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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

For the Quarterly Period Ended September 30, 2024

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 No.: 001-35527

 

EMMAUS LIFE SCIENCES, INC.

(Exact name of Registrant as specified in its charter)

 

 

Delaware

 

87-0419387

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

21250 Hawthorne Boulevard, Suite 800, Torrance, California

 

90503

(Address of principal executive offices)

 

(Zip code)

 

(310) 214-0065

(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

None

 

 

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 such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definition 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

The registrant had 63,865,571 shares of common stock, par value $0.001 per share, outstanding as of November 18, 2024.

 

 


 

EMMAUS LIFE SCIENCES, INC.

For the Quarterly Period Ended September 30, 2024

TABLE OF CONTENTS

 

 

 

Page

 

 

 

 

Part I. Financial Information

 

 

 

 

Item 1.

Financial Statements (Unaudited)

1

 

 

 

 

(a) Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023

1

 

 

 

 

(b) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2024 and 2023

2

 

 

 

 

(c) Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three and nine months ended September 30, 2024 and 2023

3

 

 

 

 

(d) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023

5

 

 

 

 

(e) Notes to Condensed Consolidated Financial Statements

6

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

 

 

 

Item 4.

Controls and Procedures

30

 

 

 

Part II Other Information

 

 

 

 

Item 1.

Legal Proceedings

32

 

 

 

Item 1A.

Risk Factors

32

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

32

 

 

 

Item 3.

Defaults Upon Senior Securities

32

 

 

 

Item 4.

Mine Safety Disclosures

32

 

 

 

Item 5.

Other Information

33

 

 

 

Item 6.

Exhibits

34

 

 

 

Signatures

35

 

 


 

Item 1. Financial Statements

 

EMMAUS LIFE SCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

As of

 

 

 

September 30, 2024

 

 

December 31, 2023

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,255

 

 

$

2,547

 

Accounts receivable, net

 

 

4,938

 

 

 

4,010

 

Due from factoring of accounts receivable

 

 

54

 

 

 

1,514

 

Inventories, net

 

 

1,610

 

 

 

1,711

 

Prepaid expenses and other current assets

 

 

1,347

 

 

 

1,727

 

Total current assets

 

 

9,204

 

 

 

11,509

 

Property and equipment, net

 

 

49

 

 

 

59

 

Right of use assets

 

 

1,719

 

 

 

2,337

 

Investment in convertible bond

 

 

16,059

 

 

 

20,978

 

Other assets

 

 

312

 

 

 

296

 

Total assets

 

$

27,343

 

 

$

35,179

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

18,707

 

 

$

16,951

 

Operating lease liabilities, current portion

 

 

2,329

 

 

 

1,639

 

Conversion feature derivative, notes payable

 

 

523

 

 

 

451

 

Other current liabilities

 

 

15,650

 

 

 

14,681

 

Warrant derivative liabilities

 

 

30

 

 

 

65

 

Notes payable, current portion, net of discount

 

 

7,915

 

 

 

8,215

 

Notes payable to related parties

 

 

2,772

 

 

 

3,122

 

Convertible notes payable, net of discount

 

 

16,205

 

 

 

16,383

 

Total current liabilities

 

 

64,131

 

 

 

61,507

 

Operating lease liabilities, less current portion

 

 

1,076

 

 

 

1,839

 

Other long-term liabilities

 

 

13,676

 

 

 

17,363

 

Notes payable to related parties, net of discount

 

 

2,241

 

 

 

2,226

 

Total liabilities

 

 

81,124

 

 

 

82,935

 

STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

Preferred stock, par value $0.001 per share, 15,000,000 shares authorized, none issued or outstanding

 

 

 

 

 

 

Common stock, par value $0.001 per share, 250,000,000 shares authorized, 63,865,571 and 61,845,963 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively

 

 

64

 

 

 

62

 

Additional paid-in capital

 

 

225,867

 

 

 

225,333

 

Net loan receivable from EJ Holdings

 

 

(16,869

)

 

 

(16,869

)

Accumulated other comprehensive loss

 

 

(2,016

)

 

 

(160

)

Accumulated deficit

 

 

(260,827

)

 

 

(256,122

)

Total stockholders’ deficit

 

 

(53,781

)

 

 

(47,756

)

Total liabilities & stockholders’ deficit

 

$

27,343

 

 

$

35,179

 

 

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

1


 

EMMAUS LIFE SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

REVENUES, NET

 

 

$

5,478

 

 

$

5,018

 

 

$

13,361

 

 

$

22,530

 

COST OF GOODS SOLD

 

 

 

394

 

 

 

214

 

 

 

892

 

 

 

1,151

 

GROSS PROFIT

 

 

 

5,084

 

 

 

4,804

 

 

 

12,469

 

 

 

21,379

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

 

146

 

 

 

414

 

 

 

520

 

 

 

1,023

 

Selling

 

 

 

1,318

 

 

 

1,497

 

 

 

4,886

 

 

 

6,345

 

General and administrative

 

 

 

2,799

 

 

 

2,869

 

 

 

8,400

 

 

 

11,826

 

  Total operating expenses

 

 

 

4,263

 

 

 

4,780

 

 

 

13,806

 

 

 

19,194

 

INCOME (LOSS) FROM OPERATIONS

 

 

 

821

 

 

 

24

 

 

 

(1,337

)

 

 

2,185

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

 

Loss on debt extinguishment

 

 

 

 

 

 

(647

)

 

 

 

 

 

(647

)

Change in fair value of warrant derivative liabilities

 

 

 

38

 

 

 

589

 

 

 

35

 

 

 

1,034

 

Change in fair value of conversion feature derivative, notes payable

 

 

 

2,277

 

 

 

3,069

 

 

 

(70

)

 

 

2,100

 

Realized loss on investment in convertible bond

 

 

 

 

 

 

 

 

 

(544

)

 

 

(297

)

Net loss on equity method investment

 

 

 

 

 

 

(381

)

 

 

 

 

 

(1,347

)

Gain on restructured debt

 

 

 

 

 

 

 

 

 

1,032

 

 

 

 

Foreign exchange loss

 

 

 

(117

)

 

 

(821

)

 

 

(11

)

 

 

(3,227

)

Interest and other income

 

 

 

145

 

 

 

181

 

 

 

427

 

 

 

514

 

Interest expense

 

 

 

(1,338

)

 

 

(1,909

)

 

 

(4,214

)

 

 

(5,204

)

  Total other income (expense)

 

 

 

1,005

 

 

 

81

 

 

 

(3,345

)

 

 

(7,074

)

INCOME (LOSS) BEFORE INCOME TAXES

 

 

 

1,826

 

 

 

105

 

 

 

(4,682

)

 

 

(4,889

)

Income tax provision (benefit)

 

 

 

(1

)

 

 

38

 

 

 

23

 

 

 

53

 

NET INCOME (LOSS)

 

 

 

1,827

 

 

 

67

 

 

 

(4,705

)

 

 

(4,942

)

 

 

 

 

 

 

 

 

 

 

 

 

 

COMPONENTS OF OTHER COMPREHENSIVE INCOME (LOSS)

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on debt securities available for sale (net of tax)

 

 

 

1,397

 

 

 

(1,614

)

 

 

(2,064

)

 

 

(249

)

Reclassification adjustment for loss included in net loss

 

 

 

 

 

 

 

 

 

197

 

 

 

403

 

Foreign currency translation adjustment

 

 

 

(19

)

 

 

225

 

 

 

11

 

 

 

962

 

Other comprehensive income (loss)

 

 

 

1,378

 

 

 

(1,389

)

 

 

(1,856

)

 

 

1,116

 

COMPREHENSIVE INCOME (LOSS)

 

 

$

3,205

 

 

$

(1,322

)

 

$

(6,561

)

 

$

(3,826

)

NET INCOME (LOSS) PER COMMON SHARE - BASIC

 

 

$

0.03

 

 

$

0.00

 

 

$

(0.07

)

 

$

(0.09

)

NET LOSS PER COMMON SHARE - DILUTED

 

 

$

(0.01

)

 

$

(0.01

)

 

$

(0.07

)

 

$

(0.09

)

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING - BASIC

 

 

 

63,865,571

 

 

 

53,637,554

 

 

 

63,025,296

 

 

 

52,414,903

 

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING - DILUTED

 

 

 

162,726,685

 

 

 

138,375,065

 

 

 

63,025,296

 

 

 

52,414,903

 

 

 

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

2


 

EMMAUS LIFE SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

(In thousands, except share and per share amounts)

(Unaudited)

 

 

Common stock

 

 

Additional paid-in

 

 

Loan receivable from

 

 

Accumulated other comprehensive

 

 

Accumulated

 

 

Total stockholders'

 

 

Shares

 

 

Amount

 

 

capital

 

 

EJ Holdings

 

 

loss

 

 

deficit

 

 

deficit

 

 Balance, January 1, 2024

 

61,845,963

 

 

$

62

 

 

$

225,333

 

 

$

(16,869

)

 

$

(160

)

 

$

(256,122

)

 

$

(47,756

)

Share-based compensation

 

 

 

 

 

 

 

170

 

 

 

 

 

 

 

 

 

 

 

 

170

 

Unrealized loss on debt securities available for sale (net of tax)

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,728

)

 

 

 

 

 

(1,728

)

Foreign currency translation effect

 

 

 

 

 

 

 

 

 

 

 

 

 

18

 

 

 

 

 

 

18

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,348

)

 

 

(4,348

)

 Balance, March 31, 2024

 

61,845,963

 

 

 

62

 

 

 

225,503

 

 

 

(16,869

)

 

 

(1,870

)

 

 

(260,470

)

 

 

(53,644

)

Convertible notes converted to shares

 

2,019,608

 

 

 

2

 

 

 

307

 

 

 

 

 

 

 

 

 

 

 

 

309

 

Share-based compensation

 

 

 

 

 

 

 

29

 

 

 

 

 

 

 

 

 

 

 

 

29

 

Unrealized loss on debt securities available for sale (net of tax)

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,733

)

 

 

 

 

 

(1,733

)

Reclassification adjustment for loss included in net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

197

 

 

 

 

 

 

197

 

Foreign currency translation effect

 

 

 

 

 

 

 

 

 

 

 

 

 

12

 

 

 

 

 

 

12

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,184

)

 

 

(2,184

)

 Balance, June 30, 2024

 

63,865,571

 

 

 

64

 

 

 

225,839

 

 

 

(16,869

)

 

 

(3,394

)

 

 

(262,654

)

 

 

(57,014

)

Share-based compensation

 

 

 

 

 

 

 

28

 

 

 

 

 

 

 

 

 

 

 

 

28

 

Unrealized gain on debt securities available for sale (net of tax)

 

 

 

 

 

 

 

 

 

 

 

 

 

1,397

 

 

 

 

 

 

1,397

 

Foreign currency translation effect

 

 

 

 

 

 

 

 

 

 

 

 

 

(19

)

 

 

 

 

 

(19

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,827

 

 

 

1,827

 

 Balance, September 30, 2024

 

63,865,571

 

 

$

64

 

 

$

225,867

 

 

$

(16,869

)

 

$

(2,016

)

 

$

(260,827

)

 

$

(53,781

)

 

3


 

 

 

Common stock

 

 

Additional paid-in

 

 

Loan receivable from

 

 

Accumulated other comprehensive

 

 

Accumulated

 

 

Total stockholders'

 

Shares

 

 

Amount

 

 

capital

 

 

EJ Holdings

 

 

loss

 

 

deficit

 

 

deficit

 

 Balance January 1, 2023

 

49,583,501

 

 

$

50

 

 

$

220,815

 

 

$

 

 

$

(2,619

)

 

$

(252,337

)

 

$

(34,091

)

Fair value of warrants including down-round protection adjustments

 

 

 

 

 

 

 

41

 

 

 

 

 

 

 

 

 

(41

)

 

 

 

Convertible note converted to shares

 

1,351,351

 

 

 

1

 

 

 

499

 

 

 

 

 

 

 

 

 

 

 

 

500

 

Share-based compensation

 

 

 

 

 

 

 

37

 

 

 

 

 

 

 

 

 

 

 

 

37

 

Unrealized loss on debt securities available for sale (net of tax)

 

 

 

 

 

 

 

 

 

 

 

 

 

(544

)

 

 

 

 

 

(544

)

Foreign currency translation effect

 

 

 

 

 

 

 

 

 

 

 

 

 

186

 

 

 

 

 

 

186

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,451

)

 

 

(3,451

)

 Balance, March 31, 2023

 

50,934,852

 

 

 

51

 

 

 

221,392

 

 

 

 

 

 

(2,977

)

 

 

(255,829

)

 

 

(37,363

)

Convertible notes converted to shares

 

2,702,702

 

 

 

3

 

 

 

997

 

 

 

 

 

 

 

 

 

 

 

 

1,000

 

Share-based compensation

 

 

 

 

 

 

 

26

 

 

 

 

 

 

 

 

 

 

 

 

26

 

Unrealized gain on debt securities available for sale (net of tax)

 

 

 

 

 

 

 

 

 

 

 

 

 

1,909

 

 

 

 

 

 

1,909

 

Reclassification adjustment for loss included in net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

403

 

 

 

 

 

 

403

 

Foreign currency translation effect

 

 

 

 

 

 

 

 

 

 

 

 

 

551

 

 

 

 

 

 

551

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,558

)

 

 

(1,558

)

 Balance, June 30, 2023

 

53,637,554

 

 

 

54

 

 

 

222,415

 

 

 

 

 

 

(114

)

 

 

(257,387

)

 

 

(35,032

)

Share-based compensation

 

 

 

 

 

 

 

24

 

 

 

 

 

 

 

 

 

 

 

 

24

 

Unrealized loss on debt securities available for sale (net of tax)

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,614

)

 

 

 

 

 

(1,614

)

Foreign currency translation effect

 

 

 

 

 

 

 

 

 

 

 

 

 

225

 

 

 

 

 

 

225

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

67

 

 

 

67

 

 Balance, September 30, 2023

 

53,637,554

 

 

$

54

 

 

$

222,439

 

 

$

 

 

$

(1,503

)

 

$

(257,320

)

 

$

(36,330

)

 

 

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

 

4


 

 

 

EMMAUS LIFE SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net loss

 

$

(4,705

)

 

$

(4,942

)

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

 

 

 

 

 

 

Depreciation

 

 

17

 

 

 

26

 

Inventory reserve

 

 

14

 

 

 

85

 

Amortization of discount of notes payable and convertible notes payable

 

 

632

 

 

 

1,849

 

Unrealized foreign exchange adjustments

 

 

156

 

 

 

3,167

 

Realized loss on investment in convertible bond

 

 

544

 

 

 

297

 

Net loss on equity method investment

 

 

 

 

 

1,347

 

Loss on debt extinguishment

 

 

 

 

 

647

 

Gain on restructured debt

 

 

(1,032

)

 

 

 

Loss (Gain) on disposal of property and equipment

 

 

(1

)

 

 

 

Loss on leased assets

 

 

4

 

 

 

 

Share-based compensation

 

 

227

 

 

 

1,239

 

Fair value of warrants issued for services

 

 

 

 

 

334

 

Change in fair value of warrant derivative liabilities

 

 

(35

)

 

 

(1,034

)

Change in fair value of conversion feature derivative, notes payable

 

 

70

 

 

 

(2,100

)

Changes in fair value option instrument

 

 

 

 

 

(32

)

Net changes in operating assets and liabilities

 

 

 

 

 

 

Accounts receivable

 

 

536

 

 

 

(4,215

)

Inventories

 

 

84

 

 

 

636

 

Prepaid expenses and other current assets

 

 

404

 

 

 

(3

)

Other non-current assets

 

 

574

 

 

 

66

 

Accounts payable and accrued expenses

 

 

1,893

 

 

 

2,467

 

Other current liabilities

 

 

(4

)

 

 

865

 

Other long-term liabilities

 

 

(2,007

)

 

 

(3,238

)

Net cash flows used in operating activities

 

 

(2,629

)

 

 

(2,539

)

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Sale of convertible bond

 

 

2,508

 

 

 

2,232

 

Purchase of property and equipment

 

 

(6

)

 

 

(11

)

Loan to equity method investee

 

 

 

 

 

(2,647

)

Net cash flows provided by (used in) investing activities

 

 

2,502

 

 

 

(426

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Proceeds from notes payable issued

 

 

3,201

 

 

 

5,706

 

Proceeds from notes payable issued, related parties

 

 

 

 

 

227

 

Proceeds from convertible notes payable issued

 

 

 

 

 

1,000

 

Proceeds from convertible notes payable issued, related party

 

 

 

 

 

1,000

 

Payments of notes payable

 

 

(3,684

)

 

 

(5,341

)

Payments of notes payable, related party

 

 

(350

)

 

 

(110

)

Payments of convertible notes

 

 

(325

)

 

 

 

Net cash flows provided by (used in) financing activities

 

 

(1,158

)

 

 

2,482

 

Effect of exchange rate changes on cash

 

 

(7

)

 

 

(33

)

Net decrease in cash and cash equivalents

 

 

(1,292

)

 

 

(516

)

Cash and cash equivalents, beginning of period

 

 

2,547

 

 

 

2,021

 

Cash and cash equivalents, end of period

 

$

1,255

 

 

$

1,505

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES

 

 

 

 

 

 

Interest paid

 

$

1,742

 

 

$

1,679

 

Income taxes paid

 

$

46

 

 

$

35

 

NON-CASH INVESTING AND FINANCING ACTIVITIES

 

 

 

 

 

 

Renewal of notes payable including interest capitalized

 

$

 

 

$

618

 

Conversion of convertible note payable and accrued interest to common stock

 

$

309

 

 

$

1,500

 

Newly acquired right-of-use lease asset

 

 

 

 

 

189

 

 

 

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

5


 

EMMAUS LIFE SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 — BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated interim financial statements of Emmaus Life Sciences, Inc., (“Emmaus”) and its direct and indirect consolidated subsidiaries (collectively, “we,” “our,” “us” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) on the basis that the Company will continue as a going concern. All significant intercompany transactions have been eliminated. The Company’s unaudited condensed consolidated interim financial statements contain adjustments, including normal recurring accruals necessary to fairly state the Company’s consolidated financial position, results of operations and cash flows. The condensed consolidated interim financial statements should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 2023 (the “Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on July 3, 2024. The accompanying condensed consolidated balance sheet at December 31, 2023 has been derived from the audited consolidated balance sheet at December 31, 2023 contained in the Annual Report. The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the full year or any future interim period.

Nature of Operations

The Company is a commercial-stage biopharmaceutical company engaged in the discovery, development, marketing and sales of innovative treatments and therapies, primarily for rare and orphan diseases. The Company’s only product, Endari® (prescription grade L-glutamine oral powder), is approved by the U.S. Food and Drug Administration, or FDA, and in certain jurisdictions in the Middle East North Africa, or MENA, region to reduce the acute complications of sickle cell disease (“SCD”) in adult and pediatric patients five years of age and older.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The Company’s significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies,” in the Annual Report. There have been no material changes in these policies or their application.

 

Going concern The accompanying unaudited condensed consolidated financial statements have been prepared on the basis that the Company will continue as a going concern. The Company incurred a net loss of $4.7 million for the nine months ended September 30, 2024 and had a working capital deficit of $54.9 million as of September 30, 2024. Management expects that the Company’s current liabilities and expected working capital needs, including debt service on its existing indebtedness and the expected costs relating to the commercialization of Endari® in the MENA region and elsewhere, will exceed its existing cash balances and cash expected to be generated from operations for the foreseeable future. To meet the Company’s current liabilities and future obligations, the Company will need to restructure or refinance its existing indebtedness and raise additional funds through related-party loans, third-party loans, equity or debt financings or licensing or other strategic agreements. The Company has no understanding or arrangement for any financing, and there can be no assurance that the Company will be able to restructure or refinancing its existing indebtedness or obtain additional related-party or third-party loans or complete any additional equity or debt financings on favorable terms, or at all, or enter into licensing or other strategic arrangements. Due to the uncertainty of the Company’s ability to meet its current liabilities and operating expenses, there is substantial doubt about the Company’s ability to continue as a going concern for 12 months from the date that these condensed consolidated financial statements are issued. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

Principles of consolidation—The consolidated financial statements include the accounts of the Company and EMI Holding, Inc. subsidiary and EMI Holding’s wholly‑owned subsidiary, Emmaus Medical Inc., and Emmaus Medical, Inc’s wholly‑owned subsidiaries. All significant intercompany transactions have been eliminated.

Estimates—Financial statements prepared in accordance with GAAP require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates made by management include those relating to revenue recognition on product sales, the variables used to calculate the valuation of investment in convertible bond, conversion features, stock options and warrants on an ongoing basis. The Company bases its estimates on historical experience and on various other assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates under different assumptions or conditions. To the extent there are material differences between these estimates and actual results, the Company’s financial statements will be affected.

6


 

Revenue recognition— The Company realizes net revenues primarily from sales of Endari® to distributors and specialty pharmacy providers. Distributors resell Endari® to other pharmacy and specialty pharmacy providers, health care providers, hospitals, and clinics. In addition to agreements with these distributors, the Company has contractual arrangements with specialty pharmacy providers, in-office dispensing providers, physician group purchasing organizations, pharmacy benefits managers and government entities that provide for government-mandated or privately negotiated rebates, chargebacks and discounts with respect to the purchase of Endari®. These various discounts, rebates, and chargebacks are referred to as “variable consideration.” Revenue from product sales is recorded net of variable consideration.

Under ASC 606 Revenue from Contracts with Customers, the Company recognizes revenue when its customers obtain control of the Company's product, which typically occurs on delivery. Revenue is recognized in an amount that reflects the consideration that the Company expects to receive in exchange for the product, or transaction price. To determine revenue recognition for contracts with customers within the scope of ASC 606, the Company performs the following 5 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 Company’s performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies the relevant performance obligations.

Revenue from product sales is recorded at the transaction price, net of estimates for variable consideration consisting of sales discounts, returns, government rebates, chargebacks and commercial discounts. Variable consideration is estimated using the expected-value amount method, which is the sum of probability-weighted amounts in a range of possible transaction prices. Actual variable consideration may differ from the Company's estimates. If actual results vary from the Company's estimates, the Company adjusts the variable consideration in the period such variances become known, which would affect net revenues in that period. The following are our significant categories of variable consideration:

Sales Discounts: The Company provides its customers prompt payment discounts and from time to time offers additional discounts for bulk orders that are recorded as a reduction of revenues in the period the revenues are recognized.

Product Returns: The Company offers distributors a right to return product purchased principally based upon (i) overstocks, (ii) inactive product or non-moving product due to market conditions, and (iii) expired products. Product return allowances are estimated and recorded at the time of sale.

Government Rebates: The Company is subject to discount obligations under state Medicaid programs and the Medicare Part D prescription drug coverage gap program. Management estimates Medicaid and Medicare Part D prescription drug coverage gap rebates based upon a range of possible outcomes that are probability-weighted for the estimated payor mix. These reserves are recorded in the same period the related revenues are recognized, resulting in a reduction of product revenues and the establishment of a current liability that is included as an accounts payable and accrued expenses in the consolidated balance sheets. The liability for these rebates consists primarily of estimates of claims expected to be received in future periods related to recognized revenues.

Chargebacks and Discounts: Chargebacks for fees and discounts represent the estimated obligations resulting from contractual commitments to sell products to certain specialty pharmacy providers, in-office dispensing providers, group purchasing organizations, and government entities at prices lower than the list prices charged to distributors. The distributors charge the Company for the difference between what they pay for the products and the Company’s contracted selling price to these specialty pharmacy providers, in-office dispensing providers, group purchasing organizations, and government entities. In addition, the Company has contractual agreements with pharmacy benefit managers who charge us for rebates and administrative fee in connection with the utilization of product. These reserves are established in the same period that the related revenues are recognized, resulting in a reduction of revenues. Chargeback amounts are generally determined at the time of resale of products by the distributors.

 

Factoring accounts receivable — Emmaus Medical, Inc., or Emmaus Medical, the Company's indirect wholly owned subsidiary, previously entered into a purchase and sale agreement with Prestige Capital Finance, LLC or Prestige Capital, pursuant to which Emmaus Medical offered and sold to Prestige Capital from time to time eligible accounts receivable in exchange for Prestige Capital’s down payment, or advance, to Emmaus Medical of 65% to 80% of the face amount of the eligible accounts receivable, subject to a $7.5 million cap on advances at any time. The balance of the face amount of the accounts receivable was reserved by Prestige Capital and paid to Emmaus Medical, less discount fees of Prestige Capital ranging from 2.25% to 7.25% of the face amount, as and when Prestige Capital collected the entire face amount of the accounts receivable. Emmaus Medical’s obligations to Prestige Capital under the purchase and sale agreement were secured by a security interest in the accounts receivable and all or substantially all other assets of Emmaus Medical. In connection with the purchase and sale agreement, Emmaus guaranteed Emmaus Medical’s obligations. Accounts receivable included approximately $54,000 and $1,514,000 of factored accounts receivable and other current liabilities included approximately $2,000 and $24,000 of liabilities from factoring at September 30, 2024 and December 31, 2023, respectively. For the three months ended September 30, 2024 and 2023, the Company incurred approximately $8,000 and $100,000,

7


 

respectively, and for the nine months ended September 30, 2024 and 2023, the Company incurred approximately $150,000 and $440,000, respectively, of factoring fees. In October 2024, the purchase and sale agreement with Prestige Capital was terminated.

 

Inventories—Inventories consist of raw materials, finished goods and work-in-process and are valued on a first‑in, first‑out basis at the lesser of cost or net realizable value. Work‑in‑process inventories consist of L‑glutamine for the Company’s products that has not yet been packaged and labeled for sale. Substantially all raw materials purchase during the nine month ended September 30, 2024 and the year ended December 31, 2023 were supplied, directly or indirectly by one supplier.

Share‑based compensation—The Company recognizes compensation cost for share‑based compensation awards over the service term of the recipients of the share‑based awards. The fair value of share‑based compensation is calculated using the Black‑Scholes‑Merton pricing model. The Black‑Scholes‑Merton model requires subjective assumptions regarding future stock price volatility and expected time to exercise, which greatly affect the calculated values. The expected term of awards granted is calculated using the simplified method allowed under the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 107 and 110. The risk‑free rate selected to value any grant is based on the U.S. Treasury rate on the grant date that corresponds to the expected term of the award.

Investment in convertible bond – The Company has measured its investment in convertible bond at fair value. The convertible bond is classified as available for sale and the changes in fair value are reported in other comprehensive loss for each reporting period.

Financial instruments—Financial instruments included in the financial statements are comprised of cash and cash equivalents, investment in convertible bond, accounts receivable, warrant derivative liabilities, accounts payable, certain accrued liabilities, convertible notes payable, notes payable, conversion feature liabilities and other contingent liabilities.

Fair value measurements—The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in accordance with ASC 820. The Company measures fair value under a framework that provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described as follows:

Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.

Level 2: Inputs to the valuation methodology include:

Quoted prices for similar assets or liabilities in active markets;

Quoted prices for identical or similar assets or liabilities in inactive markets;

Inputs other than quoted prices that are observable for the asset or liability; and

Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

If the asset or liability has a specified (contractual) term, the Level 2 inputs must be observable for substantially the full term of the asset or liability.

Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The fair value measurement level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The carrying values of cash and cash equivalents, accounts receivables, other current assets, account payable and accrued expenses, and other current liabilities approximate fair value due to the short-term maturity of those instruments. The fair value of the Company's convertible debt instruments was determined based on Level 2 inputs. The carrying value of the debt was discounted based on allocating proceeds to other financial instruments within the arrangement as discussed in Note 7.

Certain outstanding warrants contain price adjustment provisions and, consequently, are accounted for as liabilities that are remeasured at fair value on a recurring basis using Level 3 inputs. The level 3 inputs in the valuation of the warrants include expected term and expected volatility as discussed in Note 8. There are no other assets or liabilities measured at fair value on a recurring basis.

8


 

Net income (loss) per share — In accordance with Accounting Standard Codification (“ASC”) 260, “Earnings per Share,” the basic net income (loss) per common share is computed by dividing net loss available to common stockholders by the weighted-average number of common shares outstanding. Diluted net income (loss) per share is computed in a similar manner, except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The following securities were not included diluted shares outstanding because the effect would be anti-dilutive.

 

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Warrants

 

 

 

4,625,000

 

 

 

14,395,591

 

 

 

4,625,000

 

 

 

14,395,591

 

Stock options

 

 

 

5,316,451

 

 

 

3,546,340

 

 

 

5,316,451

 

 

 

3,546,340

 

Convertible notes

 

 

 

3,818,611

 

 

 

3,472,838

 

 

 

104,218,359

 

 

 

90,350,622

 

Total anti-dilutive instrument

 

 

 

13,760,062

 

 

 

21,414,769

 

 

 

114,159,810

 

 

 

108,292,553

 

 

Reclassification — Certain amounts in the prior period financial statements have been reclassified to confirm to the presentation of the current period financial statements. These reclassifications had no effect on the previously reported loss.
 

Recent Accounting Pronouncement —Management has considered all recent accounting pronouncements and determined that they will not have a material effect on the Company’s condensed consolidated financial statements except for the followings:

 

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): "Improvements to Reportable Segment Disclosures" ("ASU 2023-07") to update reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses and information used to assess segment performance. This update is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact of adopting this ASU on its financial statements.

NOTE 3 — REVENUES

Revenues disaggregated by category were as follows (in thousands):

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Endari® - U.S.

$

2,757

 

 

$

4,612

 

 

$

10,575

 

 

$

15,028

 

Endari® - International

 

2,485

 

 

 

321

 

 

 

2,362

 

 

 

6,897

 

Other

 

236

 

 

 

85

 

 

 

424

 

 

 

605

 

Revenues, net

$

5,478

 

 

$

5,018

 

 

$

13,361

 

 

$

22,530

 

The following table summarizes the revenue allowance and accrual activities for the nine months ended September 30, 2024 and 2023 (in thousands):

 

Trade Discounts, Allowances and Chargebacks

 

 

Government Rebates and Other Incentives

 

 

Returns

 

 

Total

 

Balance as of December 31, 2023

$

1,212

 

 

$

5,658

 

 

$

863

 

 

$

7,733

 

Provision related to sales in the current year

 

939

 

 

 

2,530

 

 

 

114

 

 

 

3,583

 

Adjustments related to prior period sales

 

(79

)

 

 

34

 

 

 

47

 

 

 

2

 

Credits and payments made

 

(1,175

)

 

 

(1,683

)

 

 

(913

)

 

 

(3,771

)

Balance as of September 30, 2024

$

897

 

 

$

6,539

 

 

$

111

 

 

$

7,547

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2022

$

1,358

 

 

$

3,718

 

 

$

415

 

 

$

5,491

 

Provision related to sales in the current year

 

1,677

 

 

 

3,228

 

 

 

387

 

 

 

5,292

 

Adjustments related to prior period sales

 

(213

)

 

 

136

 

 

 

25

 

 

 

(52

)

Credits and payments made

 

(1,853

)

 

 

(2,300

)

 

 

(442

)

 

 

(4,595

)

Balance as of September 30, 2023

$

969

 

 

$

4,782

 

 

$

385

 

 

$

6,136

 

 

9


 

The following table summarizes revenues in each of the periods shown attributable to customers that accounted for 10% or more of our net revenues in any of the periods shown:

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Customer A

 

4

%

 

 

32

%

 

 

25

%

 

 

20

%

Customer B

 

6

%

 

 

21

%

 

 

20

%

 

 

16

%

Customer C

 

11

%

 

 

12

%

 

 

6

%

 

 

9

%

Customer D

 

20

%

 

 

21

%

 

 

17

%

 

 

20

%

Customer E

 

0

%

 

 

5

%

 

 

0

%

 

 

14

%

Customer F

 

27

%

 

 

0

%

 

 

11

%

 

 

7

%

 

On June 15, 2017, the Company entered into a distributor agreement with Telcon RF Pharmaceutical, Inc., or Telcon, pursuant to which it granted Telcon exclusive rights to the Company’s prescription grade L-glutamine (“PGLG”) oral powder for the treatment of diverticulosis in South Korea, Japan and China in exchange for Telcon’s payment of a $10 million upfront fee and agreement to purchase from the Company specified minimum quantities of the PGLG. Telcon had the right to terminate the distributor agreement in certain circumstances for failure to obtain such product registrations, in which event the $10 million upfront fee would become repayable to Telcon. In January 2023, Telcon terminated the distributor agreement, and the upfront fee of $10 million is included in other current liabilities as of September 30, 2024 and December 31, 2023. See Notes 5, 6 and 11 and for additional details of the Company's agreements with Telcon.

NOTE 4 — SELECTED FINANCIAL STATEMENT — ASSETS

Inventories consisted of the following (in thousands):

 

 

September 30, 2024

 

 

December 31, 2023

 

Raw materials and components

$

1,218

 

 

$

1,329

 

Work-in-process

 

168

 

 

 

186

 

Finished goods

 

5,205

 

 

 

5,163

 

Inventory reserve

 

(4,981

)

 

 

(4,967

)

Total inventories, net

$

1,610

 

 

$

1,711

 

 

Prepaid expenses and other current assets consisted of the following (in thousands):

 

 

September 30, 2024

 

 

December 31, 2023

 

Prepaid insurance

$

166

 

 

$

595

 

Prepaid expenses

 

364

 

 

 

536

 

Other current assets

 

817

 

 

 

596

 

Total prepaid expenses and other current assets

$

1,347

 

 

$

1,727

 

 

Property and equipment consisted of the following (in thousands):

 

 

September 30, 2024

 

 

December 31, 2023

 

Equipment

$

387

 

 

$

383

 

Leasehold improvements

 

39

 

 

 

39

 

Furniture and fixtures

 

99

 

 

 

99

 

Total property and equipment

 

525

 

 

 

521

 

Less: accumulated depreciation

 

(476

)

 

 

(462

)

Total property and equipment, net

$

49

 

 

$

59

 

 

For the three months ended September 30, 2024 and 2023, depreciation expense was approximately $5,000 and $7,000, respectively. For the nine months ended September 30, 2024 and 2023, depreciation expense was approximately $17,000 and $26,000, respectively.

NOTE 5 — INVESTMENTS

Investment in convertible bond - On September 28, 2020, the Company entered into a convertible bond purchase agreement pursuant to which it purchased at face value a convertible bond of Telcon in the principal amount of approximately $26.1

10


 

million which matures on October 16, 2030 and bears interest at the rate of 2.1% per year, payable quarterly. Beginning October 16, 2021, the Company became entitled on a quarterly basis to call for early redemption of all or any portion of the principal amount of the convertible bond. The convertible bond is convertible at the holder’s option at any time and from time to time into common shares of Telcon at an initial conversion price of KRW9,232, or approximately $8.00 per share. The initial conversion price is subject to downward adjustment monthly based on the volume-weighted average market price of Telcon shares as reported on Korean Securities Dealers Automated Quotations Market and in the event of the issuance of Telcon shares or share equivalents at a price below the market price of Telcon shares and to customary antidilution adjustments upon a merger or similar reorganization of Telcon or a stock split, reverse stock split, stock dividend or similar event. As of September 30, 2024 and December 31, 2023, the principal amount of the convertible note was KRW20.1 billion and KRW 23.6 billion, or approximately $15.3 million and $17.8 million, respectively. The conversion price as of September 30, 2024 is set forth in the “Investment in convertible bond” table below. The convertible bond and any proceeds therefrom, including proceeds from any exercise of the early redemption right described above or the call option described below, are pledged as collateral to secure the Company’s obligations under the revised API Supply Agreement with Telcon described in Notes 6 and 11.

Concurrent with the purchase of the convertible bond, the Company entered into an agreement dated September 28, 2020 with Telcon pursuant to which Telcon or its designee is entitled to repurchase, at par, up to 50% in principal amount of the convertible bond at any time and from time to time commencing October 16, 2021 and prior to maturity.

The investment in convertible bond is classified as an available for sale security and remeasured at fair value on a recurring basis using Level 3 inputs, with any changes in the fair value option recorded in other comprehensive loss. The fair value and any changes in fair value in the convertible bond is determined using a binominal lattice model. The model produces an estimated fair value based on changes in the price of the underlying common stock over successive periods of time.

 

The revised API agreement with Telcon described in Note 6 provides for target annual revenue of more than $5 million and annual “profit” (i.e., sales margin) to Telcon of $2.5 million. To the extent these targets are not met, which management refers to as a “target shortfall,” Telcon may be entitled to payment of the target shortfall or to settle the target shortfall by exchange of principal and interest on the Telcon convertible bond and proceeds thereof that are pledged as a collateral to secure the Company’s obligations under the API Supply Agreement and the revised API Agreement.

 

In April 2023, Telcon offset KRW2.9 billion, or approximately $2.2 million, against the principal amount of the Telcon convertible bond and release of KRW307 million, or approximately $236,000, in cash proceeds to Telcon in satisfaction the target shortfall for the year ended 2022. The offset is reflected as a sale of the convertible bond in the “Investment in convertible bond” table below. As a result, the Company realized a net gain on investment in convertible bond of $106,000, which previously was classified as unrealized loss on debt securities available-for-sale in the other comprehensive loss.

 

In April 2024, Telcon offset KRW3.5 billion, or approximately $2.5 million, against the principal amount of the Telcon convertible bond and we released KRW893 million, or approximately $640,000, in cash proceeds to Telcon in satisfaction the target shortfall for the year ended 2023. As a result, the Company realized a net loss on investment in convertible bond of $347,000, which previously was classified as unrealized gain on debt securities available-for-sale in the other comprehensive loss.

The following table sets forth the fair value and changes in fair value of the investment in the Telcon convertible bond as of September 30, 2024 and December 31, 2023 (in thousands):

 

Investment in convertible bond

 

 

 

Balance as of December 31, 2023

 

$

20,978

 

Sales of convertible bond

 

 

(2,508

)

Net gain (loss) on investment on convertible bond

 

 

(347

)

Change in fair value included in the statement of other comprehensive income

 

 

(2,064

)

Balance as of September 30, 2024

 

$

16,059

 

 

11


 

The fair value as of September 30, 2024 and December 31, 2023 was based upon following assumptions:

 

 

September 30, 2024

 

 

December 31, 2023

 

Principal outstanding (South Korean won)

 

KRW 20.1 billion

 

 

KRW 23.6 billion

 

Stock price

 

KRW 592

 

 

KRW 873

 

Expected life (in years)

 

 

6.04

 

 

 

6.79

 

Selected yield

 

 

11.50

%

 

 

12.25

%

Expected volatility (Telcon common stock)

 

 

63.20

%

 

 

71.90

%

Risk-free interest rate (South Korea government bond)

 

 

2.91

%

 

 

3.16

%

Expected dividend yield

 

 

 

 

 

 

Conversion price

 

KRW598(US$0.46)

 

 

KRW705(US$0.54)

 

Equity method investment – In 2018, the Company and Japan Industrial Partners, Inc., or JIP, formed EJ Holdings, Inc., or EJ Holdings, to acquire, own and operate a former amino acids manufacturing facility in Ube, Japan. In connection with the formation, the Company invested approximately $32,000 in exchange for 40% of EJ Holdings' capital shares. JIP owned 60% of EJ Holdings' capital shares. In October 2018, the Company entered into a loan agreement with EJ Holdings under which the Company made an unsecured loan to EJ Holdings in the amount of $13.6 million bearing interest at the rate of 1%, payable annually. The loan proceeds were used by EJ Holdings to purchase the Ube facility in December 2019 and pay related taxes. One half of the principal amount of the loan (JPY 1,818,667,860) becomes due and payable on December 28, 2027 and the remaining principal balance become due on September 30, 2028. During the year ended December 31, 2023, the Company made additional loans to EJ Holdings of $2.6 million. The Company suspended any further loans to EJ Holdings in August 2023.

EJ Holdings is engaged in seeking to refurbish and phase in the Ube facility with objective of eventually obtaining regulatory clearance for the manufacture of PGLG in accordance with cGMP. EJ Holdings has had no substantial revenues since its inception, was dependent on loans from the Company to acquire the Ube facility and fund its operations and will be dependent on loans or other financing unless and until its plant is activated and it can secure customers for its products. There is no assurance that needed funding will be available from other sources. If EJ Holdings fails to obtain needed funding, it may need to suspend activities at the Ube plant. Under the asset purchase agreement by which EJ Holdings purchased the Ube plant, the seller has the right to repurchase the plant at the purchase price, plus certain taxes, paid by EJ Holdings if the plant does not become operational within a reasonable period of time not to exceed five years, or approximately the end of 2024. In such event, it is likely that EJ Holdings would be unable to repay some or all the Company's loans.

 

On December 28, 2023, the Company sold and assigned its EJ Holdings shares at their cost of JPY3.6 million or US$25,304 to Niihara International, Inc., which was formed by Yutaka Niihara, M.D., Ph. D., the former Chairman and Chief Executive Officer of the Company and principal stockholder of the Company. In connection with the sale and assignment, the Company derecognized its investment in EJ Holdings, including $1.5 million of currency translation adjustments recorded in other comprehensive loss. As of September 30, 2024 and December 31, 2023, the face amount of the loan receivable from EJ Holdings was $25.8 million, which was reflected in $16.9 million of net loan receivable from EJ Holdings as contra-equity on the condensed consolidated balance sheets.

 

12


 

NOTE 6 — SELECTED FINANCIAL STATEMENT - LIABILITIES

Accounts payable and accrued expenses consisted of the following at September 30, 2024 and December 31, 2023 (in thousands):

 

 

September 30, 2024

 

 

December 31, 2023

 

Accounts payable:

 

 

 

 

 

 

Clinical and regulatory expenses

 

$

677

 

 

$

696

 

Professional fees

 

 

975

 

 

 

721

 

Selling expenses

 

 

2,477

 

 

 

1,498

 

Manufacturing costs

 

 

837

 

 

 

914

 

Non-employee director compensation

 

 

945

 

 

 

766

 

Other vendors

 

 

578

 

 

 

518

 

Total accounts payable

 

 

6,489

 

 

 

5,113

 

Accrued interest payable, related parties

 

 

823

 

 

 

542

 

Accrued interest payable

 

 

3,531

 

 

 

3,122

 

Accrued expenses:

 

 

 

 

 

 

Payroll expenses

 

 

599

 

 

 

1,270

 

Government rebates and other rebates

 

 

7,010

 

 

 

5,881

 

Due to customers

 

 

 

 

 

844

 

Other accrued expenses

 

 

255

 

 

 

179

 

Total accrued expenses

 

 

7,864

 

 

 

8,174

 

Total accounts payable and accrued expenses

 

$

18,707

 

 

 

16,951

 

 

Other current liabilities consisted of the following at September 30, 2024 and December 31, 2023 (in thousands):

 

September 30, 2024

 

 

December 31, 2023

 

Trade discount

$

4,500

 

 

$

3,000

 

Due to Telcon (a)

 

10,000

 

 

 

10,000

 

Other current liabilities

 

1,150

 

 

 

1,681

 

Total other current liabilities

$

15,650

 

 

$

14,681

 

(a) Refer to Note 3 for information regarding to due to Telcon.

 

Other long-term liabilities consisted of the following at September 30, 2024 and December 31, 2023 (in thousands):

 

 

September 30, 2024

 

 

December 31, 2023

 

Trade discount

$

13,627

 

 

$

17,324

 

Other long-term liabilities

 

49

 

 

 

39

 

Total other long-term liabilities

$

13,676

 

 

$

17,363

 

 

On June 12, 2017, the Company entered into an API Supply Agreement with Telcon pursuant to which Telcon advanced to the Company approximately $31.8 million as an advance trade discount in consideration of the Company’s agreement to purchase from Telcon the Company’s estimated annual target for bulk containers of PGLG. On July 12, 2017, the Company entered into a raw material supply agreement with Telcon which revised certain items of the API Supply Agreement (the “revised API Agreement”). The Company purchased $448,000 and $674,000 of PGLG from Telcon for nine months ended September 30, 2024 and 2023, respectively, of which $591,000 and $754,000 were reflected in accounts payable as of September 30, 2024 and December 31, 2023, respectively. The revised API Agreement provided for an annual API purchase target of $5 million and a target “profit” (i.e., gross margin) to Telcon of $2.5 million. To the extent these targets are not met, which management refers to as a “target shortfall,” Telcon may be entitled to payment of the target shortfall or to settle the target shortfall by exchange of principal and interest on the Telcon convertible bond and proceeds thereof that are pledged as a collateral to secure the Company’s obligations under the API Supply Agreement and the revised API Agreement. See Note 5 for information regarding the settlement of the target shortfall for 2022 and 2023.

 

13


 

NOTE 7 — NOTES PAYABLE

Notes payable consisted of the following at September 30, 2024 and December 31, 2023 (in thousands except for number of underlying shares):

 

Year
Issued

 

Interest Rate
Range

 

Term of Notes

 

Conversion
Price

 

 

Principal
Outstanding September 30, 2024

 

 

Unamortized Discount September 30, 2024

 

 

Carrying
Amount September 30, 2024

 

 

Underlying Shares September 30, 2024

 

Notes payable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 2013

 

10%

 

Due on demand

 

 

 

 

$

702

 

 

$

 

 

$

702

 

 

 

 

 2022

 

10%-12%

 

Due on demand

 

 

 

 

 

1,231

 

 

 

 

 

 

1,231

 

 

 

 

 2023

 

11%-40%

 

Due on demand - 56 weeks

 

 

 

 

 

3,495

 

 

 

1

 

 

 

3,494

 

 

 

 

 2024

 

30%-48%

 

2 month - 33 weeks

 

 

 

 

 

2,572

 

 

 

84

 

 

 

2,488

 

 

 

 

 

 

 

 

 

 

 

 

$

8,000

 

 

$

85

 

 

$

7,915

 

 

 

 

 

 

 

 

 

 

 

 

$

8,000

 

 

$

85

 

 

$

7,915

 

 

 

 

Notes payable - related parties

 

 

 

 

 

 

 

 

 

 

 

 

 

 2020

 

12%

 

Due on demand

 

 

 

 

 

100

 

 

 

 

 

 

100

 

 

 

 

 2021

 

12%

 

Due on demand

 

 

 

 

 

700

 

 

 

 

 

 

700

 

 

 

 

 2022

 

10%-12%

 

Due on demand - 5 years

 

 

 

 

 

3,716

 

 

 

80

 

 

 

3,636

 

 

 

 

 2023

 

10%-60%

 

Due on demand - 2 month

 

 

 

 

 

577

 

 

 

 

 

 

577

 

 

 

 

 

 

 

 

 

 

 

 

$

5,093

 

 

$

80

 

 

$

5,013

 

 

 

 

 

 

 

Current

 

 

 

 

$

2,772

 

 

$

 

 

$

2,772

 

 

 

 

 

 

 

Non-current

 

 

 

 

$

2,321

 

 

$

80

 

 

$

2,241

 

 

 

 

Convertible notes payable

 

 

 

 

 

 

 

 

 

 

 

 

 

 2021

 

10%

 

Due on demand

 

$

0.13

 

(b)

 

995

 

 

 

 

 

 

995

 

 

 

9,691,358

 

 2023

 

13%

 

6 months

 

$

10.00

 

(a)

 

3,150

 

 

 

 

 

 

3,150

 

 

 

368,066

 

 2023

 

10%

 

1 year

 

$

0.29

 

 

 

1,000

 

 

 

 

 

 

1,000

 

 

 

3,818,611

 

 2024

 

10%

 

1 year

 

$

0.13

 

 

 

11,060

 

 

 

 

 

 

11,060

 

 

 

90,708,390

 

 

 

 

 

 

 

 

 

$

16,205

 

 

$

 

 

$

16,205

 

 

 

104,586,425

 

 

 

 

Current

 

 

 

 

$

16,205

 

 

$

 

 

$

16,205

 

 

 

104,586,425

 

 

 

 

Total

 

 

 

 

$

29,298

 

 

$

165

 

 

$

29,133

 

 

 

104,586,425

 

 

Year
Issued

 

Interest Rate
Range

 

Term of Notes

 

Conversion
Price

 

 

Principal
Outstanding
December 31,
2023

 

 

Unamortized
Discount
December 31,
2023

 

 

Carrying
Amount
December 31,
2023

 

 

Underlying Shares
December 31, 2023

 

Notes payable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 2013

 

10%

 

Due on demand

 

 

 

 

$

709

 

 

$

 

 

$

709

 

 

 

 

 2022

 

10% - 12%

 

Due on demand

 

 

 

 

 

1,284

 

 

 

 

 

 

1,284

 

 

 

 

 2023

 

10% - 57%

 

Due on demand - 56 months

 

 

 

 

 

6,337

 

 

 

115

 

 

$

6,222

 

 

 

 

 

 

 

 

 

 

 

 

$

8,330

 

 

$

115

 

 

$

8,215

 

 

 

 

 

 

 

Current

 

 

 

 

$

8,330

 

 

$

115

 

 

$

8,215

 

 

 

 

Notes payable - related parties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 2020

 

12%

 

Due on demand

 

 

 

 

 

100

 

 

 

 

 

 

100

 

 

 

 

 2021

 

12%

 

Due on demand

 

 

 

 

 

700

 

 

 

 

 

 

700

 

 

 

 

 2022

 

6%-12%

 

Due on demand - 5 years

 

 

 

 

 

3,716

 

 

 

95

 

 

 

3,621

 

 

 

 

 2023

 

10%-60%

 

Due on demand - 2 months

 

 

 

 

 

927

 

 

 

 

 

 

927

 

 

 

 

 

 

 

 

 

 

 

 

$

5,443

 

 

$

95

 

 

$

5,348

 

 

 

 

 

 

 

Current

 

 

 

 

$

3,122

 

 

$

 

 

$

3,122

 

 

 

 

 

 

 

Non-current

 

 

 

 

$

2,321

 

 

$

95

 

 

$

2,226

 

 

 

 

Convertible notes payable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 2021

 

2%

 

3 years

 

$

0.13

 

 

 

12,640

 

 

 

407

 

 

 

12,233

 

 

 

113,009,154

 

 2023

 

13%

 

Due on demand

 

$

10.00

 

(a)

 

3,150

 

 

 

 

 

 

3,150

 

 

 

337,326

 

 2023

 

10%

 

1 year

 

$

0.29

 

 

 

1,000

 

 

 

 

 

 

1,000

 

 

 

3,559,754

 

 

 

 

 

 

 

 

 

$

16,790

 

 

$

407

 

 

$

16,383

 

 

 

116,906,234

 

 

 

 

Current

 

 

 

 

$

16,790

 

 

$

407

 

 

$

16,383

 

 

 

116,906,234

 

 

 

 

Total

 

 

 

 

$

30,563

 

 

$

617

 

 

$

29,946

 

 

 

116,906,234

 

 

(a)
This note is convertible into shares of EMI Holding, Inc., a wholly owned subsidiary of Emmaus Life Sciences, Inc.
(b)
The stated interest for the notes was 2%. As the loan is default as of March 31, 2024, the default interest rate of 10% became applicable.

14


 

The weighted-average stated annual interest rate of notes payable was 13% and 12% for the periods ended September 30, 2024 and December 31, 2023, respectively. The weighted-average effective annual interest rate of notes payable as of September 30, 2024 and December 31, 2023 was 14% and 23%, respectively, after giving effect to discounts relating to conversion features, warrants and deferred financing costs relating to the notes.

As of September 30, 2024, future contractual principal payments due on notes payable were as follows (in thousands):

 

Year Ending

 

 

 

2024 (three months)

$

15,375

 

 

2025

 

11,602

 

 

2026

 

 

 

2027

 

2,321

 

 

Total

$

29,298

 

 

On February 9, 2021, the Company entered into a securities purchase agreement pursuant to which the Company agreed to sell and issue to the purchasers thereunder in a private placement pursuant to Rule 4(a)(2) of the Securities Act of 1933, as amended, and Regulation D thereunder a total of up to $17 million in principal amount of convertible promissory notes of the Company for a purchase price equal to the principal amount thereof. The Company sold and issued approximately $14.5 million of the convertible promissory notes.

Commencing one year from the original issue date, the convertible promissory notes became convertible at the option of the holder into shares of the Company’s common stock at an initial conversion price of $1.48 per share, which equaled the “Average VWAP” (as defined) of the Company’s common stock on the effective date. The initial conversion price is subject to adjustment as of the end of each three-month period following the original issue date, commencing May 31, 2021, to equal the Average VWAP as of the end of such three-month period if such Average VWAP is less than the then-conversion price. There is no floor on the conversion price. The conversion price will be subject to further adjustment in the event of a stock split, reverse stock split or certain other events specified in the convertible promissory notes. In January 2023, $500,000 principal amount of the convertible promissory notes was converted into 1,351,351 shares of the Company's common stock. In April 2023, $1 million principal amount of the convertible promissory note was converted into 2,702,702 shares of common stock. In February 2024, the Company repaid $200,000 principal amount and accrued interests to two of the note holders. In April 2024, $260,000 principal amount and its accrued interest was converted into 2,019,608 shares of the Company's stock. In August and September 2024, the Company repaid principal amount of $75,000 and $50,000, respectively. As of September 30, 2024, the conversion price was $0.09 per share.

The convertible promissory notes bear interest at the rate of 2% per year, payable semi-annually on the last business day of August and January of each year and will mature on the 3rd anniversary of the original issue date, unless earlier converted or prepaid. The convertible promissory notes are redeemable in whole or in part at the election of the holders. The convertible promissory notes are general, unsecured obligations of the Company.

 

In February and March 2024, Company entered into Exchange Agreements (the "Exchange Notes") with certain convertible notes holders pursuant to which it agreed to issue total of $11.1 million principal amount of convertible promissory notes of the Company due one year from issuance of the Exchange Notes in exchange for the surrender for cancellation and satisfaction in full of a like principal amount of our outstanding convertible promissory notes due in 2024. The surrendered notes bore interest at the annual rate of 2%, payable semi-annually, and were convertible at the election of the holder into shares of the Company's common stock at the conversion rate of $0.13 per share. The Exchange Notes bear interest at the annual rate of 10% and are convertible into shares of the Company’s common stock at an initial conversion rate of $0.13 per share, subject to decrease, but not increase, at the end of each three-month period from issuance to equal the VWAP (as defined) of the Company’s common stock and to adjustment in the event of a stock split, reverse stock split and similar events. The principal amount of and accrued interest on the Exchange Notes will be payable in two equal semi-annual installments. No additional consideration was paid in connection with the exchange. The convertible promissory notes are general, unsecured obligations of the Company. Management evaluated if the transaction qualified as troubled debt restructuring under ASC 470-60. Since the Company was experiencing financial difficulty and the effective borrowing rate on the restructured debt is less than the effective borrowing rate on the original debt, this transaction was accounted for a troubled debt restructuring. As a result, the Company recorded gain on restructured debt of $1.0 million in the condensed consolidated statements of operations for the nine months ended September 30, 2024.

The conversion feature of the convertible promissory notes and the Exchange Notes is separately accounted for at fair value as a derivative liability under guidance in ASC 815 that is remeasured at fair value on a recurring basis using Level 3 inputs, with any changes in the fair value of the conversion feature liability recorded in the condensed consolidated statements of operations. The following table sets forth the fair value of the conversion feature liability as of September 30, 2024 and December 31, 2023 (in thousands):

15


 

 

Convertible promissory notes

 

 

 

Balance as of December 31, 2023

 

$

451

 

Change in fair value included in the statement of operations

 

 

72

 

Balance as of September 30, 2024

 

$

523

 

 

The fair value and any change in fair value of conversion feature liability are determined using a binominal lattice model. The model produces an estimated fair value based on changes in the price of the underlying common stock.

The fair value as of September 30, 2024 and December 31, 2023 was based upon following assumptions:

 

Convertible promissory notes

 

September 30, 2024

 

 

December 31, 2023

 

Stock price

 

$

0.03

 

 

$

0.10

 

Conversion price

 

$

0.09

 

 

$

0.13

 

Selected yield

 

 

24.88

%

 

 

27.23

%

Expected volatility

 

 

50

%

 

 

50

%

Time until maturity (in years)

 

 

0.39

 

 

 

0.16

 

Dividend yield

 

 

 

 

Risk-free rate

 

 

4.53

%

 

 

5.51

%

 

In July 2022, Dr. Niihara and his wife loaned the Company $370,000, representing the net proceeds of personal loans to them from unaffiliated parties in the principal amount of $402,000. The loan is due and payable in a lump sum on maturity on July 31, 2027 and bears interest at the rate of 12% per annum, payable monthly in arrears. In connection with the loan, the Company granted Dr. Niihara a warrant as described in Note 8. The issuance cost of $32,000 and the fair value of the warrant of $84,000 were treated as debt discount and are being amortized over the five-year term of the warrant using the effective interest method.

In August 2022, Dr. Niihara and his wife loaned the Company $1,576,574, representing the net proceeds of personal loans to them from unaffiliated third parties in the principal amount of $1,668,751, as well as $250,000 from personal funds. The loans are evidenced by promissory notes, which are due and payable in a lump sum on maturity on August 16, 2027 and bear interest at the rate of 10% per annum, payable monthly in arrears. The foregoing loans were in addition to a $50,000 loan to the Company from Hope International Hospice, Inc., an affiliate of Dr. and Mrs. Niihara, on August 15, 2022, which is evidenced by a demand promissory note of the Company bearing interest at the rate of 10% per annum. The proceeds of the loans were used to prepay $1,924,819 indebtedness of the Company under a former Business Loan and Security Agreement.

In December 2022, the Company entered into an Agreement for the Purchase and Sales of Future Receipts with a third party pursuant to which it sells $3,105,000 of future receipts (the "Purchased Amount") in exchange for net proceeds of $2,300,000. Under the agreement, the Company agrees to pay $103,500 on a semi-monthly basis until the Purchased Amount is delivered. The portion of proceeds were used to prepay indebtedness of the Company under the Standard Merchant Cash Advance Agreements referred to above. In September 2023, the Company repaid in full the outstanding balance of the loan and recognized debt extinguishment loss of $312,000 as the Company entered into another agreement discussed below.

In March 2023, Dr. Niihara and his wife and Hope International Hospice, Inc., their affiliated company, loaned the Company $127,000 and $100,000, respectively. Both loans are due on demand and bear interest at the rate of 10% per annum.

 

In March 2023, Emmaus Medical entered into Revenue Purchase Agreement with a third party pursuant to which it sold and assigned $700,212 of future receipts (the "Future Receipts") in exchange for net cash proceeds of $491,933. Under the agreement, the Company agreed to pay the third party 4% of weekly sales receipts until the Future Receipts have been collected. In July 2023, Emmaus Medical reentered into a new Revenue Purchase Agreement pursuant to which it sold and assigned $828,000 of future receipt in exchange for repayment of $204,000 indebtedness from the previous agreement and net cash proceeds of approximately $300,000. Under the new agreement, the Company agreed to pay the third party approximately $26,000 weekly until the Future Receipts have been collected. The Company recognized debt extinguishment loss of $81,000. In February 2024, the Company repaid the balance under the new Revenue Purchase Agreement.

In March 2023, Emmaus Medical entered into Revenue Based Financing Agreement with a third party pursuant to which it sold and assigned $700,212 of future receipt in exchange for net proceeds of $492,132. Under the agreement, the Company agreed to pay the third party approximately $22,000 weekly until the Future Receipts have been collected. In July 2023, Emmaus Medical reentered into a new Revenue Based Financing Agreement pursuant to which it sold and assigned $828,000 of future receipt in exchange for repayment of $222,000 indebtedness under the previous agreement and net cash proceeds of approximately $276,000. Under the new agreement, the Company agreed to pay the third party approximately $26,000 weekly until the Future Receipts have

16


 

been collected. The Company recognized debt extinguishment loss of $87,000. In March 2024, the Company repaid the balance under the Revenue Based Financing Agreement.

In May 2023, Emmaus Medical entered into Sale of Future Receipts Agreement with third party pursuant to which it sold and assigned $528,200 of future receipts (the "Purchased Amount") in exchange for net cash proceeds of $368,600. Under the agreement, the Company agreed to pay the third party approximately $19,000 weekly until the Purchased Amount has been collected. In September 2023, the Company repaid in full the outstanding balance of the loan and recognized debt extinguishment loss of $43,000 as the Company entered into another agreement discussed below.

 

In June 2023, Emmaus Medical entered into Standard Merchant Cash Advance Agreement with a third party pursuant to which it sold and assigned $877,560 of future receipts (the "Purchased Amount") in exchange for net cash proceeds of $600,000. Under the agreement, the Company agreed to pay the third party approximately $34,000 weekly until the Purchased Amount has been collected. In September 2023, the Company repaid in full the outstanding balance of the loan and recognized debt extinguishment loss of $124,000 as the Company entered into another agreement discussed below.

 

In September 2023, the Company entered into a Business Loan and Security Agreement with a third-party lender pursuant to which the lender loaned the Company $2.2 million, of which the Company received net proceeds of approximately $2.1 million after deduction of the lender’s origination fee but without deduction for other transaction expenses. The portion of proceeds were used to prepay indebtedness of the company under the Agreement for the Purchase and Sales of Future Receipts, the Sales of Future Receipt Agreement, and the Standard Merchant Cash Advance Agreement referred to above.

 

In September 2023, Smart Start Investments Limited, of which Wei Pei Zen, a director of the Company, is a director and 9.96% shareholder, loaned the Company the principal amount of $1 million in exchange for a convertible promissory note of the Company. The convertible promissory note was due on September 5, 2024, bears interest at the annual rate of 10%, payable at maturity, and is convertible at the option of the holder into shares of the Company's common stock at a conversion rate of $0.29 a share, subject to adjustment in the event of a stock split, reverse stock split or similar event.

 

On March 5, 2024, the conversion feature of the convertible promissory note no longer met the scope exception in ASC 815-10-15-74 as the investors' Rule 144(d) holding period for the Company has ended and separately accounted for at fair value as a derivative liability that is remeasured at fair value on a recurring basis using Level 3 inputs, with any changes in fair value of the conversion feature liability recorded in the condensed consolidated statements of operations. As of March 5, 2024, the fair value of the conversion feature was $2,000. In September 2024, the convertible promissory note became due. As of September 30, 2024, the conversion rate exceeds stock price and therefore, the fair value of conversion feature is determined to be zero.

 

The fair value of conversion feature liability is determined using a convertible bond lattice model. The model produces an estimated fair value based on changes in the price of the underlying common stock over successive period of time. The following table presents the assumptions used to value the conversion features:

 

Smart Start Convertible Note

 

March 5, 2024

 

 

Stock price

 

$

0.10

 

 

Conversion price

 

$

0.29

 

 

Selected yield

 

 

25.75

%

 

Expected volatility

 

 

50

%

 

Time until maturity (in years)

 

 

0.50

 

 

Dividend yield

 

 

 

Risk-free rate

 

 

5.35

%

 

 

In October 2023, Emmaus Medical entered into Purchase and Sale of Future Receivables Agreement with a third party pursuant to which it sold and assigned $1,377,500 of future receipt (the "Purchased Amount") in exchange for net cash proceeds of $875,000. Under the agreement, the Company agreed to pay the third party approximately $81,000 weekly until the Purchase Amount has collected. In February 2024, the Company repaid the balance under the Purchase and Sale of Future Receivables Agreement.

In November 2023, Emmaus Medical entered into Agreement for the Purchase and Sale of Future Receipts with a third party pursuant to which it sold and assigned $762,200 of future receipts (the "Purchase Amount") in exchange for net cash proceeds of $468,650. Under the agreement, the Company agreed to pay the third party approximately $49,000 weekly until the Purchase Amount has been collected. In March 2024, the Company repaid the balance under the Purchase and Sale of Future Receivables Agreement.

17


 

In December 2023, Wei Peu Zen, a director of the Company, loaned the Company $700,000. The loan was due in two months and bears interest at the rate of 5% per month. In February 2024, the Company repaid $350,000 in principal plus accrued interest on the loan.

Beginning in February 2024, two related holders of demand promissory notes of the Company in the aggregate principal amount of approximately $2.8 million demanded repayment of the notes plus accrued interest. The Company has acknowledged its indebtedness to the holders and intends to seek to enter into a plan to repay the notes in installments. To date, the parties have not reached an agreement with respect to repayment of the notes.

In March 2024, Smart Start Investments Limited, of which Wei Peu Zen, a director of the Company is a director and 9.96% shareholder, loaned the Company the principal amount of $1,400,000. The loan was due in two months and bears interest at the rate of 2.5% per month. As of May 2024, the loan became due on demand and default rate of 5.0% per month became applicable.

 

In May 2024, Emmaus Medical entered into Sale of Future Receipts Agreement with third party pursuant to which it sold and assigned $1,628,000 of future receipts (the "Purchased Amount") in exchange for net cash proceeds of $1,001,000. Under the agreement, the Company agreed to pay the third party approximately $58,143 weekly until the Purchased Amount has been collected.

 

In September 2024, Emmaus Medical entered into Sale of Future Receipts Agreement with third party pursuant to which it sold and assigned $1,298,000of future receipts (the "Purchased Amount") in exchange for net cash proceeds of $800,000. Under the agreement, the Company agreed to pay the third party $35,000 weekly for 10 weeks and $41,217 weekly thereafter until the Purchase Amount has been collected.

Except as otherwise indicated above, the net proceeds of the foregoing loans and other arrangements were used to augment the Company's working capital.

NOTE 8 — STOCKHOLDERS’ DEFICIT

 

Warrants — In September 2022, in connection with the loans from Dr. Niihara and Mrs. Niihara, the Company granted Dr. Niihara a five-year warrant to purchase up to 500,000 shares of common stock of the Company at an exercise price of $2.50 per share. Under ASC 480-10 and ASC 815, the warrant is classified as a liability. The fair value of the warrant liability was determined using Black-Scholes Merton model and the fair value of the warrant was $25,000 as of September 30, 2023. The change in fair value was recorded in the condensed consolidated statements of operations. For the three months and nine months ended September 30, 2023, the changes in fair value of warrant liability was $41,000 and $45,000, respectively. The warrant expired by its terms in November 2023.

 

Warrant issued for services — On January 12, 2023, the Company granted Dr. Niihara a five-year warrant to purchase up to 7,500,000 shares of common stock of the Company at an exercise price of $4.50 in lieu of cash bonuses or salary increases. The fair value of the warrant was determined using the Black-Scholes Merton option pricing model. The fair value of the underlying shares was determined based on the market value of the Company's common stock. The expected volatility was adjusted using the historical volatility of the Company's common stock and a comparative publicly traded securities. For the nine months ended September 30, 2023, the Company recognized $1.2 million of shared-based compensation. Under ASC 480-10 and ASC 815, the warrants are classified as a liability. For the three and nine months ended September 30, 2023, the Company recorded the changes in fair value of approximately $459,000 and $745,000, respectively in the condensed consolidated statements of operations. The warrant expired by its terms in November 2023.

 

On January 12, 2023, the Company granted two consultants to the Company five-year warrants to purchase up to 250,000 shares of common stock each at the exercise price of $0.50 a share. On January 27, 2023, the Company also granted a consulting company a five-year warrant to purchase up to 500,000 shares of common stock at an exercise price of $0.47 a share. The warrants are subject to adjustment in the event of a stock split, reverse stock split and similar events. The fair value of the warrants was determined using the Black-Scholes Merton option pricing model. The fair value of the underlying shares was determined based upon the market value of the common stock. The expected volatility was adjusted using the historical volatility of the common stock and the market price of comparable public traded securities. The estimated fair value of $334,000 was recorded as professional services in general and administrative expenses in the condensed consolidated statement of operations when the warrants were granted. Under ASC 480-10 and ASC 815, the warrants are classified as a liability. For the three months ended September 30, 2024, and 2023, the Company recorded the change in fair value of approximately $38,000 and $89,000, respectively, and for the nine months ended September 30, 2024 and 2023, the Company recorded the change in fair value of approximately $35,000 and $244,000, respectively, in the condensed consolidated statements of operations.

18


 

The following table presents the assumptions used to value the warrants:

 

 

September 30, 2024

 

 

December 31, 2023

 

Stock price

 

$

0.03

 

 

$

0.10

 

Exercise price

 

$0.47 - $0.50

 

 

$0.47 - $0.50

 

Expected term

 

3.28-3.49 years

 

 

4.03-4.24 years

 

Risk-free rate

 

 

3.58

%

 

3.90%-3.92%

 

Dividend yield

 

 

 

 

Volatility

 

409.38% - 411.76%

 

 

129.40%-130.23%

 

 

A summary of outstanding warrants as of September 30, 2024 and December 31, 2023 is presented below:

 

 

 

September 30, 2024

 

 

 

Number of
Warrants

 

 

Weighted‑
Average
Exercise
Price

 

Warrants outstanding, beginning of period

 

 

4,732,391

 

 

$

0.95

 

Granted

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

Cancelled, forfeited or expired

 

 

(107,391

)

 

 

7.21

 

Warrants outstanding, end of period

 

 

4,625,000

 

 

$

0.81

 

Warrants exercisable end of period

 

 

4,625,000

 

 

$

0.81

 

 

As of September 30, 2024, the weighted-average remaining contractual life of outstanding warrants was 1.4 years.

 

Stock options— The Company's former 2011 Stock Incentive Plan permitted grants of incentive stock options to employees, including executive officers, and other share-based awards such as stock appreciation rights, restricted stock, stock units, stock bonus and unrestricted stock awards to employees, directors, and consultants for up to 9,000,000 shares of common stock. Options granted under the 2011 Stock Incentive Plan generally expire ten years after grant. Options granted to directors vest in quarterly installments and all other option grants vest over a minimum period of three years, in each case, subject to continuous service with the Company. The 2011 Stock Incentive Plan expired in May 2021 and no further awards may be made under the Plan. As of September 30, 2024 and December 31, 2023, stock options to purchase up to 1,461,443, and 1,728,773 shares, respectively were outstanding under the 2011 Stock Incentive Plan.

 

The Company also formerly had an Amended and Restated 2012 Omnibus Incentive Compensation Plan under which the Company could grant incentive stock options and non-qualified stock option to selected employees including officers, non-employee consultants and non-employee directors. The Plan was terminated in September 2021. As of September 30, 2024 and December 31, 2023, stock options to purchase up to 245,008 and 245,108 shares, respectively were outstanding under the Amended and Restated 2012 Omnibus Incentive Plan.

 

On September 29, 2021, the Board of Directors of the Company adopted the Emmaus Life Sciences, Inc. 2021 Stock Incentive Plan upon the recommendation of the Compensation Committee of the Board. The 2021 Stock Incentive Plan was approved by stockholders on November 23, 2021. No more than 4,000,000 shares of common stock may be issued pursuant to awards under the 2021 Stock Incentive Plan. The number of shares available for Awards, as well as the terms of outstanding awards, is subject to adjustment as provided in the 2021 Stock Incentive Plan for stock splits, stock dividends, reverse stock splits, recapitalizations and other similar events. During the nine months ended September 30, 2024, the Company granted options to purchase 1,620,000 shares, 300,000 shares and 440,000 shares of common stock to employees, non-employee directors and consultants, respectively. All options are exercisable for ten years from the date of grant and will vest and become exercisable with respect to the underlying shares over three years for employees, one year for non-employee directors and immediately for the consultant. As of September 30, 2024 and December 31, 2023, stock options to purchase up to 3,610,000 and 1,250,000 shares, respectively, were outstanding under the 2021 Stock Incentive Plan.

19


 

Management has valued stock options at their date of grant utilizing the Black-Scholes-Merton Option pricing model. The fair value of the underlying shares was determined by the market value of the Company's common stock. The expected volatility was adjusted using the historical volatility of the common stock and a comparable public traded securities. The following table presents the assumptions used on the recent dates on which options were granted by the Company. The risk‑free interest rate is based on the implied yield available on U.S. Treasury issues with a term approximating the expected life of the options depending on the date of the grant and expected life of the respective options.

 

 

 

January 2024

 

 

January 2023

 

Stock Price

 

$

0.11

 

 

$

0.31

 

Exercise Price

 

$

0.15

 

 

$

4.50

 

Expected term

 

5-5.75 years

 

 

5-6 years

 

Risk-Free Rate

 

3.80-3.81%

 

 

3.51-3.53%

 

Dividend Yield

 

 

 

 

Volatility

 

127.39-136.00%

 

 

108.16-116.40%

 

A summary of outstanding stock options as of September 30, 2024 and December 31, 2023 is presented below:

 

 

 

September 30, 2024

 

 

 

Number of
Options

 

 

Weighted‑
Average
Exercise
Price

 

Options outstanding, beginning of period

 

 

3,223,881

 

 

$

5.97

 

Granted or deemed granted

 

 

2,360,000

 

 

$

0.15

 

Exercised

 

 

 

 

$

 

Cancelled, forfeited and expired

 

 

(267,430

)

 

$

3.25

 

Options outstanding, end of period

 

 

5,316,451

 

 

$

3.52

 

Options exercisable, end of period

 

 

4,745,507

 

 

$

3.58

 

Options available for future grant

 

 

390,000

 

 

 

 

 

During the three months ended September 30, 2024 and 2023 the Company recognized approximately $28,000 and $24,000, respectively of share-based compensation expense related to stock options. During the nine months ended September 30, 2024 and 2023, the Company recognized approximately $227,000 and $1,239,000, respectively, of share-based compensation expense. As of September 30, 2024, there was approximately $80,000 of unrecognized share-based compensation expense related to unvested stock options which is expected to be recognized over the weighted-average remaining vesting period of 1.13 year.

Amended and Restated Warrants – The Company evaluated its outstanding amended and restated warrants to purchase up to 2,375,000 shares of common stock under ASC 815-40 and concluded that the warrants should be accounted for as equity.

In January 2023, the exercise price of outstanding amended and restated warrants was reduced to $0.37 per share pursuant to the anti-dilution adjustment provisions of the warrants triggered by the conversion of an outstanding convertible promissory note into shares of common stock of the Company at a conversion price $0.37 per share. The warrants were valued using the Black-Scholes Merton option pricing model and approximately $41,000 change in fair value was recorded as additional paid-in capital and reflected in accumulated deficit.

 

NOTE 9 — INCOME TAX

The quarterly provision for or benefit from income taxes is computed based upon the estimated annual effective tax rate and the year-to-date pre-tax income (loss) and other comprehensive income.

For the three months ended September 30, 2024 and 2023, the Company recorded a benefit for income tax of $1,000 and provision of $38,000, respectively. For the nine months ended September 30, 2024 and 2023, the Company recorded an income tax provision of $23,000 and provision of $53,000, respectively. The Company did not record a provision for federal income tax due to its net operating loss carryforwards. The Company established a full valuation allowance against its federal and state deferred tax assets and there was no unrecognized tax benefit as of September 30, 2024 or December 31, 2023.

20


 

NOTE 10 — LEASES

Operating leases — The Company leases its office space under operating leases with unrelated entities.

The Company leases 21,293 square feet of office space for its headquarters in Torrance, California, at a base rental of $87,514 per month, which lease will expire on September 30, 2026. In addition, the Company leases 1,163 square feet of office space in Dubai, United Arab Emirates, which lease will expire on June 19, 2026.

The lease expense during the three months ended September 30, 2024 and 2023 was approximately $263,000 and $291,000, respectively, and during the nine months ended September 30, 2024 and 2023, was approximately $853,000 and $878,000, respectively.

Future minimum lease payments under the lease agreements were as follows as of September 30, 2024 (in thousands):

 

 

 

Amount

 

2024 (three months)

 

$

1,670

 

2025

 

 

1,132

 

2026

 

 

846

 

Total lease payments

 

 

3,648

 

Less: Interest

 

 

243

 

Present value of lease liabilities

 

$

3,405

 

As of September 30, 2024, the Company had an operating lease right-of-use asset of $1.7 million and lease liability of $3.4 million reflected on the condensed consolidated balance sheet. The weighted average remaining term of the Company’s leases as of September 30, 2024 was 2.0 years and the weighted-average discount rate was 12.9%.

NOTE 11 — COMMITMENTS AND CONTINGENCIES

API Supply Agreement — On June 12, 2017, the Company entered into an API Supply Agreement (the “API Agreement”) with Telcon pursuant to which Telcon paid the Company approximately $31.8 million in consideration of the right to supply 25% of the Company’s requirements for bulk containers of PGLG for a fifteen-year term. The amount was recorded as deferred trade discount. On July 12, 2017, the Company entered into a raw material supply agreement with Telcon which revised certain terms of the API supply agreement (the “revised API agreement”). The revised API agreement is effective for a term of five years and will renew automatically for 10 successive one-year renewal periods, except as either party may determine. In the revised API agreement, the Company has agreed to purchase a cumulative total of $47.0 million of PGLG over the term of the agreement. The revised API agreement provided for an annual API purchase target of $5 million and a target “profit” (i.e., gross margin) to Telcon of $2.5 million. To the extent these targets are not met, Telcon may be entitled to payment of the shortfall or to offset the shortfall against the Telcon convertible bond and proceeds there of that are pledged as collateral to secure our obligations. In September 2018, the Company entered into an agreement with Ajinomoto Health and Nutrition North America, Inc. (“Ajinomoto”), the producer of the PGLG, and Telcon to facilitate Telcon’s purchase of PGLG from Ajinomoto for resale to the Company under the revised API agreement. The PGLG raw material purchased from Telcon is recorded in inventory at net realizable value and the excess purchase price is recorded against deferred trade discount. Refer to Notes 5 and 6 for more information.

21


 

NOTE 12 — RELATED PARTY TRANSACTIONS

The following table sets forth information relating to loans from related parties outstanding at any time during the nine months ended September 30, 2024 (in thousands):

 

Class

Lender

 

Interest
Rate

 

Date of
Loan

 

Term of Loan

 

Principal Amount Outstanding at September 30, 2024

 

 

Highest
Principal
Outstanding

 

 

Amount of
Principal
Repaid or
Converted to Shares

 

 

Amount of
Interest
Paid

 

Promissory notes payable to related parties:

 

 

 

 

 

 

 

 

 

 

 

 

 

Willis Lee(2)

 

12%

 

10/29/2020

 

Due on Demand

 

 

100

 

 

 

100

 

 

 

 

 

 

2

 

 

Soomi Niihara(1)

 

12%

 

12/7/2021

 

Due on Demand

 

 

700

 

 

 

700

 

 

 

 

 

 

 

 

Hope International Hospice, Inc.(1)

 

10%

 

2/9/2022

 

Due on Demand

 

 

350

 

 

 

350

 

 

 

 

 

 

 

 

Hope International Hospice, Inc.(1)

 

10%

 

2/15/2022

 

Due on Demand

 

 

210

 

 

 

210

 

 

 

 

 

 

 

 

Soomi Niihara(1)

 

10%

 

2/15/2022

 

Due on Demand

 

 

100

 

 

 

100

 

 

 

 

 

 

 

 

Hope International Hospice, Inc.(1)

 

12%

 

3/15/2022

 

Due on Demand

 

 

150

 

 

 

150

 

 

 

 

 

 

 

 

Hope International Hospice, Inc.(1)

 

12%

 

3/30/2022

 

Due on Demand

 

 

150

 

 

 

150

 

 

 

 

 

 

 

 

Wei Peu Derek Zen(2)

 

10%

 

3/31/2022

 

Due on Demand

 

 

200

 

 

 

200

 

 

 

 

 

 

 

 

Willis Lee(2)

 

10%

 

4/14/2022

 

Due on Demand

 

 

45

 

 

 

45

 

 

 

 

 

 

 

 

Hope International Hospice, Inc.(1)

 

10%

 

5/25/2022

 

Due on Demand

 

 

40

 

 

 

40

 

 

 

 

 

 

 

 

Yutaka and Soomi Niihara(1)

 

12%

 

7/27/2022

 

5 years

 

 

402

 

 

 

402

 

 

 

 

 

 

36

 

 

Yutaka and Soomi Niihara(1)

 

10%

 

8/16/2022

 

5 years

 

 

250

 

 

 

250

 

 

 

 

 

 

19

 

 

Yutaka and Soomi Niihara(1)

 

10%

 

8/16/2022

 

5 years

 

 

1,669

 

 

 

1,669

 

 

 

 

 

 

125

 

 

Hope International Hospice, Inc.(1)

 

10%

 

8/17/2022

 

Due on Demand

 

 

50

 

 

 

50

 

 

 

 

 

 

 

 

Hope International Hospice, Inc.(1)

 

10%

 

10/20/2022

 

Due on Demand

 

 

100

 

 

 

100

 

 

 

 

 

 

 

 

Hope International Hospice, Inc.(1)

 

10%

 

3/17/2023

 

Due on Demand

 

 

100

 

 

 

100

 

 

 

 

 

 

 

 

Yutaka and Soomi Niihara(1)

 

10%

 

3/21/2023

 

Due on Demand

 

 

127

 

 

 

127

 

 

 

 

 

 

 

 

Wei Peu Zen(2)

 

60%

 

12/1/2023

 

2 months

 

 

350

 

 

 

700

 

 

 

350

 

 

 

70

 

 

 

 

 

 

 

Subtotal

 

$

5,093

 

 

$

5,443

 

 

$

350

 

 

$

252

 

 

 

 

 

 

 

 

Total

 

$

5,093

 

 

$

5,443

 

 

$

350

 

 

$

252

 

 

(1)
Dr. Niihara, a former Director and former Chairman and Chief Executive Officer of the Company, is also a director and the Chief Executive Officer of Hope International Hospice, Inc.
(2)
Officer or director.

22


 

The following table sets forth information relating to loans from related parties outstanding at any time during the year ended December 31, 2023:

 

Class

Lender

 

Interest
Rate

 

Date of
Loan

 

Term of Loan

 

Principal Amount Outstanding at December 31, 2023

 

 

Highest
Principal
Outstanding

 

 

Amount of
Principal
Repaid or
Converted to Shares

 

 

Amount of
Interest
Paid

 

Current, Promissory notes payable to related parties:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Willis C. Lee(2)

 

12%

 

10/29/2020

 

Due on Demand

 

 

100

 

 

 

100

 

 

 

 

 

 

 

Soomi Niihara(1)

 

12%

 

12/7/2021

 

Due on Demand

 

 

700

 

 

 

700

 

 

 

 

 

 

 

Hope International Hospice, Inc.(1)

 

12%

 

2/9/2022

 

Due on Demand

 

 

350

 

 

 

350

 

 

 

 

 

 

 

Hope International Hospice, Inc.(1)

 

10%

 

2/15/2022

 

Due on Demand

 

 

210

 

 

 

210

 

 

 

 

 

 

 

Soomi Niihara(1)

 

10%

 

2/15/2022

 

Due on Demand

 

 

100

 

 

 

100

 

 

 

 

 

 

 

Hope International Hospice, Inc.(1)

 

10%

 

3/15/2022

 

Due on Demand

 

 

150

 

 

 

150

 

 

 

 

 

 

 

Hope International Hospice, Inc.(1)

 

10%

 

3/30/2022

 

Due on Demand

 

 

150

 

 

 

150

 

 

 

 

 

 

 

Wei Peu Zen(2)

 

10%

 

3/31/2022

 

Due on Demand

 

 

200

 

 

 

200

 

 

 

 

 

 

 

Willis C. Lee(2)

 

10%

 

4/14/2022

 

Due on Demand

 

 

45

 

 

 

45

 

 

 

 

 

 

 

Hope International Hospice, Inc.(1)

 

12%

 

5/25/2022

 

Due on Demand

 

 

40

 

 

 

40

 

 

 

 

 

 

 

Yutaka and Soomi Niihara(1)

 

12%

 

7/27/2022

 

5 years

 

 

402

 

 

 

402

 

 

 

 

 

 

48

 

Hope International Hospice, Inc.(1)

 

10%

 

8/15/2022

 

Due on Demand

 

 

 

 

 

50

 

 

 

50

 

 

 

2

 

Yutaka and Soomi Niihara(1)

 

10%

 

8/16/2022

 

5 years

 

 

250

 

 

 

250

 

 

 

 

 

 

25

 

Yutaka and Soomi Niihara(1)

 

10%

 

8/16/2022

 

5 years

 

 

1,669

 

 

 

1,669

 

 

 

 

 

 

167

 

Hope International Hospice, Inc.(1)

 

12%

 

8/17/2022

 

Due on Demand

 

 

50

 

 

 

50

 

 

 

 

 

 

 

Yutaka and Soomi Niihara(1)

 

10%

 

8/17/2022

 

Due on Demand

 

 

 

 

 

60

 

 

 

60

 

 

 

6

 

Seah Lim(2)

 

10%

 

9/16/2022

 

3 years

 

 

 

 

 

1,200

 

 

 

1,200

 

 

 

90

 

Hope International Hospice, Inc.(1)

 

10%

 

10/20/2022

 

Due on Demand

 

 

100

 

 

 

100

 

 

 

 

 

 

 

Hope International Hospice, Inc.(1)

 

10%

 

3/17/2023

 

Due on Demand

 

 

100

 

 

 

100

 

 

 

 

 

 

 

Yutaka and Soomi Niihara(1)

 

10%

 

3/21/2023

 

Due on Demand

 

 

127

 

 

 

127

 

 

 

 

 

 

 

Wei Peu Zen(2)

 

60%

 

12/1/2023

 

2 months

 

 

700

 

 

 

700

 

 

 

 

 

 

 

 

 

 

 

 

 

Subtotal

 

$

5,443

 

 

$

6,753

 

 

$

1,310

 

 

$

338

 

Convertible note payable to related parties:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wei Peu Zen(2)

 

10%

 

1/18/2023

 

1 - 2 years

 

 

 

 

 

1,000

 

 

 

1,000

 

 

 

91

 

 

 

 

 

 

 

Subtotal

 

$

 

 

$

1,000

 

 

$

1,000

 

 

$

91

 

 

 

 

 

 

 

Total

 

$

5,443

 

 

$

7,753

 

 

$

2,310

 

 

$

429

 

 

(1)
Dr. Niihara, a former Director and former Chairman and Chief Executive Officer of the Company, is also a director and the Chief Executive Officer of Hope International Hospice, Inc.
(2)
Officer or director.

 

See Note 7 for more information on recent developments with respect to certain related-party loans.

See Notes 5, 6 and 11 for a discussion of the Company’s agreements with Telcon, which holds 4,147,491 shares of common stock of the Company, or approximately 6.5% of the common stock outstanding as of September 30, 2024. As of September 30, 2024, the Company held a Telcon convertible bond in the principal amount of KRW 20.1 billion, or approximately $15.3 million as discussed in Note 5.

 

 

23


 

 

 

NOTE 13 — SUBSEQUENT EVENTS

 

The Company evaluated events subsequent to the balance sheet date through the date the financial statements were issued and determined that there were no such events requiring recognition or disclosure in the financial statements.

24


 

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

In the following discussion, the terms, “we,” “us,” “our,” “Emmaus” or the “Company” refer to Emmaus Life Sciences, Inc. and its direct and indirect subsidiaries.

Forward-Looking Statements

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (“SEC”) on July 3, 2024 (the “Annual Report”).

This Quarterly Report contains forward-looking statements that involve substantial risks and uncertainties. All statements other than historical facts contained in this report, including statements regarding our future financial position, capital expenditures, cash flows, business strategy and plans and objectives of management for future operations are forward-looking statements. The words “anticipate,” “believe,” “expect,” “plan,” “intend,” “seek,” “estimate,” “project,” “could,” “may” and similar expressions are intended to identify forward-looking statements. These statements include, among others, information regarding future operations, future capital expenditures, and future net cash flow. Such statements reflect our management’s current views with respect to future events and financial performance and involve risks and uncertainties, including those set forth in the “Risk Factors” section of the Annual Report, many of which are beyond our control.

Should one or more of these risks or uncertainties occur, or should underlying assumptions prove to be incorrect, actual results may vary materially and adversely from those anticipated, believed, estimated or otherwise indicated. Consequently, all forward-looking statements made in this Form 10-Q are qualified by these cautionary statements. We undertake no duty to amend or update these statements beyond what is required by SEC reporting requirements.

Company Overview

We are a commercial-stage biopharmaceutical company engaged in the discovery, development, marketing and sale of innovative treatments and therapies, primarily for rare and orphan diseases. Our only product, Endari® (prescription-grade L-glutamine oral powder) is approved by the U.S. Food and Drug Administration, or FDA, to reduce the acute complications of sickle cell disease (“SCD”), in adult and pediatric patients five years of age and older. In April 2022, Endari® was approved by the Ministry of Health and Prevention in the United Arab Emirates, or U.A.E, in adults and pediatric patients five years of age and older. In November and December of 2022, we received marketing authorizations for Endari® in Qatar and Kuwait, respectively. In July 2023, we received marketing approval for Endari® in Oman. Applications for marketing authorization is pending in the Kingdom of Saudi Arabia. While the application is pending, the FDA approval of Endari® can be referenced to allow access to Endari® on a named-patient basis.

Until August 2024, Endari® was marketed and sold in the U.S. by our internal commercial sales team. In August 2024, we reduced our internal sales team and in October terminated the employment of our Chief Commercialization Officer, which we do not expect to adversely affect our Endari® sales. Endari® is reimbursable by the Centers for Medicare and Medicaid Services, and every state provides coverage for Endari® for outpatient prescriptions to all eligible Medicaid enrollees within their state Medicaid programs. Endari® is also reimbursable by many commercial payors. We have agreements in place with the nation’s leading distributors as well as physician group purchasing organizations and pharmacy benefits managers, making Endari® available at selected retail and specialty pharmacies nationwide.

As of September 30, 2024, our accumulated deficit was $260.8 million and we had cash and cash equivalents of $1.3 million. Until we can generate sufficient net revenues from Endari® sales, our future cash requirements are expected to be financed through loans from related parties, third-party loans, public or private equity or debt financings or possible corporate collaboration and licensing arrangements. We are unable to predict if or when we may generate increased net revenues.

Financial Overview

Revenues, net

We realize net revenues primarily from sales of Endari® to our distributors and specialty pharmacy providers. Distributors resell our products to other pharmacy and specialty pharmacy providers, health care providers, hospitals, and clinics. In addition to agreements with these distributors, we have contractual arrangements with specialty pharmacy providers, in-office dispensing providers, physician group purchasing organizations, pharmacy benefits managers and government entities that provide for government-mandated or privately negotiated rebates, chargebacks and discounts with respect to the purchase of our products. These

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various discounts, rebates, and chargebacks are referred to as “variable consideration.” Revenue from product sales is recorded net of variable consideration.

Under the Accounting Standards Codification (“ASC”) 606, we recognize revenue when our customers obtain control of our product, which typically occurs on delivery. Revenue is recognized in an amount that reflects the consideration that we expect to receive in exchange for the product, or transaction price. To determine revenue recognition for contracts with customers within the scope of ASC 606, we perform the following: (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 our performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy the relevant performance obligations.

Management estimates variable consideration using the expected-value amount method, which is the sum of probability-weighted amounts in a range of possible transaction prices. Actual variable consideration may differ from our estimates. If actual results vary from the estimates, we adjust the variable consideration in the period such variances become known, which adjustments are reflected in net revenues in that period. The following are our significant categories of variable consideration:

Sales Discounts: We afford our customers prompt payment discounts and additional discounts to encourage bulk orders to generate needed working capital.

Product Returns: We offer our distributors a right to return product principally based upon (i) overstocks, (ii) inactive product or non-moving product due to market conditions, and (iii) expired product. Product return allowances are estimated and recorded at the time of sale.

Government Rebates: We are subject to discount obligations under state Medicaid programs and the Medicare Part D prescription drug coverage gap program. We estimate Medicaid and Medicare Part D prescription drug coverage gap rebates based upon a range of possible outcomes that are probability-weighted for the estimated payor mix. These reserves are recorded in the same period the related revenues are recognized, resulting in a reduction of product revenues and the establishment of a current liability that is included as accounts payable and accrued expenses on our balance sheet. Our liability for these rebates consists primarily of estimates of claims expected to be received in future periods related to recognized revenues.

Chargebacks and Discounts: Chargebacks for fees and discounts represent the estimated obligations resulting from contractual commitments to sell products to certain specialty pharmacy providers, in-office dispensing providers, group purchasing organizations, and government entities at prices lower than the list prices charged to distributors. The distributors charge us for the difference between what they pay for the products and our contracted selling price to these specialty pharmacy providers, in-office dispensing providers, group purchasing organizations, and government entities. In addition, we have contractual agreements with pharmacy benefit managers who charge us for rebates and administrative fees in connection with the utilization of product. These reserves are established in the same period that the related revenues are recognized, resulting in a reduction of revenues. Chargeback amounts are generally determined at the time of resale of product by our distributors.

Cost of Goods Sold

Cost of goods sold consists primarily of expenses for raw materials, packaging, shipping, and distribution of Endari®.

Research and Development Expenses

Research and development expenses consist of expenditures for new products and technologies consisting primarily of fees paid to contract research organizations (“CRO”) that conduct clinical trials of our product candidates, payroll-related expenses, study site payments, consultant fees and other related costs. The costs of later-stage clinical studies such as Phase 2 and 3 trials are generally higher than those of earlier studies. This is primarily due to the larger size, expanded scope, patient related healthcare and regulatory compliance costs, and generally longer duration of later-stage clinical studies.

Our contracts with CROs are generally based on time and materials expended, whereas study site agreements are generally based on costs per patient as well as other pass-through costs, including start-up costs and institutional review board fees. The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones.

Future research and development expenses will depend on any new product candidates or technologies that we may introduce into our research and development pipeline. In addition, we cannot predict which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree, if any, such arrangements would affect our development plans and capital requirements.

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Due to the inherently unpredictable nature of the drug approval process and applicable regulatory requirements, we are unable to estimate the amount of costs of obtaining regulatory approvals of Endari® outside of the U.S. or the development of our other preclinical and clinical programs. In September 2023, we suspended most preclinical activities related to our product candidates to focus on commercial expansion of Endari® in the U.S. and the MENA region. Clinical development timelines, the probability of success and development costs can differ materially from expectations and can vary widely. These and other risks and uncertainties relating to product development are described in the Annual Report under the headings “Risk Factors—Risks Related to Our Business” and “Risk Factors—Risks Related to Regulatory Oversight of our Business and Compliance with Law.”

General and Administrative Expense

General and administrative expenses consist principally of salaries and related employee costs, including share-based compensation for our directors, executive officers, and employees. Other general and administrative expenses include facility costs, and professional fees and expenses for audit, legal, consulting, and tax services.

Selling Expenses

Selling expenses consist principally of salaries and related costs for personnel involved in the promotion, sales, and marketing of Endari®. Other selling expenses include advertising, third party consulting costs, the cost of in-house sales personnel and travel-related costs. Selling expenses is expected decrease due to reduction in sales force as exclusivity of Endari® in the U.S. expires in July 2024.

COVID-19

In retrospect, we believe our business and net revenues were adversely affected in 2020 and 2021 by lockdowns, travel-related restrictions and other governmental responses to the pandemic related to the COVID 19 pandemic which inhibited the ability of our sales force to visit doctors’ offices and clinics and may have adversely affected the willingness of SCD patients to seek the care of a physician or to comply with physician-prescribed care. Ongoing COVID-19 infections or future official responses could cause a temporary or prolonged decline in our revenues and have a material adverse effect on our results of operations and financial condition. COVID-19 or governmental responses also may adversely affect the timing and conduct of clinical studies or the ability of regulatory bodies to consider or grant approvals with respect to Endari® or our prescription grade L-glutamine, or PGLG, drug candidates or oversee the development of our drug candidates, may further divert the attention and efforts of the medical community to coping with COVID-19 or variants and disrupt the marketplace in which we operate. Any outbreak of COVID-19 among our executives or key employees or their families and loved ones could disrupt our management and operations and adversely affect the effectiveness of our management, Endari® sales, and results of operations and financial condition. The foregoing factors could also have an adverse effect on economic and business conditions and the broad stock market, in general, or the market price of our common stock, in particular.

Inflation

Inflation has not had a material impact on our expenses or results of operations over the past two years, but may result in increased manufacturing, research and development, general and administrative and selling expenses in the foreseeable future.

Environmental Expenses

The cost of compliance with environmental laws has not been material over the past two years and any such costs are included in general and administrative costs.

Inventories

Inventories consist of raw materials, finished goods and work-in-process and are valued on a first-in, first-out basis and at the lower of cost or net realizable value. Substantially all raw materials purchased during each of the nine months ended June 30, 2024 and 2023 were supplied by one supplier.

Results of Operations:

Three months ended September 30, 2024 and 2023

 

Net Revenues. Net revenues increased by $0.5 million, or 9%, to $5.5 million for the three months ended September 30, 2024, compared to $5.0 million for the three months ended September 30, 2023 due to an increase in sales in the MENA region, partially offset by the decrease of U.S. sales as the orphan drug exclusivity for Endari® has expired and a generic version of L-Glutamine oral powder has entered into U.S. market as discussed below.

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On July 15, 2024, ANI Pharmaceuticals, Inc., or ANI. announced the launch of its L-Glutamine Oral Powder, a generic version of Endari®, following final approval of its Abbreviated New Drug Application from the U.S. Food and Drug Administration. The introduction of ANI’s generic product or other generic versions of L-Glutamine oral powder has adversely affected on Endari® sales and is likely to adversely affect the reimbursement rates that Medicare, Medicaid and third-party payors are willing to pay for Endari®, which could have a material, adverse effect on our future net revenues.

 

Cost of Goods Sold. Cost of goods sold increased by $0.2 million, or 84%, to $0.4 million for the three months ended September 30, 2024, compared to $0.2 million for the three months ended September 30, 2023. The increase was primarily due to the increase in sales discussed above.

Research and Development Expenses. Research and development expenses decreased by $0.3 million, or 65%, to $0.1 million for the three months ended September 30, 2024, compared to $0.4 million for the three months ended September 30, 2023. The decrease was primarily due to a decrease in CRO expenses.

Selling Expenses. Selling expenses decreased by $0.2 million, or 12%, to $1.3 million for the three months ended September 30, 2024, compared to $1.5 million for the three months ended September 30, 2023. The decrease was primarily due to decreases in travel expenses and sponsorships.

General and Administrative Expenses. General and administrative expenses decreased by $0.1 million, or 2%, to $2.8 million for the three months ended September 30, 2024, compared to $2.9 million for the three months ended September 30, 2023.

Other Income (Expense). Total other income increased by $1.0 million, or 1,140%, to $1.0 million for the three months ended September 30, 2024, compared to $0.1 million for the three months ended September 30, 2023. The increase was primarily due to decreases of $0.7 million in foreign exchange loss, $0.6 million in interest expense and $0.6 million in loss on debt restructuring, partially offset by a decrease of $0.8 million decrease in change in fair value of conversion feature derivative liabilities.

Net Income. Net income was $1.8 million and $0.1 million for three months ended September 30, 2024 and 2023, respectively. The increase was due primarily to the increase in other income and decrease in expenses.

Nine months ended September 30, 2024 and 2023

 

Net Revenues. Net revenues decreased by $9.2 million, or 41%, to $13.4 million for the nine months ended September 30, 2024, compared to $22.5 million for the nine months ended September 30, 2023 due to a shortage of finished goods inventory during the first half of 2024. While inventory shortage issue was resolved during the third quarter, subject to the effects of the introduction of generic L-Glutamine Oral Powder in the U.S. market discussed above, we expect that sales in the fourth quarter will rebound to levels experienced prior to the shortage, but sales for the full year are not expected to meet sales for the full year 2023.

 

Cost of Goods Sold. Cost of goods sold decreased by $0.3 million, or 23%, to $0.9 million for the nine months ended September 30, 2024, compared to $1.2 million for the nine months ended September 30, 2023. The decrease was primarily due to the decrease in sales discussed above.

Research and Development Expenses. Research and development expenses decreased by 0.5 million, or 49%, to $0.5 million for the nine months ended September 30, 2024, compared to $1.0 million for the nine months ended September 30, 2023. The decrease was primarily due to a decrease in CRO expenses.

Selling Expenses. Selling expenses decreased by $1.5 million, or 23%, to $4.9 million for the nine months ended September 30, 2024, compared to $6.3 million for the nine months ended September 30, 2023. The decrease was primarily due to decrease of $1.0 million in payroll expense, $0.2 million in travel expense and $0.2 million in sponsorships.

General and Administrative Expenses. General and administrative expenses decreased by $3.4 million, or 29%, to $8.4 million for the nine months ended September 30, 2024, compared to $11.8 million for the nine months ended September 30, 2023. The decrease was primarily due to decreases of $1.3 million in payroll expense including share-based compensation, $0.7 million in transaction cost, $0.3 million in settlement fees, $0.2 million in public relations expense and $0.2 million in professional services.

Other Income (Expense). Total other expense decreased by $3.7 million, or 53%, to $3.3 million for the nine months ended September 30, 2024, compared to $7.1 million for the nine months ended September 30, 2023. The decrease was primarily due to an increase of $1.0 million in gain on restructured debt and decreases of $3.2 million in foreign exchange loss and $1.0 million in interest expenses, partially offset by an increase of $2.2 million in change in fair value of conversion feature derivative liabilities.

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Net Loss. Net loss was $4.7 million and $4.9 million for nine months ended September 30, 2024 and 2023, respectively.

Liquidity and Capital Resources

Based on our losses to date, current liabilities and anticipated future net revenues, operating expenses and debt repayment obligations and cash and cash equivalents of $1.3 million as of September 30, 2024, we do not have sufficient operating capital for our business without raising additional capital. We realized a net loss of $4.7 million for the nine months ended September 30, 2024 and we may continue to incur net losses for the foreseeable future and until we can generate increased net revenues from Endari® sales. There is no assurance that we will be able to increase our Endari® sales or attain sustainable profitability or that we will have sufficient capital resources to fund our operations until we are able to generate sufficient cash flow from operations.

Liquidity represents our ability to pay our liabilities when they become due, fund our business operations, and meet our contractual obligations and execute our business plan. Our current primary sources of liquidity are our cash balances at the beginning of each period and net revenues, and proceeds from related-party loans and possible other financing activities. Our short-term and long-term cash requirements consist primarily of debt service under our convertible notes payable and notes payable, working capital and general corporate requirements and contractual obligations.

As of September 30, 2024, we had outstanding $16.2 million principal amount of convertible promissory notes and $13.1 million principal amount of other notes payable. Our minimum lease payment obligations were $2.0 million, of which $0.9 million was payable within 12 months.

Our API supply agreement with Telcon provides for an annual API purchase target of $5 million and a target “profit” (i.e., gross margin) to Telcon of $2.5 million. To the extent these targets are not met, Telcon may be entitled to payment of the shortfall or to offset the shortfall against the Telcon convertible bond and proceeds thereof that are pledged as collateral to secure our obligations. In April 2024, Telcon offset KRW3.5 billion, or approximately $2.5 million, against the principal amount of the Telcon convertible bond and we released KRW893 million, or approximately $640,000, in cash proceeds to Telcon in satisfaction the target shortfall for the year ended 2023.

Due to uncertainties regarding our ability to meet our current and future operating and capital expenses, there is substantial doubt about our ability to continue as a going concern for 12 months from the date that our condensed consolidated financial statements are issued, as referred to in the “Risk Factors” section of this Quarterly Report and Note 2 of the Notes to Condensed Consolidated Financial Statements included herein.

Cash flows for the nine months ended September 30, 2024 and September 30, 2023

Net cash used in operating activities

Net cash used in operating activities increased by $0.1 million, or 4%, to $2.6 million for the nine months ended September 30, 2024 from $2.5 million for the nine months ended September 30, 2023. This increase was primarily due to a decrease of sales partially offset by decrease of operating expenses.

Net cash provided by (used in) investing activities

Net cash provided by investing activities increased to $2.5 million for the nine months ended September 30, 2024 from $0.5 million net cash used in investing activities for the nine months ended September 30, 2023. The increase was primarily due to deemed sales of Telcon convertible bonds and the cessation of loan funding to EJ Holdings.

Net cash provided by (used in) from financing activities

Net cash used in from financing activities increased by $3.6 million, or 147%, to $1.2 million for the nine months ended September 30, 2024 from a $2.5 million net cash provided by financing activities for the nine months ended September 30, 2023. The increase was the result of $4.7 million reduction of proceeds received from issuance of promissory notes and convertible notes partially offset by $1.1 million reduction of repayments to promissory notes and convertible notes.

Off-Balance-Sheet Arrangements

We have no off-balance sheet arrangements.

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Critical Accounting Estimates

Management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of certain assets, liabilities and expenses. On an ongoing basis, we evaluate these estimates and judgments, including but not limited to those relating revenue recognition on product sales, the variables used to calculate the valuation of investment in convertible bond, conversion feature, stock options and warrants. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the present circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates.

Refer to “Critical Accounting Policies” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Annual Report for our critical accounting policies. There have been no material changes in any of our critical accounting policies during the nine months ended September 30, 2024.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not required for a smaller reporting company.

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (“DCP”) are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. DCP include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosures.

As of the end of the period covered by this Form 10-Q, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our DCP. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s DCP were not effective due to the material weaknesses described below.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended September 30, 2024 which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Material Weaknesses

 

As previously reported, in connection with the preparation of our consolidated financial statements as of December 31, 2021, our management identified ongoing material weaknesses (the “Material Weaknesses”) in our internal control over financial reporting. The Material Weaknesses related to ineffective controls over accounting treatment for complex accounting matters and financial closing process, lack of segregation of duties including access control over financial reporting system, inadequate documentation of policies and procedures over risk assessments, internal control and significant account processes.

Since identifying the Material Weaknesses, we took several steps to remediate the Material Weaknesses, including:

 

engaging a third-party accounting consulting firms to assist us in the review of our application of GAAP to complex debt financing transactions;
review and approval of Financial Statements and SEC Filings, using current GAAP Disclosure and SEC Reporting Checklists, done by someone with appropriate knowledge of and skills to perform such reviews;

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continuing professional training and academic education on accounting subjects for accounting staff;
enhancing attention to review controls related to our financial closing process and reporting;
subscribing to relevant online services and other supplemental internal and external resources relating to SEC reporting; and
establishing a Disclosure Committee to ensure more effective internal communication regarding significant transactions and our financial reporting.

 

In 2022, we implemented an integrated cloud-based enterprise resource planning system to manage our financial information and replace our outdated financial accounting systems and software. As a result of these actions, management has concluded that the certain material weaknesses identified in previous fiscal years have been remediated but that there continued to be material weaknesses in our internal control over financial reporting as of December 31, 2023. In particular, our finance and financial accounting department is not adequately staffed, which results in not all policies and procedures being properly documented.

During 2023, the Company paid $650,000 in exchange for the promise of a standby letter of credit from foreign sources which was determined to have been fraudulent. In connection with this matter, we identified an additional material weakness related to insufficient board of directors' oversight and a lack of internal governance processes and procedures surrounding the evaluation of and background checks of advisors in foreign jurisdictions where we have less familiarity with laws and business practices.

To address the material weakness related to insufficient board of directors' oversight noted above, our board of directors appointed a Steering Committee of our Co-Presidents at the time and independent directors following the termination of employment of our former Chief Executive Officer and we engaged outside counsel to advise management on additional steps which should be taken to properly vet the Company’s advisors and others with which it seeks to do business in the future.

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Part II. Other Information

Not applicable.

Item 1A. Risk Factors

 

The following should be read in conjunction with the “Risk Factors” section of the Annual Report and subsequent Quarterly Reports.

The market exclusivity for Endari® for SCD in the U.S. expired on July 7, 2024 and Endari® has no intellectual property protection of Endari® in the U.S. or orphan drug or other market exclusivity in the MENA region, which lack of exclusivity may result in the introduction of generic versions of PGLG in the U.S. and MENA regions and adversely affect our Endari® sales and results of operations in future periods. On July 15, 2024, for example, ANI Pharmaceuticals, Inc., or ANI. announced the launch of its L-Glutamine Oral Powder, a generic version of Endari®, following final approval of its Abbreviated New Drug Application from the U.S. Food and Drug Administration. The introduction of ANI’s generic product or other generic versions of L-Glutamine oral powder has adversely affected Endari® sales volume in the U.S. and is likely to adversely affect the reimbursement rates that Medicare, Medicaid and third-party payors are willing to pay for Endari®, which could have a material, adverse effect on our future net revenues. It is also possible that ANI or other generic maker will seek to introduce generic versions of Endari® in the MENA region.

Sales of Endari® depend on the availability of adequate coverage and reimbursement from third-party payors and governmental healthcare programs, such as Medicare and Medicaid in the U.S. and government payors in the MENA region. Patients who are prescribed medicine for the treatment of their conditions generally rely on third-party payors to reimburse all or a significant part of the costs associated with their prescription drugs. Coverage determination depends on financial, clinical and economic outcomes that often disfavors new drug products when more established or lower cost therapeutic alternatives are already available or subsequently become available. Although Endari® currently is reimbursable by the Centers for Medicare and Medicaid Services, and every state provides coverage for Endari® for outpatient prescriptions to all eligible Medicaid enrollees within their state Medicaid programs, the reimbursement amounts are subject to change and may not be adequate and may require higher co-payments that patients find unacceptable. The Company also has negotiated reimbursement rates for Endari® in the MENA region which are comparable to Medicare and Medicaid reimbursement rates. Patients are unlikely to use Endari® unless reimbursement is adequate to cover a significant portion of the cost of Endari®. Future coverage and reimbursement rates will likely be subject to increased scrutiny from payors in the U.S. and perhaps government payors in the MENA region. Third-party coverage and reimbursement for Endari® may cease to be available or adequate, which could have a material adverse effect on our business, results of operations, financial condition, and prospects.

 

The market for Endari® also depends on access to third-party payors’ drug formularies, which are lists of medications for which third-party payors provide coverage and reimbursement. The competition in the industry to be included in such formularies may lead to downward pricing pressures on us. Also, third-party payors may refuse to include Endari® in their formularies or otherwise restrict patient access to Endari® if a less costly generic equivalent or other alternative treatment is available. In this regard, Medicare and Medicaid reimbursement rate for branded products such as Endari are subject to decrease to the cost of comparable generic versions of the products such as ANI’s L-Glutamine Oral Powder or other generic versions of Endari®. In light of the recent launch of ANI’s L-Glutamine Oral Powder, we expect to reduce the wholesale acquisition cost of Endari to address these reimbursement requirements.

 

Sales of Endari® in the MENA region are subject to lengthy reimbursement terms compared to U.S. sales, and management expects that our accounts receivable aging will be adversely affected by such terms as sales in the MENA region increase compared to our U.S. sales.

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

None

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

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Item 5. Other Information

None.

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Item 6. Exhibits

(a) Exhibits

 

 

Incorporated by Reference

 

Exhibit

Number

Exhibit Description

Form

File No.

Exhibit

Filing Date

Filed/
Furnished

10.1

Agreement for the Purchase and Sale of Future Receipts with Agile Capital

 

 

 

 

*

31.1

Certification of Chief Executive Officer pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

 

*

31.2

Certification of Chief Financial Officer pursuant of Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

 

*

32.1

Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

 

**

101.INS

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document

 

 

 

 

 

101.SCH

Inline XBRL Taxonomy Extension Schema with Embedded Linkbase Document

 

 

 

 

 

104

Cover Page formatted as Inline XBRL and contained in Exhibit 101

 

 

 

 

 

 

* Filed herewith.

** This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

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EMMAUS LIFE SCIENCES, INC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

Emmaus Life Sciences, Inc.

 

 

 

 

Dated: November 19, 2024

By:

 

/s/ Willis C. Lee

 

Name:

 

Willis C. Lee

 

Its:

 

Chief Executive Officer (Principal Executive Officer)

 

 

 

 

 

By:

 

/s/ Yasushi Nagasaki

 

Name:

 

Yasushi Nagasaki

 

Its:

 

Chief Financial Officer (Principal Financial and Accounting Officer)

 

 

 

 

 

35