SEC Filing | Daré Bioscience

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dare-20200630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended June 30, 2020


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

For the transition period from to

https://cdn.kscope.io/58f85686daa93da5df5cca22bd4716d5-dare-20200630_g1.jpg

DARÉ BIOSCIENCE, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware

(State or Other Jurisdiction

of Incorporation)

Commission File No. 001-36395

20-4139823

(IRS Employer

Identification No.)

3655 Nobel Drive, Suite 260

San Diego, CA

(Address of Principal Executive Offices)

(858) 926-7655

(Registrant’s telephone number, including area code)

92122

(Zip Code)

(Former name, former address and former fiscal year, if changed since last report)

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

DARE

Nasdaq Capital Market

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

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

Large Accelerated Filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

As of August 11, 2020, 31,552,412 shares of the Registrant’s Common Stock, par value $0.0001, were issued and outstanding.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, in particular “Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations,” of Part I. Financial Information, and the information incorporated by reference herein contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this report, including statements regarding our strategy, future operations, future financial position, projected costs, prospects, plans and objectives of management, are forward-looking statements. Forward-looking statements, in some cases, can be identified by terms such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “design,” “intend,” “expect,” “could,” “plan,” “potential,” “predict,” “seek,” “should,” “would,” “contemplate,” project,” “target,” “tend to,” or the negative version of these words and similar expressions.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including those factors described in Part II, Item 1A, “Risk Factors,” in this report, and elsewhere in this report. Given these uncertainties, you should not place undue reliance on any forward-looking statement. The following factors are among those that may cause such differences:

•Inability to continue as a going concern;

•Inability to raise additional capital, under favorable terms or at all, including as a result of the effects of the COVID-19 pandemic;

•Inability to successfully attract partners and enter into collaborations on acceptable terms;

•A decision by Bayer HealthCare LLC to discontinue its commercial interest in Ovaprene® and/or to terminate our license agreement;

•Inability to timely develop, obtain regulatory approval for and commercialize our product candidates;

•Failure or delay in starting, conducting and completing clinical trials or obtaining United States Food and Drug Administration, or FDA, or foreign regulatory approval for our product candidates in a timely manner, including as a result of matters beyond our control such as the effects related to geopolitical actions, natural disasters, or public health emergencies or pandemics, such as the COVID-19 pandemic;

•A change in the FDA Center assigned primary oversight responsibility for our combination product candidates;

•A change in regulatory requirements for our product candidates, including the development pathway pursuant to Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act, or the FDA's 505(b)(2) pathway;

•Unsuccessful clinical trial outcomes stemming from clinical trial designs, failure to enroll a sufficient number of patients, higher than anticipated patient dropout rates, failure to meet established clinical endpoints, undesirable side effects and other safety concerns;

•Negative publicity concerning the safety and efficacy of our product candidates, or of product candidates being developed by others that share characteristics similar to our candidates;

•Inability to demonstrate sufficient efficacy of our product candidates;

•Failure to select or capitalize on the most scientifically, clinically or commercially promising or profitable indications or therapeutic areas for our product candidates due to limited financial resources;

•Loss of our licensed rights to develop and commercialize a product candidate as a result of the termination of the underlying licensing agreement;

•Monetary obligations and other requirements in connection with our exclusive, in-license agreements covering the patents and related intellectual property related to our product candidates;

•Developments by our competitors that make our product candidates less competitive or obsolete;

•Dependence on third parties to conduct nonclinical studies and clinical trials of our product candidates;

•Dependence on third parties to supply and manufacture clinical trial materials and, if any of our candidates are approved, commercial product, including components of our products as well as the finished product, in accordance with current good manufacturing practices and in the quantities needed;

•Interruptions in, or the complete shutdown of, the operations of third parties on which we rely, including clinical sites, manufacturers, suppliers, and other vendors, from matters beyond their control, such as the effects related to geopolitical actions, natural disasters, or public health emergencies or pandemics, such as the COVID-19 pandemic, and our lack of recourse against such third parties if their inability to perform is excused under the terms of our agreements with such parties;

•Failure of our product candidates, if approved, to gain market acceptance or obtain adequate coverage for third party reimbursement;

•A reduction in demand for contraceptives caused by an elimination of current requirements that health insurance plans cover and reimburse certain FDA-cleared or approved contraceptive products without cost sharing;

•Uncertainty as to whether health insurance plans will cover our product candidates even if we successfully develop and obtain regulatory approval for them;

•Unfavorable or inadequate reimbursement rates for our product candidates set by the United States government and other third-party payers even if they become covered products under health insurance plans;

•Difficulty in introducing branded products in a market made up of generic products;

•Inability to adequately protect or enforce our, or our licensor’s, intellectual property rights;

•Lack of patent protection for the active ingredients in certain of our product candidates which could expose those product candidates to competition from other formulations using the same active ingredients;

•Higher risk of failure associated with product candidates in pre-clinical stages of development that may lead investors to assign them little to no value and make these assets difficult to fund;

•Disputes or other developments concerning our intellectual property rights;

•Actual and anticipated fluctuations in our quarterly or annual operating results;

•Price and volume fluctuations in the stock market, and in our stock in particular, which could subject us to securities class-action litigation;

•Failure to maintain the listing of our common stock on the Nasdaq Capital Market or another nationally recognized exchange;

•Litigation or public concern about the safety of our potential products;

•Strict government regulations on our business, including various fraud and abuse laws, including, without limitation, the U.S. federal Anti-Kickback Statute, the U.S. federal False Claims Act and the U.S. Foreign Corrupt Practices Act;

•Regulations governing the production or marketing of our product candidates;

•Loss of, or inability to attract, key personnel; and

•Increased costs as a result of operating as a public company, and substantial time devoted by our management to compliance initiatives and corporate governance practices.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

All forward-looking statements in this report are current only as of the date of this report. We do not undertake any obligation to publicly update any forward-looking statement to reflect events or circumstances after the date on which any statement is made or to reflect the occurrence of unanticipated events, except as required by law.

TABLE OF CONTENTS


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements (Unaudited)	1

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33

Item 4.	Controls and Procedures	33


PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	34

Item 1A.	Risk Factors	34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 3.	Defaults Upon Senior Securities	36

Item 4.	Mine Safety Disclosures	36

Item 5.	Other Information	36

Item 6.	Exhibits	37

	SIGNATURES	39

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (Unaudited)

Daré Bioscience, Inc. and Subsidiaries

Consolidated Balance Sheets


	June 30, 2020		December 31, 2019
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	5,346,872	$	4,780,107
Other receivables	177,133		555,210
Prepaid expenses	2,252,860		1,108,615

Total current assets	7,776,865		6,443,932
Property and equipment, net	54,849		63,531

Other non-current assets	738,656		935,325
Total assets	$	8,570,370	$	7,442,788
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	1,714,082	$	1,083,183
Accrued expenses	1,640,752		2,098,653
Deferred grant funding	1,944,781		2,019,674
Note payable	367,285		—
Current portion of lease liabilities	416,945		410,896
Total current liabilities	6,083,845		5,612,406
Deferred license revenue	1,000,000		—
Contingent consideration	1,000,000		1,000,000
Lease liabilities long-term	175,270		389,556
Total liabilities	8,259,115		7,001,962
Commitments and contingencies (Note 8)
Stockholders' equity
Preferred stock, $0.01 par value, 5,000,000 shares authorized; None issued and outstanding	—		—
Common stock, $0.0001 par value; 120,000,000 shares authorized; 28,524,004 and 19,683,401 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively	2,852		1,968
Accumulated other comprehensive loss	(113,479)		(102,625)
Additional paid-in capital	55,821,534		44,564,674
Accumulated deficit	(55,399,652)		(44,023,191)
Total stockholders' equity	311,255		440,826
Total liabilities and stockholders' equity	$	8,570,370	$	7,442,788

See accompanying notes to interim consolidated financial statements.

Daré Bioscience, Inc. and Subsidiaries

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)


	Three months ended June 30,						Six months ended June 30,
	2020		2019		2020		2019
Operating expenses
General and administrative	$	1,557,548	$	1,307,379	$	3,419,313	$	2,584,559
Research and development expenses	5,547,450		2,512,572		7,927,254		4,205,963
License expenses	20,833		162,500		33,333		275,000
Total operating expenses	7,125,831		3,982,451		11,379,900		7,065,522
Loss from operations	(7,125,831)		(3,982,451)		(11,379,900)		(7,065,522)
Other income	1,618		30,001		3,439		61,232
Net loss	$	(7,124,213)	$	(3,952,450)	$	(11,376,461)	$	(7,004,290)
Deemed dividend from trigger of down round provision feature	$	—	$	(789,594)	$	—	$	(789,594)
Net loss to common shareholders	$	(7,124,213)	$	(4,742,044)	$	(11,376,461)	$	(7,793,884)
Foreign currency translation adjustments	$	12,090	$	(7,917)	$	(10,854)	$	(296)
Comprehensive loss	$	(7,112,123)	$	(4,749,961)	$	(11,387,315)	$	(7,794,180)
Loss per common share - basic and diluted	$	(0.27)	$	(0.29)	$	(0.45)	$	(0.57)
Weighted average number of common shares outstanding:
Basic and diluted	26,710,750		16,105,252		25,255,073		13,776,643

See accompanying notes to interim consolidated financial statements.

Daré Bioscience, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity

(Unaudited)


				Additional		Accumulated other				Total
	Common stock					paid-in		comprehensive		Accumulated		stockholders'
	Shares	Amount		capital		loss		deficit		equity
Balance at December 31, 2019	19,683,401	$	1,968	$	44,564,674	$	(102,625)	$	(44,023,191)	$	440,826
Stock-based compensation	—	—		160,841		—		—		160,841
Issuance of common stock	3,308,003	331		5,222,356		—		—		5,222,687
Issuance of common stock from the exercise of warrants	1,699,000	170		1,664,850		—		—		1,665,020
Stock options exercised	10,149	1		—		—		—		1
Net loss	—	—		—		—		(4,252,248)		(4,252,248)
Foreign currency translation adjustments	—	—		—		(22,944)		—		(22,944)
Balance at March 31, 2020	24,700,553	$	2,470	$	51,612,721	$	(125,569)	$	(48,275,439)	$	3,214,183
Stock-based compensation	—	—		186,859		—		—		186,859
Issuance of common stock	3,823,451	382		4,021,954		—		—		4,022,336
Net loss	—	—		—		—		(7,124,213)		(7,124,213)
Foreign currency translation adjustments	—	—		—		12,090		—		12,090
Balance at June 30, 2020	28,524,004	$	2,852	$	55,821,534	$	(113,479)	$	(55,399,652)	$	311,255

				Additional		Accumulated other				Total
	Common stock					paid-in		comprehensive		Accumulated		stockholders'
	Shares	Amount		capital		loss		deficit		equity
Balance at December 31, 2018	11,422,161	$	1,143	$	35,791,972	$	(96,728)	$	(28,969,767)	$	6,726,620
Stock-based compensation	—	—		97,968		—		—		97,968
Net loss	—	—		—		—		(3,051,840)		(3,051,840)
Foreign currency translation adjustments	—	—		—		7,621		—		7,621
Balance at March 31, 2019	11,422,161	$	1,143	$	35,889,940	$	(89,107)	$	(32,021,607)	$	3,780,369
Stock-based compensation	—	—		111,351		—		—		111,351
Issuance of common stock via public offering, net	5,261,250	525		5,151,177		—		—		5,151,702
Deemed dividend from trigger of down round provision	—	—		789,594		—		(789,594)		—
Net loss	—	—		—		—		(3,952,450)		(3,952,450)
Foreign currency translation adjustments	—	—		—		(7,917)		—		(7,917)
Balance at June 30, 2019	16,683,411	$	1,668	$	41,942,062	$	(97,024)	$	(36,763,651)	$	5,083,055

See accompanying notes to interim consolidated financial statements.

Daré Bioscience, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)


	Six months ended June 30,
	2020		2019
Operating activities:
Net loss	$	(11,376,461)	$	(7,004,290)
Non-cash adjustments reconciling net loss to operating cash flows:
Depreciation	23,929		2,315
Stock-based compensation	347,700		209,319
Non-cash operating lease cost	(90,080)		838

Changes in operating assets and liabilities:
Other receivables	378,077		(461,982)
Prepaid expenses	(1,144,246)		(34,861)

Other non-current assets	78,513		79,063
Accounts payable	630,899		172,413

Accrued expenses	(457,901)		710,459
Deferred grant funding	(74,894)		—
Deferred license revenue	1,000,000		—
Net cash used in operating activities	(10,684,464)		(6,326,726)
Investing activities:
Purchases of property and equipment	(15,246)		—
Net cash used in investing activities	(15,246)		—
Financing activities:
Net proceeds from issuance of common stock	9,245,023		5,151,702

Proceeds from the exercise of common stock warrants	1,665,020		—
Proceeds from the exercise of stock options	1		—
Proceeds from issuance of note payable	367,285		—
Net cash provided by financing activities	11,277,329		5,151,702
Effect of exchange rate changes on cash and cash equivalents	(10,854)		(296)
Net change in cash and cash equivalents	566,765		(1,175,320)
Cash and cash equivalents, beginning of period	4,780,107		6,805,889
Cash and cash equivalents, end of period	$	5,346,872	$	5,630,569
Supplemental disclosure of non-cash operating and financing activities:
Operating right-of-use assets obtained in exchange for new operating lease liabilities	$	—	$	231,698
Deemed dividend from trigger of down round provision feature	$	—	789,594

See accompanying notes to interim consolidated financial statements.

Daré Bioscience, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

1. ORGANIZATION AND DESCRIPTION OF THE BUSINESS

Daré Bioscience, Inc. is a clinical-stage biopharmaceutical company committed to the acceleration of innovative products for women’s health. Daré Bioscience, Inc. and its wholly owned subsidiaries operate in one segment. In this report, the “Company” refers collectively to Daré Bioscience, Inc. and its wholly owned subsidiaries, unless otherwise stated or the context otherwise requires.

The Company is driven by a mission to identify, acquire and develop a diverse portfolio of differentiated therapies that expand treatment options, improve outcomes and facilitate convenience for women, primarily in the areas of contraception, fertility, and sexual and vaginal health. The Company's business strategy is to in-license or otherwise acquire the rights to differentiated product candidates in the Company's areas of focus, some of which have existing clinical proof-of-concept data, and to take those candidates through advanced stages of clinical development, and then out-license the products to companies with sales and distribution capabilities in women's health to leverage their commercial capabilities.

Since July 2017, the Company has assembled a portfolio of clinical-stage and pre-clinical-stage candidates. While the Company will continue to assess opportunities to expand its portfolio, its current focus is on advancing its existing product candidates through mid- and late-stages of clinical development or approval. The Company's global commercialization and development strategy involves partnering with pharmaceutical companies and regional distributors with established marketing and sales capabilities in women's health, including through co-development and promotion agreements, once the Company has advanced a candidate through mid- to late-stage clinical development.

The Company's portfolio includes three product candidates in advanced clinical development:

•DARE-BV1, a novel thermosetting bioadhesive hydrogel formulated with clindamycin phosphate 2% to be administered in a single vaginally delivered application, as a first line treatment for bacterial vaginosis;

•Ovaprene®, a hormone-free, monthly vaginal contraceptive; and

•Sildenafil Cream, 3.6%, a proprietary cream formulation of sildenafil for topical administration to the vulva and vagina for treatment of female sexual arousal disorder.

The Company's portfolio also includes three product candidates in Phase 1 clinical development or that the Company believes are Phase 1-ready:

•DARE-HRT1, a combination bio-identical estradiol and progesterone intravaginal ring for the treatment of menopausal symptoms, including vasomotor symptoms, as part of a hormone replacement therapy, or HRT, following menopause;

•DARE-FRT1, an intravaginal ring containing bio-identical progesterone for the prevention of preterm birth and for fertility support as part of an in vitro fertilization treatment plan; and

•DARE-VVA1, a vaginally delivered formulation of tamoxifen to treat vulvar vaginal atrophy, or VVA, in patients with hormone- receptor positive breast cancer.

The Company's portfolio also includes these pre-clinical stage product candidates:

•DARE-LARC1, a combination product designed to provide long-acting, reversible contraception comprising an implantable, user-controlled wireless drug delivery system and levonorgestrel;

•ORB-204 and ORB-214, injectable formulations of etonogestrel designed to provide contraception over 6-month and 12-month periods, respectively; and

•DARE-RH1, a novel approach to non-hormonal contraception for both men and women by targeting the CatSper ion channel.

The Company’s primary operations have consisted of, and are expected to continue to consist of, product research and development and advancing its portfolio of product candidates through clinical development and regulatory approval. The Company expects that the majority of its development expenses in 2020 and 2021 will support the advancement of DARE-BV1, Ovaprene, and Sildenafil Cream, 3.6%.

To date, the Company has not obtained any regulatory approvals for any of its product candidates, commercialized any of its product candidates or generated any product revenue. The Company is subject to several risks common to clinical-stage biopharmaceutical companies, including dependence on key individuals, competition from other companies, the need to develop commercially viable products in a timely and cost-effective manner, and the need to obtain adequate additional capital to fund the development of product candidates. The Company is also subject to several risks common to other companies in the industry, including rapid technology change, regulatory approval of products, uncertainty of market acceptance of products, competition from substitute products and larger companies, compliance with government regulations, protection of proprietary technology, dependence on third parties, and product liability.

Going Concern

The Company has prepared its interim consolidated financial statements on a going concern basis, which assumes that the Company will realize its assets and satisfy its liabilities in the normal course of business. The Company has a history of losses from operations, expects negative cash flows from its operations will continue for the foreseeable future, and expects that its net losses will continue for at least the next several years as it develops its existing product candidates and seeks to acquire, license or develop additional product candidates. These circumstances raise substantial doubt about the Company's ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of the uncertainty of the Company's ability to continue as a going concern.

As of June 30, 2020, the Company had an accumulated deficit of approximately $55.4 million and cash and cash equivalents of approximately $5.3 million. The Company also had negative cash flow from operations of approximately $10.7 million during the six months ended June 30, 2020.

The Company is focused primarily on the development and commercialization of innovative products in women’s health. The Company will continue to incur significant research and development and other expenses related to these activities. If the clinical trials for any of the Company’s product candidates fail to produce successful results such that those product candidates do not advance in clinical development, then the Company’s business and prospects may suffer. Even if the product candidates advance in clinical development, they may fail to gain regulatory approval. Even if the product candidates are approved, they may fail to achieve market acceptance, and the Company may never become profitable. Even if the Company becomes profitable, it may not sustain profitability.

Based on the Company's current operating plan estimates, the Company does not have sufficient cash to satisfy its working capital needs and other liquidity requirements over at least the next 12 months from the date of issuance of the accompanying consolidated financial statements. The Company needs to raise substantial additional capital to continue to fund its operations and to successfully execute its current operating plan, including to continue the planned development of DARE-BV1, Ovaprene, and Sildenafil Cream, 3.6%.

The Company is currently evaluating a variety of capital raising options, including equity and debt financings, government or other grant funding, collaborations and strategic alliances or other similar types of arrangements to cover its operating expenses, including the development of its product candidates and any future product candidates it may license or otherwise acquire. The amount and timing of the Company's capital needs have been and will continue to depend highly on many factors, including the product development programs the Company chooses to pursue and the pace and results of its clinical development efforts. If the Company raises capital through collaborations, strategic alliances or other similar types of arrangements, it may have to relinquish, on terms that are not favorable to the Company, rights to some of its technologies or product candidates it would otherwise seek to develop or commercialize. There can be no assurances that capital will be available when needed or that, if available, it will be obtained on terms favorable to the Company and its stockholders. Additionally, equity or debt financings may have a dilutive effect on the holdings of the Company's existing stockholders. If the Company cannot raise capital when needed, on favorable terms or at all, the Company will not be able to continue development of its product candidates, will need to reevaluate its planned operations and may need to delay, scale back or eliminate some or all of its development programs, reduce expenses, file for bankruptcy, reorganize, merge with another entity, or cease operations. If the Company becomes unable to continue as a going concern, the Company may have to liquidate its assets, and might realize significantly less than the values at which they are carried on its consolidated financial statements, and stockholders may lose all or part of their investment in the Company's common stock. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The effect of the COVID-19 pandemic and efforts to reduce its spread remain a rapidly evolving and uncertain risk to the Company's business, operating results, financial condition and stock price. In large part, the extent to which COVID-19 affects the Company will depend on future developments that are beyond its knowledge or control, including, but not limited to, the duration and severity of the pandemic, governmental and individual organization actions and policies implemented to reduce transmission of the disease or facilitate development of or access to therapies to treat or vaccinations to protect against the disease, governmental actions and policies to assist economic recovery, and the speed with which and degree to which normal economic and operating conditions resume. The pandemic may increase the anticipated aggregate costs for the development of the Company's product candidates and may adversely impact the anticipated timelines for the development of the Company's product candidates by, among other things, causing disruptions in the supply chain for clinical supplies, delays in the timing and pace of subject enrollment in clinical trials and lower than anticipated subject enrollment and completion rates, delays in the review and approval of the Company's regulatory submissions by regulatory agencies with respect to the Company's product candidates, and other unforeseen disruptions. The economic impact of the COVID-19 pandemic and the uncertainty and volatility in the capital markets it has caused and may continue to cause may negatively impact investor sentiment and the availability and cost of capital, and may adversely impact the Company's ability to raise capital when needed or on terms favorable to the Company and its stockholders to fund its development programs and operations. The Company does not yet know the full extent of potential delays or impacts on its business, clinical trial activities, ability to access capital or on healthcare systems or the global economy as a whole. However, these effects could have a material adverse impact on the Company's business and financial condition.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company’s significant accounting policies are described in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission, or SEC on March 27, 2020. Since the date of those consolidated financial statements, there have been no material changes to the Company’s significant accounting policies, except for the accounting policies related to revenue recognition as described below.

Basis of Presentation

The accompanying interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP, as defined by the Financial Accounting Standards Board, or FASB, for interim financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In management’s opinion, the accompanying interim consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the results of the interim periods presented.

Interim financial results are not necessarily indicative of results anticipated for any other interim period or for the full year. The accompanying interim consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in right-of-use, or ROU, lease assets, current portion of lease obligations, and long-term lease obligations on the Company's consolidated balance sheets.

ROU lease assets represent the Company's right to use an underlying asset for the lease term and lease obligations represent the Company's obligation to make lease payments arising from the lease. Operating ROU lease assets and obligations are recognized at the commencement date based on the present value of lease payments over the lease term. If the lease does not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The ROU lease asset also includes any lease payments made and excludes lease incentives. The Company's lease terms may include options to extend or terminate the lease and the related payments are only included in the lease liability when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. (See Note 7, Leased Properties.)

Fair Value Measurements

GAAP defines fair value as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date, and also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available. The three-level hierarchy of valuation techniques established to measure fair value is defined as follows:

•Level 1: inputs are unadjusted 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 in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of assets or liabilities.

•Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following tables present the classification within the fair value hierarchy of financial assets and liabilities that are remeasured on a recurring basis as of June 30, 2020 and December 31, 2019. There were no financial assets or liabilities that were remeasured using a quoted price in active markets for identical assets (Level 2) as of June 30, 2020.


	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
Balance at June 30, 2020
Current assets:
Cash and cash equivalents	$	5,346,872	$	—	$	—	$	5,346,872
Other non-current liabilities:
Contingent consideration	$	—	$	—	$	1,000,000	$	1,000,000
Balance at December 31, 2019
Current assets:
Cash and cash equivalents	$	4,780,107	$	—	$	—	$	4,780,107
Other non-current liabilities:
Contingent consideration	$	—	$	—	$	1,000,000	$	1,000,000

Revenue Recognition

The Company recognizes revenue is accordance with Accounting Standards Codification, or ASC, Topic 606, Revenue from Contracts with Customers, which applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments.

The Company recognizes revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. To determine revenue recognition for contracts with customers, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies its performance obligations. At contract inception, the Company assesses the goods or services agreed upon within each contract and assess whether each good or service is distinct and determine those that are performance obligations. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

In a contract with multiple performance obligations, the Company develops estimates and assumptions that require judgment to determine the underlying stand-alone selling price for each performance obligation, which determines how the transaction price is allocated among the performance obligations. The estimation of the stand-alone selling price(s) may include estimates regarding forecasted revenues or costs, development timelines, discount rates, and probabilities of technical and regulatory success. The Company evaluates each performance obligation to determine if it can be satisfied at a point in time or over time. Any change made to estimated progress towards completion of a performance obligation and, therefore, revenue recognized will be recorded as a change in estimate. In addition, variable consideration must be evaluated to determine if it is constrained and, therefore, excluded from the transaction price.

License Fees. If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in a contract, the Company recognizes revenues from non-refundable, upfront fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, upfront fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. To date, the Company has not recognized any license fee revenue resulting from any of its collaborative arrangements.

Royalties. For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and for which the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any royalty revenue resulting from any of its collaborative arrangements.

Bayer License. In January 2020, the Company entered into a license agreement with Bayer HealthCare LLC, or Bayer, regarding the further development and commercialization of Ovaprene in the U.S. Upon execution of the agreement, the Company received a $1.0 million upfront non-refundable license fee payment from Bayer. Bayer, in its sole discretion, has the right to make the license effective by paying the Company an additional $20.0 million. The Company concluded that there was one significant performance obligation related to the $1.0 million upfront payment: a distinct license to commercialize Ovaprene effective upon the receipt of the $20.0 million fee. The $1.0 million upfront payment will be recorded as license revenue at the earlier of (1) the point in time the Company receives the $20.0 million fee, the license is transferred to Bayer and Bayer is able to use and benefit from the license and (2) the termination of the agreement. As of June 30, 2020, neither of the foregoing had occurred. The $1.0 million payment is recorded as deferred revenue in the Company's consolidated balance sheet at June 30, 2020.

The Company will also be entitled to receive (a) milestone payments totaling up to $310.0 million related to the commercial sales of Ovaprene, if all such milestones are achieved, (b) tiered royalties starting in the low double digits based on annual net sales of Ovaprene during a calendar year, subject to customary royalty reductions and offsets, and (c) a percentage of sublicense revenue.

Potential future payments for variable consideration, such as commercial milestones, will be recognized when it is probable that, if recorded, a significant reversal will not take place. Potential future royalty payments will be recorded as revenue when the associated sales occur. (See Note 3, License and Collaboration Agreements.)

3. LICENSE AND COLLABORATION AGREEMENTS

Out-License Agreements

Bayer HealthCare License Agreement

On January 10, 2020, the Company entered into a license agreement with Bayer HealthCare LLC, or Bayer, regarding the further development and commercialization of Ovaprene in the U.S. Under the agreement, the Company received a $1.0 million upfront non-refundable license fee payment from Bayer. If Bayer pays an additional $20.0 million to the Company after Bayer receives and reviews the results of the pivotal clinical trial of Ovaprene, which payment Bayer may elect to make in its sole discretion, the license grant to Bayer to develop and commercialize Ovaprene for human contraception in the U.S. becomes effective.

Milestone & Royalty Payments. The Company would also be entitled to receive (a) a milestone payment in the low double-digit millions upon the first commercial sale of Ovaprene in the U.S. and escalating milestone payments based on annual net sales of Ovaprene during a calendar year, totaling up to $310.0 million if all such milestones, including the first commercial sale, are achieved, (b) tiered royalties starting in the low double digits based on annual net sales of Ovaprene during a calendar year, subject to customary royalty reductions and offsets, and (c) a percentage of sublicense revenue.

Efforts. The Company will be responsible for the pivotal trial for Ovaprene and for its development and regulatory activities and has product supply obligations. Bayer will support the Company in development and regulatory activities by providing up to two full-time equivalents with expertise in clinical, regulatory, preclinical, commercial, CMC and product supply matters in an advisory capacity. After payment of the $20.0 million fee, Bayer will be responsible for the commercialization of Ovaprene for human contraception in the U.S.

Term. The initial term of the agreement, which is subject to automatic renewal terms, continues until the later of (a) the expiration of any valid claim covering the manufacture, use, sale or import of Ovaprene in the U.S.; or (b) 15 years from the first commercial sale of Ovaprene in the U.S. In addition to customary termination rights for both parties, Bayer may terminate the agreement at any time on 90 days' notice and the agreement will automatically terminate if the Company does not receive the $20.0 million fee if and when due.

In-License Agreements

Hammock/MilanaPharm Assignment and License Agreement

In December 2018, the Company entered into (a) an Assignment Agreement with Hammock Pharmaceuticals, Inc., or the Assignment Agreement, and (b) a First Amendment to License Agreement with TriLogic Pharma, LLC and MilanaPharm LLC, or the License Amendment. Both agreements relate to the exclusive license agreement among Hammock, TriLogic and MilanaPharm dated as of January 9, 2017, or the MilanaPharm License Agreement. Under the Assignment Agreement and the MilanaPharm License Agreement, as amended by the License Amendment, the Company acquired an exclusive, worldwide license to develop and commercialize products for the diagnosis, treatment and prevention of human diseases or conditions in or through any intravaginal or urological applications. The licensed intellectual property relates to the hydrogel drug delivery platform of TriLogic and MilanaPharm known as TRI-726. In DARE-BV1, this proprietary technology is formulated with clindamycin, an antibiotic with FDA approval to treat certain bacterial infections, including bacterial vaginosis. In December 2019, the Company entered into amendments to each of the License Amendment and Assignment Agreement.

The following is a summary of other terms of the License Amendment, as amended:

License Fees. The Company paid MilanaPharm: (1) $25,000 in connection with the execution of the License Amendment; (2) $100,000 on December 5, 2019; and (3) $110,000 on January 31, 2020.

Milestone Payments. The Company will pay to MilanaPharm (1) up to $300,000 in the aggregate upon achievement of certain clinical and regulatory development milestones, $50,000 of which was paid during the second quarter of 2020, and (2) up to $1.75 million in the aggregate upon achieving certain commercial sales milestones.

Foreign Sublicense Income. The Company will pay MilanaPharm a low double-digit percentage of all income received by the Company or its affiliates in connection with any sublicense granted to a third party for use outside of the United States, subject to certain exclusions.

Royalty Payments. After the commercial launch of licensed products and processes and during the royalty term, the Company will pay MilanaPharm high single-digit to low double-digit royalties based on annual worldwide net sales of licensed products and processes in accordance with the agreement.

Efforts. The Company must use commercially reasonable efforts and resources to (1) develop and commercialize at least one licensed product or process in the United States and at least one licensed product or process in Canada, the United Kingdom, France, Germany, Italy or Spain, and (2) continue to commercialize that product or process following the first commercial sale of a licensed product or process in the applicable jurisdiction.

Term. Unless earlier terminated, the license term continues until (1) on a licensed product-by-product (or process-by-process basis) and country-by-country basis, the date of expiration of the royalty term with respect to such licensed product (or process) in such country, and (2) the expiration of all applicable royalty terms under the MilanaPharm License Agreement with respect to all licensed products and processes in all countries. Upon expiration of the term with respect to any licensed product or process in a country (but not upon earlier termination of the MilanaPharm License Agreement), the licenses granted to the Company under the MilanaPharm License Agreement will convert automatically to an exclusive, fully paid-up, royalty-free, perpetual, non-terminable and irrevocable right and license under the licensed intellectual property.

In addition to customary termination rights in favor of all parties, MilanaPharm may terminate the license solely with respect to a licensed product or process in a country if, after having launched such product or process in such country, the Company or its affiliates or sublicensees, (1) discontinue the sale of such product or process in such country and MilanaPharm notifies the Company of such termination within 60 days of having first been notified by the Company of such discontinuation, or (2) (A) discontinue all commercially reasonable marketing efforts to sell, and discontinue all sales of, such product or process in such country for nine months or more, (B) fail to resume such commercially reasonable marketing efforts within 120 days of having been notified of such failure by MilanaPharm, (C) fail to reasonably demonstrate a strategic justification for the discontinuation and failure to resume to MilanaPharm, and (D) MilanaPharm gives 90 days’ notice to the Company.

The following is a summary of other terms of the Assignment Agreement, as amended:

Assignment; Technology Transfer. Hammock assigned and transferred to the Company all of its right, title and interest in and to the MilanaPharm License Agreement and agreed to cooperate to transfer to the Company all of the data, materials and the licensed technology in its possession pursuant to a technology transfer plan to be agreed upon by the parties, with a goal for the Company to independently practice the licensed intellectual property as soon as commercially practical in order to develop and commercialize the licensed products and processes.

Fees. The Company paid Hammock: (1) $250,000 in connection with the execution of the Assignment Agreement; (2) $125,000 on December 5, 2019; and (3) $137,500 on January 31, 2020.

Milestone Payments. The Company will pay Hammock up to $1.1 million in the aggregate upon achievement of certain clinical and regulatory development milestones.

Term. The Assignment Agreement will terminate upon the later of (1) completion of the parties' technology transfer plan, and (2) payment to Hammock of the last of the milestone payments.

ADVA-Tec License Agreement

In March 2017, the Company entered into a license agreement with ADVA-Tec, Inc., under which the Company was granted the exclusive right to develop and commercialize Ovaprene for human contraceptive use worldwide. The Company must use commercially reasonable efforts to develop and commercialize Ovaprene.

Milestone Payments. The Company will pay to ADVA-Tec: (1) up to $14.6 million in the aggregate based on the achievement of specified development and regulatory milestones; and (2) up to $20.0 million in the aggregate based on the achievement of certain worldwide net sales milestones.

Royalty Payments. After the commercial launch of Ovaprene, the Company will pay to ADVA-Tec royalties based on aggregate annual net sales of Ovaprene in specified regions, at a royalty rate that will vary between 1% and 10% and will increase based on various net sales thresholds.

Term. Unless earlier terminated, the license continues on a country-by-country basis until the later of the life of the licensed patents or final commercial sale of Ovaprene. In addition to customary termination rights for both parties: (A) the Company may terminate the agreement with or without cause in whole or on a country-by-country basis upon 60 days prior written notice; and (B) ADVA-Tec may terminate the agreement if (1) the Company develops or commercializes any non-hormonal ring-based vaginal contraceptive device competitive to Ovaprene or (2) if the Company fails to meet agreed upon efforts to commercialize Ovaprene.

SST License and Collaboration Agreement

In February 2018, the Company entered into a license and collaboration agreement with Strategic Science & Technologies-D, LLC and Strategic Science & Technologies, LLC, referred to collectively as SST, under which the Company received an exclusive, royalty-bearing, sublicensable license to develop and commercialize, in all countries and geographic territories of the world, for all indications for women related to female sexual dysfunction and/or female reproductive health, the Licensed Product, which is defined as SST’s proprietary topical formulation of sildenafil cream as it existed as of the effective date of the agreement, or any other topically applied pharmaceutical product containing sildenafil or a salt thereof as a pharmaceutically active ingredient, alone or with other active ingredients, but specifically excluding any product containing ibuprofen or any salt derivative of ibuprofen.

The following is a summary of other terms of this license and collaboration agreement:

Invention Ownership. The Company retains rights to inventions made by its employees, SST retains rights to inventions made by its employees, and each party will own a 50% undivided interest in all joint inventions.

Joint Development Committee. The parties will collaborate through a joint development committee that will determine the strategic objectives for, and generally oversee, the development efforts of both parties under the agreement.

Development. The Company must use commercially reasonable efforts to develop the Licensed Products in the Field of Use in accordance with a development plan in the agreement, and to commercialize the Licensed Products in the Field of Use. The Company is responsible for all reasonable internal and external costs and expenses incurred by SST in its performance of the development activities it must perform under the agreement.

Royalty Payments. SST will be eligible to receive tiered royalties based on percentages of annual net sales of Licensed Products in the single digits to the mid double digits, subject to customary royalty reductions and offsets, and a percentage of sublicense revenue.

Milestone Payments. SST will be eligible to receive payments (1) ranging from $0.5 million to $18.0 million in the aggregate on achieving certain clinical and regulatory milestones in the U.S. and worldwide, and (2) between $10.0 million to $100.0 million in the aggregate upon achieving certain commercial sales milestones. If the Company enters into strategic development or distribution partnerships related to the Licensed Products, additional milestone payments would be due to SST.

Catalent JNP License Agreement

In April 2018, the Company entered into an exclusive license agreement with Catalent JNP, Inc. (formerly known as Juniper Pharmaceuticals, Inc., and which the Company refers to as Catalent), under which Catalent granted the Company (a) an exclusive, royalty-bearing worldwide license under certain patent rights, either owned by or exclusively licensed to Catalent, to make, have made, use, have used, sell, have sold, import and have imported products and processes; and (b) a non-exclusive, royalty-bearing worldwide license to use certain technological information owned by Catalent to make, have made, use, have used, sell, have sold, import and have imported products and processes. The Company is entitled to sublicense the rights granted to it under this agreement.

Upfront Fee. The Company paid a $250,000 non-creditable upfront license fee to Catalent in connection with the execution of the agreement.

Annual Maintenance Fee. The Company will pay an annual license maintenance fee to Catalent on each anniversary of the date of the agreement, the amount of which will be $50,000 for the first two years and $100,000 thereafter, and which will be creditable against royalties and other payments due to Catalent in the same calendar year but may not be carried forward to any other year.

Milestone Payments. The Company must make potential future development and sales milestone payments of (1) up to $13.5 million in the aggregate upon achieving certain clinical and regulatory milestones, and (2) up to $30.3 million in the aggregate upon achieving certain commercial sales milestones for each product or process covered by the licenses granted under the agreement.

Royalty Payments. During the royalty term, the Company will pay Catalent mid-single-digit to low double-digit royalties based on worldwide net sales of products and processes covered by the licenses granted under the agreement. In lieu of such royalty payments, the Company will pay Catalent a low double-digit percentage of all sublicense income the Company receives for the sublicense of rights under the agreement to a third party.

Orbis Development and Option Agreement

In March 2018, the Company entered into an exclusive development and option agreement with Orbis Biosciences, or Orbis, for the development of long-acting injectable etonogestrel contraceptive with 6- and 12-month durations (ORB-204 and ORB-214, respectively). Under this agreement, the Company paid Orbis $300,000 to conduct the first stage of development work as follows: $150,000 upon signing the agreement; $75,000 at the 50% completion point, not later than 6 months following the date the agreement was signed (which the Company paid in September 2018); and $75,000 upon delivery by Orbis of the 6-month batch, not later than 11 months following the date the agreement was signed (which the Company paid in January 2019).

Upon Orbis successfully completing the first stage of development work and achieving the predetermined target milestones for that stage, the Company will have 90 days to instruct Orbis whether to commence the second stage of development work. Should the Company execute its option to proceed with the second stage, it will have to provide additional funding to Orbis for such activities.

Pre-clinical studies for the 6- and 12-month formulations have been completed, including establishing pharmacokinetics and pharmacodynamics profiles. The collaboration with Orbis will continue to advance the program through formulation optimization with the goal of achieving sustained release over the target time period.

The agreement provides the Company with an option to enter into a license agreement for ORB-204 and ORB-214 should development efforts be successful.

Acquired Products

Microchips Acquisition

In November 2019, the Company completed its acquisition of Microchips Biotech, Inc., or Microchips. On the closing date of the merger, Microchips became a wholly owned subsidiary of the Company. The Company acquired Microchips to secure the rights to develop an implantable, user-controlled, long-acting reversible contraception method, now known as DARE-LARC1. The Company agreed to use commercially reasonable efforts to achieve specified development and regulatory objectives relating to the implantable contraceptive product in development by Microchips.

The Company issued an aggregate of 2,999,990 shares of its common stock to the holders of shares of Microchips' capital stock outstanding immediately prior to the effective time of the merger.

The Company also agreed to pay the following contingent consideration to the former Microchips stockholders: (a) up to $46.5 million contingent upon the achievement of specified funding, product development and regulatory milestones; (b) up to $55.0 million contingent upon the achievement of specified amounts of aggregate net sales of products incorporating the intellectual property acquired by the Company in the merger; (c) tiered royalty payments ranging from low single-digit to low double-digit percentages of annual net sales of such products, subject to customary provisions permitting royalty reductions and offset; and (d) a percentage of sublicense revenue related to such products. The Company agreed to use commercially reasonable efforts to achieve specified development and regulatory objectives relating to DARE-LARC1. The Company expects approximately $1.0 million of the contingent consideration payments to become payable in late 2021.

Pear Tree Acquisition

In May 2018, the Company completed its acquisition of Pear Tree Pharmaceuticals, Inc., or Pear Tree. The Company acquired Pear Tree to secure the rights to develop a proprietary vaginal formulation of tamoxifen, now known as DARE-VVA1, as a potential treatment for vulvar and vaginal atrophy.

Milestone Payments. The Company must make contingent payments to the Pear Tree former stockholders and their representatives, or the Holders, that are based on achieving certain clinical, regulatory and commercial milestones, which may be paid, in the Company’s sole discretion, in cash or shares of the Company’s common stock.

Royalty Payments. The Holders will be eligible to receive, subject to certain offsets, tiered royalties, including customary provisions permitting royalty reductions and offset, based on percentages of annual net sales of certain products subject to license agreements the Company assumed and a percentage of sublicense revenue.

4. ACQUISITION

In November 2019, the Company acquired Microchips Biotech, Inc., or Microchips, via a merger transaction in which a wholly owned subsidiary of the Company, formed for purposes of this transaction, merged with and into Microchips, and Microchips survived as the Company’s wholly owned subsidiary. Microchips is developing a proprietary, implantable drug delivery system designed to store and precisely deliver numerous therapeutic doses over months and years on a schedule determined by the user and controlled via wireless remote. Microchips’ lead product candidate is a pre-clinical stage contraceptive application of that technology that utilizes levonorgestrel, now known as DARE-LARC1.

The Company issued an aggregate of 2,999,990 shares of its common stock to the holders of shares of Microchips' capital stock outstanding immediately prior to the effective time of the merger. The transaction was valued at $2.4 million, based on the fair value of the 2,999,990 shares issued of $0.79 per share, which was the closing price per share of the Company's common stock on the date of closing. The shares were issued in exchange for Microchips’ cash and cash equivalents of $6.1 million, less net liabilities of $3.5 million and transaction costs of $202,000, which was allocated based on the relative fair value of the assets acquired and liabilities assumed.

The Company also agreed to pay (1) contingent consideration based upon the achievement of specified funding, product development and regulatory milestones, and upon the achievement of specified amounts of aggregate net sales of products incorporating the intellectual property the Company acquired in the merger, (2) tiered royalty payments ranging from low single-digit to low double-digit percentages of annual net sales of such products, and (3) a percentage of sublicense revenue related to such products. The Company recorded $1.0 million in contingent consideration associated with milestone payments expected to become payable in late 2021.

The Company determined the transaction was accounted for as an asset acquisition as there were no outputs or substantive processes in existence as of the acquisition date. Transaction costs of approximately $202,000 associated with the merger were included in the Company’s research and development expense in the fourth quarter of 2019.

5. STOCK-BASED COMPENSATION

The 2015 Employee, Director and Consultant Equity Incentive Plan

In connection with the business combination transaction in July 2017 between the Company and Daré Bioscience Operations, Inc., a privately held Delaware corporation, or Private Daré, the Company assumed the Private Daré 2015 Employee, Director and Consultant Equity Incentive Plan, or the 2015 Private Daré Plan and each then outstanding award granted thereunder, which consisted of options and restricted stock. Based on the exchange ratio for the business combination transaction and after giving effect to the reverse stock split effected in connection with the closing of that transaction, the outstanding options and restricted stock awards granted under the 2015 Private Daré Plan were replaced with options to purchase 10,149 shares of the Company’s common stock with a correspondingly adjusted exercise price and 223,295 shares of the Company’s common stock. All of the options that were assumed were exercised as of June 30, 2020. No awards may be granted under the 2015 Private Daré Plan following the closing of the business combination transaction.

2014 Employee Stock Purchase Plan

The Company’s 2014 Employee Stock Purchase Plan, or the ESPP, became effective in April 2014, but no offering period has been initiated thereunder since January 2017 and there was no stock-based compensation related to the ESPP for the six months ended June 30, 2020 or June 30, 2019.

Amended and Restated 2014 Stock Incentive Plan

The Company maintains the Amended and Restated 2014 Plan, or the Amended 2014 Plan, which provides for the grant of options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards to employees, officers and directors, and consultants and advisors. There were 2,046,885 shares of common stock authorized for issuance under the Amended 2014 Plan when it was approved by the Company's stockholders in July 2018. The number of authorized shares increases annually on the first day of each fiscal year until, and including, the fiscal year ending December 31, 2024 by the least of (i) 2,000,000, (ii) 4% of the number of outstanding shares of common stock on such date, or (iii) an amount determined by the Company’s board of directors. On January 1, 2020, the number of authorized shares increased by 787,336 to 1,411,481, which increase represented 4% of the number of outstanding shares of common stock on such date.

Summary of Stock Option Activity

The table below summarizes stock option activity under the Amended 2014 Plan, and related information for the six months ended June 30, 2020. The exercise price of all options granted during the six months ended June 30, 2020 was equal to the market value of the Company’s common stock on the date of grant. As of June 30, 2020, unamortized stock-based compensation expense of $1,674,495 will be amortized over a weighted average period of 2.6 years. At June 30, 2020, 524,481 shares of common stock were reserved for future awards granted under the Amended 2014 Plan.


	Number of Shares	Weighted Average Exercise Price
Outstanding at December 31, 2019	1,889,775	$	1.21
Granted	887,000	1.05
Exercised	(10,149)	0.01
Canceled/forfeited	—	—
Expired	—	—
Outstanding at June 30, 2020	2,766,626	$	1.16
Exercisable at June 30, 2020	806,763	$	1.58

Compensation Expense

Total stock-based compensation expense related to stock options granted to employees and directors recognized in the consolidated statement of operations is as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Research and development	$	59,713	$	26,996	$	106,093	$	51,699
General and administrative	$	127,146	$	84,355	$	241,607	$	157,620
Total	$	186,859	$	111,351	$	347,700	$	209,319

The assumptions used in the Black-Scholes option-pricing model for stock options granted to employees and to directors in respect of board services during the three and six months ended June 30, 2020 are as follows:


	Three Months Ended June 30, 2020	Six Months Ended June 30, 2020
Expected life in years	10.0	10.0
Risk-free interest rate	0.68%	0.82%
Expected volatility	118%	120%
Forfeiture rate	0.0%	0.0%
Dividend yield	0.0%	0.0%
Weighted-average fair value of options granted	$0.97	$1.00

6. STOCKHOLDERS’ EQUITY

ATM Sales Agreement

In January 2018, the Company entered into a common stock sales agreement under which the Company may sell shares of its common stock from time to time in “at-the-market” equity offerings (as defined in Rule 415 promulgated under the Securities Act of 1933, as amended). The Company will pay a commission of up to 3% of the gross proceeds of any common stock sold under this agreement plus certain legal expenses. The common stock sales agreement was amended in August 2018 to refer to the Company’s shelf registration statement on Form S-3 (File No. 333-227019) that was filed to replace the Company’s shelf registration statement on Form S-3 (File No. 333-206396) that expired on August 28, 2018.

During the six months ended June 30, 2020, the Company sold 5,963,580 shares under the common stock sales agreement for gross proceeds of approximately $8.4 million and incurred offering expenses of approximately $338,000. The Company did not sell any shares under this agreement during the six months ended June 30, 2019.

April 2019 Underwritten Public Offering

In April 2019, the Company closed an underwritten public offering of 4,575,000 shares of its common stock at a public offering price of $1.10 per share. The Company granted the underwriters a 30-day over-allotment option to purchase up to an additional 686,250 shares which was exercised in full on April 12, 2019. Including the over-allotment shares, the Company issued a total of 5,261,250 shares in the underwritten public offering and received gross proceeds of approximately $5.8 million and net proceeds of approximately $5.2 million after deducting underwriting discounts and offering expenses.

Equity Line

On April 22, 2020, the Company entered into a purchase agreement, or the Purchase Agreement, and a registration rights agreement with Lincoln Park Capital Fund, LLC, or Lincoln Park. Under the terms and subject to the conditions of the Purchase Agreement, the Company has the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase up to $15.0 million of the Company’s common stock. Such sales of common stock by the Company may occur from time to time, at the Company’s sole discretion, subject to certain limitations, until May 19, 2023. On April 22, 2020, in accordance with the Purchase Agreement, the Company issued 285,714 shares of its common stock, or the Commitment Shares, to Lincoln Park in consideration for its commitment to purchase shares under the Purchase Agreement. The Company filed a registration statement on Form S-1 (File No. 333-237954) to register the resale by Lincoln Park of up to 7.5 million shares of the Company's common stock issued or issuable to Lincoln Park under the Purchase Agreement, including the Commitment Shares, and such registration statement was declared effective by the SEC on May 12, 2020.

The Company incurred legal, accounting, and other fees related to the Purchase Agreement of approximately $374,000. These costs are amortized and expensed as shares are sold under the Purchase Agreement and as of June 30, 2020 there was $351,000 of unamortized costs. During the six months ended June 30, 2020, the Company sold, and Lincoln Park purchased, 882,000 shares under the Purchase Agreement for gross proceeds of approximately $911,000 and incurred offering expenses of approximately $23,000.

Common Stock Warrants

In February 2018, the Company closed an underwritten public offering in connection with which the Company issued to the investors in that offering warrants that initially had an exercise price of $3.00 per share and are exercisable through February 2023. The warrants include a price-based anti-dilution provision, which provides that, subject to certain limited exceptions, the exercise price of the warrants will be reduced each time the Company issues or sells (or is deemed to issue or sell) securities for a net consideration per share less than the exercise price of those warrants in effect immediately prior to such issuance or sale. In addition, subject to certain exceptions, if the Company issues, sells or enters into any agreement to issue or sell securities at a price which varies or may vary with the market price of the shares of the Company’s common stock, the warrant holders have the right to substitute such variable price for the exercise price of the warrant then in effect. These warrants are exercisable only for cash, unless a registration statement covering the shares issued upon exercise of the warrants is not effective, in which case the warrants may be exercised on a cashless basis. A registration statement covering the shares issued upon exercise of the warrants is currently effective. The Company estimated the fair value of the warrants as of February 15, 2018 to be approximately $3.0 million which has been recorded in equity as of the grant date. The Company early adopted ASU 2017-11 as of January 1, 2018 and recorded the fair value of the warrants as equity.

In April 2019, in accordance with the price-based anti-dilution provision discussed above, as a result of the sale of shares in the April 2019 underwritten offering, the exercise price of these warrants was automatically reduced to $0.98 per share and $0.8 million was recorded to additional paid-in capital as a result of the triggering of the anti-dilution provision.

During the six months ended June 30, 2020, 1,699,000 warrants were exercised for gross proceeds of approximately $1.7 million. No warrants were exercised during the six months ended June 30, 2019. As of June 30, 2020, the Company had the following warrants outstanding:


Shares Underlying Outstanding Warrants	Exercise Price			Expiration Date
2,906	$	120.40	2021-12-01
3,737	$	120.40	2021-12-06
6,500	$	10.00	2026-04-04
2,021,500	$	0.98	2023-02-15
2,034,643

7. LEASED PROPERTIES

The Company's lease for its corporate headquarters (3,169 square feet of office space) commenced on July 1, 2018 and terminates on July 31, 2021. The Company has the option to extend the term of the lease for one year.

Microchips, which the Company acquired in November 2019, leases general office space in Lexington, Massachusetts and warehouse space in Billerica, Massachusetts. The Lexington lease commenced on July 1, 2013 and terminates on September 30, 2021. The Billerica lease commenced on October 1, 2016 and terminates on March 31, 2022.

Under the terms of each lease, the Company pays base annual rent (subject to an annual fixed percentage increase), plus property taxes, and other normal and necessary expenses, such as utilities, repairs, and maintenance. The Company evaluates renewal options at lease inception and on an ongoing basis and includes renewal options that it is reasonably certain to exercise in its expected lease terms when classifying leases and measuring lease liabilities. The leases do not require material variable lease payments, residual value guarantees or restrictive covenants.

The leases do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of the lease within a particular currency environment. The Company uses an incremental borrowing rate of 7% for operating leases that commenced prior to January 2019. The depreciable lives of operating leases and leasehold improvements are limited by the expected lease term.

At June 30, 2020, the Company reported operating lease ROU assets of approximately $370,000 in other non-current assets, and $417,000 and $175,000, respectively, in current and non-current other liabilities on the consolidated balance sheet.

Total operating lease costs were approximately $76,000 and $27,000 for the three months ended June 30, 2020 and June 30, 2019, respectively, and $152,000 and $54,000 for the six months ended June 30, 2020 and June 30, 2019, respectively. Operating lease costs consist of monthly lease payments expense, common area maintenance and other repair and maintenance costs and are included in general and administrative expenses in the consolidated statement of operations.

Cash paid for amounts included in the measurement of operating lease liabilities were approximately $110,000 and $27,000 for three months ended June 30, 2020 and June 30, 2019, respectively, and $238,000 and $53,000 for the six months ended June 30, 2020 and June 30, 2019, respectively. These amounts are included in operating activities in the consolidated statements of cash flows. Further, at June 30, 2020, operating leases had a weighted average remaining lease term of 1.36 years.

As of June 30, 2020, future minimum payments under the Company's operating leases are approximately:



Remainder of 2020	$	224,000
2021	363,000
2022	42,000
Total future minimum lease payments	629,000
Less: Difference between future minimum lease payments and discounted operating lease liabilities	37,000
Total operating lease liabilities	$	592,000

8. COMMITMENTS AND CONTINGENCIES

Contingent Consideration

In connection with the acquisition of Microchips, the Company agreed to pay contingent consideration based upon the achievement of specified funding, product development and regulatory milestones. The Company recorded $1.0 million in contingent consideration liability associated with milestone payments expected to become payable in late 2021 in its consolidated balance sheet at June 30, 2020.

Note Payable

In April 2020, due to the economic uncertainty resulting from the impact of the COVID-19 pandemic on the Company's operations and to support its ongoing operations and retain all employees, the Company applied for a loan under the Paycheck Protection Program, or the PPP, of the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, administered by the U.S. Small Business Administration. The Company received a loan of approximately $367,000. The loan matures in April 2022, bears interest at a rate of 1.00% per annum, is payable in equal monthly payments commencing in November 2020 through maturity and may be prepaid at any time prior to maturity with no prepayment penalties. Under the terms of the PPP, subject to specified limitations, the loan prinicpal and accrued interest may be forgiven if the proceeds are used in accordance with the CARES Act. The Company intends to apply for forgiveness of the entire loan. However, there can be no assurance that the Company will obtain forgiveness of the loan in whole or in part. The Company recorded a note payable plus accrued interest for the loan in the amount of approximately $368,000 in its consolidated balance sheet at June 30, 2020.

9. GRANT AWARD

Eunice Kennedy Shriver National Institute of Child Health and Human Development

Since 2018, the Company has received grant funding for clinical development efforts supporting Ovaprene from the Eunice Kennedy Shriver National Institute of Child Health and Human Development, a division of the National Institutes of Health, or the NIH. Through year-end 2019, the Company received award payments from the NIH totaling $1.2 million. In April 2020, the Company received a final notice of award for approximately