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Item 2. Management’s Discussion and Analysis

2022-05-13 compared with 2021-11-12 · 93 added, 100 removed, 70 unchanged (73% of the section changed)

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

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, 2021 filed with the Securities and Exchange Commission (“SEC”) on March 31, 2022 (the “Annual Report”).

This Quarterly Report contains forward-looking statements that involve substantial risks and uncertainties.

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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 of the forward-looking statements made in this Form 10-Q are qualified by these cautionary statements.

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.

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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.

On July 7, 2017, the U.S.

Food and Drug Administration, or FDA, approved our lead product, Endari ® (prescription-grade L-glutamine oral powder), to reduce the severe complications of sickle cell disease (“SCD”), in adult and pediatric patients five years of age and older.

Endari ® has received Orphan Drug designation from the FDA and Orphan Medical designation from the European Commission, which designations afford marketing exclusivity for Endari ® for a seven-year period in the U.S.

and ten-year period in the European Union, respectively, following marketing approval.

We commenced commercialization of Endari® in the U.S.

in January 2018 in collaboration with a contract sales organization.

Effective January 2020, we have relied upon our in-house commercial sales team.

Our lead 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 in the United Arab Emirates, or U.A.E, in adults and pediatric patients five years of age and older.

The approval of Endari® in the U.A.E.

was the first granted outside the U.S.

Applications for marketing authorization are pending in the Kingdom of Saudi Arabia, Bahrain and other Gulf Cooperation Council, or GCC, countries, as well.

While the applications are pending, the FDA approval of Endari® can be referenced to allow access to Endari® on a named-patient basis.

Endari® is marketed and sold in the U.S.

by our internal commercial sales team.

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 distribution 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 pharmacies nationwide.

Until we began marketing and selling Endari ® in the U.S.

in early 2018, we had minimal revenues and relied upon funding from sales of equity securities and debt financings and loans, including loans from related parties, to fund our business and operations.

As of September 30, 2021, our accumulated deficit was $234.4 million and we had cash and cash equivalents of $2.3 million.

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.

In April 2022 we launched an innovative telehealth solution to afford SCD patients’ direct access to Endari® remotely through a web portal managed by our strategic partners, including Asembia LLC, US Bioservices Corporation and UpScript IP Holdings, LLC.

As of March 31, 2022, our accumulated deficit was $242.9 million and we had cash and cash equivalents of $0.8 million.

We expect net revenues to increase as we expand our commercialization of Endari® in the U.S.

and expand or commence early access programs and eventual marketing and commercialization abroad.

Until we can generate sufficient net revenues, our future cash requirements are expected to be financed through public or private equity or debt financings, loans or corporate collaboration and licensing arrangements.

and begin to realize revenues in the U.A.E.

and perhaps other GCC countries.

Until we can generate sufficient net revenues from Endari® sales, our future cash requirements are expected to be financed through public or private sales of equity or debt securities and, loans, including loans from related parties, or possible corporate collaboration and licensing arrangements.

We are unable to predict if or when we will become profitable.

Financial Overview

Revenues, net

Since January 2018, we have generated net revenues primarily through the sale of Endari® as a treatment for SCD.

Net revenues from Endari® sales are recognized upon transfer to our distributors and specialty pharmacy providers.

We realize net revenues primarily from sales of Endari® to our distributors and specialty pharmacy providers.

Distributors resell our products to other pharmacy and specialty pharmacy providers, health care providers, hospitals, and clinics.

In addition to agreements with these distributors, we have entered into contractual arrangements with specialty pharmacy providers, in-office dispensing providers, physician group purchasing organizations, pharmacy benefits managers and government entities that

provide for government-mandated or privately negotiated rebates, chargebacks and discounts with respect to the purchase of our products.

These various discounts, rebates, and chargebacks are referred to as “variable consideration .

In addition to agreements with these distributors, we have contractual arrangements with specialty pharmacy providers, in-office dispensing providers, physician group purchasing organizations, pharmacy benefits managers and government entities that provide for government-mandated or privately negotiated rebates, chargebacks and discounts with respect to the purchase of our products.

various discounts, rebates, and chargebacks are referred to as “variable consideration .

” Revenue from product sales is recorded net of variable consideration .

Under the Accounting Standards Codification (“ASC”) 606, 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:

(i) identify the contract(s) with a customer;

Management estimates variable consideration using the expected-value amount method, which is the sum of probability-weighted amounts in a range of possible transaction prices.

Actual variable consideration may differ from our estimates.

If actual results vary from the estimates, we adjust the variable consideration in the period such variances become known, which adjustments are reflected in net revenues in that period.

The following are our significant categories of variable consideration:

Under the Accounting Standards Codification (“ASC”) 606, we recognize revenue when our customers obtain control of our product, which typically occurs on delivery.

Revenue is recognized in an amount that reflects the consideration that we expect to receive in exchange for the product, or transaction price.

To determine revenue recognition for contracts with customers within the scope of ASC 606, we perform the following:

(i) identify the contract 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:

(iv) allocate the transaction price to our performance obligations in the contract;

and (v) recognize revenue when (or as) we satisfy the relevant performance obligations.

Sales Discounts :

We provide our customers prompt payment and large order discounts and from time to time offer additional discounts that are recorded as a reduction of revenue in the period the revenue is recognized.

Sales attributable to one-time discounts offered by us increased in 2020 and 2021 and may adversely affect sales in subsequent periods.

We provide our customers prompt payment discounts and from time to time offer additional discounts to encourage bulk orders to generate needed working capital.

Sales attributable to bulk discounts offered by us increased in 2021 and adversely affected sales in the first quarter of 2022.

Product Returns :

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Research and development expenses consist of expenditures for new products and technologies consisting primarily of fees paid to contract research organizations (“CRO”) that conduct clinical trials of our product candidates, payroll-related expenses, study site payments, consultant fees and activities related to regulatory filings, manufacturing development costs and other related costs.

The costs of later-stage clinical studies such as Phase 2 and 3 trials are generally substantially higher than those of earlier studies due to their larger size, expanded scope, patient related healthcare and regulatory compliance costs, and generally longer duration of later-stage clinical studies.

The costs of later-stage clinical studies such as Phase 2 and 3 trials are generally higher than those of earlier studies.

This is primarily due to the larger size, expanded scope, patient related healthcare and regulatory compliance costs, and generally longer duration of later-stage clinical studies.

Our contracts with CROs are generally based on time and materials expended, whereas study site agreements are generally based on costs per patient as well as other pass-through costs, including start-up costs and institutional review board fees.

The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment

The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows.

Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones.

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In addition, we cannot predict which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree, if any, such arrangements would affect our development plans and capital requirements.

Due to the inherently unpredictable nature of the drug approval process and the interpretation of the regulatory requirements, we are unable to estimate the amount of costs of obtaining regulatory approval of Endari® outside of the U.S.

or the development of our other preclinical and clinical programs.

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These and other risks and uncertainties relating to product development are described in the Annual Report under the headings “Risk Factors—Risks Related to Our Business” and “Risk Factors—Risks Related to Regulatory Oversight of our Business and Compliance with Law.”

General and Administrative Expenses

General and administrative expenses consist principally of salaries and related employee costs, including share-based compensation for our directors, executive officers and employees.

Other general and administrative expenses include facility costs, patent filing costs and professional fees and expenses for legal, consulting, auditing and tax services.

Inflation has not had a material impact on our general and administrative expenses over the past two years.

General and Administrative Expense

General and administrative expense consists principally of salaries and related employee costs, including share-based compensation for our directors, executive officers and employees.

Other general and administrative expense includes facility costs, and professional fees and expenses for audit, legal, consulting, and tax services.

Selling Expenses

Selling expenses consist principally of salaries and related costs for personnel involved in the launch, promotion, sale and marketing of our products.

Selling expenses consist principally of salaries and related costs for personnel involved in the promotion, sale and marketing of Endari®.

Other selling cost include advertising, third party consulting costs, the cost of in-house sales personnel and travel-related costs.

We expect selling expenses to increase as we acquire additional sales and administrative personnel to support the commercialization of Endari® in the U.S.

We expect selling expenses to increase as we acquire additional personnel to support the commercialization of Endari® in the U.S.

In retrospect, we believe our business was adversely by lockdowns, travel-related restrictions and other governmental responses to the pandemic related to the COVID 19 pandemic which inhibited the ability of our sales force to visit doctors’ offices and clinics and may have adversely affected the willingness of SCD patients to seek the care of a physician or to comply with physician-prescribed care.

We intend to consider future changes to our business to adapt to the new post-pandemic environment, including our traditional reliance on our in-house sales force.

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

Environmental Expenses

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

Inventories consist of raw materials, finished goods and work-in-process and are valued on a first-in, first-out basis and at the lower of cost or net realizable value.

Substantially all raw materials purchased during the nine months ended September 30, 2021 and 2020 were supplied by one vendor.

Substantially all raw materials purchased during the three months ended March 31, 2022 and 2021 were supplied by one supplier.

Results of Operations:

Three months ended September 30, 2021 and 2020

Net revenues, Net .

Net revenues increased by $0.2 million, or 3%, to $5.8 million for the three months ended September 30, 2021, compared to $5.6 million for the three months ended September 30, 2020.

The increase in net revenues was primarily attributable to bulk order purchases and recovery from the temporary disruptions in revenues related to the COVID-19 pandemic during 2020.

Cost of Goods Sold .

Cost of goods sold decreased by $0.1 million, or 8%, to $0.4 million for the three months ended September 30, 2021, compared to $0.5 million for the three months ended September 30, 2020.

Research and Development Expenses .

Research and development expenses decreased by $0.2 million, or 25%, to $0.5 million for the three months ended September 30, 2021, compared to $0.6 million for the three months ended September 30, 2020.

The decrease was primarily due to nearing completion of the preclinical phase of our diverticulosis study.

We expect our research and development costs to increase in the remainder of 2021.

Selling Expenses .

Selling expenses increased by $0.2 million, or 15%, to $1.5 million for the three months ended September 30, 2021, compared to $1.3 million for the three months ended September 30, 2020.

The increase in selling expenses was primarily due to an increase of travel expenses as travel restrictions due to Covid-19 have been eased.

General and Administrative Expenses.

General and administrative expenses increased by $0.2 million, or 7%, to $3.4 million for the three months ended September 30, 2021, compared to $3.2 million for the three months ended September 30, 2020.

The increase in general and administrative expenses was due to an increase of $0.2 million in payroll expenses attributable to our Dubai office.

Other Income ( Expense ) .

Total other expense in creased by $ 8.8 million, or 1 49 %, to $ 2.9 million for the three months ended September 30, 202 1, compared to $ 5.

9 million of other income for the three months ended September 30, 20 20 .

The increase was primarily due to decreases of $ 6.5 million in net income on investment in marketable securities, $ 1.4 million in change in fair value of embedded conversion option and $0.9 million in change in fair value of warrant derivative liabilities and an increase of $0.9 million in foreign exchange loss , partially offset by a decrease of $ 0.

9 million in interest expense.

Net Income (Loss) .

Net loss for the three months ended September 30, 2021 increased by $8.7 million, or 156%, to a net loss of $3.2 million for the three months ended September 30, 2021 from net income of $5.6 million for the three months ended September 30, 2020.

The increased net loss was due to the decrease of $8.8 million in other expense as discussed above, partially offset by a decrease of $0.1 million in income tax provision.

Nine months ended September 30, 2021and 2020

Three months ended March 31, 2022 and 2021

Net revenues, Net .

Net revenues increased by $0.7 million, or 4%, to $17.6 million for the nine months ended September 30, 2021, compared to $16.9 million for the nine months ended September 30, 2020.

The increase in net revenues was primarily attributable to higher bulk order purchases compared to the same period in 2020 and gradual recovery from the temporary disruptions in revenues related the COVID-19 pandemic during 2020.

Net revenues decreased by $2.1 million, or 39%, to $3.2 million for the three months ended March 31, 2022, compared to $5.3 million for the three months ended March 31, 2021.

The decrease in net revenues was primarily attributable to lower bulk order purchases in 2022 compared to the same period in 2021 .

Cost of Goods Sold .

Cost of goods sold decreased by $0.1 million or 7%, to $1.3 million for nine months ended September 30, 2021, compared to $1.4 million for the nine months ended September 30, 2020.

Cost of goods sold increased by $0.6 million or 131%, to $1.0 million for three months ended March 31, 2022, compared to $0.4 million for the three months ended March 31, 2021 due primarily to $0.8 million of additional reserve relating to Endari® inventory with a shelf-life of less than two years.

Research and Development Expenses .

Research and development expenses increased by $1.2 million, or 65%, to $3.0 million for the nine months ended September 30, 2021, compared to $1.8 million for the nine months ended September 30, 2020.

The increase was primarily due to $0.5 million in cash and $0.5 million in shares of the Company’s stock issued under the agreement with Kainos to lead the clinical development of Kainos’ patented IRAK4 inhibitor and an increase of $0.6 million relates to a pharmacokinetic characteristic and safety study for Endari® and clinical study in Europe partially offset by a decrease of $0.4 million relating to our diverticulosis study.

We expect our research and development costs to increase in the remainder of 2021.

Research and development expenses decrease by $ 1.3 million, or 74% , to $ 0.5 million for the three months ended March 31, 2022 , compared to $ 1.

8 million for the three months ended March 31, 2021 .

Th e decrease was primarily due to one-time payment of $ 0.5 million in cash and $ 0.5 million in shares of common stock in 2021 under our collaborati ve research and development agreement with Kainos .

Depending on the availability of funding, w e expect our research and development costs to increase in the remainder of 20 2 2 .

Selling Expenses .

Selling expenses increased by $0.7 million, or 21%, to $4.3 million for the nine months ended September 30, 2021, compared to $3.5 million for the nine months ended September 30, 2020.

The increase was primarily due to increased headcount of our in-house sales team and increased travel expenses.

Selling expenses increased by $0.2 million, or 14%, to $1.5 million for the three months ended March 31, 2022 compared to $1.3 million for the three months ended March 31, 2021.

The increase was primarily due to increased travel expenses.

General and Administrative Expenses.

General and administrative expenses decreased by $0.4 million, or 4%, to $10.2 million for the nine months ended September 30, 2021, compared to $10.5 million for the nine months ended September 30, 2020.

The decrease was primarily due to decreases of $0.3 million in insurance expenses, $0.3 million of professional fees, $0.2 million of recruiting expenses and $0.1 million of public relations expenses, partially offset by an increase of $0.5 million of Dubai office operating expenses.

General and administrative expenses slightly decreased by $53,000, or 2%, to $3.4 million for the three months ended March 31, 2022, compared to the three months ended March 31, 2021.

The decrease was primarily due to decreases of $0.4 million in compensation expense including share-based compensation, $0.1 million of professional fees, partially offset by an increase of $0.3 million of Dubai office operating expenses and $0.1 million of public relations expenses.

Other Income (Expense) .

Total other expense increased by $10.0 million, or 475%, to $7.9 million for the nine months ended September 30, 2021, compared to $2.1 million of other income for the nine months ended September 30, 2020.

The increase in other expenses was primarily due to decreases of $7.7 million in net gain on investment in marketable securities, $1.2 million in change in fair value of conversion feature derivative and $1.0 million in change in fair value of warrant derivative liabilities, and an increase of $2.1 million in loss in foreign exchange loss, partially offset by a decrease of $2.3 million interest expenses.

Net Income (Loss) .

Net loss for the nine months ended September 30, 2021 increased by $10.7 million, or 660% to $9.1 million for the nine months ended September 30, 2021, compared to net income of $1.6 million for the nine months ended September 30, 2020.

The increase was primarily a result of increases of $10.0 million in other expense and $0.8 million in loss from operations as discussed above.

Total other income increased by $8.2 million, or 121%, to $1.4 million for the three months ended March 31, 2022, compared to $6.8 million of other expense for the three months ended March 31, 2021.

The increase was primarily due to increases of $5.4 million in change in fair value of conversion feature derivative and $1.3 million in change in fair value of warrant derivative liabilities, a $1.2 million in loss on debt extinguishment in the comparable period in 2021, and a decrease of $0.3 million in interest expense in 2022.

Net loss for the three months ended March 31, 2022 increased by $6.9 million, or 82% to $1.5 million for the three months ended March 31, 2022, compared to $8.4 million for the three months ended March 31, 2021.

The decrease was primarily a result of an increase of $8.2 million in other income, partially offset by an increase of $1.5 million in loss from operations.

Liquidity and Capital Resources

We anticipate that we will continue to incur net losses for the foreseeable future until we can generate increased net revenues from Endari® sales.

Based on our losses, anticipated future revenues and operating expenses and cash and cash equivalents of $2.3 million as of September 30, 2021, we believe our working capital is sufficient to meet our needs at least through the fourth quarter of 2022.

If future revenues are less than anticipated or we incur more expenses than we anticipate, we may not have sufficient operating capital for our business without curtailing certain operations, our investment in equity method investment (EJ Holdings) or raising additional capital.

Except as described below, we have no understanding or arrangements with respect to future financings, and there can be no assurance of the availability of such capital on terms acceptable to us or at all.

Effective February 22, 2021, our subsidiary, Emmaus Medical, Inc., or Emmaus Medical, entered into a purchase and sale agreement with Prestige Capital Finance, LLC, or Prestige Capital, pursuant to which Emmaus Medical may offer and sell to Prestige Capital from time to time eligible accounts receivable in exchange for Prestige Capital’s down payment, or advance, to Emmaus Medical of 70% (subject to increase to 75%) of the face amount of the accounts receivable, subject to a $7,500,000 cap on advances at any time.

Based on our losses to date, anticipated future net revenues and operating expenses, debt repayment obligations, planned funding to EJ Holdings and cash and cash equivalents balance of $0.8 million as of March 31, 2022, we do not have sufficient operating capital for our business without raising additional capital.

We realized a net loss of $1.5 million for the three months ended March 31, 2022 and anticipate that we will continue to incur net losses for the foreseeable future and until we can generate increased net revenues from Endari ® sales.

While we anticipate increased net revenues as we expand our commercialization of Endari® in the U.S.

through telehealth and other initiatives, as well as in the U.A.E.

and perhaps other GCC countries, 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 .

Our subsidiary, Emmaus Medical, Inc., or Emmaus Medical, is party a purchase and sale agreement with Prestige Capital Finance, LLC, or Prestige Capital, pursuant to which Emmaus Medical may offer and sell to Prestige Capital from time to time eligible accounts receivable in exchange for Prestige Capital’s down payment, or advance, to Emmaus Medical of 75% of the face amount of the accounts receivable, subject to a $7,500,000 cap on advances at any time.

The balance of the face amount of the accounts receivable will be reserved by Prestige Capital and paid to Emmaus Medical, less discount fees of Prestige Capital ranging from 2.25% to 7.25% of the face amount, as and when Prestige Capital collects the entire face amount of the accounts receivable.

Cash flows for the nine months ended September 30, 2021 and September 30, 2020

Net cash provided by (used in) operating activities

Net cash used in operating activities decreased by $2.2 million, or 51%, to $2.1 million for the nine months ended September 30, 2021 from $4.4 million for the nine months ended September 30, 2020 due to a decrease of $2.5 million in working capital.

Liquidity represents our ability to pay our liabilities when they become due, fund our business operations, fund the operations and retrofitting of EJ Holdings’ amino acid production plant in Ube, Japan, and meet our contractual obligations, including our obligations to purchase 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, proceeds from our accounts receivable factoring arrangement with Prestige Capital and 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, debt service under our convertible notes payable and notes payable and planned ongoing loan funding to sustain EJ Holdings’ operations.

We have no contractual commitment to provide funding to EJ Holdings, but plan to continue to do so in the foreseeable to the extent we have cash available for this purpose.

As of March 31, 2022, we had outstanding $17.6 million in principal amount of convertible promissory notes and $6.6 million in principal amount of other notes payable.

Our minimum lease payment obligations were $3.8 million, of which $0.7 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, which management refers to as a “target shortfall,”

Telcon may be entitled to payment of the shortfall or to settle the target shortfall in exchange for principal and interest on the Telcon convertible bond and proceeds thereof that are pledged as collateral to secure our obligations.

I n February 2022 we agreed with Telcon to settle the target shortfall under the API supply agreement for 2020 and 2021 in exchange for principal and interest on our Telcon convertible bond and cash proceeds thereof .

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 of this filing as referred to in the “Risk Factors” section of this Quarterly Report and Note 2 of the Notes to Financial Statements included herein.

Cash flows for the three months ended March 31, 2022 and March 31, 2021

Net cash used in operating activities

Net cash used in operating activities increased by $0.7 million, or 18%, to $4.7 million for the three months ended March 31, 2022 from $4.0 million for the three months ended March 31, 2021 due to an increase of $6.9 million in net loss partially offset by a decrease of $5.4 million change in fair value of conversion feature derivative.

Net cash provided by (used in) investing activities

Net cash used in investing activities decreased by $38.6 million, or 116%, to $5.3 million for the nine months ended September 30, 2021 from net cash provided by investing activities of $33.3 million for the nine months ended September 30, 2020.

This decrease was primarily due to a $3.0 million loan to equity method investee and a $35.6 million of proceeds from sales of Telcon stock received during 2020.

Net cash provided by (used in) financing activities

Net cash provided by financing activities increased by $7.3 million to net cash provided by financing activities of $7.2 million for the nine months ended September 30, 2021 from net cash used in financing activities of $0.1 million for the nine months ended September 30, 2020.

This increase was the result of $14.5 million in proceeds from the sales of convertible promissory notes, partially offset by a $6.2 million used to prepay our outstanding 10% Senior Secured Convertible Debentures.

Net cash provided by investing activities increased by $3.0 million, or 169%, to $1.2 million for the three months ended March 31, 2022 from net cash used in investing activities of $1.8 million for the three months ended March 31, 2021.

This increase was due to deemed proceeds of $2.9 million sales of convertible bonds resulting from the offset of target shortfalls against principal and interest of our Telcon convertible note against our trade discount.

Net cash provided by financing activities

Net cash provided by financing activities decreased by $5.0 million, or 71%, to $2.0 million for the three months ended March 31, 2022 from $7.0 million for the three months ended March 31, 2021.

This decrease was the result of $13.0 million in proceeds from the sales of convertible notes payable in 2021, partially offset by a $6.2 million used to prepay our outstanding 10% Senior Secured Convertible Debentures in the same period.

Off-Balance-Sheet Arrangements

We have no off-balance sheet arrangements.

Critical Accounting Policies

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 assets, liabilities and expenses.

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 those described below.

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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 Amended Annual Report for our critical accounting policies.

There have been no material changes in any of our critical accounting policies during the nine months ended September 30, 2021.

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 three months ended March 31, 2022.

Quantitative and Qualitative Disclosures about Market Risk

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What changed 10-Q

Item 2. Management’s Discussion and Analysis