NOTE 8—STOCKHOLDERS’ DEFICIT

Warrant — In September 2022, in connection with the loans from Dr. Niihara and his wife, the Company granted Dr. Niihara a five-year warrant to purchase up to 500,000 shares of common stock of the Company at an exercise price of $2.50 per share. Under ASC 480-10 and ASC 815, the warrant is classified as a liability. The fair value of the warrant liability was determined using Black-Scholes Merton model. For the year ended December 31, 2023, the Company recorded the change in fair value of $52,000 in the consolidated statement of operations. The warrant expired by its terms in November 2023.

Warrant issued for services - On January 12, 2023, the Company granted Dr. Niihara a five-year warrant to purchase up to 7,500,000 shares of common stock of the Company at an exercise price of $4.50 in lieu of cash bonuses or salary increases. The fair value of the warrant was determined using the Black-Scholes Merton option pricing model. The fair value of the underlying shares was determined based on the market value of the Company's common stock. The expected volatility was adjusted using the historical volatility of the Company's common stock and comparable publicly traded securities. The Company recorded the change in fair value of $874,000 in the consolidated statements of operations. The warrant expired by its terms in November 2023.

On January 12, 2023, the Company also 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 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. Under ASC 480-10 and ASC 815, the warrants are classified as a liability. or the years ended December 31, 2024 and 2023, the Company recorded the change in fair value of $57,000 and $269,000, respectively, in the consolidated statements of operations.

As of December 31, 2024, the weighted-average remaining contractual life of outstanding warrants was 1.1 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 December 31, 2024 and December 31, 2023, stock options to purchase up to 1,461,443 shares and 1,728,773 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 December 31, 2024 and December 31, 2023, stock options to purchase up to 245,008 shares and 245,108 shares, respectively, were outstanding under the Amended and Restated 2012 Omnibus Incentive Plan.

On September 29, 2021, the Board of Directors of the Company adopted the Emmaus Life Sciences, Inc. 2021 Stock Incentive Plan upon the recommendation of the Compensation Committee of the Board. The 2021 Stock Incentive Plan was approved by stockholders on November 23, 2021. No more than 4,000,000 shares of common stock may be issued pursuant to awards under the 2021 Stock Incentive Plan. The number of shares available for Awards, as well as the terms of outstanding awards, is subject to adjustment as provided in the Stock Incentive Plan for stock splits, stock dividends, reverse stock splits, recapitalizations and other similar events. During the year ended December 31, 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 a consultant, respectively. During the year ended December 31, 2023, the Company granted options to purchase 850,000 shares, 300,000 shares and 100,000 shares of common stock to employees, non-employee directors and a consultant, 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 December 31, 2024 and December 31, 2023, stock options to purchase up to 3,580,833 and 1,250,000 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 following table presents the assumptions used on the recent dates on which options were granted by the Company. The risk‑free interest rate is based on the implied yield available on U.S. Treasury issues with a term approximating the expected life of the options depending on the date of the grant and expected life of the respective options.

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.

During the years ended December 31, 2024 and 2023, the Company recognized approximately $256,000 and $1.2 million, respectively of share‑based compensation expense. As of December 31, 2024, there was approximately $50,000 of total unrecognized compensation cost related to unvested share‑based compensation awards outstanding under the 2021 Stock Incentive Plan. That cost is expected to be recognized over the weighted-average remaining period of 1.05 years.

Amended and Restated Warrants – The Company evaluated its outstanding amended and restated warrants to purchase up to 2,381,300 shares of common stock under ASC 815-40 and concluded that the warrants should be accounted for as equity.

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

In December 2023, the exercise price of outstanding amended and restated warrants was reduced to $0.29 per share pursuant to the anti-dilution adjustment provisions of the warrants triggered by the exchange of an outstanding convertible note and a promissory note into shares of common stock of the Company at an exchange price $0.29 per share. The warrants were valued using the Black-Scholes Merton option pricing model and approximately $11,000 in change in fair value was recorded as additional paid-in capital and reflected in accumulated deficit.