What changed in this filing

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Item 1. Financial Statements

2021-09-01 compared with 2021-09-01 · 128 added, 163 removed, 497 unchanged (37% of the section changed)

3 unchanged sentences

(In thousands, except share and per share amounts)

June 30, 2021

March 31, 2021

December 31, 2020

28 unchanged sentences

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, 49,311,864 and 48,987,198 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively

Common stock, par value $ 0.001 per share, 250,000,000 shares authorized, 49,311,864 and 48,987,189 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

Additional paid-in capital

7 unchanged sentences

(In thousands, except share and per share amounts)

Three months ended June 30,

Six Months Ended June 30,

Three Months Ended March 31,

REVENUES, NET

11 unchanged sentences

Net losses on equity method investment

Foreign exchange loss

Foreign exchange gain (loss)

Interest and other income

2 unchanged sentences

INCOME (LOSS) BEFORE INCOME TAXES

INCOME TAXES (BENEFIT)

NET INCOME (LOSS)

20 unchanged sentences

Balance, March 31, 2021

Share-based compensation

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

Foreign currency translation effect

Balance, June 30, 2021

Additional Paid-In

7 unchanged sentences

Balance, March 31, 2020

Share-based compensation

Foreign currency translation effect

Balance, June 30, 2020

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

EM MAUS LIFE SCIENCES , INC.

EMMAUS LIFE SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Six Months Ended June 30,

Three Months Ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES

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

Net (loss) income

Adjustments to reconcile net loss to net cash flows (used in) provided by operating activities

Depreciation and amortization

19 unchanged sentences

Other long-term liabilities

Net cash flows used in operating activities

Net cash flows (used in) provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES

Sale of marketable securities

Purchases of property and equipment

Loan to equity method investee

Net cash flows provided by (used in) investing activities

Net cash flows used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

6 unchanged sentences

Effect of exchange rate changes on cash

Net decrease in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash, beginning of period

Cash, cash equivalents and restricted cash, end of period

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES

1 unchanged sentence

Income taxes paid

NON-CASH INVESING AND FINANCING ACTIVITIES

NON-CASH INVESTING AND FINANCING ACTIVITIES

Debt discount due to conversion features derivative

1 unchanged sentence

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

EM M AUS LIFE SCIENCES , INC.

EMMAUS LIFE SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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”).

The accompanying unaudited 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”).

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/A for the year ended December 31, 2020 (the “Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on August 10, 2021.

The consolidated interim financial statements should be read in conjunction with the Annual Report on Form 10-K/A for the year ended December 31, 2020 (the “Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on August 10, 2021.

The accompanying condensed consolidated balance sheet at December 31, 2020 has been derived from the audited consolidated balance sheet at December 31, 2020 contained in the Form 10-K/A.

The results of operations for the three and six months ended June 30, 2021, are not necessarily indicative of the results to be expected for the full year or any future interim period.

The results of operations for the three months ended March 31, 2021, are not necessarily indicative of the results to be expected for the full year or any future interim period.

Organization and Nature of Operations

11 unchanged sentences

Management has considered all recent accounting pronouncements will not have a material effect on the Company’s condensed consolidated financial statements.

Restricted cash — Restricted cash includes proceeds received from the sales of shares of Telcon RF Pharmaceutical, Inc., a Korean corporation (formerly, Telcon Inc.

and herein “Telcon”) earmarked for the purchase of Telcon convertible bond per the December 23, 2019 agreement with Telcon.

See Note 5 for the additional details.

Reconciliation of cash, cash equivalent and restricted cash are as follows:

As of June 30,

Cash and cash equivalents

Restricted cash

Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows

Factoring accounts receivables — The Company entered into a factoring agreement with Prestige Capital Finance, LLC on February 22, 2021.

Under the agreement, the Company may factor its accounts receivables of up to 70 % of the face value with maximum outstanding balance of $ 7.5 million and the fee ranges between 2.25 % and 7.25 % depending on the period when customers pay the outstanding accounts receivables.

The Company had no factoring accounts receivables balance outstanding as of June 30,

For three month s and six month s ended June 3 0 , 2021, the Company incurred approximately $ 44,000 and $ 75,000 of factoring fees , respectively .

The Company had no factoring accounts receivables outstanding as of March 31, 2021.

For three month ended March 31, 2021, the Company incurred approximately $ 31,000 of factoring fees.

Net loss per share — In accordance with ASC 260, “Earnings per Share, ” the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted-average number of common shares outstanding.

Dilutive loss per share is computed in a manner similar to basic loss per common share 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.

As of June 30, 2021 and June 30, 2020, the Company had outstanding potentially dilutive securities exercisable for or convertible into 23,326,667 shares and 17,288,829 shares, respectively, of the Company’s common stock.

No potentially dilutive securities were included in the calculation of diluted net income per share since the potential dilutive securities were out of the money for the period ended June 30, 2020 and were anti-dilutive for period ended June 30, 2021.

As of March 31, 2021 and March 31, 2020, the Company had outstanding potentially dilutive securities exercisable for or convertible into 24,515,738 shares and 16,698,829 shares, respectively, of the Company’s common stock.

No potentially dilutive securities were included in the calculation of diluted net income per share since the potential dilutive securities were out of the money for the period ended March 31, 2020 and were anti-dilutive for period ended March 31, 2021.

NOTE 3 — REVENUES

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended March 31,

Revenues, net

The following table summarizes the revenue allowance and accrual activities for the six months ended June 30, 2021 and June 30, 2020 (in thousands):

The following table summarizes the revenue allowance and accrual activities for the three months ended March 31, 2021 and March 31, 2020 (in thousands):

Trade Discounts, Allowances and Chargebacks

4 unchanged sentences

Credit and payments made

Balance as of June 30, 2021

Balance as of March 31, 2021

Balance as of December 31, 2019

2 unchanged sentences

Credit and payments made

Balance as of June 30, 2020

Balance as of March 31, 2020

The following table summarizes revenues attributable to each of our customers that accounted for 10% or more of our total revenues (as a percentage of net revenues):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended March 31,

The Company is party to a distributor agreement with 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 us specified minimum quantities of the finished product.

1 unchanged sentence

Telcon has the right to terminate the distributor agreement in certain circumstances for failure to obtain such product registrations, in which event the Company would be obliged to return to Telcon the $ 10 million upfront fee.

The upfront fee of $ 10

million is included in other long-term liabilities as unearned revenue as of June 30, 2021 and December 31, 20 2 0.

Refer to Note 11 and for additional transaction details.

The upfront fee of $ 10 million is included in other long-term liabilities as unearned revenue as of March 31, 2021 and December 31, 2020.

Refer to Note 11 for additional details.

NOTE 4 — SELECTED FINANCIAL STATEMENT CAPTIONS - ASSETS

Inventories consisted of the following (in thousands):

June 30, 2021

March 31, 2021

December 31, 2020

4 unchanged sentences

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

June 30, 2021

March 31, 2021

December 31, 2020

4 unchanged sentences

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

June 30, 2021

March 31, 2021

December 31, 2020

4 unchanged sentences

Property and Equipment, net

During the three months ended June 30, 2021 and 2020, depreciation expense was approximately $ 12,000 and $ 11,000 respectively.

During the six months ended June 30, 2021 and 2020, depreciation expense were approximately $ 23,000 for both period.

During the three months ended March 31, 2021 and March 31, 2020, depreciation expense was approximately $ 11,000 and $ 12,000 , respectively.

NOTE 5 — INVESTMENTS

8 unchanged sentences

The investment is classified as an available for sale security and remeasured at fair value on a recurring basis using Level 3 inputs, with any changes in the fair value option recorded in other comprehensive income.

The fair value and any change in fair value of the

convertible bond is determined using a convertible bond lattice model.

The fair value and any change in fair value of the convertible bond is determined using a convertible bond lattice model.

The model produces an estimated fair value based on changes in the market price of the underlying common stock.

The following table sets forth the fair value and changes in fair value of the investment in convertible bonds as of June 30, 2021 and December 31, 2020 (in thousands):

The following table sets forth the fair value and changes in fair value of the investment in convertible bonds as of March 31, 2021, and December 31, 2020 (in thousands):

Investment in convertible bond

June 30, 2021

March 31, 2021

December 31, 2020

1 unchanged sentence

Fair value at issuance date

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

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

Balance, end of period

The fair value as of June 30, 2021 and December 31, 2020 was based upon following assumptions:

June 30, 2021

The fair value as of March 31, 2021, and December 31, 2020 was based upon following assumptions:

March 31, 2021

December 31, 2020

12 unchanged sentences

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 matures on September 30, 2028 and bears interest at the rate of 1 % per annum, payable annually.

The loan proceeds were used by EJ Holdings to purchase the Ube facility in December 2019 and pay related taxes.

The loan matures on September 30, 2028 and bears interest at the rate of 1 % per year, payable annually.

The parties also contemplated that he Ube facility will eventually supply the Company with the facility’s output of amino acids and the operation of the facility will be principally for our benefit and, as such, that major decisions affecting EJ Holdings and the Ube facility will be made by EJ Holdings’ board of directors, a majority of which are representatives of JIP, in consultation with the Company.

During the six months ended June 30, 2021, the Company made additional $4.0 million of loans to EJ Holdings.

As of June 30, 2021, and December 31, 2020, the loans receivable from EJ Holdings were approximately $ 21.1 million and $ 18.6 million, respectively .

EJ Holdings is engaged in phasing in the Ube facility, including obtaining regulatory approvals for the manufacture of PGLG in accordance with cGMP.

EJ Holdings has had no significant revenues since its inception, has depended on loans from the Company to acquire the Ube facility and fund its operations and will continue to be dependent on loans from the Company or other financing unless and until the Ube facility is activated and EJ Holdings can secure customers for its products.

In October 2020, the Company entered into a loan agreement with EJ Holdings pursuant to which it agrees to loan to EJ Holdings a total of approximately $ 6.5 million in monthly instalments through March 2021.

The loans are unsecured general obligations of EJ Holdings, bear interest at a nominal annual rate payable on September 30 of each year beginning in 2021 and are due and payable in a lump sum at maturity on September 30, 2028 .

The proceeds of the loans are used by EJ Holdings to fund its activities and operations at its Ube facility.

The parties contemplate that the Ube facility will eventually supply the Company with the facility’s output of amino acids, that the operation of the facility will be principally for our benefit and, as such, that major decisions affecting EJ Holdings and the Ube facility will be made by EJ Holdings’ three-person board of directors, one of whom is a designee of the Company and two of who are representatives of JIP, in consultation with the Company.

As of March 31, 2021, and December 31, 2020, the loans receivable from EJ Holdings were approximately $ 19.0 million and $ 18.6 million, respectively .

EJ Holdings is engaged in reestablishing operations at the Ube facility, including obtaining regulatory approvals for the manufacture of prescription grade L-glutamine (“PGLG”) in accordance with cGMP.

EJ Holdings has had no significant revenues since its inception, has depended on loans from the Company to acquire the Ube facility and fund its operations and will continue to be dependent on loans from us or other financing unless and until the Ube facility is activated and EJ Holdings can secure customers for its products.

The Company has determined that EJ Holdings is a variable interest entity, or VIE, based upon the facts that the Company provided the loan financing to acquire the Ube facility and the EJ Holdings’ activities at the facility are principally for the Company’s benefit.

3 unchanged sentences

The investment is evaluated for impairment annually and if facts and circumstances indicate that the carrying value may not be recoverable, an impairment charge would be recorded.

The following table sets forth certain financial information of EJ Holdings for the three and six months ended June 30, 2021 and 2020 (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

The following table sets forth certain financial information of EJ Holdings for the three months ended March 31, 2021 and March 31, 2020 (in thousands):

Three months ended March 31,

REVENUES, NET

NOTE 6 — SELECTED FINANCIAL STATEMENT CAPTIONS - LIABILITIES

Accounts payable and accrued expenses consisted of the following at June 30, 2021 and December 31, 2020 (in thousands):

June 30, 2021

Accounts payable and accrued expenses consisted of the following at March 31, 2021 and December 31, 2020 (in thousands):

March 31, 2021

December 31, 2020

15 unchanged sentences

Total accounts payable and accrued expenses

Other current liabilities consisted of the following at June 30, 2021 and December 31, 2020 (in thousands):

June 30, 2021

Other current liabilities consisted of the following at March 31, 2021 and December 31, 2020 (in thousands):

March 31, 2021

December 31, 2020

2 unchanged sentences

Total other current liabilities

Other long-term liabilities consisted of the following at June 30, 2021 and December 31, 2020 (in thousands):

June 30, 2021

Other long-term liabilities consisted of the following at March 31, 2021 and December 31, 2020 (in thousands):

March 31, 2021

December 31, 2020

3 unchanged sentences

Total other long-term liabilities

On June 12, 2017, the Company and Telcon entered into an API Supply Agreement, as subsequently amended (so as amended, the “API agreement”), 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 targets for bulk containers of PGLG.

The Company did no t purchase PGLG from Telcon in the six months ended June 30, 2021 and purchased $ 2.0 million of PGLG in the six months ended June 30, 2020.

As of June 30, 2021, and December 31, 2020, respectively, accounts payable to Telcon were zero and $ 208,000 , respectively.

On June 12, 2017, the Company and Telcon entered into an API Supply Agreement, as subsequently amended (so as amended, the “API agreement”), 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 a specific portion of the Company’s estimated annual targets for bulk containers of PGLG.

The Company did no t purchase PGLG from Telcon in the three months ended March 31, 2021 and purchased $ 2.0 million of PGLG in the three months ended March 31, 2020.

As of March 31, 2021, and December 31, 2020, respectively, accounts payable to Telcon were zero and $ 208,000 , respectively.

See Note 11 for additional details.

NOTE 7 — NOTES PAYABLE

Notes payable consisted of the following at June 30, 2021 and December 31, 2020 (in thousands except for number of shares):

Notes payable consisted of the following at March 31, 2021 and December 31, 2020 (in thousands except for number of shares):

Interest Rate

Term of Notes

Outstanding June 30, 2021

Unamortized Discount June 30, 2021

Amount June 30, 2021

Underlying June 30, 2021

Outstanding March 31, 2021

Discount March 31, 2021

Amount March 31, 2021

Underlying March 31, 2021

Notes payable

Due on demand

Due on demand - 2 years

Due on demand

Notes payable - related parties

15 unchanged sentences

The notes are convertible to Emmaus Life Sciences, Inc.

The notes are convertible to EMI Holdings, Inc.

The weighted-average stated annual interest rate of notes payable was 5 % and 10 % as of June 30, 2021 and December 31, 2020, respectively.

The weighted-average effective annual interest rate of notes payable as of June 30, 2021 and December 31, 2020 was 14 % and 37 %, respectively, after giving effect to discounts relating to conversion features, warrants and deferred financing costs relating to the notes.

As of June 30, 2021, future contractual principal payments due on notes payable were as follows:

2021 (six months)

The notes are convertible to EMI Holding, Inc.

The weighted-average annual stated interest rate of notes payable was 5 % and 10 % as of March 31, 2021 and December 31, 2020, respectively.

The weighted-average annual effective annual interest rate of notes payable as of March 31, 2021 and December 31, 2020 was 14 % and 37 %, respectively, after giving effect to discounts relating to conversion features, warrants and deferred financing costs relating to the notes.

As of March 31, 2021, future contractual principal payments due on notes payable were as follows:

2021 (nine months)

On March 8, 2021, the Company prepaid in full outstanding Amended and Restated 10 % Senior Secured Convertible Debentures and recognized $ 1.2 million of loss on debt extinguishment due to recognize the remaining unamortized discount.

1 unchanged sentence

Upon prepayment of the Debentures, the outstanding liability was recognized in change in fair value in earnings.

The following table sets forth the fair value of the conversion feature liabilities as of June 30, 2021 and December 31, 2020 (in thousands):

Six Months Ended

The following table sets forth the fair value of the conversion feature liabilities as of March 31, 2021 and December 31, 2020 (in thousands):

Three Months Ended

Conversion feature liabilities — Amended and Restated 10% Senior Secured Convertible Debentures

June 30, 2021

March 31, 2021

December 31, 2020

1 unchanged sentence

Fair value at debt modification date

Change in fair value included in the statement of comprehensive income

Change in fair value included in the statement of comprehensive (income) loss

Balance, end of period

17 unchanged sentences

Niihara a “tax gross-up” intended to make him whole for federal and state income taxes payable by him with respect to interest paid to him in the previous year.

The outstanding balance under the revolving line of credit agreement of $ 600,000 as of June 30, 2021 and December 31, 2020 were reflected in revolving line of credit, related party on the condensed consolidated balance sheets.

With the estimated tax-gross up, the effective annual interest rate on the outstanding balance as of June 30, 2021, was 10.4 %.

The outstanding balance under the revolving line of credit agreement of $ 800,000 as of March 31, 2021 and December 31, 2020 was reflected in revolving line of credit, related party on the Consolidated Balance Sheets.

With the estimated tax-gross up, the effective annual interest rate on the outstanding balance as of March 31, 2021 was 10.4 %.

The revolving line of credit agreement will expire on November 22, 2022 .

1 unchanged sentence

On May 8, 2020, the Company received a loan in the amount of $ 797,840 under the Small Business Administration Paycheck Protection Program (“PPP”).

The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses

of the qualifying business.

The loan, which is in the form of a Promissory Note dated April 29, 2020 , matures on April 29, 2022 and bears interest at a rate of 1 % per annum, payable monthly commencing on December 8, 2020 unless the PPP loan is forgiven prior to the date of the first monthly payment or the loan forgiveness process has commenced.

The loan, which is in the form of a Promissory Note dated April 29, 2020 , matures on April 29, 2022

and bears interest at a rate of 1 % per annum, payable monthly commencing on December 8, 2020 unless the PPP loan is forgiven prior to the date of the first monthly payment or the loan forgiveness process has commenced.

The Note may be prepaid by the Company at any time prior to maturity with no prepayment penalties.

3 unchanged sentences

The amount of loan forgiveness would be reduced if the Company were to terminate employees or reduce salaries during such period.

The PPP loan wa s included in note s payable on the c ondensed c onsolidated b alance s heet s at June 3 0 , 2021 and December 31, 2020 .

The PPP loan wa s included in note s payable on the condensed c onsolidated b alance s heet s at March 31, 2021 and December 31, 2020 .

On February 9, 2021, the Company entered into a securities purchase agreement with an effective date of February 8, 2021 pursuant to which the Company agreed to sell and issue to the purchasers thereunder in a private placement pursuant to Rule 4(a)(2) of the Securities Act of 1933, as amended, and Regulation D thereunder a total of up to $ 17 million in principal amount of convertible promissory notes of the Company for a purchase price equal to the principal amount thereof.

As of June 30, 2021, we had sold approximately $ 14.5 million of the convertible promissory notes.

As of March 31, 2021, we had sold approximately $ 14.4 million of the convertible promissory notes.

Of the net proceeds from the sale of the convertible promissory notes, $ 6.2 million was used to prepay the outstanding Amended and Restated 10 % Senior Secured Convertible Debentures as described above.

8 unchanged sentences

The conversion feature of the convertible promissory notes was 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 earnings.

The following table sets forth the fair value of the conversion feature liability as of June 30, 2021 (in thousands) :

Six Months Ended

The following table sets forth the fair value of the conversion feature liability as of March 31, 2021(in thousands) :

Three Months Ended

Convertible promissory notes

June 30, 2021

March 31, 2021

Balance, beginning of period

4 unchanged sentences

The model produces an estimated fair value based on changes in the price of the underlying common stock.

The fair value as of June 30, 2021 and at issuance date was based upon following assumptions:

The fair value as of March 31, 2021 and at issuance date was based upon following assumptions:

Convertible promissory notes

June 30, 2021

Issuance Date

March 31, 2021

At issuance date

Conversion price

10 unchanged sentences

The warrant liability is remeasured at fair value on a recurring basis using Level 3 inputs and any change in the fair value of the liability is recorded in earnings.

The following table presents the change in fair value of the GPB Warrant as of June 30, 2021 and December 31, 2020 (in thousands):

Six Months Ended

The following table presents the change in fair value of the GPB Warrant as of March 31, 2021 and December 31, 2020 (in thousands):

Three Months Ended

Warrant Liability—GPB

June 30, 2021

March 31, 2021

December 31, 2020

3 unchanged sentences

The fair value of the warrant derivative liability was determined using the Black-Scholes option pricing model.

The fair value as of June 30, 2021, and December 31, 2020 set forth in the table above was based on upon following assumptions:

June 30, 2021

The fair value as of March 31, 2021 and December 31, 2020 set forth in the table above was based on upon following assumptions:

March 31, 2021

December 31, 2020

2 unchanged sentences

Risk‑free interest rate

Time until expiration (years)

Time until expiration (in years)

Expected dividend yield

3 unchanged sentences

subsidiaries.

The net proceeds of the sale

of the debentures and warrants were used to fund EMI’s original $ 13.2 million loan to EJ Holdings, Inc.

in October 2018 reflected o n the Company’s consolidated balance sheets .

The net proceeds of the sale of the debentures and warrants were used to fund EMI’s original $ 13.2 million loan to EJ Holdings in October 2018 reflected on the Company’s condensed consolidated balance sheets.

The Debentures were amended and restated in their entirety in conjunction with the Merger.

4 unchanged sentences

Upon completion of the Merger, the amended and restated warrants became exercisable for shares of the Company common stock and the exercise price of the warrants and the number of underlying warrant shares were adjusted based upon exchange ratio in the Merger.

The exercise price of the amended and restated warrants was subsequently adjusted in accordance with their terms to $ 5.87 per share based upon the VWAP of the Company common stock on the day following completion of the Merger.

The exercise price of the amended and restated warrants was subsequently adjusted in accordance

with their terms to $ 5.87 per share based upon the VWAP of the Company common stock on the day following completion of the Merger .

Pursuant to the terms of a securities amendment agreement entered into on February 21, 2020, the Amended and Restated 10 % Senior Secured Convertible Debentures were once again amended and restated in their entirety to extend their maturity date to April 21, 2021 and reduce the conversion price thereof to $ 3.00 per share from $ 9.52 per share.

7 unchanged sentences

The warrants also were amended and restated in their entirety in connection with the Merger.

On September 22, 2020, the Company and EMI entered into a securities amendment agreement (the “September 2020 Amendment”) with the holders of the Amended and Restated 10 % Senior Secured Convertible Debentures described above.

The September 2020 Amendment amended in certain respects the securities purchase agreement among EMI and the Debenture holders originally entered into on September 8, 2018, as amended by the February 2020 Amendment, and provides that the Debentures are to be amended in certain respects as set forth in the form of Allonge Amendment No.

1 to the debentures included in the September 2020 Agreement (the “Allonge”).

Pursuant to the Allonge, the aggregate monthly redemption payments under the Debentures were reduced to $ 500,000 from $ 1,000,000 in principal amount and the maturity date of the Debentures was extended from April 21, 2021 to August 31, 2021 .

The monthly redemption payments resumed in September 2020 and will continue on the first day of each month thereafter commencing October 1, 2020.

The remaining principal balance of the Debentures will be due and payable upon maturity, subject to mandatory prepayment in connection with certain “Capital Events” as defined.

In consideration of the Debenture holder’s financial accommodations to the Company, the Company issued to the holders, pro rata based upon the relative principal amounts of their Debentures, five-year common stock purchase warrants to purchase a total of up to 1,840,000 shares of the Company common stock at an exercise price of $ 2.00 a share.

The warrants provide for so-called full- ratchet anti-dilution adjustments in the event the Company sells or issues shares of common stock or common stock equivalents at an effective price per share less than the exercise price of the warrants, subject to certain exceptions.

The exercise price also remains subject to adjustment for stock splits and other customary events.

In October 2018, the Company granted to T.R.

Winston and its affiliates for services relating to the September 2020 Amendment common stock purchase warrants to purchase up to 75,000 shares of the Company common stock at an exercise price of $ 2.10 a share and otherwise on terms identical to the warrants issued to the debenture holders described above .

The exercise price of the amended and restated warrants was reduced to $ 2.00 per share in February 2020 and to $ 1.54 per share in March 2021 pursuant to the anti-dilution adjustment provisions of the warrants.

The warrants were valued using Black-Scholes-Merton model.

The exercise price of the amended and restated warrants was reduced to $ 2.00 per share in February 2020, then reduced to $ 1.54 per share in March 2021 pursuant to the anti-dilution adjustment provisions of the warrants and the warrants were valued using Black-Scholes-Merton model.

The fair value as of agreement date and the anti-dilution adjustment dates was based upon following assumptions:

7 unchanged sentences

Expected life (in years)

Purchase agreement with Holder of a Convertible Promissory Note - On June 15, 2020, the holder of a convertible promissory note in the principal amount of $ 3,150,000 agreed to an extension of the maturity date to June 15, 2023 in exchange for an increase in the interest rate on the note from 11 % to 12 %.

In conjunction with this amendment, the Company issued to the holder of note five-year common stock purchase warrants to purchase a total of up to 1,250,000 shares of the Company common stock at an exercise price of $ 2.05 a share.

1 unchanged sentence

The warrant liability is remeasured at fair value on a recurring basis using Level 3 input and any changes in the fair value of liability is recorded in earnings.

The following table presents the fair value and the change in fair value of the warrants as of June 30, 2021 and December 31, 2020 (in thousands):

The following table presents the fair value and the change in fair value of the warrants as of March 31, 2021 and December 31, 2020 (in thousands):

Warrant liability—Wealth Threshold

June 30, 2021

March 31, 2021

December 31, 2020

4 unchanged sentences

The fair value of the warrant derivative liability was determined using the Black-Scholes Merton model and was based upon following assumptions:

June 30, 2021

March 31, 2021

December 31, 2020

5 unchanged sentences

Number outstanding

A summary of outstanding warrants as of June 30, 2021 and December 31, 2020 is presented below:

June 30, 2021

A summary of outstanding warrants as of March 31, 2021 and December 31, 2020 is presented below:

March 31, 2021

December 31, 2020

2 unchanged sentences

Warrants outstanding, end of period

A summary of outstanding warrants by year issued and exercise price as of June 30, 2021 is presented below:

A summary of outstanding warrants by year issued and exercise price as of March 31, 2021 is presented below:

Year issued and Exercise Price

5 unchanged sentences

At December 31, 2020

At June 30, 2021

At March 31, 2021

Summary of Plans – Upon completion of the Merger, the EMI Amended and Restated 2011 Stock Incentive Plan was assumed by the Company.

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Options granted to directors vest in equal quarterly installments and all other option grants vest over a minimum period of three years , in each case, subject to the optionee’s all based on continuous service with the Company.

Each stock option outstanding under the 2011 Stock Incentive Plan at the effective time of the Merger was automatically converted into a stock option to purchase a number of shares of the Company’s common stock and at an exercise price calculated based on the exchange ratio in the Merger.

The 2011 Stock Incentive Plan expired in May 2021, after which no further awards may be made under the Plan.

Each stock option outstanding under the 2011 Stock Incentive Plan at the effective time of the Merger was automatically

converted into a stock option to purchase a number of shares of the Company’s common stock and at an exercise price calculated based on the exchange ratio in the Merger.

The Company also has an Amended and Restated 2012 Omnibus Incentive Compensation Plan under which the Company may grant stock options and other stock awards to selected employees including officers, and to non-employee consultants and non-employee directors.

All outstanding stock award under the 2012 Omnibus Incentive Compensation Plan were fully vested prior to the Merger and the Company intends not to make any further awards under thereunder.

Stock options —During the six months ended June 30, 2021, the Company did no t issue any stock options.

Stock options —During the three months ended March 31, 2021, the Company did no t issue any stock options.

During the year ended December 31, 2020, the Company granted stock options to purchase 90,000 shares of common stock.

All the options are exercisable for ten years from the date of grant and will vest and become exercisable with respect to the underlying shares as follows:

as to one‑third of the shares on the first anniversary of the grant date, and as to the remaining two‑thirds of the shares in twenty‑four approximately equal monthly installments over a period of two years thereafter .

A summary of outstanding stock options as of June 30, 2021 and December 31, 2020 is presented below.

June 30, 2021

as to one‑third of the shares on the first anniversary of the grant date, and as to the remaining two‑thirds shares in twenty‑four approximately equal monthly installments over a period of two years thereafter .

A summary of outstanding stock options as of March 31, 2021 and December 31, 2020 is presented below.

March 31, 2021

December 31, 2020

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Options available for future grant

Option plans were expired and therefore no options available for future grants.

During the three months ended June 30, 2021 and June 30, 2020, the Company recognized $ 0.3 million and $ 0.2 million of share-based compensation expense, respectively.

During each of the six months ended June 30, 2021 and June 30, 2020, the Company recognized $0.5 million and $0.4 million of share-based compensation expense, respectively.

As of June 30, 2021, there was approximately $ 119,000 of total unrecognized compensation expense related to unvested share-based compensation which is expected to be recognized over the weighted-average remaining vesting period of 0.6 year.

The Company recognized approximately $ 0.2 million of share-based compensation expense for both three months ended March 31, 2021 and March 31, 2020.

As of March 31, 2021, there was approximately $ 294,000 of total unrecognized compensation expense related to unvested share-based compensation which is expected to be recognized over the weighted-average remaining vesting period of 0.6 years.

Purchase Agreement with Lincoln Park Capital Fund, LLC — On February 28, 2020, the Company entered into a Purchase Agreement with Lincoln Park Capital Fund, LLC (“LPC”), pursuant to which the Company may elect to sell to LPC from time to time up to $ 25,000,000 in shares of its common stock, subject to certain limitations and conditions set forth in the Purchase Agreement, including 100,000 initial shares that the Company sold to LPC at a price of $ 2.00 per share.

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There are no limitations and conditions to completing future transactions other than a prohibition against entering into a “Variable Rate Transaction” as defined in the Purchase Agreement.

There is no upper limit on the price per share that LPC could be obligated to pay for common stock, but shares will only be sold to LPC on a day the Company’s closing price is less than the floor price as set forth in the Purchase Agreement and if the sale of the shares would not result in LPC and its affiliates having beneficial ownership of more than 4.99 % of the Company’s total outstanding shares of common stock.

There is no upper limit on the price per share that LPC could be obligated to pay for common stock, but shares will only be sold to LPC on a day the Company’s closing price is less

than the floor price as set forth in the Purchase Agreement and if the sale of the shares would not result in LPC and its affiliates having beneficial ownership of more than 4.99 % of the Company’s total outstanding shares of common stock.

The Company has the right to terminate the Purchase Agreement at any time, at no cost or penalty.

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

For the three and six months ended June 30, 2021, the Company recorded income tax benefit of $ 192,000 and $ 174,000 million respectively.

For three and six month ended June 30, 2020, the Company recorded income tax benefit of $ 0.5 million and $ 0.2 million.

For the three months ended March 31, 2021 and March 2020, the Company recorded income tax provision of $ 18,000 and $ 0.3 million, respectively.

The Company did no t 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 asset and there was no unrecognized tax benefit as of June 30, 2021 and 2020.

The Company established a full valuation allowance against its federal and state deferred tax asset and there was no unrecognized tax benefit as of March 31, 2021 and 2020.

NOTE 10 — LEASES

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The Company also leases an additional 1,850 square feet office space in New York, New York, at a base rent of $ 8,691 , which lease will expire on January 31, 2023 .

In addition, the Company leases 1,322 square feet of office space in Tokyo, Japan, which lease will expire on September 30, 2022 and 1,163 square feet of office space in Dubai,m United Arb Emirates, which lease will expire on June 19, 2023.

The rent expense during the three months ended June 30, 2021 and 2020 amounted to approximately $ 288,000 and $ 298,000 , respectively, and during the six months ended June 30, 2021 and June 30, 2020 amounted to approximately $ 589,000 and $ 609,000 , respectively.

Future minimum lease payments under the lease agreements were as follows as of June 30, 2021 (in thousands):

2021 (six months)

In addition, the Company leases 1,322 square feet of office space in Tokyo, Japan, which lease will expire on September 30, 2022 and 1,163 square feet of office space in Dubai, United Arab Emirates, which lease will expire on June 19, 2023 .

The rent expense during the three months ended March 31, 2021 and March 31, 2020 amounted to approximately $ 301,000 and $ 311,000 , respectively.

Future minimum lease payments under the lease agreements were as follows as of March 31, 2021 (in thousands):

2021 (nine months)

2025 and thereafter

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Present value of lease liabilities

As of June 30, 2021, the Company had an operating lease right-of-use asset of $ 3.8 million and lease liability of $ 4.3 million in the balance sheet.

The weighted average remaining term of the Company’s leases as of June 30, 2021 was 5.0 years and the weighted-average discount rate was 11.5 %.

As of March 31, 2021, the Company had an operating lease right-of-use asset of $ 3.9 million and lease liability of $ 4.5 million in the condensed consolidated balance sheet.

The weighted average remaining term of the Company’s leases as of March 31, 2021 was 5.3 years and the weighted-average discount rate was 11.4 %.

NOTE 11 — COMMITMENTS AND CONTINGENCIES

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The PGLG purchased from Telcon is recorded in inventory at net realizable value and the excess purchase price is recorded against deferred trade discount.

Refer to Note 6 for more information.

NOTE 12 — RELATED PARTY TRANSACTIONS

The following table sets forth information relating to loans from related parties outstanding on or at any time during the six months ended June 30, 2021 (in thousands):

Principal Amount Outstanding at June 30, 2021

The following table sets forth information relating to loans from related parties outstanding on or at any time during the three months ended March 31, 2021 (in thousands):

Principal Amount Outstanding at March 31, 2021

Current, Promissory note payable to related parties:

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Niihara, a Director and the Chairman, and Chief Executive Officer of the Company, is also a director and the Chief Executive Officer of Hope International Hospice, Inc.

S ee Notes 6 and 11 for a discussion of the Company’s agreements with Telcon, which holds 4,147,491 shares of the Company common stock, or approximately 8.4 % of the common stock outstanding as of June 30, 2021.

As of June 30, 2020, the Company held a Telcon convertible bond in the principal amount of approximately $ 27.9 million as discussed in Note 5 .

See Notes 6 and 11 for a discussion of the Company’s agreements with Telcon, which holds 4,147,491 shares of the Company common stock, or approximately 8.4 % of the common stock outstanding as of March 31, 2021.

As of March 31, 2021, the Company held a Telcon convertible bond in the principal amount of approximately $ 27.9 million as discussed in Note 5 .

NOTE 13 — SUBSEQUENT EVENTS

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements