~

On July 11, 2013, Jaguar entered into an option to license Napo’s intellectual property and technology (the “Option Agreement”). Under the Option Agreement, upon the payment of $100,000 in July 2013, the Company obtained an option for a period of two years to execute an exclusive worldwide license to Napo’s intellectual property and technology to use for the Company’s animal health business. The option price was creditable against future license fees to be paid to Napo under the License Agreement (as defined below).

In January 2014, the Company exercised its option and entered into a license agreement (the “License Agreement”) with Napo for an exclusive worldwide license to Napo’s intellectual property and technology to permit the Company to develop, formulate, manufacture, market, use, offer for sale, sell, import, export, commercialize and distribute products for veterinary treatment uses and indications for all species of animals. The Company was originally obligated to pay a one-time non-refundable license fee of $2,000,000, less the option fee of $100,000. At the Company’s option, the license fee could have been paid in common stock. In January 2015, the License Agreement was amended to decrease the one-time non-refundable license fee payable from $2,000,000 to $1,750,000 in exchange for acceleration of the payment of the fee. Given that Napo was a significant shareholder of the Company, the abatement of the license fee amount was recorded as a capital contribution in the accompanying condensed financial statements. The Company paid the final $425,000 in the three months ended March 31, 2016.

Milestone payments aggregating $3,150,000 were also potentially due to Napo based on regulatory approvals of various veterinary products. In addition to the milestone payments, the Company wouldowe Napo an 8% royalty on annual net sales of products derived from the ~~Croton lechleri~~ tree, up to $30,000,000 and then, a royalty of 10% on annual net sales of $30,000,000 or more. Additionally, if any other products are developed, the Company would owe Napo a 2% royalty on annual net sales of pharmaceutical prescription products that are not derived from ~~Croton lechleri~~ ~~and a 1% royalty on annual net sales of non-prescription products that are not derived from~~ ~~Croton lechleri~~. The royalty term expires at the longer of 10 years from the first sale of each individual product or when there is no longer a valid patent claim covering any of the products and a competitive product has entered the market. However, because an IPO of at least $10,000,000 was consummated prior to December 31, 2015, the royalty was reduced to 2% of annual net sales of its prescription products derived from ~~Croton lechleri~~ ~~and 1% of net sales of its non-prescription products derived from~~ ~~Croton lechleri~~ ~~and no milestone payment will be due and no royalties will be owed on any additional products developed.~~

The Company had unpaid royalties of $171 at December 31, 2016, which are netted with other receivables due from former parent in current assets in the Company’s balance sheet. The Company incurred $765 in royalties during the seven months ended July 31, 2017, which are included in sales and marketing expense in the Company’s statement of operations and comprehensive loss, and paid $455 to Napo in the seven months ended July 31, 2017. The remaining balance of unpaid royalties of $481 are netted with receivables due from Napo. The net receivable balance at July 31, 2017 of $464,295 was effectively settled on merger and is included in the purchase consideration for the acquisition of Napo.

~~6. Balance Sheet Components~~

Property and Equipment,

net

Property and equipment at September 30, ~~2017~~2023 and December 31, ~~2016~~2022 consisted of the following:

	September 30,			December 31,
	2017			2016

							September 30,		December 31,
							2023		2022
(in thousands)							(unaudited)
Land							$	396	$	396
Lab equipment	$	811,087		$	811,087			477		477
Clinical equipment	64,870			64,870
Software	62,637			62,637				63		63
Furniture and fixtures								18		18
Computers and peripherals								7		7
Total property and equipment at cost	938,594			938,594				961		961
Accumulated depreciation	(97,742		)	(52,649		)		(450)		(404)
Property and equipment, net	$	840,852		$	885,945		$	511	$	557

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Depreciation and amortization expenses were $15,000 and $46,000 for the three and nine months ended September 30, 2023, respectively. Depreciation and amortization expenses were $15,000 and $156,000 for the three and nine months ended September 30, 2022, respectively.

Intangible Assets, net

Intangible assets consisted of the following:


	September 30,		December 31,
	2023		2022
(in thousands)	(unaudited)
Developed technology	$	25,000	$	25,000
Accumulated developed technology amortization		(10,278)		(9,028)
Developed technology, net		14,722		15,972
In-process research and development		4,800		4,800
In process research and development, net		4,800		4,800
Trademarks		300		300
Accumulated trademark amortization		(123)		(108)
Trademarks, net		177		192
Internal use software costs - registry		1,236		1,236
Accumulated internal use software costs amortization		(308)		(122)
Internal use software costs - registry, net		928		1,114
Patents		361		361
Accumulated patents amortization		(14)		—
Patents, net		347		361
Total intangible assets, net	$	20,974	$	22,439

Amortization expense of finite-lived intangible assets was ~~$15,031~~$489,000 and ~~$15,031 in~~$1.5 million for the three and nine months ended September 30, 2023, respectively. Amortization expense of finite-lived intangible assets was $483,000 and $1.3 million for the three and nine months ended September 30, 2022, respectively.

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The following table summarized the Company’s estimated future amortization expense of intangible assets with finite lives as of September 30, 2023:


(in thousands)	Amounts
2023	$	438
2024		1,952
2025		1,952
2026		1,952
2027		1,952
Thereafter		7,928
	$	16,174

5. Related Party Transactions

Board of Directors (“BOD”) Cash Compensation

The Company makes BOD cash compensation on a quarterly basis based on the Director Compensation Program. For the three months ended September 30, ~~2017~~2023 and ~~2016, and $45,093 and $32,463 in~~2022, the Company paid approximately $68,000 cash compensation to its directors, respectively. For the nine months ended September 30, ~~2017~~2023 and ~~2016, which are included in~~2022, the ~~statements of operations~~Company paid approximately $204,000 and ~~comprehensive loss as follows:~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Depreciation - lab equipment - research and development expense

$
6,568

$
6,568

$
19,704

$
19,704

Depreciation - clinical equipment - research and development expense

3,243

3,243

9,730

6,959

Depreciation - software - general and administrative expense

5,220

5,220

15,659

5,800

Total depreciation expense

$
15,031

$
15,031

$
45,093

$
32,463

$172,000 cash compensation to its directors, respectively.

~~Intangible assets~~

~~Intangible assets at September 30, 2017 and December 31, 2016 consisted of the following:~~

September 30,

December 31,

2017

2016

Developed technology

$
25,000,000

$
—

IPR&D

11,100,000

—

Trademarks

300,000

—

Total intangible assets

36,400,000

—

Less: Accumulated amortization

(281,111
)
—

Total intangible assets, net

$
36,118,889

$
—

~~Amortization expense was $281,111 and $0 in the three months ended September 30, 2017 and 2016 and was $281,111 and $0 in the nine months ended September 30, 2017 and 2016.~~

~~Goodwill~~

~~The change in the carrying amount of goodwill for the nine months ended September 2017 was as follows:~~

Balance at December 31, 2016

$
—

Goodwill acquired in conjunction with Napo Merger

22,037,821

Impairment

(3,648,000
)
Balance at September 30, 2017

$
18,389,821

~~Accrued Expenses~~

~~Accrued expenses at September 30, 2017 and December 31, 2016 consist of the following:~~

September 30,

December 31,

2017

2016

Accrued compensation and related:

Accrued vacation

$
264,223

$
223,769

Accrued payroll

150

2,692

Accrued payroll tax

20,312

20,140

284,685

246,601

Accrued interest

422,179

123,982

Accrued clinical

17,045

36,725

Accrued research and development costs

668,850

—

Accrued legal costs

—

92,500

Accrued audit

—

37,000

Marketing advance

168,525

—

Accrued other

366,017

45,714

Total

$
1,927,301

$
582,522

7.6. Commitments and Contingencies

Commitments

~~Operating~~ Leases

~~Effective July 1, 2015,~~On April 6, 2021, the Company ~~leases its~~entered into an office lease agreement of approximately 10,526 square feet of office space in San Francisco, ~~California headquarters~~inclusive of office space covered under ~~a non-cancelable sub-lease agreement that expires August 31, 2018.~~the previous sublease agreement. The ~~Company provided cash deposits of $122,163, consisting of a security deposit of $29,539 and prepayment of the last three months~~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 ~~$92,623,~~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. This option was not included as part of the lease term as the Company was not reasonably certain to exercise it, hence the lease term only includes the noncancellable period of three years plus the period of early occupancy.

The base rent under the lease were $42,000 monthly for the first 12 months, $43,000 monthly for the next 12 months and $45,000 for the last twelve months. The lease agreement only contained one lease component, which ~~are included~~is the lease of the office space. Non-lease components such as payment of building operating costs and share in ~~prepaid expenses~~real property taxes were accounted for separately and were not considered as part of the total lease payments. 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 was not terminated within 12 months, the lease amount would be increased in line with the index of relevant inflation at each annual expiration of the start date of the contract. The lessor had the right to decline the renewal of the contract. Upon the happening of certain specified events, the lessor might immediately withdraw from the contract. The Company was 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 ~~current assets~~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 ~~Company’s balance sheet.~~present term until terminated by mutual

~~Future minimum~~Table of Contents

agreement. On January 26, 2022, the lease ~~payments under non-cancelable operating leases as of September 30, 2017 are as follows:~~

Years ending December 31,

Amount

2017 - October through December

$
91,622

2018

245,327

Total minimum lease payments

$
336,949

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-cancelable~~non-cancellable lease period. ~~Rent expense under~~

On December 22, 2021, the ~~non-cancelable operating~~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 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 ~~$90,278~~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 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 unaudited condensed consolidated balance sheet as of September 30, 2023 and December 31, 2022:


	September 30,		December 31,
	2023		2022
(in thousands)	(unaudited)
Operating lease - right-of-use asset	$	824	$	1,140

Operating lease liability, current		526		483
Operating lease liability, net of current portion		351		725
Total	$	877	$	1,208

Weighted-average remaining life (years)		1.71		2.36
Weighted-average discount rate		16.82%		17.89%

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Lease cost included in general and administrative expenses in the unaudited consolidated statements of comprehensive loss for the three and nine months ended September 30, ~~2017~~2023 was approximately $240,000 and ~~2016,~~$614,000, respectively. Lease cost included in general and ~~$270,835~~administrative expenses in the unaudited consolidated statements of comprehensive loss for the three and nine months ended September 30, 2022, was approximately $45,000 and $341,000, respectively.

For the nine months ended September 30, 2023 and 2022, respectively, cash paid for operating lease liabilities recognized under operating cash flows amounted to $300,000 and $384,000 respectively. Non-cash investing and financing activities for the nine months ended September 30, ~~2017~~2023 and ~~2016. Rent expense is included in general~~2022, include addition to right-of-use asset obtained from new and ~~administrative expense in~~modified operating liabilities, amounted to $30,000 and $223,000, respectively.

The following table summarizes the undiscounted cash payment obligations for operating lease liability as of September 30, 2023.


	September 30,
	2023
(in thousands)
2023		623
2024		303
2025		58
2026		2
Total undiscounted operating lease payments		986
Imputed interest expenses		(109)
Total operating lease liability		877
Less: Operating lease liability, current		526
Operating lease liability, net of current portion	$	351

Purchase Commitment

On September 3, 2020, the Company entered into a manufacturing and supply agreement (the “Agreement”) with Glenmark Life Sciences Limited (“Glenmark”), pursuant to which Glenmark will continue to serve as the Company’s ~~statements~~manufacturer of ~~operations~~crofelemer for use in Mytesi, the Company’s human prescription drug product approved by the FDA, and ~~comprehensive loss.~~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. ¹Pursuant to the terms of the Agreement, Glenmark will supply crofelemer to the Company. The Agreement contains provisions regarding the rights and responsibilities of the parties with respect to manufacturing specifications, forecasting and ordering, delivery arrangements, payment terms, confidentiality and indemnification, as well as other customary provisions. The Agreement includes a commitment for the purchase from Glenmark of a minimum quantity of 300 kilograms of crofelemer per year, pro-rated for partial years, where the Company may be obligated to pay any shortfall. Either party may terminate the Agreement for any reason with 12 months prior written notice to the other party. In addition, either party may terminate the Agreement upon written notice as a result of a material breach of the Agreement that remains uncured for a period of 90 days. 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 September 30, 2023, the remaining commitment is 500 kilograms.

Master Services Agreement (“MSA”)

On October 5, 2020, the Company entered into an MSA for clinical research organization services (the “2020 MSA”) and a service order under such 2020 MSA with Integrium, LLC (“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 would pay Integrium a total amount of up to approximately $12.4 million, later reduced to approximately $6.0 million, that would be paid over the term of the engagement and based on the achievement of certain

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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 nine months ended September 30, 2023 and 2022, the Company paid Integrium $1.2 million and $1.0 million respectively.

Asset ~~transfer~~Transfer and ~~transition commitment~~Transition Commitment

On September 25, 2017, ~~Napo~~the Company entered into the Termination, Asset Transfer and Transition Agreement dated September 22, 2017 with ~~Glenmark Pharmaceuticals Ltd. (“Glenmark”).~~Glenmark. As a result of the agreement, ~~Napo~~the Company now controls commercial rights for ~~Mytesi®~~Mytesi for all indications, territories and patient populations globally, and also holds commercial rights to the existing regulatory approvals for crofelemer in Brazil, Ecuador, Zimbabwe and Botswana. In exchange, ~~Napo~~the Company agrees to pay Glenmark 25% of any payment it receives from a third party to whom ~~Napo~~the Company grants a license or sublicense or with whom ~~Napo~~the Company 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$7.0 million.

~~Purchase Commitment~~

~~As of~~ For the nine months ended September 30, 2023 and 2022, the Company paid Glenmark $1.9 million and $1.8 million, respectively.

Revenue Sharing Commitment Update

On December 14, 2017, the Company ~~had issued non-cancelable purchase orders~~announced its entry into a collaboration agreement with Seed Mena Businessmen Services LLC (“SEED”) for Equilevia™, the Company's non-prescription, personalized, premium product for total gut health in equine athletes. According to ~~a vendor for $1.3 million.~~

~~Debt Obligations~~

~~See Note 8—Debt and Warrants.~~

~~Contingencies~~

~~Legal Proceedings.~~

~~On July 20, 2017, a putative class action complaint was filed~~the terms of the Agreement, the Company will pay SEED 15% of total revenue generated from any clients or partners introduced to the Company by SEED in the form of fees, commissions, payments or revenue received by the Company or its business associates or partners, and the agreed-upon revenue percentage increases to 20% after the first million dollars of revenue. In return, SEED will provide the Company access to its existing United ~~States District Court, Northern District~~Arab Emirates (“UAE”) network and contacts and assist the Company with any legal or financial requirements. The agreement became effective on December 13, 2017 and will continue indefinitely until terminated by either party pursuant to the terms of ~~California, Civil Action No. 3:17-cv-04102, by Tony Plant~~the Agreement. No payments have been made to date.

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 ~~behalf~~the development of ~~pre-Merger shareholders~~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 ~~who held shares on June 30, 2017~~ and ~~were entitled~~Filament in order to ~~vote at the 2017 Special Shareholders Meeting, against us~~develop pharmaceutical-grade, standardized drug candidates for mental health disorders, and ~~certain individuals who were directors as~~to partner with a potential future licensee to develop and commercialize these novel plant-based drugs. This 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 ~~date~~ETI Scientific Strategy Team, is a key asset Jaguar has generated over 30 years that bridges the knowledge of ~~the vote,~~traditional healers and Western medicine. Magdalena holds an exclusive license to plants and plant extracts in ~~a matter captioned Tony Plant v. Jaguar Animal Health, Inc., et al. The plaintiff attempts to assert claims arising under Section 14(a)~~Jaguar's library, not including any sources of crofelemer or NP-300, for specific indications and ~~Section 20(a) of the Exchange Act and Rule 14a-9, 17 C.F.R. § 240.14a-9, promulgated thereunder by the SEC. The plaintiff alleges that material omissions and misstatements were contained~~is in the ~~Joint Proxy Statement/Prospectus on Form S-4 (File No. 333-217364) declared effective by~~process of identifying plant candidates in the ~~SEC on July 6, 2017 related to~~library that may prove beneficial for addressing indications such as ADHD.

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The Company accounted for its 40% investment in Magdalena under the solicitation of votes from shareholders to approve the Merger and certain transaction related thereto. We believe the claims are without merit. While no monetary damages have been quantified, we intend to vigorously contest this complaint.

equity method. The plaintiff has not yet served the complaint and summons on any of the defendants. If the plaintiff elected to proceed with the litigation and made service on the defendants, the defendants would move to dismiss the complaint for failure to state a claim on which relief may be granted.”

~~8. Debt and Warrants~~

~~Convertible Notes and Warrants~~

~~Convertible notes and related interest payable at September 30, 2017 and December 31, 2016 consist of the following:~~

Notes Payable

September 30,

December 31,

2017

2016

February 2015 convertible notes payable

150,000

150,000

June 2017 convertible note payable

2,135,000

—

Napo convertible notes

12,473,501

—

$
14,758,501

$
150,000

Less: unamortized debt discount and debt issuance costs

(384,292
)
—

Net convertible notes payable obligation

$
14,374,209

$
150,000

Convertible notes payable - non-current

11,161,000

—

Convertible notes payable - current

$
3,213,209

$
150,000

~~Interest expense on the convertible notes~~summarized income statement information for the three and nine months ended September 30, ~~2017~~2023 of Magdalena is as follows:


	Three months ended		Nine months ended
	September 30,		September 30,
	2023		2023

(in thousands)	(unaudited)
Revenue	$	—	$	—
Operating expenses		(14)		(106)
Loss before income tax		(14)		(106)
Income tax expense		—		—
Net loss	$	(14)	$	(106)
Net loss attributable to the Company	$	(6)	$	(42)

Contingencies

From time to time, the Company may become a party to various legal actions, both inside and ~~2016~~outside the U.S., arising in the ordinary course of its business or otherwise. The Company accrues amounts, to the extent they can be reasonably estimated, that the Company believes will result in a probable loss (including, among other things, probable settlement value), to adequately address any liabilities related to legal proceedings and other loss contingencies. 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 unaudited condensed balance sheets as of September 30, 2023, as the Company could not predict the ultimate outcome of these matters, or reasonably estimate the potential exposure.

7. Debt

Notes payable at September 30, 2023 and December 31, 2022 consisted of the following:


	September 30,		December 31,
	2023		2022
(in thousands)	(unaudited)
Notes designated at Fair Value Option	$	29,972	$	7,839
Royalty Interest		5,635		38,931
Insurance Financing		376		235
Tempesta Note		150		250
		36,133		47,255
Less: unamortized discount and debt issuance costs		(1,467)		(13,628)
Note payable, net of discount	$	34,666	$	33,627
Notes payable - non-current, net	$	31,157	$	17,744
Notes payable - current, net	$	3,509	$	15,883

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Future maturities of the notes payable not designated at FVO as of September 30, 2023 are as follows:

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

February 2015 convertible note nominal interest

$
4,537

$
4,537

$
13,463

$
13,512

June 2017 convertible note nominal interest

43,900

—

44,372

—

June 2017 convertible note accretion of debt discount

123,362

—

124,708

—

Napo convertible note nominal interest

175,798

—

175,798

—

Total interest expense on convertible debt

$
347,597

$
4,537

$
358,341

$
13,512


(in thousands)	Amounts
Periods ended September 30,
2024	$	4,976
2025		1,185
		6,161
Less: unamortized discount and debt issuance costs		(1,467)
Total	$	4,694

Future maturities are based on contractual minimum payments. Timing of maturities may fluctuate based on future revenue.

Sale of Future Royalty Interest

October 2020 Purchase Agreement

On October 8, 2020, the Company entered into another royalty interest purchase agreement (the “October 2020 Purchase Agreement”) with Iliad Research and Trading, L.P. (“Iliad”), pursuant to which the Company sold to Iliad a royalty interest entitling Iliad to receive $12.0 million 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 $6.0 million.

Until such time as the Royalty Repayment Amount has been paid in full, the Company will pay Iliad 10% of the Company’s net sales on included products and 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 delivery of the October 2020 Purchase Agreement to the Company (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) $250,000, 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 18-month anniversary of the Purchase Price Date, the monthly Royalty Payment shall be the greater of (a) $400,000 and (b) the actual Royalty Payment amount Iliad is entitled to for such month. Beginning on the 18-month anniversary of the Purchase Price Date and continuing until 24-month anniversary of the Purchase Price Date, the monthly Royalty Payment shall be the greater of (a) $600,000 and (b) the actual Royalty Payment amount Iliad is entitled to for such month. Beginning on the 24-month anniversary of the Purchase Price Date and continuing until the Royalty Repayment Amount has been paid in full, the monthly Royalty Payment shall be the greater of (a) $750,000, and (b) the actual Royalty Payment amount Iliad is entitled to for such month.

The Royalty Interest ~~expense is~~amount of $12.0 million was classified as debt, net of a $6.0 million discount, at initial recognition. 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 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 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

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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. The change in the ~~statements~~Royalty Repayment Amount was accounted for as a debt modification and resulted in a new discount rate of ~~operations and comprehensive income.~~45.42%.

~~February 2015 Convertible Note~~

~~In February 2015,~~On April 13, 2021, the Company ~~issued convertible promissory notes~~entered into an exchange agreement with Iliad, pursuant to ~~two accredited investors~~which the parties agreed to partition $3.0 million from the original outstanding balance of the royalty interest. The parties further agreed to exchange the partitioned royalty for 7,843 shares of the Company’s common stock. The exchange consisted of Iliad surrendering the partitioned royalty in exchange for the exchange shares. The exchange agreement was accounted for as a modification and resulted in a new discount rate of 77.09%.

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 ~~aggregate~~application of the 10% test on the cumulative assessment performed. The exchanges were cumulatively accounted for as an extinguishment and resulted to 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 ~~$250,000. These notes were~~$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 ~~convertible note purchase~~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 ~~dated December 23, 2014. In connection~~ with Iliad, pursuant to which the ~~issuance~~parties agreed to partition $400,000 from the outstanding balance of the ~~notes,~~royalty interest. The parties further agreed to exchange

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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 another 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 978 shares of the Company’s stock. The exchange consisted of Iliad surrendering the partitioned royalty in exchange for the exchange shares.

On March 17 and 23, 2023, the Company entered into another exchange agreement with Iliad, pursuant to which the parties agreed to partition $992,000 and $227,000, respectively from the outstanding balance of the royalty interest. The parties further agreed to exchange the partitioned royalty for 14,533 and 3,733 shares, respectively of the Company’s stock. The exchange consisted of Iliad surrendering the partitioned royalty in exchange for the exchange shares.

The exchanges that occurred within the 12-month period prior to May 13, 2022 exchange were previously accounted for as extinguishment, therefore, cumulative assessment was not performed anymore.

On May 8, 2023, the Company entered into a standstill agreement (as amended, the “Standstill Agreement”) with Iliad, Uptown Capital, LLC (f/k/a Irving Park Capital, LLC) (“Uptown”) and Streeterville Capital, LLC (“Streeterville”, and together with Iliad and Uptown, collectively, “Investor”) to allow the Company to refrain from making royalty payments with respect to four outstanding royalty interests issued by the Company to Investor dated October 8, 2020, December 22, 2020, March 8, 2021, and August 24, 2022, respectively (each, a “Royalty Interest” and collectively, the “Royalty Interests”), including any royalty payments due and payable as of May 8, 2023 (the ”Standstill Date”), and refrain from buying, selling, or otherwise trading in the Company’s common stock for a period beginning on the Standstill Date and ending on the earliest of (a) the date that is six months following the Standstill Date (b) the date of the public announcement of the probability value in Jaguar’s OnTarget Phase 3 clinical trial of crofelemer for prophylaxis of cancer therapy-related diarrhea (c) and the date of any offering or sale of any debt or equity securities, including without limitation any at-the-market offering (the “Standstill Period”), but excluding any exempt issuances. As a material inducement and consideration for Investor’s agreement to enter into the Standstill Agreement, the Company issued ~~the lenders~~(i) Iliad warrants to purchase ~~22,320~~up to 826,738 shares ~~at $5.60 per share, which expire December 31, 2017. Principal and interest of $103,912 was paid in May 2015 for $100,000 of these notes. The Company analyzed the beneficial nature~~ of the ~~conversion terms and determined that a BCF existed because the effective conversion price was less than the fair value at the time~~common stock, (ii) Uptown warrants to purchase up to 1,097,756 shares of the ~~issuance. The Company calculated the value~~common stock, and (iii) Streeterville warrants to purchase up to 1,892,808 shares of the ~~BCF using~~common stock, at an exercise price of $0.48 per share.

On June 28, 2023, the ~~intrinsic method. A BCF for~~Company entered into the ~~full face value was recorded as a discount~~first amendment to the ~~notes payable and~~Standstill Agreement, pursuant to ~~additional paid-in capital. The full amount~~which the Standstill Agreement was amended to, among other things, permit (i) the Company to issue an aggregate of 105 shares of the ~~BCF was amortized~~Company’s Series H Convertible Preferred Stock to ~~interest expense~~Investor in exchange for a $756,992 reduction in the outstanding balance of the December 2020 Royalty Interest and a $1,726,888 reduction in the outstanding balance of the August 2022 Royalty Interest (the “Exchange Transaction”) without triggering the termination of the Standstill Period, and (ii) Investor to (A) consummate the Exchange Transaction during the Standstill Period and (B) sell all shares of the Company’s common stock beneficially owned by Investor immediately prior to the ~~end~~consummation of the Exchange Transaction during the Standstill Period.

On June ~~2015.~~

~~The remaining outstanding note~~30, 2023, the Company entered into a binding memorandum of ~~$150,000 is payable~~understanding (the “Binding MOU”) with the Investor to ~~an investor at an effective simple interest rate~~modify the allocation of ~~12% per annum,~~the warrants as set forth in the Standstill Agreement such that the Company issued (i) Iliad warrants to purchase up to 1,711,954 shares of the common stock and ~~was due in full on July 31, 2016.~~ (ii) Uptown warrants to purchase up to 2,105,348 shares of the common stock, and no warrants were issued to Streeterville under the Standstill Agreement.

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On ~~July 28, 2016,~~August 14, 2023, the Company entered into an amendment (“the Second Amendment”) to ~~delay~~ the ~~repayment~~Standstill Agreement with Iliad and Uptown (together, “Standstill Investor”) to (i) permit the Company to offer and sell securities without triggering the termination of the ~~principal~~Standstill Period, and ~~related interest under~~(ii) remove the ~~terms of the remaining note from July 31, 2016~~restriction on Standstill Investor’s ability to ~~October 31, 2016.~~

On November 8, 2016, the Company entered into an amendment to extend the maturity date of the remaining note from October 31, 2016 to January 1, 2017. In exchange for the extension of the maturity date, on November 8, 2016, the Company’s board of directors granted the lender a warrant to purchase 120,000buy, sell, or otherwise trade in shares of the Company’s common stock ~~for $0.01 per share. The warrant is exercisable at any time on or before July 28, 2022,~~during the expiration date of the warrant. The amendment and related warrant issuance resulted in the Company treating the debt as having been extinguished and replaced with new debt for accounting purposes due to meeting the 10% cash flow test.

*~~Extinguishment of debt~~

Standstill Period.

On ~~January 31, 2017,~~September 29, 2023, the Company entered into ~~another amendment~~the Global Amendment No. 2 to ~~extend~~ the ~~maturity date~~October 2020 Royalty Interest with Iliad, pursuant to which, beginning on January 1, 2026, the monthly Royalty Payment under the October 2020 Royalty Interest shall be the greater of (a) $750,000.00, and (b) the actual Royalty Payment amount Iliad is entitled to for such month pursuant to the terms of the ~~remaining note from January 1, 2017~~October 2020 Royalty Interest. As a material consideration for Iliad’s agreement to ~~January 1, 2018. In exchange for~~enter into this amendment, the ~~extension of the maturity date, on January 31, 2017, the Company’s board of directors granted the lender a warrant~~Company agreed to issue to Iliad warrants to purchase ~~370,916~~up to 232,500 shares of the Company’s common stock ~~for $0.51~~at an exercise price of $0.37 per share. ~~The warrant is~~Such warrants may be exercisable for cash or on a cashless basis at any time and from time to time during the period commencing on ~~or before January 31, 2019,~~September 29, 2023 (the “Issuance Date”) and ending on the ~~expiration date~~five-year anniversary of the ~~warrant.~~Issuance Date. Pursuant to an analysis of the indicators provided in ASC 470-60-55-8, the Company is not deemed to be experiencing financial difficulty. The ~~amendment and related warrant issuance~~debt restructuring is therefore not considered a TDR.

The cumulative effect of the exchanges to the October 2020 Royalty Interest resulted in ~~the Company treating the debt~~significant modifications and was accounted for as ~~having been extinguished and replaced with new debt for accounting purposes due to meeting the 10% cash flow test.~~extinguishment. The Company ~~calculated~~recorded an extinguishment gain in the unaudited condensed consolidated statements of comprehensive loss amounting to $2.0 million. The extinguishment triggered a ~~loss~~remeasurement event under ASC 825-10 and created an election date on whether to account for the ~~extinguishment of debt of $207,713, or~~October 2020 Royalty Interest under the ~~equivalent~~fair value option accounting (“FVO”).

The Company irrevocably elected to initially and subsequently apply the FVO accounting to the entire note. The Company used the valuation report from an independent valuation service provided to measure the reporting date fair value of the ~~warrants granted, which is included in loss on extinguishment of debt in~~note. On September 30, 2023, the ~~Company’s statements of operations~~fair value was determined to be $7.0 million. For the three and ~~comprehensive loss in the~~ nine months ended September 30, ~~2017.~~2023, the net loss in the fair value was $397,000. The net loss in fair value was recorded as loss included in the change in fair value of financial instruments and hybrid instrument designated at FVO in the unaudited condensed consolidated statements of comprehensive loss.

December 2020 Purchase Agreement

On December 22, 2020, the Company entered into a royalty interest purchase agreement (the “December 2020 Purchase Agreement”) with Uptown Capital, LLC(f/k/a Irving Park Capital, LLC) (“Uptown”), a company affiliated with CVP, pursuant to which the Company sold to Uptown a royalty interest entitling Uptown to receive $12.0 million 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 $6.0 million (the “December 2020 Royalty Interest”).

Until such time as the Royalty Repayment Amount has been paid in full, the Company will pay Uptown 10% of the Company’s Net Sales on Included Products and 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 payment start date of March 8, 2024 and continuing until the 12-month anniversary of the Purchase Price Date, the monthly Royalty Payment shall be the greater of (a) $750,000, and (b) the actual Royalty Payment amount Uptown is entitled to for such month.

The ~~$150,000 note~~December 2020 Royalty Interest amount of $12.0 million is ~~included in notes payable in current liabilities~~classified as debt, net of a $6.0 million discount, at initial recognition. Under ASC 470-10-35-3, royalty payments to Uptown 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 23.70%.

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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.

On February 8, 2023, the Company entered into an exchange agreement with Uptown, pursuant to which the parties agreed to partition $675,000 from the outstanding balance ~~sheet.~~of the royalty interest. The parties further agreed to exchange the partitioned royalty for 150,000 shares of the Company’s stock. The exchange consisted of Uptown surrendering the partitioned royalty in exchange for the exchange shares.

On May 8, 2023, the Company entered into an exchange agreement with Uptown to (i) partition a new royalty interest in the royalty repayment amount of $1,073,807 from the outstanding balance of the royalty interest. The parties further agreed to exchange the partitioned royalty for 1,908,651 shares of the Company’s common stock.

On the same date, the Company entered into the Standstill Agreement as described further above, pursuant to which the Company may refrain from making royalty payments on the December 2020 Royalty Interest during the Standstill Period.

On September 29, 2023, the Company entered into the Global Amendment No. 2 to the December 2020 Royalty Interest with Uptown, pursuant to which, beginning on January 1, 2026, the monthly Royalty Payment under the December 2020 Royalty Interest shall be the greater of (a) $750,000.00, and (b) the actual Royalty Payment amount Uptown is entitled to for such month pursuant to the terms of the December 2020 Royalty Interest. As a material consideration for Uptown’s agreement to enter into this amendment, the Company agreed to issue to Uptown warrants to purchase up to 262,500 shares of the Company’s common stock at an exercise price of $0.37 per share. Such warrants may be exercisable for cash or on a cashless basis at any time and from time to time during the period commencing on September 29, 2023 (the “Issuance Date”) and ending on the five-year anniversary of the Issuance Date. Pursuant to an analysis of the indicators provided in ASC 470-60-55-8, the Company is not deemed to be experiencing financial difficulty. The debt restructuring is therefore not considered a TDR.

On the same date, the Company entered into a privately negotiated exchange agreement with Uptown (the “Exchange Agreement”), pursuant to which the Company issued an aggregate of 118 shares of the Company’s newly authorized Series I Convertible Preferred Stock (the “Series I Preferred Stock” or “Preferred Stock”) to Uptown, at an effective exchange price per share equal to the market price (defined as the Minimum Price under Nasdaq Listing Rule 5635(d)) as of the date of the Exchange Agreement, in exchange for a $1,500,000.00 reduction in the outstanding balance of the December 2020 Royalty Interest (“Partitioned Royalty”).(the “Exchange Transaction”). Subject to the terms of the Series I Preferred Stock, each share of Series I Preferred Stock is convertible into shares of the Company’s Common Stock (the “Conversion Shares”).

The cumulative effect of the exchanges to the December 2020 Purchase Agreement resulted in significant modifications and was accounted for as extinguishment. The Company ~~has unpaid accrued interest~~recorded an extinguishment gain in the unaudited condensed consolidated statements of ~~$47,392~~comprehensive loss amounting to $2.7 million. The extinguishment triggered a remeasurement event under ASC 825-10 and ~~$33,929, which is included in accrued expenses~~created an election date on whether to account for the ~~Company’s balance sheet as~~December 2020 Purchase Agreement under the FVO accounting.

The Company irrevocably elected to initially and subsequently apply the FVO accounting to the entire note. The Company used the valuation report from an independent valuation service provided to measure the reporting date fair value of the note. On September 30, ~~2017 and December 31, 2016, respectively, and incurred interest expense of $4,537 in~~2023, the fair value was determined to be $6.9 million. For the three ~~months ended September 30, 2017~~ and ~~2016, respectively, and $13,463 and $13,512 in the~~ nine months ended September 30, ~~2017 and 2016 which are~~2023, the net loss in the fair value was $899,000. The net loss in fair value was recorded as gain included in the change in fair value of financial instruments and hybrid instrument designated at FVO in the unaudited condensed consolidated statements of comprehensive loss.

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March 2021 Purchase Agreement

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 (the “March 2021 Royalty Interest”). 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 Uptown, 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 EU, including but not limited to the upfront fee payable by Napo EU to Napo for included products and Crofelemer for other indications; and 50% of royalties collected from licenses of the included products to third parties.

The March 2021 Royalty Interest amount of $10.0 million is classified as debt, net of a $5.0 million discount, at initial recognition. Under ASC 470-10-35-3, royalty payments to Streeterville 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 infor the ~~statement of operations and comprehensive loss.~~

~~June 2017 Convertible Note~~

remaining periods. At issuance, based on projected cash outflows from future revenue streams, the discount rate was 19.36%.

On ~~June 29, 2017,~~April 14, 2022, under the Royalty Interest Global Amendments, the Company ~~issued a secured convertible promisorry note (“Note”)~~is granted at its sole discretion, the right to ~~a lendor in~~exchange from time to time, all or any of the ~~aggregate~~Royalty Interest under the original principal amount of ~~$2,155,000 less~~$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 ~~original issue discount~~exchange agreement (the “Royalty Interest Exchange Agreement”) with Streeterville to (i) partition a new royalty interest in the royalty repayment amount of ~~$425,000~~$3.4 million (“Partitioned Royalty”) from the royalty interest of the March 2021 Purchase Agreement and ~~less $30,000 to cover the lender’s legal fees for net cash proceeds of $1,700,000. Interest on~~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 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 ~~be paid 8%~~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

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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 September 30, 2023, the forecasted future revenues changed which resulted to a new discount of 53.85%

Interest expense for the three and nine months ended September 30, 2023 was $531,000 and $1.5 million, respectively. Interest expense for the three and nine months ended September 30, 2022 was $409,000 and $1.4 million, respectively. As of September 30, 2023 and December 31, 2022, the carrying value of the debt $3.8 million and $3.1 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 a royalty interest to receive $12.0 million (the “August 2022 Royalty Interest”) 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 ~~purchase price date~~closing of the Royalty Financing until the ~~balance is paid in full. All~~one-year anniversary of such closing and 10% per annum thereafter, simple interest ~~calculations are~~ computed on the basis of a 360-day year comprised of twelve ~~(12) thirty (30) day~~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 ~~compounded daily~~following the closing of the Royalty Financing, $600,000 beginning 12 months following the closing of the Royalty Financing, and ~~payable in accordance~~$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 ~~Note. All principal and interest on~~August 2022 Royalty Interest, the ~~debt is due in full on August 2, 2018. The~~ Company accrued interest of $44,372 at September 30, 2017 which is included in accrued expenses on the Company’s balance sheet, and incurred interest expense of $43,900 and $44,372 in interest expense in the three and nine months ended September 30, 2017 which are included in interest expense in the Company’s statement of operations and comprehensive loss. The Company also recorded $123,362 and $124,708 in interest expense in the three and nine months ended September 30, 2017 which are included in the Company’s statement of operations and comprehensive loss for the accretion of the debt discount. The lender has the right to ~~convert~~exchange from time to time at the Company’s sole discretion all or any portion of the ~~outstanding balance into the Company’s~~Royalty Interest for shares of common stock at ~~$1.00~~a price per ~~share.~~

~~The Note provides~~share equal to the ~~lender with an optional monthly redemption that allows for~~Nasdaq Minimum Price (as defined in Nasdaq Listing Rule 5635(d)) as of the ~~monthly payment of up to $350,000 at the creditor’s option commencing on the earlier of six months after the purchase price date, June 29, 2017, or the effective~~ date of the registration statement which is expected to be before December 2017. ASC 470-10-45-9 and 45-10 provide that debt that is due on demand or will be due on demand within one year from the balance sheet date should be classified as a current liability, even though the liability may not be expected to be paid within that period or the liability has scheduled repayment dates that extend beyond one year but nevertheless is callable by the creditor within one year. As such, despite the fact that the Note is due in full on August 2, 2018, the full amount of the Note balance has been classified as a current liability in the balance sheet.

~~The Note provides for two separate features that result in a derivative liability:~~

1. Repayment of mandatory default amount upon an event of default — upon the occurrence of any event of default, the lendor may accelerate the Note resulting in the outstanding balance becoming immediately due and payable in cash; and

2. Automatic increase in the interest rate on and during an event of default — during an event of default, the interest rate will increase to the lesser of 17% per annum or the maximum rate permitted under applicable ~~law.~~

~~The Company computed fair values at June 30, 2017 of $15,000 and $5,000 for the repayment and the interest rate increase feature, respectively, using the Binomial Lattice Model, which was~~exchange. At issuance, based on projected cash outflows from future revenue streams, the ~~generalized binomial option pricing formula. The $20,000 combined fair value~~discount rate was ~~carved out and is included as a derivative liability on the Balance Sheet. The derviatives were revalued at~~55.97%.

On September ~~30, 2017 using the same Model resulting in a combined fair value of $19,000. The $1,000 gain is included in other income and expense in the Company’s statement of income and comprehensive income.~~

The balance of the note payable of $1,750,708, consisting of the $2,155,000 face value of the note less note discounts and debt issuance costs of $509,000, less the $20,000 derivative liability, plus the accretion of the debt discount and debt issuance costs of $124,708 in the nine months ended September 30, 2017, is included in notes payable in current liabilities on the balance sheet.

~~Napo convertible notes~~

In December 2016, Napo entered into a note purchase agreement which provided for the sale of up to $12,500,000 face amount of notes and issued convertible promissory notes (the Napo December 2016 Notes) in the aggregate face amount of $2,500,000 to three lenders and received proceeds of $2,000,000 which resulted in $500,000 of original issue discount. In July 2017, Napo issued convertible promissory notes (the Napo July 2017 Notes) in the aggregate face amount of $7,500,000 to four lenders and received proceeds of $6,000,000 which resulted in $1,500,000 of original issue discount. The Napo December 2016 Notes and the Napo July 2017 Notes mature on December 30, 2019 and bear interest at 10% with interest due each six-month period after December 30, 2016. On June 30, 2017, the accrued interest of $125,338 was added to principal of the Napo December Notes, and the new principal balance became $2,625,338. Interest may be paid in cash or in the stock of Jaguar per terms of the note purchase agreement. In each one year period beginning December 30, 2016, up to one-third of the principal and accrued interest on the notes may be converted into the common stock of the merged entity at a conversion price of $0.925 per share. The Company assumed these convertible notes at fair value of $11,161,000 as part of the Napo Merger. At September 30, 2017, the balance of the note payable is $11,161,000 and the accrued interest on these notes is $193,565.

In March 2017, Napo entered into an exchangeable note purchase agreement with two lenders for the funding of face amount of $1,312,500 in two $525,000 tranches of face amount $656,250. The notes bear interest at 3% and mature on December 1, 2017. Interest may be paid at maturity in either cash or shares of Jaguar per terms of the exchangeable note purchase agreement. The notes may be exchanged for up to 2,343,752 shares of Jaguar common stock, prior to maturity date. The Company assumed the notes at fair value of $1,312,500 as part of the Napo Merger. At September 30, 2017, the accrued interest on these notes is $19,957.

~~Long term Debt~~

~~In August 2015,~~29, 2023, the Company entered into a ~~loan and security agreement~~Global Amendment No. 2 (the “Global Amendment”) with ~~a lender for up to $8.0 million, which provided for an initial loan commitment of $6.0 million. The loan agreement requires~~the Investor as described further above, such that the Company issued Streeterville warrants to ~~maintain $4.5 million~~purchase 255,000 shares of the ~~proceeds in cash, which may be reduced or eliminated on~~common stock the achievement of certain milestones. An additional $2.0 million is available contingent on the achievement of certain further milestones. The agreement has a term of three years, with interest only payments through February 29, 2016. Thereafter, principalGlobal Amendment No. 1 and interest payments will be made with an interest rate of 9.9%. Additionally, there will be a balloon payment of $560,000 on August 1, 2018. This amount is being recognized over the term of the loan agreement and the effective interest rate, considering the balloon payment, is 15.0%. ProceedsGlobal Amendment No. 2 to the ~~Company were net~~August 2022 Royalty Interest with Streeterville, pursuant to which, (a) beginning on January 1, 2026, the monthly Royalty Payment under the August 2022 Royalty Interest shall be the greater of ~~a $134,433 debt discount under~~(x) $750,000.00, and (y) the actual Royalty Payment amount Streeterville is entitled to for such month pursuant to the terms of the ~~loan agreement. This debt discount is being recorded as interest expense, using the interest method, over the term of the loan agreement. Under the agreement,~~August 2022 Royalty Interest, and (b) the Company is ~~entitled~~prohibited from making prepayments of the Royalty Repayment Amount under the August 2022 Royalty Interest. As a material consideration for Streeterville’s agreement to ~~prepay principal and accrued interest upon five days prior notice to the lender. In the event of prepayment,~~enter into these amendments, the Company ~~is obligated~~agreed to ~~pay a prepayment charge. If such prepayment is made during any of the first twelve months of the loan agreement, the prepayment charge will be (a) during such time as the Company is required~~issue to maintain a minimum cash balance, 2% of the minimum cash balance amount plus 3% of the difference between the amount being prepaid and the minimum cash balance, and (b) after such time as the Company is no longer required to maintain a minimum cash balance, 3% of the amount being prepaid. If such prepayment is made during any time after the first twelve months of the loan agreement, 1% of the amount being prepaid.

On April 21, 2016, the loan and security was amended upon which the Company repaid $1.5 million of the debt out of restricted cash. The amendment modified the repayment amortization schedule providing a four-month period of interest only payments for the period from May through August 2016.

On July 7, 2017, the Company entered into the third amendment to the Loan Agreement upon which the Company paid $1.0 million of the outstanding loan balance, and the Lender waived the Prepayment Charge associated with such prepayment. The Third Amendment modified the repayment schedule providing a three-month period of interest only payments for the period from August 2017 through October 2017, and reduced the required cash amount that the Company must keep on hand to $500,000, which will be reduced following the Lender’s receipt of each principal repayment subsequent to the $1.0 million. As the present value of the cash flows under the terms of the third amendment is less than 10% different from the remaining cash flows under the terms of the loan agreement prior to the amendment, the third amendment was accounted as a debt modification.

~~As of September 30, 2017 and December 31, 2016, the net long-term debt obligation was as follows:~~

September 30,

December 31,

2017

2016

Debt and unpaid accrued end-of-term payment

$
1,855,328

$
3,894,320

Unamortized note discount

(13,141
)
(42,493
)
Unamortized debt issuance costs

(40,960
)
(114,626
)
Net debt obligation

$
1,801,227

$
3,737,201

Current portion of long-term debt

$
1,801,227

$
1,919,675

Long-term debt, net of discount

—

1,817,526

Total

$
1,801,227

$
3,737,201

~~Future principal payments under the long-term debt are as follows:~~

Years ending December 31

Amount

2017 - October through December

$
260,832

2018

1,089,199

Total future principal payments

1,350,031

2018 end-of-term payment

560,000

1,910,031

Less: unaccreted end-of-term payment at September 30, 2017

(54,703
)
Debt and unpaid accrued end-of-term payment

$
1,855,328

The debt obligation includes an end-of-term payment of $560,000, which accretes over the life of the loan as interest expense. As a result of the debt discount and the end-of-term payment, the effective interest rate for the loan differs from the contractual rate.

~~Interest expense on the long-term debt for the three and nine months ended September 30, 2017 and 2016 was as follows:~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Nominal interest

$
36,906

$
103,566

$
183,040

$
364,566

Accretion of debt discount

7,712

15,337

29,351

50,388

Accretion of end-of-term payment

32,109

63,897

122,269

209,924

Accretion of debt issuance costs

24,038

47,855

91,562

135,795

$
100,765

$
230,655

$
426,222

$
760,673

~~Warrants~~

On November 22, 2016, the Company entered into a Securities Purchase Agreement, or the 2016 Purchase Agreement, with certain institutional investors, pursuant to which the Company sold securities to such investors in a private placement transaction, which we refer to herein as the 2016 Private Placement. In the 2016 Private Placement, the Company sold an aggregate of 1,666,668 shares of the Company’s common stock at a price of $0.60 per share for gross proceeds of approximately $1.0 million. The investors in the 2016 Private Placement also received (i)Streeterville warrants to purchase up to ~~an aggregate of 1,666,668~~255,000 shares of the Company’s common stock at an exercise price of ~~$0.75~~$0.37 per ~~share,~~share. Such warrants may be exercisable for cash or on a cashless basis at any time and from time to time during the period commencing on September 29, 2023 (the “Issuance Date”) and ending on the five-year anniversary of the Issuance Date. Pursuant to an analysis of the indicators provided in ASC 470-60-55-8, the Company is not deemed to be experiencing financial difficulty. The debt restructuring is therefore not considered a TDR.

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The cumulative effect of the exchanges to the August 2022 Purchase Agreement resulted to significant modifications and were accounted for as extinguishment. The Company recorded an extinguishment loss in the unaudited condensed consolidated statements of comprehensive loss amounting to $1.0 million The extinguishment triggered a remeasurement event under ASC 825-10 and created an election date on whether to account for the August 2022 Purchase Agreement resulted under the FVO accounting.

The Company irrevocably elected to initially and subsequently apply the FVO accounting to the entire note. The Company used the valuation report from an independent valuation service provided to measure the reporting date fair value of the note. On September 30, 2023, the fair value was determined to be $6.5 million. For the three and nine months ended September 30, 2023, the net loss in the fair value was $364,000. The net loss in fair value was recorded as loss included in the change in fair value of financial instruments and hybrid instrument designated at FVO in the unaudited condensed consolidated statements of comprehensive loss.

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 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. Interest on the note is payable annually in advance by adding the interest charge for each upcoming year to the outstanding balance on the date each such interest charge is accrued. The Company also paid $25,000 to cover legal fees, accounting costs, due diligence, monitoring and other transaction costs incurred in connection with the issuance of the note. The first year of prepaid interest and the transaction expenses are included in the original principal amount.

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 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. As of September 30, 2023, no trial failure occurred.

Streeterville is entitled to a maximum of 18% and a minimum of 1% of the gross proceeds received by the Company from the sale of TDPRV (the “Return Bonus”). The Return Bonus percentage is reduced pro rata based on the percentage of the original principal balance of the note that has been repaid as of the date of the sale of the TDPRV. Even if the note has been paid in full at the time of the sale of the TDPRV, the Company is still obliged to pay Streeterville a Return Bonus of 1%. If Streeterville applies the Trial Failure Effect, the Return Bonus will automatically be reduced to 1%. If the TDPRV has not been sold as of the day immediately preceding the maturity date of the note, the Return Bonus percentage will be fixed as of such date. As of September 30, 2023, 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 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. The Company may not prepay the note without the Streeterville’s consent on the date the last patient is enrolled in a pivotal trial.

After Streeterville becomes aware of the occurrence of any default, Streeterville may accelerate the note, with the outstanding balance becoming immediately due and payable in cash at the Mandatory Default Amount (i.e., the outstanding balance following the application of the Default Effect). Streeterville reserves the right to declare the outstanding balance immediately due and payable at any time following the default. Default Effect means multiplying the outstanding balance as of the date of default by 5% or 15% for each occurrence of default, capped at an aggregate of

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25%, and then adding the resulting product to the outstanding balance. The percentage to be used depends on whether the default is viewed as minor or major as defined in the agreement. Furthermore, interest accrues on the outstanding balance beginning on the date of default at an interest rate equal to the fewer of 18% per annum or the ~~Series A Warrants,~~maximum rate permitted under applicable law. As of September 30, 2023, 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 NP-300 technology, and any TDPRV and the ~~Placement Agent~~sale proceeds therefrom that may be granted to the Company by the FDA in connection with the development of NP-300 for the cholera 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. The grant of security interest has become effective upon the receipt of the Salix Waiver on April 6, 2021 in observance to the requirement of the settlement agreement previously entered by the Company with Salix Pharmaceuticals, Inc.

The Company irrevocably elected to initially and subsequently apply the FVO accounting to the entire note. The fair value at transaction date was equal to the cash proceeds received ~~warrants~~of $6.0 million. The transaction expense of $25,000 was recognized in profit and loss as incurred. The Company used the valuation report from an independent valuation service provided to ~~purchase 133,333~~measure the reporting date fair value of the note. On September 30, 2023 and December 31, 2022, the fair value was determined to be $9.5 million and $7.8 million respectively. For the three and nine months ended September 30, 2023, the net increase in the fair value was $762,000 and $1.7 million, respectively. For the three and nine months ended September 30, 2022, the net decrease in the fair value was $175,000 and $651,000, respectively. The net decrease in fair value was recorded as loss included in the change in fair value of financial instruments and hybrid instrument designated at FVO in the unaudited condensed consolidated statements of comprehensive loss.

Insurance Financing

March 2023 First Insurance Financing

In March 2023, the Company entered into a premium finance agreement for $98,000 with First Insurance representing the unpaid balance of the total premiums, taxes, and fees of $115,000 with an annual interest rate of 8.6%. The total finance charge was $2,000. Payment of principal and interest is due in equal monthly installments over ten months. Interest expense for the three and nine months ended September 30, 2023 was $1,000 and $2,000 respectively. The financing balance was $31,000 as of September 30, 2023.

May 2023 First Insurance Financing

In May 2023, the Company entered into a premium finance agreement for $575,000 with First Insurance representing the unpaid balance of the total premiums, taxes, and fees of $676,000 with an annual interest rate of 8.6%. The total finance charge was $23,000. Payment of principal and interest is due in equal monthly installments over ten months. Interest expense for the three and nine months ended September 30, 2023, was $7,000 and $9,000 respectively. The financing balance was $345,000 as of September 30, 2023.

2019 Tempesta Note

In October 2019, the Company entered into a License Termination and Settlement Agreement with Dr. Michael Tempesta, pursuant to which certain royalty payment disputes between the Company and Tempesta were settled. Per the terms of the Agreement, Tempesta received $50,000 in cash, an unsecured promissory note issued by the Company in the aggregate principal amount of $550,000 and 13,333 shares of ~~our~~the Company’s common stock in ~~lieu~~exchange for the cessation of ~~cash~~all royalty payments by the Company to Dr. Tempesta under the License Agreements. The $550,000 promissory note bears interest at the rate of 2.5% per annum and matures on March 1, 2025. The promissory note provides for ~~service fees~~the Company to make semi-annual payments equal to $50,000 plus accrued interest beginning on March 1, 2020 until the Note is paid in full. Interest expense for the three and nine months ended September 30, 2023 was $1,000 and $4,000 respectively. Interest expense for the three and nine months ended September 30, 2022 was $3,000 and

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$8,000, respectively. At September 30, 2023 and December 31, 2022, the net carrying value of the note was $150,000 and $250,000, respectively.

8. Warrants

The following table summarizes information about warrants outstanding and exercisable into shares of the Company’s common stock as of September 30, 2023 and December 31, 2022:


	September 30,	December 31,
	2023	2022
	(unaudited)
Warrants outstanding, beginning balance	7,505	7,513
Issuances	11,417,302	—
Exercises	—	—
Expirations and cancelations	—	(8)
Warrants outstanding, ending balance	11,424,807	7,505

PIPE Warrants

On May 8, 2023, the Company entered into a Securities Purchase Agreement (the “PIPE Purchase Agreement”) with certain investors named therein (collectively the ~~same terms as~~“Purchasers”), pursuant to which the ~~investors;~~Company agreed to issue and sell to the Purchasers in a private placement an aggregate of (i) 137 shares (the “Preferred Shares”) of Series G Convertible Preferred Stock, par value $0.0001 per share, of the Company (“Series G Preferred Stock”) and (ii) warrants to purchase up to ~~an aggregate 1,666,668~~6,850,000 shares of the Company’s common stock, at an exercise price of ~~$0.90~~$0.48 per share (the “PIPE Warrants”), for an aggregate purchase price of approximately $1.86 million (the “Private Placement”). The Company intends to use the proceeds from the Private Placement for working capital and general corporate purposes.

The PIPE Warrants may be exercisable for cash or on a cashless basis at any time and from time to time during the ~~Series B~~period commencing on the later of (i) January 1, 2024, and (ii) the date on which the approval by the Company’s stockholders (the “Stockholder Approval”) to remove both the Voting Cap and the Conversion Cap (both as defined below) is obtained (the “PIPE Warrants Initial Exercise Date”) and ending on the five-year anniversary of the PIPE Warrants Initial Exercise Date.

On May 10, 2023, the Company issued warrants equivalent to 6,850,000 shares of the Company’s common stock in relation to the PIPE Purchase Agreement.

The PIPE Purchase Agreement provides that during the period commencing on the signing of the PIPE Purchase Agreement and ending October 22, 2023, the Company will not effect or enter into any agreement to (i) issue securities in exchange for any securities of the Company issued and outstanding on the date of the PIPE Purchase Agreement pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended (the “Securities Act”), or (ii) effect issuance by the Company of common stock or Common Stock Equivalents (as defined in the PIPE Purchase Agreement), subject to certain customary exceptions set forth in the PIPE Purchase Agreement including, among others, issuance of shares of common stock pursuant to the At The Market Offering Agreement, dated December 10, 2021, by and between the Company and Ladenburg Thalmann & Co. Inc., as amended (the “Ladenburg Thalmann ATM”), provided that such issuance in the Ladenburg Thalmann ATM has consented.

On August 14, 2023, the Company entered into an amendment (“the First Amendment”) to the PIPE Purchase Agreement with certain holders (the “Holders”) named in the PIPE Purchase Agreement, pursuant to which the parties agreed to terminate the restriction on subsequent equity sales by the Company. In exchange for the Holders’ agreement to enter into the First Amendment, the Company agreed to issue the Holders warrants to purchase 685,000 shares of the Company’s common stock (the “PIPE Amendment Warrants”) in a private placement pursuant to Section 4(a)(2) of the Securities Act. The PIPE Amendment Warrants are substantially the same as the PIPE Warrants and ~~(iii)~~have an exercise price of $0.48 per share. The PIPE Amendment Warrants may be exercisable for cash or on a cashless basis at any time

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and from time to time during the period commencing on January 1, 2024 (the “PIPE Amendment Warrants Initial Exercise Date”) and ending on the five-year anniversary of the PIPE Amendment Warrants Initial Exercise Date.

At the date of the PIPE Amendment Warrants, the warrants were valued at $1.2 million using the Black-Scholes option pricing model as follows: exercise price of $0.48 per share, stock price of $0.72 per share, expected life of five years, volatility of 145.95% and a risk-free rate of 3.37%. The warrants were classified in additional paid-in-capital.

Standstill Agreement

Pursuant to the Company’s entry in the Standstill Agreement, as amended by the Binding MOU, as described further above, the Company agreed to issue (i) Iliad warrants to purchase up to ~~an aggregate 1,666,668~~1,711,954 shares of ~~our~~the common stock, and (ii) Uptown warrants to purchase up to 2,105,348 shares of the common share, at an exercise price of $0.48 per share (the “Standstill Warrants”).

The Standstill Warrants may be exercisable for cash or on a cashless basis at any time and from time to time during the period commencing on the later of (i) January 1, 2024 and (ii) the date on which the Stockholder Approval is obtained (the “Standstill Warrant Initial Exercise Date”) and ending on the five-year anniversary of the Standstill Warrant Initial Exercise Date.

At the date of the Standstill Agreement, the warrants were valued at $2.5 million using the Black-Scholes option pricing model as follows: exercise price of $0.48 per share, stock price of $0.73 per share, expected life of five years, volatility of 118.88% and a risk-free rate of 3.49%. The warrants were classified in additional paid-in-capital.

Royalty Interest Global Amendments

On September 29, 2023, the Company entered into amendments (the “Royalty Interest Global Amendments”) to (i) the October 2020 Royalty Interest with Iliad, (ii) the December 2020 Royalty Interest with Uptown, and (iii) the August 2022 Royalty Interest with Streeterville, pursuant to which, among other things, the Company agreed to issue to (i) Iliad warrants to purchase up to 232,500 shares of the Company’s common stock, (ii) Uptown warrants to purchase up to 262,500 shares of the common stock, and (iii) Streeterville warrants to purchase up to 255,000 shares of the Common Stock, at an exercise price of $0.37 per share (collectively, the “Royalty Interest Global Amendment Warrants”).

The Royalty Interest Global Amendment Warrants may be exercisable for cash or on a cashless basis at any time and from time to time during the period commencing on September 29, 2023 (the “Royalty Interest Global Amendment Initial Exercise Date”) and ending on the five-year anniversary of the Royalty Interest Global Amendment Initial Exercise Date.

At the date the Royalty Interest Global Amendments, the warrants were valued at $173,000 using the Black-Scholes option pricing model as follows: exercise price of $0.37 per share, stock price of $0.26 per share, expected life of five years, volatility of 139.53% and a risk-free rate of 4.6%. The warrants were classified in additional paid-in-capital.

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9. Preferred Stock

At September 30, 2023 and December 31, 2022 preferred stock consisted of the following:


September 30, 2023
							Liquidation
(in thousands, except share and per share data)	Shares		Issued and		Carrying		Preference
Series	Designated		Outstanding		Value		per Share
A		5,524,926		—	$	—	$	—
B		11,000		—		—		—
B-1		63		—		—		—
B-2		10,165		—		—		—
C		1,011,000		—		—		—
D		977,300		—		—		—
E		10		—		—		—
F		10		—		—		—
G		137		137		—		—
H		105		80		—		—
I		118		118		—		—
Total		7,534,834		335	$	—	$	—


December 31, 2022
							Liquidation
(in thousands, except share and per share data)	Shares		Issued and		Carrying		Preference
Series	Designated		Outstanding		Value		per Share
A		5,524,926		—	$	—	$	—
B		11,000		—		—		—
B-1		63		—		—		—
B-2		10,165		—		—		—
C		1,011,000		—		—		—
D		977,300		—		—		—
E		10		—		—		—
F		10		—		—		—
Total		7,534,474		—	$	—	$	—

The Company is authorized to issue a total of 10,000,000 shares of its preferred stock as of September 30, 2023, and December 31, 2022 with a total of 7,534,834 shares and 7,534,474 shares designated to specific Series as of
September 30, 2023 and December 31, 2022, respectively.

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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 shares of common stock held as an investment by Oasis Capital, in exchange for 10,165 shares of the Company’s Series B-2 Convertible Preferred Stock.

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 a result, no shares of Series B-2 Preferred Stock remain outstanding.

Series C Perpetual Preferred Stock

In September 2020, the Company entered into an exchange agreement with Iliad to issue 842,500 shares of the Company's Series C Perpetual Preferred Stock at $0.0001 par value per share, for a non-cash exchange of equity instruments. The exchange agreement was contemporaneously entered with the issuance of Series D Perpetual Preferred shares, in exchange of remaining Series A Convertible Preferred shares totaling 5,524,926 shares, and accreted value of $11.2 million as of the exchange date. An amendment agreement of the Exchange Note 2 was also entered into, with issuance value of $2.3 million and a 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.

The preferred stock has been classified as permanent stockholders' equity in accordance with authoritative guidance for the classification and measurement of perpetual shares without a mandatory redemption period because the redemption option was ultimately in the control of the Company. There was no series C Preferred Shares outstanding at September 30, 2023 and 2022.

Series E Preferred Stock

On August 18, 2022, the Company entered into an agreement (the “Securities Purchase Agreement”) with a third party 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 third party 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 the third party 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.

Series F Preferred Stock

On November 11, 2022, the Company entered into an agreement (the “Securities Purchase Agreement”) with a third party to issue 10 Series F Preferred Stock with a par value of $0.0001, amounting to $100. In consideration of the Securities Purchase Agreement, the Company and third party 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 the third party 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.

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Series G Preferred Stock

On May 8, 2023, the Company entered into a securities purchase agreement with certain investors, pursuant to which the Company agreed to issue to such investors (i) 137 shares of Series G Convertible Preferred Stock, par value $0.0001 per share, of the Company (“Series G Preferred Stock”) and (ii) warrants to purchase up to 6,850,000 shares of the Company’s common stock, at an exercise price of ~~$1.00~~$0.48 per share or the Series C Warrants and, together with the Series A Warrants and the Series B Warrants, the 2016 Warrants. The warrants were granted in three series with different terms. The warrants were valued using the Black-Scholes-Merton warrant pricing model as follows:

· ~~Series A Warrants and Placement Agent Warrants: 1,666,668 warrant shares with a strike~~(the “PIPE Warrants”), for an aggregate purchase price of $0.75 per share and an expiration date of May 29, 2022; and 133,333 warrant shares to the placement agent with a strike price of $0.75 and an expiration date of May 29, 2022; the expected life is 5.5 years, the volatility is 71.92% and the risk free rate is 1.87% in valuing these warrants.approximately $1.86 million (the “Private Placement”).

Series H Preferred Stock

· Series B Warrants: 1,666,668 warrant shares with a strike price of $0.90 per share and an expiration date of November 29, 2017; the expected life is one year, the volatility is 116.65% and the risk free rate is 0.78% in valuing these warrants.

· Series C Warrants: 1,666,668 warrant shares with a strike price of $1.00 per share and an expiration date of May 29, 2018; the expected life is 1.5 years, the volatility is 116.92% and the risk free rate is 0.94%.

The warrant valuation date was November 29, 2016 and the closing price of $0.69 per share was used in determining the fair value of the warrants. The series A warrants and placement agent warrants were valued at $756,001 and were classified as a warrant liability in the Company’s balance sheet. The series A warrants and placement agent warrants were revalued on December 31, 2016 at $799,201 which is included in the Company’s balance sheet, and the $43,200 increase is included in the Company’s statements of operations and comprehensive loss. The stock price was $0.716, the strike price was $0.75 per share, the expected life was 5.41 years, the volatility was 73.62% and the risk free rate was 2.0%. The series B and C warrants were classified as equity, and as such were not subject to revaluation at year end. Costs incurred in connection with the issuance were allocated based on the relative fair values of the Series A and the Series B and C warrants. . The series A warrants and placement agent warrants were revalued on September 30, 2017 at $163,080 and is included in the Company’s balance sheet. The valuation reflects a reduction of $388,800 from theOn June 30, 2017 valuation of $551,880, and a decrease of $636,121 decrease from the $799,201 December 31, 2016 valuation. The changes are included in the Company’s statements of operations and comprehensive loss. The $163,080 valuation at September 30, 2017 was computed using the Black-Scholes-Merton pricing model using a stock price of $0.20, the strike price was $0.75 per share, the expected life was 4.67 years, the volatility was 90.77% and the risk free rate was 1.87%.

~~On July 31, 2017,~~28, 2023, the Company entered into ~~Warrant Exercise Agreements (the “Exercise Agreements”)~~privately negotiated exchange agreements with ~~certain holders of Series C Warrants (the “Exercising Holders”),~~Uptown and Streeterville, under which ~~Exercising Holders own, in~~ the ~~aggregate, Series C Warrants exercisable for 908,334~~Company issued 32 and 73 shares of the Company’s ~~common stock. Pursuant~~newly authorized Series H Convertible Preferred Stock (the “Series H Preferred Stock”) to Uptown and Streeterville, respectively, at an effective exchange price per share equal to the ~~Exercise Agreements,~~market price (defined as the ~~Exercising Holders~~Minimum Price under Nasdaq Listing Rule 5635(d)) as of the date of the exchange agreements, in exchange for a $756,992.00 reduction in the outstanding balance of the December 2020 Royalty Interest and a $1,726,888 reduction in the outstanding balance of the August 2022 Royalty Interest, respectively.

Series I Preferred Stock

On September 29, 2023, the Company ~~agreed that~~entered into a privately negotiated exchange agreement with Uptown (the “Exchange Agreement”), pursuant to which the ~~Exercising Holders would exercise their~~Company issued an aggregate of 118 shares of the Company’s newly authorized Series ~~C Warrants with respect~~I Convertible Preferred Stock (the “Series I Preferred Stock”) to ~~908,334~~Uptown, at an effective exchange price per share equal to the market price (defined as the Minimum Price under Nasdaq Listing Rule 5635(d)) as of the date of the Exchange Agreement, in exchange for a $1,500,000.00 reduction in the outstanding balance of the December 2020 Royalty Interest.

10. Stockholders' Equity

As of September 30, 2023 and December 31, 2022, the Company had reserved shares of common stock, ~~underlying such Series C Warrants~~on an as-if converted basis, for a reduced exercise price equal to $0.40 per share. The Company received aggregate gross proceeds of approximately $363,334 from the exercise of the Series C Warrants by the Exercising Holders. The difference between the pre-modification and post-modification fair value of $23,000 was expensed in general and administrative expense in the statements of operations and comprehensive income. The pre-modification fair value was computed using the Black-Scholes-Merton model using a stock price of $0.56 (fair market value on modification date), original strike price of $1.00, expected life of 0.83 years, volatility of 115.28%, risk-free rate of 1.20% to arrive at a fair value of $0.1347 per share. The post-modification fair value was computed using the intrinsic value on the date of modification or $0.16 per share.

The Company granted warrants to purchase the 1,224,875 shares of common stock of the Company at an exercise price price of $0.08 per share to replace Napo warrants upon the consummation of the Merger. Of the 1,224,875 warrants, 145,457 warrants expire on December 31, 2018 and 1,079,418 warrants expire on December 31, 2025. The warrants were valued at $630,859, using the Black-Scholes-Merton warrant pricing model as follows: exercise price of $0.08 per share, stock price of $0.56 per share, expected life ranging from 1.42 years to 8.42 years, volatility ranging from 75.07% to 110.03%, and risk free rate ranging from 1.28% to 2.14%. The warrants were accounted in equity.

~~The Company’s warrant activity is summarized~~issuance as follows:

Nine Months Ended

Year Ended

September 30,

December 31,

2017

2016

Beginning balance

5,968,876

748,872

Warrants granted

1,595,791

5,253,337

Warrants exercised

(908,334
)
—

Warrants cancelled

—

(33,333
)
Ending balance

6,656,333

5,968,876


	September 30,	December 31,
	2023	2022
	(unaudited)
Options issued and outstanding	26,261	26,533
Inducement options issued and outstanding	1,522	1,546
Options available for grant under stock option plans	3,302,385	122,978
Restricted stock unit awards issued and outstanding	35,278	44,865
Warrants issued and outstanding	11,424,807	7,505
Total	14,790,253	203,427

~~9. Stockholders’ Equity~~

Common Stock

On July 31, 2017, the Company filed a third amended and restated certificate of incorporation authorizing the Company to issue 250,000,000 shares of common stock $0.0001 par value and 50,000,000 of convertible non-voting common stock, $0.0001 par value per share. The holders of common stock are entitled to one vote for each share of common stock ~~held at all meetings~~held. The common shareholders are also entitled to receive dividends whenever funds and assets are legally available and when declared by the Board of ~~stockholders.~~ Directors.

The holders of non-voting common stock are not entitled to vote, except on an as converted basis with respect to any change of control of the Company that is submitted to the stockholders of the Company for ~~approval.The number of authorized shares of common stock may be increased or decreased by the affirmative vote~~approval. Shares of the ~~holders of shares of capital stock of the Company representing a majority of the votes represented by all shares (including Preferred Stock) entitled to vote. Shares of Jaguar~~Company's non-voting common stock have the same rights to dividends and other distributions and are convertible into shares of ~~Jaguar~~the Company's common stock on a one-for-one ~~basis upon transfers to non-affiliates~~basis.

Table of ~~Nantucket (“former creditor~~Contents

At a special meeting of ~~Napo”~~stockholders of the Company held on September 30, 2022 (the “Special Meeting”), ~~upon~~ the ~~release from escrow of certain non-voting shares held by the former creditors of Napo~~Company’s stockholders approved an amendment (the “Sixth Amendment”) to the ~~legacy stockholders~~Company’s Third Amended and Restated Certificate of ~~Napo under specified conditions and at any time on or after April 1, 2018 at~~Incorporation (the “COI”) to effect an increase in the ~~option~~number of authorized shares of the ~~respective holders thereof.~~

~~On May 18, 2015, the Company completed an initial public offering (“IPO”) of its~~Company’s voting common ~~stock. In connection with its IPO, the Company issued and sold 2,860,000~~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 358,000,000 stock, of which 298,000,000 shares are common stock, 50,000,000 are non-voting common share and 10,000,000 are preferred stock.

Reverse Stock Split

On September 3, 2021, the reverse stock split of the Company’s issued and outstanding voting common stock at a ~~price~~ratio not less than 1-for-2 and not greater than 1-for-20 became effective. Upon effectivity, every three shares of the Company’s issued and outstanding common stock immediately prior to the ~~public~~effective time shall automatically be reclassified into one share of ~~$7.00 per share. As~~common stock without any change in the par value.

On January 20, 2023, the Company approved a ~~result~~seventh amendment to the Company’s Third Amended and Restated Certificate of Incorporation to effect a 1-for-75 reverse stock split of the ~~IPO, the Company received $15.9 million in net proceeds, after deducting underwriting discounts~~Company’s issued and ~~commissions of $1.2 million and offering expenses of $2.9 million ($3.3 million including non-cash offering expenses) payable by the Company. In connection with the IPO, the Company’s~~ outstanding shares of ~~convertible preferred~~voting common share, effective January 23, 2023. Upon effectivity, every seventy-five shares of the Company’s issued outstanding common share immediately prior to the effective time shall automatically be reclassified into one share of common share without any change in the par value per share.

The reverse stock ~~were automatically converted into 2,010,596~~split reduces the number of shares of common stock ~~and~~issuable upon the conversion of the Company’s outstanding ~~warrants to purchase convertible preferred~~non-voting common stock ~~were all converted to warrants to purchase common stock.~~

~~In February 2016,~~and the ~~Company completed a secondary public offering~~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, stock options and warrants. In ~~connection with its secondary public offering,~~addition, the ~~Company issued and sold 2,000,000~~number of shares reserved for issuance under the Company’s equity compensation plans immediately prior to the effective time will be reduced proportionately. The reverse stock split did not change the total number of authorized shares of common stock ~~at a price to~~or preferred stock.

At the public of $2.50 per share. As a result of the secondary public offering, the Company received $4.1 million in net proceeds, after deducting underwriting discounts and commissions of $373,011 and offering expenses of $496,887.Market Offering (“ATM”)

~~In June 2016,~~December 2021 ATM Agreement

On December 10, 2021, the Company entered into aan ATM Agreement (“December 2021 ATM Agreement”) with Ladenburg, pursuant to which the Company may offer and sell, from time to time through Ladenburg, shares of common stock ~~purchase agreement with a private investor (the “CSPA”), which provides that, upon~~having an aggregate offering price of up to $15.0 million, subject to the terms and ~~subject~~conditions of the December 2021 ATM Agreement. 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 ~~conditions and limitations set forth therein, the investor is committed~~December 2021 ATM Agreement, pursuant to purchase up to an aggregate of $15.0 million of the Company’s common stock over the approximately 30-month term of the agreement. Upon execution of the CSPA, the Company sold 222,222 shares of its common stock to the investor at $2.25 per share for net proceeds of $394,534, reflecting gross proceeds of $500,000 and offering expenses of $105,398. In consideration for entering into the CSPA, the Company issued 456,667 shares of its common stock to the investor. Concurrently with entering into the CSPA, the Company also entered into a registration rights agreement with the investor (the “Registration Agreement”), in which, the ~~Company agreed to file one or more registration statements, as permissible and necessary to register under the Securities Act of 1933, as amended, the sale~~aggregate offering amount of the shares of the Company’s common stock ~~that have been and may be issued to the investor under the CSPA. On June 22, 2016 and September 22, 2016,~~which the Company ~~filed registration statements on Form S-1 (File Nos. 333-212173~~may sell and ~~333-213751) pursuant~~issue through Ladenburg, as the sales agent, was increased from $15.0 million to the terms of the Registration Agreement, which registration statements were declared effective on July 8, 2016 and October 5, 2016, respectively. In the year ended December 31, 2016, pursuant to the CSPA, the Company sold an additional 1,348,601 shares of the Company’s common stock in exchange for $2,176,700 of cash proceeds. And in$75.0 million (the “ATM Upsize”).

During the nine months ended September 30, ~~2017,~~2023, the Company sold another 3,972,510 shares of the Company’s common stock in exchange for $2,387,085 of cash proceeds. Of the $15.0 million available under the CSPA, the Company has received $4,748,017 as of March 31, 2017. The CSPA limits the number of shares that the Company can sell thereunder to 2,027,490 shares, which equals 19.99% of the Company’s outstanding shares as of the date of the CSPA (such limit, the “19.99% exchange cap”), unless either (i) the Company obtains stockholder approval to issue more than such 19.99% exchange cap or (ii) the average price paid for all shares of the Company’s common stock issued under the CSPA is equal to or greater than $1.32 per share (the closing price on the date the CSPA was signed), in either case in compliance with Nasdaq Listing Rule 5635(d). The Company held its 2017 Annual Meeting on May 8, 2017. At the 2017 Annual Meeting, the Company’s stockholders voted on the approval, pursuant to Nasdaq Listing Rule 5635(d), of the issuance of an additional 3,555,514 shares of the Company’s common stock under the CSPA, which when combined with the 2,444,486 shares that the Company has already sold pursuant to the CSPA, equals an aggregate of ~~6,000,000 shares.~~

~~In October 2016,~~17,930,660 shares under the ~~Company entered into a Common Stock Purchase~~ATM Agreement ~~with an existing private investor. Upon execution of the agreement the Company sold 170,455 shares of its common stock in exchange~~ for ~~$150,000 in cash proceeds.~~

~~which is referred to herein as the 2016 Private Placement. In the 2016 Private Placement, the Company sold an aggregate of 1,666,668 shares of its common stock at a price of $0.60 per share for~~total net proceeds of ~~$677,224 or gross proceeds~~$20.8 million.

Table of approximately $1.0 million less $322,777 in issuance costs. The investors in the 2016 Private Placement also received (i) warrants to purchase up to an aggregate of 1,666,668 shares of our common stock, at an exercise price of $0.75 per share, or the Series A Warrants, (ii) warrants to purchase up to an aggregate 1,666,668 shares of our common stock, at an exercise price of $0.90 per share, or the Series B Warrants, and (iii) warrants to purchase up to an aggregate 1,666,668 shares of our common stock, at an exercise price of $1.00 per share, or the Series C Warrants and, together with the Series A Warrants and the Series B Warrants, the 2016 Warrants. The issuance costs were allocated to common stock, series A warrants, and Series B and C warrants based on the relative fair value of each:Contents

Noncontrolling Interest

Instruments

Fair Value

% Allocation

Issuance Costs
(allocated)

Common Stock

$
156,522

16
%
$
50,522

Warrants (Series A)

700,001

70
%
225,944

Warrants (Series B and C)

143,478

14
%
46,311

Total

$
1,000,001

100
%
$
322,777

~~Common stock of~~As a ~~net $106,000 (fair value less issuance costs) was included in equity in the company’s balance sheet. Series A warrants of $756,001, consisting~~result of the series A warrants of $700,001 and the series A placement agent warrants of $56,000, are included in current liabilities in the company’s balance sheet and the $225,944 of issuance cost was expensed and is in general and administrative expense on the company’s statement of operations and comprehensive loss. Series B and C warrants of a net $97,167 (fair value less issuance costs) were classified in equity in the company’s balance sheet.

~~In exchange for the extension of the maturity date of the outstanding 2015 Convertible Note,~~merger on November 8, 2016, the Company’s board of directors granted the lender a warrant to purchase 120,000 shares of the Company’s common stock for $0.01 per share. The warrant is exercisable at any time on or before July 28, 2022, the expiration date of the warrant. The amendment3, 2021 between Napo EU and ~~related warrant issuance resulted in~~Dragon SPAC, the Company ~~treating~~assumed a non-controlling interest amounting to $242,000 as of December 31, 2021 which represents noncontrolling interest held by an investor in Napo Therapeutics.

During the ~~debt as having been extinguished~~three and replaced with new debt for accounting purposes due to meeting the 10% cash flow test. The Company calculated a loss on the extinguishment of debt of $108,000, or the equivalent to the fair value of the warrants granted, which is included in other expense in the Company’s statements of operations and comprehensive loss. The warrants were valued on November 8, 2016 using the Black-Scholes-Merton model with the following assumptions: stock price of $0.91, exercise price of $0.01, term of 5.72 years expiring July 2022, volatility of 70.35%, dividend yield of 0%, and risk-free interest rate of 1.45%.

On June 28, 2017, the Company entered into a Common Stock Purchase Agreement with an existing private investor. Upon execution of the agreement the Company sold 100,000 shares of its common stock in exchange for $50,000 in cash proceeds.

~~On July 31, 2017, the Company entered into a Common Stock Purchase Agreement with an existing investor. Upon~~ ~~execution of the agreement the Company sold 3,243,243 shares of voting common stock in exchange for $3.0 million in cash proceeds.~~

On July 31, 2017, the Company completed the merger with Napo and changed it’s name to Jaguar Health, Inc. The Company issued 2,282,445 shares of voting common stock and 43,173,288 shares of non-voting stock at the time the merger was consummated.

~~As of~~nine months ended September 30, ~~2017~~2023, noncontrolling interest decreased by $136,000 and ~~2016,~~increased by $755,000, respectively. During the ~~Company had reserved shares of common stock for issuance as follows:~~

September 30,

September 30,

2017

2016

Options issued and outstanding

2,984,304

2,444,375

Options available for grant

513,385

166,833

RSUs issued and outstanding

5,893,849

20,789

Warrants issued and outstanding

6,656,333

715,539

Convertible notes

15,550,753

26,785

Total

31,598,624

3,374,321

~~Preferred Stock~~

~~The Company’s third amended~~three and ~~restated certificate of incorporation authorizes the Company to issue 10,000,000 shares of preferred stock $0.0001 par value. No shares of preferred stock were issued or outstanding at~~nine months ended September 30, ~~2017 or December 31, 2016.~~2022, noncontrolling interest decreased by $89,000 and $290,000, respectively.

~~10. Stock Incentive Plans~~11. Stock-based Compensation

2013 Equity Incentive Plan

~~Effective~~In November 1, 2013, the ~~Company’s~~Company's board of directors and sole stockholder adopted the Jaguar Health, Inc. 2013 Equity Incentive Plan (the “2013 Plan”). The 2013 Plan allows the ~~Company’s~~Company's board of directors to grant stock options, restricted stock awards and restricted stock unit awards to employees, officers, directors and consultants of the Company. As of December 31, 2013, the Company had reserved 300,000 shares of its common stock for issuance under the 2013 Plan. In April 2014, the board of directors amended the 2013 Plan to increase the shares reserved for issuance to 847,533 shares. Following the effective date of the IPO and after effectiveness of any grants under the 2013 Plan that were contingent on the IPO, no additional stock awards will be granted under the 2013 Plan. Outstanding grants continue to be exercisable, however, any unissued shares under the plan and any forfeitures of outstanding options do not rollover to the 2014 Stock Incentive Plan. There were ~~565,377 option~~zero shares outstanding as at September 30, ~~2017.~~2023 and December 31, 2022.

2014 Stock Incentive Plan

Effective May 12, 2015, the Company adopted the Jaguar Health, Inc. 2014 Stock Incentive Plan (“2014 Plan”). The 2014 Plan provides for the grant of options, restricted stock and restricted stock units to eligible employees, directors and consultants to purchase the ~~Company’s~~Company's common stock. The ~~Company reserved 333,333 shares~~term of ~~common~~an incentive stock ~~for issuance pursuant~~option may not exceed 10 years, except that with respect to any participant who owns more than 10% of the ~~2014 Plan. On January 1, 2017 and 2016,~~voting power of all classes or our outstanding stock, the ~~Company added 280,142 and 162,498 shares to the option pool in accordance with the~~term must not exceed 5 years. The 2014 Plan that provides for automatic share increases on the first day of each fiscal year in the amount of 2% of the outstanding number of shares of the ~~Company’s~~Company's common stock on the last day of the preceding calendar year. The 2014 Plan ~~replaces~~replaced the 2013 Plan except that all outstanding options under the 2013 Plan remain outstanding until exercised, ~~cancelled~~canceled or ~~until they expire.~~expired.

~~In July 2015,~~On April 13, 2022, the Board of Directors of the Company ~~amended~~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 September 30, 2023, there were 26,261 options outstanding and 2,803,907 options available for grant. As of December 31, 2022, there were 26,533 options outstanding and 116,011 options available for grant.

2020 New Employee Inducement Award Plan

Effective June 16, 2020, the Company adopted the Jaguar Health, Inc. New Employee Inducement Award Plan ~~reserving~~(“2020 Inducement Award Plan”) and, subject to the adjustment provisions of the Inducement Award Plan, reserved 166,666 shares of the Company’s common stock for issuance pursuant to equity awards granted under the Inducement Award Plan. The term of an incentive stock option may not exceed 10 years, except that with respect to any participant who owns more than 10% of the voting power of all classes or our outstanding stock, the term must not exceed 5 years. The 2020 Inducement Award Plan provides for the grant of non-statutory stock options, restricted stock units, restricted stock, and performance shares. The 2020 Inducement Award Plan was adopted without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules. The terms and conditions of the 2020 Inducement Award Plan are substantially similar to the Company’s 2014 Stock Incentive Plan, but with such other terms and conditions intended to comply with the Nasdaq inducement award rules. In accordance with Rule 5635(c)(4) of the Nasdaq Listing Rules, the only persons eligible to receive grants of equity awards under the Inducement Award Plan are individuals who were not

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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 ~~550,000~~471,833 shares of the Company’s common stock for issuance pursuant to equity awards granted under the ~~plan contingent upon approval by~~Inducement Award Plan, thereby increasing the number of shares of the Company’s ~~stockholders at the June 2016 annual stockholders meeting. In June 2016, the Company amended the 2014 Plan once again, modifying the increase~~common stock issuable thereunder from ~~550,000~~500,000 shares to ~~1,550,000 shares, which was approved at the 2016 annual stockholders meeting. In July 2017, the~~971,833 shares.

As of September 30, 2023, there were 1,522 options outstanding and 498,478 options available for grant. As of December 31, 2022, there were 1,546 options outstanding and 6,967 options available for grant. The Company ~~amended the 2014 Plan reserving~~authorized an additional ~~6,500,188~~491,151 shares ~~under~~for the ~~plan, which was approved at the special stockholders meeting on July 27, 2017.~~stock incentive plans.

Stock Options and Restricted Stock Units (“RSUs”)

The following table summarizes the incentive plan activity for the three and nine months ended September 30, 2023 and year ended December 31, 2022:


				Weighted		Weighted Average
	Shares	Stock		Average		Remaining	Aggregate
	Available	Options	RSUs	Stock Option		Contractual Life	Intrinsic
(in thousands, except share and per share data)	for Grant	Outstanding	Outstanding	Exercise Price		(Years)	Value*
Outstanding at January 1, 2022	8,417	33,286	6,499	$	707.97	8.35	$	3
Additional shares authorized	151,079	—	—		—			—
Options granted	(44)	44	—		23.46			—
Options exercised	—	—	—		—			—
Options canceled	5,251	(5,251)	—		418.34			—
RSUs granted	(41,725)	—	41,725		—			—
RSUs vested and released	—	—	(2,506)		—			—
RSUs cancelled	—	—	(853)		—			—
Outstanding at December 31, 2022	122,978	28,079	44,865	$	592.73	7.19	$	—
Additional shares authorized	3,191,487	—	—		—	—		—
Options granted	—	—	—		—	—		—
Options exercised	—	—	—		—	—		—
Options canceled	296	(296)	—		325.31	—		—
RSUs granted	(12,376)	—	12,376		—	—		—
RSUs vested and released	—	—	(13,149)		—	—		—
RSUs cancelled	—	—	(8,814)		—	—		—
Outstanding at September 30, 2023	3,302,385	27,783	35,278	$	595.58	6.46	$	—
Exercisable at September 30, 2023		27,089		$	601.68	6.42	$	—
Vested and expected to vest at September 30, 2023		27,748		$	595.88	6.45	$	—

*Fair market value of Jaguar stock on September 30, 2023 was $0.26 per share.

The intrinsic value is calculated as the difference between the exercise price of the underlying options and the fair market value of the Company's common stock for options that were in-the-money.

The number of options exercised during the nine months ended September 30, ~~2017:~~

Weighted

Weighted Average

Shares

Stock

Average

Remaining

Aggregate

Available

Options

RSUs

Stock Option

Contractual Life

Intrinsic

for Grant

Outstanding

Outstanding

Exercise Price

(Years)

Value

Combined Incentive Plan Balance—December 31, 2016

39,988

2,571,220

20,789

$
2.52

8.77

$
—

Additional shares authorized

6,780,330

—

—

Options granted

(78,000
)
78,000

—

0.70

Options granted in the Napo Merger

(543,301
)
543,301

—

2.07

RSUs granted in the Napo Merger

(5,893,849
)
—

5,893,849

—

Options cancelled

208,217

(208,217
)
—

1.54

RSUs vested and released

—

—

(20,789
)
—

Combined Incentive Plan Balance—September 30, 2017

513,385

2,984,304

5,893,849

$
2.46

6.76

$
—

Options vested and exercisable—September 30, 2017

1,957,629

$
2.86

5.67

$
—

Options vested and expected to vest—September 30, 2017

2,707,075

$
2.47

6.56

$
—

~~There was no option activity related to the 2013 Equity Incentive Plan in the nine months~~2023 and year ended ~~September 30, 2017.~~

December 31, 2022 were zero.

The weighted average grant date fair value of stock options granted ~~(excluding the options issued in the Napo Merger)~~ was ~~$0.44~~zero and ~~$0.89~~$22.04 per share during the nine months ended September 30, ~~2017~~2023, and ~~2016.~~

for the year ended December 31, 2022, respectively.

The number of ~~option shares~~options that vested infor the nine months ended September 30, ~~2017~~2023 and ~~2016~~for the year ended December 31, 2022 was ~~533,348 shares~~1,234 and ~~480,377 shares.~~7,492, respectively. The grant date weighted average fair value of ~~option shares~~options that vested in

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for the nine months ended September 30, ~~2017~~2023, and ~~2016~~for the year ended December 31, 2022 was ~~$549,453~~$260.15 and ~~$542,999,~~$304.57, respectively.

~~No options were exercised in the nine months ended September 30, 2017 or 2016.~~

The intrinsic value is computed as the options granted multiplied by the difference between the fair market value of the Company’s common stock of $0.20 on September 30, 2017 and the grant date stock option exercise price.

The Company granted RSUs in 2014 and 2015 under the 2013 Equity Incentive Plan. The units granted vest upon the occurrence of both a liquidity event and satisfaction of the service-based requirement. The time-based vesting provided that 50% of the RSU vested on January 1, 2016 and the remaining 50% vested on July 1, 2017. The Company began recording stock-based compensation expense relating to the RSU grants effective May 18, 2015, the date of the Company’s initial public offering, and the date the liquidity condition was met. The stock-based compensation expense is based on the grant date fair value which is the equivalent to the fair market value on the date of grant, and is amortized over the vesting period using the straight-line method, net of estimated forfeitures. On January 1, 2016, the Company issued 17,546 shares of its common stock in exchange for 27,768 vested and released RSUs, net of 10,172 RSU shares used to pay withholding taxes. On July 3, 2017, the Company issued 13,307 shares of its common stock in exchange for 20,789 vested and released RSUs, net of 7,086 RSU shares used to pay withholding taxes. The Company granted 5,893,849 RSUs to replace Napo RSUs upon the consummation of the Napo Merger.

Stock-Based Compensation

The following table summarizes stock-based compensation expense related to stock options, inducement stock options and RSUs for the three and nine months ended September 30, ~~2017~~2023 and ~~2016,~~2022, and are included in the ~~statements of operations and~~unaudited condensed consolidated comprehensive loss as follows:


									Three Months Ended				Nine Months Ended
									September 30,				September 30,
(in thousands)									2023		2022		2023		2022
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
									(unaudited)
Research and development expense	$	45,009	$	53,935	$	168,981	$	116,552	$	272	$	354	$	756	$	1,067
Sales and marketing expense	7,938		50,052		23,307		58,733			40		32		175		234
General and administrative expense	133,807		145,391		438,636		303,157			225		455		604		1,620
Total	$	186,754	$	249,378	$	630,924	$	478,442	$	537	$	841	$	1,535	$	2,921

As of September 30, ~~2017,~~2023, the Company had ~~$761,710~~$260,294 of unrecognized stock-based compensation expense for options, inducement options and restricted stock units outstanding, which is expected to be recognized over a weighted-average period of ~~1.59~~0.59 years.

The ~~estimated grant-date~~ fair value of ~~employee stock~~ options ~~was calculated using the Black-Scholes-Merton option-pricing model using the following assumptions:~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Weighted-average volatility

76.92
%
69.39-71.38%

74.26-76.92%

66.25-71.38%

Weighted-average expected term (years)

5.82

5.00-5.82

5.82

5.00-5.82

Risk-free interest rate

1.95
%
1.10-1.29%

1.95-1.98%

1.10-1.49%

Expected dividend yield

—

—

—

—

~~The estimated grant-date fair value of non-employee stock options was calculated using the Black-Scholes-Merton option-pricing model was revalued using the following assumptions:~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Weighted-average volatility

—

78.30-80.02%

—

78.30-80.04%

Weighted-average expected term (years)

—

9.17-10.00

—

9.17-10.00

Risk-free interest rate

—

1.32-1.67%

—

1.32-1.74%

Expected dividend yield

—

—

—

—

~~11. Net Income (Loss) Per Share Attributable to Common Stockholders~~

~~The following table presents the calculation of basic and diluted net loss per common share for the three and nine months ended September 30, 2017 and 2016:~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Net income (loss) attributable to common shareholders - basic

$
4,759,844

$
(3,415,490
)
$
(1,761,156
)
$
(11,057,169
)
Interest on convertible debt, net of tax

209,149

—

—

—

Net income attributable to common shareholders - diluted

$
4,968,993

$
(3,415,490
)
$
(1,761,156
)
$
(11,057,169
)
Shares used to compute net income (loss) per common share - basic

55,434,898

11,264,886

28,246,721

10,298,987

Dilutive effect of warrants

675,383

—

—

—

Dilutive effect of convertible debt

11,093,249

—

—

—

Shares used to compute net income (loss) per common share - diluted

67,203,530

11,264,886

28,246,721

10,298,987

Net loss per share attributable to common shareholders - basic

$
0.09

$
(0.30
)
$
(0.06
)
$
(1.07
)
Net loss per share attributable to common stock - diluted

$
0.07

$
(0.30
)
$
(0.06
)
$
(1.07
)

The Company’s basic net income (loss) per share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period, without consideration of potentially dilutive securities. Restricted stock units are considered in the calculation of the Company’s basic net income (loss) per share as they are fully vested. Diluted net income (loss) per share is the same as basic net income (loss) per share since the effect of potentially dilutive securities is anti-dilutive. In the three months ended September 30, 2017, certain warrant shares were dilutive. The rights of the holders of voting common stock and non-voting common stock are identical, except with respect to voting and conversion. Shares of Jaguar non-voting common stock have the same rights to dividends and other distributions and are convertible into shares of Jaguar common stock on a one-for-one basis upon transfers to non-affiliates of Nantucket, upon the release from escrow of certain non-voting shares held by a former creditors of Napo to the legacy stockholders of Napo under specified conditions and at any time on or after April 1, 2018 at the option of the respective holders thereof.

~~The following outstanding common stock equivalents have been excluded from diluted net loss per common share for~~granted during the nine months ended September 30, ~~2017~~2023 and ~~2016 because their inclusion would be anti-dilutive:~~2022, respectively, were calculated using the range of assumptions set forth below:

September 30,

September 30,

2017

2016

Options issued and outstanding

2,984,304

2,444,375

Warrants to purchase common stock

6,656,333

715,539

Restricted stock units

—

20,789

Total

9,640,637

3,180,703


	September 30,	December 31,
	2023	2022
	(unaudited)
Volatility	—	164.0%
Expected term (years)	—	5.0
Risk-free interest rate	—	3.2%
Expected dividend yield	—	—

~~12.~~ 401(k) Plan

The Company sponsors a 401(k) defined contribution plan covering all employees. There were no employer contributions to the plan from plan inception through September 30, ~~2017.~~2023.

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~~13. Income Taxes~~12. Net Loss Per Share

The ~~forecasted effective tax rate~~following table presents the calculation of basic and diluted net loss per share of common stock for the periods indicated:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands, except share and per share data)	2023		2022		2023		2022
Net loss attributable to common stockholders (basic)	$	(7,778)	$	(12,520)	$	(32,130)	$	(39,873)
Net loss attributable to common stockholders (diluted)	$	(7,778)	$	(12,520)	$	(32,130)	$	(39,873)
Shares used to compute net loss per common stock, basic		20,739,459		1,418,159		14,550,780		1,088,758
Shares used to compute net loss per common stock, diluted		20,739,459		1,418,159		14,550,780		1,088,758
Net loss per share attributable to common stockholders, basic	$	(0.38)	$	(8.83)	$	(2.21)	$	(36.62)
Net loss per share attributable to common stockholders, diluted	$	(0.38)	$	(8.83)	$	(2.21)	$	(36.62)

Basic net loss per share is calculated by dividing net loss by the weighted-average number of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock, convertible preferred stock, and certain common share equivalents outstanding for the period. Common stock equivalents are only included when their effect is dilutive. The Company's potential securities which include Standstill warrants, PIPE warrants, Royal Global Amendment Exchange warrants and convertible preferred series stock and other common stock equivalents were excluded because their effect is anti-dilutive. For the prior periods presented, there is no difference in the number of shares used to compute basic and diluted shares outstanding.

The following are the other common stock equivalents of the Company for the nine months ended September 30, ~~2017~~2023 and ~~2016 was zero percent, primarily as a result~~December 31, 2022:


	September 30,	December 31,
	2023	2022
	(unaudited)
Options issued and outstanding	26,261	26,533
Inducement options issued and outstanding	1,522	1,546
Restricted stock units issued and outstanding	35,278	44,865
Warrants issued and outstanding	11,424,807	7,505
Total	11,487,868	80,449

As of November 14, 2023, there were 25,939,813 shares of common stock issued after the ~~estimated tax~~balance sheet date.

13. Segment Data

The Company has two reportable segments- animal health and human health. The animal health segment is focused on developing and commercializing prescription and non-prescription products for companion and production animals. The human health segment is focused on developing and commercializing human products and the ongoing commercialization of Mytesi, which the U.S. FDA approves for the symptomatic relief of non-infectious diarrhea in adults with HIV/AIDS on antiretroviral therapy.

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The Company's reportable segments net revenues and net loss for the ~~year~~three and ~~the change in valuation allowance. However, as a result~~nine months ended September 30, 2023 and 2022 consisted of the ~~acquisition~~following:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2023		2022		2023		2022
Revenue from external customers
Human Health	$	2,782	$	3,133	$	7,335	$	8,513
Animal Health		31		17		126		183
Consolidated Totals	$	2,813	$	3,150	$	7,461	$	8,696

Segment net loss
Human Health	$	(6,228)	$	(6,360)	$	(17,345)	$	(15,956)
Animal Health		(1,676)		(6,249)		(15,247)		(24,207)
Consolidated Totals	$	(7,904)	$	(12,609)	$	(32,592)	$	(40,163)

The Company's reportable segments assets consisted of ~~Napo in July 2017,~~the following:


	September 30,		December 31,
	2023		2022
(in thousands)	(unaudited)
Segment assets
Human Health	$	39,239	$	40,896
Animal Health		143,970		128,606
Total	$	183,209	$	169,502

The reconciliation of segments assets to the consolidated assets is as follows:


	September 30,		December 31,
(in thousands)	2023		2022
	(unaudited)
Total assets for reportable segments	$	183,209	$	169,502
Less: Investment in subsidiary		(29,232)		(29,232)
Less: Intercompany loan		(108,597)		(92,821)
Consolidated Totals	$	45,380	$	47,449

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14. Subsequent Events

December 2021 ATM Agreement

From October 1, 2023 to November 14, 2023, the Company ~~recorded a tax benefit~~issued an aggregate of ~~$12.2 million as a discrete item in~~18,945,450 shares of common stock under the ~~current quarter. This tax benefit is a result~~December 2021 ATM Agreement for total net proceeds of the partial release of its existing valuation allowance since the acquired deferred tax liabilities from Napo will provide a source of income for the Company to realize a portion of its deferred tax assets, for which a valuation allowance is no longer needed.

~~14. Subsequent Events~~

$7.0 million.

The Company ~~completed~~believes that, after taking into account the sale of shares of common stock between October 1, 2023 and November 14, 2023, and an ~~evaluation~~estimated projected loss of $4.0 million based on the ~~impact~~actual net loss of ~~subsequent events through~~$7.9 million for the three months ended September 30, 2023, the Company’s stockholders’ equity as of November ~~20, 2017,~~14, 2023 exceeds $2.5 million, which is the ~~date these financial statements were issued.~~minimum stockholders’ equity requirement for continued listing on The Nasdaq Capital Market. In addition, the Company’s cash balance as of November 14, 2023, exceeded $6.0 million.

Convertible Preferred Stock

The Company converted 48 shares of Series H preferred stock into 2,400,000 common shares, 32 shares of Series H preferred stock into 1,600,000 common shares and 62 shares of Series I preferred stock into 2,985,362 common shares.

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~~Follow-On Public Offering~~

In October 2017, we completed a follow-on registered offering (“offering”) of our common stock. In connection with the offering, we issued 21,250,000 shares of our common stock at a price to the public of $0.20 per share. As a result of the follow-on offering, we received $3.55 million in net proceeds, after deducting underwriting discounts and commissions of $297,500 and estimated offering expenses of $400,000.

On November 1, 2017, the underwriters of Jaguar’s previously announced offering exercised their over-allotment option (the “Over-Allotment Option”) to purchase an additional 437,500 shares of Jaguar’s voting common stock, par value $0.0001 per share at a public offering price of $0.20 per share. Jaguar received additional gross proceeds of approximately $87,500 from the exercise of the Over-Allotment Option, increasing the aggregate gross proceeds to Jaguar from the offering to approximately $4.3 million, before deducting offering expenses, underwriting discounts and commissions payable by Jaguar.

~~Termination of Elanco Agreement~~

On November 1, 2017, the Company received a letter (the “Notice”) from Elanco serving as formal notice of Elanco’s decision to terminate the Elanco Agreement by giving the Company 90 days written notice. Pursuant to the terms of the Elanco Agreement, termination of the Agreement will become effective on January 30, 2018, which is 90 days after the date of the Notice. On the effective date of termination of the Elanco Agreement, all licenses granted to Elanco by the Company under the Elanco Agreement will be revoked and the rights granted thereunder revert back to the Company.

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

The following discussion and analysis of financial condition and results of operations should be read together with the unaudited condensed consolidated financial statements and the related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q, and with our audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K as of and for the year ended December 31, ~~2016.~~

The discussion and analysis below includes certain forward-looking statements related to our research and development and commercialization of our products in the U.S., our future financial condition and results of operations and potential for profitability, the sufficiency of our cash resources, our ability to obtain additional equity or debt financing, if needed, possible partnering or other strategic opportunities for the development of our products, as well as other statements related2022 which was filed to the ~~progress~~SEC on March 24, 2023 and timing of product development, present or future licensing, collaborative or financing arrangements or that otherwise relate to future periods, which are all forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These statements represent, among other things, the expectations, beliefs, plans and objectives of management and/or assumptions underlying or judgments concerning the future financial performance and other matters discussed in this document. The words “may,” “will,” “should,” “plan,” “believe,” “estimate,” “intend,” “anticipate,” “project,” and “expect” and similar expressions are intended to connote forward-looking statements. All forward-looking statements involve certain risks, uncertainties and other factors described in our Annual Reportamended on Form 10-K, that could cause our actual commercialization efforts, financial condition and results of operations, and business prospects and opportunities to differ materially from these expressed in, or implied by, those forward-looking statements. We caution investors not to place significant reliance on the forward-looking statements contained in this report. These statements, like all statements in this report, speak only as of the date of this report (unless another date is indicated), and we undertake no obligation to update or revise forward-looking statements.April 28, 2023.

Overview

Jaguar Health, Inc. (“Jaguar” or the “Company”) is a ~~natural-products~~commercial stage pharmaceuticals company focused on ~~the development and commercialization of~~developing novel, plant-based, sustainably derived ~~gastrointestinal products~~prescription medicines for ~~both human prescription use~~people and animals ~~on a global basis. Our wholly-owned~~with gastrointestinal (“GI”) distress, including chronic, debilitating diarrhea. Jaguar's wholly owned subsidiary, Napo Pharmaceuticals, Inc. (“Napo”), focuses on the development and commercialization of proprietary human gastrointestinal pharmaceuticals for the global marketplace from plants used traditionally in rainforest areas. Our lead prescription drug product, Mytesi (crofelemer), is approved by the FDA for the symptomatic relief of noninfectious diarrhea in adults with HIV/AIDS on antiretroviral therapy (ART). In the field of animal health, we are focused on developing and commercializing ~~first-in-class~~proprietary plant-based human prescription from plants for essential supportive care and management of neglected gastrointestinal ~~products~~symptoms across multiple complicated disease states. Our crofelemer drug product candidate is the subject of the OnTarget study, an ongoing pivotal Phase 3 clinical trial for ~~companion~~prophylaxis of diarrhea in adult cancer patients receiving targeted therapy. As announced, Jaguar achieved a major milestone with completion of patient enrollment in OnTarget. Jaguar is the majority stockholder of Napo Therapeutics S.p.A. (“Napo Therapeutics”), an Italian corporation established by Jaguar in Milan, Italy in 2021 that focuses on expanding crofelemer access in Europe. Napo Therapeutics’ core mission is to provide access to crofelemer in Europe to address significant rare/orphan disease indications, including, initially, two key rare disease target indications: Short bowel syndrome (“SBS”) with intestinal failure and ~~production animals, foals,~~microvillus inclusion disease (“MVID”). Jaguar Animal Health is a tradename of Jaguar Health. Magdalena Biosciences Inc. (“Magdalena”), a joint venture formed by Jaguar and ~~high value horses.~~

Filament Health Corp. (“Filament”) that emerged from Jaguar’s Entheogen Therapeutics Initiative (ETI), is focused on developing novel prescription medicines derived from plants for mental health indications.

Jaguar was founded in San Francisco, California as a Delaware corporation on June 6, ~~2013. Napo formed Jaguar to develop and commercialize animal health products. Effective December 31,~~ 2013 ~~Jaguar was a wholly-owned subsidiary of Napo, and until May 13, 2015, Jaguar~~(inception). The Company was a majority-owned subsidiary of ~~Napo. On July 31, 2017, the merger of Jaguar Animal Health, Inc. and~~ Napo became effective, at which point Jaguar Animal Health’s name changed to Jaguar Health, Inc. and Napo began operating as a wholly-owned subsidiary of Jaguar focused on human health and the ongoing commercialization of, and development of follow-on indications for, Mytesi.

~~From our formation in June 2013~~ until the ~~effective date~~close of the ~~merger, our operations were primarily limited~~Company's initial public offering on May 18, 2015. The Company was formed to ~~the research~~develop and ~~development of our lead animal~~commercialize first-in-class prescription ~~drug product candidate, Canalevia—intended for the treatment of various forms of diarrhea in dogs; our~~and non-prescription product, Neonorm Calf, to help dairies and calf farms proactively retain fluid in calves; the ongoing commercialization of Neonorm Foal, our antidiarrheal for newborn horses; and Equilevia, our planned product for total gut health in high-performance equine athletes. Since the effective date of the merger, our operations have been primarily focused on research, development and the ongoing commercialization of Mytesi. A portion of our activities has also been focused on other efforts associated with being a recently formed company, including securing necessary intellectual property, recruiting management and key employees, and financing activities.

Our management team has significant experience in gastrointestinal product development. This experience includes the development of crofelemer for human use, from discovery and preclinical and toxicity studies, including the existing animal studies to be used by us for Canalevia regulatory approvals, through human clinical development and commercial manufacturing and supply.

With the merger effective, we believe that our newly combined company is poised to realize a number of synergistic, value adding benefits—and an expanded pipeline of potential blockbuster human follow-on indications, a second-generation anti secretory agent, as well as a pipeline of important animal indications for crofelemer, upon which to build global partnerships.

Jaguar, through Napo, controls commercial rights for Mytesi for all indications, territories and patient populations globally. Napo launched Mytesi in early 2017 with one full-time-equivalent Mytesi sales representative for the first half of 2017 focused on targeting high-decile prescribing HIV doctors. Napo recently significantly expanded its internal national salesforce for Mytesi through the hire in key U.S. markets of six sales representatives experienced in the sale of drugs to HIV physicians and gastroenterologists. Napo’s new sales representative team covers New York, Miami, Atlanta, Los Angeles, Houston, San Francisco, Chicago, St. Louis, Dallas, and the surrounding regions. All of these regions are key markets for HIV-related drug sales. Three of our new territory managers have been calling on HIV physicians for 18 to 19 years, and others possess extensive experience in drug sales to both gastroenterologists and HIV healthcare providers.

The goal of Napo’s internal sales team is to deliver a frequent and consistent selling message to targeted, high-volume prescribers of antiretroviral therapies and to gastroenterologists who see large numbers of HIV patients. The results of a recent Napo-sponsored survey of 271 U.S. board certified gastroenterologists indicate that the number one GI complaint for people living with HIV/AIDS is diarrhea, and 93 percent of U.S. gastroenterologists see patients with HIV/AIDS in their practice. With seven sales representatives reporting to our newly hired national sales manager, supported by concomitant marketing, promotional activities, and medical education initiatives described below, we expect a proportional response in the number of patients treated with Mytesi. Jaguar estimates the potential U.S. market for Mytesi to be approximately $100 million in gross annual sales, and anticipates that Mytesi will generate approximately $7.0 million in revenue by April 2018 (including revenue for January2017 through March 31, 2018) for its current, FDA-approved specialty indication.

New crofelemer (Mytesi) data from a supplemental analysis of the ADVENT trial was featured in a poster presentation at the 9th International Aids Society (IAS) Conference on HIV Science held from July 23 to 26, 2017 in Paris, France. The presentation was titled Long-Term Crofelemer Use Gives Clinically Relevant Reductions in HIV-Related Diarrhea. IAS features the latest HIV science, including basic, clinical and prevention research, and brings together a broad cross section of HIV professionals from around the world with a focus on implementation—moving scientific advances into practice. The results indicate that over 50% of the patients treated had complete resolution of their diarrhea; and 83% had at least a 50% reduction in diarrhea. Entry criteria required at least 7 watery stools in a week, and the average was 20 (with some patients having as high at 67 stools in a week).

In October 2017, Napo launched a national campaign—called “Keep your pants on… Unless you don’t want to”—to highlight the need to recognize and treat diarrhea in people living with HIV/AIDS (PLWHA). The campaign (keep-your-pants-on.com), which launched initially to the 10,000 participants in the AIDS Walk Los Angeles event on October 15, 2017, is designed to raise awareness and to engage PLWHA in a fun and light way to discuss a topic that can be embarrassing. The campaign integrates live third-party events, including the Greater Palm Springs Pride event taking place November 3rd to 5th, 2017, with social media on the web, Twitter, and Facebook. Campaign participants are encouraged to use the hashtag #KeepYourPantsOn when posting photos and videos to social media. Napo is also running “Keep Your Pants On” digital ads on more than 25 HIV and LGBT media outlets around the U.S.

Additionally in Q4 2017, Napo launched a print and digital advertising campaign titled “Enough is Enough” to target PLWHA who are tired of planning their lives around diarrhea as well as HIV physicians and gastroenterologists. The campaign is centered around national HIV magazines, local HIV publications, and publications targeting physicians.

In October 2017, Napo established a scientific advisory board for each potential follow-on indication currently planned for Mytesi. Napo has developed relationships with more than 30 physicians, pharmacists and patient advocates around the world who are recognized specialists and key opinion leaders in the planned Mytesi follow-on indications, and is conducting outreach efforts to discuss the possibility of membership in Napo’s new scientific advisory boards with these individuals. As announced on October 19, 2017, Dr. Lee Schwartzberg, MD, FACP, a nationally-recognized medical oncologist and hematologist, has joined Napo’s scientific advisory board for cancer therapy-related diarrhea (CTD).

Napo has also established a scientific advisory board for HIV, which Dr. Roscoe Moore Jr., DVM, MPH, Ph.D., DSc, recently joined. Dr. Moore is a former Assistant United States Surgeon General and a Rear Admiral (Retired) in the U.S. Public Health Service. This board will focus primarily on physician education and community awareness regarding the importance and availability of solutions for neglected comorbidities, such as the first-in-class anti-secretory mechanism of action of Mytesi for its currently approved indication.

We are confident that our scientific advisory boards will provide expert, actionable input regarding all aspects of development, including trial design, for Mytesi for our follow-on indications—each of which addresses a significant, global, unmet medical need. We also expect that our scientific advisory board members will serve as speakers for our medical education programs, authors on Napo abstracts and publications, as a resource for media inquiries.

Napo’s HIV Scientific Advisory Board will focus primarily on physician education, and community and global awareness regarding the importance and availability of solutions for neglected comorbidities, such as the first-in-class anti-secretory mechanism of action of Mytesi® for its currently approved indication.

Other key marketing initiatives include the implementation of healthcare provider (HCP) and patient educational programs, including speaker events and the creation of a medical education slide kit for HCPs, as well as a non-branded “My Story with Diarrhea” patient programs delivered by HIV advocates—designed to encourage PLWHA who have HIV-related diarrhea to ask their doctor for Mytesi.

Napo is pursuing AIDS Drug Assistance Program (ADAP) status in the following key states: New York, Florida, California, Georgia. ADAP status, if obtained, can provide copay support for Mytesi. Other Napo government affairs initiatives include efforts to convince The U.S. Department of Health and Human Services (HHS) to address HIV-related diarrhea in its HIV treatment guidelines, and to recommend Mytesi as the first line treatment for chronic diarrhea in HIV, as well as efforts to convince other HIV influencer groups (e.g. HIV Medicine Association, Infectious Diseases Society of America) to write a guideline for treatment of chronic diarrhea in people living with HIV.

Mytesi is currently covered by Medicaid in all 50 states. It is also currently covered on 100% of the top 10 commercial insurance plans, representing more than 245 million U.S. lives. Additionally, Napo operates a co-pay coupon to ensure that no participating patients have a Mytesi co-pay greater than $25. Information about the NapoCares Patient Assistance Program, which assists patients with benefit verification, prior authorization, and claims appeals, can be found at mytesi.com/mytesi-savings.html.

According to the World Health Organization, there are nearly 1.7 billion cases of diarrheal disease globally every year. Although not all types of diarrhea are secretory in nature, we view the current, initial approval of Mytesi as the opening of the door to an important pipeline—demonstrated by the approval by the FDA of the Chemistry, Manufacturing and Controls (“CMC”) for this natural product, as well as acknowledgement by the FDA of the safety of the product for chronic use for the approved indication. Jaguar is pursuing a follow-on indication for Mytesi in cancer therapy-related diarrhea (CTD), an important supportive care indication for patients undergoing primary or adjuvant therapy for cancer treatment. Mytesi is also in development for rare disease indications for infants and children with congenital diarrheal disorders (CDD) and short bowel syndrome (SBS); for irritable bowel syndrome (IBS); as supportive care for post-surgical inflammatory bowel disease patients (IBD); and as a second-generation anti-secretory agent for use in cholera patients. Mytesi has received orphan-drug designation for SBS.

A request for an investigator-initiated trial of Mytesi for CDD and SBS in conjunction with Sheikh Khalifa Medical City in Abu Dhabi has been agreed to with the Company. CDD and SBS—lifelong diseases for which there is currently no available treatment except parenteral nutrition—cause devastating diarrhea and dehydration.

Two investigator-initiated trials of Mytesi are underway in breast cancer patients suffering from CTD, one funded by Genetech—Roche with Herceptin (enrolling patients), and one funded by Puma with neratinib (planning for patient enrollment).

~~According to data appearing in “Treatment Guidelines for CID” (chemotherapy-induced diarrhea) in the April 2004 issue of~~ ~~Gastroenterology and Endoscopy News~~, diarrhea is the most common adverse event reported in chemotherapy patients. Approved third-party supportive care products for chemotherapy-induced nausea and vomiting (CINV) include Sustol, Aloxi, Akynzeo and Sancuso. According to Transparency Market Research, sales of therapeutics for the prevention of CINV approximated $620 million in 2013, and sales of such therapeutics are expected to reach $1 billion in 2020.

In this era of novel targeted agents, epidermal growth factor receptor tyrosine kinase inhibitors (TKIs), in particular, may block natural chloride secretion regulation pathways in the normal gastrointestinal mucosa, thereby leading to secretory diarrhea. Diarrhea has been reported as the most common side effect of the recently approved CDK 4/6 inhibitor abemaciclib and the pan-HER TKI neratinib, with occurrence ranging from 86% to >95% in published studies. Diarrhea in this patient population has the potential to cause dehydration, potential infections, and non-adherence to treatment. A novel anti-diarrheal like Mytesi may hold promise for treating secretory diarrhea—and therefore also support long-term cancer treatment adherence—in this population.

Jaguar’s and Napo’s portfolio development strategy involves meeting with Key Opinion Leaders (KOLs) to identify indications that are potentially high-value because they address important medical needs that are significantly or globally unmet, obtain input on protocol practicality and protocol generation, and then strategically sequencing indication development priorities, second-generation product pipeline development, and partnering goals on a global basis, as well as identifying possible opportunities for a Special Protocol Assessment (SPA) from the FDA. When granted, SPA provides that, upon request, FDA will evaluate within 45 days certain protocols to assess

whether they are adequate to meet scientific and regulatory requirements identified by the sponsor. In 2007, under the SPA process, Napo obtained agreement with the FDA for the design of the pivotal study protocol for the currently approved indication of crofelemer (Mytesi) for the symptomatic relief of noninfectious diarrhea in adults with HIV/AIDS on antiretroviral therapy. The 2007 SPA agreement was an important milestone for Napo, allowing Napo to address and mitigate regulatory uncertainty prior to the completion of its final Phase 3 trial of crofelemer for its currently approved indication.

~~Napo Prescription Drug Product Candidates~~

~~Product Candidates~~	~~Indication~~	~~Completed~~ ~~Milestones~~	~~Current~~ ~~Phase of~~ ~~Development~~	~~Anticipated~~ ~~Near-Term~~ ~~Milestones~~
~~Formulation of crofelemer~~	~~Cancer therapy-induced~~ ~~diarrhea (CTD)~~	· ~~Two investigator-initiated clinical trials funded by Genentech, Roche & Puma~~	~~Phase 2~~	· ~~Protocol development with KOLs for discussions with FDA~~ · ~~Start pivotal trial in 2018~~*
~~Formulation of crofelemer~~	~~Supportive care for IBD~~	· ~~Safety~~ · ~~Multiple Phase 2 studies completed in various secretory diarrheas (not IBD)~~	~~Phase 2~~	· ~~Protocol development for discussions with FDA~~
~~Formulation of crofelemer~~	~~Rare disease indications (SBS & CDD)~~	· ~~Phase I study~~ · ~~Orphan designation for SBS~~	~~Phase 2~~	· ~~Formulation/proof-of-concept 2018, Abu Dhabi~~ · ~~Pivotal Trial 2018~~* · ~~Pursue orphan-drug status for CDD~~
~~Formulation of crofelemer~~	~~Irritable Bowel Syndrome—diarrhea predominant (IBS-D)~~	· ~~Phase I study~~ · ~~Two significant Phase 2 studies completed~~	~~Phase 2~~	· ~~Protocol development with KOLs for discussions with FDA~~ · ~~Publication of additional analysis of Phase 2 data~~
~~SB-300~~	~~Second-generation anti-secretory agent for multiple indications including cholera~~	· ~~Animal and human studies in secretory diarrheas; successful cholera trial design for anti-secretory mechanism of action with crofelemer~~	~~Pre IND~~	· ~~CMC development for SB-300~~ · ~~Pre-clinical and Phase 1 in 2018~~*

*~~Clinical trials are funding-dependent~~

~~Estimated Size of Mytesi Target Markets~~

We believe the medical need for Mytesi is significant, compelling, and unmet, and that doctors are looking for a drug product with a mechanism of action that is distinct from the options currently available to resolve diarrhea. A growing percentage of HIV patients have lived with the virus in their gut for 10+ years, often causing gut enteropathy and chronic or chronic-episodic diarrhea. According to data from the U.S. Centers for Disease Control and Prevention, by 2020 more than 70% of Americans with HIV are expected to be 50 and older.

~~Market~~	~~Number of~~ ~~Competitors for~~ ~~Mytesi’s Approved/~~ ~~Anticipated Labelled~~ ~~Indication~~	~~Market Size/Potential~~
~~HIV-D~~	0	~~We estimate the U.S. market revenue potential for Mytesi to be approximately $100 million in gross annual sales~~
~~CTD~~	0	~~An estimated 650,000 U.S. cancer patients receive chemotherapy in an outpatient oncology clinic.(1)~~ ~~Comparable supportive care (i.e. CINV) product sales of ~$620 million in 2013, which is projected to reach $1.0 billion by 2020(2)~~
~~IBD~~	0	~~Estimated 1,171,000 Americans have IBD(3)~~
~~IBS-D~~	3	~~Most IBS products have estimated revenue potential of greater than $1.0 billion(4)~~
~~CDD/SBS-Orphan~~	0	~~Financial benefits of Orphan Designation~~
~~Cholera (hydration maintenance) PRV (SB-300)~~	0	~~Priority review vouchers have recently sold for $125 million to $350 million(5)~~

~~(1)~~ ~~Centers for Disease Control and Prevention. Preventing Infections in Cancer Patients: Information for Health Care Providers (cdc.gov/cancer/preventinfections/providers.htm)~~

~~(2)~~ ~~Heron Therapeutics, Inc. Form 10-K for the fiscal year ended December 31, 2016~~

~~(3)~~ ~~Kappelman, M. et al. Recent Trends in the Prevalence of Crohn’s Disease and Ulcerative Colitis in a Commercially Insured US Population. Dig Dis Sci. 2013 Feb; 58(2): 519-525~~

~~(4)~~ Merrill Lynch forecasts peak US sales of roughly $1.5 bn for Ironwood’s Linzess (http://247wallst.com/healthcare-business/2015/04/27/key-analyst-sees-nearly-30-upside-in-ironwood); Rodman & Renshaw estimate peak annual sales of Synergy Pharmaceuticals’ Trulance at $2.3 bn in 2021 (Source: https://www.benzinga.com/analyst-ratings/analyst-color/17/03/9224181/analyst-synergy-pharma-could-achieve-sustainable-profita)

~~(5)~~ In Aug. 2015, AbbVie Inc. bought a priority review voucher from United Therapeutics Corp for $350 million (http://www.reuters.com/article/us-abbvie-priorityreview/abbvie-buys-special-review-voucher-for-350-million-idUSKCN0QO1LQ20150819). In Feb. 2017 Sarpeta Therapeutics sold a priority review voucher to Gilead Sciences, Inc. for $125 million (http://fortune.com/2017/02/21/sarepta-gilead-review-voucher/).

~~In the animal health space, we focus on developing and commercializing first-in-class gastrointestinal~~ products for companion ~~and production animals, foals, and high value horses.~~

Our technology for proprietary gastrointestinal disease products is central to the product pipelines of both veterinary and human indications. Crofelemer, the active pharmaceutical ingredient (API) in Mytesi, is also the API in Canalevia, and as such the CMC development of Canalevia has benefited from the regulatory approval of Mytesi and the supply chain and quality system that supports

the commercial distribution of Mytesi. We achieved statistically significant results in a multicenter canine proof-of-concept study completed in February 2015, supporting the conclusion that Canalevia treatment is superior to placebo. We have received Minor Use in a Minor Species (MUMS) designation for Canalevia for chemotherapy-induced diarrhea (CID) in dogs. The FDA has indicated that the use of Canalevia for the treatment of exercise-induced diarrhea (EID) in dogs qualifies as a “minor use”, which means Canalevia is eligible for conditional approval for the indication of EID in dogs. We expect to conduct the commercial launch of Canalevia for CID and EID in dogs in the first half of 2018. This is expected to be the first prescription product approval for Jaguar’s animal health product development program.

The clinically-proven performance of Neonorm Foal, in combination with our heightened understanding of market needs within the global equine space, is driving our increased focus on equine product development. The demand, particularly in the Middle East, for a total gut health product for high performance equine athletes appears to be quite strong, and we believe this is indicative of an unmet medical need. Based on this demand, and with support from studies we conducted in horses with gastric ulcers—a prevalent problem in competing horses—and also horses with diarrhea, we have transitioned development of Equilevia to a create a non-prescription, personalized, premium proprietary product for total gut health in equine athletes. Equilevia is a formulation of a standardized botanical extract. Gut health is of critical importance in horses, as conditions such as ulcers can meaningfully impair equine athlete performance and colic can lead to the death of an otherwise healthy horse in a matter of hours. Although we are still assessing the size of the opportunity represented by this self-funded program, we expect to launch Equilevia in the fourth quarter of 2017.

The reception among users of our two commercialized non-prescription products—Neonorm Calf and Neonorm Foal, an anti-diarrheal product we launched for newborn horses in early 2016—has been quite positive, and in June 2017 we launched neonorm.com, a commercial website for both Neonorm products. As we announced this past June, the Organic Materials Review Institute (OMRI) has reviewed Neonorm Calf and determined that it is allowed for use in compliance with the U.S. Department of Agriculture (USDA) National Organic Program. OMRI is an international nonprofit organization that determines which input products are allowed for use in organic production and processing. Organic livestock production plays a vital role in support of a sustainable and safe farm and food system, both in the U.S. and internationally. According to a report published by Allied Market Research, the global market for organic dairy food and drinks—organic milk, yogurt, cheese, and others—is expected to grow at a compound annual growth rate of 14.25% from 2016 to reach $36.7 billion by 2022 from $14.5 billion in 2015. According to the Organic Trade Association’s (OTA) 2016 Organic Industry Survey, the U.S. organic industry posted new records in 2015, with total organic product sales hitting a new benchmark of $43.3 billion, up 11% from the previous year’s record level and outpacing the overall food market’s growth rate of 3%.

In July 2016 we released data from two China-based studies sponsored by Fresno, California-based Integrated Animal Nutrition and Health Inc. showing remarkable resolution of diarrhea and cure of piglets afflicted with diarrhea following treatment with a ~~Croton lechleri~~ botanical extract administered in water. As we announced in September 2016, we signed an exclusive supply and distribution agreement for this botanical extract with Integrated Animal Nutrition and Health Inc. for dairy cattle and pigs in the Chinese marketplace. According to Index Muni, swine production is projected to reach 672.5 million head in 2017 in China, where pork is still the main protein source for many consumers. According to New Zealand-based NZX Agri, in 2017 there will be seven million cows “in milk” (lactating cows) in China. With the world’s largest population, China has been experiencing an increase in demand for dairy products as a result of sharply increasing income levels, fast-changing food habits, the desire of parents to feed their babies high-protein formula, and the loosening in 2015 of China’s longstanding one-child policy, among other factors. Integrated Animal Nutrition and Health, Inc. has minimum purchase requirements of the botanical extract to maintain their exclusivity.

Canalevia, Equilevia and Neonorm are distinct products formulated to address specific species and market channels. We have filed nine investigational new animal drug applications, or INADs, with the FDA and intend to develop species-specific formulations of Neonorm in six additional target species, and Canalevia for both cats and dogs.

~~Merger with Napo Pharmaceuticals, Inc.~~

animals.

On July 31, 2017, weJaguar completed a merger with Napo ~~Pharmaceuticals, Inc. (“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~~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 ~~our wholly-owned subsidiary.~~the wholly owned subsidiary (the “Merger” or “Napo Merger”). Immediately following the Napo Merger, we changed our 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.

In connection with the merger, (i) each issued and outstanding share of Napo common stock (other than dissenting shares and shares held by us or Napo) was converted into a contingent right to receive (x) up to a whole number of shares of our common stock comprising in the aggregate up to approximately 20.2% of the fully diluted shares of our common stock immediately following the consummation of the merger, which contingent right will vest only if the resale of certain shares of our common stock (the “Tranche A Shares”) issued by us to Nantucket Investments Limited (“Nantucket”) pursuant to the Napo debt settlement provides Nantucket with specified cash returns over a specified period of time (the “Hurdle Amounts”), and (y) if the applicable Hurdle Amount is achieved before all of the Tranche A Shares are sold, additional shares of our common stock (equal to 50% of the unsold Tranche A Shares), which will be distributed pro rata among holders of contingent rights and holders of Napo restricted stock units, (ii) existing creditors of Napo (inclusive of Nantucket) were issued in the aggregate approximately 42,903,018 shares of our non-voting common stock and 2,282,445 shares of our voting common stock in full satisfaction of all existing indebtedness then owed by Napo to such creditors, and (iii) an existing Napo stockholder (“Invesco”) was issued an aggregate of approximately 3,243,243 shares of our common stock in return for $3 million of new funds invested in us by such investor, which were immediately loaned to Napo to partially facilitate the extinguishment of the debt that Napo owed to Nantucket. The minimum Hurdle Amount needed for the vesting of the contingent rights will vary depending on a number of factors (including, among other things, the time period over which Nantucket receives specified cash returns in connection with the resale of the Tranche A Shares), and Napo stockholders may not receive any shares of Jaguar common stock in certain circumstances (including if the minimum Hurdle Amount is not satisfied).

We expect to incur significant expenses in connection with the merger of Jaguar Animal Health and Napo. While we have assumed that a certain level of expenses will be incurred, there are many factors that could affect the total amount or the timing of the merger expenses, and many of the expenses that will be incurred are, by their nature, difficult to estimate. These expenses could result in the combined company taking significant charges against earnings following the completion of the merger. The ultimate amount and timing of such charges are uncertain at the present time. We incurred approximately $3.6 million in professional and other fees associated with the proposed merger through July 31, 2017.

~~Financial Operations Overview~~

We were incorporated in June 2013 in Delaware. Napo formed our company to develop and commercialize animal health products. Prior to our incorporation, the only activities of Napo related to animal health were limited to the retention of consultants to evaluate potential strategic alternatives. We were previously a majority-owned subsidiary of Napo. However, following the closing of our May 2015 initial public offering, we are no longer majority-owned by Napo.

On July 31, 2017, Jaguar Animal Health, Inc., or 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 our wholly-owned subsidiary. Immediately following the Napo Merger, Jaguar changed its name from “Jaguar Animal Health, Inc.” to “Jaguar Health, Inc.” Napo now operates as a ~~wholly-owned~~wholly owned subsidiary of Jaguar focused on human health ~~and~~including the ongoing development of crofelemer and commercialization of Mytesi.

Napo’s marketed drug Mytesi (crofelemer 125 mg delayed-release tablets) is a ~~Napo~~first-in-class oral botanical drug product approved by the ~~U.S.~~ FDA for the symptomatic relief of noninfectious diarrhea in adults with HIV/AIDS on antiretroviral therapy. To date, this is the only oral plant-based botanical prescription medicine approved under the FDA’s Botanical Guidance. The Company’s Canalevia-CA1 (crofelemer delayed-release tablets) drug is the first and only oral plant-based prescription product that is FDA conditionally approved to treat chemotherapy-induced diarrhea (“CID”) in dogs.

Crofelemer was granted Orphan Drug Designation (“ODD”) by the FDA in February 2023 for MVID and granted ODD for MVID by the European Medicines Agency (“EMA”) in October 2022. Crofelemer was granted ODD for SBS by the EMA in December 2021 and by the FDA in August 2017. In June 2023, Napo submitted an Investigational New Drug (“IND”) application to the FDA for a new crofelemer powder for oral solution formulation for the treatment of MVID. Jaguar is supporting third-party investigator-initiated proof-of-concept (“POC”) studies of crofelemer in patients with SBS with intestinal failure or CDD, focused on obtaining POC data showing reduction of requirements of parenteral support, including parenteral nutrition and/or IV fluids. In accordance with the guidelines of specific European Union countries, publications of data from POC trials could support participation in early patient access programs for crofelemer for SBS or MVID, potentially in 2024, especially for patients with intestinal failure

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requiring parenteral support. Participation in early access programs, which do not exist in the United States, provides an opportunity for reimbursement while impacting the morbidity and high cost of care for these chronic unmet needs.

Napo Therapeutics is initiating efforts to commence clinical development of crofelemer in SBS patients in support of the company’s key focus on leveraging the EMA’s accelerated conditional marketing authorization pathway in Europe for these rare diseases. SBS affects approximately 10,000 to 20,000 people in the U.S., according to the Crohn's & Colitis Foundation, and it is estimated that the population of SBS patients in Europe is approximately the same size. Despite limited treatment options, the global SBS market exceeded $568 million in 2019 and is expected to reach $4.6 billion by 2027, according to a report by Vision Research Reports.

Most of the activities of the Company are focused on the development and/or commercialization of Mytesi, the ongoing clinical development of crofelemer for the prophylaxis of diarrhea in adult patients receiving targeted cancer therapy, and our prioritized clinical program centered around investigator-initiated POC trials of crofelemer for SBS and CDD.

In the field of animal health, we are continuing limited activities related to developing and commercializing first-in-class gastrointestinal products for dogs, dairy calves and foals.

Crofelemer is a novel, first-in-class anti-secretory antidiarrheal drug which has a normalizing effect on electrolyte and fluid balance in the gut, and this mechanism of action has the potential to benefit multiple disorders that cause gastrointestinal distress, including diarrhea and abdominal discomfort. Crofelemer is in development for multiple possible follow-on indications, including for our lead Phase 3 program in CTD, investigating prophylaxis of diarrhea related to targeted therapy with or without standard chemotherapy. Crofelemer delayed-release tablets are also being evaluated in diarrhea-predominant irritable bowel syndrome (“IBS-D”) and being evaluated for chronic idiopathic/functional diarrhea in investigator-initiated trials.

Crofelemer powder for oral solution is being developed to support orphan or rare disease indications for adults with SBS with intestinal failure and for pediatric MVID patients.

In addition, a second-generation proprietary anti-secretory antidiarrheal drug (“NP-300”) is in development for symptomatic relief and treatment of moderate-to-severe diarrhea, with or without concomitant antimicrobial therapy, from bacterial, viral and parasitic infections including Vibrio cholerae, the bacterium that causes cholera. This program is being pursued with the potential targeted incentive from the FDA of a tropical disease priority review voucher.

In January 2023, Jaguar and Filament, with funding from One Small Planet, formed the U.S.-based joint venture 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 venture aligns with Jaguar's ETI program 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.

In December 2021, we received conditional approval from the FDA to market Canalevia-CA1 (crofelemer delayed-release tablets), our oral plant-based prescription drug and the only available veterinary drug for the treatment of chemotherapy-induced diarrhea (“CID”) in dogs, and Canalevia-CA1 is now available to multiple leading veterinary distributors in the U.S. Canalevia-CA1 is a tablet that is given orally and can be prescribed for home treatment of CID. Canalevia-CA1 is conditionally approved by the FDA under application number 141-552. Conditional approval allows for commercialization of the product while Jaguar Animal Health continues to collect the substantial evidence of

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effectiveness required for full approval. We have received Minor Use in a Major Species (“MUMS”) designation from the FDA for Canalevia-CA1 to treat CID in dogs. FDA has established a "small number" threshold for minor use in each of the seven major species covered by the MUMS act. The small number threshold is currently 80,000 for dogs, representing the largest number of dogs that can be affected by a disease or condition over the course of a year and still have the use qualify as a minor use.

We believe Jaguar is poised to realize a number of synergistic, value adding benefits—an expanded pipeline of potential blockbuster human follow-on indications of crofelemer, and a second-generation anti-secretory agent—upon which to build global partnerships. Jaguar, through Napo, holds global unencumbered rights for crofelemer, Mytesi, and Canalevia-CA1. Additionally, several of the drug product opportunities in Jaguar’s crofelemer pipeline are backed by Phase 2 and proof of concept evidence from human clinical trials.

Financial Operations Overview

On a consolidated basis, we have not yet generated enough revenue to date to achieve break even or positive cash ~~flow,~~flows, and we expect to continue to incur significant research and development and other expenses. Our net loss ~~and comprehensive loss~~ was ~~$1.8~~$32.6 million and ~~$11.1~~$40.2 million for the nine months ended September 30, ~~2017~~2023 and ~~2016,~~2022, respectively. As of September 30, ~~2017,~~2023, we had a total ~~stockholders’~~stockholders' equity of ~~$31.8~~$1.4 million, an accumulated deficit of $299.1 million, and cash ~~and cash equivalents~~ of ~~$220,590.~~$3.2 million. We expect to continue to incur losses and experience increased expenditures for the foreseeable future as we expand our product development activities, seek necessary approvals for our product candidates, conduct species-specific formulation studies for our non-prescription products, establish API manufacturing capabilities and begin additional commercialization activities. ~~As a result, we expect to experience increased expenditures for 2017.~~

Revenues

~~Revenue Recognition~~

~~We recognize~~Our product and collaboration revenue ~~in accordance with ASC 605 “Revenue Recognition”, subtopic ASC 605-25 “~~ ~~Revenue with Multiple Element Arrangements~~ ~~“ and subtopic ASC 605-28 “~~ ~~Revenue Recognition-Milestone Method~~ ~~“, which provides accounting guidance for revenue recognition for arrangements with multiple deliverables and guidance on defining the milestone and determining when the use~~consist of the ~~milestone method~~following:

●

Revenues from the sale of our human drug Mytesi, which is sold through distributors and wholesalers and specialty pharmacies.

●

Revenues from the sale of our animal products branded as Canalevia-CA1, Neonorm Calf and Neonorm Foal. Our Canalevia-CA1, Neonorm and botanical extract products are primarily sold to distributors, who then sell the products to the end customers.

●

Our policy typically permits returns if the product is damaged, defective, or otherwise cannot be used when received by the customer if the product has expired. Returns are accepted for product that will expire within six months or that have expired up to one year after their expiration dates. Estimates for expected returns of expired products are based primarily on an ongoing analysis of our historical return patterns.

See “Results of Operations” below for more detailed discussion on revenues.

Cost of Revenue

Cost of revenue ~~recognition for research~~consists of direct drug substance and development transactions is appropriate, respectively. For multiple-element arrangements, each deliverable within a multiple deliverable revenue arrangement is accounted for as a separate unit of accounting if both of the following criteria are met: (1) the delivered item or items have value to the customer on a standalone basis and (2) for an arrangement that includes a general right of return relative to the delivered item(s), delivery or performance of the

undelivered item(s) is considered probable and substantially in our control. If a deliverable in a multiple element arrangement is not deemed to have a stand-alone value, consideration received for such a deliverable is recognized ratably over the term of the arrangement or the estimated performance period, and it will be periodically reviewed based on the progress of the related product development plan. The effect of a change made to an estimated performance period and therefore revenue recognized ratably would occur on a prospective basis in the period that the change was made.

We recognize revenue under its licensing, development, co-promotion and commercialization agreement from milestone payments when: (i) the milestone event is substantive and its achievability has substantive uncertainty at the inception of the agreement, and (ii) it does not have ongoing performance obligations related to the achievement of the milestone earned. Milestone payments are considered substantive if all of the following conditions are met: the milestone payment (a) is commensurate with either our performance subsequent to the inception of the arrangement to achieve the milestone or the enhancement of the value of the delivered item or items as a result of a specific outcome resulting from our performance subsequent to the inception of the arrangement to achieve the milestone, (b) relates solely to past performance, and (c) is reasonable relative to all of the deliverables and payment terms (including other potential milestone consideration) within the arrangement.

Our records revenue related to the reimbursement of costs incurred under the collaboration agreement where the company acts as principal, controls the research and development activities and bears credit risk. Under the agreement, we are reimbursed for associated out-of-pocket costs and for certain employee costs. The gross amount of these pass-through costs is reported in revenue in the accompanying statements of operations and comprehensive loss, while the actual expense for which we arereimbursed are reflected as research and development costs.

Determining whether and when some of these revenue recognition criteria have been satisfied often involves assumptions and judgments that can have a significant impact on the timing and amount of revenue we will report. Changes in assumptions or judgments or changes to the elements in an arrangement could cause a material increase or decrease in the amount of revenue that we repors in a particular period.

~~Product Revenue~~

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. Until we develop sufficient sales history and pipeline visibility, revenue and costs of distributor sales will be deferred until products are sold by the distributor to the distributor’s customers. Revenue recognition depends on notification either directly from the distributor that product has been sold to the distributor’s customer, when we have access to the data. Deferred revenue on shipments to distributors reflect the estimated effects of distributor price adjustments, if any, and the estimated amount of gross margin expected to be realized when the distributor sells through product purchased from us. Our sales to distributors are invoiced and included in accounts receivable and deferred revenue upon shipment. Inventory is relieved and revenue recognized upon shipment by the distributor to their customer. We had Neonorm revenues of $33,611 and $26,357 for the three months ended September 30, 2017 and 2016, and $139,600 and $88,646 for the nine months ended September 30, 2017 and 2016.

Sales of Botanical Extract are recognized as revenue when delivered to the customer. We had Botanical Extract revenues of $48,000 and $24,000 in the three months ended September 30, 2017 and 2016, and $78,000 and $24,000 in the nine months ended September 30, 2017 and 2016.

Sales of Mytesi are recognized as revenue when the products are delivered to the wholesalers. We had Mytesi revenues of $364,054 and $0 for the three and nine months months ended September 2017 and 2016, respectively. We record a reserve for estimated product returns under terms of agreements with wholesalers based on its historical returns experience. Reserves for returns at September 30, 2017 were immaterial. If actual returns differed from our historical experience, changes to the reserved could be required in future periods.

~~Collaboration Revenue~~

On January 27, 2017, we entered into a licensing, development, co-promotion and commercialization agreement with Elanco US Inc. (“Elanco”) to license, develop and commercialize Canalevia (“Licensed Product”), our drug product ~~candidate under investigation for treatment of acute and chemotherapy-induced diarrhea in dogs,~~materials expense, direct labor, distribution fees, royalties and other drug product formulations of crofelemer for treatment of gastrointestinal diseases, conditions and symptoms in cats and other companion animals. We granted Elanco exclusive global rights to Canalevia, a product whose active pharmaceutical ingredient is sustainably isolated and purified from the Croton lechleri tree, for use in companion animals. Pursuant to the Elanco Agreement, Elanco will have exclusive rights globally outside the U.S. and co-exclusive rights with us in the U.S. to direct all marketing, advertising, promotion, launch and sales activities related ~~to the Licensed Products.~~

~~Under the terms of the Elanco Agreement, we received an initial upfront payment of $2,548,689, inclusive of reimbursement of past product and development~~ expenses of $1,048,689, and will receive additional payments upon achievement of certain development, regulatory and sales milestones in an aggregate amount of up to $61.0 million payable throughout the term of the Elanco Agreement, as well as product development expense reimbursement for any additional product development expenses incurred, and royalty payments on global sales. The $61.0 million development and commercial milestones consist of $1.0 million for successful completion of a dose ranging study; $2.0 million for the first commercial sale of license product for acute indications of diarrhea; $3.0 million for the first commercial sale of a license product for chronic indications of diarrhea; $25.0 million for aggregate worldwide net sales of licensed products exceeding $100.0 million in a calendar year during the term of the agreement; and $30.0 million for aggregate worldwide net sales of licensed products exceeding $250.0 million in a calendar year during the terms of the agreement. Each of the development and commercial milestones are considered substantive. No revenues associated with the ~~achievement~~sale of the milestones has been recognized to date. The Elanco Agreement specifies that we will supply the Licensed Products to Elanco, and that the parties will agree to set a minimum sales requirement that Elanco must meet to maintain exclusivity. The $2,548,689 upfront payment, inclusive of reimbursement of past product and development expenses of $1,048,689 is recognized as revenue ratably over the estimated development period of one year resulting in $637,200 and $1,734,100 in collaboration revenue in the three and nine months ended September 30, 2017 which are included in our ~~statements of operations and comprehensive loss. The difference of $814,589 is included in deferred collaboration revenue in ourbalance sheet.~~products.

In addition to the upfront payments, Elanco reimburses us for certain development and regulatory expenses related to our planned target animal safety study and the completion of the Canalevia field study for acute diarrhea in dogs. These are recognized as revenue in the month in which the related expenses are incurred. We have $17,349 of unreimbursed expenses as of September 30, 2017, which is included in Other Receivables on our balance sheet. We included the $17,349 and $503,391 in collaboration revenue in the three and nine months ended September 30, 2017 which are included in the statements of operations and comprehensive loss. On November 1, 2017, the Company received a letter (the “Notice”) from Elanco serving as formal notice of Elanco’s decision to terminate the Elanco Agreement by giving the Company 90 days written notice. Pursuant to the terms of the Elanco Agreement, termination of the Agreement will become effective on January 30, 2018, which is 90 days after the date of the Notice. On the effective date of termination of the Elanco Agreement, all licenses granted to Elanco by the Company under the Elanco Agreement will be revoked and the rights granted thereunder revert back to the Company.

~~Cost of Product Revenue~~

~~Cost of product revenue expenses consist of costs to manufacture, package and distribute Neonorm that distributors have sold through to their customers.~~

Research and Development Expense

Research and development expenses consist primarily of clinical and contract manufacturing expense, personnel and related ~~benefit~~benefits expense, stock-based compensation expense, employee travel expense, and reforestation expenses. Clinical and contract manufacturing expense consists primarily of costs to conduct stability, safety and efficacy studies, and manufacturing startup ~~expenses~~ at an outsourced API provider in Italy. It also includes expenses with a third-party provider for the transfer of the Mytesi manufacturing process, and the related feasibility and validation activities.

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We typically use our employee and infrastructure resources across multiple development programs. We track outsourced development costs by prescription drug product candidate and non-prescription product ~~but do not allocate~~and we track personnel or other internal costs related to the development toof specific programs or development compounds.

The timing and amount of our research and development expenses will depend largely upon the outcomes of current and future trials for our prescription drug product candidates as well as the related regulatory requirements, the outcomes of current and future species-specific formulation studies for our non-prescription products, manufacturing costs and any costs associated with the advancement of our line extension programs. We cannot determine with certainty the duration and completion costs of the current or future development activities.

The duration, costs, and timing of trials, formulation studies, and development of our prescription drug and non-prescription products will depend on a variety of factors, including:

· ~~the scope, rate of progress, and expense of our ongoing, as well as any additional clinical trials, formulation studies and other research and development activities;~~

· ~~future clinical trial and formulation study results;~~

· ~~potential changes in government regulations; and~~

· ~~the timing and receipt of any regulatory approvals.~~

●

the scope, rate of progress, and expense of our ongoing, as well as any additional clinical trials, formulation studies, and other research and development activities;

●

future clinical trial and formulation study results;

●

potential changes in government regulations; and

●

the timing and receipt of any regulatory approvals.

A change in the outcome of any of these variables with respect to the development of a prescription drug product candidate or non-prescription product could mean a significant change in the costs and timing associated with our development activities.

We expect research and development expense to increase ~~significantly as we add personnel, commence additional~~due to the start-up costs associated with our clinical ~~studies and~~trials for other ~~activities to develop our prescription drug product candidates and non-prescription products.~~indications.

Sales and Marketing Expense

Sales and marketing expenses consist of personnel and related ~~benefit~~benefits expense, stock-based compensation expense, direct sales and marketing expense, employee travel expense, and management consulting expense. We currently incur sales and marketing expenses to promote Mytesi. We do not have significant marketing or promotional expenses related to Neonorm ~~calf~~Calf or Neonorm Foal for the nine months ended September 30, 2023 and ~~foal sales.~~

2022.

We expect sales and marketing expense to increase ~~significantly~~going forward as we ~~develop~~focus on expanding our market access activities and ~~commercialize new products~~commercial partnerships for the development of follow-on indications of Mytesi and ~~grow our existing Neonorm market. We will need to add sales and marketing headcount to promote the sales of existing and new products.~~crofelemer.

General and Administrative Expense

General and administrative expenses consist of personnel and related ~~benefit~~benefits expense, stock-based compensation expense, employee travel expense, legal and accounting fees, rent and facilities expense, and management consulting expense.

WeIn the near term, we expect general and administrative expense to ~~increase in order to enable us to effectively manage the overall growth of the business.~~remain flat as we focus on our pipeline development and market access expansion. This will include ~~adding headcount, enhancing information systems and potentially expanding corporate facilities.~~efforts to grow the business.

Interest Expense

Interest expense consists primarily of non-cash and cash interest costs related to our borrowings.

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

Change in fair value of financial instruments and hybrid instruments designated at Fair Value Option consists of gain or loss recognized related to fair values changes of our instruments designated at FVO.

Gain (Loss) on ~~convertible promissory notes,~~Debt Extinguishment

Gain (loss) on debt extinguishment consists of gain or loss incurred related to the ~~standby bridge financing commitment~~exchanges resulting from the extinguishment of our borrowings.

Critical Accounting Policies and Significant Judgments and Estimates

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”), requires the ~~loan~~use of estimates and ~~security agreement (long-term debt arrangement). We also include accretion~~assumptions that affect the reported amounts of ~~debt issuance costs, debt discount amortization~~assets and liabilities, revenues and expenses, and related disclosures in the ~~accretion~~consolidated financial statements. Critical accounting policies are those accounting policies that may be material due to the levels of ~~an end-of-term long-term debt payment~~subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and that have a material impact on financial condition or operating performance. While we base our estimates and judgments on our experience and on various other factors that we believe to be reasonable under the circumstances, actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are described in ~~interest expense~~Note 2 of the unaudited condensed consolidated financial statements. Our critical accounting policies and estimates were described in Part II, Item 7, Critical Accounting Policies and Estimates, in our ~~statements of operations and comprehensive loss.~~

Annual Report on Form 10-K for the year ended December 31, 2022.

Results of Operations

Comparison offor the nine months ended September 30, ~~2017~~2023 and ~~2016~~

2022

The following table summarizes the Company’s results of operations with respect to the items set forth in such table for the nine months ended September 30, ~~2017~~2023 and ~~2016~~2022 together with the change in such items in dollars and as a ~~percentage:~~percentage.

Nine Months Ended

September 30,

2017

2016

Variance

Variance %

Product revenue

$
581,654

$
112,646

$
469,008

416.4
%
Collaboration revenue

2,237,491

—

2,237,491

N/A

Total revenue

2,819,145

112,646

2,706,499

2402.7
%
Operating Expenses

Cost of revenue

247,135

36,867

210,268

570.3
%
Research and development expense

3,033,851

5,672,516

(2,638,665
)
(46.5
)%
Sales and marketing expense

943,908

355,345

588,563

165.6
%
General and administrative expense

8,512,195

4,319,856

4,192,339

97.0
%
Impairment of goodwill

3,648,000

—

3,648,000

N/A

Total operating expenses

16,385,089

10,384,584

6,000,505

57.8
%
Loss from operations

(13,565,944
)
(10,271,938
)
(3,294,006
)
(32.1
)%
Interest expense, net

(800,885
)
(774,185
)
(26,700
)
(3.4
)%
Other expense

(13,428
)
(11,046
)
(2,382
)
(21.6
)%
Change in fair value of warrants

636,121

—

636,121

N/A

Loss on extinguishment of debt

(207,713
)
—

(207,713
)
N/A

Net loss before tax

(13,951,849
)
(11,057,169
)
(2,894,680
)
(26.2
)%
Income tax benefit

12,190,693

—

12,190,693

N/A

Net loss and comprehensive loss

$
(1,761,156
)
$
(11,057,169
)
$
9,296,013

84.1
%


	Nine Months Ended
	September 30,
(in thousands)	2023		2022		Variance		Variance %
Product revenue	$	7,461	$	8,696	$	(1,235)	(14.2)	%
Operating Expenses
Cost of product revenue		1,350		1,524		(174)	(11.4)	%
Research and development		15,133		13,336		1,797	13.5	%
Sales and marketing		4,929		7,089		(2,160)	(30.5)	%
General and administrative		12,783		14,876		(2,093)	(14.1)	%
Total operating expenses		34,195		36,825		(2,630)	(7.1)	%
Loss from operations		(26,734)		(28,129)		1,395	(5.0)	%
Gain (loss) on extinguishment of debt		3,697		(2,187)		5,884	(269.0)	%
Interest expense		(6,134)		(10,089)		3,955	(39.2)	%
Change in fair value of financial instruments and hybrid instrument designated at Fair Value Option		(3,365)		652		(4,017)	(616.1)	%
Other expense		(56)		(410)		354	(86.3)	%
Loss before income tax		(32,592)		(40,163)		7,571	(18.9)	%
Income tax expense		—		—		—	—	%
Net loss	$	(32,592)	$	(40,163)	$	7,571	(18.9)	%
Net loss attributable to noncontrolling interest		(462)		(290)		(172)	59	%
Net loss attributable to common stockholders	$	(32,130)	$	(39,873)	$	7,743	(19)	%

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Revenue

~~Revenue~~Product revenue

Sales discounts were $811,000 and ~~Cost of Revenue~~

~~Neonorm Calf and Foal~~

~~Our product revenue of $139,600 and $88,646 and related cost of revenue of $56,366 and $36,867~~$954,000 for the nine months ended September 30, ~~2017~~2023 and ~~2016 reflects sell-through~~2022, respectively, a decrease of ~~our Neonorm Calf~~$143,000.

Medicaid and ~~Neonorm Foal products to our distributors. We defer recognizing revenue~~AIDS Drug Assistance Program (“ADAP”) rebates accounted for $1.5 million and cost of revenue until products are sold by the distributor to the distributor’s end customers and recognition depends on notification from the distributor that product has been sold to the distributor’s end customer. Revenue increased due to an increase in units sold-through from distributors to their customers in the nine months ended September 30, 2017 compared to the same period in 2016. The increase in cost of revenue was consistent with the increase in sales. We continue to increase our efforts to promote sales growth.

~~Botanical extract~~

We began selling botanical extract to a distributor for use exclusively in China beginning in September 2016. The revenue from these sales, which totaled $78,000 and $24,000 in the nine months ended September 30, 2017 and 2016, is recognized upon shipment to the distributor as no return rights are provided to this distributor. Revenue increased due to an increase in kilograms of botanical extract sold directly to customers in the nine months ended September 30, 2017 compared to the same period in 2016. We had no cost of product revenue associated with the botanical extract as we wrote off the full value of the botanical extract to expense in 2014 due to uncertainty of future use and ability to sell to a customer.

~~Collaboration revenue~~

On January 27, 2017, we entered into a licensing, development, co-promotion and commercialization agreement with Elanco to license, develop and commercialize Canalevia (“Licensed Product”), our drug product candidate under investigation for treatment of acute and chemotherapy-induced diarrhea in dogs, and other drug product formulations of crofelemer for treatment of gastrointestinal diseases, conditions and symptoms in cats and other companion animals. We granted to Elanco exclusive global rights to Canalevia, a product whose active pharmaceutical ingredient is sustainably isolated and purified from the Croton lechleri tree, for use in companion animals. Pursuant to the Elanco Agreement, Elanco has exclusive rights globally outside the U.S. and co-exclusive rights with us in the U.S. to direct all marketing, advertising, promotion, launch and sales activities related to the Licensed Products. Under the terms of the Elanco Agreement, we received an initial upfront payment of $2,548,689 and will receive additional payments upon achievement of certain development, regulatory and sales milestones in an aggregate amount of up to $61.0$1.6 million payable throughout the term of the Elanco Agreement, as well as product development expense reimbursement, and royalty payments on global sales. The Elanco Agreement specifies that we will supply the Licensed Products to Elanco, and that the parties will agree to set a minimum sales requirement that Elanco must meet to maintain exclusivity. Elanco will reimburse us for certain development and regulatory expenses related to our planned target animal safety study and the completion of our field study of Canalevia for acute diarrhea in dogs. The $2,548,689 total of the upfront payment and expense reimbursement is recognized as collaboration revenue ratably over the estimated development period of one year resulting in $1,734,100 in collaboration revenue in the nine months ended September 30, 2017. The Company included the $503,391 in collaboration revenue in the nine months ended September 30, 2017 which are included in the Company’s statements of operations and comprehensive loss.

~~Mytesi revenue~~

~~Napo’s product revenue of $364,054 and related cost of revenue of $190,768 from the date of acquisition are included in the consolidated results~~ for the nine months ended September 30, ~~2017 reflecting~~2023 and 2022, respectively, a decrease of $100,000.

Due to the ~~delivery~~Company’s arrangements, including elements of variable consideration, gross product sales are reduced in order to reflect the expected consideration to arrive at net product sales. Deductions to reduce gross product sales to net product sales for the nine months ended September 30, 2023 and 2022 were as follows:


	Nine Months Ended
	September 30,
(in thousands)	2023		2022		Variance		Variance %
Gross product sales
Mytesi	$	9,871	$	10,929	$	(1,058)	(9.7)	%
Canalevia		91		143		(52)	(36.4)	%
Neonorm		35		40		(5)	(12.5)	%
License		1		—		—	—	%
Total gross product sales		9,998		11,112		(1,115)	(10.0)	%
Medicaid rebates		(1,454)		(1,550)		96	(6.2)	%
Sales discounts		(811)		(954)		143	(15.0)	%
Sales returns		(272)		88		(360)	(409.1)	%
Net product sales	$	7,461	$	8,696	$	(1,236)	(14.2)	%

Our gross product revenues were $10.0 million and $11.1 million for the nine months ended September 30, 2023 and 2022, respectively. These periods reflect revenue from the sale of our human drug Mytesi and our animal products branded as Canalevia-CA1, Neonorm Calf and Neonorm Foal.

Our Mytesi product ~~by our distributors to~~revenues were $9.9 million and $10.9 million for the ~~wholesalers.~~ ~~We record a reserve for estimated product returns under terms of agreements with wholesalers based on its historical returns experience. Reserves for returns at~~nine months ended September 30, ~~2017~~2023 and 2022, respectively. Our Canalevia product revenues were ~~immaterial. If actual returns differed from our historical experience, changes~~$91,000 and $143,000 for the nine months ended September 30, 2023 and 2022, respectively. Our Neonorm product revenues were $35,000 and $40,000 for the nine months ended September 30, 2023 and 2022, respectively. Sales and marketing expenses are not significant during 2023 and during the same period in 2022.

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Cost of Product Revenue


	Nine Months Ended
	September 30,
(in thousands)	2023		2022		Variance		Variance %
Cost of Product Revenue
Direct labor	$	794	$	526	$	268	51.0	%
Material cost		638		768		(130)	(16.9)	%
Royalties		26		33		(7)	(21.2)	%
Distribution fees		(17)		12		(29)	(241.7)	%
Other		(91)		185		(276)	(149.2)	%
Total	$	1,350	$	1,524	$	(174)	(11.4)	%

The decrease in cost of product revenue of $174,000 for the month nine months ended September 30, 2023 compared to ~~the reserved could be required in future periods.~~2022 was primarily due to:

●

Direct labor increased by $268,000 from $526,000 for the nine months ended September 30, 2022, to $794,000 in 2023, due to increased resources in manufacturing.

●

Material cost decreased by $130,000 from $768,000 for the nine months ended September 30, 2022, to $638,000 in 2023, due to the decrease in volume of materials used in manufacturing.

●

Other costs decreased by $276,000 from $185,000 for the nine months ended September 30, 2022, to negative $91,000 in the same period in 2023 due to additions in write-offs of non-conforming inventory.

Research and Development ~~Expense~~

The following table presents the components of research and development (“R&D”) expense for the nine months ended September 30, ~~2017~~2023 and ~~2016~~2022 together with the change in such components in dollars and as a percentage:


	Nine Months Ended
	September 30,
(in thousands)	2023		2022		Variance		Variance %
Research and Development:
Clinical and contract manufacturing	$	6,678	$	4,256	$	2,422	56.9	%
Personnel and related benefits		4,450		5,866		(1,416)	(24.1)	%
Stock-based compensation		756		1,067		(311)	(29.1)	%
Materials expense and tree planting		276		219		57	26.0	%
Travel and other expenses		273		93		180	193.5	%
Other		2,700		1,835		865	47.1	%
Total	$	15,133	$	13,336	$	1,797	13.5	%

The increase in R&D expense of $1.8 million for the nine months ended September 30, 2023 compared to the same period in 2022 was largely due to:

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●

Clinical and contract manufacturing expenses increased by $2.4 million from $4.3 million for the nine months ended September 30, 2022 to $6.7 million in the same period in 2023 largely due to increased clinical trial activities related to start-up of CTD and other indications, additional CMC manufacturing, consulting and contractors’ expenses, and cholera/lechlemer research expenses.

●

Personnel and related benefits decreased by $1.4 million from $5.9 million for the nine months ended September 30, 2022, to $4.5 million in the same period in 2023 due to decreased costs of benefits and resources.

●

Stock-based compensation decreased by $311,000 from $1.1 million in the nine months ended September 30, 2022 to $756,000 in the same period in 2023 primarily due to fewer options and RSUs granted during the period as compared to 2022.

●

Travel, and other expenses increased by $180,000 from $93,000 for the nine months ended September 30, 2022 to $273,000 in the same period in 2023 primarily due to more travel activities associated with the clinical trials.

●

Other expenses consisting of consulting, formulation and regulatory fees increased by $865,000 from $1.8 million for the nine months ended September 30, 2022 to $2.7 million in the same period in 2023, largely from increased CTD activities.

Sales and Marketing

The following table presents the components of sales and marketing (“S&M”) expense for the nine months ended September 30, 2023 and 2022 together with the change in such components in dollars and as a percentage:


	Nine Months Ended
	September 30,
(in thousands)	2023		2022		Variance		Variance %
Sales and Marketing:
Personnel and related benefits	$	2,297	$	2,874	$	(577)	(20.1)	%
Direct marketing fees and expense		1,480		2,699		(1,219)	(45.2)	%
Stock-based compensation		175		234		(59)	(25.2)	%
Other		977		1,282		(305)	(23.8)	%
Total	$	4,929	$	7,089	$	(2,160)	(30.5)	%

Nine Months Ended

September 30,

2017

2016

Variance

Variance %

R&D:

Personnel and related benefits

$
1,490,293

$
1,993,917

$
(503,624
)
(25.3
)%
Materials expense and tree planting

99,409

78,936

20,473

25.9
%
Travel, other expenses

168,441

348,135

(179,694
)
(51.6
)%
Clinical and contract manufacturing

422,449

1,836,816

(1,414,367
)
(77.0
)%
Stock-based compensation

168,981

116,552

52,429

45.0
%
Other

684,278

1,298,160

(613,882
)
(47.3
)%
Total

$
3,033,851

$
5,672,516

$
(2,638,665
)
(46.5
)%

Our research and development expense decreased $2,638,665 from $5,672,516 in the nine months ended September 30, 2016 to $3,033,851 for the same period in 2017. Personnel and related benefits decreased $503,624 from $1,993,917 in the nine months ended September 30, 2016 to $1,490,293 in the same period in 2017 due to an increase of $408,604 employee leasing chargebacks to Napo for services rendered in the seven months ended July 31, 2017 over the nine months ended September 30, 2016 with the remainder of the decrease due to changes in headcount personnel and related salaries and benefits year over year. Travel expenses decreased $179,694 from $348,135 in the nine months ended September 30, 2016 to $168,441 in the same period in 2017 due primarily to aThe decrease in ~~clinical activity. Significant clinical trial work has decreased and contract manufacturing work was completed in Q1 2016 resulting in a reduction of~~S&M expense of $1,414,367 from $1,836,816 in the nine months ended September 30, 2016 to $422,449 in the same period in 2017. Clinical expenses decreased $990,207 from $1,505,367 in the nine months ended September 30, 2016 to $515,160 in the same period in 2017, and contract manufacturing expense decreased $424,161 due to the completion of the manufacturing setup in Italy in the first quarter of 2016 and due to some contract adjustments that arose in the second quarter of 2017. Stock-based compensation increased $52,429 from $116,552 in the nine months ended September 30, 2016 to $168,981 in the same period in 2017 primarily due to an increase in the number of outstanding option grants year over year. Other expenses, consisting primarily of consulting and formulation expenses, decreased $613,882 from $1,298,160 in the nine months ended September 30, 2016 to $684,278 in the same period in 2017. Consulting expenses decreased $419,182 from $810,821 in the nine months ended September 30, 2016 to $391,639 in the same period in 2017 consistent with the decrease in contractor utilization to assist in our clinical trials and in chemistry, manufacturing and controls (“CMC”) activities. Formulation expenses decreased $184,946 from $331,153 in the nine months ended September 30, 2016 to $146,207 for the same period in 2017 due to an decrease in work needed for clinical operations. We plan to increase our research and development expense as we continue developing our drug candidates. Our research and development expenses$2.2 million for the nine months ended September 30, ~~2017 include Napo’s research and development expenses for the two months from the acquisition of $96,017.~~

We increased support for the reforestation of croton lechleri trees in South America, which is reflected in an increase in our spend by $20,473 from $78,936 in the nine months ended September 30, 20162023 compared to ~~$99,409 in~~ the same period in ~~2017. We value~~2022 was largely due to:

●

Personnel and related benefits decreased by $577,000 from $2.9 million for the nine months ended September 30, 2022 to $2.3 million in the same period in 2023 due to decreased sales commission and reduced headcount.

●

Direct marketing fees and expenses decreased by $1.2 million from $2.7 million for the nine months ended September 30, 2022 to $1.5 million in the same period in 2023 due to savings associated with the utilization of a more cost-effective patient support services and other Mytesi marketing initiatives.

●

Other expenses decreased by $305,000 from $1.3 million for the nine months ended September 30, 2022 to $977,000 in the same period in 2023 due to lower consulting and contractor services but slightly offset by increased travels for sales and marketing personnel.

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General and ~~take to heart the responsibility to replenish trees consumed in order to extract the raw material to manufacture our primary commercial product and the drug product for use in clinical trials.~~

~~Sales and Marketing Expense~~

Administrative

The following table presents the components of ~~sales~~general and ~~marketing~~administrative (“G&A”) expense for the nine months ended September 30, ~~2017~~2023 and ~~2016~~2022 together with the change in such components in dollars and as a percentage:


	Nine Months Ended
	September 30,
(in thousands)	2023		2022		Variance		Variance %
General and Administrative:
Personnel and related benefits	$	3,464	$	3,574	$	(110)	(3.1)	%
Legal services		1,658		1,678		(20)	(1.2)	%
Public company expense		1,347		3,338		(1,991)	(59.6)	%
Audit, tax and accounting services		1,087		921		166	18.0	%
Rent and lease expense		614		341		273	80.1	%
Stock-based compensation		604		1,620		(1,016)	(62.7)	%
Third-party consulting services		501		553		(52)	(9.4)	%
Travel and other expenses		323		227		96	42.3	%
Other		3,185		2,624		561	21.4	%
Total	$	12,783	$	14,876	$	(2,093)	(14.1)	%

Nine Months Ended

September 30,

2017

2016

Variance

Variance %

S&M:

Personnel and related benefits

$
191,238

$
145,619

$
45,619

31.3
%
Stock-based compensation

23,307

58,733

(35,426
)
(60.3
)%
Direct Marketing Fees

76,648

70,171

6,477

9.2
%
Other

652,715

80,822

571,893

707.6
%
Total

$
943,908

$
355,345

$
588,563

165.6
%

~~Our sales and marketing expense increased $588,563 from $355,345~~The decrease in the nine months ended September 30, 2016 to $943,908 in the same period in 2017. Personnel and related benefits increased $45,619 from $145,619 in the nine months ended September 30, 2016 to $191,238 in the same period in 2017 due to an increase in headcount year over year, netG&A expenses of $50,039 in employee leasing chargebacks to Napo for services rendered in the seven months ended July 31, 2017 over the nine months ended September 30, 2016. Stock based compensation expense decreased $35,426 from $58,733 in the nine months ended September 30, 2016 to $23,307 in the same period in 2017 due to new options granted at a much lower fair value due to a lower strike price and a lower fair market value. Direct marketing and sales expense increased $6,477 from $70,171 in the nine months ended September 30, 2016 to $76,648 for the same period in 2017 due to an increase in marketing programs to promote our Neonorm products. Other expenses, consisted primarily of travel expense, consulting expense and royalty expense, which collectively increased $571,893 from $80,822 in the nine months ended September 30, 2016 to $652,715 in the same period in 2017. We plan to expand sales and marketing spend to promote our Neonorm products. Other sales and marketing expenses$2.1 million for the nine months ended September 30, ~~2017 include sales and marketing expenses of $513,102 for Napo for~~2023 compared to the ~~two~~same period in 2022 was largely due to:

●

Personnel and related benefits decreased by $110,000 from $3.6 million for the nine months ended September 30, 2022 to $3.5 million in the same period in 2023 due to lower headcount.

●

Public company expense decreased by $2.0 million from $3.3 million for the nine months ended September 30, 2022 to $1.3 million in the same period in 2023 due less investor relations and communications consulting expenses, and no expense related to the annual shareholder meeting.

●

Audit, tax and accounting services increased by $166,000 from $921,000 for the nine months ended September 30, 2022 to $1.1 million in the same period in 2023 due to additional financing and complex accounting transactions for the period.

●

Rent and lease expense increased by $273,000 from $341,000 for the nine months ended September 30, 2022 to $614,000 in the same period in 2023 primarily due to increase in fees related to occupancy of spaces and use of vehicles.

●

Stock-based compensation decreased by $1.0 million from $1.6 million for the nine months ended September 30, 2022 to $604,000 in the same period in 2023 primarily due to fewer options and RSUs granted during the period.

●

Other expenses increased by $561,000 from $2.6 million for the nine months ended September 30, 2022 to $3.2 million in the same period in 2023 due to higher depreciation and amortization of fixed assets and intangible assets, insurance expenses and other support services.

Interest Expense, net

Interest expense decreased by $4.0 million from ~~the date of acquisition.~~

~~General and Administrative Expense~~

~~The following table presents the components of general and administrative expense~~$10.1 million for the nine months ended September 30, ~~2017 and 2016 together with the change in such components in dollars and as a percentage:~~

Nine Months Ended

September 30,

2017

2016

Variance

Variance %

G&A:

Personnel and related benefits

$
1,331,077

$
1,703,951

$
(372,874
)
(21.9
)%
Accounting fees

547,977

225,393

322,584

143.1
%
Third-party consulting fees and Napo service fees

1,111,473

173,870

937,603

539.3
%
Legal fees

2,922,763

456,243

2,466,520

540.6
%
Travel

230,736

242,013

(11,277
)
(4.7
)%
Stock-based compensation

438,636

303,157

135,479

44.7
%
Rent and lease expense

226,306

301,677

(75,371
)
(25.0
)%
Public company expenses

611,746

227,551

384,195

168.8
%
Other

1,091,482

686,001

405,481

59.1
%
Total

$
8,512,195

$
4,319,856

$
4,192,339

97.0
%

~~Our general and administrative expenses increased $4,192,339 from $4,319,856 in the nine months ended September 30, 2016~~2022 to ~~$8,512,195~~$6.1 million for the same period in ~~2017~~2023 primarily due ~~primarily~~ to ~~$3,521,751~~changing the accounting of certain debt instruments to Fair Value Option (FVO). The lower interest expense was offset by a higher loss in ~~merger related expenses incurred~~change in ~~the nine months ended September 30, 2017, including $858,103 in consulting services for~~fair value of financial instruments and hybrid instrument designated at FVO.

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Gain on Extinguishment of Debt

Gain on extinguishment of debt increased by $5.9 million from a ~~fairness opinion, $101,119 in other consulting services,~~

~~$2,202,799 in estimated legal fees and $136,529 in estimated audit fees, and $223,201 in estimated printer and filing fees. General and administrative expenses~~loss of $2.2 million for the nine months ended September 30, ~~2017 include $862,250~~2022 to a gain of $3.7 million for Napo’s general and administrative expenses for the two months from the date of acquisition. Personnel and related benefits decreased $372,874 from $1,703,951 in the nine months ended September 30, 2016 to $1,331,077 in the same period in ~~2017~~2023 due to ~~an increase~~significant modifications resulting to extinguishment recognition.

Change in Fair Value of ~~$92,704~~Financial Instruments and Hybrid Instrument Designated at FVO

Change in ~~employee leasing chargebacks for services rendered in the seven months ended July 31, 2017 versus the nine months ended September 30, 2016,~~fair value of financial instrument and hybrid instrument designated at FVO decreased by $4.1 million from a ~~decrease in severance expense~~gain of $105,425 from $105,425 in the nine months ended September 30, 2016 to $0 in the same period in 2017, with the remainder of the decrease due to changes in headcount personnel and related salaries year over year, primarily at high paying executive levels. Personnel and related benefits$652,000 for the nine months ended September 30, ~~2017 include $187,505~~2022, to a loss of $3.4 million for Napo’s personnel and related benefits for the two months from the date of acquisition. Stock-based compensation increased $135,479 from $303,157 in the nine months ended September 30, 2016 to $438,636 in the same period in 2017 due primarily to expense associated with new grants to existing employees. Our public company expenses increased $384,195 from $227,551 in the nine months ended September 30, 2016 to $611,746 in the same period in 2017 due primarily to the $223,201 in merger related printer expenses. In addition to the $136,529 of audit related merger fees discussed above, our annual, quarterly and other audit fees increased by another $186,055 resulting in an aggregate $322,584 increase in accounting fees from $225,393 in the nine months ended September 30, 2016 to $547,977 in the same period in 2017. In addition to the $2,202,799 of legal related merger fees, our general corporate and public securities legal fees increased an additional $146,973 resulting in an aggregate increase of $2,466,520 in legal fees from $456,243 in the nine months ended September 30, 2016 to $2,922,763 in the same period in 2017. In addition to the $858,103 fairness opinion consulting and $101,119 in other consulting merger related fees, our non-merger related consulting expenses actually decreased by $21,619 resulting in aggregate increase of $937,603 from $173,870 in the nine months ended September 30, 2016 to $1,111,473 in the same period in 2017. Rent and lease expense decreased $75,371 from $301,677 in the nine months ended September 30, 2016 to $226,306 in the same period in 2017 due primarily to an increase of $82,506 in employee leasing chargebacks to Napo for space used in connection with our employees providing services to Napo during the seven months ended July 31, 2017, offset by additional parking and apartment rent year over year. Other expenses, including warrant expense, insurance costs, office and facilities expenses increased $405,481 from $686,001 in the nine months ended September 30, 2016 to $1,091,482 in the same period in 20172023 primarily due to ~~$23,000 of warrant expense related to~~fair value adjustments in liability classified warrants ~~issued in connection with warrant exercises, $26,470 increase in conferences~~ and meetings, $9,670 increase in bank and credit card fees, net of a reduction of $96,266 in recruiting fees. Other general and administrative expenses for the nine months ended September 30, 2017 include $445,946 for Napo’s other general and administrative expenses for the two months from the date of acquisition. We expect to incur additional general and administrative expense as a result of operating as a public company and as we grow our business, including expenses related to compliance with the rules and regulations of the SEC, additional insurance expenses, investor relations activities and other administrative and professional services.notes payable designated at FVO.

~~Impairment of goodwill~~

~~The Company recorded an impairment charge of $3,648,000 during the three and nine months ended September 30, 2017.~~

Comparison of the three months ended September 30, ~~2017~~2023 and ~~2016~~2022

The following table summarizes the Company’s results of operations with respect to the items set forth in such table for the three months ended September 30, ~~2017~~2023 and ~~2016~~2022 together with the change in such items in dollars and as a ~~percentage:~~percentage.

Three Months Ended

September 30,

2017

2016

Variance

Variance %

Product revenue

$
445,665

$
50,357

$
395,308

785.0
%
Collaboration revenue

654,549

—

654,549

N/A

Total revenue

1,100,214

50,357

1,049,857

2084.8
%
Operating Expenses

Cost of revenue

206,228

9,858

196,370

1992.0
%
Research and development expense

851,608

1,967,128

(1,115,520
)
(56.7
)%
Sales and marketing expense

663,765

136,882

526,883

384.9
%
General and administrative expense

3,070,702

1,115,312

1,955,390

175.3
%
Impairment of goodwill

3,648,000

—

3,648,000

N/A

Total operating expenses

8,440,303

3,229,180

5,211,123

161.4
%
Loss from operations

(7,340,089
)
(3,178,823
)
(4,161,266
)
(130.9
)%
Interest expense, net

(464,684
)
(235,191
)
(229,493
)
(97.6
)%
Other expense

(14,876
)
(1,476
)
(13,400
)
(907.9
)%
Change in fair value of warrants

388,800

—

388,800

N/A

Net loss before tax

(7,430,849
)
(3,415,490
)
(4,015,359
)
(117.6
)%
Income tax benefit

12,190,693

—

12,190,693

N/A

Net income (loss) and comprehensive income (loss)

$
4,759,844

$
(3,415,490
)
$
8,175,334

239.4
%


	Three Months Ended
	September 30,
	2023		2022		Variance		Variance %
(in thousands)
Product revenue	$	2,813	$	3,150	$	(337)	(10.7)	%
Operating expenses
Cost of product revenue		514		613		(99)	(16.2)	%
Research and development		6,081		5,940		141	2.4	%
Sales and marketing		1,472		2,109		(637)	(30.2)	%
General and administrative		3,533		4,384		(851)	(19.4)	%
Total operating expenses		11,600		13,046		(1,446)	(11.1)	%
Loss from operations		(8,787)		(9,896)		1,109	(11.2)	%
Gain on extinguishment of debt		3,697		—		3,697	100.0	%
Interest expense		(500)		(2,731)		2,231	(81.7)	%
Change in fair value of financial instruments and hybrid instrument designated at Fair Value Option		(2,244)		176		(2,420)	(1,375.0)	%
Other expense		(70)		(158)		88	(55.7)	%
Loss before income tax		(7,904)		(12,609)		4,705	(37.3)	%
Income tax expense		—		—		—	—	%
Net loss		(7,904)		(12,609)		4,705	(37)	%
Net loss attributable to noncontrolling interest		(126)		(89)		(37)	42	%
Net loss attributable to common stockholders		(7,778)		(12,520)		4,742	(38)	%

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Revenue

Gross product sales equal the number of bottles sold multiplied by WAC. Due to the Company’s arrangements, including elements of variable consideration, gross product sales are reduced in order to reflect the expected consideration to arrive at net product sales. Deductions to reduce gross product sales to net product sales in the three months ended September 30, 2023 and ~~Cost of Revenue~~2022 were as follows:


	Three Months Ended
	September 30,
(in thousands)	2023		2022		Variance		Variance %
Gross product sales
Mytesi	$	3,662	$	3,863	$	(201)	(5.2)	%
Canalevia		24		12		12	100.0	%
Neonorm		7		5		2	40.0	%
License		1		—		1	—	%
Total gross product sales		3,694		3,880		(186)	(4.8)	%
Medicaid rebates		(437)		(523)		86	(16.4)	%
Sales discounts		(296)		(316)		20	(6.3)	%
Sales returns		(148)		109		(257)	(235.8)	%
Net product sales	$	2,813	$	3,150	$	(337)	(10.7)	%

~~Neonorm Calf and Foal~~

Our gross product ~~revenue of $33,611~~revenues were $3.7 million and ~~$26,537 and related cost of revenue of $15,459 and $9,858~~$3.9 million for the three months ended September 30, ~~2017~~2023 and ~~2016 reflects sell-through~~2022, respectively. These periods reflect revenue from the sale of our human drug Mytesi and our animal products branded as Canalevia-CA1, Neonorm Calf and Neonorm ~~Foal products to our distributors. We defer recognizing~~Foal.

Our Mytesi product revenues were $3.7 million and $3.9 million for the three months ended September 30, 2023. Our Canalevia product revenues were $24,000 and $12,000 for the three months ended September 30, 2023 and 2022, respectively. Our Neonorm product revenues were $7,000 and $5,000 for the three months ended September 30, 2023 and 2022, respectively. Sales and marketing expenses are not significant during 2023 and during the same period in 2022.

Cost of Product Revenue

Cost of product revenue ~~and cost of revenue until products are sold~~decreased by ~~the distributor to the distributor’s end customers and recognition depends on notification~~$99,000 from ~~the distributor that product has been sold to the distributor’s end customer. Revenue increased due to an increase in units sold-through from distributors to their customers~~$613,000 in the three months ended September 30, ~~2017 compared~~2022 to $514,000 for the same period in ~~2016.~~2023. The ~~increase~~decrease in ~~cost of revenue was consistent with the increase in sales. We continue to increase our efforts to promote sales growth.~~

~~Botanical extract~~

We began selling botanical extract to a distributor for use exclusively in China beginning in September 2016. The revenue from these sales, which totaled $48,000 and $24,000 in the three months ended September 30, 2017 and 2016, is recognized upon shipment to the distributor as no return rights are provided to this distributor. Revenue increased due to an increase in kilograms of botanical extract sold directly to customers in the three months ended September 30, 2017 compared to the same period in 2016. We do not have cost of product revenue ~~associated with~~over the ~~botanical extract sales as we wrote off the full value of the botanical extract to expense in 2014 due to uncertainty of future use and ability to sell to a customer.~~

~~Collaboration revenue~~


	Three Months Ended
	September 30,
(in thousands)	2023		2022		Variance		Variance %
Cost of Product Revenue
Direct labor	$	250	$	200	$	50	25.0	%
Material cost		231		245		(14)	(5.7)	%
Royalties		9		13		(4)	(30.8)	%
Distribution fees		15		5		10	200.0	%
Other		9		150		(141)	(94.0)	%
Total	$	514	$	613	$	(99)	(16.2)	%

Table of the Elanco Agreement, we received an initial upfront payment of $2,548,689 and will receive additional payments upon achievement of certain development, regulatory and sales milestones in an aggregate amount of up to $61.0 million payable throughout the term of the Elanco Agreement, as well as product development expense reimbursement, and royalty payments on global sales. The Elanco Agreement specifies that we will supply the Licensed Products to Elanco, and that the parties will agree to set a minimum sales requirement that Elanco must meet to maintain exclusivity. Elanco will reimburse us for certain development and regulatory expenses related to our planned target animal safety study and the completion of our field study of Canalevia for acute diarrhea in dogs. The $2,548,689 total of the upfront payment and expense reimbursement is recognized as collaboration revenue ratably over the estimated development period of one year resulting in $637,200 in collaboration revenue in the three months ended September 30, 2017. We included $17,349 of the additional expense reimbursements in the three months ended September 30, 2017 as collaboration revenue.Contents

~~Mytesi revenue~~

Napo’s product revenue of $364,054 and related cost of revenue of $190,768 from the date of acquisition are included in the consolidated results for three months ended September 30, 2017 reflecting the delivery of Mytesi product by our distributors to the wholesalers.

Research and Development ~~Expense~~

The following table presents the components of ~~research and development~~R&D expense for the three months ended September 30, ~~2017~~2023 and ~~2016~~2022 together with the change in such components in dollars and as a percentage:

	Three Months Ended
	September 30,
	2017			2016		Variance			Variance %
R&D:

											Three Months Ended
											September 30,
(in thousands)											2023		2022		Variance		Variance %
Research and Development:
Clinical and contract manufacturing											$	3,473		1,345	$	2,128	158.2	%
Personnel and related benefits	$	602,216		$	567,896	$	34,320		6.0	%		1,501		3,369		(1,868)	(55.4)	%
Stock-based compensation												272		354		(82)	(23.2)	%
Materials expense and tree planting	35,878			32,959		2,919			8.9	%		91		78		13	16.7	%
Travel, other expenses	45,431			124,807		(79,376		)	(63.6	)%
Clinical and contract manufacturing	(13,761		)	513,478		(527,239		)	(102.7	)%
Stock-based compensation	45,009			53,935		(8,926		)	(16.5	)%
Travel and other expenses												59		19		40	210.5	%
Other	136,835			674,053		(537,218		)	(79.7	)%		685		775		(90)	(11.6)	%
Total	$	851,608		$	1,967,128	$	(1,115,520	)	(56.7	)%	$	6,081	$	5,940	$	141	2.4	%

~~Our research and development expense decreased $1,115,520 from $1,967,128~~The change in the three months ended September 30, 2016 to $851,608 for the same period in 2017. Personnel and related benefits increased $34,320 from $567,896 in the three months ended September 30, 2016 to $602,216 in the same period in 2017 due to a decrease of $101,016 in employee leasing chargebacks to Napo for services rendered in the July 2017 over the three month ended September 30, 2016, more than offset with increases in headcount personnel and related salaries and benefits year over year. Travel expenses decreased $79,376 from $124,807 in the three months ended September 30, 2016 to $45,431 in the same period in 2017 consistent with the decrease in clinical activity. Significant clinical trial work has decreased and contract manufacturing work was completed in Q1 2016 resulting in a reduction ofR&D expense of $527,239 from $513,478 in the three months ended September 30, 2016 to $(13,761) in the same period in 2017. Clinical expenses decreased $527,168 from $511,353 in the three months ended September 30, 2016 to $(15,815) in the same period in 2017, and contract manufacturing expense was constant at $2,125 and $2,055 in the three months ending September 30, 2016 and 2017 due to the completion of the manufacturing setup in Italy in the first quarter of 2016. Stock-based compensation decreased $8,926 from $53,935 in the three months ended September 30, 2016 to $45,009 in the same period in 2017 primarily due to a decrease in the number of outstanding option grants year over year. Other expenses, consisting primarily of consulting and formulation expenses, decreased $537,218 from $674,053 in the three months ended September 30, 2016 to $136,835 in the same period in 2017. Consulting expenses decreased $365,844 from $423,636 in the three months ended September 30, 2016 to $57,792 in the same period in 2017 consistent with the decrease in contractor utilization to assist in our clinical trials and in chemistry, manufacturing and controls (“CMC”) activities. Formulation expenses decreased $167,576 from $197,653 in the three months ended September 30, 2016 to $30,077 for the same period in 2017 due to an decrease in work needed for clinical operations. We plan to increase our research and development expense as we continue developing our drug candidates. Our research and development expenses$141,000 for the three months ended September 30, ~~2017 include Napo’s research and development expenses for the two months from the acquisition of $96,017.~~

We increased support for the reforestation of croton lechleri trees in South America, which is reflected in an increase in our spend by $2,919 from $32,959 in the three months ended September 30, 20162023 compared to ~~$35,878 in~~ the same period in 2017. We value and take to heart the responsibility to replenish trees consumed in order to extract the raw material to manufacture our primary commercial product and the drug product for use in clinical trials.2022 was due primarily to:

●

Clinical and contract manufacturing expense increased by $2.1 million from $1.3 million in the three months ended September 30, 2022 to $3.5 million in the same period in 2023 primarily due to increased clinical trial activities related CTD activities and other indications.

●

Personnel and related benefits decreased by $1.9 million from $3.4 million in the three months ended September 30, 2022 to $1.5 million in the same period in 2023 due to lower personnel compensation expenses related to research and development.

Sales and Marketing ~~Expense~~

The following table presents the components of ~~sales and marketing~~S&M expense for the three months ended September 30, ~~2017~~2023 and ~~2016~~2022 together with the change in such components in dollars and as a percentage:

	Three Months Ended
	September 30,
	2017		2016		Variance			Variance %
S&M:

										Three Months Ended
										September 30,
(in thousands)										2023		2022		Variance		Variance %
Sales and Marketing:
Personnel and related benefits	$	60,802	$	56,040	$	4,762		8.5	%	$	795	$	749	$	46	6.1	%
Direct marketing fees and expense											406		854		(448)	(52.5)	%
Stock-based compensation	7,938		50,052		(42,114		)	(84.1	)%		40		32		8	25.0	%
Direct Marketing Fees	17,440		13,245		4,195			31.7	%
Other	577,585		17,545		560,040			3192.0	%		231		474		(243)	(51.3)	%
Total	$	663,765	$	136,882	$	526,883		384.9	%	$	1,472	$	2,109	$	(637)	(30.2)	%

~~Our sales and marketing~~The change in S&M expense ~~increased $526,883 from $136,882~~of $637,000 in the three months ended September 30, ~~2016~~2023 compared to ~~$663,765 in~~ the same period in ~~2017. Personnel and related benefits increased $4,762 from $56,040 in the three months ended September 30, 2016 to $60,802 in the same period in 2017~~2022 was due ~~to an increase in headcount year over year, net~~primarily to:

●

Direct marketing fees and expenses decreased by $448,000 from $854,000 in the three months ended September 30, 2022 to $406,000 in the same period in 2023 due to decreased patient access programs and other Mytesi marketing initiatives.

●

Other expenses decreased by $243,000 from $474,000 in the three months ended September 30, 2022 to $231,000 in the same period in 2023 largely due to fewer marketing consulting costs.

Table of an increase of $7,684 in employee leasing chargebacks to Napo for services rendered in the seven months ended July 31, 2017 over the nine months ended September 30, 2016. Stock based compensation expense decreased $42,114 from $50,052 in the three months ended September 30, 2016 to $7,938 in the same period in 2017 due to new options granted at a much lower fair value due to a lower strike price and a lower fair market value. Direct marketing and sales expense increased $4,195 from $13,245 in the three months ended September 30, 2016 to $17,440 for the same period in 2017 due to an increase in marketing programs to promote our Neonorm products. Other expenses, consisted primarily of travel expense, consulting expense and royalty expense, which collectively increased $560,040 from $17,545 in the three months ended September 30, 2016 to $577,585 in the same period in 2017. We plan to expand sales and marketing spend to promote our Neonorm products. Other sales and marketing expenses for the three months ended September 30, 2017 include sales and marketing expenses of $513,102 for Napo for the two months from the date of acquisition.Contents

General and Administrative ~~Expense~~

The following table presents the components of ~~general and administrative~~G&A expense for the three months ended September 30, ~~2017~~2023 and ~~2016~~2022 together with the change in such components in dollars and as a percentage:

Three Months Ended

September 30,

2017

2016

Variance

Variance %

G&A:

Personnel and related benefits

$
544,914

$
435,271

$
109,643

25.2
%
Accounting fees

211,326

56,780

154,546

272.2
%
Third-party consulting fees and Napo service fees

103,694

20,084

83,610

416.3
%
Legal fees

918,271

72,720

845,551

1162.7
%
Travel

125,067

61,009

64,058

105.0
%
Stock-based compensation

133,807

145,391

(11,584
)
(8.0
)%
Rent and lease expense

69,307

88,704

(19,397
)
(21.9
)%
Public company expenses

276,200

41,234

234,966

569.8
%
Other

688,116

194,119

493,997

254.5
%
Total

$
3,070,702

$
1,115,312

$
1,955,390

175.3
%


	Three Months Ended
	September 30,
(in thousands)	2023		2022		Variance		Variance %
General and Administrative:
Personnel and related benefits	$	901	$	678	$	223	32.9	%
Public company expense		542		1,731		(1,189)	(68.7)	%
Audit, tax and accounting services		494		520		(26)	(5.0)	%
Legal services		292		517		(225)	(43.5)	%
Third-party consulting services		260		6		254	4,233.3	%
Rent and lease expense		240		45		195	433.3	%
Stock-based compensation		225		455		(230)	(50.5)	%
Travel and other expenses		36		29		7	24.1	%
Other		543		403		140	34.7	%
Total	$	3,533	$	4,384	$	(851)	(19.4)	%

~~Our general and administrative~~

The change in G&A expenses ~~increased $1,955,390 from $1,115,312~~of $851,000 in the three months ended September 30, ~~2016~~2023 compared to ~~$3,070,702 for~~ the same period in ~~2017~~2022 was due primarily ~~to $145,000 in warrant~~to:

●

Personnel and related benefits increased by $223,000 from $678,000 for the three months ended September 30, 2022 to $901,000 in the same period in 2023 largely attributable to the increase in compensation and related benefits incurred in relation to general and administrative expenses.

●

Public company expense decreased by $1.2 million from $1.7 million for the three months ended September 30, 2022 to $542,000 in the same period in 2023 largely attributable to the decrease in investor relations and communications consulting expenses, and expenses for the annual shareholder meeting.

●

Legal services decreased by $225,000 from $517,000 for the three months ended September 30, 2022 to $292,000 in the same period in 2023 due to decreased legal administrative matters consulted.

●

Third-party consulting services fees increased by $254,000 from $6,000 in the three months ended September 30, 2022 to $260,000 in the same period in 2023 due to the higher administrative-related consultations.

●

Rent and lease expense increased $195,000 from $45,000 for the three months ended September 30, 2022 to $240,000 in the same period in 2023 primarily due to increase in fees related to occupancy of spaces and use of vehicles.

●

Stock-based compensation expense decreased by $230,000 from $455,000 in the three months ended September 30, 2022 to $225,000 in the same period in 2023 due to the decrease in the volume of option grants restricted stock units granted in the second quarter of 2023 related to finance and administrative personnel.

●

Other expenses increased by $140,000 from $403,000 in the three months ended September 30, 2022 to $543,000 in the same period in 2023 due to the cost incurred largely due to depreciations and amortizations, insurance and other administrative expenses.

Interest Expense

Interest expense ~~in connection with warrant exercises, and $978,332 in merger related expenses incurred~~decreased by $2.2 million from $2.7 million in the three months ended September 30, ~~2017, including $789,012 in estimated legal fees, $101,119 in consulting fees, and $88,201 in printer and filing fees. General and administrative expenses~~2022 to $500,000 for the ~~three months ended September 30, 2017 include $862,250 for Napo’s general~~same period in 2023 primarily due to changing the accounting of certain debt instruments to Fair Value

Table of Contents

Option (FVO). The lower interest expense was offset by a higher loss in change in fair value of financial instruments and ~~administrative expenses for the two months~~hybrid instrument designated at FVO.

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

Change in fair value of financial instrument and hybrid instrument designated at FVO decreased by $2.4 million from ~~the date~~a gain of ~~acquisition. Personnel and related benefits increased $109,643 from $435,271~~$176,000 in the three months ended September 30, ~~2016~~2022 to ~~$544,914~~a loss of $2.2 million for the same period in 2023 primarily due to ~~a decrease~~fair value adjustments in liability classified warrants and notes payable designated at FVO.

Gain on Extinguishment of ~~$13,156 in employee leasing chargebacks for services rendered in the month~~Debt

Gain on extinguishment of ~~July 2017 over the three months ended September 30, 2016, offset~~debt increased by ~~changes in headcount personnel and related salaries quarter over quarter, primarily at high paying executive levels, including $187,505 for Napo’s personnel and related benefits for the two months~~$3.7 million from ~~the date of acquisition. Stock-based compensation decreased $11,584 from $145,391~~zero in the three months ended September 30, ~~2016~~2022 to ~~$133,807 in~~$3.7 million for the same period in ~~2017~~2023 primarily due ~~primarily~~ to ~~a reduction~~significant modifications of ~~expense associated with outstanding options. Our public company expenses increased $234,966 from $41,234 in the three months ended September 30, 2016~~royalty interest agreements resulting to $276,200 in the same period in 2017 due primarily to the $88,201 merger related expenses in the three months ended September 30, 2017, to another $62,109 in additional printer expenses associated with other filings with the Securities and Exchange Commission, and to an increase of $35,708 in investor relations fees and an increase of $24,191 in investor services expenses. Audit fees increased by $81,861 from $56,780 in the three months ended September 30, 2016 to $138,641 in the same period in 2017. Our general corporate and public securities legal fees increased $845,551 from $72,720 in the three months ended September 30, 2016 to $918,271 in the same period in 2017, due primarily to the $789,012 in merger related expenses. Our consulting expenses increased by $83,610 from $20,084 in the three months ended September 30, 2016 to $103,694 in the same period in 2017 due primarily to the $88,201 in merger related consulting services. Rent and lease expense decreased $19,397 from $88,704 in the three months ended September 30, 2016 to $69,307 in the same period in 2017 due primarily to an increase of $18,524 in employee leasing chargebacks to Napo for space used in connection with our employees providing services to Napo in the month of July 2017 versus three months ended September 30, 2016. Other expenses, including warrant expense, insurance costs, office and facilities expenses increased $493,997 from $194,119 in the three months ended September 30, 2016 to $688,116 in the same period in 2017 due primarily to $235,000 warrant expenses, as well as increases of $7,513 in office and computer equipment and $8,005 in conferences and meetings expenses, and $6,653 in bank and credit card fees. Other general and administrative expenses for the three months ended September 30, 2017 include $445,946 for Napo’s other general and administrative expenses for the two months from the date of acquisition. We expect to incur additional general and administrative expense as a result of operating as a public company and as we grow our business, including expenses related to compliance with the rules and regulations of the SEC, additional insurance expenses, investor relations activities and other administrative and professional services.extinguishment accounting.

~~Impairment of goodwill~~

~~The Company recorded an impairment charge of $3,648,000 during the three and nine months ended September 30, 2017.~~

Liquidity and Capital Resources

Sources of Liquidity

We ~~had an accumulated deficit of $42.2 million as a result of incurring~~have incurred net losses since our inception as we have not generated enough revenue to cover costs and expenses through the current fiscal year. Our net loss and comprehensive loss was $14.7 million for the year ended December 31, 2016, and $1.8 million forinception. For the nine months ended September 30, ~~2017.~~2023 and 2022, we had net losses of $32.7 million and $40.2 million, respectively. We expect ~~to continue~~ to incur additional losses ~~through~~in the ~~end~~near-term future. At September 30, 2023, we had an accumulated deficit of ~~fiscal year 2017~~$299.1 million. To date, we have generated only limited revenue, and ~~into future years due~~we may never achieve revenue sufficient to ~~expected significant expenses for toxicology, safety and efficacy clinical trials of~~offset our ~~products and product candidates, for establishing contract manufacturing capabilities, and for the commercialization of one or more of our product candidates, if approved.~~

expenses.

We had cash ~~and cash equivalents~~ of ~~$220,590~~$3.2 million as of September 30, ~~2017.~~2023. We do not believe our ~~existing cash and cash equivalents will be~~current capital is sufficient to ~~meet~~fund our anticipated cash requirements for the next 12 months. Our independent registered public accounting firm has included an explanatory paragraph in its audit report included in our Form 10-K for the years ended December 31, 2016 and 2015 regarding our assessment of substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that may resultoperating plan through one year from the ~~outcome~~issuance of ~~this uncertainty.~~these unaudited condensed consolidated financial statements.

~~To date, we~~We have funded our operations primarily through the issuance of debt and equity securities, ~~short-term convertible promissory notes, and long-term debt,~~ in addition to sales of ~~Neonorm,~~ our commercial ~~product:~~

· In 2013, we received $400 from the issuance of 2,666,666 shares of common stock to our parent Napo Pharmaceuticals, Inc. We also received $519,000 of net cash from the issuance of convertible promissory notes in an aggregate principal amount of $525,000. These notes were all converted to common stock in 2014.

· In 2014, we received $6.7 million in proceeds from the issuance of convertible preferred stock. Effective as of the closing of our initial public offering, the 3,015,902 shares of outstanding convertible preferred stock were automatically

~~converted into 2,010,596 shares of common stock. Following our initial public offering, there were no shares of preferred stock outstanding.~~

· In 2014, we received $1.1 million from the issuance of convertible promissory notes in an aggregate principal amount of $1.1 million. These notes were converted to common stock upon the effectiveness of the initial public offering in May of 2015. In August 2014, we entered into a standby line of credit with an individual, who is an accredited investor,products. Cash provided by financing activities for up to $1.0 million. To date, we had not made any drawdowns under this facility. Also, in October of 2014, as amended and restated in December 2014, we entered into a $1.0 million standby bridge loan which was repaid in 2015.

· In 2015, we received $1.25 million in exchange for $1.25 million of convertible promissory notes, of which $1.0 million was converted to common stock in 2015, and $100,000 was repaid in 2015. The remaining $150,000 remains outstanding.

· In May 2015, we received net proceeds of $15.9 million upon the closing of our initial public offering, gross proceeds of $20.0 million (2,860,000 shares at $7.00 per share) net of $1.2 million of underwriting discounts and commissions and $3.3 million of offering expenses, including $0.4 million of non-cash expense. These shares began trading on The NASDAQ Capital Market on May 13, 2015.

· In 2015, we received net proceeds of $5.9 million from the issuance of long-term debt. We entered into a loan and security agreement with a lender for up to $8.0 million, which provided for an initial loan commitment of $6.0 million. Under the loan agreement we are required to maintain $4.5 million of the proceeds in cash, which amount may be reduced or eliminated on the achievement of certain milestones. An additional $2.0 million is available contingent on the achievement of certain further milestones. The agreement has a term of three years, with interest only payments through February 29, 2016. Thereafter, principal and interest payments will be made with an interest rate of 9.9%. Additionally, there will be a balloon interest payment of $560,000 on August 1, 2018. This amount is being recognized over the term of the loan agreement and the effective interest rate, considering the balloon payment, is 15.0%. Our proceeds are net of a $134,433 debt discount under the terms of the agreement.

· ~~In 2014 and 2015, we received $24,000 and $531,000, respectively, in cash from sales of Neonorm to distributors.~~

· ~~In 2015, we received approximately $13,000 in proceeds from the exercise of stock options.~~

· In 2016, we received net proceeds of $4.1 million upon the closing of our follow-on public offering, reflecting gross proceeds of $5.0 million (2.0 million shares at $2.50 per share) net of $373,011 of underwriting discounts and commissions and $496,887 of offering expenses.

· In June 2016, we entered into the CSPA with a private investor. Under the terms of the agreement, we may sell up to $15.0 million in common stock to the investor during the approximately 30-month term of the agreement. Upon execution of the CSPA, we sold 222,222 shares of our common stock to the investor at $2.25 per share for net proceeds of $448,732, reflecting gross proceeds of $500,000 and offering expenses of $51,268. In consideration for entering into the CSPA, we issued 456,667 shares of our common stock to the investor. We issued 1,348,601 shares in exchange for net proceeds of $2,122,570, reflecting gross proceeds of $2,176,700 net of $54,130 offering expenses under the CSPA in the year ended December 31, 2016. And in the nine months ended September 30, ~~2017, we sold another 3,972,510 shares of the Company’s common stock in exchange for $2,387,085 of gross cash proceeds. Of the $15.0 million available under the CSPA, we have received $5,063,785~~2023, were generated from the ~~sale~~issuance of ~~6,000,000 shares of our common stock as of September 30, 2017.~~

· In October 2016, we entered into a Common Stock Purchase Agreement with an existing private investor. Upon execution of the agreement we sold 170,455 shares of our common stock in exchange for $150,000 in cash proceeds.

· On November 22, 2016, we entered into a Securities Purchase Agreement, or the 2016 Purchase Agreement, with certain institutional investors, pursuant to which we sold securities to such investors in a private placement transaction, which we refer to herein as the 2016 Private Placement. In the 2016 Private Placement, we sold an aggregate of 1,666,668 shares of our common stock at a price of $0.60 per share for gross proceeds of approximately $1.0 million. The investors in the 2016 Private Placement also received (i) warrants to purchase up to an aggregate of 1,666,668 shares of our common stock, at an exercise price of $0.75 per share, or the Series A Warrants, (ii) warrants to purchase up to an aggregate 1,666,668 shares of our common stock, at an exercise price of $0.90 per share, or the Series B Warrants, and

(iii) warrants to purchase up to an aggregate 1,666,668 shares of our common stock, at an exercise price of $1.00 per share, or the Series C Warrants and, together with the Series A Warrants and the Series B Warrants, the 2016 Warrants.

· On January 27, 2017, we entered into a licensing, development, co-promotion and commercialization agreement with Elanco to license, develop and commercialize Canalevia, our drug product candidate under investigation for treatment of acute and chemotherapy-induced diarrhea in dogs, and other drug product formulations of crofelemer for treatment of gastrointestinal diseases, conditions and symptoms in cats and other companion animals. The Elanco Agreement grants Elanco exclusive global rights to Canalevia, a product whose active pharmaceutical ingredient is sustainably isolated and purified from the Croton lechleri tree, for use in companion animals. Pursuant to the Elanco Agreement, Elanco will have exclusive rights globally outside the U.S. and co-exclusive rights with us in the U.S. to direct all marketing, advertising, promotion, launch and sales activities related to the Licensed Products.

Under the terms of the Elanco Agreement, we received an initial upfront payment of $2,548,689 inclusive of reimbursement of past product and development expenses of $1,048,689 and we will receive additional payments upon achievement of certain development, regulatory and sales milestones in an aggregate amount of up to $61.0 million payable throughout the term of the Elanco Agreement, as well as product development expense reimbursement, and royalty payments on global sales. The Elanco Agreement specifies that we will supply the Licensed Products to Elanco, and that the parties will agree to set a minimum sales requirement that Elanco must meet to maintain exclusivity. Elanco will also reimburse us for Canalevia-related expenses, including reimbursement for Canalevia-related expenses in Q4 2016, certain development and regulatory expenses related to our planned target animal safety study and the completion of our field study of Canalevia for acute diarrhea in dogs. ~~On November 1, 2017, Elanco notified the Company of its intention to terminate the Elanco Agreement, effective January 30, 2018.~~

· On March 31, 2017, we entered into a merger agreement with Napo, pursuant to which we are required, among other things, to issue approximately 69,299,346 shares of our common stock and non-voting common stock to Napo creditors, noteholders, holders of Napo warrants, options or restricted stock units, and Invesco upon consummation of the merger.

· On June 28, 2017, we closed a private investment in public entities with a member of our board of directors. We received gross proceeds of $50,000 in exchange for 100,000 shares of our common stock.

· On June 29, 2017, we issued a secured convertible promisorry note to a lendor in the aggregate principal amount of $2,155,000 less an original issue discount of $425,000 and less $30,000 to cover the lender’s legal fees for net cash proceeds of $1,700,000. Interest on the outstanding balance will be paid 8% per annum from the purchase price date until the balance is paid in full. All interest calculations are computed on the basis of a 360-day year comprised of twelve (12) thirty (30) day months compounded daily and payable in accordance with the terms of the Note. All principal and interest on the debt is due in full on August 2, 2018.

· ~~On July 13, 2017, we closed a private investment in public entities with an investor. We received gross proceeds of $50,000 in exchange for 100,000 shares of our common stock.~~

· ~~On July 31, 2017, as part of the merger with Napo, we sold 3,243,243 shares of our common stock to an investor in exchange for $1,000,000 in cash and $2,000,000 in a direct payoff of Napo debt.~~

· On July 31, 2017, the Company entered into Warrant Exercise Agreements, or Exercise Agreements, with certain holders of Series C Warrants, or the Exercising Holders, which Exercising Holders own, in the aggregate, Series C Warrants exercisable for 908,334 shares of the Company’s common stock. Pursuant to the Exercise Agreements, the Exercising Holders and the Company agreed that the Exercising Holders would exercise their Series C Warrants with respect to 908,33417,930,660 shares of common stock ~~underlying such Series C Warrants~~under the ATM Agreement for ~~a reduced exercise price equal to $0.40 per share. The Company received aggregate gross~~total net proceeds of approximately ~~$363,334~~$20.8 million, issuance of an aggregate 6,850,000 warrants and 137 Series G Convertible Preferred Stock in PIPE financing for a total net proceeds of $1.8 million, and investment from ~~the exercise~~non-controlling interest for a total net proceeds of ~~the Series C Warrants by the Exercising Holders.~~

$1.2 million.

We expect our expenditures will continue to increase as we continue our efforts to develop ~~animal health~~our products ~~expand our commercially available Neonorm product~~ and continue the development of our pipeline in the near term. We do not believe our current capital is sufficient to fund our operating plan through June 2018. We will need to seek additional funds through public or private equity or debt financings or other sources, such as strategic collaborations. Such financing may result in dilution to stockholders, imposition of debt covenants and repayment obligations or other restrictions that may affect our business. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. We may also not be successful in entering into partnerships that include payment of

upfront licensing fees for our products and product candidates for markets outside the United States, where appropriate. If we do not generate upfront fees from any anticipated arrangements, it would have a negative effect on our operating plan. We still plan to finance our operations and capital funding needs through equity and/or debt financing as well as revenue from future product sales. However, there can be no assurance that additional funding will be available to us on acceptable terms on a timely basis, if at all, or that we will generate sufficient cash from operations to adequately fund operating needs or ultimately achieve profitability. If we are unable to obtain an adequate level of financing needed for the long-term development and commercialization of our products, we will need to curtail planned activities and reduce costs. Doing so will likely have an adverse effect on our ability to execute on our business plan. ~~These matters raise substantial doubt about the ability~~

Table of ~~the Company to continue in existence as a going concern within one year after issuance date of the financial statements.~~Contents

Cash Flows for the Nine Months Ended September 30, ~~2017~~2023 Compared to ~~the~~ Nine Months Ended September 30, ~~2016~~2022

The following table shows a summary of cash flows for the nine months ended September 30, ~~2017~~2023 and ~~2016:~~2022:


	Nine Months Ended September 30,
(in thousands)	2023		2022
Total cash used in operating activities	$	(25,791)	$	(26,681)
Total cash used in investing activities		—		(1,314)
Total cash provided by financing activities		23,577		21,543
Effects of foreign exchange rate changes on assets and liabilities		(29)		(38)
Net decrease in cash	$	(2,243)	$	(6,490)

Nine Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

Total cash used in operating activities

$
(4,494,788
)
$
(11,686,507
)
Total cash (used in)/ provided by investing activities

(1,546,047
)
1,907,213

Total Cash Provided by Financing Activities

5,310,446

3,895,174

$
(730,389
)
$
(5,884,120
)

Cash Used in Operating Activities

During the nine months ended September 30, ~~2017,~~2023, net cash used in operating activities of ~~$4,494,788~~$25.8 million resulted from our net comprehensive loss of ~~$1.8~~$32.7 million adjusted by ~~non-cash accretion~~the change in fair value of ~~end~~financial instrument and hybrid instrument designated at FVO of ~~term payment,~~$3.4 million, amortization of debt discounts and debt issuance costs of ~~$368,000,~~$11.5 million, stock-based compensation of ~~$631,000, change~~$1.5 million, depreciation and amortization expenses of $1.5 million, amortization of operating lease right-of-use asset of $286,000, shares issued in ~~fair value~~exchange of ~~modified warrants~~services of ~~$23,000, reduction~~$166,000, equity in a net loss in the ~~fair value~~joint venture of ~~warrant liability of $636,000, loss~~$42,000, gain on extinguishment of debt of ~~$208,000, stock issued in the merger in exchange for services $151,000, depreciation~~$3.7 million and ~~amortization expenses of $326,000, impairment of goodwill of $3,648,000, deferred income benefit of 12,190,693 and gain on revaluation of derivative liability of $1,000, net of~~ changes in operating assets and liabilities of ~~$4.8~~$7.8 million.

During the nine months ended September 30, ~~2016,~~2022, net cash used in operating activities of ~~$11,686,507~~$26.7 million resulted from our net loss of ~~$11.1~~$40.2 million ~~offset~~adjusted by ~~non-cash accretion~~the amortization of ~~end of term payment,~~ debt discounts and debt issuance costs of ~~$396,000,~~$8.8 million, loss on extinguishment of debt of $2.2 million, stock-based compensation of ~~$478,000,~~$2.8 million, depreciation ~~expense~~and amortization expenses of ~~$32,000, net~~$1.5 million, change in fair value of the financial instrument and hybrid instrument designated at FVO of $652,000, amortization of operating lease right-of-use asset of $208,000, shares issued upon exercise of RSUs of 100,000, shares issued in exchange of services of $654,000, and changes in operating assets and liabilities of ~~$1.5~~$2.1 million.

Cash ~~(Used in) Provided by~~Used in Investing Activities

There are no cash used in investing activities during the nine months ended September 30, 2023.

During the nine months ended September 30, ~~2017,~~2022, cash used in investing activities of ~~$1,546,047~~$1.3 million consisted of cash used ~~in acquisition, net of cash acquired of $1,557,340 offset~~to purchase intangible assets and property and equipment.

Cash Provided by ~~$11,000 of a release of restricted cash that resulted from principal payments of our long-term debt.~~Financing Activities

During the nine months ended September 30, ~~2016,~~2023, net cash provided by ~~investing~~financing activities of ~~$1,907,213 primarily~~$23.6 million consisted of ~~$2.0~~$20.8 million in net proceeds from shares issued in an At the Market offering, $1.2 million net proceeds from issuance of ~~a release~~warrants in PIPE financing, investment from non-controlling interest of ~~restricted cash that resulted~~$1.2 million and $611,000 net proceeds from issuance of preferred shares in PIPE financing, offset by $293,000 repayment of insurance financing, and $50,000 in principal payments ~~on our long-term debt, net~~ of ~~$104,000 in purchases of property and equipment.~~

~~Cash Provided by Financing Activities~~

the notes payable.

During the nine months ended September 30, ~~2017,~~2022, net cash provided by financing activities of ~~$5,310,446 primarily~~$21.5 million consisted of ~~$2.3~~$17.8 million in net proceeds ~~received~~from shares issued in an At the ~~CSPA, $94,000 in net proceeds received in a PIPE financing, $1.7~~Market offering of $4.0 million ~~received in the issuance of convertible debt, $3.0 million received~~and notes payable from ~~the sale of common stock in the merger, and $363,000 received in the exercise of certain warrants,~~Streeterville, offset by ~~$2.2 million~~$118,000 repayment of insurance financing, and $100,000 in principal payments of ~~our long-term debt.~~

During the nine months ended September 30, 2016, cash provided by financing activities of $3,895,174 primarily consisted of $4.1 million in net cash received in our secondary public offering, net of commissions and certain offering expenses, and $395,000 in

net cash received in the initial sale under the CSPA, net of fees and certain offering expenses, and $1.4 million received from the issuance of common stock under the aforementioned CSPA, offset by $2.0 million in principal payments on our long-term debt.

~~Standby Lines of Credit, Convertible Notes and Warrant Issuances~~

~~Convertible Notes and Warrants~~

~~Convertible notes at September 30, 2017 and December 31, 2016 consist of the following:~~

~~Interest expense on the convertible notes for the three and nine months ended September 30, 2017 and 2016 follows:~~

~~Interest expense is classified as such in the statements of operations and comprehensive income.~~

~~February 2015 Convertible Note~~

In February 2015, we issued convertible promissory notes to two accredited investors in the aggregate principal amount of $250,000. These notes were issued pursuant to the convertible note purchase agreement dated December 23, 2014. In connection with the issuance of the notes ~~we issued the lenders warrants to purchase 22,320 shares at $5.60 per share, which expire December 31, 2017. Principal and interest~~payable.

Table of $103,912 was paid in May 2015 for $100,000 of these notes. We analyzed the beneficial nature of the conversion terms and determined that a BCF existed because the effective conversion price was less than the fair value at the time of the issuance. We calculated the value of the BCF using the intrinsic method. A BCF for the full face value was recorded as a discount to the notes payable and to additional paid-in capital. The full amount of the BCF was amortized to interest expense by the end of June 2015.Contents

The remaining outstanding note of $150,000 is payable to an investor at an effective simple interest rate of 12% per annum, and was due in full on July 31, 2016. On July 28, 2016, we entered into an amendment to delay the repayment of the principal and related interest under the terms of the remaining note from July 31, 2016 to October 31, 2016.

On November 8, 2016, we entered into an amendment to extend the maturity date of the remaining note from October 31, 2016 to January 1, 2017. In exchange for the extension of the maturity date, on November 8, 2016, our board of directors granted the lender a warrant to purchase 120,000 shares of the Company’s common stock for $0.01 per share. The warrant is exercisable at any time on or before July 28, 2022, the expiration date of the warrant. The amendment and related warrant issuance resulted in our treating the debt as having been extinguished and replaced with new debt for accounting purposes due to meeting the 10% cash flow test.

*~~Extinguishment of debt~~

On January 31, 2017, we entered into another amendment to extend the maturity date of the remaining note from January 1, 2017 to January 1, 2018. In exchange for the extension of the maturity date, on January 31, 2017, our board of directors granted the lender a warrant to purchase 370,916 shares of our common stock for $0.51 per share. The warrant is exercisable at any time on or before January 31, 2019, the expiration date of the warrant. The amendment and related warrant issuance resulted in our treating the debt as having been extinguished and replaced with new debt for accounting purposes due to meeting the 10% cash flow test. We calculated a loss on the extinguishment of debt of $207,713, or the equivalent to the fair value of the warrants granted, which is included in loss an extinguishment of debt in our statements of operations and comprehensive loss in the nine months ended September 30, 2017.

The $150,000 note is included in notes payable in current liabilities on our balance sheet. We have unpaid accrued interest of $47,392 and $33,929, which is included in accrued expenses on our balance sheet as of September 30, 2017 and December 31, 2016, respectively, and incurred interest expense of $4,537 in the three months ended September 30, 2017 and 2016, respectively, and $13,463 and $13,512 in the nine months ended September 30, 2017 and 2016 which are included in interest expense in the statement of operations and comprehensive loss.

~~June 2017 Convertible Note~~

On June 29, 2017, we issued a secured convertible promisorry note, or Note, to a lendor in the aggregate principal amount of $2,155,000 less an original issue discount of $425,000 and less $30,000 to cover the lender’s legal fees for net cash proceeds of $1,700,000. Interest on the outstanding balance will be paid 8% per annum from the purchase price date until the balance is paid in full. All interest calculations are computed on the basis of a 360-day year comprised of twelve (12) thirty (30) day months compounded daily and payable in accordance with the terms of the Note. All principal and interest on the debt is due in full on August 2, 2018. We accrued interest of $44,372 at September 30, 2017 which is included in accrued expenses on our balance sheet, and incurred interest expense of $43,900 and $44,372 in interest expense in the three and nine months ended September 30, 2017 which are included in interest expense in our statement of operations and comprehensive loss. We also recorded $123,362 and $124,708 in interest expense in the three and nine months ended September 30, 2017 which are included in our statement of operations and comprehensive loss for the accretion of the debt discount. The lender has the right to convert all or any portion of the outstanding balance into our common stock at $1.00 per share.

The Note provides the lender with an optional monthly redemption that allows for the monthly payment of up to $350,000 at the creditor’s option commencing on the earlier of six months after the purchase price date, June 29, 2017, or the effective date of the registration statement which is expected to be before December 2017. ASC 470-10-45-9 and 45-10 provide that debt that is due on demand or will be due on demand within one year from the balance sheet date should be classified as a current liability, even though the liability may not be expected to be paid within that period or the liability has scheduled repayment dates that extend beyond one year but nevertheless is callable by the creditor within one year. As such, despite the fact that the Note is due in full on August 2, 2018, the full amount of the Note balance has been classified as a current liability in the balance sheet.

~~The Note provides for two separate features that result in a derivative liability:~~

The Company computed fair values at June 30, 2017 of $15,000 and $5,000 for the repayment and the interest rate increase feature, respectively, using the Binomial Lattice Model, which was based on the generalized binomial option pricing formula. The $20,000 combined fair value was carved out and is included as a derivative liability on the balance sheet. The derviatives were revalued at September 30, 2017 using the same Model resulting in a combined fair value of $19,000. The $1,000 gain is included in other income and expense in the statement of income and comprehensive income.

~~Napo convertible notes~~

In December 2016, Napo entered into a note purchase agreement which provides for the sale of up to $12,500,000 face amount of notes and issued convertible promissory notes (the Napo December Notes) in the aggregate face amount of $2,500,000 to three lenders and received proceeds of $2,000,000 which resulted in $500,000 of original issue discount. In July 2017, Napo issued convertible promissory notes (the Napo July Notes) in the aggregate face amount of $7,500,000 to four lenders and received proceeds of $6,000,000 which resulted in $1,500,000 of original issue discount. The Napo December Notes and the Napo July Notes mature on December 30, 2019 and bear interest at 10% with interest due each six-month period after December 30, 2016. On June 30, 2017, the accrued interest of $125,338 was added to principal of the Napo December Notes, and the new principal balance became $2,625,338. Interest may be paid in cash or in the stock of Jaguar per temes of the note purchase agreement. In each one year period beginning December 30, 2016, up to one-third of the principal and accrued interest on the notes may be converted into the common stock of the merged entity at a conversion price of $0.925 per share. The Company assumed these convertible notes at fair value of $11,161,000 as part of the Napo Merger. At September 30, 2017, the balance of the note payable is $11,161,000 and the accrued interest on these notes is $193,565.

~~Long term Debt~~

In August 2015, we entered into a loan and security agreement with a lender for up to $8.0 million, which provided for an initial loan commitment of $6.0 million. The loan agreement requires us to maintain $4.5 million of the proceeds in cash, which may be reduced or eliminated on the achievement of certain milestones. An additional $2.0 million is available contingent on the achievement of certain further milestones. The agreement has a term of three years, with interest only payments through February 29, 2016. Thereafter, principal and interest payments will be made with an interest rate of 9.9%. Additionally, there will be a balloon payment of $560,000 on August 1, 2018. This amount is being recognized over the term of the loan agreement and the effective interest rate, considering the balloon payment, is 15.0%. Proceeds were net of a $134,433 debt discount under the terms of the loan agreement. This debt discount is being recorded as interest expense, using the interest method, over the term of the loan agreement. Under the agreement, we are entitled to prepay principal and accrued interest upon five days prior notice to the lender. In the event of prepayment, we are obligated to pay a prepayment charge. If such prepayment is made during any of the first twelve months of the loan agreement, the prepayment charge will be (a) during such time as we are required to maintain a minimum cash balance, 2% of the minimum cash balance amount plus 3% of the difference between the amount being prepaid and the minimum cash balance, and (b) after such time as we are no longer required to maintain a minimum cash balance, 3% of the amount being prepaid. If such prepayment is made during any time after the first twelve months of the loan agreement, 1% of the amount being prepaid.

On April 21, 2016, the loan and security was amended upon which we repaid $1.5 million of the debt out of restricted cash. The amendment modified the repayment amortization schedule providing a four-month period of interest only payments for the period from May through August 2016.

On July 7, 2017, we entered into the third amendment to the Loan Agreement upon which we paid $1.0 million of the outstanding loan balance, and the Lender waived the Prepayment Charge associated with such prepayment. The Third Amendment modified the repayment schedule providing a three-month period of interest only payments for the period from August 2017 through

October 2017, and reduced the required cash amount that we must keep on hand to $500,000, which will be reduced following the Lender’s receipt of each principal repayment subsequent to the $1.0 million.

~~As of September 30, 2017 and December 31, 2016, the net long-term debt obligation was as follows:~~

~~Future principal payments under the long-term debt are as follows:~~

Years ending December 31

Amount

2017 - September through December

$
260,832

2018

1,089,199

Total future principal payments

1,350,031

2018 end-of-term payment

560,000

1,910,031

Less: unaccreted end-of-term payment at September 30, 2017

(54,703
)
Debt and unpaid accrued end-of-term payment

$
1,855,328

~~Interest expense on the long-term debt for the three and nine months ended September 30, 2017 and 2016 was as follows:~~

~~Warrants~~

On November 22, 2016, we entered into a Securities Purchase Agreement, or the 2016 Purchase Agreement, with certain institutional investors, pursuant to which we sold securities to such investors in a private placement transaction, which we refer to herein as the 2016 Private Placement. In the 2016 Private Placement, we sold an aggregate of 1,666,668 shares of our common stock at a price of $0.60 per share for gross proceeds of approximately $1.0 million. The investors in the 2016 Private Placement also received (i) warrants to purchase up to an aggregate of 1,666,668 shares of our common stock, at an exercise price of $0.75 per share,

or the Series A Warrants, and the Placement Agent received warrants to purchase 133,333 shares of our common stock in lieu of cash for service fees with the same terms as the investors; (ii) warrants to purchase up to an aggregate 1,666,668 shares of our common stock, at an exercise price of $0.90 per share, or the Series B Warrants, and (iii) warrants to purchase up to an aggregate 1,666,668 shares of our common stock, at an exercise price of $1.00 per share, or the Series C Warrants and, together with the Series A Warrants and the Series B Warrants, the 2016 Warrants. The warrants were granted in three series with different terms. The warrants were valued using the Black-Scholes-Merton warrant pricing model as follows:

· Series A Warrants and Placement Agent Warrants: 1,666,668 warrant shares with a strike price of $0.75 per share and an expiration date of May 29, 2022; and 133,333 warrant shares to the placement agent with a strike price of $0.75 and an expiration date of May 29, 2022; the expected life is 5.5 years, the volatility is 71.92% and the risk free rate is 1.87% in valuing these warrants.

The warrant valuation date was November 29, 2016 and the closing price of $0.69 per share was used in determining the fair value of the warrants. The series A warrants and placement agent warrants were valued at $756,001 and were classified as a warrant liability in the balance sheet. The series A warrants and placement agent warrants were revalued on December 31, 2016 at $799,201 which is included in the balance sheet, and the $43,200 increase is included in the statements of operations and comprehensive loss. The stock price was $0.716, the strike price was $0.75 per share, the expected life was 5.41 years, the volatility was 73.62% and the risk free rate was 2.0%. The series B and C warrants were classified as equity, and as such were not subject to revaluation at year end. Costs incurred in connection with the issuance were allocated based on the relative fair values of the Series A and the Series B and C warrants. The series A warrants and placement agent warrants were revalued on September 30, 2017 at $163,080 and is included in the balance sheet. The valuation reflects a reduction of $388,800 from the June 30, 2017 valuation of $551,880, and a decrease of $636,121 decrease from the $799,201 December 31, 2016 valuation. The changes are included in the statements of operations and comprehensive loss. The $163,080 valuation at September 30, 2017 was computed using the Black-Scholes-Merton pricing model using a stock price of $0.20, the strike price was $0.75 per share, the expected life was 4.67 years, the volatility was 90.77% and the risk free rate was 1.87%.

On July 31, 2017, the Company entered into Warrant Exercise Agreements, or the Exercise Agreements, with certain holders of Series C Warrants, the Exercising Holders, which Exercising Holders own, in the aggregate, Series C Warrants exercisable for 908,334 shares of our common stock. Pursuant to the Exercise Agreements, the Exercising Holders and us agreed that the Exercising Holders would exercise their Series C Warrants with respect to 908,334 shares of common stock underlying such Series C Warrants for a reduced exercise price equal to $0.40 per share. We received aggregate gross proceeds of approximately $363,334 from the exercise of the Series C Warrants by the Exercising Holders. The difference between the pre-modification and post-modification fair value of $23,000 was expensed in general and administrative expense in the statements of operations and comprehensive income. The pre-modification fair value was computed using the Black-Scholes-Merton model using a stock price of $0.56 (fair market value on modification date), original strike price of $1.00, expected life of 0.83 years, volatility of 115.28%, risk-free rate of 1.20% to arrive at a fair value of $0.1347 per share. The post-modification fair value was computed using the intrinsic value on the date of modification or $0.16 per share.

~~We granted 1,224,875 warrants at a strike price of $0.08 per share to replace Napo warrants upon the consummation of the merger.~~

~~Our warrant activity is summarized as follows:~~

~~Off-Balance Sheet Arrangements~~

~~Since inception, we have not engaged in the use of any off-balance sheet arrangements, such as structured finance entities, special purpose entities or variable interest entities.~~

~~Critical Accounting Policies and Significant Judgments and Estimates~~

The preparation of financial statements in conformity with U.S. generally accepted accounting principles, or U.S. GAAP, requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures in the financial statements. Critical accounting policies are those accounting policies that may be material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and that have a material impact on financial condition or operating performance. While we base our estimates and judgments on our experience and on various other factors that we believe to be reasonable under the circumstances, actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies used in the preparation of our financial statements require significant judgments and estimates. For additional information relating to these and other accounting policies, see Note 2 to our financial statements, appearing elsewhere in this report.

~~Revenue Recognition~~

~~We recognize revenue in accordance with ASC 605 “Revenue Recognition”, subtopic ASC 605-25 “~~ ~~Revenue with Multiple Element Arrangements~~ ~~“ and subtopic ASC 605-28 “~~ ~~Revenue Recognition-Milestone Method~~ “, which provides accounting guidance for revenue recognition for arrangements with multiple deliverables and guidance on defining the milestone and determining when the use of the milestone method of revenue recognition for research and development transactions is appropriate, respectively. For multiple-element arrangements, each deliverable within a multiple deliverable revenue arrangement is accounted for as a separate unit of accounting if both of the following criteria are met: (1) the delivered item or items have value to the customer on a standalone basis and (2) for an arrangement that includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in our control. If a deliverable in a multiple element arrangement is not deemed to have a stand-alone value, consideration received for such a deliverable is recognized ratably over the term of the arrangement or the estimated performance period, and it will be periodically reviewed based on the progress of the related product development plan. The effect of a change made to an estimated performance period and therefore revenue recognized ratably would occur on a prospective basis in the period that the change was made.

Our revenue related to the reimbursement of costs incurred under the collaboration agreement where the company acts as principal, controls the research and development activities and bears credit risk. Under the agreement, the Company is reimbursed for

associated out-of-pocket costs and for certain employee costs. The gross amount of these pass-through costs is reported in revenue in the accompanying statements of operations and comprehensive loss, while the actual expense for which the Company is reimbursed are reflected as research and development costs.

Determining whether and when some of these revenue recognition criteria have been satisfied often involves assumptions and judgments that can have a significant impact on the timing and amount of revenue the Company will report. Changes in assumptions or judgments or changes to the elements in an arrangement could cause a material increase or decrease in the amount of revenue that the Company reports in a particular period.

~~Product Revenue~~

The Company’s subsidiary — Napo sells its drug product, Mytesi through one distributor that in turn sells to various wholesalers in the United States. Sales to the wholesalers are made under agreements that may provide price adjustments and rights of return prior to sell through sales are recognized as revenue when delivered to the wholesalers. Mytesi revenue included in the Company’s revenue for the nine months ended September 2017 and 2016 is $363,868 and $0, respectively. Mytesi revenue included in the Company’s revenue for the three months ended September 2017 and 2016 is $364,054 and $0, respectively.

~~Collaboration Revenue~~

On January 27, 2017, we entered into a licensing, development, co-promotion and commercialization agreement with Elanco US Inc. (“Elanco”) to license, develop and commercialize Canalevia (“Licensed Product”), our drug product candidate under investigation for treatment of acute and chemotherapy-induced diarrhea in dogs, and other drug product formulations of crofelemer for treatment of gastrointestinal diseases, conditions and symptoms in cats and other companion animals. We granted Elanco exclusive global rights to Canalevia, a product whose active pharmaceutical ingredient is sustainably isolated and purified from the Croton lechleri tree, for use in companion animals. Pursuant to the Elanco Agreement, Elanco will have exclusive rights globally outside the U.S. and co-exclusive rights with us in the U.S. to direct all marketing, advertising, promotion, launch and sales activities related to the Licensed Products.

Under the terms of the Elanco Agreement, we received an initial upfront payment of $2,548,689, inclusive of reimbursement of past product and development expenses of $1,048,689, and will receive additional payments upon achievement of certain development, regulatory and sales milestones in an aggregate amount of up to $61.0 million payable throughout the term of the Elanco Agreement, as well as product development expense reimbursement for any additional product development expenses incurred, and royalty payments on global sales. The $61.0 million development and commercial milestones consist of $1.0 million for successful completion of a dose ranging study; $2.0 million for the first commercial sale of license product for acute indications of diarrhea; $3.0 million for the first commercial sale of a license product for chronic indications of diarrhea; $25.0 million for aggregate worldwide net sales of licensed products exceeding $100.0 million in a calendar year during the term of the agreement; and $30.0 million for aggregate worldwide net sales of licensed products exceeding $250.0 million in a calendar year during the terms of the agreement. Each of the development and commercial milestones are considered substantive. No revenues associated with the achievement of the milestones has been recognized to date. The Elanco Agreement specifies that we will supply the Licensed Products to Elanco, and that the parties will agree to set a minimum sales requirement that Elanco must meet to maintain exclusivity. The $2,548,689 upfront payment, inclusive of reimbursement of past product and development expenses of $1,048,689 is recognized as revenue ratably over the estimated development period of one year resulting in $637,200 and $1,734,100 in collaboration revenue in the three and nine

months ended September 30, 2017 which are included in our statements of operations and comprehensive loss. The difference of $814,589 is included in deferred collaboration revenue in ourbalance sheet.

In addition to the upfront payments, Elanco reimburses us for certain development and regulatory expenses related to our planned target animal safety study and the completion of the Canalevia field study for acute diarrhea in dogs. These are recognized as revenue in the month in which the related expenses are incurred. We have $17,349 of unreimbursed expenses as of September 30, 2017, which is included in Other Receivables on our balance sheet. We included the $17,349 and $503,391 in collaboration revenue in the three and nine months ended September 30, 2017 which are included in the statements of operations and comprehensive loss. On November 1, 2017, Elanco notified us of its intention to terminate the Elanco Agreement, effective January 30, 2018. On the effective date of termination of the Elanco Agreement, all licenses that we granted to Elanco under the Elanco Agreement will be revoked and the rights granted thereunder revert back to us.

~~Goodwill and Indefinite-lived Intangible Assets~~

Goodwill is tested for impairment on an annual basis and in between annual tests if events or circumstances indicate that an impairment loss may have occurred. The test is based on a comparison of the reporting unit’s book value to its estimated fair market value. We perform annual impairment test during the fourth quarter of each fiscal year using the opening consolidated balance sheet as of the first day of the fourth quarter, with any resulting impairment recorded in the fourth quarter of the fiscal year.

If the carrying value of a reporting unit’s net assets exceeds its fair value, the goodwill would be considered impaired and would be reduced to its fair value. The goodwill was entirely allocated to the human health reporting unit as the goodwill relates to the Napo Merger. The decline in market capitalization during the three months ended September 30, 2017 was determined to be a triggering event for potential goodwill impairment. Accordingly, we performed the goodwill impairment analysis. We utilized the market capitalization plus a reasonable control premium in the performance of its impairment test. The market capitalization was based on the outstanding shares and the average market share price for the 30 days prior to September 30, 2017. Based on the results of our impairment test, we recorded an impairment charge of $3,648,000 during the three and nine months ended September 30, 2017. If the market capitalization decreases in the future, a reasonable possibility exists that goodwill could be further impaired in the near term and that such impairment may be material to the financial statements.

Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates and market factors. Estimating the fair value of individual reporting units and indefinite-lived intangible assets requires us to make assumptions and estimates regarding our future plans, as well as industry and economic conditions. These assumptions and estimates include projected revenues and income growth rates, terminal growth rates, competitive and consumer trends, market-based discount rates, and other market factors. If current expectations of future growth rates are not met or market factors outside of our control, such as discount rates, change significantly, this may lead to a further goodwill impairment in the future.

Additionally, as goodwill and intangible assets associated with recently acquired businesses are recorded on the balance sheet at their estimated acquisition date fair values, those amounts are more susceptible to an impairment risk if business operating results or macroeconomic conditions deteriorate. Acquired in-process research and development (IPR&D) are intangible assets initially recognized at fair value and classified as indefinite-lived assets until the successful completion or abandonment of the associated research and development efforts. During the development period, these assets will not be amortized as charges to earnings; instead these assets will be tested for impairment on an annual basis or more frequently if impairment indicators are identified.

~~Accrued Research and Development Expenses~~

As part of the process of preparing our financial statements, we are required to estimate accrued research and development expenses. Estimated accrued expenses include fees paid to vendors and clinical sites in connection with our clinical trials and studies. We review new and open contracts and communicate with applicable internal and vendor personnel to identify services that have been performed on our behalf and estimate the level of service performed and the associated costs incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost for accrued expenses. The majority of our service providers invoice us monthly in arrears for services performed or as milestones are achieved in relation to our contract manufacturers. We make estimates of our accrued expenses as of each reporting date.

We base our accrued expenses related to clinical trials and studies on our estimates of the services received and efforts expended pursuant to contracts with vendors, our internal resources, and payments to clinical sites based on enrollment projections. The financial terms of the vendor agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of animals and the completion of development milestones. We estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the related expense accrual accordingly on a prospective basis. If we do not identify costs that have been incurred or if we underestimate or overestimate the level of services performed or the costs of these services, our actual expenses could differ from our estimates. To date, we have not made any material adjustments to our estimates of accrued research and development expenses or the level of services performed in any reporting period presented.

~~We expense the total cost of a certain long-term manufacturing development contract ratably over the estimated life of the contract, or the total amount paid if greater.~~

~~Accounting for Stock-Based Compensation~~

Beginning in the second quarter of 2014, we awarded options and restricted stock units. We measure stock-based awards granted to employees and directors at fair value on the date of grant and recognize the corresponding compensation expense of the awards, net of estimated forfeitures, over the requisite service periods, which correspond to the vesting periods of the awards. The Company revalues non-employee options each reporting period using the fair market value of the Company’s common stock as of the last day of each reporting period.

~~Key Assumptions.~~ Our Black-Scholes-Merton option-pricing model requires the input of highly subjective assumptions, including the fair value of the underlying common stock, the expected volatility of the price of our common stock, the expected term of the option, risk-free interest rates and the expected dividend yield of our common stock. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future. These assumptions are estimated as follows:

· ~~Fair value of our common stock—Our common stock is valued by reference to the publicly-traded price of our common stock.~~

· Expected volatility—As we do not have any trading history for our common stock, the expected stock price volatility for our common stock was estimated by taking the average historic price volatility for industry peers based on daily price observations for common stock values over a period equivalent to the expected term of our stock option grants. We did not rely on implied volatilities of traded options in our industry peers’ common stock because the volume of activity was relatively low. We intend to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own common stock share price becomes available.

· Expected term—The expected term represents the period that our stock-based awards are expected to be outstanding. It is based on the “simplified method” for developing the estimate of the expected life of a “plain vanilla” stock option. Under this approach, the expected term is presumed to be the midpoint between the average vesting date and the end of the contractual term for each vesting tranche. We intend to continue to apply this process until a sufficient amount of historical exercise activity is available to be able to reliably estimate the expected term.

· ~~Risk-free interest rate—The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the options for each option group.~~

· ~~Dividend yield—We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Consequently, we used an expected dividend yield of zero.~~

· Forfeitures—We estimate forfeitures at the time of grant and revise those estimates periodically in subsequent periods. We use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest.

~~Common Stock Valuations.~~ Prior to our IPO, the fair value of the common stock underlying our stock options was determined by our board of directors, which intended all options granted to be exercisable at a price per share not less than the per share fair value of our common stock underlying those options on the date of grant. The valuations of our common stock were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. The assumptions we used in the valuation model are highly complex and subjective. We base our assumptions on future expectations combined with management judgment. In the absence of a public trading market, our board of directors, with input from management, exercised significant judgment and considered numerous objective and subjective factors to determine the fair value of our common stock as of the date of each option grant and stock award. These judgments and factors will not be necessary to determine the fair value of new awards once the underlying shares begin trading. For now we included the following factors:

· ~~the prices, rights, preferences and privileges of our Series A preferred stock relative to those of our common stock;~~

· ~~lack of marketability of our common stock;~~

· ~~our actual operating and financial performance;~~

· ~~current business conditions and projections;~~

· ~~hiring of key personnel and the experience of our management;~~

· ~~our stage of development;~~

· ~~illiquidity of share-based awards involving securities in a private company;~~

· ~~the U.S. capital market conditions; and~~

· ~~the likelihood of achieving a liquidity event, such as an offering or a merger or acquisition of our company given prevailing market conditions.~~

The fair market value per share of our common stock for purposes of determining stock-based compensation is now the closing price of our common stock as reported on The NASDAQ Stock Market on the applicable grant date.

~~Classification of Securities~~

We apply the principles of ASC 480-10 “Distinguishing Liabilities From Equity” and ASC 815-40 “Derivatives and Hedging—Contracts in Entity’s Own Equity” to determine whether financial instruments such as warrants, contingently issuable shares and shares subject to repurchase should be classified as liabilities or equity and whether beneficial conversion features exist. Financial instruments such as warrants that are evaluated to be classified as liabilities are fair valued upon issuance and are

remeasured at fair value at subsequent reporting periods with the resulting change in fair value recorded in other income/(expense). The fair value of warrants is estimated using the Black-Scholes-Merton model and requires the input of subjective assumptions including expected stock price volatility and expected life.

~~Income Taxes~~

As of December 31, 2016, we had net operating loss carryforwards for federal and state income tax purposes of $24.5 million and $17.1 million, respectively, which will begin to expire in 2033, subject to limitations. Our management has evaluated the factors bearing upon the realizability of our deferred tax assets, which are comprised principally of net operating loss carryforwards. Our management concluded that, due to the uncertainty of realizing any tax benefits as of December 31, 2016, a valuation allowance was necessary to fully offset our deferred tax assets. We have evaluated our uncertain tax positions and determined that we have no liabilities from unrecognized tax benefits and therefore we have not incurred any penalties or interest. The Tax Reform Act of 1986, as amended, limits the use of net operating loss and tax credit carryforward in certain situations where changes occur in the stock ownership of a company. Utilization of the domestic NOL and tax credit forwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by the Internal Revenue Code Section 382, as well as similar state provisions.

~~Recent Accounting Pronouncements~~

In July 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception” (“ASU 2017-11”), which addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. The amendments in Part I of this ASU are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. We are currently evaluating the impact of the adoption of ASU 2017-11 on its consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting” (“ASU 2017-09”), which provides guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The amendments in this ASU are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this ASU should be applied prospectively to an award modified on or after the adoption date. We do not expect the adoption of ASU 2017-09 to have a material impact on our consolidated financial statements.

In February 2017, the FASB issued ASU No. 2017-05, “Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets” (“ASU 2017-05”), which clarifies the scope of the nonfinancial asset guidance in Subtopic 610-20. This ASU also clarifies that the derecognition of all businesses and nonprofit activities (except those related to conveyances of oil and gas mineral rights or contracts with customers) should be accounted for in accordance with the derecognition and deconsolidation guidance in Subtopic 810-10. The amendments in this ASU also provide guidance on the accounting for what often are referred to as partial sales of nonfinancial assets within the scope of Subtopic 610-20 and contributions of nonfinancial assets to a joint venture or other noncontrolled investee. The amendments in this ASU are effective for annual reporting reports beginning after December 15, 2017, including interim reporting periods within that reporting period. Public entities may apply the guidance earlier but only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We do not expect the adoption of ASU 2017-05 to have a material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04 related to goodwill impairment testing. This ASU eliminates Step 2 from the goodwill impairment test. Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, the entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. Previously, if the fair value of a reporting unit was lower than its carrying amount (Step 1), an entity was required to calculate any impairment charge by comparing the implied fair value of goodwill with its carrying amount (Step 2). Additionally, under the new standard, entities that have reporting units with zero or negative carrying amounts will no longer be required to perform the qualitative assessment to determine whether to perform Step 2 of the goodwill impairment test. As a result, reporting units with zero or negative carrying amounts will generally be expected to pass the simplified impairment test; however, additional disclosure will be required of those entities. This ASU will be effective beginning in the first quarter of our fiscal year 2020. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The new guidance must be adopted on a prospective basis. We early adopted this ASU in 2017. For impact of the adoption of this standard, refer to Note 6 “Goodwill” to the Condensed Consolidated Financial Statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which addresses the following cash flow issues: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years and are effective for all other entities for fiscal years beginning after December 15, 2018 and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. We are currently evaluating the impact of the adoption of ASU No. 2016-15 on our consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for employee stock-based payment transactions. The areas for simplification in ASU No. 2016-09 include the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Effective January 1, 2017, we adopted ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. Among other requirements, the new guidance requires all tax effects related to share-based payments at settlement (or expiration) to be recorded through the income statement. Previously, tax benefits in excess of compensation cost (“windfalls”) were recorded in equity, and tax deficiencies (“shortfalls”) were recorded in equity to the extent of previous windfalls, and then to the income statement. Under the new guidance, the windfall tax benefit is to be recorded when it arises, subject to normal valuation allowance considerations. The adoption of this standard did not have any impact to the Statement of Operations or the Statement of Cash Flows. As of December 31, 2016, we had no unrecognized deferred tax assets related to excess tax benefits, and as such, there was no cumulative-effect adjustment to the beginning accumulated deficit. Additionally, the treatment of forfeitures has not changed as we elected to continue our current process of estimating the number of forfeitures. As such, this has no cumulative effect on accumulated deficit.

In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which provides guidance for accounting for leases. Under ASU 2016-02, the Company will be required to recognize the assets and liabilities for the rights and obligations created by leased assets. ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. We are currently evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” The objective of ASU 2014-09 is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. The core principle of the new standard is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard is effective for annual reporting periods beginning after December 15, 2017 and allows for prospective or retrospective application. We currently anticipate utilizing the full retrospective method of adoption allowed by the standard, in order to provide for comparative results in all periods presented, and plan to adopt the standard as of January 1, 2018. The Company is in the process of evaluating the impact of the new standard and related guidance on our consolidated financial statements and related disclosures including the impact of the new standard on its accounting policies, processes, and system requirements. While we continue to assess all potential impacts under the new standard, there is the potential for significant impacts to our revenue recognition policy relating to royalty revenues and certain other revenues that are currently recognized on a cash basis or sell through method. Upon adoption of these standards, these revenues will be recognized in the periods in which the sales occur, subject to the constraint on variable consideration. We currently do not expect that adopting these standards will have a material impact on our Condensed Consolidated Financial Statements.

~~JOBS Act~~

In April 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period, and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4.Controls and Procedures

~~Evaluation~~Disclosure Controls and Procedures

Our management, Chief Executive Officer, and Principal Financial and Accounting Officer evaluated the effectiveness of our disclosure controls and procedures

~~We maintain “disclosure~~ as of September 30, 2023. The term "disclosure controls and procedures,”" as ~~such term is~~ defined in ~~Rule~~Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in ~~Securities and Exchange Commission~~the SEC's rules and ~~forms,~~forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that ~~such~~ information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and ~~Chief~~Principal Financial and Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on ~~their~~this evaluation, ~~as of the end of the period covered by this Quarterly Report on Form 10-Q,~~ our Chief Executive Officer and ~~Chief~~Principal Financial and Accounting Officer ~~have~~ concluded that ~~as of such date,~~ our disclosure controls and procedures were effective at the reasonable assurance ~~level.~~

~~Changes in internal control over financial reporting.~~

There was no change in our internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

~~PART II. — OTHER INFORMATION~~

~~Item 1. 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 on behalf of pre-Merger shareholders of Jaguar who held shares on June 30, 2017 and were entitled to vote at the 2017 Special Shareholders Meeting, against us and certain individuals who were directorslevel as of the date of the vote, in a matter captioned Tony Plant v. Jaguar Animal Health, Inc., et al. The plaintiff attempts to assert claims arising under Section 14(a) and Section 20(a) of the Exchange Act and Rule 14a-9, 17 C.F.R. § 240.14a-9, promulgated thereunder by the SEC. The plaintiff alleges that material omissions and misstatements were contained in the Joint Proxy Statement/Prospectus on Form S-4 (File No. 333-217364) declared effective by the SEC on July 6, 2017 related to the solicitation of votes from shareholders to approve the Merger and certain transaction related thereto. We believe the claims are without merit. While no monetary damages have been quantified, we intend to vigorously contest this complaint.

The plaintiff has not yet served the complaint and summons on any of the defendants. If plaintiff elected to proceed with the litigation and made service on the defendants, the defendants would move to dismiss the complaint for failure to state a claim on which relief may be granted.”

September 30, 2023.

~~Item 1A. Risk Factors~~

We wish to caution you that there are risks and uncertainties that could affect our business. A description of the risk factors associated with our business that you should consider when evaluating our business is included under “Risk Factors” contained in Item 1A. of our Annual Report on Form 10-K/A for the year ended December 31, 2016. In addition to those factors and to other information in this Form 10-Q, the following updates to the risk factors should be considered carefully when evaluating the Company or our business.

~~Risks Related to Our Business~~

We have a limited operating history, expect to incur further losses as we grow and may be unable to achieve or sustain profitability. Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern.

Since formation in June 2013, our operations have been primarily limited to the research and development of our animal prescription drug product candidate, Canalevia, to treat various forms of diarrhea in dogs, our non-prescription product, Neonorm Calf, to help dairies and calf farms proactively retain fluid in calves, the ongoing commercialization of Neonorm Foal, our antidiarrheal for newborn horses, and Equilevia, our planned product for total gut health in high-performance equine athletes. Since the consummation of the Merger on July 31, 2017, our operations have also been heavily focused on research, development and the ongoing commercialization of our lead prescription drug product candidate, Mytesi, which is approved by the U.S. FDA for the symptomatic relief of noninfectious diarrhea in adults with HIV/AIDS on antiretroviral therapy. As a result, we have limited meaningful historical operations upon which to evaluate our business and prospects and have not yet demonstrated an ability to broadly commercialize any of our animal health products, obtain any required marketing approval for any of our animal prescription drug product candidates or successfully overcome the risks and uncertainties frequently encountered by companies in emerging fields such as the animal health industry or the gastrointestinal health industry in general. We also have not generated any material revenue to date, and expect to continue to incur significant research and development and other expenses. Our net loss and comprehensive loss for the year ended December 31, 2016 was $14.7 million. As of December 31, 2016, we had total stockholders’ deficit of $2.5 million. We expect to continue to incur losses for the foreseeable future, which will increase significantly from historical levels as we expand our product development activities, seek necessary approvals for our human and veterinary drug product candidates, conduct species-specific formulation studies for our non-prescription products and begin commercialization activities. Even if we succeed in developing and broadly commercializing one or more of our products or product candidates, we expect to continue to incur losses for the foreseeable future, and we may never become profitable. If we fail to achieve or maintain profitability, then we may be unable to continue our operations at planned levels and be forced to reduce or cease operations.

As more fully discussed in Note 1 to our financial statements, we believe there is substantial doubt about our ability to continue as a going concern as we do not currently have sufficient cash resources to fund our operations through February 15, 2018, or one year from the filing date of our Form 10-K. Our financial statements do not include any adjustments that may result from the outcome of this uncertainty. If we are unable to continue as a viable entity, our stockholders may lose their entire investment.

~~We have never generated any material revenue from operations and may not generate any material revenue from our operations in the foreseeable future.~~

We are a natural-products pharmaceuticals company focused on the development and commercialization of novel, sustainably derived gastrointestinal products for both human prescription use and animals on a global basis. Since inception in June 2013, we have not generated any material revenue from operations. There is no guarantee that our recent commercial launch of Mytesi for symptomatic relief of noninfectious diarrhea in adults with HIV/AIDS or our ongoing commercialization efforts for Neonorm Calf for preweaned dairy calves in the United States and Neonorm Foal for newborn horses in the United States will be successful or that we will be able to sell any products in the future. Further, in order to commercialize our prescription drug product candidates, we must receive regulatory approval from the FDA in the United States and other regulatory agencies in various jurisdictions. Other than Mytesi, we have not yet received any regulatory approvals for our prescription drug product candidates. In addition, certain of our non-prescription products, such as Neonorm Calf, may be subject to regulatory approval outside the United States prior to commercialization in other countries. Accordingly, until and unless we receive any necessary regulatory approvals, we cannot market or sell our products in many regions. Moreover, even if we receive the necessary approvals, we may not be successful in generating revenue from sales of our products as we do not have any meaningful experience marketing or distributing our products. Accordingly, we may never generate any material revenue from our operations.

We expect to incur significant additional costs as we continue commercialization efforts for current prescription drug candidates, Neonorm, or other product candidates, and undertake the clinical trials necessary to obtain any necessary regulatory approvals, which will increase our losses.

We commenced sales of Neonorm for preweaned dairy calves in the United States under the brand name Neonorm Calf at the end of 2014, and Napo commenced sales of Mytesi for adults with HIV/AIDS on antiretroviral therapy in February 2017. We will need to continue to invest in developing our internal and third-party sales and distribution network and outreach efforts to key opinion leaders in the gastrointestinal health industry, including physicians and veterinarians, as applicable. We will also need to conduct clinical trials for Canalevia in order to obtain necessary initial regulatory approvals and to subsequently broaden Mytesi to additional

~~indications and Canalevia to additional indications and additional species. We will also need to conduct species-specific testing with Neonorm to expand to additional animal populations.~~

We are actively identifying additional products for development and commercialization, and will continue to expend substantial resources for the foreseeable future to develop Mytesi, Equilevia, Canalevia and Neonorm and develop products from Napo’s library ofInternal Control over ~~2,300 medicinal plants. These expenditures will include costs associated with:~~

· ~~identifying additional potential prescription drug product candidates and non-prescription products;~~

· ~~formulation studies;~~

· ~~conducting pilot, pivotal and toxicology studies;~~

· ~~completing other research and development activities;~~

· ~~payments to technology licensors;~~

· ~~maintaining our intellectual property;~~

· ~~obtaining necessary regulatory approvals;~~

· ~~establishing commercial supply capabilities; and~~

· ~~sales, marketing and distribution of our commercialized products.~~

We also may incur unanticipated costs in connection with developing and commercializing our products. Because the outcome of our development activities and commercialization efforts is inherently uncertain, the actual amounts necessary to successfully complete the development and commercialization of our current or future products and product candidates may be greater than we anticipate.

Because we anticipate incurring significant costs for the foreseeable future, if we are not successful in broadly commercializing any of our current or future products or product candidates or raising additional funding to pursue our research and development efforts, we may never realize the benefit of our development efforts and our business may be harmed.

We will need to raise substantial additional capital in the future in the event that we conduct clinical trials for new indications and we may be unable to raise such funds when needed and on acceptable terms, which would force us to delay, limit, reduce or terminate one or more of our product development programs.

We are forecasting continued losses and negative cash flows as we continue to fund our operating and marketing activities and research and development programs, and we will not have sufficient cash on hand to fund our operating plan through February 2018 and to complete the development of all the current products in our pipeline, or any additional products we may identify. We will need to seek additional funds sooner than planned through public or private equity or debt financings or other sources such as strategic collaborations. Other than the loan and security agreement with Hercules (which provided for an initial loan commitment of $6.0 million), the common stock purchase agreement (the “CSPA”), with Aspire Capital Fund, LLC (“Aspire Capital”) (which committed Aspire Capital to purchase up to an aggregate of $15.0 million of our shares of common stock over the term of the CSPA), Napo’s Amended and Restated Note Purchase Agreement (the “Kingdon NPA”) with Kingdon Associates, M. Kingdon Offshore Master Fund L.P., Kingdon Family Partnership, L.P., and Kingdon Credit Master Fund L.P. (pursuant to which we issued $10.0 million aggregate principal amount of convertible notes in exchange for a cash payment of $8.0 million), and convertible note purchase agreements with three purchasers (pursuant to which we issued approximately $3.5 million aggregate principal amount of convertible notes in exchange for a cash payment of $2.75 million), we have no current agreements or arrangements with respect to any such financings or collaborations, and any such financings or collaborations may result in dilution to our stockholders, the imposition of debt covenants and repayment obligations or other restrictions that may harm our business or the value of our common stock. We may also seek from time to time to raise additional capital based upon favorable market conditions or strategic considerations such as potential acquisitions or potential license arrangements.

~~Our future capital requirements depend on many factors, including, but not limited to:~~

· ~~the scope, progress, results and costs of researching and developing our current and future prescription drug product candidates and non-prescription products;~~

· ~~the timing of, and the costs involved in, obtaining any regulatory approvals for our current and any future products;~~

· ~~the number and characteristics of the products we pursue;~~

· ~~the cost of manufacturing our current and future products and any products we successfully commercialize;~~

· ~~the cost of commercialization activities for Mytesi, Neonorm, Equilevia and Canalevia, if approved, including sales, marketing and distribution costs;~~

· ~~the expenses needed to attract and retain skilled personnel;~~

· ~~the costs associated with being a public company;~~

· ~~our ability to establish and maintain strategic collaborations, distribution or other arrangements and the financial terms of such agreements; and~~

· ~~the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing possible patent claims, including litigation costs and the outcome of any such litigation.~~

Additional funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to delay, limit, reduce or terminate one or more of our product development programs or future commercialization efforts.

We are substantially dependent on the success of our current lead prescription drug product candidates, Mytesi and Canalevia, and our non-prescription products, Equilevia and Neonorm, and cannot be certain that necessary approvals will be received for planned Mytesi follow-on indications or Canalevia or that these product candidates will be successfully commercialized, either by us or any of our partners.

Other than Mytesi, we currently do not have regulatory approval for any of our prescription drug product candidates, including Canalevia. Our current efforts are primarily focused on the ongoing commercialization of Mytesi, Neonorm Calf and Neonorm Foal in the United States, and development efforts related to Mytesi, Equilevia, and Canalevia, and on the development of formulations of Neonorm for additional species. With regard to Mytesi, we are focused on the commercial launch of the product in the United States as well as on development efforts related to a follow-on indication for Mytesi in CID, an important supportive care indication for patients undergoing primary or adjuvant chemotherapy for cancer treatment. Mytesi is also in development for rare disease indications for infants and children with congenital diarrheal disorders and short bowel syndrome; for IBS (Mytesi has demonstrated benefit to IBS-D patients in published Phase 2 studies); for supportive care for IBD; and as a second-generation anti-secretory agent for use in cholera patients. Mytesi has received orphan-drug designation for SBS. Accordingly, our near term prospects, including our ability to generate material product revenue, obtain any new financing if needed to fund our business and operations or enter into potential strategic transactions, will depend heavily on the success of Mytesi, Equilevia and Neonorm, as well as on Canalevia, if Canalevia is approved.

Substantial time and capital resources have been previously devoted by third parties in the development of crofelemer, the active pharmaceutical ingredient, or API, in Mytesi and Canalevia, and the development of the botanical extract used in Equilevia and Neonorm. Both crofelemer and the botanical extract used in Equilevia and Neonorm were originally developed at Shaman Pharmaceuticals, Inc. (“Shaman”), by certain members of our management team, including Lisa A. Conte, our chief executive officer and president, and Steven R. King, Ph.D., our executive vice president of sustainable supply, ethnobotanical research and intellectual property and secretary. Shaman spent significant development resources before voluntarily filing for bankruptcy in 2001 pursuant to Chapter 11 of the U.S. Bankruptcy Code. The rights to crofelemer and the botanical extract used in Equilevia and Neonorm, as well as other intellectual property rights, were subsequently acquired by Napo from Shaman in 2001 pursuant to a court approved sale of assets. Ms. Conte founded Napo in 2001 and was the current interim chief executive officer of Napo and a member of Napo’s board of directors prior to the Merger. While at Napo, certain members of our management team, including Ms. Conte and Dr. King, continued the development of crofelemer. In 2005, Napo entered into license agreements with Glenmark and Luye Pharma Group Limited for

rights to various human indications of crofelemer in certain territories as defined in the respective license agreements with these licensees. Subsequently, after expending significant sums developing crofelemer, including trial design and on-going patient enrollment in the final pivotal Phase 3 trial for crofelemer for non-infectious diarrhea in adults with HIV/AIDS on antiretroviral therapy, in late 2008, Napo entered into a collaboration agreement with Salix Pharmaceuticals, Inc., or Salix, for development and commercialization rights to certain indications worldwide and certain rights in North America, Europe, and Japan, to crofelemer for human use. In January 2014, Jaguar entered into the Napo License Agreement pursuant to which Jaguar acquired an exclusive worldwide license to Napo’s intellectual property rights and technology, including crofelemer and the botanical extract used in Equilevia and Neonorm, for all veterinary treatment uses and indications for all species of animals. In February 2014, most of the executive officers of Napo, and substantially all Napo’s employees, became Jaguar’s employees. Following the Merger in July 2017, Napo became Jaguar’s wholly-owned subsidiary. If we are not successful in the development and commercialization of Mytesi, Neonorm, Equilevia and Canalevia, our business and our prospects will be harmed.

~~The successful development and commercialization of Mytesi, Equilevia and Neonorm, and, if approved, Canalevia will depend on a number of factors, including the following:~~

· the successful completion of the pivotal trials and toxicology studies for Canalevia, which may take significantly longer than we currently anticipate and will depend, in part, upon the satisfactory performance of third-party contractors;

· ~~our ability to demonstrate to the satisfaction of the FDA and any other regulatory bodies, the safety and efficacy of Canalevia;~~

· our ability and that of our contract manufacturers to manufacture supplies of Mytesi, Neonorm, Equilevia and Canalevia and to develop, validate and maintain viable commercial manufacturing processes that are compliant with current good manufacturing practices, or cGMP, if required;

· ~~the success of Neonorm field studies and acceptance of their results by dairy producers;~~

· ~~our ability to successfully launch Mytesi and Neonorm, whether alone or in collaboration with others;~~

· ~~our ability to successfully launch Canalevia, assuming approval is obtained, and Equilevia, whether alone or in collaboration with others;~~

· the availability, perceived advantages, relative cost, relative safety and relative efficacy of our prescription drug product candidates and non-prescription products compared to alternative and competing treatments;

· the acceptance of our prescription drug product candidates and non-prescription products as safe and effective by physicians, veterinarians, patients, animal owners and the human and animal health community, as applicable;

· ~~our ability to achieve and maintain compliance with all regulatory requirements applicable to our business; and~~

· our ability to obtain and enforce our intellectual property rights and obtain marketing exclusivity for our prescription drug product candidates and non-prescription products, and avoid or prevail in any third-party patent interference, patent infringement claims or administrative patent proceedings initiated by third parties or the U.S. Patent and Trademark Office (“USPTO”).

Many of these factors are beyond our control. Accordingly, we may not be successful in developing or commercializing Mytesi, Neonorm, Equilevia, Canalevia or any of our other potential products. If we are unsuccessful or are significantly delayed in developing and commercializing Mytesi, Neonorm, Equilevia, Canalevia or any of our other potential products, our business and prospects will be harmed and you may lose all or a portion of the value of your investment in our common stock.

If we are not successful in identifying, licensing, developing and commercializing additional product candidates and products, our ability to expand our business and achieve our strategic objectives could be impaired.

Although a substantial amount of our efforts is focused on the commercial performance of Mytesi, Equilevia and Neonorm and the continued development and potential approval of Canalevia, a key element of our strategy is to identify, develop and commercialize a portfolio of products to serve the gastrointestinal health market. Most of our potential products are based on our knowledge of medicinal plants. Our current focus is primarily on product candidates whose active pharmaceutical ingredient or

botanical extract has been successfully commercialized or demonstrated to be safe and effective in human or animal trials. In some instances, we may be unable to further develop these potential products because of perceived regulatory and commercial risks. Even if we successfully identify potential products, we may still fail to yield products for development and commercialization for many reasons, including the following:

· ~~competitors may develop alternatives that render our potential products obsolete;~~

· ~~an outside party may develop a cure for any disease state that is the target indication for any of our planned or approved drug products;~~

· ~~potential products we seek to develop may be covered by third-party patents or other exclusive rights;~~

· a potential product may on further study be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective or otherwise does not meet applicable regulatory criteria;

· ~~a potential product may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and~~

· a potential product may not be accepted as safe and effective by physicians, veterinarians, patients, animal owners, key opinion leaders and other decision-makers in the gastrointestinal health market, as applicable.

While we are developing specific formulations, including flavors, methods of administration, new patents and other strategies with respect to our current potential products, we may be unable to prevent competitors from developing substantially similar products and bringing those products to market earlier than we can. If such competing products achieve regulatory approval and commercialization prior to our potential products, our competitive position may be impaired. If we fail to develop and successfully commercialize other potential products, our business and future prospects may be harmed and we will be more vulnerable to any problems that we encounter in developing and commercializing our current potential products.

Mytesi faces significant competition from other pharmaceutical companies, both for its currently approved indication and for planned follow-on indications, and our operating results will suffer if we fail to compete effectively.

The development and commercialization of products for human gastrointestinal health is highly competitive and our success depends on our ability to compete effectively with other products in the market. During the ongoing commercialization of Mytesi for its currently approved indication, and during the future commercialization of Mytesi for any planned follow-on indications, if such follow-on indications receive regulatory approval, we expect to compete with major pharmaceutical and biotechnology companies that operate in the gastrointestinal space, such as Sucampo AG, Takeda Pharmaceuticals, Allergan, Inc., Ironwood Pharmaceuticals, Inc., Synergy Pharmaceuticals Inc., Heron Therapeutics, Inc., Sebela Pharmaceuticals, Inc. and Salix Pharmaceuticals.

Many of our competitors and potential competitors in the human gastrointestinal space have substantially more financial, technical and human resources than we do. Many also have more experience in the development, manufacture, regulation and worldwide commercialization of human gastrointestinal health products.

~~For these reasons, we cannot be certain that we and Mytesi can compete effectively.~~

~~Our animal health products face significant competition from other pharmaceutical companies and our operating results will suffer if we fail to compete effectively.~~

The development and commercialization of animal health products is highly competitive and our success depends on our ability to compete effectively with other products in the market. We expect to compete with the animal health divisions of major pharmaceutical and biotechnology companies such as Merck Animal Health, Merial Inc., Elanco Animal Health, Bayer Animal Health GmbH, Novartis Animal Health Inc. and Boehringer Ingelheim Animal Health, as well as specialty animal health medicines companies such as Zoetis Inc., Phibro Animal Health Corporation and, in Europe, Virbac S.A., Vétoquinol S.A., Ceva Animal Health S.A. and Dechra Pharmaceuticals PLC. We are also aware of several early-stage companies that are developing products for use in the animal health market, including Aratana Therapeutics, Inc., Kindred Biosciences, Inc., Parnell Pharmaceuticals Holdings Ltd, Nexvet Biopharma and ImmuCell Corporation. We also compete with academic institutions, governmental agencies and private organizations that are conducting research in the field of animal health products.

Although there are currently no FDA-approved anti-secretory products to treat chemotherapy-induced diarrhea (CID) in dogs, we anticipate that Canalevia, if approved, may face competition from various products, including products approved for use in humans that are used extra-label in animals. Extra-label use is the use of an approved drug outside of its cleared or approved indications in the animal context. All of our potential products could also face competition from new products in development. These and other potential competing products may benefit from greater brand recognition and brand loyalty than our products and product candidates may achieve.

Many of our competitors and potential competitors have substantially more financial, technical and human resources than we do. Many also have more experience in the development, manufacture, regulation and worldwide commercialization of animal health products, including animal prescription drugs and non-prescription products.

~~For these reasons, we cannot be certain that we and our products can compete effectively.~~

We may be unable to obtain, or obtain on a timely basis, regulatory approval for our existing or future human or animal prescription drug product candidates under applicable regulatory requirements, which would harm our operating results.

The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of human and animal health products are subject to extensive regulation. We are typically not permitted to market our prescription drug product candidates in the United States until we receive approval of the product from the FDA through the filing of an NDA or NADA, as applicable. To gain approval to market a prescription drug, we must provide the FDA with safety and efficacy data from pivotal trials that adequately demonstrate that our prescription drug product candidates are safe and effective for the intended indications. Likewise, to gain approval to market an animal prescription drug for a particular species, we must provide the FDA with safety and efficacy data from pivotal trials that adequately demonstrate that our prescription drug product candidates are safe and effective in the target species (~~e.g.~~ dogs, cats or horses) for the intended indications. In addition, we must provide manufacturing data evidencing that we can produce our product candidates in accordance with cGMP. For the FDA, we must also provide data from toxicology studies, also called target animal safety studies, and in some cases environmental impact data. In addition to our internal activities, we will partially rely on contract research organizations (“CROs”), and other third parties to conduct our toxicology studies and for certain other product development activities. The results of toxicology studies, other initial development activities, and/or any previous studies in humans or animals conducted by us or third parties may not be predictive of future results of pivotal trials or other future studies, and failure can occur at any time during the conduct of pivotal trials and other development activities by us or our CROs. Our pivotal trials may fail to show the desired safety or efficacy of our prescription drug product candidates despite promising initial data or the results in previous human or animal studies conducted by others. Success of a prescription drug product candidate in prior animal studies, or in the treatment of humans, does not ensure success in subsequent studies. Clinical trials in humans and pivotal trials in animals sometimes fail to show a benefit even for drugs that are effective because of statistical limitations in the design of the trials or other statistical anomalies. Therefore, even if our studies and other development activities are completed as planned, the results may not be sufficient to obtain a required regulatory approval for a product candidate.

~~Regulatory authorities can delay, limit or deny approval of any of our prescription drug product candidates for many reasons, including:~~

· ~~if they disagree with our interpretation of data from our pivotal studies or other development efforts;~~

· ~~if we are unable to demonstrate to their satisfaction that our product candidate is safe and effective for the target indication and, if applicable, in the target species;~~

· ~~if they require additional studies or change their approval policies or regulations;~~

· ~~if they do not approve of the formulation, labeling or the specifications of our current and future product candidates; and~~

· ~~if they fail to approve the manufacturing processes of our third-party contract manufacturers.~~

Further, even if we receive a required approval, such approval may be for a more limited indication than we originally requested, and the regulatory authority may not approve the labeling that we believe is necessary or desirable for successful commercialization.

Any delay or failure in obtaining any necessary regulatory approval for the intended indications of our human or animal product candidates would delay or prevent commercialization of such product candidates and would harm our business and our operating results.

The results of our earlier studies of Mytesi and Neonorm may not be predictive of the results in any future clinical trials and species-specific formulation studies, respectively, and we may not be successful in our efforts to develop or commercialize line extensions of Mytesi and Neonorm.

Our human and animal product pipeline includes a number of potential indications of Mytesi, our lead prescription product, and a number of species-specific formulations of Neonorm, our commercially available non-prescription product. The results of our studies and other development activities and of any previous studies in humans or animals conducted by us or third parties may not be predictive of future results of these clinical studies and formulation studies, respectively. Failure can occur at any time during the conduct of these trials and other development activities. Even if our formulation/clinical studies and other development activities are completed as planned, the results may not be sufficient to pursue a particular line extension for Mytesi or Neonorm, respectively. Further, even if we obtain promising results from our clinical trials or species-specific formulation studies, as applicable, we may not

successfully commercialize any line extension. Because line extensions are developed for a particular market, we may not be able to leverage our experience from the commercial launch of Mytesi, Neonorm Calf and Neonorm Foal in new markets. If we are not successful in developing and successfully commercializing these line extension products, we may not be able to grow our revenue and our business may be harmed.

Development of prescription drug products is inherently expensive, time-consuming and uncertain, and any delay or discontinuance of our current or future pivotal trials would harm our business and prospects.

Development of prescription drug products for human and animal gastrointestinal health remains an inherently lengthy, expensive and uncertain process, and our development activities may not be successful. We do not know whether our current or planned pivotal trials for any of our product candidates will begin or conclude on time, and they may be delayed or discontinued for a variety of reasons, including if we are unable to:

· ~~address any safety concerns that arise during the course of the studies;~~

· ~~complete the studies due to deviations from the study protocols or the occurrence of adverse events;~~

· ~~add new study sites;~~

· ~~address any conflicts with new or existing laws or regulations; or~~

· ~~reach agreement on acceptable terms with study sites, which can be subject to extensive negotiation and may vary significantly among different sites.~~

Further, we may not be successful in developing new indications for Mytesi and/or species-specific formulations for Neonorm, and Neonorm may be subject to the same regulatory regime as prescription drug products in jurisdictions outside the United States. Any delays in completing our development efforts will increase our costs, delay our development efforts and approval process and jeopardize our ability to commence product sales and generate revenue. Any of these occurrences may harm our business, financial condition and prospects. In addition, factors that may cause a delay in the commencement or completion of our development efforts may also ultimately lead to the denial of regulatory approval of our product candidates which, as described above, would harm our business and prospects.

We will partially rely on third parties to conduct our development activities. If these third parties do not successfully carry out their contractual duties, we may be unable to obtain regulatory approvals or commercialize our current or future human or animal product candidates on a timely basis, or at all.

We will partially rely upon CROs to conduct our toxicology studies and for other development activities. We intend to rely on CROs to conduct one or more of our planned pivotal trials. These CROs are not our employees, and except for contractual duties and obligations, we have limited ability to control the amount or timing of resources that they devote to our programs or manage the risks associated with their activities on our behalf. We are responsible for ensuring that each of our studies is conducted in accordance with the development plans and trial protocols presented to regulatory authorities. Any deviations by our CROs may adversely affect our ability to obtain regulatory approvals, subject us to penalties or harm our credibility with regulators. The FDA and foreign regulatory authorities also require us and our CROs to comply with regulations and standards, commonly referred to as good clinical practices (“GCPs”), or good laboratory practices (“GLPs”), for conducting, monitoring, recording and reporting the results of our studies to ensure that the data and results are scientifically valid and accurate.

Agreements with CROs generally allow the CROs to terminate in certain circumstances with little or no advance notice. These agreements generally will require our CROs to reasonably cooperate with us at our expense for an orderly winding down of the CROs’ services under the agreements. If the CROs conducting our studies do not comply with their contractual duties or obligations, or if they experience work stoppages, do not meet expected deadlines, or if the quality or accuracy of the data they obtain is compromised, we may need to secure new arrangements with alternative CROs, which could be difficult and costly. In such event, our studies also may need to be extended, delayed or terminated as a result, or may need to be repeated. If any of the foregoing were to occur, regulatory approval, if required, and commercialization of our product candidates may be delayed and we may be required to expend substantial additional resources.

Even if we obtain regulatory approval for planned follow-on indications of Mytesi, or for Canalevia or our other product candidates, they may never achieve market acceptance. Further, even if we are successful in the ongoing commercialization of Mytesi and Neonorm, we may not achieve commercial success.

If we obtain necessary regulatory approvals for planned follow-on indications of Mytesi or for Canalevia or our other product candidates, such products may still not achieve market acceptance and may not be commercially successful. Market acceptance of Mytesi, Canalevia, Neonorm and any of our other products depends on a number of factors, including:

· ~~the safety of our products as demonstrated in our target animal studies;~~

· ~~the indications for which our products are approved or marketed;~~

· the potential and perceived advantages over alternative treatments or products, including generic medicines and competing products currently prescribed by physicians or veterinarians, as applicable, and, in the case of animal products, products approved for use in humans that are used extra-label in animals;

· ~~the acceptance by physicians, veterinarians, companion animal owners and production animal owners, including in the dairy industry, as applicable, of our products as safe and effective;~~

· ~~the cost in relation to alternative treatments and willingness on the part of physicians, veterinarians, patients and animal owners, as applicable, to pay for our products;~~

· ~~the prevalence and severity of any adverse side effects of our products;~~

· ~~the relative convenience and ease of administration of our products; and~~

· ~~the effectiveness of our sales, marketing and distribution efforts.~~

~~Any failure by Mytesi, Canalevia, Equilevia, Neonorm or any of our other products to achieve market acceptance or commercial success would harm our financial condition and results of operations.~~

~~The dairy industry is subject to conditions beyond our control and the occurrence of any such conditions may harm our business and impact the demand for our products.~~

The demand for production animal health products, such as Neonorm Calf, is heavily dependent on factors that affect the dairy market that are beyond our control, including the following, any of which may harm our business:

· ~~cost containment measures within the dairy industry, in response to international, national and local general economic conditions, which may affect the market adoption of our products;~~

· ~~state and federal government policies, including government-funded programs or subsidies whose discontinuance or modification could erode the demand for our products;~~

· ~~a decline in demand for dairy products due to changes in consumer diets away from dairy products, which could adversely affect the demand for production animal health products;~~

· ~~adverse weather conditions and natural disasters, such as floods, droughts, and pestilence, which can lower dairy yields; and~~

· ~~disease or other conditions beyond our control.~~

~~Human and animal gastrointestinal health products are subject to unanticipated post-approval safety or efficacy concerns, which may harm our business and reputation.~~

The success of our commercialization efforts will depend upon the perceived safety and effectiveness of human and animal gastrointestinal health products, in general, and of our products, in particular. Unanticipated safety or efficacy concerns can

subsequently arise with respect to approved prescription drug products, such as Mytesi, or non-prescription products, such as Neonorm, which may result in product recalls or withdrawals or suspension of sales, as well as product liability and other claims. Any safety or efficacy concerns, or recalls, withdrawals or suspensions of sales of our products could harm our reputation and business, regardless of whether such concerns or actions are justified.

~~Future federal and state legislation may result in increased exposure to product liability claims, which could result in substantial losses.~~

Under current federal and state laws, companion and production animals are generally considered to be the personal property of their owners and, as such, the owners’ recovery for product liability claims involving their companion and production animals may be limited to the replacement value of the animal. Companion animal owners and their advocates, however, have filed lawsuits from time to time seeking non-economic damages such as pain and suffering and emotional distress for harm to their companion animals based on theories applicable to personal injuries to humans. If new legislation is passed to allow recovery for such non-economic damages, or if precedents are set allowing for such recovery, we could be exposed to increased product liability claims that could result in substantial losses to us if successful. In addition, some horses can be worth millions of dollars or more, and product liability for horses may be very high. While we currently have product liability insurance, such insurance may not be sufficient to cover any future product liability claims against us.

~~If we fail to retain current members of our senior management, or to identify, attract, integrate and retain additional key personnel, our business will be harmed.~~

Our success depends on our continued ability to attract, retain and motivate highly qualified management and scientific personnel. We are highly dependent upon our senior management, particularly Lisa A. Conte, our president and Chief Executive Officer. The loss of services of any of our key personnel would cause a disruption in our ability to develop our current or future product pipeline and commercialize our products and product candidates. Although we have offer letters with these key members of senior management, such agreements do not prohibit them from resigning at any time. For example, the resignation of our former Chief Financial Officer, Charles O. Thompson, in September 2014, and the mutually agreed departure of our former Chief Veterinary Officer, Serge Martinod, D.V.M., Ph.D. in February 2015, caused us to incur additional expenses and expend resources to ensure a smooth transition with their respective successors, which diverted management attention away from executing our operational plan during this period. We currently do not maintain “key man” life insurance on any of our senior management team. The loss of Ms. Conte or other members of our current senior management could adversely affect the timing or outcomes of our current and planned studies, as well as the prospects for commercializing our products.

In addition, competition for qualified personnel in the human and animal gastrointestinal health fields is intense, because there are a limited number of individuals who are trained or experienced in the field. Further, our headquarters are located in San Francisco, California, and the dairy and agriculture industries are not prevalent in urban areas such as San Francisco. We will need to hire additional personnel as we expand our product development and commercialization activities. Even if we are successful in hiring qualified individuals, as we are a growing organization, we do not have a track record for integrating and retaining individuals. If we are not successful in identifying, attracting, integrating or retaining qualified personnel on acceptable terms, or at all, our business will be harmed.

We are dependent on two suppliers for the raw material used to produce the active pharmaceutical ingredient in Mytesi and Canalevia and the botanical extract in Neonorm and Equilevia. The termination of either of these contracts would result in a disruption to product development and our business will be harmed.Reporting

~~The raw material used to manufacture Mytesi, Canalevia, Neonorm and Equilevia is crude plant latex (“CPL”), derived from the~~ ~~Croton lechleri~~ tree, which is found in countries in South America, principally Peru. The ability of our contract suppliers to harvest CPL is governed by the terms of their respective agreements with local government authorities. Although CPL is available from multiple suppliers, we only have contracts with two suppliers to obtain CPL and arrange the shipment to our contract manufacturer. Accordingly, if our contract suppliers do not or are unable to comply with the terms of our respective agreements, and we are not able to negotiate new agreements with alternate suppliers on terms that we deem commercially reasonable, it may harm our business and prospects. The countries from which we obtain CPL could change their laws and regulations regarding the export of the natural products or impose or increase taxes or duties payable by exporters of such products. Restrictions could be imposed on the harvesting of the natural products or additional requirements could be implemented for the replanting and regeneration of the raw material. Such events could have a significant impact on our cost and ability to produce Mytesi, Canalevia, Neonorm, Equilevia and anticipated line extensions.

We are dependent upon third-party contract manufacturers, both for the supply of the active pharmaceutical ingredient in Mytesi and Canalevia and the botanical extract in Neonorm and Equilevia, as well as for the supply of finished products for commercialization.

We have contracted with third parties for the formulation of API and botanical extract into finished products for our studies. We have also entered into memorandums of understanding with Indena S.p.A. for the manufacture of CPL received from our suppliers into the API in Canalevia to support our regulatory filings, as well as the botanical extract in Neonorm and agreed to negotiate a commercial supply agreement. Indena S.p.A. has never manufactured either such ingredient to commercial scale. As a second supplier situation, we have entered into a four-year manufacturing and supply agreement with Glenmark for the supply of the API in Canalevia. Glenmark is the current manufacturer of crofelemer, the active API in Canalevia, for Mytesi, and the manufacturer on file for the NADA to which we have a right of reference. As announced in October of 2015, we have entered an agreement with Patheon, a provider of drug development and delivery solutions, under which Patheon provides enteric-coated tablets to us for use in animals. We also may contract with additional third parties for the formulation and supply of finished products, which we will use in our planned studies and commercialization efforts.

We will be dependent upon our contract manufacturers for the supply of the API in Mytesi and Canalevia. We currently have sufficient quantities of the botanical extract used in Neonorm and Equilevia to support initial commercialization of Neonorm and Equilevia. However, we will require additional quantities of the botanical extract if our ongoing commercial launch of Neonorm or our commercial launch of and Equilevia is successful. If we are not successful in reaching agreements with third parties on terms that we consider commercially reasonable for manufacturing and formulation, or if our contract manufacturer and formulator are not able to produce sufficient quantities or quality of API, botanical extract or finished product under their agreements, it could delay our plans and harm our business prospects.

The facilities used by our third-party contractors are subject to inspections, including by the FDA, and other regulators, as applicable. We also depend on our third-party contractors to comply with cGMP. If our third-party contractors do not maintain compliance with these strict regulatory requirements, we and they will not be able to secure or maintain regulatory approval for their facilities, which would have an adverse effect on our operations. In addition, in some cases, we also are dependent on our third-party contractors to produce supplies in conformity to our specifications and maintain quality control and quality assurance practices and not to employ disqualified personnel. If the FDA or a comparable foreign regulatory authority does not approve the facilities of our third-party contractors if so required, or if it withdraws any such approval in the future, we may need to find alternative manufacturing or formulation facilities, which could result in delays in our ability to develop or commercialize our human and animal products, if at all. We and our third-party contractors also may be subject to penalties and sanctions from the FDA and other regulatory authorities for any violations of applicable regulatory requirements. The USDA and the European Medicines Agency (the “EMA”), employ different regulatory standards than the FDA, so we may require multiple manufacturing processes and facilities for the same human or animal product candidate or any approved product. We are also exposed to risk if our third-party contractors do not comply with the negotiated terms of our agreements, or if they suffer damage or destruction to their facilities or equipment.

If we are unable to establish sales capabilities on our own or through third parties, we may not be able to market and sell our current or future human or animal products and product candidates, if approved, and generate product or other revenue.

We currently have limited sales, marketing or distribution capabilities, and prior to Napo’s launch of Mytesi for the symptomatic relief of noninfectious diarrhea in adults with HIV/AIDS on antiretroviral therapy, and our launch of Neonorm for preweaned dairy calves, we had no experience in the sale, marketing and distribution of human or animal health products. There are significant risks involved in building and managing a sales organization, including our potential inability to attract, hire, retain and motivate qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel and effectively oversee a geographically dispersed sales and marketing team. Any failure or delay in the development of our internal sales, marketing and distribution capabilities and entry into adequate arrangements with distributors or other partners would adversely impact the commercialization of Mytesi, Neonorm, Equilevia and, if approved, Canalevia. If we are not successful in commercializing Mytesi, Neonorm, Equilevia, Canalevia or any of our other line extension products, either on our own or through one or more distributors, or in generating upfront licensing or other fees, we may never generate significant revenue and may continue to incur significant losses, which would harm our financial condition and results of operations.

~~Changes in distribution channels for animal health prescription drugs may make it more difficult or expensive to distribute our animal health prescription drug products.~~

In the United States, animal owners typically purchase their animal health prescription drugs from their local veterinarians who also prescribe such drugs. There is a trend, however, toward increased purchases of animal health prescription drugs from

Internet-based retailers, “big-box” retail stores and other over-the-counter distribution channels, which follows an emerging shift in recent years away from the traditional veterinarian distribution channel. It is also possible that animal owners may come to rely increasingly on Internet-based animal health information rather than on their veterinarians. We currently expect to market our animal health prescription drugs directly to veterinarians, so any reduced reliance on veterinarians by animal owners could harm our business and prospects by making it more difficult or expensive for us to distribute our animal health prescription drug products.

Legislation has been or may be proposed in various states that would require veterinarians to provide animal owners with written prescriptions and disclosures that the animal owner has the right to fill the prescriptions through other means. If enacted, such legislation could lead to a reduction in the number of animal owners who purchase their animal health pharmaceuticals directly from veterinarians, which also could harm our business.

~~Consolidation of our customers could negatively affect the pricing of our animal health products.~~

Veterinarians will be our primary customers for our prescription animal health drug products, as well as, to some extent, our non-prescription animal health products, such as Neonorm and Equilevia. In recent years, there has been a trend towards the consolidation of veterinary clinics and animal hospitals. If this trend continues, these large clinics and hospitals could attempt to leverage their buying power to obtain favorable pricing from us and other animal health product companies. Any downward pressure on the prices of any of our animal health products could harm our operating results and financial condition.

~~We will need to increase the size of our organization and may not successfully manage such growth.~~

As of August 31, 2017, we had 25 full-time equivalent (FTE) employees. Our ability to manage our growth effectively will require us to hire, train, retain, manage and motivate additional employees and to implement and improve our operational, financial and management systems. These demands also may require the hiring of additional senior management personnel or the development of additional expertise by our senior management personnel. If we fail to expand and enhance our operational, financial and management systems in conjunction with our potential future growth, it could harm our business and operating results.

Research and development with respect to our animal health products and product candidates relies on evaluations in animals, which is controversial and may become subject to bans or additional regulations.

The evaluation of our animal health products and product candidates in target animals is required to develop, formulate and commercialize our animal health products and product candidates. Although our animal testing will be subject to GLPs and GCPs, as applicable, animal testing in the human pharmaceutical industry and in other industries continues to be the subject of controversy and adverse publicity. Some organizations and individuals have sought to ban animal testing or encourage the adoption of additional regulations applicable to animal testing. To the extent that such bans or regulations are imposed, our research and development activities with respect to animal health products, and by extension our operating results and financial condition, could be harmed. In addition, negative publicity about animal practices by us or in our industry could harm our reputation among potential customers.

If approved, our animal health prescription drug product candidates may be marketed in the United States only in the target animals and for the indications for which they are approved, and if we want to expand the approved animals or indications, it will need to obtain additional approvals, which may not be granted.

If our animal health prescription drug product candidates are approved by regulatory authorities, we may market or advertise them only in the specific species and for treatment of the specific indications for which they were approved, which could limit use of the products by veterinarians and animal owners. We intend to develop, promote and commercialize approved products for other animals and new treatment indications in the future, but we cannot be certain whether or at what additional time and expense we will be able to do so. If we do not obtain marketing approvals for other species or for new indications, our ability to expand our animal health business may be harmed.

Under the Animal Medicinal Drug Use Clarification Act of 1994, veterinarians are permitted to prescribe extra-label uses of certain approved animal drugs and approved human drugs for animals under certain conditions. While veterinarians may in the future prescribe and use human-approved products or use our products for extra-label uses, we may not promote our animal health products for extra-label uses. We note that extra-label uses are uses for which the product has not received approval. If the FDA determines that any of our marketing activities constitute promotion of an extra-label use, we could be subject to regulatory enforcement, including seizure of any misbranded or mislabeled drugs, and civil or criminal penalties, any of which could have an adverse impact on our reputation and expose us to potential liability. We will continue to spend resources ensuring that our promotional claims for our animal health products and product candidates remain compliant with applicable FDA laws and regulations, including materials we

post or link to on our website. For example, in 2012, our Chief Executive Officer received an “untitled letter” from the FDA while at Napo regarding preapproval promotion statements constituting misbranding of crofelemer, which was then an investigational drug. These statements were included in archived press releases included on Napo’s website. Napo was required to expend time and resources to revise its website to remove the links in order to address the concerns raised in the FDA’s letter.

If our human or animal prescription drug product candidates are approved by regulatory authorities, the misuse or extra-label use of such products may harm our reputation or result in financial or other damages.

If our human or animal prescription drug product candidates are approved by regulatory authorities, there may be increased risk of product liability if physicians, veterinarians, patients, animal owners or others, as applicable, attempt to use such products extra-label, including the use of our products for indications or in species for which they have not been approved. Furthermore, the use of an approved human or animal drug for indications other than those indications for which such products have been approved may not be effective, which could harm our reputation and lead to an increased risk of litigation. If we are deemed by a governmental or regulatory agency to have engaged in the promotion of any approved human or animal product for extra-label use, such agency could request that we modify our training or promotional materials and practices and we could be subject to significant fines and penalties, and the imposition of these sanctions could also affect our reputation and position within the gastrointestinal health industry. Any of these events could harm our reputation and our operating results.

~~We may not maintain the benefits associated with MUMS designation, including market exclusivity.~~

Although we have received MUMS designation for Canalevia for the treatment of CID in dogs, we may not maintain the benefits associated with MUMS designation. MUMS designation is a status similar to “orphan drug” status for human drugs. When we were granted MUMS designation for Canalevia for the indication of CID in dogs, we became eligible for incentives to support the approval or conditional approval of the designated use. This designation does not allow us to commercialize a product until such time as we obtain approval or conditional approval of the product.

Because Canalevia has received MUMS designation for the identified particular intended use, we are eligible to obtain seven years of exclusive marketing rights upon approval (or conditional approval) of Canalevia for that intended use and become eligible for grants to defray the cost of our clinical work. Each designation that is granted must be unique, ~~i.e.~~, only one designation can be granted for a particular API in a particular dosage form for a particular intended use. The intended use includes both the target species and the disease or condition to be treated.

At some point, we could lose MUMS designation. The basis for a lost designation can include but is not limited to, our failure to engage with due diligence in moving forward with a non-conditional approval, or a competing product has received conditional approval or approval prior to our product candidate for the same indication or species. In addition, MUMS designation may be withdrawn for a variety of reasons such as where the FDA determines that the request for designation was materially defective, or if the manufacturer is unable to assure sufficient quantity of the prescription drug product to meet the needs of animals with the rare disease or condition. If this designation is lost, it could have a negative impact on the product and us, which includes but is not limited to, market exclusivity related to MUMS designation, or eligibility for grants as a result of MUMS designation.

The market for our human or animal products, and the gastrointestinal health market as a whole, is uncertain and may be smaller than we anticipate, which could lead to lower revenue and harm our operating results.

It is very difficult to estimate the commercial potential of any of our human or animal products because the gastrointestinal health market continues to evolve and it is difficult to predict the market potential for our products. The market will depend on important factors such as safety and efficacy compared to other available treatments, changing standards of care, preferences of physicians and veterinarians, as applicable, the willingness of patients and companion and production animal owners, as applicable, to pay for such products, and the availability of competitive alternatives that may emerge either during the product development process or after commercial introduction. If the market potential for our human or animal products is less than we anticipate due to one or more of these factors, it could negatively impact our business, financial condition and results of operations. Further, the willingness of patients and companion and production animal owners to pay for our products may be less than we anticipate, and may be negatively affected by overall economic conditions. Moreover, with respect to our animal health products, the current penetration of animal insurance in the United States is low, animal owners are likely to have to pay out-of-pocket, and such owners may not be willing or able to pay for our products.

Insurance coverage for Mytesi for its current approved indication could decrease or end, or Mytesi might not receive insurance coverage for any approved follow-on indications, which could lead to lower revenue and harm our operating results.

For its current approved indication, Mytesi is currently covered by all of the top 10 commercial insurance plans, representing more than 245 million U.S. lives. In 50% of these plans it is currently on Tier 3 with no restrictions, and in 50% it is currently on Tier 3 with a prior authorization required. In the top 10 Managed Medicare plans, which represent 24 million covered lives, Mytesi is currently covered on 10% of plans. Mytesi is currently covered on Medicaid in all 50 states. However, the nature or extent of coverage for Mytesi by any of these plans or programs could change or be terminated, or Mytesi might not receive insurance coverage for any approved follow-on indications. Either outcome could lead to significantly lower revenue and significantly harm our operating results.

~~If we fail to maintain effective internal control over financial reporting in the future, the accuracy and timing of our financial reporting may be adversely affected.~~

Our management is responsible for establishing and maintaining adequate internal control over ~~our~~ financial reporting as defined in ~~Rule~~Rules 13a-15(f) and 15d-15(c) under the ~~Securities~~ Exchange ~~Act~~Act. Because of ~~1934, as amended (the “Exchange Act”).~~

Preparing our consolidated financial statements involves a number of complex manual and automated processes, which are dependent upon individual data input or review and require significant management judgment. One or more of these elements may result in errors that may not be detected and could result in a material misstatement of our consolidated financial statements. If we fail to maintain the adequacy of our internal controls over financial reporting, our business and operating results may be harmed and we may fail to meet our financial reporting obligations. If material weaknesses in our internal control are discovered or occur, our consolidated financial statements may contain material misstatements and we could be required to restate our financial results.

~~Our~~its inherent limitations, internal control over financial reporting may not prevent or detect ~~misstatements because~~misstatements. Projections of ~~its inherent limitations, including the possibility~~any evaluation of human error, the circumvention or overriding of controls, or fraud. Even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. Any failure of our internal controls could adversely affect the results of the periodic management evaluations regarding the effectiveness of ~~our~~ internal control ~~over financial reporting. If we cannot provide reliable financial reports~~in future periods are subject to the risk that controls may become inadequate because of changes in conditions, or ~~prevent fraud, our business~~that the degree of compliance with policies or procedures may deteriorate. Under the supervision and ~~results of operations could be harmed, investors could lose confidence in our reported financial information, and~~with the ~~trading price~~participation of our ~~stock may decline.~~

~~We may engage in future acquisitions that increase~~management, including our ~~capital requirements, dilute our stockholders, cause us to incur debt or assume contingent liabilities~~Chief Executive Officer and ~~subject us to other risks.~~

We may evaluate various strategic transactions, including licensing or acquiring complementary products, technologies or businesses. Any potential acquisitions may entail numerous risks, including increased operating expensesPrincipal Financial and cash requirements, assimilation of operations and products, retention of key employees, diversion of our management’s attention and uncertainties in our ability to maintain key business relationships of the acquired entities. In addition, ifAccounting Officer, we undertake acquisitions, we may issue dilutive securities, assume or incur debt obligations, incur large one-time expenses and acquire intangible assets that could result in significant future amortization expense. Moreover, we may not be able to locate suitable acquisition opportunities and this inability could impair our ability to grow or obtain access to technology or products that may be important to the development of our business.

~~Certain of the countries in which we plan to commercialize our products in the future are developing countries, some of which have potentially unstable political and economic climates.~~

We may commercialize our products in jurisdictions that are developing and emerging countries. This may expose us to the impact of political or economic upheaval, and we could be subject to unforeseen administrative or fiscal burdens. At present, we are not insured against the political and economic risks of operating in these countries. Any significant changes to the political or economic climate in any of the developing countries in which we operate or plan to sell products either now or in the future may have a substantial adverse effect on our business, financial condition, trading performance and prospects.

~~Fluctuations in the exchange rate of foreign currencies could result in currency transactions losses.~~

As we expand our operations, we expect to be exposed to risks associated with foreign currency exchange rates. We anticipate that we will commercialize Neonorm for preweaned dairy calves and its line extensions, as well as possibly Canalevia and its line extensions in jurisdictions outside the United States. As a result, we will also be further affected by fluctuations in exchange rates in the future to the extent that sales are denominated in currencies other than U.S. dollars. We do not currently employ any hedging or other strategies to minimize this risk, although we may seek to do so in the future.

The unaudited pro forma combined condensed financial statements incorporated by reference in this document are preliminary and the actual financial condition and results of operations after the Merger may differ materially.

The unaudited pro forma combined condensed financial statements included in this quarterly report on Form 10-Q are presented for illustrative purposes only and are not necessarily indicative of what our actual financial condition or results of operations would have been had the Merger been completed on the dates indicated. The unaudited pro forma combined condensed financial statements reflect adjustments to illustrate the effect of the Merger had it been completed on the dates indicated, which are based upon preliminary estimates, to record the Napo identifiable assets acquired and liabilities assumed at fair value and the resulting goodwill recognized. The purchase price allocation for the Merger reflected in the pro forma combined financial statements is preliminary, and final allocation of the purchase price will be based upon the actual purchase price and the fair value of the assets and liabilities of Napo as of the date of the completion of the Merger. Accordingly, the final acquisition accounting adjustments may differ materially from the pro forma adjustments reflected in financial statements incorporated by reference in this document.

~~There are other gastrointestinal-focused human pharmaceutical companies, and we face competition in the marketplaces in which we operate or plan to operate.~~

Our commercial success in the human drug arena remains dependent on maintaining or establishing a competitive position in the market for the current, approved specialty indication of Mytesi as well as for planned Mytesi follow-on indications. In the IBS-D market in particular, several competitors have commercially available products approved for our planned IBS-D indication. The availability of our competitors’ products could limit the demand, and the price we are able to charge, for any drug candidate we develop. The inability to compete with existing or subsequently introduced drug candidates would have a material adverse impact on our business, financial condition and prospects.

Our obligations to Hercules, and subject to certain events, to CVP, are secured by a security interest in substantially all of our veterinary related assets, so if we default on those obligations, Hercules or CVP could foreclose on our assets.

Our obligations under the loan and security agreement with Hercules Capital, Inc. (f/k/a Hercules Technology Growth Capital, Inc.) (“Hercules”) are secured by a security interest in substantially all of our veterinary related assets, including intellectual property. As a result, if we default on our obligations under the loan and security agreement (the “Hercules Debt”), Hercules could foreclose on its security interests and liquidate some or all of these assets, which would harm our veterinary related business, financial condition and results of operations and could require us to reduce or cease operations. In addition, Chicago Venture Partners, L.P. (“CVP”) may acquire a security interest in substantially all of our veterinary related assets upon the earlier of CVP purchasing Hercules Debt or the repayment in full of the Hercules Debt, as provided in the Security Agreement, dated June 29, 2017, between us and CVP and the Subordination Agreement and Right to Purchase Debt, dated June 29, 2017, by and among us, CVP and Hercules.

Napo’s obligations to the holders of the Kingdon Notes are secured by a security interest in substantially all of Napo’s assets, so if we default on those obligations, the convertible note holders could foreclose on Napo’s assets.

Napo’s obligations under the convertible promissory notes (the “Kingdon Notes”) issued pursuant to the Amended and Restated Note Purchase Agreement, dated March 31, 2017, by and among Kingdon Associates, M. Kingdon Offshore Master Fund L.P., Kingdon Family Partnership, L.P. and Kingdon Credit Master Fund L.P. (collectively, the “Kingdon Purchasers”) and Napo and the related transaction documents are secured by a security interest in substantially all of Napo’s assets, including Napo intellectual property. As a result, if we default under our obligations under the Kingdon Notes or the transaction documents, the holders of such Kingdon Notes, acting through their appointed agent, could foreclose on their security interests and liquidate some or all of these assets, which would harm our business, financial condition and results of operations and could require us to reduce or cease operations.

~~Risks Related to Intellectual Property~~

~~We cannot be certain that our patent strategy will be effective to protect against competition~~

Our commercial success depends in large part on obtaining and maintaining patent, trademark and trade secret protection of our human or animal products, both prescription and non-prescription, our current human or animal product candidates and any future human or animal product candidates, and their respective components, formulations, methods used to manufacture them and methods of treatment, as well as successfully defending our patents and other intellectual property rights against third-party challenges. Our ability to stop unauthorized third parties from making, using, selling, offering to sell or importing our products or our product candidates is dependent upon the extent to which we have rights under valid and enforceable patents, trade secrets and other similar

intellectual property that cover these activities. The patent prosecution process is expensive and time-consuming, and we may not be able to prepare, file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of inventions made in the course of development and commercialization activities in time to obtain patent protection on them.

We have a portfolio of United States and foreign issued patents and pending applications related to our products and product candidates. We have five issued United States patents listed in the FDA’s Orange Book for Mytesi. We plan to rely on certain of these issued patents as protection for Canalevia. The strength of patents in the field of pharmaceuticals and animal health involves complex legal and scientific questions and can be uncertain. We cannot be certain that pending applications will issue as patents. For those patents that are already issued and even if other patents do successfully issue, third parties may challenge their validity, enforceability or scope, which may result in such patents being narrowed, invalidated or held unenforceable. Furthermore, even if they are unchallenged, our patents may not adequately protect our intellectual property or prevent others from designing around their claims. If the patents we have are not maintained or their scope is significantly narrowed or if we are not able to obtain issued patents from pending applications, our business and prospects would be harmed.

Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of any patent applications and the enforcement or defense of any patents that issue. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted, redefine prior art, may affect patent litigation, and switch the U.S. patent system from a “first-to-invent” system to a “first-to-file” system. Under a “first-to-file” system, assuming the other requirements for patentability are met, the first inventor to file a patent application generally will be entitled to the patent on an invention regardless of whether another inventor had made the invention earlier. The USPTO has developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first-to-file provisions, became effective on March 16, 2013. Among some of the other changes to the patent laws are changes that limit where a patentee may file a patent infringement suit and that provide opportunities for third parties to challenge any issued patent in the USPTO. The Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our patents and any other patents that issue, all of which could harm our business and financial condition.

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance and annuity fees on any issued patent and, in certain jurisdictions, pending applications, are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we fail to maintain the patents and patent applications covering our prescription drug products, prescription drug product candidates and non-prescription products, our competitors might be able to enter the market, which would harm our business.

Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, which would be costly, time-consuming and, if successfully asserted against us, delay or prevent the development and commercialization of our current or future products and product candidates.

Our research, development and commercialization activities may infringe or otherwise violate or be claimed to infringe or otherwise violate patents owned or controlled by other parties. There may be patents already issued of which we are unaware that might be infringed by a product or one of our current or future prescription drug product candidates or non-prescription products. Moreover, it is also possible that patents may exist that we are aware of, but that we do not believe are relevant to our current or future prescription drug product candidates or non-prescription products, which could nevertheless be found to block our freedom to market these products. Because patent applications can take many years to issue and may be confidential for 18 months or more after filing, there may be applications now pending of which we are unaware and which may later result in issued patents that may be infringed by our current or future prescription drug product candidates or non-prescription products. We cannot be certain that our products, current or future prescription drug product candidates or non-prescription products will not infringe these or other existing or future

~~third-party patents. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents.~~

To the extent we become subject to future third-party claims against us or our collaborators, we could incur substantial expenses and, if any such claims are successful, we could be liable to pay substantial damages, including treble damages and attorney’s fees if we or our collaborators are found to be willfully infringing a third party’s patents. If a patent infringement suit were brought against us or our collaborators, we or they could be forced to stop or delay research, development, manufacturing or sales of the human or animal prescription drug or non-prescription product that is the subject of the suit. Even if we are successful in defending such claims, infringement and other intellectual property claims can be expensive and time-consuming to litigate and divert management’s attention from our business and operations. As a result of or in order to avoid potential patent infringement claims, we or our collaborators may be compelled to seek a license from a third party for which we would be required to pay license fees or royalties, or both. Moreover, these licenses may not be available on acceptable terms, or at all. Even if we or our collaborators were able to obtain such a license, the rights may be nonexclusive, which could allow our competitors access to the same intellectual property. Any of these events could harm our business and prospects.

~~Our proprietary position depends upon patents that are formulation or method-of-use patents, which do not prevent a competitor from using the same human or animal drug for another use.~~

Composition-of-matter patents on the API in prescription drug products are generally considered to be the strongest form of intellectual property protection because such patents provide protection without regard to any particular method of use or manufacture or formulation of the API used. The composition-of-matter patents for crofelemer, the API in Mytesi and Canalevia, have expired, and the issued patents and applications relevant to our products and product candidates cover formulations and methods of use for crofelemer and the botanical extract in Neonorm and Equilevia.

Method-of-use patents protect the use of a product for the specified method and formulation patents cover formulations of the API or botanical extract. These types of patents do not prevent a competitor from developing or marketing an identical product for an indication that is outside the scope of the patented method or from developing a different formulation that is outside the scope of the patented formulation. Moreover, with respect to method-of-use patents, even if competitors do not actively promote their product for our targeted indications or uses for which we may obtain patents, physicians may recommend that patients use our products extra-label, and veterinarians may recommend that animal owners use these products extra-label, or animal owners may do so themselves. Although extra-label use may infringe or contribute to the infringement of method-of-use patents, the practice is common and such infringement is difficult to prevent or prosecute.

We may be involved in lawsuits to protect or enforce our patents, which could be expensive, time-consuming and unsuccessful, and third parties may challenge the validity or enforceability of our patents and they may be successful.

We intend to rely upon a combination of regulatory exclusivity periods, patents, trade secret protection, and confidentiality agreements to protect the intellectual property related to Mytesi, our current prescription drug product candidates, non-prescription products and our development programs.

If the breadth or strength of protection provided by any patents, patent applications or future patents we may own, license, or pursue with respect to any of our current or future product candidates or products is threatened, it could threaten our ability to commercialize any of our current or future human or animal product candidates or products. Further, if we encounter delays in our development efforts, the period of time during which we could market any of our current or future product candidates or products under any patent protection we obtain would be reduced.

Given the amount of time required for the development, testing and regulatory review of new product candidates or products, patents protecting such candidates might expire before or shortly after such product candidates or products are commercialized. Patent term extension has been applied for US 7,341,744 to account for regulatory delays in obtaining human marketing approval for crofelemer. The FDA and the USPTO have confirmed that US 7,341,744 is eligible for an extension of 1075 days and we await issuance of the patent term extension certificate. With respect to requests for patent term extensions, the applicable authorities, including the USPTO and the FDA, and any equivalent regulatory authority in other countries, may not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to patents, or may grant more limited extensions than requested. If this occurs, our competitors may take advantage of our investment in development and trials by referencing our clinical and preclinical data and launch their product earlier than might otherwise be the case.

Even where laws provide protection or we are able to obtain patents, costly and time-consuming litigation may be necessary to enforce and determine the scope of our proprietary rights, and the outcome of such litigation would be uncertain. Moreover, any actions we may bring to enforce our intellectual property against our competitors could provoke them to bring counterclaims against us, and some of our competitors have substantially greater intellectual property portfolios than we have. To counter infringement or unauthorized use of any patents we may obtain, we may be required to file infringement claims, which can be expensive and time-consuming to litigate. In addition, if we or one of our future collaborators were to initiate legal proceedings against a third party to enforce a patent covering one of our products, current product candidates, or one of our future products, the defendant could counterclaim that the patent is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace and challenges to validity of patents in certain foreign jurisdictions is common as well. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, non-enablement or lack of statutory subject matter. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant material information from the USPTO, or made a materially misleading statement, during prosecution. In particular, Mytesi has regulatory exclusivity as a new chemical entity until December 31, 2017. Under the Hatch-Waxman Act, a competitor seeking to market a generic form of Mytesi before the expiration of any of the patents listed in the FDA’s Orange Book for Mytesi could file (and could have filed after December 31, 2016) an ANDA with a certification under 21 U.S.C. § 3559j)(2)(A)(iv) that each of these patents (except for those which the ANDA filer states it will market only after its expiration) is either invalid, unenforceable or not infringed. We may assert the patents in Hatch-Waxman litigation against the party filing the ANDA to keep the competing product off of the market until the patents expire but there is a risk that we will not succeed. The party filing the ANDA may also counterclaim in the litigation that the our patents are not valid or unenforceable, and the court may find one or more claims of our patents invalid or unenforceable. If this occurs, a competing generic product could be marketed prior to expiration of our patents listed in the Orange Book, which would harm our business.

~~Third parties may also raise similar validity claims before the USPTO in post-grant proceedings such as~~ ~~ex parte~~ ~~reexaminations,~~ ~~inter partes~~ review, or post-grant review, or oppositions or similar proceedings outside the United States, in parallel with litigation or even outside the context of litigation. The outcome following legal assertions of invalidity and unenforceability is unpredictable. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of any future patent protection on one or more of our products or our current or future product candidates. Such a loss of patent protection could harm our business. We cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution or other basis for a finding of invalidity. Litigation proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be unsuccessful, it could have an adverse effect on the price of our common stock. Finally, we may not be able to prevent, misappropriation of our trade secrets or confidential information, particularly in countries where the laws may not protect those rights as fully as in the United States.

~~If we are unable to prevent disclosure of our trade secrets or other confidential information to third parties, our competitive position may be impaired.~~

We also rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or for which we have not filed patent applications, processes for which patents are difficult to enforce and other elements of our product development processes that involve proprietary know-how, information or technology that is not covered by patents. Although we require all of our employees to assign their inventions to us, and endeavor to execute confidentiality agreements with all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology, we cannot be certain that we have executed such agreements with all parties who may have helped to develop our intellectual property or had access to our proprietary information, or that our agreements will not be breached. We cannot guarantee that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. If we are unable to prevent disclosure of our intellectual property to third parties, we may not be able to maintain a competitive advantage in our market, which would harm our business.

Any disclosure to or misappropriation by third parties of our confidential proprietary information could enable competitors to quickly duplicate or surpass our technological achievements, and erode our competitive position in our market.

~~Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.~~

As is the case with other human or animal pharmaceutical product companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the human and animal health industries involves both technological and legal complexity. Therefore, obtaining and enforcing patents is costly, time-consuming and inherently uncertain. In addition, the United States has recently enacted and implemented wide-ranging patent reform legislation. The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce patents that we have licensed or that we might obtain in the future.

~~We may not be able to protect our intellectual property rights throughout the world, which could impair our business.~~

Filing, prosecuting and defending patents on human and animal drug products, product candidates and non-prescription products throughout the world would be prohibitively expensive. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we may obtain patent protection, but where patent enforcement is not as strong as that in the United States. These products may compete with our products in jurisdictions where we do not have any issued or licensed patents and any future patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to animal health products, which could make it difficult for us to stop the infringement of our future patents, if any, or patents we have in licensed, or marketing of competing products in violation of our proprietary rights generally. Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. Proceedings to enforce our future patent rights, if any, in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.

~~Our business could be harmed if we fail to obtain certain registered trademarks in the United States or in other countries.~~

Our registered and pending U.S. trademarks include NEONORM®, MYTESI®, NAPO®, Napo Logo®, CANALEVIA, EQUILEVIA, JAGUAR ANIMAL HEALTH, the Jaguar Animal Health logo and MY HIV THANK YOU. We also own pending applications for the CANALEVIA mark in a number of foreign countries. We have not yet filed applications for our company name or our logo in the U.S. During trademark registration proceedings, we may receive rejections of our trademark applications. If so, we will have an opportunity to respond, but we may be unable to overcome such rejections. In addition, the USPTO and comparable agencies in many foreign jurisdictions may permit third parties to oppose pending trademark applications and to seek to cancel registered trademarks. If opposition or cancellation proceedings are filed against any of our trademark applications or any registered trademarks, our trademarks may not survive such proceedings. Moreover, any name we propose to use with our prescription drug product candidates in the United States, including CANALEVIA, must be approved by the FDA, regardless of whether we have registered or applied to register as a trademark. The FDA typically conducts a review of proposed prescription drug product names, includingconducted an evaluation of potential for confusion with other product names. If the FDA objects to any of our proposed proprietary product names, we may be required to expend significant additional resources in an effort to identify a suitable substitute name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA.

~~We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.~~

We have received confidential and proprietary information from third parties. In addition, we employ individuals who were previously employed at other biotechnology, pharmaceutical or animal health companies. We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise improperly used or disclosed confidential information of these third parties or our employees’ former employers. Litigation may be necessary to defend against any such claims. Even if we were successful in defending against any such claims, such litigation could result in substantial cost and be a distraction to our management and employees.

~~Risks Related to Government Regulation~~

Even if we receive any of the required regulatory approvals for our current or future prescription drug product candidates and non-prescription products, we will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense.

If the FDA or any other regulatory body approves any of our current or future prescription drug product candidates, or if necessary, our non-prescription products, the manufacturing processes, clinical development, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product may be subject to extensive and ongoing regulatory requirements. These requirements could include, but are not limited to, submissions of efficacy and safety and other post-marketing information and reports, establishment registration, and product listing, compliance with new rules promulgated under the FSMA, as well as continued compliance with cGMP, GLP and GCP for any studies that we conduct post-approval. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with our contract manufacturers or manufacturing processes, or failure to comply with regulatory requirements, are reportable events to the FDA and may result in, among other things:

· ~~restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, revised labeling, or voluntary or involuntary product recalls;~~

· ~~additional clinical studies, fines, warning letters or holds on target animal studies;~~

· refusal by the FDA, or other regulators to approve pending applications or supplements to approved applications filed by us or our strategic collaborators related to the unknown problems, or suspension or revocation of the problematic product’s license approvals;

· ~~product seizure or detention, or refusal to permit the import or export of products; and~~

· ~~injunctions and/or the imposition of civil or criminal penalties.~~

The FDA or other regulatory agency’s policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates or require certain changes to the labeling or additional clinical work concerning safety and efficacy of the product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability, which would harm our business. In addition, failure to comply with these regulatory requirements could result in significant penalties.

In addition, from time to time, we may enter into consulting and other financial arrangements with veterinarians, who prescribe or recommend our products, once approved. As a result, we may be subject to state, federal and foreign healthcare and/or veterinary medicine laws.. If our financial relationships with veterinarians are found to be in violation of such laws that apply to us, we may be subject to penalties.

~~The issuance by the FDA of protocol concurrences for our pivotal studies does not guarantee ultimate approval of our NADA.~~

We intend to seek protocol concurrences from the FDA for the pivotal trial of Canalevia that we have initiated for acute diarrhea in dogs and for future pivotal trials in other indications. A pivotal study protocol is submitted to the FDA by a drug sponsor for purposes of obtaining FDA review of the protocol. Prior FDA review of the protocol for a pivotal study makes it more likely that the study design will generate information the sponsor needs to demonstrate to the satisfaction of the FDA whether the drug is safe and effective for its intended use. It creates an expectation by the sponsor that the FDA should not later alter its perspectives on these issues unless public or animal health concerns appear that were not recognized at the time of protocol assessment. Even if the FDA issues a protocol concurrence, ultimate approval of an NADA by the FDA is not guaranteed because a final determination that the agreed-upon protocol satisfies a specific objective, such as the demonstration of efficacy, or supports an approval decision, will be based on a complete review of all the data submitted to the FDA including the outcome of the study for which protocol concurrence was received. Even if we were to obtain protocol concurrence such concurrence does not guarantee that the results of the study will support a particular finding or approval of the new drug.

Any of our current or future prescription drug product candidates or non-prescription products may cause or contribute to adverse medical events that we would be required to report to regulatory authorities and, if we fail to do so, we could be subject to sanctions that would harm our business.

If we are successful in commercializing any of our current or future prescription drug product candidates or non-prescription products, certain regulatory authorities will require that we report certain information about adverse medical events if those products may have caused or contributed to those adverse events. The timing of our obligation to report would be triggered by the date we become aware of the adverse event as well as the nature of the event. We may fail to report adverse events we become aware of within the prescribed timeframe. We may also fail to appreciate that we have become aware of a reportable adverse event, especially if such event is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of our products. If we fail to comply with our reporting obligations, the regulatory authorities could take action including, but not limited to, criminal prosecution, seizure of our products, facility inspections, removal of our products from the market, recalls of certain lots or batches, or cause a delay in approval or clearance of future products.

Legislative or regulatory reforms with respect to animal health may make it more difficult and costly for us to obtain regulatory clearance or approval of any of our current or future product candidates and to produce, market, and distribute our products after clearance or approval is obtained.

From time to time, legislation is drafted and introduced in the U.S. Congress or other jurisdictions in which we intend to operate that could significantly change the statutory provisions governing the testing, regulatory clearance or approval, manufacture, and marketing of regulated products. In addition, the FDA’s regulations and guidance are often revised or reinterpreted by the FDA and such other regulators in ways that may significantly affect our business and our products and product candidates. Similar changes in laws or regulations can occur in other countries. Any new regulations or revisions or reinterpretations of existing regulations in the United States or in other countries may impose additional costs or lengthen review times of any of our current or future products and product candidates. We cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated, enacted or adopted may have on our business in the future. Such changes could, among other things, require:

· ~~changes to manufacturing methods;~~

· ~~additional clinical trials or testing;~~

· ~~new requirements related to approval to enter the market;~~

· ~~recall, replacement, or discontinuance of certain products; and~~

· ~~additional record keeping or the development of certain regulatory required hazard identification plans.~~

Each of these would likely entail substantial time and cost and could harm our financial results. In addition, delays in receipt of or failure to receive regulatory clearances or approvals for any future products would harm our business, financial condition, and results of operations.

We believe that our non-prescription products are not subject to regulation by regulatory agencies in the United States, but there is a risk that regulatory bodies may disagree with our interpretation, or may redefine the scope of their regulatory reach in the future, which would result in additional expense and could delay or prevent the commercialization of these products.

The FDA retains jurisdiction over all animal prescription drug products however, in many instances, the Federal Trade Commission will exercise primary or concurrent jurisdiction with FDA on non-prescription products as to post marketing claims made regarding the product. On April 22, 1996, the FDA published a statement in the Federal Register, 61 FR 17706, that it believes that the Dietary Supplement and Health Education Act (“DSHEA”), does not apply to animal health supplement products, such as our non-prescription products. Accordingly, the FDA’s Center for Veterinary Medicine only regulates those animal supplements that fall within the FDA’s definition of an animal drug, animal food or animal feed additive. The Federal Food Drug and Cosmetic Act defines food as “articles used for food or drink for man or other animals and articles used as components of any such article.” Animal foods are not subject to pre-market approval and are designed to provide a nutritive purpose to the animals that receive them. Feed additives are defined as those articles that are added to an animal’s feed or water as illustrated by the guidance documents. Our non-prescription products are not added to food, are not ingredients in food nor are they added to any animal’s drinking water. Therefore, our non-prescription products do not fall within the definition of a food or feed additive. In light of the pronouncement by the FDA that the DSHEA was not intended to apply to animals, the FDA seeks to regulate such supplements as food or food additives depending on

~~the intended use of the product. The intended use is demonstrated by how the article is included in a food, or added to the animals’ intake (~~~~i.e.,~~ through its drinking water). If the intended use of the product does not fall within the proscribed use making the product a food, it cannot be regulated as a food. There is no intent to make our non-prescription products a component of an animal food, either directly or indirectly. A feed additive is a product that is added to a feed for any reason including the top dressing of an already prepared feed. Some additives, such as certain forage, are deemed to be Generally Recognized as Safe, or GRAS, and therefore, not subject to a feed Additive Petition approval prior to use. However, the substances deemed GRAS are generally those that are recognized as providing nutrients as a food does. We do not believe that our non-prescription products fit within this framework either. Finally, a new animal drug refers to drugs intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease in animals. Our non-prescription Neonorm Foal and Neonorm Calf products are not intended to diagnose, cure, mitigate, treat or prevent disease and therefore, do not fit within the definition of an animal drug. Additionally, because a previously marketed human formulation of the botanical extract in our non-prescription products was regulated as a human dietary supplement subject to the DSHEA (and not regulated as a drug by the FDA), we do not believe that the FDA would regulate the animal formulation used in our non-prescription products in a different manner. We do not believe that our non-prescription products fit the definition of an animal drug, food or food additive and therefore are not regulated by the FDA at this time.

However, despite many such unregulated animal supplements currently on the market, the FDA may choose in the future to exercise jurisdiction over animal supplement products in which case, we may be subject to unknown regulations thereby inhibiting our ability to launch or to continue marketing our non-prescription products. In the past, the FDA has redefined or attempted to redefine some non-prescription non-feed products as falling within the definition of drug, feed or feed additive and therefore subjected those products to the relevant regulations. We have not discussed with the FDA its belief that the FDA currently does not exercise jurisdiction over our non-prescription products. Should the FDA assert regulatory authority over our non-prescription products, we would take commercially reasonable steps to address the FDA’s concerns, potentially including but not limited to, seeking registration for such products, reformulating such products to further distance such products from regulatory control, or ceasing sale of such products. Further, the Animal and Plant Health Inspection Service, an agency of the USDA, may at some point choose to exercise jurisdiction over certain non-prescription products that are not intended for production animals. We do not believe we are currently subject to such regulation, but could be in the future. If the FDA or other regulatory agencies, such as the USDA, try to regulate our non-prescription products, we could be required to seek regulatory approval for our non-prescription products, which would result in additional expense and could delay or prevent the commercialization of these products.

Even if Napo receives the required regulatory approvals for Napo’s current or future prescription drug product candidates and non-prescription products, Napo will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense.

If the FDA or any other regulatory body approves any of Napo’s current or future prescription drug product candidates, or if necessary, Napo’s non-prescription products, the manufacturing processes, clinical development, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product is subject to extensive and ongoing regulatory requirements. These requirements could include, but are not limited to, submissions of efficacy and safety and other post-marketing information and reports, establishment registration, and product listing, compliance with new rules promulgated under the FSMA, as well as continued compliance with cGMP, GLP and GCP for any studies that Napo conducts post-approval. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with Napo’s contract manufacturers or manufacturing processes, or failure to comply with regulatory requirements, are reportable events to the FDA and may result in, among other things:

· ~~restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, revised labeling, or voluntary or involuntary product recalls;~~

· ~~additional clinical studies fines, warning letters or holds on studies;~~

· refusal by the FDA, or other regulators to approve pending applications or supplements to approved applications filed by Napo or Napo’s strategic collaborators related to the unknown problems, or suspension or revocation of the problematic product’s license approvals;

· ~~product seizure or detention, or refusal to permit the import or export of products; and~~

· ~~injunctions or the imposition of civil or criminal penalties.~~

The FDA or other regulatory agency’s policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of Napo’s product candidates or require certain changes to the labeling or require additional clinical work concerning safety and efficacy of the product candidates. Napo cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If Napo is slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if Napo is not able to maintain regulatory compliance, Napo may lose any marketing approval that Napo may have obtained and Napo may not achieve or sustain profitability, which would harm Napo’s business. In addition, failure to comply with these regulatory requirements could result in significant penalties.

In addition, from time to time, Napo may enter into consulting and other financial arrangements with physicians, who prescribe or recommend Napo’s products, once approved. As a result, Napo may be subject to state, federal and foreign healthcare laws, including but not limited to anti-kickback laws. If Napo’s financial relationships with physicians are found to be in violation of such laws that apply to Napo, Napo may be subject to penalties.

~~The issuance by the FDA of protocol concurrences for Napo’s pivotal studies does not guarantee ultimate approval of Napo’s NDA.~~

Napo intends to seek protocol concurrences from the FDA for future pivotal trials that Napo initiates. A pivotal study protocol is submitted to the FDA by a drug sponsor for purposes of obtaining FDA review of the protocol. Prior FDA review of the protocol for a pivotal study makes it more likely that the study will generate information the sponsor needs to demonstrate whether the drug is safe and effective for its intended use. It creates an expectation by the sponsor that the FDA should not later alter its perspectives on these issues unless public concerns appear that were not recognized at the time of protocol assessment. Even if the FDA issues a protocol concurrence, ultimate approval of an NDA by the FDA is not guaranteed because a final determination that the agreed-upon protocol satisfies a specific objective, such as the demonstration of efficacy, or supports an approval decision, will be based on a complete review of all the data submitted to the FDA. Even if Napo were to obtain protocol concurrence such concurrence does not guarantee that the results of the study will support a particular finding or approval of the new drug.

Any of Napo’s current or future prescription drug product candidates or non-prescription products may cause or contribute to adverse medical events that Napo would be required to report to regulatory authorities and, if Napo fails to do so, Napo could be subject to sanctions that would harm Napo’s business.

If Napo is successful in commercializing any of Napo’s current or future prescription drug product candidates or non-prescription products, certain regulatory authorities will require that Napo report certain information about adverse medical events if those products may have caused or contributed to those adverse events. The timing of Napo’s obligation to report would be triggered by the date Napo becomes aware of the adverse event as well as the nature of the event. Napo may fail to report adverse events Napo becomes aware of within the prescribed timeframe. Napo may also fail to appreciate that Napo has become aware of a reportable adverse event, especially if it is not reported to Napo as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of Napo’s products. If Napo fails to comply with Napo’s reporting obligations, the regulatory authorities could take action including, but not limited to, criminal prosecution, seizure of Napo’s products, facility inspections, removal of Napo’s products from the market, recalls of certain lots or batches, or cause a delay in approval or clearance of future products.

Legislative or regulatory reforms make it more difficult and costly for Napo to obtain regulatory clearance or approval of any of Napo’s current or future product candidates and to produce, market, and distribute Napo’s products after clearance or approval is obtained.

From time to time, legislation is drafted and introduced in the U.S. Congress or other jurisdictions in which Napo intends to operate that could significantly change the statutory provisions governing the testing, regulatory clearance or approval, manufacture, and marketing of regulated products. In addition, the FDA’s regulations and guidance are often revised or reinterpreted by the FDA and such other regulators in ways that may significantly affect Napo’s business and Napo’s products and product candidates. Similar changes in laws or regulations can occur in other countries. Any new regulations or revisions or reinterpretations of existing regulations in the United States or in other countries may impose additional costs or lengthen review times of any of Napo’s current or future products and product candidates. Napo cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated, enacted or adopted may have on Napo’s business in the future. Such changes could, among other things, require:

· ~~changes to manufacturing methods;~~

· ~~additional clinical trials or testing;~~

· ~~new requirements related to approval to enter the market;~~

· ~~recall, replacement, or discontinuance of certain products; and~~

· ~~additional record keeping or the development of certain regulatory required hazard identification plans.~~

Each of these would likely entail substantial time and cost and could harm Napo’s financial results. In addition, delays in receipt of or failure to receive regulatory clearances or approvals for any future products would harm Napo’s business, financial condition, and results of operations.

~~Risks Related to Our Common Stock~~

~~Our failure to meet the continued listing requirements of The NASDAQ Capital Market could result in a delisting of our common stock.~~

Our common stock is listed on The NASDAQ Capital Market, which imposes, among other requirements a minimum bid requirement. The closing bid price for our common stock must remain at or above $1.00 per share to comply with NASDAQ’s minimum bid requirement for continued listing. If the closing bid price for our common stock is less than $1.00 per share for 30 consecutive business days, NASDAQ may send us a notice stating that we will be provided a period of 180 days to regain compliance with the minimum bid requirement or else NASDAQ may make a determination to delist our common stock. our common stock traded for less than $1.00 for 30 consecutive business days, and we received notice of this from The NASDAQ Capital Market on May 16, 2017. We have a 180 calendar day grace period, or until November 13, 2017, to regain compliance with the minimum bid price requirement. The minimum bid price requirement will be met if our common stock has a minimum 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. We are diligently working to evidence compliance with the minimum bid requirement for continued listing on NASDAQ; however, there can be no assurance that we will be able to regain compliance or that NASDAQ will grant us a further extension of time to regain compliance, if necessary.

The delisting of our common stock from NASDAQ may make it more difficult for us to raise capital on favorable terms in the future. Such a delisting would likely have a negative effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do so. Further, if we were to be delisted from The NASDAQ Capital Market, our common stock would cease to be recognized as covered securities and we would be subject to regulation in each state in which it offers its securities.

Moreover, there is no assurance that any actions that we take to restore our compliance with the NASDAQ minimum bid requirement would stabilize the market price or improve the liquidity of our common stock, prevent our common stock from falling below the NASDAQ minimum bid price required for continued listing again or prevent future non-compliance with NASDAQ’s listing requirements.

~~If our shares become subject to the penny stock rules, it would become more difficult to trade our shares.~~

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. If we do not retain a listing on The NASDAQ Capital Market and if the price of our common stock is less than $5.00, our common stock will be deemed a penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules require that before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock, and therefore stockholders may have difficulty selling their shares.

~~The price of our common stock could be subject to volatility related or unrelated to our operations, and purchasers of our common stock could incur substantial losses.~~

The trading price of our common stock could be subject to wide fluctuations in response to various factors, some of which are beyond our control. These factors include those discussed previously in this “Risk Factors” section of this report and others, such as:

· ~~delays in the commercialization of Mytesi, Neonorm, Canalevia, Equilevia or our other current or future prescription drug product candidates and non-prescription products;~~

· ~~any delays in, or suspension or failure of, our current and future studies;~~

· ~~announcements of regulatory approval or disapproval of any of our current or future product candidates or of regulatory actions affecting our company or our industry;~~

· ~~manufacturing and supply issues that affect product candidate or product supply for our studies or commercialization efforts;~~

· ~~quarterly variations in our results of operations or those of our competitors;~~

· ~~changes in our earnings estimates or recommendations by securities analysts;~~

· ~~the payment of licensing fees or royalties in shares of our common stock;~~

· announcements by us or our competitors of new prescription drug products or product candidates or non-prescription products, significant contracts, commercial relationships, acquisitions or capital commitments;

· ~~announcements relating to future development or license agreements including termination of such agreements;~~

· ~~adverse developments with respect to our intellectual property rights or those of our principal collaborators;~~

· ~~commencement of litigation involving us or our competitors;~~

· ~~any major changes in our board of directors or management;~~

· ~~new legislation in the United States relating to the prescription, sale, distribution or pricing of gastrointestinal health products;~~

· ~~product liability claims, other litigation or public concern about the safety of our prescription drug product or product candidates and non-prescription products or any such future products;~~

· ~~market conditions in the human or animal industry, in general, or in the gastrointestinal health sector, in particular, including performance of our competitors; and~~

· ~~general economic conditions in the United States and abroad.~~

In addition, the stock market, in general, or the market for stocks in our industry, in particular, may experience broad market fluctuations, which may adversely affect the market price or liquidity of our common stock. Any sudden decline in the market price of our common stock could trigger securities class-action lawsuits against us. If any of our stockholders were to bring such a lawsuit against us, we could incur substantial costs defending the lawsuit and the time and attention of our management would be diverted from our business and operations. We also could be subject to damages claims if we were found to be at fault in connection with a decline in our stock price.

~~No active market for our common stock exists or may develop, and you may not be able to resell our common stock when you wish to sell them or at a price that you consider attractive or satisfactory.~~

Prior to our initial public offering in May 2015, there was no public market for shares of our common stock. The listing of our common stock on The NASDAQ Capital Market does not assure that a meaningful, consistent and liquid trading market exists. Although our common stock is listed on The NASDAQ Capital Market, trading volume in our common stock has been limited and an active trading market for our shares my never develop or be sustained. If an active market for our common stock does not develop, you may be unable to sell your shares when you wish to sell them or at a price that you consider attractive or satisfactory. The lack of an active market may also adversely affect our ability to raise capital by selling securities in the future, or impair our ability to license or acquire other product candidates, businesses or technologies using our shares as consideration.

The sale of our common stock to Aspire Capital may cause substantial dilution to our existing stockholders and the sale of the shares of common stock acquired by Aspire Capital could cause the price of our common stock to decline.

On June 8, 2016, we entered into the CSPA with Aspire Capital, in which Aspire Capital committed to purchase, at our election, up to an aggregate of $15.0 million shares of our common stock over a period of approximately 30 months (i.e., 30 months from July 8, 2016, the effective date of the initial registration statement on Form S-1 that we filed to register the shares that we issued and may issue to Aspire pursuant to the CSPA).

Through September 30, 2017, we have issued 6,000,000 shares of our common stock to Aspire Capital under the CSPA for gross proceeds of approximately $5.1 million. We may ultimately sell all, some or none of the approximately $10.0 million of common stock remaining under the CSPA to Aspire Capital, and Aspire Capital may sell all, some or none of our shares that it holds or comes to hold under the CSPA. Sales by Aspire Capital of shares acquired pursuant to the CSPA may result in dilution to the interests of other holders of our common stock. The sale of a substantial number of shares of our common stock by Aspire Capital, or anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales. However, we have the right to control the timing and amount of sales of our shares to Aspire Capital, and the CSPA may be terminated by us at any time at our discretion without any penalty or cost to us.

If securities or industry analysts do not publish research or reports about our company, or if they issue adverse or misleading opinions regarding us or our stock, our stock price and trading volume could decline.

The trading market for our common stock depends in part on the research and reports that industry or financial analysts publish about us or our business. We do not influence or control the reporting of these analysts. If one or more of the analysts who do cover us downgrade or provide a negative outlook on our company or our industry, or the stock of any of our competitors, the price of our common stock could decline. If one or more of these analysts ceases coverage of our company, we could lose visibility in the market, which in turn could cause the price of our common stock to decline.

~~You may be diluted by conversions of outstanding non-voting common stock and convertible notes and exercises of outstanding options and warrants.~~

As of August 31, 2017, we had (i) outstanding options to purchase an aggregate of 2,992,039 shares of our common stock at a weighted average exercise price of $2.46 per share, (ii) warrants to purchase an aggregate of 6,656,333 shares of our common stock at a weighted-average exercise price of $1.15 per share and (iii) outstanding convertible promissory notes in an aggregate principal amount of $13,800,627, which are convertible for up to 15,549,637 shares of our common stock.

The exercise of such options and warrants or conversion of the convertible promissory notes will result in further dilution of your investment. In addition, you may experience additional dilution if we issue common stock in the future. As a result of this dilution, you may receive significantly less in net tangible book value than the full purchase price you paid for the shares in the event of liquidation.

~~Shares eligible for future sale may adversely affect the market for our common stock.~~

Of the 89,050,655 shares of our common stock outstanding as of October 4, 2017, approximately 88,445,146 shares are held by “non-affiliates” and are, or will become, freely tradable without restriction pursuant to Rule 144. In addition, in August 2017 and October 2017, we filed with the SEC registration statements on Form S-3 for purposes of registering the resale of an aggregate of 59,098,882 shares of restricted common stock that were sold to certain Napo creditors and investors in connection with the Merger and related refinancing transactions, including (i) 1,489,741 shares of voting common stock, (ii) 22,917,268 shares of voting common

stock issuable upon conversion of non-voting common stock, (iii) 1,224,875 shares of voting common stock issuable upon exercise of warrants with an exercise price of $0.08, (iv) 23,315,544 shares of voting common stock issuable upon conversion of Convertible Promissory Notes due December 30, 2019 (plus accrued interest), (v) 2,492,084 shares of voting common stock issuable upon conversion of Exchangeable Promissory Notes due December 1, 2017, and (vi) 4,000,000 shares of voting common stock issuable upon conversion of Secured Convertible Promissory Notes due August 2, 2018. While sales of certain of these shares are subject to contractual resale restrictions, any substantial sale of our common stock pursuant to Rule 144 or pursuant to any resale prospectus may have a material adverse effect on the market price of our common stock.

~~If shares of our non-voting common stock are converted into shares of our voting common stock, your voting power will be diluted.~~

As of October 4, 2017, we had 45,777,367 shares of voting common stock and 43,173,288 shares of non-voting common stock outstanding. Generally, holders of our non-voting common stock have no voting power (other than in connection with a change of control of our company) and have no right to participate in any meeting of stockholders or to have notice thereof. However, shares of our non-voting common stock that are converted into voting common stock will have all the voting rights of the voting common stock. Shares of our non-voting common stock are convertible into shares of our voting common stock on a one-for-one basis (i) at the option of the respective holders thereof, at any time and from time to time on or after April 1, 2018 or (ii) automatically, without any payment of additional consideration by the holder thereof, (x) upon a transfer of such shares to any person or entity that is neither an affiliate of Nantucket nor an investment fund, investment vehicle or other account, that is, directly or indirectly, managed or advised by Nantucket or any of its affiliates pursuant to a sale of such stock to a third-party for cash in accordance with the terms and condition set forth in the Investor Rights Agreement, or (y) upon the subsequent release or transfer of such shares to the registered pre-Merger legacy stockholders of Napo’s outstanding shares of common stock as of July 31, 2017 (the “Napo Legacy Stockholders”). Upon conversion of any non-voting common stock, your voting power will be diluted in proportion to the decrease in your ownership of the total outstanding voting common stock.

~~Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable and may lead to entrenchment of management.~~

Our third amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could delay or prevent changes in control or changes in our management without the consent of our board of directors. These provisions to include the following:

· ~~a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors;~~

· ~~no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;~~

· the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;

· the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the terms of those shares, including preferences and voting rights, without stockholder approval, which could adversely affect the rights of our common stockholders or be used to deter a possible acquisition of our company;

· ~~the ability of our board of directors to alter our bylaws without obtaining stockholder approval;~~

· the required approval of the holders of at least 75% of the shares entitled to vote at an election of directors to adopt, amend or repeal our bylaws or repeal the provisions of our third amended and restated certificate of incorporation regarding the election and removal of directors;

· ~~a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;~~

· the requirement that a special meeting of stockholders may be called only by the chairman of the board of directors, the chief executive officer, the president or the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and

· advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.

~~These provisions could inhibit or prevent possible transactions that some stockholders may consider attractive.~~

We are also subject to the anti-takeover provisions contained in Section 203 of the Delaware General Corporation Law. Under Section 203, a corporation generally may not engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other exceptions, the board of directors has approved the transaction.

Our amended and restated bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.

Our amended and restated bylaws provide that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, (iv) any action asserting a claim that is governed by the internal affairs doctrine or (v) any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or bylaws. Any person purchasing or otherwise acquiring any interest in any shares of our capital stock shall be deemed to have notice of and to have consented to this provision of our amended and restated bylaws. This choice-of-forum provision may limit our stockholders’ ability to bring a claim in a judicial forum that they find favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits. Alternatively, if a court were to find this provision of our amended and restated bylaws inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could harm our business and financial condition.

~~We do not intend to pay dividends on our common stock, and your ability to achieve a return on your investment will depend on appreciation in the market price of our common stock.~~

We currently intend to invest our future earnings, if any, to fund our growth and not to pay any cash dividends on our common stock. Moreover, so long as Nantucket or any of its affiliates owns any shares of our non-voting common stock, we cannot pay dividends on our common stock or non-voting common stock without obtaining the prior written consent of Nantucket. Because we do not intend to pay dividends and may be required to obtain written consent if we were to do so, your ability to receive a return on your investment will depend on any future appreciation in the market price of our common stock. We cannot be certain that our common stock will appreciate in price.

~~Our principal stockholders own a significant percentage of our voting stock and will be able to exert significant control over matters subject to stockholder approval.~~

As of August 31, 2017, our executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates beneficially owned in the aggregate approximately 62% of the outstanding shares of our voting common stock. As a result of their stock ownership, these stockholders may have the ability to influence our management and policies, and will be able to significantly affect the outcome of matters requiring stockholder approval such as elections of directors, amendments of our organizational documents or approvals of any merger, sale of assets or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders.

The requirements of being a public company, including compliance with the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act, may strain our resources, increase our costs and distract management, and we may be unable to comply with these requirements in a timely or cost-effective manner.

Our initial public offering had a significant, transformative effect on us. Prior to our initial public offering, our business operated as a privately-held company, and we were not required to comply with public reporting, corporate governance and financial accounting practices and policies required of a publicly-traded company. As a publicly-traded company, we incur significant

additional legal, accounting and other expenses compared to historical levels. In addition, new and changing laws, regulations and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations thereunder, as well as under the Sarbanes-Oxley Act, the JOBS Act and the rules and regulations of the SEC and The NASDAQ Capital Market, may result in an increase in our costs and the time that our board of directors and management must devote to our compliance with these rules and regulations. These rules and regulations have substantially increased our legal and financial compliance costs and diverted management time and attention from our product development and other business activities.

The Sarbanes-Oxley Act requires, among other things, that we assess the effectiveness of its internal control over financial reporting annually and the effectiveness of our disclosure controls and procedures quarterly. In particular, Section 404 of the Sarbanes-Oxley Act, or Section 404, requires us to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on, and our independent registered public accounting firm potentially to attest to, the effectiveness of our internal control over financial reporting. We have needed to expend time and resources on documenting our internal control over financial reporting so that we are in a position to perform such evaluation when required. As an “emerging growth company,” we expect to avail ourselves of the exemption from the requirement that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting ~~under Section 404. However, we may no longer avail itself~~as of ~~this exemption when we cease to be an “emerging growth company.” When~~September 30, 2023, using the criteria established in Internal Control-Integrated Framework (“2013 Framework”) issued by the Committee of Sponsoring Organization of the Treadway Commission (“COSO”). Based on our ~~independent registered public accounting firm is required to undertake an assessment~~evaluation using those criteria, our management has concluded that, as of September 30, 2023, our internal control over financial reporting was effective in providing reasonable assurance regarding the ~~cost~~reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles for the reasons discussed above.

This Quarterly Report on Form 10-Q does not include an attestation report of our compliance with Section 404 will correspondingly increase. Our compliance with applicable provisions of Section 404 requires that we incur substantial accounting expense and expend significant management time on compliance-related issues as we implement additional corporate governance practices and comply with reporting requirements. Moreover, if we are not able to comply with the requirements of Section 404 applicable to us in a timely manner, or if we or our independent registered public accounting firm ~~identifies deficiencies~~on our internal control over financial reporting because we are a smaller reporting company and are not subject to auditor attestation requirements under applicable SEC rules.

There were no changes in our internal control over financial reporting that have materially affected or are ~~deemed~~reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II. — OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may be subject to various legal proceedings and claims that arise in the ordinary course of our business activities. Regardless of the outcome, litigation can have a material ~~weaknesses,~~adverse effect on us due to defense and settlement costs, diversion of our management resources, and other factors. We are not currently subject to any material legal proceedings.

Item 1A. Risk Factors

The following discussion of risk factors contains forward-looking statements. These risk factors may be important to understanding other statements in this Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our unaudited condensed consolidated financial statements and related notes, before making a decision to invest in our common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations. If any of the events or circumstances described in the following risk factors actually occur, our business, operating results, financial condition, cash flows, and prospects could be materially and adversely affected. In that event, the market price of our common stock could decline, and weyou could lose part or all of your investment.

The business, financial condition and operating results of the Company can be ~~subject~~affected by a number of factors, whether currently known or unknown, including but not limited to ~~sanctions~~those described below, any one or ~~investigations by~~more of which could, directly or indirectly, cause the ~~SEC~~Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results, and stock price.

Because of the following factors, as well as other ~~regulatory authorities, which would require additional~~factors affecting the Company’s financial condition and ~~management resources.~~

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to “emerging growth companies” will make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we may take advantage of certain exemptions and relief from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” In particular, while we are an “emerging growth company” (i) we willoperating results, past financial performance should not be ~~required~~considered to ~~comply with the auditor attestation requirements~~be a reliable indicator of ~~Section 404(b)~~future performance, and investors should not use historical trends to anticipate results or trends in future periods.

Our royalty interests require us to make minimum royalty payments, even if we do not sell a sufficient amount of ~~the Sarbanes-Oxley Act, (ii)~~products to cover such.

Since March 2020, we have sold royalty interests to certain lenders that entitle such lenders to receive future royalties on sales of our products. These royalty interests require us to make minimum royalty payments beginning in 2021, even if we do not sell a sufficient amount of product to cover such payments, which may strain our cash resources. The total minimum royalty payments will be ~~subject to reduced disclosure obligations regarding executive compensation~~$6.8 million in ~~our periodic reports~~2024, $40,000 in 2025, $27.0 million in 2026 and proxy statements and (iii) we will not be required to hold nonbinding advisory votes on executive compensation or stockholder approval of any golden parachute payments not previously approved. In addition, the JOBS Act provides that an emerging growth company can delay its adoption of any new or revised accounting standards, but we have irrevocably elected not to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. In addition, investors may find our common stock less attractive if we rely on the exemptions and relief granted by the JOBS Act. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may decline and/or become more volatile.

We may remain an “emerging growth company” until as late as December 31, 2020 (the fiscal year-end following the fifth anniversary of the closing of our initial public offering, which occurred on May 18, 2015), although we may cease to be an “emerging growth company” earlier under certain circumstances, including (i) if the market value of our common stock that is held by non-affiliates exceeds $700.0$19.1 million ~~as of any June 30,~~ in which case we would cease to be an “emerging growth company” as of December 31 of such year, (ii) if our gross revenue exceeds $1.0 billion in any fiscal year or (iii) if we issue more than $1.0 billion of non-convertible debt over a three-year period.2027.

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

None.

~~On July 13, 2017, pursuant to a share purchase agreement, we issued 100,000 shares of our common stock to an existing investor for gross proceeds of $50,000.~~

~~On July 31, 2017, pursuant to a share purchase agreement, we issued 3,243,243 shares of our common stock to an institutional investor for gross proceeds of approximately $3.0 million.~~

On July 31, 2017, we issued 64,866 shares of our voting common stock to KCSA Strategic Communications (“KCSA”) pursuant to the Agreement and Plan of Merger, dated March 31, 2017 (the “Merger Agreement”), by and among the Company, Napo, Napo Acquisition Corporation (“Merger Sub”), and Napo’s representative (the “Merger”) and an agreement between Napo and KCSA, as a complete settlement and satisfaction of Napo’s outstanding obligations to KCSA.

On March 31, 2017, in order to induce us to enter into the Merger Agreement, Napo entered into a Settlement and Discounted Payoff Agreement with Nantucket Investments Limited (“Nantucket”) and the lenders named therein (the “Settlement Agreement”), pursuant to which, among other things, we issued to Nantucket, simultaneously with the consummation of the Merger on July 31, 2017, 2,217,579 shares of our voting common stock and 38,180,451 shares of our non-voting common stock.

On or about March 31, 2017, in order to induce us to enter into the Merger Agreement, Napo entered into debt settlement agreements with Dorsar Investment Company, Alco Investment Company, Two Daughters LLC, Boies Schiller Flexner LLP and Dan Becka (collectively, the “Debt Settlement Agreements”), pursuant to which we issued in the aggregate 4,167,172 shares of our non-voting common stock and warrants to purchase 1,224,875 shares of our voting common stock, with an exercise price of $0.08 per share (the “Warrants”), to such creditors and their respective affiliates as a complete settlement and satisfaction of Napo’s outstanding obligations to such creditors.

The offers, sales, and issuances of the securities described above were deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act, Regulation D or Regulation S promulgated thereunder as transactions by an issuer not involving a public offering. The recipients of securities in each of these transactions acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions was an accredited or sophisticated person and had adequate access, through employment, business or other relationships, to information about us.

Other than as provided above and the shares of our common stock sold pursuant to the CSPA, as disclosed on our Form 8-K filed with the SEC on June 9, 2016, there were no unregistered sales of equity securities during the period.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Table of Contents

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

~~Date:~~ November ~~20, 2017~~14, 2023
	JAGUAR HEALTH, INC.

	By:	/s/ ~~Karen S. Wright~~Carol R. Lizak
		~~Karen S. Wright~~
		~~Chief Financial Officer~~
		Principal Financial and Accounting Officer


	Page	~~Page~~ No.

PART I. — FINANCIAL INFORMATION ~~(Unaudited)~~		1
Item 1. Condensed Consolidated ~~Unaudited~~ Financial Statements		1
Condensed Consolidated Balance Sheets ~~as of September 30, 2017 and December 31, 2016~~		1
Condensed Consolidated Statements of ~~Operations and~~ Comprehensive ~~Loss for the Three and Nine Month Periods Ended September 30, 2017 and 2016~~Losses		2
Condensed Consolidated ~~Statement~~Statements of Changes in ~~Common Stock,~~ Convertible Preferred Stock and Stockholders’ Equity ~~(Deficit) for the period from December 31, 2016 through September 30, 2017~~		34
Condensed Consolidated Statements of Cash Flows ~~for the Nine Months Ended September 30, 2017 and 2016~~		48
Notes to ~~the~~ Condensed Consolidated Financial Statements		510
Item 2. ~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations		3353
Item 3. Quantitative and Qualitative Disclosures About Market Risk		6668
Item 4. Controls and Procedures		6668
PART II. — OTHER INFORMATION		6669
Item 1. Legal Proceedings		6669
Item 1A. Risk Factors		6669
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		9669
Item ~~6. Exhibits~~3. Defaults Upon Senior Securities		9769
~~SIGNATURE~~Item 4. Mine Safety Disclosures	69
Item 5. Other Information	9870
Item 6. Exhibits	70
SIGNATURE	71

	Series A Convertible Preferred
	Stock			Common Stock - voting			Common stock - non-voting
	Shares	Amount		Shares	Amount		Shares	Amount			Additional paid- in capital			Accumulated deficit			Total stockholders’ equity (deficit)

Balances - December 31, 2016	—	$	—	14,007,132	$	1,401	—	$		—	$	37,980,522		$	(40,436,108	)	$	(2,454,185	)

Issuance of common stock associated with private investment in public entities offering, net of offering costs of $72,710 June 2016	—	—		3,972,510	397		—	—			2,313,977			—			2,314,374

Issuance of common stock in a private investment in public entities offering, net of offering costs of $6,000 June 2017	—	—		200,000	20		—	—			93,980			—			94,000

Issuance of common stock -voting in the Napo merger	—	—		2,282,445	228		—	—			1,277,941			—			1,278,169

Issuance of common stock in a July 2017 CSPA				3,243,243	325						2,999,675						3,000,000

Issuance of common stock - non-voting in the Napo merger	—	—		—	—		43,173,288	4,317			24,172,725			—			24,177,042

Issuance of warrants in the Napo merger	—	—		—	—		—	—			630,859			—			630,859

Issuance of stock options in the Napo merger	—	—		—	—		—	—			5,691			—			5,691

Issuance of RSUs in the Napo merger	—	—		—	—		—	—			3,300,555			—			3,300,555
Issuance of common stock -voting on exercise of warrants	—	—		908,334	91		—	—			386,243			—			386,334

Stock-based compensation	—	—		—	—		—	—			630,924			—			630,924

Warrants, issued in conjunction with debt extinguishment	—	—		—	—		—	—			207,713			—			207,713

Issuance of common stock -voting in exchange for vested restricted stock units	—	—		13,703	1		—	—			(1		)	—			—

Net and comprehensive loss	—	—		—	—		—	—			—			(1,761,156		)	(1,761,156		)

Balances - September 30, 2017	—	$	—	24,627,367	$	2,463	43,173,288	$	4,317		$	74,000,804		$	(42,197,264	)	$	31,810,320

	(Unaudited)
Fair value of Jaguar common stock	$	25,303,859
Fair value of Jaguar common stock warrants	630,859
Fair value of replacement restricted stock units	3,300,555
Fair value of replacement stock options	5,691
Cash	2,000,000
Effective settlement of receivable from Napo	464,295
Total consideration exchanged	$	31,705,259

Current assets	$	2,578,114
Non-current assets	396,247
Identifiable intangible assets	36,400,000
Current liabilities	(4,052,180		)
Convertible notes payable	(12,473,501		)
Deferred tax liability	(13,181,242		)
Net assets acquired	9,667,438
Goodwill on acquisition	22,037,821
Total consideration	$	31,705,259

	For the three months ended			For the nine months ended
	September 30,			September 30,
	2017	2016		2017		2016
Net sales	1,253,447	496,476		3,894,222		677,310
Net income (loss)	5,281,573	(3,698,298	)	(2,905,689	)	(16,092,681	)
Net income (loss) per share, basic	0.10	(0.33	)	(0.10	)	(1.56	)
Net income (loss) per share, diluted	0.08	(0.33	)	(0.10	)	(1.56	)

	September 30, 2017
	Level 1		Level 2		Level 3		Total
Warrant liability	$	—	$	—	$	163,080	$	163,080
Derivative liability	—		—		19,000		19,000
Total fair value	$	—	$	—	$	182,080	$	182,080

	December 31, 2016
	Level 1		Level 2		Level 3		Total
Warrant liability	$	—	$	—	$	799,201	$	799,201
Derivative liability	—		—		—		—
Total fair value	$	—	$	—	$	799,201	$	799,201

	For the three months ended
	September 30, 2017						September 30, 2016
	Warrant liability			Derivative liability			Warrant liability		Derivative liability
Beginning value of level 3 liability	$	551,880		$	20,000		$	—	$	—
Issuance	—			—			—		—
Change in fair value of level 3 liability	(388,800		)	(1,000		)	—		—
Ending fair value of level 3 liability	$	163,080		$	19,000		$	—	$	—

	December 31,
	2016
Due from former parent	$	299,819
Royalty payable to former parent	(171		)
Net receivable (payable) to former parent	$	299,648

Balance at December 31, 2016	$	—
Goodwill acquired in conjunction with Napo Merger	22,037,821
Impairment	(3,648,000		)
Balance at September 30, 2017	$	18,389,821

Years ending December 31,	Amount
2017 - October through December	$	91,622
2018	245,327
Total minimum lease payments	$	336,949

	Notes Payable
	September 30,			December 31,
	2017			2016
February 2015 convertible notes payable	150,000			150,000
June 2017 convertible note payable	2,135,000			—
Napo convertible notes	12,473,501			—
	$	14,758,501		$	150,000
Less: unamortized debt discount and debt issuance costs	(384,292		)	—
Net convertible notes payable obligation	$	14,374,209		$	150,000

Convertible notes payable - non-current	11,161,000			—
Convertible notes payable - current	$	3,213,209		$	150,000

Years ending December 31	Amount
2017 - October through December	$	260,832
2018	1,089,199
Total future principal payments	1,350,031
2018 end-of-term payment	560,000
	1,910,031
Less: unaccreted end-of-term payment at September 30, 2017	(54,703		)
Debt and unpaid accrued end-of-term payment	$	1,855,328

	Nine Months Ended		Year Ended
	September 30,		December 31,
	2017		2016
Beginning balance	5,968,876		748,872
Warrants granted	1,595,791		5,253,337
Warrants exercised	(908,334	)	—
Warrants cancelled	—		(33,333	)
Ending balance	6,656,333		5,968,876

Instruments	Fair Value		% Allocation		Issuance Costs (allocated)
Common Stock	$	156,522	16	%	$	50,522
Warrants (Series A)	700,001		70	%	225,944
Warrants (Series B and C)	143,478		14	%	46,311
Total	$	1,000,001	100	%	$	322,777

Years ending December 31	Amount
2017 - September through December	$	260,832
2018	1,089,199
Total future principal payments	1,350,031
2018 end-of-term payment	560,000
	1,910,031
Less: unaccreted end-of-term payment at September 30, 2017	(54,703		)
Debt and unpaid accrued end-of-term payment	$	1,855,328


Exhibit No.		Description
3.1		~~Third Amended and Restated~~ Certificate of ~~Incorporation~~Designation of ~~Jaguar Health, Inc. (f/k/a Jaguar Animal Health, Inc.)~~Preferences, Rights and Limitations of Series GI Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the ~~Current Report on~~ Form 8-K ~~(No.~~of Jaguar Health, Inc. filed May 9 and October 5, 2023, File No. 001-36714) ~~filed on August 1, 2017)~~.
4.1		~~Specimen Non-Voting Common Stock Certificate of~~Global Amendment No. 2, dated September 29, 2023, by and between Jaguar Health, Inc. and Iliad Research and Trading, L.P. (incorporated by reference to Exhibit 4.1 to the Form 8-K of Jaguar Health, Inc. filed ~~August 1, 2017,~~October 5, 2023, File No. 001-36714).
~~10.1~~4.2		~~Form of Warrant Exercise Agreement (incorporated by reference to Ex. 10.1 to the Current Report on Form 8-K filed on July 31, 2017).~~
10.2*		~~Share Purchase Agreement,~~Global Amendment No. 2, dated ~~July 31, 2017,~~September 29, 2023, by and between Jaguar Health, Inc. and ~~Invesco Asset Management Limited.~~
~~10.3~~		Letter Agreement, dated September 1, 2017, by and among Napo Pharmaceuticals, Inc., MEF I, L.P. and Riverside Merchant Partners (incorporated by reference to Exhibit 10.33 to the Form 8-K/A of Jaguar Health, Inc. filed September 14, 2017, File No. 001-36714).
~~10.4~~		Letter Agreement, dated August 31, 2017, by and among Napo Pharmaceuticals, Inc., M. Kingdon Offshore Master Fund L.P., Kingdon Family Partnership, L.P. and Kingdon Credit Master Fund L.P. (incorporated by reference to Exhibit 10.34 to the Form 8-K/A of Jaguar Health, Inc. filed September 14, 2017, File No. 001-36714).
~~10.5~~		~~Letter Agreement, dated August 28, 2017, by and among Napo Pharmaceuticals, Inc., Dorsar Investment Company, Alco Investment Company and Two Daughters~~Uptown Capital, LLC (incorporated by reference to Exhibit ~~10.35~~4.2 to the Form ~~8-K/A~~8-K of Jaguar Health, Inc. filed ~~September 14, 2017,~~October 5, 2023, File No. 001-36714).
~~10.6~~4.3		~~Letter Agreement,~~Global Amendment, dated September 1, 2017, by and between Napo Pharmaceuticals, Inc. and Boies Schiller Flexner LLP (incorporated by reference to Exhibit 10.36 to the Form 8-K/A of Jaguar Health, Inc. filed September 14, 2017, File No. 001-36714).
~~10.7~~		~~Letter Agreement, dated August 30, 2017,~~29, 2023, by and between Jaguar Health, Inc. and ~~Chicago Venture Partners, L.P.~~Streeterville Capital, LLC (incorporated by reference to Exhibit ~~10.37~~4.3 to the Form ~~8-K/A~~8-K of Jaguar Health, Inc. filed ~~September 14, 2017,~~October 5, 2023, File No. 001-36714).
10.8*4.4		~~Termination, Asset Transfer and Transition Agreement,~~Global Amendment No. 2, dated September ~~22, 2017,~~29, 2023, by and between ~~Napo Pharmaceuticals,~~Jaguar Health, Inc. and ~~Glenmark Pharmaceuticals, Ltd.~~Streeterville Capital, LLC (incorporated by reference to Exhibit 4.4 to the Form 8-K of Jaguar Health, Inc. filed October 5, 2023, File No. 001-36714).
4.5		Form of Warrant (incorporated by reference to Exhibit 4.5 to the Form 8-K of Jaguar Health, Inc. filed October 5, 2023, File No. 001-36714).
31.1*		Principal Executive Officer’s Certification Pursuant to Section 302 of the Sarbanes- Oxley Act of 2002.
~~31.2~~31.2		Principal Financial Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Certification Pursuant to 18 U.S.C. § 1350 (Section 906 of Sarbanes-Oxley Act of 2002).
32.2**		Certification Pursuant to 18 U.S.C. § 1350 (Section 906 of Sarbanes-Oxley Act of 2002).
101.INS		Inline XBRL Instance Document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)