10-Q
0001817944--12-31falseQ3The effect of the convertible notes on the numerator for the three and nine months ended September 30, 2020 relates to the impact that the convertible notes had on net income during the period, and are removed from net income when calculating net income (loss) attributable to common stockholders diluted using the if-converted method.The effect of convertible notes on the denominator for the three and nine months ended September 30, 2020 was calculated based on the carrying value of the convertible notes balance at September 30, 2020, converted at the series D price of $4.50 per share and are added back to the denominator when calculating diluted EPS using the if-converted method.Relates to reversal of 2021 accretion recorded on the redeemable convertible preferred stock prior to the merger, as the redeemable convertible preferred stock has been retroactively restated to give effect to the reverse recapitalization. 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Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM
10-Q
 
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 30, 2021
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number:
001-39802
 
 
CLARUS THERAPEUTICS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
85-1231852
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number )
555 Skokie Boulevard, Suite 340
Northbrook, Illinois
 
60062
(Address of principal executive offices)
 
(Zip Code)
(847)
562-4300
(Registrant’s telephone number, including area code)
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class:
 
Trading
Symbol(s)
 
Name of each exchange
on which registered:
Common stock, par value $0.0001 per share
 
CRXT
 
The Nasdaq Stock Market LLC
Warrants to purchase one share of common stock at an exercise price of $11.50
 
CRXTW
 
The Nasdaq Stock Market LLC
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  ☒    No  ☐
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 and post such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer, “smaller reporting company” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large accelerated filer      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 provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes  ☐    No  
As of November 11, 2021, there were 21,725,817 shares of common stock, par value $0.0001 per share, issued and outstanding.
 
 
 

Table of Contents
CLARUS THERAPEUTICS HOLDINGS, INC.
Quarterly Report on Form
10-Q
Table of Contents
 
 
 
 
  
Page No.
 
  
Item 1.
 
  
 
3
 
 
  
 
3
 
 
  
 
4
 
 
  
 
5
 
 
  
 
7
 
 
  
 
8
 
Item 2.
 
  
 
22
 
Item 3.
 
  
 
36
 
Item 4.
 
  
 
36
 
  
Item 1.
 
  
 
37
 
Item 1A.
 
  
 
37
 
Item 2.
 
  
 
37
 
Item 3.
 
  
 
37
 
Item 4.
 
  
 
37
 
Item 5.
 
  
 
37
 
Item 6.
 
  
 
38
 
  
 
40
 
 
i

Table of Contents
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form
10-Q,
including the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains express or implied forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical facts, contained in this Quarterly Report on Form
10-Q,
including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management and expected market growth are forward-looking statements. Forward-looking statements in this Quarterly Report on Form
10-Q
include, but are not limited to, statements about:
 
 
 
our ability to realize the benefits from the business combination between Blue Water Acquisition Corp. and Clarus Therapeutics, Inc. (the “Business Combination”);
 
 
 
the ability to maintain the listing of our Common Stock on the Nasdaq Global Market;
 
 
 
our future financial performance;
 
 
 
the potential liquidity and trading of our securities;
 
 
 
the impact from the outcome of any known and unknown litigation;
 
 
 
our ability to forecast and maintain an adequate rate of revenue growth and appropriately plan expenses;
 
 
 
expectations regarding future expenditures;
 
 
 
the future mix of revenue and effect on gross margins;
 
 
 
the attraction and retention of qualified directors, officers, employees and key personnel;
 
 
 
our ability to compete effectively in a competitive industry;
 
 
 
our ability to protect and enhance our corporate reputation and brand;
 
 
 
expectations concerning our relationships and actions with third parties;
 
 
 
the impact from future regulatory, judicial, and legislative changes in our industry;
 
 
 
the ability to locate and acquire complementary products or product candidates and integrate those into our business;
 
 
 
future arrangements with, or investments in, other entities or associations;
 
 
 
intense competition and competitive pressures from other companies in the industries in which we operate; and
 
 
 
other economic, business and/or competitive factors, risks and uncertainties,
The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These statements reflect our current views with respect to future events, are based on assumptions and 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, performances or achievements expressed or implied by the forward-looking statements. These risks and uncertainties include, without limitation:
 
 
 
there is substantial doubt about our ability to continue as a going concern.
 
 
 
we have incurred significant indebtedness in connection with our business and servicing our debt requires a significant amount of cash. We may not have sufficient cash flow from our operations to satisfy the financial covenants in our debt agreements. We may not receive a waiver of default for outstanding indebtedness for which we may be in default in the future.
 
 
 
we have identified material weaknesses in our internal control over financial reporting, and we may identify future material weaknesses in our internal control over financial reporting.
 
 
 
JATENZO is the only product we are commercializing, and we depend almost entirely on its success.
 
 
 
we have limited experience as a commercial company and the marketing and sale of JATENZO or any future approved drugs may be unsuccessful or less successful than anticipated.
 
 
 
our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.
 
 
 
our reliance on third-party suppliers and distributors could harm our ability to commercialize JATENZO.
 
 
 
the ongoing
COVID-19
pandemic is having, and is expected to have, an adverse impact on our business.
 
 
 
the U.S. Food and Drug Administration (“FDA”) and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of
off-label
uses. If we are found to have improperly promoted
off-label
uses, we may become subject to significant liability.
 
 
 
even though we have received marketing approval for JATENZO in the United States, we may never receive marketing approval outside of the United States, or receive pricing and reimbursement outside the United States at acceptable levels.
 
 
 
recent federal legislation may increase pressure to reduce prices of certain pharmaceutical products paid for by Medicare.
 
 
 
testosterone (T) is a Schedule III
(non-narcotic)
substance under the Controlled Substances Act and any failure to comply with this act or its state equivalents would have a negative impact on our business.
 
 
 
if coverage and reimbursement for JATENZO are limited, it may be difficult to profitably sell JATENZO.
 
 
 
our market is subject to intense competition.
 
1

 
 
if we are unable to obtain or protect intellectual property rights related to JATENZO, we may not be able to compete effectively in our market.
 
 
 
we may be involved in lawsuits and proceedings to protect or enforce our patents, which could be expensive, time consuming and unsuccessful.
 
 
 
we will need to grow our company, and may encounter difficulties in managing this growth.
 
 
 
our future success depends on our ability to retain our chief executive officer, chief financial officer and chief commercial officer and to attract, retain and motivate qualified personnel.
 
 
 
our debt agreements contain restrictions that limit our flexibility in operating our business.
Additional discussion of the risks, uncertainties and other factors described above, as well as other risks and uncertainties material to our business, can be found under “Risk Factors” in our prospectus filed pursuant to 424(b)(3) with the SEC on October 7, 2021, and we encourage you to refer to that additional discussion. Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our plans, objectives, estimates, expectations and intentions only as of the date of this filing. You should read this report completely and with the understanding that our actual future results and the timing of events may be materially different from what we expect, and we cannot otherwise guarantee that any forward-looking statement will be realized. We hereby qualify all of our forward-looking statements by these cautionary statements.
Except as required by law, we undertake no obligation to update or supplement any forward-looking statements publicly, or to update or supplement the reasons that actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. You are advised, however, to consult any further disclosures we make on related subjects.
 
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Table of Contents
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
CLARUS THERAPEUTICS HOLDINGS, INC.
Condensed Consolidated Balance Sheets
Unaudited
(in thousands, except share and per share data)
 
    
September 30,
   
December 31,
 
    
2021
   
2020
 
Assets
                
Current assets:
                
Cash and cash equivalents
   $ 21,953     $ 7,233  
Accounts receivable, net
     6,932       4,400  
Inventory, net
     12,480       5,857  
Prepaid expenses and other current assets
     3,891       1,846  
    
 
 
   
 
 
 
Total current assets
     45,256       19,336  
Property and equipment, net
     66       64  
    
 
 
   
 
 
 
Total assets
   $ 45,322     $ 19,400  
    
 
 
   
 
 
 
Liabilities, redeemable convertible preferred stock, and stockholders’ deficit
                
Current liabilities:
                
Senior notes payable
   $ 40,339     $ 41,902  
Accounts payable
     15,843       12,107  
Accrued expenses
     7,373       4,631  
Deferred revenue
     827       1,172  
    
 
 
   
 
 
 
Total current liabilities
     64,382       59,812  
Convertible notes payable to related parties
              77,911  
Royalty obligation
              9,262  
Derivative warrant liability
     6,465           
    
 
 
   
 
 
 
Total liabilities
     70,847       146,985  
Commitments and contingencies (See Note 12)
            
Redeemable convertible preferred stock, $0.001 par value, and 53,340,636 shares authorized at September 30, 2021 and December 31, 2020, respectively; and 36,756,498 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively
              198,195  
Stockholders’ deficit:
                
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; no shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively
                  
Common stock $0.0001 par value; 125,000,000 shares authorized; 21,725,817 and 4,901,564 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively
     2       1  
Additional
paid-in
capital
     291,825       —    
Accumulated deficit
     (317,352     (325,781
    
 
 
   
 
 
 
Total stockholders’ deficit
     (25,525     (325,780
    
 
 
   
 
 
 
Total liabilities, redeemable convertible preferred stock, and stockholders’ deficit
   $ 45,322     $ 19,400  
    
 
 
   
 
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
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Table of Contents
CLARUS THERAPEUTICS HOLDINGS, INC.
Condensed Consolidated Statements of Operations
Unaudited
(in thousands, except share and per share data)
 
    
Three Months Ended

September 30,
   
Nine Months Ended

September 30,
 
    
2021
   
2020
   
2021
   
2020
 
Net product revenue
   $ 4,286     $ 2,224     $ 9,395     $ 3,943  
Cost of product sales
     510       257       1,431       8,328  
    
 
 
   
 
 
   
 
 
   
 
 
 
Gross profit (loss)
     3,776       1,967       7,964       (4,385
Operating expenses:
                                
Sales and marketing
     7,550       8,733       25,017       23,557  
General and administrative
     3,384       3,040       12,316       8,261  
Research and development
     1,275       1,437       3,093       2,818  
    
 
 
   
 
 
   
 
 
   
 
 
 
Total operating expenses
     12,209       13,210       40,426       34,636  
    
 
 
   
 
 
   
 
 
   
 
 
 
Loss from operations
     (8,433     (11,243     (32,462     (39,021
Other (expense) income, net:
                                
Change in fair value of warrant liability and derivative, net
     7,610       20,939       7,610       53,854  
Interest income
     1       1       1       24  
Interest expense
     (4,447     (4,291     (13,964     (10,790
Litigation settlement
     2,500                2,500           
    
 
 
   
 
 
   
 
 
   
 
 
 
Total other (expense) income, net
     5,664       16,649       (3,853     43,088  
    
 
 
   
 
 
   
 
 
   
 
 
 
Net (loss) income before income taxes
     (2,769     5,406       (36,315     4,067  
Provision for income taxes
     —         —         —         —    
    
 
 
   
 
 
   
 
 
   
 
 
 
Net (loss) income
   $ (2,769   $ 5,406     $ (36,315   $ 4,067  
    
 
 
   
 
 
   
 
 
   
 
 
 
Net (loss) income attributable to common stockholders, basic (Note 13)
   $ (2,357   $ 5,396     $ (35,903   $ (4,059
    
 
 
   
 
 
   
 
 
   
 
 
 
Net loss attributable to common stockholders, diluted (Note 13)
   $ (2,357   $ (13,743   $ (35,903   $ (44,279
    
 
 
   
 
 
   
 
 
   
 
 
 
Net (loss) income per common share attributable to common stockholders, basic
(Note
 
13)
   $ (0.26 )   $ 1.10     $ (5.68 )   $ 0.83  
    
 
 
   
 
 
   
 
 
   
 
 
 
Net loss per common share attributable to common stockholders, diluted (Note 13)
   $ (0.26 )   $ (0.63 )   $ (5.68 )   $ (2.03 )
    
 
 
   
 
 
   
 
 
   
 
 
 
Weighted-average
 
common
 
shares
 
used
 
in
 
net
 
(loss)
 
income
 
per
 
share
 
attributable
to
 
common
 
stockholders, basic (Note 13)
     9,153,848       4,901,564       6,318,992       4,901,564  
    
 
 
   
 
 
   
 
 
   
 
 
 
Weighted-average common shares used in net loss per share attributable to
common stockholders, diluted (Note 13)
     9,153,848       21,828,570       6,318,992       21,828,570  
    
 
 
   
 
 
   
 
 
   
 
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
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CLARUS THERAPEUTICS HOLDINGS, INC.
Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Deficit
Unaudited
(in thousands, except share and per share data)
 
 
  
Redeemable Convertible
Preferred Stock
 
 
Common Stock
 
  
Additional

Paid-in

Capital
 
 
Accumulated

Deficit
 
 
Total

Stockholders’

Deficit
 
  
Shares
 
 
Amount
 
 
Shares
 
  
Amount
 
Balance at December 31, 2020 (as previously reported)
  
 
36,756,498
 
 
$
198,195
 
 
 
870,263
 
  
$
1
 
  
$
—  
 
 
$
(325,781
 
$
(325,780
Retroactive application of the recapitalization due to the Business Combination (Note 3)
  
 
(36,756,498
 
 
(198,195
 
 
4,031,301
 
  
 
—  
 
  
 
152,653
 
 
 
37,006
 
 
 
189,659
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
Adjusted balance at December 31, 2020
  
 
  
 
 
 
  
 
 
 
4,901,564
 
  
 
1
 
  
 
152,653
 
 
 
(288,775
 
 
(136,121
Retroactive application of recapitalization related to 2021 activity (1)
  
 
—  
 
 
 
—  
 
 
 
—  
 
  
 
—  
 
  
 
(7,737
 
 
7,737
 
 
 
—  
 
Conversion of Series D redeemable convertible preferred stock into common stock, adjusted for retroactive application of the recapitalization
  
 
—  
 
 
 
—  
 
 
 
—  
 
  
 
—  
 
  
 
11,829
 
 
 
—  
 
 
 
11,829
 
Stock-based compensation
  
 
—  
 
 
 
—  
 
 
 
—  
 
  
 
—  
 
  
 
176
 
 
 
—  
 
 
 
176
 
Net loss
  
 
—  
 
 
 
—  
 
 
 
—  
 
  
 
—  
 
  
 
—  
 
 
 
(15,429
 
 
(15,429
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2021
  
 
  
 
 
 
  
 
 
 
4,901,564
 
  
 
1
 
  
 
156,921
 
 
 
(296,467
 
 
(139,545
Stock-based compensation
  
 
—  
 
 
 
—  
 
 
 
—  
 
  
 
—  
 
  
 
177
 
 
 
—  
 
 
 
177
 
Net loss
  
 
—  
 
 
 
—  
 
 
 
—  
 
  
 
—  
 
  
 
—  
 
 
 
(18,117
 
 
(18,117
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
Balance at June 30, 2021
  
 
  
 
 
 
  
 
 
 
4,901,564
 
  
 
1
 
  
 
157,098
 
 
 
(314,584
 
 
(157,485
Stock-based compensation
  
 
—  
 
 
 
—  
 
 
 
—  
 
  
 
—  
 
  
 
207
 
 
 
—  
 
 
 
207
 
Recapitalization on September 9, 2021
  
 
—  
 
 
 
—  
 
 
 
12,984,784
 
  
 
1
 
  
 
117,512
 
 
 
 
 
 
117,513
 
Proceeds from Blue Water Acquisition Corp. in Business Combination
  
 
—  
 
 
 
—  
 
 
 
3,839,469
 
  
 
—  
 
  
 
17,008
 
 
 
—  
 
 
 
17,008
 
Net loss
  
 
—  
 
 
 
—  
 
 
 
—  
 
  
 
—  
 
  
 
—  
 
 
 
(2,769
 
 
(2,769
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
Balance at September 30, 2021
  
 
  
 
 
 
  
 
 
 
21,725,817
 
  
$
 
2
 
  
$
291,825
 
 
$
(317,352
 
$
(25,525
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Relates to reversal of 2021 accretion recorded on the redeemable convertible preferred stock prior to the merger, as the redeemable convertible preferred stock has been retroactively restated to give effect to the reverse recapitalization.
 
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CLARUS THERAPEUTICS HOLDINGS, INC.
Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Deficit
Unaudited
(in thousands, except share and per share data)
 
 
  
Redeemable Convertible
Preferred Stock
 
 
Common Stock
 
  
Additional
Paid-in

Capital
 
  
Accumulated

Deficit
 
 
Total

Stockholders’

Deficit
 
 
  
Shares
 
 
Amount
 
 
Shares
 
  
Amount
 
Balance at December 31, 2019 (as previously reported)
  
 
36,756,498
 
 
$
183,513
 
 
 
870,263
 
  
$
1
 
  
$
—  
 
  
$
(316,269
 
$
(316,268
Retroactive application of the recapitalization due to the Business Combination (Note 3)
  
 
(36,756,498
 
 
(183,513
 
 
4,031,301
 
  
 
—  
 
  
 
160,363
 
  
 
23,150
 
 
 
183,513
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
Adjusted balance at December 31, 2019
  
 
  
 
 
 
  
 
 
 
4,901,564
 
  
 
1
 
  
 
160,363
 
  
 
(293,119
 
 
(132,755
Stock-based compensation
  
 
—  
 
 
 
—  
 
 
 
—  
 
  
 
—  
 
  
 
74
 
  
 
—  
 
 
 
74
 
Net income (loss)
  
 
—  
 
 
 
—  
 
 
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
(11,894
 
 
(11,894
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
Balance at March 31, 2020
  
 
  
 
 
 
  
 
 
 
4,901,564
 
  
 
1
 
  
 
160,437
 
  
 
(305,013
 
 
(144,575
Stock-based compensation
  
 
—  
 
 
 
—  
 
 
 
—  
 
  
 
—  
 
  
 
70
 
  
 
—  
 
 
 
70
 
Net
income
  
 
—  
 
 
 
—  
 
 
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
10,555
 
 
 
10,555
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
Balance at June 30, 2020
  
 
  
 
 
 
  
 
 
 
4,901,564
 
  
 
1
 
  
 
160,507
 
  
 
(294,458
 
 
(133,950
Stock-based compensation
  
 
—  
 
 
 
—  
 
 
 
—  
 
  
 
—  
 
  
 
90
 
  
 
—  
 
 
 
90
 
Net
income
  
 
—  
 
 
 
—  
 
 
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
5,406
 
 
 
5,406
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
Balance at September 30, 2020
  
 
  
 
 
 
  
 
 
 
4,901,564
 
  
$
 
1
 
  
$
160,597
 
  
$
(289,052
 
$
(128,454
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
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Table of Contents
CLARUS THERAPEUTICS HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
Unaudited
(in thousands, except share and per share data)
 
    
Nine Months Ended
September 30,
 
    
2021
   
2020
 
Operating activities
                
Net income (loss)
   $ (36,315   $ 4,067  
Adjustments to reconcile net income (loss) to net cash used in operating activities:
                
Non-cash
interest expense related to debt financing and royalty obligation
     11,137       7,856  
Settlement of interest with
payment-in-kind
note
     3,125           
Non-cash
gain on partial extinguishment of senior notes
     (296         
Change in fair value of warrant liability
     (7,610 )     (541
Change in fair value of derivative liability
     —         (53,313
Stock-based compensation expense
     560       234  
Depreciation
     18       14  
Changes in operating assets and liabilities:
                
Accounts receivable
     (2,532     (3,451
Inventory
     (6,622     746  
Prepaid expenses and other current assets
     (2,048     (734
Accounts payable
     3,736       7,165  
Accrued expenses
     2,740       1,677  
Deferred revenue
     (345 )     619  
    
 
 
   
 
 
 
Net cash used in operating activities
     (34,452     (35,661
Investing activities
                
Purchases of property and equipment
     (20     (62
    
 
 
   
 
 
 
Net cash used in investing activities
     (20     (62
Financing activities
                
Proceeds from business combination, net
     17,008           
Proceeds from issuance of convertible notes payable
     23,592       1,611  
Proceeds from issuance of senior notes payable
     8,592       49,125  
Proceeds from PPP loan
     —         500  
Repayment of PPP loan
     —         (500
Debt issuance costs
     —         (3,516
    
 
 
   
 
 
 
Net cash provided by financing activities
     49,192       47,220  
Net increase in cash and cash equivalents
     14,720       11,497  
Cash and cash equivalents—beginning of period
     7,233       1,656  
    
 
 
   
 
 
 
Cash and cash equivalents—end of period
   $ 21,953     $ 13,153  
    
 
 
   
 
 
 
Supplemental disclosure of
non-cash
investing and financing activities:
                
Conversion of convertible notes payable into Series D redeemable convertible preferred stock
   $ 3,360     $ —    
    
 
 
   
 
 
 
Conversion of Series D redeemable convertible preferred stock into Old Clarus common stock prior to the recapitalization
   $ 11,829     $     
    
 
 
   
 
 
 
Senior secured note principal and royalty obligation balance conversion to shares of common stock upon
merger (Note 3)
   $ 28,254           
    
 
 
   
 
 
 
Convertible notes principal and accrued interest balance conversion to shares of common stock upon
merger (Note 3)
   $ 103,333           
    
 
 
   
 
 
 
Conversion of Series D redeemable convertible preferred stock into share of common stock
   $ 189,659           
 
  
 
 
 
 
 
 
 
Value of warrants assumed upon merger (Note 3)
     14,075       —    
    
 
 
   
 
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
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Table of Contents
CLARUS THERAPEUTICS HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
Unaudited
1. Organization and Description of Business Operations
Clarus Therapeutics Holdings, Inc. (together with its consolidated subsidiary, the “Company” or “Clarus”) formerly known as Blue Water Acquisition Corp. (“Blue Water”), was incorporated in Delaware on May 22, 2020, Blue Water was a Special Purpose Acquisition Company (“SPAC”) formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.
The registration statement for the Company’s Initial Public Offering (“IPO”) was declared effective on December 15, 2020. On December 17, 2020, the Company consummated its IPO of 5,750,000 units (the “Units” and, with respect to the Class A common stock included in the Units being offered, the “Public Shares”), including 750,000 additional Units to cover over-allotments (the “Over-Allotment Units”), at $10.00 per Unit, generating gross proceeds of $57.5 million, and incurring offering costs of approximately $3.7 million, of which approximately $2.0 million was for deferred underwriting commissions. Simultaneously with the closing of the IPO, the Company consummated the private placement (“Private Placement”) of 3,445,000 warrants (each, a “Private Placement Warrant” and collectively, the “Private Placement Warrants”) at a price of $1.00 per Private Placement Warrant to Blue Water Sponsor LLC (the “Sponsor”), generating proceeds of approximately $3.4 million. Upon the closing of the IPO and the Private Placement, approximately $58.7 million ($10.20 per Unit) of the net proceeds of the IPO and certain of the proceeds of the Private Placement was held in a trust account (“Trust Account”) located in the United States with Continental Stock Transfer & Trust Company acting as trustee, and were invested only in U.S. “government securities” within the meaning of Section 2(a)(16) of the U.S. Investment Company Act of 1940, as amended (the “Investment Company Act”) having a maturity of 185 days or less or in money market funds meeting certain conditions under Rule
2a-7
promulgated under the Investment Company Act, which invested only in direct U.S. government treasury obligations, as determined by the Company, until the earlier of: (i) the completion of a business combination and (ii) the distribution of the Trust Account.
Merger
On September 9, 2021 (the “Closing Date”),
 
the Company, and Blue Water Merger Sub Corp., a Delaware corporation and wholly-owned subsidiary of the Company (“Merger Sub”), consummated the previously announced merger, pursuant to the Agreement and Plan of Merger, dated as of April 27, 2021 (the “Merger Agreement”), with Clarus Therapeutics, Inc., a Delaware corporation (“Old Clarus”), pursuant to which, subject to the terms and conditions set forth in the Merger Agreement, Merger Sub merged with and into Old Clarus, with Old Clarus surviving as a wholly-owned subsidiary of the Company, and with Old Clarus’s equity holder
s’
 and convertible debt holders equity interests converted into the right to receive shares of the Company’s common stock or else be canceled, retired and terminated without consideration, as provided in the Merger Agreement (the “Merger”). Upon the consummation of the business combination, Blue Water changed its name to “Clarus Therapeutics Holdings, Inc.”
In connection with the Merger, Old Clarus’s convertible noteholders and senior secured noteholders provided $25.0 million in additional capital to
Old Clarus
following the announcement of the
execution of the Merger Agreement.
All such proceeds plus accrued interest converted to shares of
the Company’s
common stock at a price of $10.00 per share, resulting in 2,549,939 shares issued 
on
the Closing Date
.
 
The additional capital of $25.0 million was received by 
Old Clarus
prior to the Closing Date. Together with Blue Water’s cash resources and additional capital, the Company received
net
proceeds from the Merger (not including the $25.0 million of additional capital) of approximately $17.0 million.
At the effective time of the Merger (the “Effective Time”), shares of Old Clarus’s redeemable convertible Series D Preferred Stock issued and outstanding and all principal and accrued interest under Old Clarus’s Series D convertible notes immediately prior to the Effective Time converted into 13,431,410 shares of the Company’s common stock at a price of $10.20 per share. Additionally, $10.0 million of debt related to Old Clarus’ senior secured notes
,
including certain royalty rights was exchanged for an aggregate
 
of
 
1,500,000 shares of the Company’s common stock. Further, under a share allocation agreement entered into by Blue Water and Old Clarus on September 1, 2021,
as part of the Merger, 
an additional 405,000 shares of the Company’s common stock were allocated to the senior secured noteholders
 
(as further described in Note 7), 
which included 270,000 shares reallocated to the senior secured note holders from Old Clarus’s equity holders and 135,000 shares from the Blue Water founder that were transferred from the Sponsor pursuant to the share allocation agreement.
All unexpired, outstanding Series D Warrants of Old Clarus remained outstanding and became exercisable for shares of the Company’s common stock, subject to adjustment in accordance with the Merger exchange ratio. 
All other series of Old Clarus preferred stock, common stock and stock options were cancelled and extinguished upon completion of the Merger. In addition, Old Clarus’s existing equity incentive plans were terminated.
For additional information on the business combination, please refer to Note 3,
Business Combination
, to these condensed consolidated financial statements.
 
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Table of Contents
Description of Business Following the Merger
The Company operates as a pharmaceutical company post-merger focused on the commercialization of JATENZO
®
(testosterone undecanoate), the first and only oral testosterone (“T”) replacement, or testosterone replacement therapy (“TRT”), of its kind approved by the U.S. Food and Drug Administration (“FDA”). The FDA approved JATENZO for marketing on March 27, 2019, and Old Clarus commercially launched JATENZO on February 10, 2020. JATENZO is the Company’s sole source of revenue and sales are exclusively within the United States. Management remains committed to the product’s commercial success. In parallel, the broader vision is for the Company to become a profitable pharmaceutical company initially focused on the development and commercialization of T and metabolic therapies for men and women. The Company was founded in 2004 and is located and headquartered in Northbrook, Illinois.
The Company is subject to risks and uncertainties associated with any pharmaceutical company that is transitioning from the development to commercial stage. Since inception, Old Clarus incurred substantial operating losses due to substantial product development and commercialization expenditures. In addition, the Company operates in an environment of rapid technological change and is largely dependent on the services of its employees and consultants. The Company anticipates incurring additional losses until such time, if ever, that it can generate significant sales of JATENZO, is cash flow positive from operations, or enters into cash flow positive business development transactions.
The Company’s U.S. patent portfolio on JATENZO currently includes five issued patents and has recently received two notices of allowance from the United States Patent and Trademark Office (USPTO) for claims that cover its oral testosterone replacement product, JATENZO. The issued U.S. patents contain claims to both pharmaceutical compositions and methods of treatment using the Company’s proprietary pharmaceutical composition and all are listed in the FDA Orange Book: Approved Drug Products with Therapeutic Equivalence Evaluations. In addition, the Company has several patent applications pending in the United States and other countries that, if issued, will cover pharmaceutical compositions, methods of treatment and other features of JATENZO, and have the potential to extend patent coverage beyond 2030.
Liquidity and Going Concern
The Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the condensed financial statements are issued.
Since its inception, Old Clarus has devoted substantially all its efforts to business planning, clinical development, commercial planning and raising capital. Old Clarus, and since the Merger, the Company has incurred significant losses from operations since inception and has an accumulated deficit of $317.3 million as of September 30, 2021. Further, as of September 30, 2021, the Company had a working capital deficit of $19.1 million.
In addition to the consummation of the Merger and the related investment, the Company plans to seek additional funding through the expansion of its commercial efforts to grow JATENZO and its operating cash flow, business development efforts to
out-license
JATENZO internationally, equity financings, debt financings such as the secured notes described in Note 6,
Debt
, or other capital sources including collaborations with other companies or other strategic arrangements with third parties. There can be no assurance that these future financing efforts will be successful.
If the Company is unable to obtain funding or generate operating cash flow, the Company will be forced to delay, reduce or eliminate some or all of its product portfolio expansion or commercialization efforts, which could adversely affect its business prospects, or the Company may be unable to continue operations. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all. The terms of any financing may adversely affect the holdings or the rights of the Company’s stockholders.
Based on its recurring losses from operations incurred since inception, expectation of continuing operating losses for the foreseeable future, and need to raise additional capital to finance its future operations, as of the issuance date of the condensed consolidated financial statements for the nine months ended September 30, 2021, the Company has concluded that its cash and cash equivalents will not be sufficient to fund its operating expenses, capital expenditure requirements and debt service payments through at least twelve months from the date that these condensed consolidated financial statements are available to be issued and that there is substantial doubt about the Company’s ability to continue as a going concern.
The accompanying condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty. Accordingly, the condensed financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
Impact of the
COVID-19
Pandemic
The business disruptions associated with the
COVID-19
pandemic had a significant negative impact on the Company’s condensed consolidated financial statements for the nine months ended September 30, 2021. Management expects that the public health actions being undertaken to reduce the spread of the virus, and that may have to be undertaken again in the event of a resurgence of the virus, will create significant disruptions to the Company with respect to: (i) the demand for its products, (ii) the ability of its sales representatives to reach healthcare customers, (iii) its ability to maintain staffing levels to support its operations, (iv) its ability to continue to manufacture certain of its products, (v) the reliability of its supply chain and (vi) its ability to achieve the financial covenants required by the senior secured notes agreement (see Note 6,
Debt
). The extent to which the
COVID-19
pandemic will impact the Company’s business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.
 
9

The Company is closely monitoring the evolving impact of the pandemic on all aspects of its business. The Company has implemented a number of measures designed to protect the health and safety of its employees, support its customers and promote business continuity. The Company is also actively reviewing and implementing cost-saving measures, including discontinuing or delaying all
non-essential
services and programs and instituting controls on travel, events, marketing and clinical studies to adapt the business plan for the evolving
COVID-19
challenges.
2. Summary of Significant Accounting Policies
Significant Accounting Policies
The Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2020 and the notes thereto, which are included in the final prospectus filed with the SEC pursuant to Rule 424(b)(3) on October 7, 2021. Since the date of those consolidated financial statements, there have been no material changes to its significant accounting policies, except as noted below.
Basis of Presentation
The condensed consolidated financial statements and accompanying notes have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments necessary to fairly present the financial position of the Company as of September 30, 2021 and December 31, 2020, the results of operations for the three and nine months ended September 30, 2021 and 2020 and its cash flows for the nine months ended September 30, 2021 and 2020 have been included and are of a normal, recurring nature except as otherwise disclosed. These condensed consolidated financial statements and notes thereto have been prepared under the presumption that users of the financial information have either read or have access to the audited financial statements for the latest year ended December 31, 2020.
As a result of the Merger, the shares and corresponding capital amounts and loss per share related to Old Clarus’s outstanding convertible preferred stock and common stock prior to the Merger have been retroactively restated to reflect the actual shares for which the Series D preferred stock converted into as a result of the conversion terms in the Merger Agreement. For additional information on the Business Combination, please refer to Note 3,
Business Combination
, to these condensed consolidated financial statements.
Use of Estimates
Preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed financial statements and the reported amounts of revenues and expenses during the reporting period covered by the condensed financial statements and accompanying notes. The most significant estimates relate to determination of fair value of the Company’s common stock and common stock warrants, stock-based compensation, notes, royalty obligation and the valuation of embedded derivatives. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and records adjustments when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ from those estimates.
Derivative warrant liabilities
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are liabilities, derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and ASC 815
Derivatives and Hedging
, (“ASC 815”). The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is
re-assessed
at the end of each reporting period.
The Private Placement Warrants are recognized as derivative liabilities in accordance with ASC 815. Accordingly, the Company recognizes the warrant instruments as liabilities at fair value and adjusts the instruments to fair value at each reporting period. The fair value of the Private Placement warrants has been estimated using a modified Monte Carlo simulation model at inception and subsequently at each measurement date using the Black-Scholes model. The liabilities are subject to
re-measurement
at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s statement of operations.
The fair value of warrants issued in connection with the IPO were initially measured at fair value using a Monte Carlo simulation model and have subsequently been measured based on the listed market price of such warrants.
 
10
Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed using the weighted-average number of common shares outstanding during the period and, if dilutive, the weighted-average number of potential shares of common stock. Net income (loss) per share attributable to common stockholders is calculated using the
two-class
method, which is an earnings allocation formula that determines net income (loss) per share for the holders of the Company’s common shares and participating securities. The Preferred Stock and warrants to purchase Preferred Stock contain participation rights in any dividend paid by the Company and are deemed to be participating securities. Net income (loss) attributable to common stockholders and participating preferred stock and participating preferred stock warrants is allocated first to preferred stockholders and warrant holders based on dividend rights and then to common and preferred stockholders based on ownership interests on an
as-converted
basis as if all of the earnings for the period had been distributed. The participating securities do not include a contractual obligation to share in losses of the Company and are not included in the calculation of net loss per share in the periods in which a net loss is recorded.
When considering the impact of the convertible equity instruments, diluted net income (loss) per share is computed using the more dilutive of (a) the
two-class
method or (b) the
if-converted
method. The Company allocates earnings first to preferred stockholders and warrant holders based on dividend rights and then to common and preferred stockholders and warrant holders based on ownership interests. The weighted-average number of common shares included in the computation of diluted net loss gives effect to all potentially dilutive common equivalent shares, including outstanding stock options, warrants, convertible redeemable preferred stock and the potential issuance of common stock upon the conversion of the convertible notes. Common stock equivalent shares are excluded from the computation of diluted net income (loss) per share if their effect is antidilutive. In periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is generally the same as basic net loss per share attributable to common stockholders because dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.
3. Business Combination
On September 9, 2021, the business combination between Blue Water Merger Sub and Old Clarus, was consummated, pursuant to the Merger Agreement dated April 27, 2021 (the “Business Combination”). Upon the closing of the Business Combination, Merger Sub merged with and into Old Clarus, with Old Clarus as the surviving company in the Merger and becoming a wholly-owned subsidiary of the Company. Upon the closing of the Business Combination, Blue Water changed its name to “Clarus Therapeutics Holdings, Inc.”
The Business Combination is accounted for as a reverse recapitalization in accordance with U.S. generally accepted accounting principles (“GAAP”). Under this method of accounting, Blue Water is treated as the acquired company and Old Clarus is treated as the acquirer for financial statement reporting and accounting purposes. As a result, the historical operations of Old Clarus are deemed to be those of the Company. Therefore, the financial statements included in this report reflect (i) the historical operating results of Old Clarus prior to the Business Combination; (ii) the combined results of the Blue Water and Old Clarus following the Business Combination on September 9, 2021; (iii) the assets and liabilities of Old Clarus at their historical cost; and (iv) the Company’s equity structure for all periods presented. The recapitalization of the number of shares of common stock attributable to the Business Combination is reflected retroactively to the earliest period presented and will be utilized for calculating earnings per share in all prior periods presented. No
step-up
basis of intangible assets or goodwill was recorded in the Business Combination consistent with the treatment of the transaction as a reverse recapitalization of Old Clarus.
The aggregate consideration issued or reserved for issuance to Old Clarus securityholders upon the closing of the Merger was 17,886,349 shares of Company common stock. The 17,886,349 shares includes an aggregate of 1,905,000 shares of common stock (which included the 405,000 shares of the Company’s common stock that were allocated to the senior secured noteholders
pursuant to the share allocation agreement , as described in Note 7, of which
270,000 shares reallocated to the senior secured note holders from Old Clarus’s equity holders and 135,000 shares from the Blue Water founder that were transferred from the Sponsor), which were issued to the holders of Old Clarus’ senior secured notes in connection with the Merger Agreement and were in exchange for $18.6 million of aggregate principal amount of the senior secured notes and certain outstanding royalty rights. Within the aggregate shares issued to Old Clarus securityholders is also 2,549,939 shares of common stock at $10.00 per share, that were issued to Old Clarus equity holders for the private placement Additional Closing Shares, of which such noteholders provided gross proceeds of $25.0 million, from the date of Merger Agreement signature through Effective Time. Further, 4,901,564 shares of common stock were issued to the holders of the Series D Preferred Stock and 8,529,846 shares of common stock were issued to the holders of Old Clarus convertible notes that were issued and outstanding prior to the Effective Time.
In connection with the Business Combination, the Company incurred equity issuance costs and other costs considered direct and incremental to the transaction totaling $8.4 million, consisting of legal, accounting, and financial advisory and other professional fees. These amounts are reflected within additional paid in capital in the condensed consolidated balance sheet as of September 30, 2021.
Summary of Net Proceeds
The following table summarizes the elements of the net proceeds from the Business Combination as of September 30, 2021 (in thousands):
 
Cash – Blue Water Trust Account and cash (net of redemptions)
   $ 25,394  
Less: Equity issuance costs and other costs paid prior to September 30, 2021
     (8,386
    
 
 
 
Net Proceeds from the Business Combination
   $ 17,008  
    
 
 
 
 
11

Summary of Shares Issued
The following table summarizes the number of shares of Common Stock outstanding immediately following the consummation of the Business Combination:
 
Blue Water shares outstanding prior to the Business Combination
     3,839,468  
Conversion of Old Clarus Series D Preferred Stock
 
 
4,901,564
 
Conversion of Old Clarus
 
convertible notes
     8,529,846  
Conversion of additional capital provided by Old Clarus convertible note and senior note holders
    
2,549,939
 
Conversion of Senior Secured Note principal and royalty rights
     1,905,000  
    
 
 
 
Total shares of the Company’s common stock outstanding immediately following the Business Combination
     21,725,817  
    
 
 
 
The following table summarizes the impact of the transaction on the condensed consolidated statement of stockholder’s deficit as of September 9, 2021:
 
 
  
Additional Paid
in Capital
 
Conversion of senior notes and royalty obligation carrying value
  
$
28,254
 
Conversion of Old Clarus convertible notes carrying value
  
 
103,333
 
Assumption of private placement warrant liabilities
  
 
(14,075
 
  
 
 
 
Total reverse recapitalization impact on statement of equity
  
$
117,512
 
 
  
 
 
 
4. Fair Value Measurements
The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis:
 
 
  
September 30, 2021
 
(in thousands)
  
Total
 
  
Level 1
 
  
Level 2
 
  
Level 3
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Assets
  
     
  
     
  
     
  
     
Cash equivalents:
                                   
Money market funds
  
$
20,001
 
  
$
20,001
 
  
$
—  
 
  
$
—  
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Total assets
  
$
20,001
 
  
$
20,001
 
  
$
—  
 
  
$
—  
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Liabilities
                                   
Private placement warrant liability
  
$
6,465
 
  
$
—  
 
  
$
—  
 
  
$
6,465
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Total Liabilities
  
$
6,465
 
  
$
—  
 
  
$
—  
 
  
$
6,465
 
    
 
 
    
 
 
    
 
 
    
 
 
 
 
 
  
December 31, 2020
 
(in thousands)
  
Total
 
  
Level 1
 
  
Level 2
 
  
Level 3
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Assets
  
     
  
     
  
     
  
     
Cash equivalents:
                                   
Money market funds
   $ 7,205      $ 7,205      $ —        $ —    
    
 
 
    
 
 
    
 
 
    
 
 
 
Total assets
   $ 7,205      $ 7,205      $ —        $ —    
    
 
 
    
 
 
    
 
 
    
 
 
 
During the nine months ended September 30, 2021 and the year ended December 31, 2020, there were no transfers between levels
.
As of September 30, 2021 and December 31, 2020, the Company’s cash equivalents consisted of money market funds, classified as Level 1 financial assets, as these assets are valued using quoted market prices in active markets without any valuation adjustment. There were no transfers or reclassifications between Level 1, Level 2 and Level 3 financial assets during the three and nine months ended September 30, 2021.
As of September 30, 2021 and December 31, 2020, the Company had Level 3 financial liabilities that were measured at fair value on a recurring basis. The Company’s Warrant Liabilities and Derivative Liability (defined below) are carried at fair value, determined using Level 3 inputs in the fair value hierarchy. As of September 30, 2021 the Warrant Liabilities were valued at $6.4 million, and as of December 31, 2020, the Warrant Liability and Derivative Liability were valued at zero.
The carrying amounts reported in the accompanying balance sheets for cash, accounts receivable, accounts payable and accrued expenses approximate their fair value based on the short-term nature of these instruments. The carrying value of long-term and short-term debt, taking into consideration debt discounts and related derivative instruments, is estimated to approximate fair value.
 
12

Warrant Liabilities
In conjunction with a previous loan agreement of Old Clarus that was fully paid in 2017, certain lenders were granted warrants
 
(or the “Series D Warrants”), to purchase a total of 183,438 shares of Series D Preferred Stock at an exercise price of $4.50 per share. The expiration date of the warrants is the earlier of July 14, 2021 for 122,292 shares and April 9, 2023 for 61,146 shares, or three years from the effective date of a registration statement for an initial public offering of Old
Clarus’s
stock. At December 31, 2020 the Warrant Liability was valued at zero. The Series D Warrants outstanding immediately prior to the Effective Time to purchase 61,146 shares of the Series D Preferred Stock were converted into warrants to purchase 9,246 shares of the Company’s common stock at an exercise price of $29.74
per share and the expiration date remains April 9, 2023. 
At the Effective Time and immediately following the completion of the Business Combination, 9,195,000 warrants, including 5,750,000 Public Warrants and 3,445,000 Private Placement warrants, previously issued by Blue Water, were assumed by the Company. Upon consummation of the Merger, the Company concluded that the Public Warrants are equity classified and the Private Placement Warrants are liability classified in accordance with ASC 815. 
The Private Placement Warrants are a freestanding financial instrument that requires the Company to transfer equity instruments upon exercise by the warrant holder at a strike price equal to $11.50 per share (the “Private Placement Warrant Liability”). The valuation of the private placement warrant liability was determined with the assistance of an independent valuation firm that used a modified Monte Carlo simulation model at inception and subsequently at each measurement date using the Black-Scholes model. The fair value was determined using Level 3 inputs. The Private Placement Warrants to purchase common stock are remeasured at each reporting and settlement date. Changes in fair value for each reporting period are recognized in other income (expense) in the statements of operations. A change in the assumptions related to the valuation of the Warrant Liability could have a significant impact on the value of the obligation.
The following table sets forth a summary of changes in the fair value of the Company’s warrant liability for the three and nine months ended September 30, 2021
 
(in thousands):
 
Beginning warrant liability balance
  
$
    
Private placement warrant liability assumed
     14,075  
Change in fair value of warrant liability
     (7,610
    
 
 
 
Balance at September 30, 202
1
  
$
6,465  
    
 
 
 
Derivative Liability
From 2016 through 2020, Old Clarus entered into convertible notes purchase agreements with related parties for a total aggregate borrowing amount of $61.3 million (see Note 7,
Debt
). The convertible notes contained various conversion features including mandatory conversion upon the occurrence of a qualified financing at a 20% discount or shares of Series D Preferred Stock at the Series D Preferred Stock issuance price of $4.50. Upon the occurrence of a
non-qualified
financing, the noteholders had the option to convert at the same terms as described above for a qualified financing. The Company determined that the acquisition premium and the qualified and
non-qualified
financing conversion features were embedded derivative instruments requiring bifurcation as separate liabilities with a corresponding debt discount. At December 31, 2020 the derivative liability was valued at zero as the value of the Series D Preferred Stock at December 31, 2020 was less than the Series D Preferred Stock issuance price of $4.50. All of Old Clarus’s convertible notes outstanding immediately prior to the Effective Time were converted into shares of the Company’s common stock.
5. Inventory
Inventory consisted of the following as of September 30, 2021 and December 31, 2020 (in thousands):
 
    
September 30,
    
December 31,
 
    
2021
    
2020
 
Raw material
   $ 6,738      $ 4,225  
Work-in-process
     5,778        —    
Finished goods
     7,865        9,475  
    
 
 
    
 
 
 
Total inventory
     20,381        13,700  
Inventory reserve
     (7,901      (7,843
    
 
 
    
 
 
 
Total inventory, net of reserve
   $ 12,480      $ 5,857  
    
 
 
    
 
 
 
 
13

6. Accrued Expenses
Accrued expenses consisted of the following (in thousands):
 
    
September 30,
    
December 31,
 
    
2021
    
2020
 
Selling and marketing costs
   $ 5,905      $ 3,468  
Employee compensation and related benefits
     1,074        1,090  
Professional
f
ees
     388        73  
Other
     6        —    
    
 
 
    
 
 
 
Total
   $ 7,373      $ 4,631  
    
 
 
    
 
 
 
7. Debt
Convertible Notes
From 2016 to 2021, Old Clarus issued several convertible notes (the “Convertible Notes”) pursuant to which Old Clarus borrowed an aggregate of $82.3 million from existing investors and related parties. All Convertible Notes accrued interest at a rate of 8% compounded daily and had a maturity date of March 1, 2025.
The Convertible Notes contained various conversion features. The Company recorded the notes at the original issuance price, net of the conversion feature discount. The conversion feature discount was accreted to the face value of the notes over the period from the issuance date until the conversion date, offset against interest expense.
At the Effective Time, all principal and accrued interest under Old Clarus’ convertible notes and Old Clarus’ outstanding warrants immediately prior to the Effective Time converted into
 8,529,846 shares of the Company’s common stock. As such, there are no Convertible Notes outstanding on September 30, 2021.
As of December 31, 2020, the carrying value of the Convertible Notes consisted of (in thousands):
 
    
December 31,
 
    
2020
 
Principal amount
   $ 61,300  
Accrued and unpaid interest
     17,287  
Unamortized debt discount
     (676
    
 
 
 
Total
   $ 77,911  
    
 
 
 
In March 2021, upon an investor’s decision to not participate in the next round of Convertible Notes, pursuant to the Convertible Notes’ provisions, $3.4 million of the investor’s Convertible Notes converted into 747,451 shares of Series D Preferred Stock and such Series D Preferred Stock issued as a result of this conversion was
converted into Old Clarus common stock
. At the date of conversion, the outstanding principal and accrued interest on the Convertible Notes were $2.6 million and $0.8 million, respectively. 
The Company recognized interest expense of $1.5 million during the three months ended September 30, 2021 and 2020, respectively. The Company recognized interest expense of $4.9 million and $4.5 million during the nine months ended September 30, 2021 and 2020, respectively.
Senior Secured Notes
The carrying value of the Company’s senior secured notes consisted of the following (in thousands):
 
    
September 30,
    
December 31,
 
    
2021
    
2020
 
Principal amount
   $ 43,125      $ 50,000  
Accrued and unpaid interest
     1,234        1,278  
Unamortized debt discount
     (8,062      (9,376
    
 
 
    
 
 
 
Total
   $ 40,339      $ 41,902  
    
 
 
    
 
 
 
On March 12, 2020,
Old Clarus
 issued and sold senior secured notes to certain lenders not related to the Company. The aggregate principal amount of the senior secured notes was $50.0 million and
Old Clarus
 received $42.7 million in net proceeds after deducting transaction expenses of $4.4 million and prepaid interest of $2.9 million.
In the second quarter of 2021, Old Clarus added two additional notes to the principal senior secured notes balance, the PIK Note (as defined and further described below) and the Indenture Note (as defined and further described below), totaling
$8.1 
million. In the third quarter of 2021, the Company added one additional note to the principal senior secured notes balance, the Second Indenture Note (as defined and further described below), totaling
$3.6 million
.
As part of the Merger (as further described in Note 1),
 $10.0 
million of the principal on the senior secured notes and certain royalty rights were exchanged for an
 1,500,000
shares of the Company’s common stock and converted at a price of $10.20 per share. Further, under a share allocation agreement entered into by Blue Water and Old Clarus on September 1,
2021, as part of the Merger,
an additional 405,000 shares of the Company’s
 
14
common stock were allocated to the senior secured noteholders (which included 270,000 shares reallocated from Old Clarus’s equity holders and
 135,000
shares t
hat were transferred from the Sponsor pursuant to the share allocation agreement), and converted at a price of 
$10.20 per share. Further, an additional $5.0 
million of the principal of the senior secured notes balance associated with the Indenture Note and
$3.6 
million of the principal of the senior secured notes balance associated with the Second Indenture Note, plus related accrued interest, were exchanged for an aggregate 882,318 shares of the Company’s common stock, which converted at a price of $10.00 per share.
As a result of the exchange of the principal on the senior secured notes and certain royalty rights for shares of the Company’s common stock, the Company wrote off 
$18.6 million of principal associated with the senior secured notes, $1.5 million of the remaining unamortized debt discount associated with the senior secured notes, and the full carrying value of $11.5 million associated with royalty rights obligation. The Company recorded a gain of approximately $0.3 million during the period ending September 30, 2021 as a result of the extinguishment, representing the difference between the carrying value of the debt exchanged and the value of the shares converted
 
based on the conversion price.
The senior secured notes bear interest at 12.5% and specify semiannual payments on March 1 and September 1 and have a maturity date of March 1, 2025. The first two years provide for interest-only payments with principal payment beginning in 2022.
The senior secured notes are governed by an indenture, dated as of March 12, 2020, between Old Clarus and the investors. The interest rate will increase to
 14.50%
for overdue installments in the event of default. In addition to liquidation preference, the senior secured notes contain a lien on all assets of Old Clarus.
Future principal payments of the senior secured notes are as follows (in thousands):
 
Years ended December 31,
  
Amount
 
2021 (remaining 3 months)
   $     
2022
     6,000  
2023
     15,125  
2024
     14,000  
2025
     8,000  
    
 
 
 
Total
   $ 43,125  
    
 
 
 
The senior secured notes had a detachable royalty feature under which the lenders were to receive a royalty of 0.56% to 1.67% on net sales beginning in 2021, with the royalty obligation continuing until the lenders receive total royalty payments of approximately $24.2 million. The value assigned to royalty rights was recorded as a debt discount to the Notes and is amortized to interest expense over the life of the notes.
For the three months ended September 30, 2021 and 2020, the Company recorded $0.7 million and $0.6 million, respectively, of interest expense associated with the royalty rights. For the nine months ended September 30, 2021 and 2020 the Company recorded $2.2 million and $1.4 million, respectively, of interest expense associated with the royalty rights. 
The royalty obligation had a fair value of $7.9 million at issuance in March of 2020.
 
Pursuant to the Merger Agreement and conversion terms, no royalty obligation exists as of September 30, 2021.
During the three months ended September 30, 2021 and 2020, the Company recorded 
$2.6 
million and $2.1 million, respectively in interest expense on the senior secured notes, of which $0.7 million and $0.7 million, respectively, was non-cash interest expense associated with the amortization of the debt discount and debt issue costs. During the nine months ended September 30, 2021 and 2020, the Company recorded 
$7.2 million and $5.0 
million, respectively, in interest expense on the senior secured notes, of which $2.0 million and $1.5 million, respectively, was non-cash interest expense associated with the amortization of the debt discount and issue costs. The Company did not make any cash interest payments during the three and nine months ended September 30, 2021 and 2020.
Pursuant to the indenture governing the senior secured notes, Old Clarus agreed to maintain cash and cash equivalents in an amount of not less than
 
$10.0 
million, calculated as of the last day of each calendar month, commencing on March 31, 2020. As of December 31, 2020, Old Clarus’ cash and cash equivalents were less than 
$10.0 
million, resulting in a default under the indenture and the negotiation of a forbearance agreement, as noted below. In connection with the Merger, the indenture was amended to require the Company to maintain a balance of not less than 
$8.0 
million in cash and cash equivalents, calculated as of the last day of each calendar month. 
The Company has classified the full carrying value of $40.3 million related to the senior secured notes as a current liability within the September 30, 2021 balance sheet as, if the Company is unable to obtain funding or generate operating cash flow, the Company does not expect that it will be in compliance with the covenants under the senior secured notes within one year of the balance sheet date. Refer to Note 1 for further disclosure related to the Company’s assessment of the ability to operate as a going concern as of September 30, 2021
.
Forbearance Agreement
On March 17, 2021,
Old Clarus
 entered into a forbearance agreement with noteholders in relation to the senior secured notes.
Old Clarus
 was unable to and did not pay interest of $3.1 million due on March 1, 2021. As of March 31, 2021,
Old Clarus
 entered into default on its senior secured notes, and in accordance with the terms of the senior secured notes, the interest increased to 14.5%.
 
15

Under the forbearance agreement, in exchange for the investors’ agreement not to exercise their rights to retrieve the funds owed, Old Clarus was required to maintain cash and cash equivalents of at least
 $2.5 
million amongst other financial budgeting and reporting requirements until consummation of the Business Combination. Under the forbearance agreement, the forbearance period would not be terminated provided that Old Clarus, amongst other things, executed the Merger Agreement and provided financial reporting requirements by April 27, 2021.
Forbearance Extension
In August 2021, Old Clarus entered into forbearance extensions with the noteholders in relation to the senior secured notes. The latest forbearance extension, entered into on August 26, 2021, extended the forbearance period through September 9, 2021, the Closing Date of the Merger. 
On September 28
,
2021
,
 the Company entered into a supplemental indenture with the noteholders in relation to the senior secured notes.
The supplemental indenture extended the due date of the $3.9 million interest payment due September 1, 2021 to March 1, 2022, and further accrues interest on the past interest due amount at a rate
 
of 18.5% per annum beginning on September 1, 2021 until paid.
PIK Note
In May 2021,
Old Clarus
 entered into a
payment-in-kind,
or PIK, note (the “PIK Note”), in relation to
its
missed interest payment (which was due in March 2021) on its senior secured notes, pursuant to which
Old Clarus
 borrowed an aggregate of $3.1 million from senior secured noteholders, to be included in the principal senior secured notes balance. The PIK Note accrues interest at a rate of 14.5%, compounded daily. Pursuant to the PIK Note, on February 1, 2023 the Company is required to make a payment of principal in the amount of $3.1 million, plus accrued and unpaid interest in respect of such principal.
Indenture Note
In June 2021, Old Clarus entered into the Indenture Note 
(the “Indenture Note”), 
pursuant to which it borrowed an aggregate of
 $5.0 
million from senior secured noteholders, to be included in the principal senior secured notes balance. The Indenture Note accrues interest at
 
a
 
rate
 
of
 14.5%,
compounded daily, and was repaid with the Company’s common stock upon the closing of the Merger.
Second Indenture Note
In July 2021,
Old Clarus
 entered into an additional note purchase agreement (the “Second Indenture Note”) pursuant to which
it
 borrowed an aggregate of $3.6 million from senior secured noteholders. The outstanding balance under the Second Indenture Note accrues interest at a rate of 14.5%,
compounded daily, and was repaid with the Company’s common stock upon the closing of the Merger
.
PPP Loan
In March of 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was enacted to, among other provisions, provide emergency assistance for individuals, families and businesses affected by the
COVID-19
pandemic. The CARES Act includes a Paycheck Protection Program (“PPP”) administered through the Small Business Association (“SBA”). Under the PPP, beginning April 3, 2020, small businesses and other entities and individuals could apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria.
In April of 2020,
 
Old Clarus
 received an unsecured loan of $0.5 million from the SBA. After considering further guidance issued by
the
SBA,
Old Clarus
 elected to repay the loan in full in May of 2020 with no interest due under safe harbor provisions of the CARES Act.
8. Stockholders’ Equity (Deficit)
The condensed consolidated statement of stockholders’ equity (deficit) has been retroactively adjusted for all periods presented to reflect the Business Combination and reverse recapitalization as defined in Note 3,
Business Combination
.
Preferred Stock
Pursuant to the term
s
of the Amended and Restated Certificate of Incorporation dated September 9,2021, the Company authorized 10,000,000 shares of preferred stock with a par value of $0.0001. The Company’s Board of Directors has the authority, without further action by the stockholders, to issue such shares of preferred stock in one or more series, to establish from time to time the number of share to be included in each such series, and to fix the designations, powers, voting, and other rights, preferences and privileges of the shares. There were no issued and outstanding shares of preferred stock as of September 30, 2021.
In connection with the closing of the Business Combination, all previously issued and outstanding shares of Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock were cancelled and extinguished. Further, all previously issued and outstanding Series D Preferred Stock was cancelled and exchanged for
 4,901,564
shares of the Company’s common stock.
 
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Common Stock
Pursuant to the term
s
 of the Amended and Restated Certificate of Incorporation, the Company authorized 125,000,000 shares of common stock with a par value of $0.0001. Immediately following the closing of the Business Combination and as of September 30, 2021, there were 21,725,817 shares of common stock issued and outstanding.
As discussed in Note 3,
Business Combinations,
the Company has retroactively adjusted the shares issued and outstanding prior to September 9, 2021 to give effect to the actual shares for which the Series D preferred stock converted into as a result of the conversion terms in the Merger Agreement.
Voting
Each share of common stock entitles the holder to
one
vote on all matters submitted to a vote of the Company’s stockholders.
Dividends
Common
stockholders
 are entitled to receive dividends, as may be declared by the board of directors. No dividends have been declared to date.
9. Stock-Based Compensation
2004 Old Clarus Stock Incentive Plan
Effective February 13, 2004, Old Clarus adopted the Clarus Therapeutics 2004 Stock Incentive Plan (the “2004 Plan”). The 2004 Plan was amended on January 28, 2011 to increase the number of shares of Old Clarus’s common stock reserved for issuance to employees, directors, and consultants to
 
1,529,936
shares. Options granted under the 2004 Plan could have been incentive stock options or non-statutory stock options. Restricted stock awards were also granted under the 2004 Plan. Incentive stock options could only be granted to employees. Options generally vested over a four-year period. The exercise price of incentive stock options could be not less than 
100
%
 
of the fair market value per share of Old Clarus’s common stock on the grant date. The
a
wards granted under this plan generally vested over a four-year period and had a 
10-year
contractual term.
At the Effective Time, the 2004 Plan and all options issued and outstanding, whether vested or unvested, were cancelled and extinguished. 
2014 Old Clarus Stock Option and Incentive Plan
Effective February 13, 2014, Old Clarus adopted the Clarus Therapeutics 2014 Stock Option and Incentive Plan (the “2014 Plan”) and reserved 
1,000,000
shares of Old Clarus common stock for the issuance of awards under the 2014 Plan. The 2014 Plan permitted Old Clarus to make grants of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, unrestricted stock awards, cash-based awards, performance share awards and dividend equivalent rights. To qualify as incentive options, stock options must have met additional federal tax requirements, including a
$
100,000
limit on the value of shares subject to incentive options that first become exercisable in any calendar year, and a shorter term and higher minimum exercise price in the case of certain large stockholders. All full-time and part-time officers, employees, non-employee directors and other key persons, including consultants and prospective employees, were eligible to participate in the 2014 Plan, subject to the sole discretion of the administrator. On December 15, 2017, April 17, 2019 and again on December 18, 2020, the 2014 Plan was amended, increasing the total shares of Old Clarus common stock reserved for issuance by
 
416,500
,
26,140
, and
3,000,000
 
shares, respectively, for a total of

4,442,640
shares of Old Clarus common stock available for award in the 2014 Plan. The awards granted under this plan generally vest over a four-year period and have a
 
10-year
contractual term.
At the Effective Time, the 2014 Plan was terminated and all options issued and outstanding, whether vested or unvested, were cancelled and extinguished.
Clarus Therapeutics Holdings Inc. 2021 Stock Option and Equity Incentive Plan
On August 27, 2021
the Company’s 
stockholders approved the Clarus Therapeutics Holdings Inc. 2021 Stock Option and Equity Incentive Plan (the “2021 Plan”). The 2021 Plan provides for the Company to make equity and equity-based incentive awards to officers, employees, directors and consultants. Pursuant to the 2021 Plan, an initial 3,475,000 shares of
the Company’s 
common stock were reserved for issuance (the “Initial Limit”). The 2021
P
lan provides that the shares reserved and available for issuance under the 2021 Plan will automatically increase each January 1, beginning on January 1, 2022, by 4% of the outstanding number of shares of common stock on the immediately preceding December 31, or such lesser amount as determined by the plan administrator (the “Annual Increase”). As of September 30, 2021 no
awards have been granted and no 
shares were issued under the 2021 Plan.
Clarus Therapeutics Holdings, Inc. Employee Stock Purchase Plan
On August 12, 2021 the Company’s stockholders approved the Clarus Therapeutics Holdings Inc. Employee Stock Purchase Plan (the “ESPP”). An aggregate of 
347,500
shares were reserved and available for issuance under the 2021 ESPP. The 2021 ESPP provides that the number of shares reserved and available for issuance under the plan will automatically increase each January 1, beginning on January 1, 2022, by the lesser of
 347,500
shares of the Company’s common stock,
 1.0%
 
of the outstanding number of shares of the Company’s common stock on the immediately preceding December 31, or such lesser amount as determined by the ESPP administrator. As of September 30, 2021 the Company had not issued any shares under the ESPP.
 
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Stock-Based Compensation Expense
Stock-based compensation expense is as follows (in thousands):
 
                                 
    
Three Months Ended

September 30,
    
Nine Months Ended

September 30,
 
    
2021
    
2020
    
2021
    
2020
 
Selling and marketing
   $
6
     $
  
     $
15
     $
  
 
Research and development
    
19
      
15
      
52
      
54
 
General and administrative
    
182
      
75
      
491
      
180
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Total stock-based compensation expense
   $
207
     $
90
     $
559
     $
234
 
    
 
 
    
 
 
    
 
 
    
 
 
 
As of September 30, 2021, there was 
no
unrecognized stock-based compensation expense related to unvested stock options as
no
options have been granted under the 2021 Plan. At the Effective Time, the 2004 Plan and 2014 Plan were terminated and all options issued and outstanding, whether vested or unvested, were cancelled and extinguished. As a result, the Company recognized approximately
 $0.2 
million of previously unrecognized stock-based compensation expense related to unvested stock options under the 2004 Plan and 2014 Plan during the period ended September 30, 2021.
10. Income Taxes
The Company did not record a federal or state or income tax provision or benefit for the nine months ended September 30, 2021 or 2020 due to the expected loss before income taxes to be incurred, as well as the Company’s continued maintenance of a full valuation allowance against its net deferred tax assets.
Under Internal Revenue Code Section 382, if a corporation undergoes an “ownership change,” the corporation’s ability to use its
pre-change
net operating loss (“NOL”) carryforwards and other
pre-change
tax attributes to offset its post-change income may be limited. We have not completed a study to assess whether an “ownership change” has occurred or whether there have been multiple ownership changes since we became a “loss corporation” as defined in Section 382. Future changes in our stock ownership, which may be outside of our control, may trigger an “ownership change.” In addition, future equity offerings or acquisitions that have equity as a component of the purchase price could result in an “ownership change.” If an “ownership change” has occurred or does occur in the future, utilization of the NOL carryforwards or other tax attributes may be limited, which could potentially result in increased future tax liability to us.
11. License Agreements
Agreement with HavaH
In May 2021,
Old Clarus
 entered into a license agreement (the “HavaH Agreement”) with HavaH Therapeutics, or HavaH, an Australia-based biopharmaceutical company developing androgen therapies for inflammatory breast disease and certain forms of breast cancer. Under the HavaH Agreement, the Company will acquire the development and commercialization rights for HavaH T+Ai
, to be renamed
CLAR-121.
Under the terms of the licensing agreement, HavaH may be eligible for up to $
10.8
 million in potential development and regulatory milestone payments. Additionally, HavaH would be eligible for royalty payments and up to $
30.0
 million in potential commercial milestones. Such royalty payments will be based on total aggregate annual net sales of
CLAR-121
 
in the territory, at a low single digit percentage rate (when there is no patent protection or regulatory exclusivity) or a low teens percentage rate (where
CLAR-121
has patent protection or regulatory exclusivity). Additionally, such royalties are payable until the later of ten years or the loss of patent protection or regulatory exclusivity.
To date, pursuant to the HavaH Agreement, the Company has made cash payments of $0.5 million consisting of the upfront payment.
Agreement with The Royal Institution for the Advancement of Learning/McGill University
In September 2021, the Company entered into a license agreement (the “McGill Agreement”) with The Royal Institution for the Advancement of Learning/McGill University, or McGill, a Canadian University. Under the agreement, the Company will develop and commercialize McGill’s proprietary technology designed to treat conditions associated with CoQ10 deficiencies in humans.
 
Under the terms of the licensing agreement, McGill may be eligible for up to $10.5 million in potential development and regulatory milestone payments. Additionally, McGill would be eligible for royalty payments and up to $15.0 million in potential commercial milestones. Such royalty payments will be based on total aggregate annual net sales of any licensed products that are covered by the licensed patents in the territory, at a low single digit percentage rate.
To date, pursuant to the McGill Agreement, the Company has made cash payments of $0.4 
million consisting of the upfront payment.
 
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Table of Contents
12. Commitments and Contingencies
Lease Commitments
The Company leases office space in Northbrook, Illinois and Murfreesboro, Tennessee under
non-cancelable
operating leases
that
expire on December 31, 2021 and September 30, 2022, respectively. Total rent expense under the lease agreements was $0.1 million for the nine months ended September 30, 2021 and 2020, respectively.
A summary of the Company’s future minimum lease payments required under
non-cancellable
lease agreements is as follows (in thousands):