Commitments and Contingencies	9 Months Ended
Sep. 30, 2019
Commitments and Contingencies
Commitments and Contingencies	6. Commitments and Contingencies Commitments On August 28, 2018, the Company entered into an office lease extension agreement for approximately 6,311 square feet of office space in San Francisco, CA. The term of the Lease began on September 1, 2018 and will expire on September 30, 2020, unless earlier terminated in accordance therewith. The monthly base rent under the Lease is as follows: $38,392 for the first twelve months, $39,544 for the subsequent twelve months, and $40,730 for the final month. The Company will also pay an additional monthly amount for the Company’s proportionate share of the building’s operating charges. An existing shareholder provided a standby letter of credit in the amount of $475,000 to the Lessor as collateral for the full performance by the Company of all of its obligations under the Lease. In consideration of the Letter of Credit, the Company issued the existing shareholder a five-year warrant to purchase 9,580 shares of the Company’s voting common stock (see Note 5). The Warrant is exercisable on or after March 28, 2019 at an exercise price of $49.00 per share. The fair value of the warrant was determined to be $493,688 using the Black-Scholes-Merton model with the following criteria: stock price of $58.80 per share, expected life of 5 years, volatility of 132%, risk-free rate of 2.77% and dividend rate of 0%. The $493,688 fair value of the Warrant was classified in stockholders’ equity with an offset to Operating lease – right-of-use asset. Each month, $19,748 of this rent will be recognized as non-cash lease expense. In December 2018, the Company did not meet a covenant per the terms of the $475,000 Letter of Credit, the result of which required the Company to issue a Letter of Credit of $122,000 to the shareholder who issued the original $475,000 letter of credit. In March 2019, the Company canceled the $122,000 letter of credit in lieu of issuing the shareholder a promissory note for that amount in April 2019, as well as issuing the shareholder a warrant (see Note 7). The Company recognizes lease expense on a straight-line basis over the non-cancelable lease period. Lease expense was $152,741 and $554,017 for the three and nine months ended September 30, 2019, and $117,435 and $297,993 for the three and nine months ended September 30, 2018. Lease expense is included in general and administrative expense in the statements of operations. Asset transfer and transition commitment update On September 25, 2017, Napo entered into the Termination, Asset Transfer and Transition Agreement dated September 22, 2017 with Glenmark Pharmaceuticals Ltd. (“Glenmark”). As a result of the agreement, Napo now controls commercial rights for Mytesi® for all indications, territories and patient populations globally, and also holds commercial rights to the existing regulatory approvals for crofelemer in Brazil, Ecuador, Zimbabwe and Botswana. In exchange, Napo agrees to pay Glenmark 25% of any payment it receives from a third party to whom Napo grants a license or sublicense or with whom Napo partners in respect of, or sells or otherwise transfers any of the transferred assets, subject to certain exclusions, until Glenmark has received a total of $7.0 million. No payments have been made to date. Revenue sharing commitment update On December 14, 2017, the Company announced its entry into a collaboration agreement with Seed Mena Businessmen Services LLC (“SEED”) for Equilevia™, the Company's non-prescription, personalized, premium product for total gut health in equine athletes. According to the terms of the Agreement, the Company will pay SEED 15% of total revenue generated from any clients or partners introduced to the Company by SEED in the form of fees, commissions, payments or revenue received by the Company or its business associates or partners, and the agreed-upon revenue percentage increases to 20% after the first million dollars of revenue. In return, SEED will provide the Company access to its existing United 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 the Agreement. Upon termination for any reason, the Company remained obligated to make Revenue Sharing Payments to SEED until the end of 2018. No payments have been made to date. Legal Proceedings On July 20, 2017, a putative class action complaint was filed in the United States District Court, Northern District of California, Civil Action No. 3:17‑cv‑04102, by Tony Plant (the “Plaintiff”) on behalf of shareholders of the Company who held shares on April 12, 2017 and were entitled to vote at the 2017 Special Shareholders Meeting, against the Company and certain individuals who were directors as of the date of the vote (collectively, the “Defendants”), in a matter captioned Tony Plant v. Jaguar Animal Health, Inc., et al., making claims arising under Section 14(a) and Section 20(a) of the Exchange Act and Rule 14a‑9, 17 C.F.R. § 240.14a‑9, promulgated thereunder by the SEC. The claims alleged false and misleading information provided to investors in the Joint Proxy Statement/Prospectus on Form S‑4 (File No. 333‑217364) declared effective by the Commission on July 6, 2017 related to the solicitation of votes from shareholders to approve the merger and certain transactions related thereto. The Company accepted service of the complaint and summons on behalf of itself and the United States-based director Defendants on November 1, 2017. The Company has not accepted service on behalf of, and Plaintiff has not yet served, the non-U.S.-based director Defendants. On October 3, 2017, Plaintiff filed a motion seeking appointment as lead plaintiff and appointment of Monteverde & Associates PC as lead counsel. That motion was granted. Plaintiff filed an amended complaint against the Company and the United States-based director Defendants on January 10, 2018. The Defendants filed a motion to dismiss on March 12, 2018, for which oral arguments were held on June 14, 2018. The court dismissed the amended complaint on September 20, 2018 but gave Plaintiff leave to amend the complaint within 20 days from the date of dismissal. On October 10, 2018, Plaintiff amended the complaint to focus on the Company’s commercial strategy in support of Equilevia and the related disclosure statements in the Form S-4 described above. On November 6, 2018, the Defendants moved to dismiss the second amended complaint. The Defendants argued in their motion that the second amended complaint fails to state a claim upon which relief can be granted because the omissions and misrepresentations alleged in the complaint are immaterial as a matter of law. The court denied the Defendants’ motion to dismiss on June 28, 2019. The defendants answered the second amended complaint on August 2, 2019. Discovery will now proceed. If the Plaintiff were able to prove his allegations in this matter and to establish the damages he asserts, then an adverse ruling could have a material impact on the Company. Other than as described above, there are currently no claims or actions pending against us, the ultimate disposition of which could have a material adverse effect on our results of operations, financial condition or cash flows. Contingencies From time to time, the Company may be involved in legal proceedings (other than those noted above) arising in the ordinary course of business. The Company believes there is no litigation pending that could have, individually or in the aggregate, a material adverse effect on the financial position, results of operations or cash flows. Settlement of Tempesta Royalty dispute As of September 30, 2019, the Company was in negotiations with Dr. Michael Tempesta regarding disputes of royalty payments owed by Napo to Tempesta under a license agreement, dated February 8, 1990, between Tempesta and Shaman Pharmaceuticals, a predecessor-in-interest to Napo (the “1990 License”), and a modified license agreement, dated October 16, 2002, between Tempesta and Napo (the “2002 License” and together with the 1990 License, the “License Agreements”) with respect to SP-303, a component of Mytesi, the Company’s FDA-approved drug for the symptomatic relief of noninfectious diarrhea in adult patients with HIV/AIDS on antiretroviral therapy. The Company had ceased payment of royalties to Tempesta in October 2018. At September 30, 2019, the Company determined that it was probable that a liability in the amount of $640,000 would be paid to Tempesta in the settlement of the royalty dispute. Accordingly, at September 30, 2019 and pursuant to ASC 450, the Company accrued a loss contingency of $640,000 that was charged to operating expenses in the condensed statements of operations. In October 2019, the Company and Tempesta settled the dispute, pursuant to which Tempesta received $50,000 in cash, an unsecured promissory note issued by the Company in the aggregate principal amount of $550,000 and 40,000 shares of the Company’s common stock in exchange for the cessation of all royalty payments by Napo to Dr. Tempesta under the License Agreements (see Note 14).

6. Commitments and Contingencies

Commitments

On August 28, 2018, the Company entered into an office lease extension agreement for approximately 6,311 square feet of office space in San Francisco, CA. The term of the Lease began on September 1, 2018 and will expire on September 30, 2020, unless earlier terminated in accordance therewith. The monthly base rent under the Lease is as follows: $38,392 for the first twelve months, $39,544 for the subsequent twelve months, and $40,730 for the final month. The Company will also pay an additional monthly amount for the Company’s proportionate share of the building’s operating charges. An existing shareholder provided a standby letter of credit in the amount of $475,000 to the Lessor as collateral for the full performance by the Company of all of its obligations under the Lease. In consideration of the Letter of Credit, the Company issued the existing shareholder a five-year warrant to purchase 9,580 shares of the Company’s voting common stock (see Note 5). The Warrant is exercisable on or after March 28, 2019 at an exercise price of $49.00 per share. The fair value of the warrant was determined to be $493,688 using the Black-Scholes-Merton model with the following criteria: stock price of $58.80 per share, expected life of 5 years, volatility of 132%, risk-free rate of 2.77% and dividend rate of 0%. The $493,688 fair value of the Warrant was classified in stockholders’ equity with an offset to Operating lease – right-of-use asset. Each month, $19,748 of this rent will be recognized as non-cash lease expense.

In December 2018, the Company did not meet a covenant per the terms of the $475,000 Letter of Credit, the result of which required the Company to issue a Letter of Credit of $122,000 to the shareholder who issued the original $475,000 letter of credit. In March 2019, the Company canceled the $122,000 letter of credit in lieu of issuing the shareholder a promissory note for that amount in April 2019, as well as issuing the shareholder a warrant (see Note 7).

The Company recognizes lease expense on a straight-line basis over the non-cancelable lease period. Lease expense was $152,741 and $554,017 for the three and nine months ended September 30, 2019, and $117,435 and $297,993 for the three and nine months ended September 30, 2018. Lease expense is included in general and administrative expense in the statements of operations.

Asset transfer and transition commitment update

On September 25, 2017, Napo entered into the Termination, Asset Transfer and Transition Agreement dated September 22, 2017 with Glenmark Pharmaceuticals Ltd. (“Glenmark”). As a result of the agreement, Napo now controls commercial rights for Mytesi® for all indications, territories and patient populations globally, and also holds commercial rights to the existing regulatory approvals for crofelemer in Brazil, Ecuador, Zimbabwe and Botswana. In exchange, Napo agrees to pay Glenmark 25% of any payment it receives from a third party to whom Napo grants a license or sublicense or with whom Napo partners in respect of, or sells or otherwise transfers any of the transferred assets, subject to certain exclusions, until Glenmark has received a total of $7.0 million. No payments have been made to date.

Revenue sharing commitment update

On December 14, 2017, the Company announced its entry into a collaboration agreement with Seed Mena Businessmen Services LLC (“SEED”) for Equilevia™, the Company's non-prescription, personalized, premium product for total gut health in equine athletes. According to the terms of the Agreement, the Company will pay SEED 15% of total revenue generated from any clients or partners introduced to the Company by SEED in the form of fees, commissions, payments or revenue received by the Company or its business associates or partners, and the agreed-upon revenue percentage increases to 20% after the first million dollars of revenue. In return, SEED will provide the Company access to its existing United 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 the Agreement. Upon termination for any reason, the Company remained obligated to make Revenue Sharing Payments to SEED until the end of 2018. No payments have been made to date.

Legal Proceedings

On July 20, 2017, a putative class action complaint was filed in the United States District Court, Northern District of California, Civil Action No. 3:17‑cv‑04102, by Tony Plant (the “Plaintiff”) on behalf of shareholders of the Company who held shares on April 12, 2017 and were entitled to vote at the 2017 Special Shareholders Meeting, against the Company and certain individuals who were directors as of the date of the vote (collectively, the “Defendants”), in a matter captioned Tony Plant v. Jaguar Animal Health, Inc., et al., making claims arising under Section 14(a) and Section 20(a) of the Exchange Act and Rule 14a‑9, 17 C.F.R. § 240.14a‑9, promulgated thereunder by the SEC. The claims alleged false and misleading information provided to investors in the Joint Proxy Statement/Prospectus on Form S‑4 (File No. 333‑217364) declared effective by the Commission on July 6, 2017 related to the solicitation of votes from shareholders to approve the merger and certain transactions related thereto. The Company accepted service of the complaint and summons on behalf of itself and the United States-based director Defendants on November 1, 2017. The Company has not accepted service on behalf of, and Plaintiff has not yet served, the non-U.S.-based director Defendants.

On October 3, 2017, Plaintiff filed a motion seeking appointment as lead plaintiff and appointment of Monteverde & Associates PC as lead counsel. That motion was granted. Plaintiff filed an amended complaint against the Company and the United States-based director Defendants on January 10, 2018. The Defendants filed a motion to dismiss on March 12, 2018, for which oral arguments were held on June 14, 2018. The court dismissed the amended complaint on September 20, 2018 but gave Plaintiff leave to amend the complaint within 20 days from the date of dismissal. On October 10, 2018, Plaintiff amended the complaint to focus on the Company’s commercial strategy in support of Equilevia and the related disclosure statements in the Form S-4 described above. On November 6, 2018, the Defendants moved to dismiss the second amended complaint. The Defendants argued in their motion that the second amended complaint fails to state a claim upon which relief can be granted because the omissions and misrepresentations alleged in the complaint are immaterial as a matter of law. The court denied the Defendants’ motion to dismiss on June 28, 2019. The defendants answered the second amended complaint on August 2, 2019. Discovery will now proceed. If the Plaintiff were able to prove his allegations in this matter and to establish the damages he asserts, then an adverse ruling could have a material impact on the Company.

Other than as described above, there are currently no claims or actions pending against us, the ultimate disposition of which could have a material adverse effect on our results of operations, financial condition or cash flows.

Contingencies

From time to time, the Company may be involved in legal proceedings (other than those noted above) arising in the ordinary course of business. The Company believes there is no litigation pending that could have, individually or in the aggregate, a material adverse effect on the financial position, results of operations or cash flows.

Settlement of Tempesta Royalty dispute

As of September 30, 2019, the Company was in negotiations with Dr. Michael Tempesta regarding disputes of royalty payments owed by Napo to Tempesta under a license agreement, dated February 8, 1990, between Tempesta and Shaman Pharmaceuticals, a predecessor-in-interest to Napo (the “1990 License”), and a modified license agreement, dated October 16, 2002, between Tempesta and Napo (the “2002 License” and together with the 1990 License, the “License Agreements”) with respect to SP-303, a component of Mytesi, the Company’s FDA-approved drug for the symptomatic relief of noninfectious diarrhea in adult patients with HIV/AIDS on antiretroviral therapy. The Company had ceased payment of royalties to Tempesta in October 2018.

At September 30, 2019, the Company determined that it was probable that a liability in the amount of $640,000 would be paid to Tempesta in the settlement of the royalty dispute. Accordingly, at September 30, 2019 and pursuant to ASC 450, the Company accrued a loss contingency of $640,000 that was charged to operating expenses in the condensed statements of operations.

In October 2019, the Company and Tempesta settled the dispute, pursuant to which Tempesta received $50,000 in cash, an unsecured promissory note issued by the Company in the aggregate principal amount of $550,000 and 40,000 shares of the Company’s common stock in exchange for the cessation of all royalty payments by Napo to Dr. Tempesta under the License Agreements (see Note 14).