Quarterly report pursuant to Section 13 or 15(d)

NOTES PAYABLE

v3.19.3
NOTES PAYABLE
9 Months Ended
Sep. 30, 2019
Debt Disclosure [Abstract]  
NOTES PAYABLE

NOTE 7 — NOTES PAYABLE

Notes payable consisted of the following at September 30, 2019 and December 31, 2018 (in thousands):

Year

Issued

 

Interest Rate

Range

 

 

Term of Notes

 

Conversion

Price

 

 

Principal

Outstanding September 30, 2019

 

 

Discount

Amount September 30, 2019

 

 

Carrying

Amount September 30, 2019

 

 

Shares

Underlying September 30, 2019

 

 

Principal

Outstanding

December 31,

2018

 

 

Discount

Amount

December 31,

2018

 

 

Carrying

Amount

December 31,

2018

 

 

Shares

Underlying

Notes

December 31, 2018

 

Notes payable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2013

 

10%

 

 

Due on demand

 

 

 

 

$

926

 

 

$

 

 

$

926

 

 

 

 

 

$

909

 

 

$

 

 

$

909

 

 

 

 

2015

 

10%

 

 

Due on demand

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

10

 

 

 

 

2016

 

10% - 11%

 

 

Due on demand

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

843

 

 

 

 

 

 

843

 

 

 

 

2017

 

5% - 11%

 

 

Due on demand

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,575

 

 

 

 

 

 

2,575

 

 

 

 

2018

 

10% - 11%

 

 

Due on demand- 18 months

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,311

 

 

 

9,233

 

 

 

3,078

 

 

 

 

2019

 

11%

 

 

Due on demand - 6 months

 

 

 

 

 

2,960

 

 

 

 

 

 

2,960

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

3,886

 

 

$

 

 

$

3,886

 

 

 

 

 

$

16,648

 

 

$

9,233

 

 

$

7,415

 

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

$

3,886

 

 

$

 

 

$

3,886

 

 

 

 

 

$

12,448

 

 

$

6,054

 

 

$

6,394

 

 

 

 

 

 

 

 

 

 

Non-current

 

 

 

 

 

$

 

 

$

 

 

$

 

 

 

 

 

$

4,200

 

 

$

3,179

 

 

$

1,021

 

 

 

 

Notes payable - related parties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2016

 

10%

 

 

Due on demand

 

 

 

 

$

20

 

 

$

 

 

$

20

 

 

 

 

 

$

270

 

 

$

 

 

$

270

 

 

 

 

2017

 

10%

 

 

Due on demand

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

39

 

 

 

 

 

 

39

 

 

 

 

2018

 

11%

 

 

Due on demand

 

 

 

 

 

159

 

 

 

 

 

 

159

 

 

 

 

 

 

159

 

 

 

 

 

 

159

 

 

 

 

2019

 

10%

 

 

Due on demand

 

 

 

 

 

14

 

 

 

 

 

 

14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

193

 

 

$

 

 

$

193

 

 

 

 

 

$

468

 

 

$

 

 

$

468

 

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

$

193

 

 

$

 

 

$

193

 

 

 

 

 

$

468

 

 

$

 

 

$

468

 

 

 

 

Convertible debentures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2019

 

10%

 

 

18 months

 

$

9.52

 

 

$

12,200

 

 

$

 

 

$

12,200

 

 

 

1,292

 

(a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

12,200

 

 

$

 

 

$

12,200

 

 

 

1,292

 

 

$

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

$

11,000

 

 

$

 

 

$

11,000

 

 

 

1,166

 

 

$

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

Non-current

 

 

 

 

 

$

1,200

 

 

 

 

 

 

$

1,200

 

 

 

126

 

 

$

 

 

$

 

 

$

 

 

 

 

Convertible notes payable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2011

 

10%

 

 

5 years

 

$3.05

 

 

$

 

 

$

 

 

$

 

 

 

 

 

$

300

 

 

$

 

 

$

300

 

 

 

98

 

2014

 

10%

 

 

Due on demand - 2 years

 

$3.05 - $3.60

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

519

 

 

 

 

 

 

519

 

 

 

184

 

2016

 

10%

 

 

1 year

 

$

4.50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

61

 

 

 

 

 

 

61

 

 

 

17

 

2017

 

10%

 

 

Due on demand - 1 year

 

$3.50 - $4.50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,820

 

 

 

349

 

 

 

2,471

 

 

 

899

 

2018

 

6% - 10%

 

 

Due on demand - 2 years

 

$3.50 - $10.00

 

 

 

3,000

 

 

 

72

 

 

 

2,928

 

 

 

356

 

(b)

 

19,556

 

 

 

6,169

 

 

 

13,387

 

 

 

3,664

 

 

 

 

 

 

 

 

 

 

 

 

 

$

3,000

 

 

$

72

 

 

$

2,928

 

 

 

356

 

 

$

23,256

 

 

$

6,518

 

 

$

16,738

 

 

 

4,862

 

 

 

 

 

 

 

Current

 

 

 

 

 

$

3,000

 

 

$

72

 

 

$

2,928

 

 

 

356

 

 

$

16,604

 

 

$

5,351

 

 

$

11,253

 

 

 

3,981

 

 

 

 

 

 

 

Non-current

 

 

 

 

 

$

 

 

$

 

 

$

 

 

 

 

 

$

6,652

 

 

$

1,167

 

 

$

5,485

 

 

 

881

 

Convertible notes payable - related parties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2012

 

10%

 

 

Due on demand

 

$

3.30

 

 

$

 

 

$

 

 

$

 

 

 

 

 

$

200

 

 

$

 

 

$

200

 

 

 

74

 

2015

 

10%

 

 

2 years

 

$

4.50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

200

 

 

 

 

 

 

200

 

 

 

58

 

2017

 

10%

 

 

2 years

 

$

10.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,000

 

 

 

311

 

 

 

4,689

 

 

 

533

 

2018

 

10%

 

 

2 years

 

$

10.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,400

 

 

 

871

 

 

 

8,529

 

 

 

972

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

 

$

 

 

$

 

 

 

 

 

$

14,800

 

 

$

1,182

 

 

$

13,618

 

 

 

1,637

 

 

 

 

 

 

 

Current

 

 

 

 

 

$

 

 

$

 

 

$

 

 

 

 

 

$

5,400

 

 

$

311

 

 

$

5,089

 

 

 

665

 

 

 

 

 

 

 

Non-current

 

 

 

 

 

$

 

 

$

 

 

$

 

 

 

 

 

$

9,400

 

 

$

871

 

 

$

8,529

 

 

 

972

 

 

 

 

 

 

 

Total

 

 

 

 

 

$

19,279

 

 

$

72

 

 

$

19,207

 

 

$

1,648

 

 

$

55,172

 

 

$

16,933

 

 

$

38,239

 

 

$

6,499

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) The notes are convertible to Emmaus Life Sciences, Inc. shares.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(b) The notes are convertible to EMI Holding, Inc. shares.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The weighted-average stated interest rate of notes payable was 10% as of September 30, 2019 and December 31, 2018. The weighted-average effective interest rates of notes payable as of September 30, 2019 and December 31, 2018 were 12% and 35%, respectively, after giving effect to discounts relating to beneficial conversion features of these notes. The notes payable and convertible notes payable contain no restrictive financial covenants or acceleration clauses associated with a material adverse change event. The convertible debentures contain negative covenants.

 

Immediately prior to the completion of the Merger, all but one of the convertible notes payable were converted into shares of EMI common stock at their respective conversion prices. At the completion of the Merger, the converted shares were exchanged for shares of the Company common stock in the same manner as other outstanding shares of common stock of EMI based on the Merger “exchange ratio.” The unconverted convertible note payable of EMI is convertible into shares of common stock of EMI at conversion price of $10.00 per share as of September 30, 2019.

 

Our 10% senior secured convertible debentures were amended and restated immediately prior to the Merger to include, among other changes, an option to convert their debentures into shares of common stock of the Company at a conversion price of $9.52 per share during the term of the debentures. The conversion feature of the debentures is treated as a conversion feature derivative liability.

Contractual principal payments due on notes payable and debentures are as follows (in thousands):

Year Ending

 

 

 

2019 (three months)

$

6,079

 

2020

 

13,200

 

Total

$

19,279

 

 

The Company estimated the total fair value of any beneficial conversion feature and accompanying warrants in allocating the proceeds from the sale of convertible notes payable. The proceeds allocated to the beneficial conversion feature were determined by taking the estimated fair value of shares underlying the convertible notes less the fair value of the number of shares that would be issued if the conversion rate equaled the fair value of common stock as of the date of issuance.

 

The Company issued warrants with our 10% senior secured convertible debentures. The fair value of the warrants issued in conjunction with debentures were determined using the Binominal Monte-Carlo Cliquet Option Pricing Model with the following inputs for the nine months ended September 30, 2019 and year ended December 31, 2018 (See Note 8). 

 

Nine months ended September 30, 2019

 

Year ended December 31, 2018

 

Stock price

$

6.86

 

$

11.10

 

Exercise price

$

5.87

 

$

11.30

 

Term until expiration

4.26 years

 

5 years

 

Risk‑free interest rate

 

1.79

%

 

3.05

%

Expected dividend yield

 

 

 

 

Expected volatility

 

65.0

%

 

70.0

%

 

With respect to the notes that included both a beneficial conversion feature and a warrant, the proceeds were allocated to the beneficial conversion feature and the warrant based on their respective pro rata fair values.