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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 June 30, 2025

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 August 11, 2025.

 

 


 

EMMAUS LIFE SCIENCES, INC.

For the Quarterly Period Ended June 30, 2025

TABLE OF CONTENTS

 

 

 

Page

 

 

 

 

Part I. Financial Information

 

 

 

 

Item 1.

Financial Statements (Unaudited)

1

 

 

 

 

(a) Condensed Consolidated Balance Sheets as of June 30, 2025 and December 31, 2024

1

 

 

 

 

(b) Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2025 and 2024

2

 

 

 

 

(c) Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three and six months ended June 30, 2025 and 2024

3

 

 

 

 

(d) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2025 and 2024

4

 

 

 

 

(e) Notes to Condensed Consolidated Financial Statements

5

 

 

 

Item 2.

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

22

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

 

 

 

Item 4.

Controls and Procedures

25

 

 

 

Part II Other Information

 

 

 

 

Item 1.

Legal Proceedings

27

 

 

 

Item 1A.

Risk Factors

27

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

27

 

 

 

Item 3.

Defaults Upon Senior Securities

27

 

 

 

Item 4.

Mine Safety Disclosures

27

 

 

 

Item 5.

Other Information

27

 

 

 

Item 6.

Exhibits

28

 

 

 

Signatures

29

 

 


 

Item 1. Financial Statements

 

EMMAUS LIFE SCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

As of

 

 

 

June 30, 2025

 

 

December 31, 2024

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

886

 

 

$

1,389

 

Accounts receivable, net

 

 

2,071

 

 

 

2,623

 

Inventories, net

 

 

1,313

 

 

 

1,635

 

Prepaid expenses and other current assets

 

 

745

 

 

 

1,120

 

Total current assets

 

 

5,015

 

 

 

6,767

 

Property and equipment, net

 

 

143

 

 

 

46

 

Right of use assets

 

 

830

 

 

 

1,530

 

Investment in convertible bond

 

 

17,188

 

 

 

15,037

 

Other assets

 

 

168

 

 

 

222

 

Total assets

 

$

23,344

 

 

$

23,602

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

19,373

 

 

$

16,926

 

Operating lease liabilities, current portion

 

 

348

 

 

 

2,423

 

Conversion feature derivative, notes payable

 

 

 

 

 

162

 

Other current liabilities

 

 

14,139

 

 

 

16,557

 

Warrant derivative liabilities

 

 

13

 

 

 

8

 

Notes payable, current portion, net of discount

 

 

8,267

 

 

 

7,093

 

Notes payable to related parties

 

 

3,132

 

 

 

3,372

 

Convertible notes payable, net of discount

 

 

16,804

 

 

 

17,014

 

Total current liabilities

 

 

62,076

 

 

 

63,555

 

Operating lease liabilities, less current portion

 

 

1,584

 

 

 

815

 

Other long-term liabilities

 

 

13,128

 

 

 

13,465

 

Notes payable to related parties, net of discount

 

 

2,257

 

 

 

2,246

 

Total liabilities

 

 

79,045

 

 

 

80,081

 

Commitments and contingent liabilities (Note 11)

 

 

 

 

 

 

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 shares issued and outstanding at June 30, 2025 and December 31, 2024

 

 

64

 

 

 

64

 

Additional paid-in capital

 

 

225,905

 

 

 

225,896

 

Net loan receivable from EJ Holdings

 

 

(16,869

)

 

 

(16,869

)

Accumulated other comprehensive loss

 

 

1,239

 

 

 

(2,995

)

Accumulated deficit

 

 

(266,040

)

 

 

(262,575

)

Total stockholders’ deficit

 

 

(55,701

)

 

 

(56,479

)

Total liabilities and stockholders’ deficit

 

$

23,344

 

 

$

23,602

 

 

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 June 30,

 

 

Six Months Ended June 30,

 

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

REVENUES, NET

 

 

$

2,817

 

 

$

5,377

 

 

$

5,223

 

 

$

7,883

 

COST OF GOODS SOLD

 

 

 

150

 

 

 

241

 

 

 

375

 

 

 

498

 

GROSS PROFIT

 

 

 

2,667

 

 

 

5,136

 

 

 

4,848

 

 

 

7,385

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

 

56

 

 

 

191

 

 

 

232

 

 

 

374

 

Selling

 

 

 

674

 

 

 

1,631

 

 

 

1,320

 

 

 

3,568

 

General and administrative

 

 

 

2,307

 

 

 

2,732

 

 

 

4,646

 

 

 

5,601

 

  Total operating expenses

 

 

 

3,037

 

 

 

4,554

 

 

 

6,198

 

 

 

9,543

 

INCOME (LOSS) FROM OPERATIONS

 

 

 

(370

)

 

 

582

 

 

 

(1,350

)

 

 

(2,158

)

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on debt extinguishment

 

 

 

(212

)

 

 

 

 

 

(376

)

 

 

 

Change in fair value of warrant derivative liabilities

 

 

 

4

 

 

 

5

 

 

 

(5

)

 

 

(3

)

Change in fair value of conversion feature derivative, notes payable

 

 

 

 

 

 

(1,440

)

 

 

162

 

 

 

(2,347

)

Realized loss on investment in convertible bond

 

 

 

(531

)

 

 

(544

)

 

 

(531

)

 

 

(544

)

Gain on restructured debt

 

 

 

 

 

 

 

 

 

 

 

 

1,032

 

Gain on lease modification

 

 

 

861

 

 

 

 

 

 

861

 

 

 

 

Foreign exchange gain (loss)

 

 

 

134

 

 

 

75

 

 

 

(18

)

 

 

106

 

Interest and other income (net)

 

 

 

67

 

 

 

135

 

 

 

140

 

 

 

282

 

Interest expense

 

 

 

(1,678

)

 

 

(966

)

 

 

(2,934

)

 

 

(2,876

)

  Total other expense

 

 

 

(1,355

)

 

 

(2,735

)

 

 

(2,701

)

 

 

(4,350

)

LOSS BEFORE INCOME TAXES

 

 

 

(1,725

)

 

 

(2,153

)

 

 

(4,051

)

 

 

(6,508

)

Income tax provision (benefit)

 

 

 

(590

)

 

 

31

 

 

 

(586

)

 

 

24

 

NET LOSS

 

 

 

(1,135

)

 

 

(2,184

)

 

 

(3,465

)

 

 

(6,532

)

 

 

 

 

 

 

 

 

 

 

 

 

 

COMPONENTS OF OTHER COMPREHENSIVE LOSS

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

3,715

 

 

 

(1,733

)

 

 

3,909

 

 

 

(3,461

)

Reclassification adjustment for loss included in net income (loss)

 

 

 

354

 

 

 

197

 

 

 

354

 

 

 

197

 

Foreign currency translation adjustments

 

 

 

(33

)

 

 

12

 

 

 

(29

)

 

 

30

 

Other comprehensive income (loss)

 

 

 

4,036

 

 

 

(1,524

)

 

 

4,234

 

 

 

(3,234

)

COMPREHENSIVE INCOME (LOSS)

 

 

$

2,901

 

 

$

(3,708

)

 

$

769

 

 

$

(9,766

)

NET LOSS PER COMMON SHARE - BASIC AND DILUTED

 

 

$

(0.02

)

 

$

(0.03

)

 

$

(0.05

)

 

$

(0.10

)

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING BASIC AND DILUTED

 

 

 

63,865,571

 

 

 

63,355,121

 

 

 

63,865,571

 

 

 

62,600,542

 

 

 

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, 2025

63,865,571

 

$64

 

$225,896

 

$(16,869)

 

$(2,995)

 

$(262,575)

 

$(56,479)

Share-based compensation

 

 

10

 

 

 

 

10

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

 

 

 

 

194

 

 

194

Foreign currency translation effect

 

 

 

 

4

 

 

4

Net loss

 

 

 

 

 

(2,330)

 

(2,330)

 Balance, March 31, 2025

63,865,571

 

64

 

225,906

 

(16,869)

 

(2,797)

 

(264,905)

 

(58,601)

Share-based compensation

 

 

(1)

 

 

 

 

(1)

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

 

 

 

 

3,715

 

 

3,715

Reclassification of realized loss on investment in convertible bond included in net loss

 

 

 

 

354

 

 

354

Foreign currency translation effect

 

 

 

 

(33)

 

 

(33)

Net loss

 

 

 

 

 

(1,135)

 

(1,135)

 Balance, June 30, 2025

63,865,571

 

$64

 

$225,905

 

$(16,869)

 

$1,239

 

$(266,040)

 

$(55,701)

 

 

Common stock

 

Additional paid-in

 

Loan receivable from

 

Accumulated other comprehensive

 

Accumulated

 

Total stockholders'

 

Shares

 

Amount

 

capital

 

EJ Holdings

 

income (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 of realized loss on investment in convertible bond 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)

 

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

 

 

 

 

 

 

 

3


 

 

 

EMMAUS LIFE SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2025

 

 

2024

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net loss

 

$

(3,465

)

 

$

(6,532

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

9

 

 

 

12

 

Inventory reserve

 

 

4

 

 

 

15

 

Amortization of discount of notes payable and convertible notes payable

 

 

227

 

 

 

563

 

Foreign exchange adjustments

 

 

211

 

 

 

(194

)

Tax benefit recognized on unrealized gain on debt securities

 

 

(591

)

 

 

 

Realized loss on investment in convertible bond

 

 

531

 

 

 

544

 

Loss on debt extinguishment

 

 

376

 

 

 

 

Gain on restructured debt

 

 

 

 

 

(1,032

)

Gain on lease modification

 

 

(861

)

 

 

 

Share-based compensation

 

 

9

 

 

 

199

 

Change in fair value of warrant derivative liabilities

 

 

5

 

 

 

3

 

Change in fair value of conversion feature derivative, notes payable

 

 

(162

)

 

 

2,347

 

Net changes in operating assets and liabilities

 

 

 

 

 

 

Accounts receivable

 

 

552

 

 

 

921

 

Inventories

 

 

319

 

 

 

47

 

Prepaid expenses and other current assets

 

 

376

 

 

 

471

 

Other non-current assets

 

 

302

 

 

 

412

 

Accounts payable and accrued expenses

 

 

2,464

 

 

 

2,229

 

Other current liabilities

 

 

(2,516

)

 

 

(2,681

)

Other long-term liabilities

 

 

(419

)

 

 

(101

)

Net cash flows used in operating activities

 

 

(2,629

)

 

 

(2,777

)

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Proceeds from sale of convertible bond

 

 

2,172

 

 

 

2,508

 

Purchases of property and equipment

 

 

(1

)

 

 

(7

)

Net cash flows provided by investing activities

 

 

2,171

 

 

 

2,501

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Proceeds from notes payable issued

 

 

3,238

 

 

 

2,401

 

Payments of notes payable

 

 

(2,849

)

 

 

(2,571

)

Payments of notes payable, related party

 

 

(240

)

 

 

(350

)

Payments of convertible notes

 

 

(210

)

 

 

(200

)

Net cash flows used in financing activities

 

 

(61

)

 

 

(720

)

Effect of exchange rate changes on cash

 

 

15

 

 

 

(26

)

Net decrease in cash and cash equivalents

 

 

(504

)

 

 

(1,022

)

Cash and cash equivalents, beginning of year

 

 

1,389

 

 

 

2,547

 

Cash and cash equivalents, end of year

 

$

885

 

 

$

1,525

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES

 

 

 

 

 

 

Interest paid

 

$

916

 

 

$

1,234

 

Income taxes paid

 

$

14

 

 

$

29

 

NON-CASH INVESING AND FINANCING ACTIVITIES

 

 

 

 

 

 

Conversion of convertible note payable and accrued interest to common stock

 

$

 

 

$

309

 

Equipment purchased but included in accounts payable

 

$

105

 

 

$

 

 

 

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

4


 

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, 2024 (the “Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on April 14, 2025. The accompanying condensed consolidated balance sheet at December 31, 2024 has been derived from the audited consolidated balance sheet at December 31, 2024 contained in the Annual Report. The results of operations for the three and six months ended June 30, 2025 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 $3.5 million for the six months ended June 30, 2025 and had a working capital deficit of $57.1 million as of June 30, 2025. The Company’s indebtedness included in its current liabilities and its 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, 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 restructuring, refinancing, or financing, and there can be no assurance that the Company will be able to restructure or refinance 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, and estimated accruals 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.

5


 

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 the 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 period in which 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.

Accounts receivable— Accounts receivables are primarily attributable to product sales to distributors and other customers. Each reporting period, the Company evaluates the collectability of outstanding receivable balances and records an allowance for credit loss based on an estimate of current expected credit loss. The estimate is based on historical experience, customer creditworthiness, facts and circumstance specific to outstanding balances and payment terms. Provisions are made based upon a specific review of all significant outstanding invoices and the quality and age of those invoices. As of June 30, 2025 and December 31, 2024, the Company recorded no valuation allowances. The Company believes the credit risks associated with its customers are not significant.

 

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. Inventories are stated at the lower of cost or net realizable value. The Company periodically reviews its inventory and provides for potential obsolescence based on its assessment of market conditions and anticipated demand. Substantially all raw materials purchase during the six months ended June 30, 2025 and the year ended

6


 

December 31, 2024 were supplied, directly or indirectly by one supplier. Inventories are presented net of reserves totaling $5.0 million as of June 30, 2025 and December 31, 2024.

 

Share‑based compensation—The Company recognizes compensation cost for share‑based compensation awards during 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. 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 investment in convertible bond, the convertible features on convertible debt instruments and certain outstanding warrants that contain price adjustment provision are remeasured at fair value on a recurring basis using Level 3 inputs. The level 3 inputs in the valuation and valuation methods used are discussed in Note 5, 7 and 8. There are no other assets or liabilities measured at fair value on a recurring basis.

 

Derivative liability—The Company evaluates its financial instruments including convertible notes to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC 815. The Company applies significant judgment to identify and evaluate terms and conditions in these contracts and agreements to determine whether embedded derivative exists. If all the requirements for bifurcation are met, embedded derivatives are separately measured from the host contract. Bifurcated embedded derivatives are initially recorded at fair value and then remeasure at each reporting period, with change in fair value recognized in the consolidated statements of operations. Bifurcated embedded derivative are classified as separate liability in the condensed consolidated balance sheets.

7


 

The Company's derivative liability related to the conversion feature embedded in the convertible promissory notes. See note 7 for further details.

Net loss per share — The basic net loss per common share is computed by dividing net loss available to common stockholders by the weighted-average number of common shares outstanding. Dilutive net loss per share is computed in a similar manner, except that the denominator is increased to include the number of additional common shares 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 (in shares).

 

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

Warrants

 

 

 

4,405,220

 

 

 

4,720,645

 

 

 

4,514,503

 

 

 

4,726,518

 

Stock options

 

 

 

4,640,812

 

 

 

5,331,581

 

 

 

4,687,246

 

 

 

5,032,825

 

Convertible notes

 

 

 

238,601,424

 

 

 

102,954,830

 

 

 

243,360,690

 

 

 

102,954,830

 

Total anti-dilutive instrument

 

 

 

247,647,456

 

 

 

113,007,056

 

 

 

252,562,439

 

 

 

112,714,173

 

Segment reporting—The Company operates and manages its business as a single reportable segment primarily for the marketing and sales of Endari®. In accordance with ASC 280, "Segment Reporting," the determination of a single business segment is consistent with the consolidated financial information regularly provided to the Company's chief operating decision maker ("CODM").

The Company's CODM is its Chief Executive Officer, who reviews and evaluates consolidated income or loss from operations for purposes of evaluating performance, making operating decisions, allocating resources, and planning and forecasting for future periods. The significant components of consolidated income or loss from operations regularly provided to the CODM include revenues, net and the significant expense categories presented in the accompanying consolidated statements of operations and comprehensive loss (i.e., cost of goods sold, research and development, selling, and general and administrative expenses). These are presented at the consolidated level and used by the CODM to monitor budgeted versus actual results to make key operating decisions. The information and operating expense categories presented in the accompanying consolidated statements of operations and comprehensive loss are fully reflective of the significant expense categories and amounts that are regularly provided to the CODM.

The measure of segment assets that is regularly reported to the CODM includes cash and cash equivalent and accounts receivable, net, each as reported on the consolidated balance sheets.
 

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 following:

 

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which requires entities to disclose disaggregated information about their effective tax rate reconciliation and income taxes paid. The disclosure requirements will be applied on a prospective basis, with the option to apply them retrospectively. The standard is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact adopting the guidance.

In November 2024, the FASB issued ASU 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses”, which requires disaggregated disclosures in the notes of the financial statements of certain categories of expenses that are included in expense line items on the face of the income statement. This ASU is effective for annual periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company will evaluate the impact adopting the guidance will have on the Company's consolidated financial statements and disclosures.

8


 

NOTE 3 — REVENUES

Revenues, net by category were as follows (in thousands):

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

2025

 

 

2024

 

 

2025

 

 

2024

 

Endari®

$

2,797

 

 

99

%

 

$

5,351

 

 

100

%

 

$

5,050

 

 

97

%

 

$

7,695

 

 

98

%

Other

 

20

 

 

1

%

 

 

26

 

 

0

%

 

 

173

 

 

3

%

 

 

188

 

 

2

%

Revenues, net

 

2,817

 

 

100

%

 

 

5,377

 

 

100

%

 

 

5,223

 

 

100

%

 

 

7,883

 

 

100

%

The following table summarizes the revenue allowance and accrual activities for the six months ended June 30, 2025 and June 30, 2024 (in thousands):

 

Trade Discounts, Allowances and Chargebacks

 

 

Government Rebates and Other Incentives

 

 

Returns

 

 

Total

 

Balance as of January 1, 2025

$

1,135

 

 

$

6,812

 

 

$

138

 

 

$

8,085

 

Provision related to sales in the current year

 

390

 

 

 

1,595

 

 

 

55

 

 

 

2,040

 

Adjustments related to prior period sales

 

(2

)

 

 

27

 

 

 

 

 

 

25

 

Credits and payments made

 

(566

)

 

 

(980

)

 

 

(93

)

 

 

(1,639

)

Balance as of June 30, 2025

$

957

 

 

$

7,454

 

 

$

100

 

 

$

8,511

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of January 1, 2024

$

1,212

 

 

$

5,658

 

 

$

863

 

 

$

7,733

 

Provision related to sales in the current year

 

730

 

 

 

1,759

 

 

 

82

 

 

 

2,571

 

Adjustments related to prior period sales

 

(79

)

 

 

34

 

 

 

 

 

 

(45

)

Credits and payments made

 

(746

)

 

 

(765

)

 

 

(884

)

 

 

(2,395

)

Balance as of June 30, 2024

$

1,117

 

 

$

6,686

 

 

$

61

 

 

$

7,864

 

 

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

 

 

Three months ended June 30,

 

Six months ended June 30,

 

2025

 

2024

 

2025

 

2024

 

Customer A

12%

 

38%

 

16%

 

40%

 

Customer B

15%

 

26%

 

28%

 

30%

 

Customer C

27%

 

21%

 

13%

 

15%

 

Customer D

17%

 

4%

 

16%

 

3%

 

Customer E

14%

 

— %

(a)

8%

(a)

— %

(a)

 

(a) Customer E is included in the table above for comparison to show customer has met or exceeded the 10% threshold for the three months period ended June 30, 2025.

 

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 June 30, 2025 and December 31, 2024. See Notes 5, 6 and 11 and for additional details of the Company's agreements with Telcon.

9


 

NOTE 4 — SELECTED FINANCIAL STATEMENT — ASSETS

 

Inventories consisted of the following (in thousands):

 

 

June 30, 2025

 

 

December 31, 2024

 

Raw materials and components

$

1,145

 

 

$

1,147

 

Work-in-process

 

186

 

 

 

184

 

Finished goods

 

5,010

 

 

 

5,328

 

Inventory reserve

 

(5,028

)

 

 

(5,024

)

Total inventories, net

$

1,313

 

 

$

1,635

 

 

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

 

 

June 30, 2025

 

 

December 31, 2024

 

Prepaid insurance

$

389

 

 

$

622

 

Prepaid expenses

 

136

 

 

 

272

 

Other current assets

 

220

 

 

 

226

 

Total prepaid expenses and other current assets

$

745

 

 

$

1,120

 

 

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

 

June 30, 2025

 

 

December 31, 2024

 

Equipment

$

463

 

 

$

357

 

Leasehold improvements

 

16

 

 

 

15

 

Furniture and fixtures

 

30

 

 

 

30

 

Total property and equipment

 

509

 

 

 

402

 

Less: accumulated depreciation

 

(366

)

 

 

(356

)

Total property and equipment, net

$

143

 

 

$

46

 

 

For the three months ended June 30, 2025 and June 30, 2024, depreciation expense was approximately $4,000 and $6,000, respectively. For six months ended June 30, 2025 and June 30, 2024, depreciation expenses was approximately $9,000 and $12,000, 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 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 US$8.00 per share. The initial conversion price is subject to downward adjustment on a 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. On December 30, 2024, Telcon undertook a reverse stock split at a rate of 1-for-10. The conversion price as of June 30, 2025 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% of the 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 since management does not have intention to trade nor held until maturity, and measured at fair value on a recurring basis using Level 3 inputs, with any changes in the fair value recorded in other comprehensive loss. The fair value and any changes in fair value in the convertible bond is determined using a

10


 

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 2024, Telcon offset KRW3.5 billion, or approximately $2.5 million, against the principal amount of the Telcon convertible bond and the Company released KRW893 million, or approximately $640,000, in cash proceeds to Telcon in satisfaction of 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.

 

In April 2025, Telcon offset KRW3.1 billion, or approximately $2.1 million, against the principal amount of the Telcon convertible bond and the Company released KRW49 million, or approximately $34,000, in cash proceeds to Telcon in satisfaction of the target shortfall for the year ended 2024. As a result, the Company realized a net loss on investment in convertible bond of $531,000, 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 June 30, 2025 and December 31, 2024 (in thousands):

 

Investment in convertible bond

 

June 30, 2025

 

 

December 31, 2024

 

Balance, beginning of period

 

$

15,037

 

 

$

20,978

 

Sales of convertible bond

 

 

(2,172

)

 

 

(2,508

)

Net gain (loss) on investment on convertible bond

 

 

(177

)

 

 

(347

)

Change in fair value included in the statement of other comprehensive loss (net of tax)

 

 

4,500

 

 

 

(3,086

)

Balance, end of period

 

$

17,188

 

 

$

15,037

 

The fair value as of June 30, 2025 and December 31, 2024 was based upon following assumptions:

 

 

June 30, 2025

 

 

December 31, 2024

 

Principal outstanding (South Korean won)

 

KRW 17.0 billion

 

 

KRW 20.1 billion

 

Stock price

 

KRW 5354

 

 

KRW 5870

 

Expected life (in years)

 

 

5.30

 

 

 

5.79

 

Selected yield

 

 

13.25

%

 

 

9.50

%

Expected volatility (Telcon common stock)

 

 

66.55

%

 

 

62.90

%

Risk-free interest rate (South Korea government bond)

 

 

2.58

%

 

 

2.78

%

Expected dividend yield

 

 

 

 

 

 

Conversion price

 

KRW3,312(US$2.43)

 

 

KRW5,850(US$3.96)

 

Equity method investment – During 2018, the Company and Japan Industrial Partners, Inc., or JIP, formed EJ Holdings, Inc., or EJ Holdings, to acquire, own and operate an 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. The loan proceeds were used by EJ Holdings to purchase the Ube facility in December 2019 and pay related taxes. The principal (JPY 3,637,335,720) will become due and payable in two equal installments on December 28, 2027 and on September 30, 2028 and bears interest at the rate of 1% payable annually. The parties also contemplated that the Ube facility would eventually supply the Company with the facility’s output of amino acids, that the operation of the facility would be principally for the Company’s benefit and, as such, that major decisions affecting EJ Holdings and the Ube facility would be made by EJ Holdings’ board of directors, a majority of which were representatives of JIP, in consultation with the Company. The Company suspended further loans to EJ Holdings in September 2023.

EJ Holdings has had no substantial revenues since its inception, has dependent on loans from the Company to acquire the Ube facility and fund its operations and will be dependent on loans from other financing unless and until its plant is activated and it

11


 

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.

 

On December 28, 2023, the Company sold and assigned its EJ Holdings shares at its original cost of JPY3.6 million or US$25,304 to Niihara International, Inc., which was formed by Yutaka Niihara, M.D., Ph. D., former Chairman and Chief Executive Officer of the Company and a principal stockholder of the Company. In January 2024, JIP also sold their EJ Holdings' capital share to Niihara International, Inc. 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 June 30, 2025 and December 31, 2024, 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 June 30, 2025 and December 31, 2024 (in thousands):

 

 

June 30, 2025

 

 

December 31, 2024

 

Accounts payable:

 

 

 

 

 

 

Clinical and regulatory expenses

 

$

540

 

 

$

452

 

Professional fees

 

 

661

 

 

 

904

 

Selling expenses

 

 

1,420

 

 

 

1,553

 

Manufacturing costs

 

 

209

 

 

 

706

 

Non-employee director compensation

 

 

982

 

 

 

966

 

Other vendors

 

 

750

 

 

 

594

 

Total accounts payable

 

 

4,562

 

 

 

5,175

 

Accrued interest payable, related parties

 

 

1,372

 

 

 

1,145

 

Accrued interest payable

 

 

4,407

 

 

 

2,874

 

Accrued expenses:

 

 

 

 

 

 

Payroll expenses

 

 

545

 

 

 

323

 

Government rebates and other rebates

 

 

8,130

 

 

 

7,229

 

Other accrued expenses

 

 

357

 

 

 

180

 

Total accrued expenses

 

 

9,032

 

 

 

7,732

 

Total accounts payable and accrued expenses

 

$

19,373

 

 

$

16,926

 

 

Other current liabilities consisted of the following at June 30, 2025 and December 31, 2024 (in thousands):

 

 

 

June 30, 2025

 

 

December 31, 2024

 

Trade discount

$

3,000

 

 

$

5,000

 

Unearned revenue (a)

 

10,000

 

 

 

10,000

 

Other current liabilities

 

1,139

 

 

 

1,557

 

Total other current liabilities

$

14,139

 

 

$

16,557

 

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

 

Other long-term liabilities consisted of the following at June 30, 2025 and December 31, 2024 (in thousands):

 

 

June 30, 2025

 

 

December 31, 2024

 

Trade discount

$

13,075

 

 

$

13,421

 

Other long-term liabilities

 

53

 

 

 

44

 

Total other long-term liabilities

$

13,128

 

 

$

13,465

 

 

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 none and $368,000 of PGLG from Telcon for six months ended June 30, 2025 and 2024, respectively, of which $51,000 and $588,000 were reflected in accounts payable as of June 30, 2025 and December 31, 2024, 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.

 

13


 

NOTE 7 — NOTES PAYABLE

Notes payable consisted of the following at June 30, 2025 and December 31, 2024 (in thousands except for number of underlying shares):

 

Year
Issued

 

Interest Rate
Range

 

Term of Notes

 

Conversion
Price

 

 

Principal
Outstanding June 30, 2025

 

 

Unamortized Discount June 30, 2025

 

 

Capitalized Accrued Interest June 30, 2025

 

 

Carrying
Amount June 30, 2025

 

 

Underlying Shares June 30, 2025

 

Notes payable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 2013

 

10%

 

Due on demand

 

 

 

 

$

693

 

 

$

 

 

$

 

 

$

693

 

 

 

 

 2022

 

10%-12%

 

Due on demand

 

 

 

 

 

527

 

 

 

 

 

 

 

 

 

527

 

 

 

 

 2023

 

11%

 

Due on demand

 

 

 

 

 

3,278

 

 

 

 

 

 

 

 

 

3,278

 

 

 

 

 2024

 

30%

 

Due on demand

 

 

 

 

 

1,400

 

 

 

 

 

 

 

 

 

1,400

 

 

 

 

 2025

 

49% - 56%

 

20-38 weeks

 

 

 

 

 

2,516

 

 

 

147

 

 

 

 

 

 

2,369

 

 

 

 

 

 

 

 

 

 

 

 

$

8,414

 

 

$

147

 

 

$

 

 

$

8,267

 

 

 

 

 

 

 

Current

 

 

 

 

$

8,414

 

 

$

147

 

 

$

 

 

$

8,267

 

 

 

 

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

 

 

 

 

 

4,076

 

 

 

64

 

 

 

 

 

 

4,012

 

 

 

 

 2023

 

10%-60%

 

Due on demand

 

 

 

 

 

577

 

 

 

 

 

 

 

 

 

577

 

 

 

 

 

 

 

 

 

 

 

 

$

5,453

 

 

$

64

 

 

$

 

 

$

5,389

 

 

 

 

 

 

 

Current

 

 

 

 

$

3,132

 

 

$

 

 

$

 

 

$

3,132

 

 

 

 

 

 

 

Non-current

 

 

 

 

$

2,321

 

 

$

64

 

 

$

 

 

$

2,257

 

 

 

 

Convertible notes payable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 2021

 

10%

 

Due on demand

 

$

0.02

 

 

 

685

 

 

 

 

 

 

 

 

 

685

 

 

 

33,478,176

 

 2023

 

13%

 

Due on demand

 

$

10.00

 

(a)

 

3,150

 

 

 

 

 

 

 

 

 

3,150

 

 

 

398,695

 

 2023

 

10%

 

Due on demand

 

$

0.29

 

 

 

1,000

 

 

 

 

 

 

 

 

 

1,000

 

 

 

4,076,523

 

 2024

 

10%

 

Due on demand

 

$

0.02

 

 

 

11,030

 

 

 

 

 

 

939

 

 

 

11,969

 

 

 

200,000,000

 

 

 

 

 

 

 

 

 

$

15,865

 

 

$

 

 

$

939

 

 

$

16,804

 

 

 

237,953,394

 

 

 

 

Current

 

 

 

 

$

15,865

 

 

$

 

 

$

939

 

 

$

16,804

 

 

 

237,953,394

 

 

 

 

Total

 

 

 

 

$

29,732

 

 

$

211

 

 

$

939

 

 

$

30,460

 

 

 

237,953,394

 

 

Year
Issued

 

Interest Rate
Range

 

Term of Notes

 

Conversion
Price

 

 

Principal Outstanding December 31, 2024

 

 

Unamortized
Discount
December 31, 2024

 

 

Capitalized Accrued Interest
December 31, 2024

 

 

Carrying
Amount
December 31, 2024

 

 

Shares
Underlying
Notes
December 31, 2024

 

Notes payable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 2013

 

10%

 

Due on demand

 

 

 

 

$

638

 

 

$

 

 

$

 

 

$

638

 

 

 

 

 2022

 

10% - 12%

 

Due on demand

 

 

 

 

 

505

 

 

 

 

 

 

 

 

 

505

 

 

 

 

 2023

 

10% - 13%

 

Due on demand

 

 

 

 

 

3,200

 

 

 

 

 

 

 

 

 

3,200

 

 

 

 

 2024

 

30%-48%

 

Due on demand -34 weeks

 

 

 

 

 

2,854

 

 

 

104

 

 

 

 

 

 

2,750

 

 

 

 

 

 

 

 

 

 

 

 

$

7,197

 

 

$

104

 

 

$

 

 

$

7,093

 

 

 

 

 

 

 

Current

 

 

 

 

$

7,197

 

 

$

104

 

 

$

 

 

$

7,093

 

 

 

 

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

 

 

 

 

 

4,316

 

 

 

75

 

 

 

 

 

 

4,241

 

 

 

 

 2023

 

10%-60%

 

Due on demand

 

 

 

 

 

577

 

 

 

 

 

 

 

 

 

577

 

 

 

 

 

 

 

 

 

 

 

 

$

5,693

 

 

$

75

 

 

$

 

 

$

5,618

 

 

 

 

 

 

 

Current

 

 

 

 

$

3,372

 

 

$

 

 

$

 

 

$

3,372

 

 

 

 

 

 

 

Non-current

 

 

 

 

$

2,321

 

 

$

75

 

 

$

 

 

$

2,246

 

 

 

 

Convertible notes payable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 2021

 

2%

 

Due on Demand

 

$

0.13

 

 

 

895

 

 

 

 

 

 

 

 

 

895

 

 

 

39,455,164

 

 2023

 

13%

 

Due on Demand

 

$

10.00

 

(a)

 

3,150

 

 

 

 

 

 

 

 

 

3,150

 

 

 

378,388

 

 2023

 

10%

 

Due on Demand

 

$

0.29

 

 

 

1,000

 

 

 

 

 

 

 

 

 

1,000

 

 

 

3,905,526

 

 2024

 

10%

 

1 year

 

$

0.13

 

 

 

11,030

 

 

 

 

 

 

939

 

 

 

11,969

 

 

 

132,861,455

 

 

 

 

 

 

 

 

 

$

16,075

 

 

$

 

 

$

939

 

 

$

17,014

 

 

 

176,600,533

 

 

 

 

Current

 

 

 

 

$

16,075

 

 

$

 

 

$

939

 

 

$

17,014

 

 

 

176,600,533

 

 

 

 

Grand Total

 

 

 

 

$

28,965

 

 

$

179

 

 

$

939

 

 

$

29,725

 

 

 

176,600,533

 

 

14


 

 

(a)
This note is convertible into shares of EMI Holding, Inc., a wholly owned subsidiary of Emmaus Life Sciences, Inc.

The weighted-average stated annual interest rate of notes payable was 15% and 13% for the six months ended June 30, 2025 and the year ended December 31, 2024, respectively. The weighted-average effective annual interest rate of notes payable as of June 30, 2025 and December 31, 2024 was 18% and 16%, respectively, after giving effect to discounts relating to conversion features, warrants and deferred financing costs relating to the notes.

As of June 30, 2025, future contractual principal payments due on notes payable were as follows (in thousands):

 

Year Ending

 

 

2025 (six months)

$

27,411

 

2026

 

 

2027

 

2,321

 

Total

$

29,732

 

On February 9, 2021, the Company entered into a securities purchase agreement in which the Company sold and issued to purchasers in a private placement pursuant to Rule 4(a)(2) of the Securities Act of 1933, as amended, and Regulation D thereunder approximately $14.5 million principal amount of convertible promissory notes of the Company a face value.

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 volume-weighted average price" ("Average VWAP”) 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 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 April 2024, $260,000 principal amount plus accrued interest was converted into 2,019,608 shares of the Company's stock. For the year ended December 31, 2024, the Company repaid $455,000 principal amount of the convertible promissory notes. For six month ended June 30, 2025, the Company repaid total principal amount of $210,000. As of June 30, 2025, the conversion price was $0.02 per share.

The convertible promissory notes bear interest at the rate of 2% per year (10% in case of default), payable semi-annually on the last business day of August and January of each year and matured on the 3rd anniversary of the original issue date. The convertible promissory notes are prepayable 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 as 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 three months ended March 31, 2024. As of June 30, 2025, $11.0 million principal amount of the Exchange Notes was due and payable on demand.

 

The conversion feature of the original 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 December 31, 2024 (in thousands). As of June 30,

15


 

2025, the convertible promissory note became due and the conversion rate exceeded stock price and, therefore, the fair value of conversion feature was determined to be zero.

 

Convertible promissory notes

 

June 30, 2025

 

 

December 31, 2024

 

Balance, beginning of period

 

$

162

 

 

$

451

 

Change in fair value included in the statement of operations

 

 

(162

)

 

 

(289

)

Balance, end of period

 

$

 

 

$

162

 

 

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 had ended and was 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. In September 2024, the convertible promissory note became due. As of June 30, 2025, the conversion rate exceeded stock price and, therefore, the fair value of conversion feature was determined to be zero.

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 September 2024, Emmaus Medical entered into Sale of Future Receipts Agreement (the "September 2024 loan") with third party pursuant to which it sold and assigned $1,298,000 of 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. In February 2025, the Company repaid in full the outstanding balance of $343,000 and recognized debt extinguishment loss of $164,000 as the Company entered into another agreement discussed below.

 

In December 2024, Emmaus Medical entered into Sale of Future Receipts Agreement (the "December 2024 loan")with third party pursuant to which it sold and assigned $1,475,000 of future receipts (the "Purchased Amount") in exchange for net cash proceeds of $910,000. Under the agreement, the Company agreed to pay the third party $43,382 weekly until the Purchase Amount has been collected. In May 2025, the Company repaid in full the outstanding balance of $412,000 and recognized debt extinguishments loss of $212,000 as the Company entered into another agreement discussed below.

 

In February 2025, the Company entered into an Agreement for the Purchase and Sales of Future Receipts (the "February 2025 loan") with a third party pursuant to which it sells $1,908,000 of future receipts (the "Purchased Amount") in exchange for net proceeds of $1,325,000 with origination fee of $119,000. Under the agreement, the Company agrees to pay the third party approximately $49,000 weekly until the Purchased Amount has been collected. A portion of the net proceeds were used to pay off the September 2024 loan discussed above. As of June 30, 2025, the outstanding balance of the loans were approximately $732,000. In August 2025, the Company repaid in full the outstanding balance of $612,000 and recognized debt extinguishments loss of $242,000 as the Company entered into another agreement. Refer to Note 12 for further detail.

 

In April 2025, the Company entered into an Agreement for the Purchase and Sales of Future Receipts with a third party pursuant to which it sells $2,102,500 of future receipts (the "Purchased Amount") in exchange for net proceeds of $1,450,000 with origination fee of $130,500. Under the agreement, the Company agrees to pay the third party approximately $62,000 weekly until the Purchased Amount has been collected. A portion of the net proceeds were used to pay off the December 2024 loan discussed above. As of June 30, 2025, the outstanding balance of the loans were $1.1 million.

 

In June 2025, the Company entered into an Agreement for the Future Receivables Sale and Purchase Agreement with a third party pursuant to which it sells $1,012,500 of future receipts (the "Purchased Amount") in exchange for net proceeds of $750,000 with

16


 

origination fee of $37,550. Under the agreement, the Company agrees to pay the third party approximately $51,000 weekly until the Purchased Amount has been collected. As of June 30, 2025, the outstanding balance of the loans was $675,000.

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

 

Warrant issued for services — 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 an 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 publicly traded securities. The warrants are classified as a liability. For the three months ended June 30, 2025 and 2024, the Company recorded the change in fair value of approximately $4,000 and $5,000, respectively, and for the six months ended June 30, 2025 and 2024, the Company recorded the change in fair value of approximately ($5,000) and ($3,000), respectively, in the condensed consolidated statements of operations.

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

 

 

June 30, 2025

 

 

December 31, 2024

 

Stock price

 

$

0.01

 

 

$

0.01

 

Exercise price

 

$0.47 - $0.50

 

 

$0.47 - $0.50

 

Expected term

 

2.53-2.57 years

 

 

3.03-3.07 years

 

Risk-free rate

 

3.69-3.70%

 

 

 

4.27

%

Dividend yield

 

 

 

 

Volatility

 

490.11% - 493.75%

 

 

444.84%-447.87%

 

 

A summary of outstanding warrants as of June 30, 2025 and December 31, 2024 is presented below:

 

 

 

June 30, 2025

 

 

December 31, 2024

 

 

 

Number of
Warrants

 

 

Weighted‑
Average
Exercise
Price

 

 

Number of
Warrants

 

 

Weighted‑
Average
Exercise
Price

 

Warrants outstanding, beginning of period

 

 

4,625,000

 

 

$

0.81

 

 

 

4,732,391

 

 

$

0.95

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

Cancelled, forfeited or expired

 

 

(1,250,000

)

 

 

2.05

 

 

 

(107,391

)

 

 

7.21

 

Warrants outstanding, end of period

 

 

3,375,000

 

 

$

0.35

 

 

 

4,625,000

 

 

$

0.81

 

Warrants exercisable end of period

 

 

3,375,000

 

 

$

0.35

 

 

 

4,625,000

 

 

$

0.81

 

 

As of June 30, 2025, the weighted-average remaining contractual life of outstanding warrants was 0.9 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 June 30, 2025 and December 31, 2024, stock options to purchase up to 1,300,774 and 1,461,443 shares, respectively were outstanding under the 2011 Stock Incentive Plan.

 

The Company also had an Amended and Restated 2012 Omnibus Incentive Compensation Plan under which the Company could grant incentive stock options to selected employees including officers, non-employee consultants and non-employee directors. The Plan was terminated in September 2021. As of June 30, 2025 and December 31, 2024 stock options to purchase up to 245,008 shares were outstanding under the Amended and Restated 2012 Omnibus Incentive Plan.

 

17


 

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 six months ended June 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 June 30, 2025 and December 31, 2024, stock options to purchase up to 3,095,000 and 3,580,833 shares, respectively, were outstanding under the 2021 Stock Incentive Plan.

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 comparable publicly traded securities. 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.

A summary of outstanding stock options as of June 30, 2025 and December 31, 2024 is presented below:

 

 

 

June 30, 2025

 

 

December 31, 2024

 

 

 

Number of
Options

 

 

Weighted‑
Average
Exercise
Price

 

 

Number of
Options

 

 

Weighted‑
Average
Exercise
Price

 

Options outstanding, beginning of period

 

 

5,287,284

 

 

$

3.54

 

 

 

3,223,881

 

 

$

5.97

 

Granted or deemed granted

 

 

 

 

$

 

 

 

2,360,000

 

 

$

0.15

 

Exercised

 

 

 

 

$

 

 

 

 

 

$

 

Cancelled, forfeited and expired

 

 

(646,502

)

 

$

2.71

 

 

 

(296,597

)

 

$

0.34

 

Options outstanding, end of period

 

 

4,640,782

 

 

$

3.66

 

 

 

5,287,284

 

 

$

3.54

 

Options exercisable, end of period

 

 

4,111,226

 

 

$

3.95

 

 

 

4,819,920

 

 

$

3.59

 

Options available for future grant

 

 

905,000

 

 

 

 

 

 

419,167

 

 

 

 

 

During the three months ended June 30, 2025 and June 30, 2024 the Company recognized approximately ($1,000) and $29,000, respectively of share-based compensation expense. During the six months ended June 30, 2025 and June 30, 2024, the Company recognized approximately $9,000 and $199,000, respectively, of share-based compensation expense. As of June 30, 2025, there was approximately $22,000 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 0.5 year.

 

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 (loss).

For the three months ended June 30, 2025 and June 30, 2024, the Company recorded an income tax benefit of $590,000 and an income tax provision $31,000, respectively. For the six months ended June 30, 2025 and June 30, 2024, the Company recorded an income tax benefit of $586,000 and an income tax provision of $24,000, 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 June 30, 2025 or December 31, 2024.

18


 

NOTE 10 — LEASES

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

Prior to November 2024, the Company leased 21,293 square feet of office space for its headquarters in Torrance, California, at a base rental of $90,069 per month pursuant to lease, as amended which was to expire on September 30, 2026. In November 2024, the lease was amended to, among other things, reduce the leased space to 4,639 square feet at a base rental of $18,556 per month and to provide for the upfront payment of approximately $58,483 to fund the cost of demising work on the former leased space. The amended lease became effective on April 2, 2025 and will expire on April 1, 2030. As a result, the Company recognized $0.9 million gain on lease modification included in the condensed consolidated statements of operations. 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 June 30, 2025 and June 30, 2024 was approximately $97,000 and $289,000, respectively, and during the six months ended June 30, 2025 and June 30, 2024 was approximately $346,000 and $590,000, respectively.

As of June 30, 2025, future minimum lease payments under the lease agreements were as follows (in thousands):

 

 

 

Amount

 

2025 (six months)

 

$

269

 

2026

 

 

510

 

2027

 

 

506

 

2028

 

 

513

 

2029 and after

 

 

651

 

Total lease payments

 

 

2,449

 

Less: Interest

 

 

517

 

Current portion

 

 

348

 

Operating lease liabilities, less current portion

 

$

1,584

 

As of June 30, 2025, the Company had an operating lease right-of-use asset of $0.8 million and lease liability of $1.9 million reflected on the condensed consolidated balance sheet. The weighted average remaining term of the Company’s leases as of June 30, 2025 was 4.6 years and the weighted-average discount rate was 10.49%.

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.

In December 2024, a lower court in Dubai, UAE, rendered a judgment against the Company’s Emmaus Medical, Inc. subsidiary in the amount of AED546,246, or approximately $150,000, in favor of a former employee of the subsidiary’s Dubai officer in a lawsuit brought by the former employee in connection with the termination of his employment. The court denied the former employee's claims for further commissions and compensation for unlawful termination, as well as the Company’s counterclaims for reimbursement of commissions paid and damages for wrongful acts. The former employee appealed the lower court’s judgment and in a ruling on May 1, 2025, the appeals court awarded the former employee AED 1,775,722, or approximately $483,500, in further commissions. The Company has recorded legal settlement expenses of approximately $483,500 in general and administrative expenses in the condensed consolidated statements of operations for the three months and six months ended in June 30, 2025.

19


 

NOTE 12 — RELATED PARTY TRANSACTIONS

The following table sets forth information relating to loans from related parties outstanding at any time during the six months ended June 30, 2025 (in thousands):

 

Class

Lender

 

Interest
Rate

 

Date of
Loan

 

Term of Loan

 

Principal Amount Outstanding at June 30, 2025

 

 

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

 

On Demand

 

 

100

 

 

 

100

 

 

 

 

 

 

 

 

Soomi Niihara(1)

 

12%

 

12/7/2021

 

On Demand

 

 

700

 

 

 

700

 

 

 

 

 

 

 

 

Hope International Hospice, Inc.(1)

 

10%

 

2/9/2022

 

On Demand

 

 

350

 

 

 

350

 

 

 

 

 

 

 

 

Hope International Hospice, Inc.(1)

 

10%

 

2/15/2022

 

On Demand

 

 

210

 

 

 

210

 

 

 

 

 

 

 

 

Soomi Niihara(1)

 

10%

 

2/15/2022

 

On Demand

 

 

100

 

 

 

100

 

 

 

 

 

 

 

 

Hope International Hospice, Inc.(1)

 

12%

 

3/15/2022

 

On Demand

 

 

150

 

 

 

150

 

 

 

 

 

 

 

 

Hope International Hospice, Inc.(1)

 

12%

 

3/30/2022

 

On Demand

 

 

150

 

 

 

150

 

 

 

 

 

 

 

 

Wei Peu Zen(2)

 

10%

 

3/31/2022

 

On Demand

 

 

200

 

 

 

200

 

 

 

 

 

 

 

 

Albert Niihara(1)

 

10%

 

4/5/2022

 

On Demand

 

 

110

 

 

 

350

 

 

 

240

 

 

 

 

 

Willis Lee(2)

 

10%

 

4/14/2022

 

On Demand

 

 

45

 

 

 

45

 

 

 

 

 

 

 

 

Albert Niihara(1)

 

10%

 

4/19/2022

 

On Demand

 

 

250

 

 

 

250

 

 

 

 

 

 

30

 

 

Hope International Hospice, Inc.(1)

 

10%

 

5/25/2022

 

On Demand

 

 

40

 

 

 

40

 

 

 

 

 

 

 

 

Dr. Yutaka and Soomi Niihara(1) (3)

 

12%

 

7/27/2022

 

5 years

 

 

402

 

 

 

402

 

 

 

 

 

 

24

 

 

Dr. Yutaka and Soomi Niihara(1)

 

10%

 

8/16/2022

 

5 years

 

 

250

 

 

 

250

 

 

 

 

 

 

13

 

 

Dr. Yutaka and Soomi Niihara(1)

 

10%

 

8/16/2022

 

5 years

 

 

1,669

 

 

 

1,669

 

 

 

 

 

 

83

 

 

Hope International Hospice, Inc.(1)

 

10%

 

8/17/2022

 

On Demand

 

 

50

 

 

 

50

 

 

 

 

 

 

 

 

Hope International Hospice, Inc.(1)

 

10%

 

10/20/2022

 

On Demand

 

 

100

 

 

 

100

 

 

 

 

 

 

 

 

Hope International Hospice, Inc.(1)

 

10%

 

3/17/2023

 

On Demand

 

 

100

 

 

 

100

 

 

 

 

 

 

 

 

Dr. Yutaka and Soomi Niihara(1)

 

10%

 

3/21/2023

 

On Demand

 

 

127

 

 

 

127

 

 

 

 

 

 

 

 

Wei Peu Zen(2)

 

60%

 

12/1/2023

 

2 months

 

 

350

 

 

 

350

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

5,453

 

 

$

5,693

 

 

$

240

 

 

$

150

 

 

(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.
(3)
Carrying amount of this loan includes $64,000 of unamortized discount.

20


 

The following table sets forth information relating to loans from related parties outstanding at any time during the year ended December 31, 2024:

 

Class

Lender

 

Interest
Rate

 

Date of
Loan

 

Term of Loan

 

Principal Amount Outstanding at December 31, 2024

 

 

Highest
Principal
Outstanding

 

 

Amount of
Principal
Repaid or
Converted to Shares

 

 

Amount of
Interest
Paid

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Willis Lee(2)

 

12%

 

10/29/2020

 

On Demand

 

 

100

 

 

 

100

 

 

 

 

 

 

2

 

Soomi Niihara(1)

 

12%

 

12/7/2021

 

On Demand

 

 

700

 

 

 

700

 

 

 

 

 

 

 

Hope International Hospice, Inc.(1)

 

10%

 

2/9/2022

 

On Demand

 

 

350

 

 

 

350

 

 

 

 

 

 

 

Hope International Hospice, Inc.(1)

 

10%

 

2/15/2022

 

On Demand

 

 

210

 

 

 

210

 

 

 

 

 

 

 

Soomi Niihara(1)

 

10%

 

2/15/2022

 

On Demand

 

 

100

 

 

 

100

 

 

 

 

 

 

 

Hope International Hospice, Inc.(1)

 

12%

 

3/15/2022

 

On Demand

 

 

150

 

 

 

150

 

 

 

 

 

 

 

Hope International Hospice, Inc.(1)

 

12%

 

3/30/2022

 

On Demand

 

 

150

 

 

 

150

 

 

 

 

 

 

 

Wei Peu Zen(2)

 

10%

 

3/31/2022

 

On Demand

 

 

200

 

 

 

200

 

 

 

 

 

 

 

Albert Niihara(1)

 

10%

 

4/4/2022

 

On Demand

 

 

350

 

 

 

500

 

 

 

150

 

 

 

 

Willis Lee(2)

 

10%

 

4/14/2022

 

On Demand

 

 

45

 

 

 

45

 

 

 

 

 

 

 

Albert Niihara(1)

 

10%

 

4/19/2022

 

On Demand

 

 

250

 

 

 

250

 

 

 

 

 

 

 

Hope International Hospice, Inc.(1)

 

10%

 

5/25/2022

 

On Demand

 

 

40

 

 

 

40

 

 

 

 

 

 

 

Dr. Yutaka and Soomi Niihara(1) (3)

 

12%

 

7/27/2022

 

5 years

 

 

402

 

 

 

402

 

 

 

 

 

 

44

 

Dr. Yutaka and Soomi Niihara(1)

 

10%

 

8/16/2022

 

5 years

 

 

250

 

 

 

250

 

 

 

 

 

 

23

 

Dr. Yutaka and Soomi Niihara(1)

 

10%

 

8/16/2022

 

5 years

 

 

1,669

 

 

 

1,669

 

 

 

 

 

 

153

 

Hope International Hospice, Inc.(1)

 

10%

 

8/17/2022

 

On Demand

 

 

50

 

 

 

50

 

 

 

 

 

 

 

Hope International Hospice, Inc.(1)

 

10%

 

10/20/2022

 

On Demand

 

 

100

 

 

 

100

 

 

 

 

 

 

 

Hope International Hospice, Inc.(1)

 

10%

 

3/17/2023

 

On Demand

 

 

100

 

 

 

100

 

 

 

 

 

 

 

Dr. Yutaka and Soomi Niihara(1)

 

10%

 

3/21/2023

 

On Demand

 

 

127

 

 

 

127

 

 

 

 

 

 

 

Wei Peu Zen(2)

 

60%

 

12/1/2023

 

2 months

 

 

350

 

 

 

700

 

 

 

350

 

 

 

70

 

 

 

 

 

 

 

Total

 

$

5,693

 

 

$

6,193

 

 

$

500

 

 

$

292

 

 

(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.
(3)
Carrying amount of this loan includes $75,000 of unamortized discount.

 

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 June 30, 2025. As of June 30, 2025, the Company held a Telcon convertible bond in the principal amount of KRW17.0 billion, or approximately $12.5 million, as discussed in Note 5.

 

NOTE 13 — SUBSEQUENT EVENTS

In August 2025, the Company entered into an Agreement for the Purchase and Sale of Future Receipts with a third party pursuant to which it sold $1,885,000 of future receipts (the "Purchased Amount") in exchange for net proceeds of $1,183,000, net of an origination fee of $117,000. Under the agreement, the Company agrees to pay the third party approximately $59,000 weekly until the Purchased Amount has been collected. A portion of the net proceeds were used to pay off the February 2025 loan discussed in Note 7.

21


 

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, 2024 filed with the Securities and Exchange Commission (“SEC”) on April 14, 2025 (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 May 2023, we received approval for marketing of Endari to treat SCD from the Bahrain National Health Regulatory Authority. In July 2023, we received marketing approval for Endari® in Oman. Application for marketing authorization in the Kingdom of Saudi Arabia is pending. While the application is pending, the FDA approval of Endari® can be referenced to allow access to Endari® on a named-patient basis.

Endari® is sold in the U.S. through our nonexclusive distributors. 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. 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 June 30, 2025, our accumulated deficit was $266.0 million and we had cash and cash equivalents of $0.9 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.

Results of Operations:

Three months ended June 30, 2025 and 2024

 

Net Revenues. Net revenues decreased by $2.6 million, or 48%, to $2.8 million for the three months ended June 30, 2025, compared to $5.4 million for the three months ended June 30, 2024 due to a decrease of U.S. sales, which management attributes to competition from a generic version of L-Glutamine oral powder introduced into U.S. market in mid-2024 as discussed below, partially offset by an increase of sales in the MENA region.

 

22


 

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 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 sales and net revenues.

 

Cost of Goods Sold. Cost of goods sold decreased by $0.1 million, or 38%, to $0.1 million for the three months ended June 30, 2025, compared to $0.2 million for the three months ended June 30, 2024. The decrease was primarily due to the decrease in U.S. sales discussed above.

Research and Development Expenses. Research and development expenses decreased by $0.1 million, or 71%, to $0.1 million for the three months ended June 30, 2025, compared to $0.2 million for the three months ended June 30, 2024. The decrease was primarily due to a decrease in payroll expenses from a reduction in headcount in the third quarter of 2024.

Selling Expenses. Selling expenses decreased by $1.0 million, or 59%, to $0.7 million for the three months ended June 30, 2025, compared to $1.6 million for the three months ended June 30, 2024. The decrease was primarily due to decreases of $0.4 million in payroll expenses from a reduction in headcount in U.S. sales force in the third quarter of 2024 and $0.4 million in consulting fee.

General and Administrative Expenses. General and administrative expenses decreased by $0.4 million, or 16%, to $2.3 million for the three months ended June 30, 2025, compared to $2.7 million for the three months ended June 30, 2024. The decrease was primarily due to decreases of $0.3 million in professional services, $0.2 million in payroll expenses attributable to the reduction in headcount and $0.1 million in rent expenses, partially offset by $0.3 million in legal settlement.

Other Expense. Total other expenses decreased by $1.3 million, or 50%, to $1.4 million for the three months ended June 30, 2025, compared to $2.7 million for the three months ended June 30, 2024. The decrease was primarily due to a decrease of $1.4 million in change in fair value of conversion feature derivative and an increase of $0.9 million in gain on lease modification, partially offset by an increase of $0.7 million in interest expense.

Net Loss. Net loss was approximately $1.1 million and $2.2 million for three months ended June 30, 2025 and June 30, 2024, respectively. The decrease in net loss was due primarily to decreases in other expenses and operating expenses, partially offset by a reduction of net revenues.

Six months ended June 30, 2025 and 2024

 

Net Revenues. Net revenues decreased by $2.7 million, or 34 %, to $5.2 million for the six months ended June 30, 2025, compared to $7.9 million for the six months ended June 30, 2024 due to competition from a generic version of L-Glutamine oral powder introduced into U.S. market in mid-2024, partially offset by an increase of sales in the MENA region.

Cost of Goods Sold. Cost of goods sold decreased by $0.1 million, or 25%, to $0.4 million for the six months ended June 30, 2025, compared to $0.5 million for the six months ended June 30, 2024. The decrease was primarily due to the decrease in sales discussed above.

Research and Development Expenses. Research and development expenses decreased by $0.1 million, or 38%, to $0.2 million for the six months ended June 30, 2025, compared to $0.4 million for the six months ended June 30, 2024. The decrease was primarily due to a decrease in payroll expenses from a reduction in headcount.

Selling Expenses. Selling expenses decreased by $2.2 million, or 63%, to $1.3 million for the six months ended June 30, 2025, compared to $3.6 million for the six months ended June 30, 2024. The decrease was primarily due to decreases of $1.0 million in payroll expense, $0.9 million in consulting fees and $0.1 million in travel expense.

General and Administrative Expenses. General and administrative expenses decreased by $1.0 million, or 17%, to $4.6 million for the six months ended June 30, 2025, compared to $5.6 million for the six months ended June 30, 2024. The decrease was primarily due to decreases of $0.6 million in payroll expense including share-based compensation, $0.5 million in professional service fees and $0.2 million in rent expense, partially offset by an increase of $0.5 million in legal settlement fee.

Other Expense. Total other expense decreased by $1.6 million, or 38%, to $2.7 million for the six months ended June 30, 2025, compared to $4.4 million for the six months ended June 30, 2024. The decrease was primarily due to a decrease of $2.5 million in change in fair value of conversion feature derivative and an increase of $0.9 million in gain on lease modification, partially offset by a decrease of $1.0 million in gain on restructured debt and an increase of $0.4 million in loss on debt extinguishments.

23


 

Net Loss. Net loss was $3.5 million and $6.5 million for six months ended June 30, 2025 and June 30, 2024, 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 $0.9 million as of June 30, 2025, we do not have sufficient operating capital for our business without raising additional capital. We realized a net loss of $3.5 million for the six months ended June 30, 2025 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, meet our contractual obligations, including repayment of our existing indebtedness and the purchase of API under our supply arrangements with Telcon, and execute our business plan. Our primary sources of liquidity are our cash balances at the beginning of each period, sales of future receipts to third parties, proceeds from related-party loans and other financing activities. Our short-term and long-term cash requirements consist primarily of working capital requirements, general corporate needs, our contractual obligations to purchase API from Telcon and pay debt service under our outstanding notes payable.

As of June 30, 2025, we had outstanding $15.9 million principal amount of convertible promissory notes and $11.5 million principal amount of other notes payable reflected in our current liabilities. Our minimum lease payment obligations were $1.9 million, of which $0.3 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. With our consent, in April 2025, Telcon offset KRW3.1 billion, or approximately $2.1 million, against the principal amount of the Telcon convertible bond and we released KRW49 million, or approximately $34,000, in cash proceeds to Telcon in satisfaction the target shortfall for the year ended 2024.

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 our Annual Report and Note 2 of the Notes to Condensed Consolidated Financial Statements included herein.

Cash flows for the six months ended June 30, 2025 and June 30, 2024

Net cash used in operating activities

Net cash used in operating activities decreased by $0.1 million, or 5%, to $2.6 million for the six months ended June 30, 2025 from $2.8 million for the six months ended June 30, 2024. This decrease was primarily due to a decrease of loss from operations.

Net cash provided by investing activities

Net cash provided by investing activities decreased by $0.3 million, or 13%, to $2.2 million for the six months ended June 30, 2025 compared to $2.5 million for the six months ended June 30, 2024. The decrease was primarily due to a decrease of proceeds from sales of Telcon convertible bond.

Net cash used in financing activities

Net cash used in financing activities decreased by $0.7 million, or 92%, to $0.1 million for the six months ended June 30, 2025 from $0.7 million for the six months ended June 30, 2024. The decrease was due to an increase of $0.8 million in proceeds from note payable issued partially offset by an increase of $0.1 million in repayments of promissory notes and convertible notes.

Off-Balance-Sheet Arrangements

We have no off-balance sheet arrangements.

24


 

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 six months ended June 30, 2025.

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 Accounting Officer, of the effectiveness of our DCP. Based on that evaluation, our Chief Executive Officer and Chief Accounting 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 June 30, 2025 which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Material Weaknesses

 

As previously reported, our management identified ongoing material weaknesses (the “Material Weaknesses”) in our internal control over financial reporting. The Material Weaknesses related to inadequate accounting treatment for complex accounting matters, inadequate financial closing process, segregation of duties, including access control over information technology, especially financial information, inadequate documentation of policies and procedures over risk assessments, internal control and significant account processes, and insufficient entity risk assessment processes.

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

 

engaging third-party accounting consulting firms to assist us in the review of our application of GAAP to complex transactions;
using GAAP Disclosure and SEC Reporting Checklists;
continuing professional training and academic education on accounting subjects for accounting staff;

25


 

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.

 

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, 2025. In particular, our finance and accounting department is not adequately staffed, which has sometimes resulted in not all policies and procedures being properly documented.

 

26


 

Part II. Other Information

In December 2024, a lower court in Dubai, UAE, rendered a judgment against the Company’s Emmaus Medical, Inc. subsidiary in the amount of AED546,246, or approximately $150,000, in favor of a former employee of the subsidiary’s Dubai officer in a lawsuit brought by the former employee in connection with the termination of his employment. The court denied the former employee's claims for further commissions and compensation for unlawful termination, as well as the Company’s counterclaims for reimbursement of commissions paid and damages for wrongful acts. The former employee appealed the lower court’s judgment and in a ruling on May 1, 2025, the appeals court awarded the former employee AED 1,775,722, or approximately $483,500, in further commissions.

Item 1A. Risk Factors

 

See “Risk Factors” section of the Annual Report.

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.

Item 5. Other Information

None.

27


 

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

 

 

 

 

*

10.2

Future Receivables Sale and Purchase Agreement with iFund Experts

 

 

 

 

*

 

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 Accounting 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 Accounting 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.

28


 

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: August 14, 2025

By:

 

/s/ Willis C. Lee

 

Name:

 

Willis C. Lee

 

Its:

 

Chief Executive Officer (Principal Executive Officer)

 

 

 

 

 

By:

 

/s/ Hiroko Huynh

 

Name:

 

Hiroko Huynh

 

Its:

 

Chief Accounting Officer (Principal Financial Officer)

 

 

 

 

 

29